<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                For the quarterly period ended September 30, 2000

                                       or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

             For the transition period from __________ to __________

                         Commission File Number: 0-6664

                            K-TEL INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

            MINNESOTA                               41-0946588
(State or other jurisdiction of                  (I.R.S. Employer
incorporation or organization)                 Identification No.)

2605 FERNBROOK LANE NORTH, MINNEAPOLIS, MINNESOTA         55447-4736
 (Address of principal executive offices)                 (Zip Code)

                                 (763) 559-6800
              (Registrant's telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

         Yes [X]  No [   ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     As of November 1, 2000, there were 10,320,405 shares of the registrant's
common stock, par value $0.01 per share, outstanding.


<PAGE>


                   K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
                                    FORM 10-Q
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2000

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

<S>        <C>                                                                                   <C>
PART I.    Financial Information:                                                                Page

           Item 1.     Condensed Consolidated Balance Sheets as of
                       September 30, 2000 and  June 30, 2000                                       3

                       Condensed Consolidated Statements of Operations
                       for the Three Month periods ended
                       September 30, 2000 and 1999                                                 4

                       Condensed Consolidated Statements of Cash Flows
                       for the Three Month Periods Ended
                       September 30, 2000 and 1999                                                 5

                       Notes to Condensed Consolidated Financial Statements                        6

           Item 2.     Management's Discussion and Analysis of Financial
                       Condition and Results of Operations                                        10

           Item 3.     Quantitative and Qualitative Disclosures About Market Risk                 13

PART II.               Other Information:

           Item 1.     Legal Proceedings                                                          13

           Item 6.     Exhibits and Reports on Form 8-K                                           13

</TABLE>

                                       2
<PAGE>

                   K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
                      SEPTEMBER 30, 2000 AND JUNE 30, 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          September 30,               June 30,
                                                                               2000                     2000
                                                                        -------------------       -----------------
<S>                                                                     <C>                       <C>
                                ASSETS

Current Assets:
  Cash and cash equivalents                                                    $     1,177              $    2,475
  Accounts receivable, net                                                          11,442                  11,432
  Inventories                                                                        3,403                   3,221
  Royalty and other advances                                                           563                     349
  Prepaid expenses and other                                                         1,152                   1,412
                                                                        -------------------       -----------------
     Total Current Assets                                                           17,737                  18,889
                                                                        -------------------       -----------------

Property and Equipment, net of
 accumulated depreciation and amortization of
 $3,200 and $3,703                                                                     814                     939
Other Assets                                                                         3,142                   3,371
                                                                        -------------------       -----------------
                                                                               $    21,693              $   23,199
                                                                        ===================       =================


                LIABILITIES AND SHAREHOLDERS' DEFICIT

Current Liabilities:
  Current portion of notes payable                                             $     2,410              $    1,924
  Note payable to affiliate                                                          1,945                   1,945
  Accounts payable                                                                   6,573                   5,944
  Accrued royalties                                                                 12,014                  11,649
  Reserve for returns                                                                5,218                   5,069
  Other current liabilities                                                          4,332                   5,265
                                                                        -------------------       -----------------
     Total Current Liabilities                                                      32,492                  31,796
                                                                        -------------------       -----------------

Long Term Debt                                                                       4,000                   4,000

Shareholders' Deficit:
  Common stock                                                                         103                     103
  Additional Paid-In Capital                                                        20,213                  20,213
  Accumulated Deficit                                                              (34,683)                (32,154)
  Cumulative translation adjustment                                                   (432)                  ( 759)
                                                                        -------------------       -----------------
     Total Shareholders' Deficit                                                   (14,799)                (12,597)
                                                                        -------------------       -----------------

                                                                               $    21,693              $   23,199
                                                                        ===================       =================

</TABLE>

                                       3
<PAGE>

                   K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
                     (IN THOUSANDS - EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                        Three Months Ended
                                                                                           September 30,
                                                                            ---------------------------------------
                                                                                    2000                1999
<S>                                                                         <C>                    <C>
NET SALES                                                                        $     9,325            $   18,097

COSTS AND EXPENSES:
  Cost of goods sold                                                                   5,602                 9,512
  Advertising                                                                          1,534                 3,410
  Selling, general & administrative                                                    4,014                 5,884
                                                                            -----------------      ----------------
     Total Costs and Expenses                                                         11,150                18,806
                                                                            -----------------      ----------------


OPERATING LOSS                                                                        (1,825)                 (709)
                                                                            -----------------      ----------------
OTHER INCOME (EXPENSE):
  Interest income                                                                         --                    41
  Interest expense                                                                      (216)                 (189)
  Foreign currency transaction gain                                                     (483)                  203
  Other expense                                                                           --                  (600)
  Gain on sale of subsidiary                                                              --                 4,341
                                                                            -----------------      ----------------

     Total Other  Income (Expense)                                                      (699)                3,796
                                                                            -----------------      ----------------

INCOME (LOSS) BEFORE  INCOME TAX                                                      (2,524)                3,087

INCOME TAX EXPENSE                                                                        (6)                 (207)
                                                                            -----------------      ----------------

NET INCOME  (LOSS)                                                               $    (2,530)            $   2,880
                                                                            =================      ===============

INCOME (LOSS) PER SHARE:
  BASIC                                                                          $      (.25)            $     .30
  DILUTED                                                                        $      (.25)            $     .29

SHARES USED IN THE CALCULATION OF
INCOME (LOSS) PER SHARE:
  BASIC                                                                               10,320                 9,775
  DILUTED                                                                             10,320                 9,780

OTHER COMPRESHENSIVE INCOME (LOSS)
  Net income (loss)                                                              $    (2,530)            $   2,880
  Foreign currency gain                                                                  327                    26
                                                                            -----------------      ----------------
OTHER COMPRESHENSIVE INCOME (LOSS):                                              $    (2,203)            $   2,906
                                                                            =================      ===============
</TABLE>


                                       4
<PAGE>

                   K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                  Three Months Ended
                                                                                     September 30,
                                                                                2000              1999
                                                                           ----------------   --------------
<S>                                                                        <C>                <C>
Cash Flows From Operating Activities:
  Net income (loss)                                                             $(2,530)        $ 2,880
  Adjustments to reconcile net income (loss) to cash
    used for operating activities:
     Depreciation and amortization                                                  291             415
     Gain on sale of subsidiary                                                      --          (4,341)
     Changes in current operating items:
      Accounts receivable                                                          (145)         (2,894)
      Inventories                                                                  (222)           (857)
      Royalty and other advances                                                   (227)           (411)
      Prepaid expenses and other                                                    228            (435)
      Accounts payable and other                                                    (81)          3,197
      Accrued royalties                                                             387           1,519
      Reserve for returns                                                           177             297
      Income taxes, net                                                              --             200
                                                                                -------         -------
       Cash used for operating activities                                        (2,122)           (430)
                                                                                -------         -------

Cash flows from investing activities:
  Gain on sale of subsidiary                                                         --           4,341
  Property and equipment purchases                                                   (8)            (51)
  Proceeds from sale of property and equipment                                       49              --
  Music catalog additions                                                           (43)            (84)
  Other                                                                              --             (16)
                                                                                -------         -------
   Cash provided by (used for) investing activities                                  (2)          4,190
                                                                                -------         -------

Cash flows from financing activities:
  Borrowings on line of credit, net                                                 486           1,248
  Repurchase of shares issued in private placement                                   --          (4,000)
                                                                                -------         -------
    Cash provided by (used for)  financing activities                               486          (2,752)
                                                                                -------         -------

Effect of exchange rates on cash                                                    340            (160)
                                                                                -------         -------

Net increase (decrease) in cash and cash equivalents                             (1,298)            848

Cash and cash equivalents at beginning of year                                    2,475           6,782
                                                                                -------         -------

Cash and cash equivalents at period end                                         $ 1,177         $ 7,630
                                                                                =======         =======
</TABLE>

                                       5
<PAGE>

                   K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.        BUSINESS AND LIQUIDITY

          K-tel International, Inc. (the "Company", "K-tel", or the
          "Registrant") was incorporated in 1968. Its corporate offices are
          located in Minneapolis, Minnesota. K-tel markets and distributes
          entertainment and consumer products internationally. With more than 35
          years of marketing experience in the United States and Europe, the
          Company has developed the resources, knowledgeable personnel,
          information systems, and distribution capabilities to market music and
          consumer products through traditional retail and direct-response
          marketing channels. The Company also markets through an Internet
          e-commerce site, K-tel.com (www.ktel.com), which features a wide
          spectrum of music products. K-tel.com offers on-line shoppers the
          convenience and access to a substantial number of music items at value
          prices.

          The Company experienced negative cash flow of $2,122,000 from
          operations in the three months ended September 30, 2000. These cash
          requirements were satisfied principally from borrowings under its
          credit facilities. As discussed in notes 4 and 5 below, the Company
          has outstanding revolving credit agreements with Foothill Capital
          Corporation ("Foothill") and K-5 Leisure Products, Inc. ("K-5"). As of
          September 30, 2000, the Company had $104,000 available for borrowings
          under its Foothill credit facility and approximately $6 million of
          unused availability under its credit line with K-5. The Company's
          ability to continue operations in the near term is dependent on its
          continued ability to borrow under its credit facilities.

2.        BASIS OF PRESENTATION

          The accompanying unaudited condensed consolidated financial statements
          have been prepared in accordance with accounting principles generally
          accepted in the United States of America ("US GAAP") for interim
          financial information and with the instructions to Form 10-Q and Rule
          10-01 of Regulation S-X. Accordingly, they do not include all of the
          information and footnotes required by US GAAP for complete financial
          statements. In the opinion of management, all adjustments (consisting
          of normal recurring adjustments) considered necessary for a fair
          presentation have been included. Operating results for the three month
          period ended September 30, 2000, are not necessarily indicative of the
          results that may be expected for the year as a whole. The unaudited
          condensed consolidated balance sheet for June 30, 2000 has been
          derived from audited financial statements as of that date. For further
          information, refer to the consolidated financial statements and
          footnotes thereto included in the Company's annual report on Form 10-K
          for the year ended June 30, 2000.

3.        COMPUTATION OF NET INCOME (LOSS) PER SHARE

          The earnings per share calculation for the three months ended
          September 30, 2000 do not give effect to common stock equivalents as
          they would be anti-dilutive. The earnings per share calculation for
          the three months ended September 30, 1999 included 5,000 dilutive
          common stock equivalents. Options to purchase 2,804,488 and 1,300,288
          shares of common stock, with weighted average exercise prices of $6.36
          and $8.13, were outstanding for the three month periods ended
          September 30, 2000 and 1999 and were excluded from the computation of
          common share equivalents for the periods as they were anti-dilutive.


                                       6
<PAGE>

4.       NOTES PAYABLE

         Notes payable consist of the following:
<TABLE>
<CAPTION>
                                                                     September 30,            June 30,
                                                                         2000                   1999
                                                                   -----------------       ---------------
<S>                                                                <C>                   <C>
         Term Loan                                                 $     4,000,000       $     4,000,000
         Revolving Line of Credit                                        2,410,000             1,924,000
                                                                     ---------------      --------------
                                                                         6,410,000             5,924,000
         Less Current Portion                                            2,410,000             1,194,000
                                                                   ---------------       ---------------
         Long Term Portion                                         $     4,000,000       $     4,000,000
                                                                   ===============       ===============
</TABLE>

          K-tel has a $10,000,000 credit facility with Foothill, consisting of a
          $4,000,000 term loan due in full on November 20, 2001, and a
          $6,000,000 revolving facility, under which borrowings are limited to a
          percent of eligible receivables, that expires on November 20, 2001.
          Borrowings under the facility bear interest at a variable rate based
          on a "base rate" announced by a banking affiliate associated with the
          lending institution plus one percent (10.5% at September 30, 2000) and
          are secured by the assets of certain of the Company's United States
          subsidiaries, including accounts receivable, inventories, equipment,
          music library and general intangibles. The loan agreement contains
          certain financial and other covenants or restrictions, including the
          maintenance of a minimum shareholders' equity by K-tel, limitations on
          capital expenditures, restrictions on music library acquisitions,
          limitations on other indebtedness and restrictions on dividends paid
          by K-tel. K-tel has guaranteed the obligations of its United States
          subsidiaries under the credit facility and has pledged the stock of
          those subsidiaries and its assets to secure K-tel's obligations under
          its guaranty. As of September 30, 2000, $4,000,000 was outstanding
          under the term loan, $2,410,000 was outstanding under the line of
          credit and the maximum additional available under the borrowing
          limitations was $104,000. At September 30, 2000, K-tel was in
          compliance with all covenants, limitations and restrictions of the
          credit agreement except for the minimum shareholders' equity covenant.

5.        NOTES PAYABLE TO AFFILIATE

          On September 27, 1999, K-tel entered into a written Line of Credit
          Agreement with K-5 Leisure Products, Inc. ("K-5"), an affiliate
          controlled by Philip Kives, the Chairman of the Board and Chief
          Executive Officer of K-tel. Under the terms of the agreement, K-5
          agreed to make available up to $8,000,000 on a revolving basis. The
          loan bears interest at the same rate as K-tel's loan from Foothill and
          expires on November 20, 2001. The loan agreement between K-tel and K-5
          contains the same covenants as the Foothill loan agreement, and K-5
          agreed not to declare a default prior to July 1, 2001 in the event
          that the Company did not comply with the shareholders' equity
          covenant. The K-5 loan is subordinated to the Foothill loan. K-tel has
          pledged the stock of its foreign subsidiaries as collateral for the
          loan. In addition, K-5 and Foothill have agreed that, if Foothill were
          to give notice of its intention to accelerate its loan, K-5 would have
          the right in its discretion to pay Foothill and assume the secured
          creditor position of Foothill. Additionally, K-5 has indicated to
          K-tel that it would assume the secured creditor's position in the
          event that Foothill accelerated amounts due under the Foothill loan,
          and K-5 has sufficient financial resources to do so. As of September
          30, 2000 and June 30, 2000, K-tel had an outstanding balance of
          $1,945,000 to K-5.

6.        NON-RECURRING INCOME/EXPENSE

          The Company incurred a foreign currency transaction loss of $483,000
          in the quarter ended September 30, 2000, which was primarily the
          result of fluctuations in the pound sterling in connection with the
          Company's United Kingdom operations. The Company had two significant
          components of non-operating income and expense in the quarter ended
          September 30, 1999. The Company recognized a net gain of $4,341,000 on
          the sale of K-tel International (Finland) Oy and incurred an expense
          of $600,000 in connection with the settlement of a private equity
          placement in August 1999.


                                       7
<PAGE>

7.        COMMITMENTS AND CONTINGENCIES

          In 1999 K-tel and its chairman were named in a lawsuit by Creative
          Products, Inc. ("CPN") brought in the Superior Court of the State of
          California. The suit, which arises out of a distribution relationship
          between K-tel and CPN related to the SmartGym-TM- product, alleges
          breach of contract, fraud and unfair competition. K-tel believes that
          the amount of the claim is uncertain and speculative, has denied all
          claims, and has filed a counterclaim against CPN. The company is
          unable to predict the outcome of this litigation, but intends to
          vigorously defend the claims and pursue its own claims against CPN.

          CLASS ACTION LAWSUIT

          K-tel and certain of its current and former officers and directors are
          defendants in IN RE K-TEL INTERNATIONAL, INC. SECURITIES LITIGATION,
          No. 98-CV-2480. This action consolidates twenty three purported class
          actions that were initially filed in various United States District
          Courts in November, 1998, and were subsequently transferred to, and
          consolidated in the United States District Court for the District of
          Minnesota. On July 19, 1999, the plaintiffs filed an amended
          consolidated class action complaint that challenges the accuracy of
          certain public disclosures made by K-tel regarding its financial
          condition during the period May 1998 through November 1998. The
          plaintiffs assert claims under the federal securities laws and seek
          damages in an unspecified amount as well as costs, including
          attorneys' fees and any other relief the Court deems just and proper.
          K-tel moved to move to dismiss the Complaint, and, on July 31, 2000,
          the U.S. District Court granted the Company's motion to dismiss. It
          also barred further actions by the plaintiffs and denied plaintiffs'
          request to amend the complaint in order to refile the complaint in the
          future. While the plaintiffs have appealed this decision, the Company
          feels that the original decision will stand. K-tel has two insurance
          policies providing coverage of up to $20,000,000. The insurers are
          providing for the defense of the claims in the class action lawsuit
          subject to their reservations of legal rights under the applicable
          insurance policies. Under their reservations of rights, the insurers
          could contest their obligations to indemnify the Company and its
          directors and officers.

          EARLY V. K-TEL INTERNATIONAL, INC.

          On January 11, 1999, The Company was named in a lawsuit entitled
          CHRISTOPHER EARLY VS. K-TEL INTERNATIONAL, INC., ET AL, brought in the
          Circuit Court of Cook County, Illinois, against the Company and
          certain of its subsidiaries by Christopher Early. The suit also names
          as defendants certain other manufacturers, distributors and a number
          of nationwide retailers. The plaintiff seeks damages on behalf of
          himself and a purported class of purchasers of cassette tapes and
          compact discs produced, distributed and/or sold by the defendants. The
          plaintiff claims that the defendants engaged in deceptive and
          misleading packaging of cassette tapes and compact discs by failing to
          give proper notice to consumers that the songs contained therein are
          not the original recordings by the original artists. The complaint
          also alleges consumer fraud, deceptive and unfair practices, and fraud
          in connection with website advertising and marketing. Similar
          litigation against the Company had been brought by Mr. Early in 1997,
          and was dismissed by a U.S. Federal Court in 1999 on jurisdictional
          grounds. The Company denies that it mislabeled cassette tapes and
          compact discs or engaged in fraudulent or deceptive conduct and
          intends to vigorously defend the purported action, which seeks an
          undetermined amount of compensatory damages and punitive damages in
          the amount of $10 million, an injunction and costs incurred in the
          litigation, including attorneys fees. The Company has filed a motion
          to dismiss the complaint. Based upon information available to it, the
          Company further believes that damages, if any, are speculative and
          that there are no grounds for an award of punitive damages. While
          discovery has not yet begun and no assurance can be given that the
          Company will be successful in defending this action, the Company
          believes it has meritorious defenses to the plaintiff's claims.

          OTHER LITIGATION AND DISPUTES

          K-tel is involved in several legal actions in the ordinary course
          of its business. Although the outcomes of any such legal actions
          cannot be predicted, in the opinion of management, there is no
          legal proceeding pending or asserted against or involving K-tel for
          which the outcome is likely to have a material adverse effect upon
          the consolidated financial position or results of operations of
          K-tel.

                                       8
<PAGE>

8.        SEGMENT INFORMATION

          The Company markets and distributes entertainment and consumer
          products internationally. K-tel's businesses are organized, managed
          and internally reported as four segments: retail music sales, music
          licensing, direct response consumer sales and e-commerce. These
          segments are based on differences in products, customer type and sales
          and distribution methods. The Company has curtailed or discontinued
          the operations of its video and third party media buying businesses,
          and these are collectively shown in the Other column. The amounts in
          the sales elimination column represent intercompany sales by the
          licensing segment to other segments.

          The retail music segment consists primarily of the sales of
          pre-recorded music both from the Company's music master catalog and
          under licenses obtained from other record companies, as well as
          pre-recorded music developed by other companies who desire to use
          K-tel for sales and distribution of their music products. The Company
          sells compact discs, DVD's and cassettes directly to retailers,
          wholesalers and rack service distributors that stock and manage
          inventory within music departments for retail stores.

          The Company's consumer products business, which is concentrated in
          Europe, consists primarily of housewares, consumer convenience items
          and exercise equipment. The Company concentrates on products that have
          the potential for worldwide appeal and that are innovative, readily
          demonstrated and inexpensive (generally retailing for less than $100).
          In Europe, the Company engages in an extensive amount of direct
          response marketing. European direct response business is solicited
          through television and radio advertising campaigns.

          The Company licenses its master music catalog, consisting of original
          recordings and re-recordings of music from the 1950's through today.
          The Company also licenses the rights to master recordings to third
          parties world-wide, for use in albums, films, television programs and
          commercials, for either a flat fee or a royalty based on the number of
          units sold.

          The Company's e-commerce business, K-tel.com, enables customers to
          choose from brand-name recordings as well as K-tel compilations.
          K-tel.com also gives customers the opportunity to create their own
          custom CD compilations from its master music catalog.

          Operating profits or losses of these segments include an allocation of
          general corporate expenses.

<TABLE>
<CAPTION>

BUSINESS SEGMENT
INFORMATION                              Consumer                                        Corporate/        Total
(in thousands)               Music       Products     Licensing    Internet    Other     Elimination      Company
--------------------------------------------------------------------------------------------------------------------
  Three Months Ended
  September 30,
  ------------------
  <S>             <C>      <C>           <C>          <C>          <C>        <C>        <C>            <C>
  Net Sales       2000     $   5,441     $   3,158    $    810     $    103   $     --   $    (187)     $  9,325
                  1999     $   9,900     $   7,398    $    810     $    242   $     17   $    (270)     $ 18,097

  Operating       2000     $    (783)    $    (794)   $     97     $   (270)  $    (75)         --      $ (1,825)
  Income (Loss)   1999     $     170     $    (490)   $    123     $   (432)  $    (80)         --      $   (709)

</TABLE>

                                       9
<PAGE>

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GENERAL

K-tel markets and distributes entertainment and consumer products
internationally. With more than 35 years of marketing experience in the United
States and Europe, K-tel has developed the resources, knowledgeable personnel,
information systems, and distribution capabilities to market music and consumer
products through traditional retail and direct-response marketing channels.
K-tel also markets its music entertainment products through an Internet
e-commerce site, K-tel.com (WWW.KTEL.COM).

A.  RESULTS OF OPERATIONS

The following sections discuss the results of operations by business segment.
General corporate expenses of $355,000 for the three months ended September 30,
2000, and $388,000 for the three months ended September 30, 1999 has been
allocated to the segments.

THE THREE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS THE THREE MONTHS ENDED
SEPTEMBER 30, 1999

Net sales for the three months ended September 30, 2000 were $9,325,000, a
decline of 48.5% from $18,097,000 for the three months ended September 30, 1999.
This sales decline can be attributed to the closing of the Company's German
subsidiary effective June 30, 2000 as well as a decline in sales in the music
segment. Sales of the German subsidiary were $4,270,000 in the three months
ended September 30, 1999.

Net loss for the three months ended September 30, 2000 was $2,530,000, or $.25
per share, compared to net income of $2,880,000, or $0.30 per share, in the
three months ended September 30, 1999. For the three months ended September 30,
2000 the Company incurred an operating loss of $1,825,000 compared to an
operating loss in the three months ended September 30, 1999 of $709,000. The net
loss for the three months ended September 30, 2000 included a $483,000 foreign
currency transaction loss, due to fluctuations in the pound sterling in
connection with the Company's United Kingdom subsidiary. The Company had two
significant components of non-recurring income and expense in the quarter ended
September 30, 1999 included in net income. The Company recognized a gain of
$4,341,000 (note 6) on the sale of K-tel Finland and incurred an expense of
$600,000 in connection the settlement of a private equity placement in August
1999.

BUSINESS SEGMENT RESULTS

MUSIC

Sales in the music segment were $5,441,000 in the three months ended September
30, 2000 compared to $9,900,000 in the three months ended September 30, 1999.
Domestic music sales decreased $4,164,000, and European music sales declined
$295,000. The domestic music business, comprised primarily of sales of music
compilations produced by K-tel and sales and distribution of other record labels
through its KTD division, declined as the Company experienced a higher rate of
product returns from distributors and began a more intensive profitability
review of its new business, resulting in fewer new products being released.

Cost of goods sold in the music segment increased to 78.8% of sales in the three
months ended September 30, 2000 compared to 69.3% of sales in the three months
ended September 30, 1999. The KTD business, which represented about 36% of sales
in the three months ended September 30, 2000 compared to 32% of sales in the
three months ended September 30, 1999, generally has a cost of goods sold of
around 80%, resulting in a higher cost of goods sold for the segment. Offsetting
the high cost of goods sold in the KTD business is the fact that the record
labels pay for all of the advertising and promotion, so K-tel does not bear
these expenses. In addition the Company experienced a higher product return rate
in the three months ended September 30, 2000 as compared to the same period in
1999 which had an unfavorable impact on overall cost of goods sold. Advertising
expense, which consists primarily of co-operative advertising

                                       10
<PAGE>

payments, trade advertising and promotions, decreased $432,000 and was
approximately 2.3% of revenues in the three months ended September 30, 2000
compared to 5.6% for the three months ended September 30, 1999. This spending
decrease was the result of eliminating most TV advertising, which was deemed
ineffective and better utilization of promotional spending. Also the higher
percentage of total revenue from KTD that has no advertising expenses lowered
the advertising expense percentage of revenues. Selling, general and
administrative expenses decreased $500,000 or 22% to $1,812,000 in the three
months ended September 30, 2000 compared to $2,312,000 in the three months ended
September 30, 1999. The primary reasons for the decrease include savings related
to headcount reductions, elimination of certain outside consulting services, and
general overall spending level reductions. As a result of the above items, the
music segment incurred an operating loss of $783,000 in the three months ended
September 30, 2000 compared to an operating profit of $170,000 in the three
months ended September 30, 1999.

LICENSING

Licensing revenues were $810,000 in both the three months ended September 30,
2000 and 1999. Included In the segment revenue in the three months ended
September 30, 2000 and September 30, 1999 were approximately $187,000 and
$270,000 of inter-company revenues, respectively, which are eliminated in the
accompanying consolidated financial statements. Operating income in the
licensing segment was $97,000 in the three months ended September 30, 2000 and
$123,000 in the three months ended September 30, 1999.

CONSUMER PRODUCTS

Sales of consumer products, which are primarily sold via infomercials in Europe,
were $3,158,000 in the three months ended September 30, 2000 as compared to
$7,398,000 for the three months ended September 30, 1999. The lower sales were
primarily the result of the closing of the Company's German subsidiary, Dominion
Vertriebs GmbH, effective June 30, 2000. Sales of the German subsidiary were
$4,270,000 for the three months ended September 30, 1999 with an operating loss
of $141,000. Revenues in this segment are seasonal with this quarter generally
being the lowest revenue quarter in the year. Cost of goods sold, as a
percentage of sales, increased to 37.4% in the three months ended September 30,
2000 compared to 33.2% in the three months ended September 30, 1999 due to
product mix. Advertising expenditures were $1,341,000 (42.5% of revenue) in the
three months ended September 30, 2000 compared to $2,763,000 (37.4% of revenues)
in the three months ended September 30, 1999. Selling, general and
administrative expenses were $1,428,000 in the three months ended September 30,
2000 compared to $2,671,000 in the three months ended September 30, 1999. The
decrease in selling, general and administrative expenses and advertising are
also primarily attributable to the close down of the Company's German
subsidiary. As a result, the consumer products segment incurred an operating
loss of $794,000 in the three months ended September 30, 2000 compared to an
operating loss of $490,000 in the three months ended September 30, 1999.

E-COMMERCE

K-tel operates its Internet service, K-tel.com (WWW.KTEL.COM), featuring a wide
spectrum of music products for purchase by the public. K-tel also operated a
German language Internet service (WWW.KTEL.DE) from March 1999 until June 2000,
at which time the site became inactive. Revenues for the combined e-commerce
segment for the three months ended September 30, 2000 were $103,000 compared to
$242,000 for the three months ended September 30, 1999. The cost of goods sold
in the three months ended September 30, 2000 was approximately 73.8 % of
revenues compared to 65.2% in 1999. In the three months ended September 30,
2000, advertising was $69,000 compared to $92,000 in 1999. Selling, general and
administrative expenses were $228,000 for the three months ended September 30,
2000 compared to $424,000 in 1999 resulting in operating losses of $270,000 and
$432,000 for the three months ended September 30, 2000 and 1999, respectively.

OTHER

The other segment of the business is comprised of the third-party media buying
segment and a video business, both of which have been curtailed or discontinued.
There were no revenues from these businesses for the three months ended
September 30, 2000 compared to $17,000 for the three months ended September 30,
1999. Operating losses for these businesses were $75,000 and $81,000 for the
three months ended September 30, 2000 and 1999, respectively.

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<PAGE>

B. LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2000, K-tel had $1,177,000 in cash and cash equivalents, a
decrease of $1,298,000 from the balance at June 30, 2000. During the three
months ended September 30, 2000, K-tel experienced negative cash flow from
operating activities of $2,122,000 and used $2,000 for investing activities.
Financing activities provided $486,000 in cash through increased borrowings
under the Company's line of credit with Foothill Capital Corporation
("Foothill") in the three months ended September 30, 2000.

K-tel has a $10,000,000 credit facility with Foothill, consisting of a
$4,000,000 term loan due in full on November 20, 2001, and a $6,000,000
revolving facility, under which borrowings are limited to a percent of
eligible receivables, that expires on November 20, 2001. Borrowings under the
facility bear interest at a variable rate based on a "base rate" announced by
a banking affiliate associated with the lending institution (10.5% at
September 30, 2000) and are secured by the assets of certain United States
subsidiaries, including accounts receivable, inventories, equipment, music
library and general intangibles. The loan agreement contains certain
financial and other covenants or restrictions, including the maintenance of a
minimum shareholders' equity by K-tel, limitations on capital expenditures,
restrictions on music library acquisitions, limitations on other indebtedness
and restrictions on dividends paid by K-tel. K-tel has guaranteed the
obligations of its United States subsidiaries under the credit facility and
has pledged the stock of those subsidiaries and its assets to secure K-tel's
obligations under its guaranty. As of September 30, 2000, $4,000,000 was
outstanding under the term loan, $2,410,000 was outstanding under the
revolving line of credit and the maximum additional available under the
borrowing limitations was $104,000. At September 30, 2000 K-tel was in
compliance with all covenants, limitations and restrictions under the credit
agreement except for the minimum shareholders' equity covenant. Although the
Company has been able to obtain waivers from covenant violations in the past,
there can be no assurance such waivers will be able to be obtained of this
non-compliance or any future covenant defaults.

On September 27, 1999, K-tel entered into a written Line of Credit Agreement
with K-5 Leisure Products, Inc. ("K-5"), an affiliate controlled by Philip
Kives, the Chairman of the Board and Chief Executive Officer of K-tel. Under the
terms of the agreement, K-5 has agreed to make available up to $8,000,000 on a
revolving basis. The loan bears interest at the same rate as K-tel's loan from
Foothill and expires on November 20, 2001. The loan agreement between K-tel and
K-5 contains the same covenants as the Foothill loan agreement, and K-5 has
agreed not to declare a default prior to July 1, 2001 in the event that the
Company did not comply with the shareholders' equity covenant. The K-5 loan is
subordinated to the Foothill loan. K-tel has pledged the stock of its foreign
subsidiaries as collateral for the loan. In addition, K-5 and Foothill have
agreed that, if Foothill were to give notice of its intention to accelerate its
loan, K-5 would have the right in its discretion to pay Foothill and assume the
secured creditor position of Foothill. Additionally, K-5 has indicated to K-tel
that it would assume the secured creditor's position in the event that Foothill
accelerated amounts due under the Foothill loan, and K-5 has sufficient
financial resources to do so. As of September 30, 2000, K-tel had an outstanding
balance of $1,945,000 to K-5.

On August 3, 2000, the Company received notification from Nasdaq that its stock
would be delisted at the opening of business on August 14, 2000. The Company
appealed this initial decision and also applied for listing on the Nasdaq
SmallCap Market. A hearing was conducted by a panel authorized by Nasdaq's Board
of Directors on September 21, 2000. On September 26, 2000 the Company was
notified by the Nasdaq Stock Market Inc. that its Common Stock had been delisted
from the Nasdaq National Market, effective with the open of business September
27, 2000, and that its application for listing on the Nasdaq SmallCap Market was
denied. Delisting of the Company's Common Stock from Nasdaq could have a
material adverse effect on the market price of, and the efficiency of the
trading market for the Company's Common Stock. The Company's Common Stock is
traded on the Over-the-Counter Bulletin Board ("OTCBB"). The OTCBB is a
controlled quotation service that offers real-time quote, last sale prices and
volume information in over-the-counter equities.

K-tel has primarily funded its operations to date through internally generated
capital, secured lender financing, proceeds from stock option exercises and
loans from K-5. The Company's ability to continue operations in the near term is
dependent on improving operating results in fiscal 2001 as well as utilizing its
existing lines of credit with Foothill and K-5. Although K-tel's credit lines
with its two lenders are sufficient to meet its needs at this time, there can be
no assurance that they will be adequate or available in the future or that K-tel
will be able to obtain additional financing upon favorable terms when required.

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<PAGE>

IMPORTANT FACTORS RELATING TO FORWARD LOOKING STATEMENTS

Information in this Form 10-Q of a non-historical nature relates to future
events and results of the Company (including certain projections and business
trends) that are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. The use of terminology such as
"believe," "may," "will," "expect," "anticipate," "estimate," "should,"
"continue," other variations thereof or comparable terminology may identify such
forward-looking statements. Actual results and performance may differ materially
from expressed forward looking statements because of certain risks and
uncertainties, including but not limited to, changes in political and economic
conditions; demand for and market acceptance of new and existing products; the
impact from competition for Internet content, merchandise and recorded music;
dependence on strategic alliance partners, suppliers and distributors; market
acceptance of the Internet for commerce and as a medium for advertising;
technological changes and difficulties; availability of financing and other
risks discussed in the Company's 10-K report for the fiscal year ended June 30,
2000 filed with the Securities and Exchange Commission. The Company undertakes
no obligation to publicly release the result of any revisions to these
forward-looking statements, except as required by law in the normal course of
its public disclosure practices.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Company's market risk during the
first quarter ended September 30, 2000. For additional information, refer to
page 13 of the Company's annual report on Form 10-K for the fiscal year ended
June 30, 2000.

PART II

ITEM 1.  LEGAL PRODCEEDINGS

There have been no material changes in the Company's commitments and
contingencies during the three months ended September 30, 2000 except as
detailed in the paragraph below. For additional information , refer to footnote
8 of the Company's consolidated financial statements included in the annual
report on Form 10-K for the fiscal year ended June 30, 2000.

In 1999 K-tel and its chairman were named in a lawsuit by Creative Products,
Inc. ("CPN") brought in the Superior Court of the State of California. The
suit, which arises out of a distribution relationship between K-tel and CPN
related to the SmartGym-TM- product, alleges breach of contract, fraud and
unfair competition. K-tel believes that the amount of the claim is uncertain
and speculative, has denied all claims, and has filed a counterclaim against
CPN. The company is unable to predict the outcome of this litigation, but
intends to vigorously defend the claims and pursue its own claims against CPN.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

The Company has a $10.0 million credit facility with Foothill Capital
Corporation, consisting of a $4.0 million term loan due in full on November
20, 2001, and a $6.0 million revolving facility, under which borrowings are
limited to a percent of eligible receivables, that expires on November 20,
2001. Under the terms of the credit facility, the Company was obligated to
maintain a shareholders equity of at least $4.0 million as of the fiscal
quarter ended September 30, 2000. As of such date, the Company failed to meet
such shareholders equity requirement, having a deficit shareholders equity of
approximately $14.8 million. Such default was not cured as of the date of
this 10-Q Report. The Company is not in default in the payment of principal,
interest or a sinking or purchase fund installment due Foothill as of the
date of this Report. The Company has entered into negotiations with Foothill
relating to the credit facility and its default under the shareholders equity
covenant. There can be no assurance, however, that the Company will be
successful in negotiating terms which remove or waive the default, or which
will enable it to extend or continue its relationship with Foothill, which
has the right to declare a default and exercise its rights and remedies under
its agreements with the Company.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) EXHIBIT INDEX

         27. Financial Data Schedule

     (b) REPORTS ON FORM 8-K

         During the quarter ended September 30, 2000, one current report on
         Form 8-K was filed:

         September 26, 2000 - Regarding the delisting of the Company's common
         stock from the Nasdaq National Market.

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<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                K-TEL INTERNATIONAL, INC.
                                --------------------------------------------
                                REGISTRANT

Dated:  November 14, 2000       /s/ KEN P. ONSTAD
                                --------------------------------------------
                                KEN P. ONSTAD
                                PRESIDENT


Dated:  November 14, 2000       /s/ A. MERRILL AYERS
                                --------------------------------------------
                                A. MERRILL AYERS
                                VICE PRESIDENT AND
                                CHIEF FINANCIAL OFFICER
                                (principal accounting officer)


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