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

FORM 10-Q


		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 2001


		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: 0-27575

NETRADIO CORPORATION
(Exact name of registrant as specified in its charter)


Minnesota	41-1819471





(State of incorporation or organization)	(I.R.S. Employer Identification No.)
















10025 Valley View Road, Suite 190, Eden Prairie, Minnesota	55344





(Address of principal executive offices)	(Zip Code)
















(952) 259-6700

(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. [ X] Yes [] No

The number of shares outstanding of each of the registrant’s classes of capital stock, as of May 14, 2001 was: Common Stock, no par value, 10,081,037 shares.

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TABLE OF CONTENTS


Balance Sheets
Statements of Operations
Statements of Cash Flows
Notes to Financial Statements (Unaudited)
Signatures
First Amendment to Term Note
Second Amendment to Term Note

NETRADIO CORPORATION
Index

Part I. Financial Information


Item 1.		Financial Statements












		Balance Sheets -




		March 31, 2001 and December 31, 2000












		Statements of Operations -












		Three months ended March 31, 2001 and 2000












		Statements of Cash Flows -












		Three months ended March 31, 2001 and 2000












		Notes to Condensed Consolidated Financial Statements — March 31, 2001












Item 2.		Management’s Discussion and Analysis of Financial Condition




		and Results of Operations












Item 3.		Quantitative and Qualitative Disclosures About Market Risk












Part II		Other Information












Item 1.		Legal Proceedings












Item 2.		Change in Securities and Use of Proceeds












Item 3.		Defaults Upon Senior Securities












Item 4.		Submission of Matters to a Vote of Security Holders












Item 5.		Other Information












Item 6.		Exhibits and Reports on Form 8-K












Signatures

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

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NetRadio Corporation

Balance Sheets


			March 31,			December 31,
			2001			2000

			(Unaudited)
Assets




Current assets:




	Cash and cash equivalents		$	24,001		$	82,943




	Short-term investments			7,531,684			11,440,356




	Accounts receivable, less allowance for doubtful accounts of $21,000




		at March 31, 2001 and $20,000 at December 31, 2000, respectively		160,859			291,692




	Prepaid advertising			855,050			833,873




	Prepaid expenses			126,337			98,948




	Other current assets			160,667			350,667

Total current assets				8,858,598			13,098,479




Property and equipment, net				2,945,984			3,075,455




Patents and trademarks, net				48,714			48,553




Other assets				120,254			120,254

			$	11,973,550		$	16,342,741

Liabilities and shareholders’ equity




Current Liabilities




	Accounts payable		$	1,222,960		$	1,791,671




	Accrued expenses			679,811			1,149,681




	Deferred advertising revenue			50,000			—




	Note payable			3,096,827			9,596,827




	Current maturities of capital lease obligation			59,342			89,630

Total current liabilities				5,108,940			12,627,809




Shareholders’ equity:




	Preferred stock,




		Authorized shares — 10,000,000




		Issued and outstanding shares — none at March 31, 2001 and




		December 31, 2000




	Common stock, no par value;




		Authorized shares — 50,000,000




		Issued and outstanding shares - 10,081,037 at March 31, 2001 and




		10,081,037 at December 31, 2000, respectively		41,092,132			41,092,133




	Deferred Compensation			(60,333	)		(71,646	)




	Accumulated deficit			(34,167,189	)		(37,305,555	)

Total shareholders’ equity				6,864,610			3,714,932

Total liabilities and shareholders’ equity			$	11,973,550		$	16,342,741

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NetRadio Corporation

Statements of Operations


		Three Months Ending
		March 31,

		2001			2000

		(unaudited)
Net revenues




	Product sales	$	55,404		$	223,341




	Internet advertising		147,011			341,481

Total net revenues			202,415			564,822




Operating expenses:




	Cost of revenues		45,346			197,907




	Operations and technical support		1,698,091			2,522,364




	Sales and marketing		490,639			1,506,748




	General and administrative		430,076			773,923

Total operating expenses			2,664,152			5,000,942

Loss from operations			(2,461,737	)		(4,436,120	)




Other (income) expenses




	Interest (Income)		(292,025	)		(361,252	)




	Interest Expense		191,922			220,972

Net loss before extraordinary item			(2,361,634	)		(4,295,840	)




Extraordinary gain on debt forgiveness			5,500,000			—

Net income (loss) after extraordinary gain		$	3,138,366		$	(4,295,840	)

Net income (loss) per share, basic and diluted




Loss per share before extraordinary item		$	(0.23	)	$	(0.43	)




Extraordinary gain			0.55			—

		$	0.31		$	(0.43	)

Weighted average shares outstanding




	Basic		10,081,037			10,009,081




	Diluted		10,109,454			10,009,081

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NetRadio Corporation

Statements of Cash Flows


			Three Months Ended
			March 31,

			2001			2000

			(unaudited)
Operating activities




Net income (loss)			$	3,138,366		$	(4,295,840	)




Adjustment to reconcile net loss to net cash




	provided by (used in) operating activities:




	Depreciation and amortization			424,921			507,277




	Stock option compensation			30,167			—




	Note payable forgiveness			(5,500,000	)		—




Change in operating assets and liabilities:




	Accounts receivable			130,833			(61,346	)




	Prepaid expenses			(48,565	)		(120,883	)




	Trade accounts payable			(568,712	)		(1,266,710	)




	Accrued liabilities			(488,724	)		(283,443	)




	Deferred revenue			50,000			167,385




	Other assets			190,000			(52,300	)

		Net cash used in operating activities		(2,641,714	)		(5,405,860	)




Investing activities




	Increase in intangible assets			(3,417	)		(1,208	)




	Purchase of property and equipment			(292,194	)		(925,872	)




	Purchase of short-term investments			—			(10,717,583	)




	Sale of short-term investments			3,908,672			11,861,117

		Net cash provided by (used in) investing activities		3,613,061			216,454




Financing activities




	Payment on capital lease obligations			(30,288	)		(27,935	)




	Payments of notes payable			(1,000,000	)		—




	Proceeds from stock issuances						13,400

		Net cash provided by (used in) financing activities		(1,030,288	)		(14,535	)

Net (decrease) increase in cash and cash equivalents				(58,942	)		(5,203,941	)




Cash and cash equivalents at beginning of period				82,943			11,721,536

Cash and cash equivalents at end of period			$	24,001		$	6,517,595

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NETRADIO CORPORATION

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. They should be read in conjunction with the financial statements for the year ended December 31, 2000 included in the Company’s 2000 Form 10K. In the opinion of management, the interim condensed financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of the results for interim periods presented. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the operating results for the year ending December 31, 2001.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Cautionary Statement

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect management’s current expectations or beliefs and future actual results could differ materially from those in any forward-looking statements depending on the outcome of certain factors. Any such forward-looking statements are subject to risks and uncertainties including, but not limited to, our ability to generate revenue from a new and unproven business model, the incurrence of operation losses, the necessity to obtain additional financing to achieve our strategic business objectives, the fluctuation of subscription and advertising revenues, our ability to expand our technical capacity, competition and other risks and uncertainties, including the factors set forth on Exhibit 99.1 to our Annual Report on Form 10-K for the year ended December 31, 2000. Except as required by applicable law, we undertake no obligation to update or revise any such forward-looking statements.

GENERAL

NetRadio is the leading webcaster specializing in originally programmed audio entertainment through our website, NetRadio.com. NetRadio.com provides more than 100 channels of music and information, 24 hours a day, seven days a week. Visitors to the site can access music, news and information within NetRadio.com’s 16 music genres. Depending on the seasons, approximately 2-3 million unique guests visit NetRadio.com several times per month.

We provide our advertisers and marketing partners with the ability to reach focused segments of users defined by specific demographic and lifestyle characteristics. NetRadio.com allows advertisers to utilize the combined strength of audio messaging with banner advertising.

We also provide our consumer Internet experience to other online businesses. Our business to business (“B2B”) initiative began in July 2000. We provide our B2B customers (primarily leading online sites) with co-branded players that include 10 to 20 channels of our originally programmed music. The co-branded player delivers a passive music experience to our B2B customers’ end users, and increases their length of stay on a site, or “site stickiness.” The co-branded player also allows our B2B customers to deliver synchronized audio and banner advertising messages to their users.

We recognize banner advertising revenues over the period in which the advertisement is displayed on our web site. We recognize barter advertising by multiplying the contracted impression rate by the amount of monthly impressions served until the contracted amount of impressions is completely depleted. The contracted impression rate is comparable to rates realized in sales of advertising to other third parties. We derive promotional advertising revenues from product or artist related promotions, and recognize these revenues over the term of the promotion. We derive audio and video advertising revenues from the sale of advertising spots, and recognize these revenues when the audio or video advertisement is broadcast.

RESULTS OF OPERATIONS

Net Revenues

Net revenues consist of Internet advertising revenues, product sales and since March 2001, commissions on products sold through our affiliate Amazon.com. Net revenues decreased to $202,000 for the three months ended March 31, 2001 from $565,000 for the three months ended March 31, 2000, a 64% decrease. The decrease in revenues for the three months ended March 31, 2001 over the prior year period was due to the outsourcing of our e-commerce operations and an overall decrease in advertising as customers reduce discretionary spending in anticipation of a slowing economy.

Product Sales. Revenues for the quarter reflect the impact on product sales of outsourcing e-commerce operations to Amazon.com. Last year, the company received 100 percent of the revenues from product sales. Now, NetRadio receives a commission from Amazon.com for each product sold through the NetRadio.com website. Reported product revenues decreased by 75 percent to $55,000 for the three months ended March 31, 2001 from $223,000 for the three months ended March 31, 2000.

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The Amazon relationship enables NetRadio to generate profits from its e-commerce operations compared with the losses generated by its in-house operation last year.

Internet Advertising. Internet advertising revenues include audio, video and banner advertising sales. Internet advertising revenues for the three months ended March 31, 2001 were $147,000 compared to $341,000 for the three months ended March 31, 2000, a decrease of 56%. On a cash revenue basis, first quarter advertising revenues were down 37% as advertising revenue for the three months ended March 31, 2000 included $106,000 of non-cash barter advertising. The decrease in advertising revenue for the three months ended March 31, 2001, over the prior year period was due to the overall industry wide decrease as customers reduce discretionary spending in anticipation of a slowing economy.

Operating Expenses Cost of Revenues

Cost of Revenues Cost of revenues primarily consists of the cost of audio merchandise that we sell, including fulfillment costs through third party vendors that ship directly to our customers. Costs of revenues for the quarter reflect the impact on product sales of outsourcing e-commerce operations to Amazon.com. Last year, the company incurred 100 percent of the costs from product sales. Costs of revenues decreased to $45,000 for the three months ended March 31, 2001 from $198,000 for the three months ended March 31, 2000. The decrease in cost of revenue for the three months ended March 31, 2001, over the prior year period was due to the decrease in product sales and the outsourcing of the e-commerce operations.

Operations and Technical Support. Operations and technical support expenses consist primarily of data communications expenses, personnel expenses associated with broadcasting, e-commerce and technical support, software and content license fees, operating supplies and overhead. Operations and technical support expenses were $1,698,000 for the three months ended March 31, 2001, compared to $2,522,000 for the three months ended March 31, 2000, a decrease of 33%. The decrease in operations and technical support expenses for the three months ended March 31, 2001 over the prior year period was due primarily to a decrease in bandwidth costs and the outsourcing of our e-commerce site.

Sales and Marketing. Sales and marketing expenses consist primarily of personnel expenses and costs associated with the sale of advertising and the marketing of our Web site. Sales and marketing expenses were $491,000 for the three months ended March 31, 2001, compared to $1,507,000 for the three months ended March 31, 2000, a decrease of 67%. The decrease in sales and marketing expenses for the three ended March 31, 2001 over the prior year period was due to a significant reduction in advertising expenses.

General and Administrative. General and administrative expenses consist primarily of administrative personnel expenses, professional fees and expenditures for facility costs. General and administrative expenses were $430,000 for the three months ended March 31, 2001, compared to $774,000 for the three months ended March 31, 2000, a decrease of 44%. The decrease in general and administrative expenses for the three months ended March 31, 2001, over the three months ended March 31, 2000, was due to goodwill being fully amortized in the period ended March 31, 2000, a reduction in salary expense due to the September 2000 resignation of a corporate officer, and a reduction in professional fees.

Interest Expense. Interest expense for the three months ended March 31, 2001 was $192,000, compared to $221,000 for the three months ended March 31, 2000. The decrease in interest expense for the three months ended March 31, 2001, over the prior year period was due to a higher federal prime rate of interest, which positively impacts the interest due on the Navarre Note.

Interest Income. Interest income for the three months ended March 31, 2001 was $292,000, compared to $361,000 for the three months ended March 31, 2000. The decrease was due to a higher cash balance in the period ended March 31, 2000, for use in earning interest through the purchases of investments in short- and long-term securities.

Extraordinary Gain. In March 2001, we restructured our $9.6 million term note with Navarre. Under the terms of the restructuring, Navarre forgave $5.5 million of the principal amount in exchange for a $1 million prepayment by NetRadio. The $5.5 million forgiveness of debt resulted in an extraordinary gain.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have incurred significant net losses primarily due to the costs of developing our infrastructure, hiring management and personnel to establish our audio channels and programming, building our brand and delivering a quality

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listening experience to our users. We have funded our capital requirements primarily through the sales of equity securities and prior to our initial public offering, borrowings from Navarre.

The Company had working capital of $3.7 million at March 31, 2001, compared to working capital of $471,000 at December 31, 2000, primarily as a result of the restructuring of the term note with Navarre.

Net cash used in operating activities was $2,642,000 and $5,406,000 for the three months ended March 31, 2001 and 2000, respectively. Net cash used in operating activities for the three months ended March 31, 2001 was primarily comprised of our net losses before extraordinary items and a decrease in accounts payable and accrued expenses, offset in part by depreciation, accounts receivable and other assets.

Accounts receivable decreased to $161,000 at March 31, 2001 from $292,000 at December 31, 2000 and consisted primarily of agency-placed advertising revenue accounts. The decrease in accounts receivable was due to the decrease in advertising sales for the period. Advertising revenues placed by an agency typically are collected in 60 to 90 days. We expect advertising revenue accounts generally to be collected within 60 to 90 days in the future.

The decrease in accounts payable to $1,223,000 at March 31, 2001 from $1,792,000 at December 31, 2000 was due primarily to payments for capital expenditures and other business expenses that became due in the quarter ended March 31, 2001.

We generated $3,613,000 and $216,000 in net cash from investing activities for the three months ended March 31, 2001 and 2000, respectively. The net cash provided by investing activities for the three months ended March 31, 2001 and 2000 was the net result of short-term investment purchases and sales offset by the purchases of property and equipment.

We used net cash for financing activities of $1,030,000 and $15,000 for the three months ended March 31, 2001 and 2000, respectively. Net cash used for financing activities for the three months ended March 31, 2001 was primarily due to a $1,000,000 payment on the Navarre term note.

In March 2001, we restructured our term note of approximately $9.6 million owing to Navarre. Under the terms of the restructuring, Navarre forgave $5.5 million of the principal amount in exchange for a $1 million prepayment by NetRadio. In addition, Navarre extended the maturity date of the term note from November 14, 2001 to March 31, 2002. The term note with Navarre bears interest at Midwest prime plus one half-percentage point (9% as of March 1, 2001) and is payable monthly. After giving effect to this restructuring, the principal balance of the term note with Navarre is currently approximately $3.1 million

We believe that our current cash, cash equivalents and short-term investments will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the next 10 months. To fund future operations, we may need to raise additional funds, through public or private financing, or other arrangements. We are evaluating potential issuances of our debt or equity securities to strategic partners and are exploring potential strategic transactions. There can be no assurance that additional financing, if needed, will be available on terms attractive to us, if at all. Our failure to raise capital when needed could have a material adverse effect on our business, results of operations and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of our then current shareholders will be reduced. Furthermore, these equity securities might have rights, preferences or privileges senior to those of our common stock.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have no derivative financial instruments or derivative commodity instruments. We invest our cash and cash equivalents and marketable securities in investment grade, highly liquid investments, consisting of money market instruments, bank certificates of deposit, overnight investments in commercial paper, and short term government and corporate bonds.

We are exposed to market risk from changes in the interest rate on borrowings under our term note that bears interest from time to time at prime plus 0.5%. We do not believe that changes in interest rates on the maximum borrowings outstanding under this term note would have a material effect on our results of operations or liquidity.

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PART II. — OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Change in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K


10.1		First Amendment to Term Note, dated as of March 26, 2001, by and between NetRadio Corporation and Navarre Corporation (1)




10.2		Second Amendment to Term Note, dated as of March 30, 2001, by and between NetRadio Corporation and Navarre Corporation




(1) Incorporated by reference to the Report on Form 8-K of the Registrant dated March 26, 2001
























B. Report on Form 8-K
























NetRadio filed a Report on Form 8-K dated March 26, 2001 in connection with the restructuring of the term note with Navarre Corporation.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


Dated:	5/14/01		NETRADIO CORPORATION












		By	/s/ Eric H. Paulson




			Eric H. Paulson




			Chief Executive Officer and President




			(Principal Executive Officer)








































		By	/s/ Michael P. Wise




			Michael P. Wise




			Secretary, Chief Financial Officer and Vice President




			(Principal Financial and Accounting Officer)

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NETRADIO CORP 10-Q