|SECURITIES AND
EXCHANGE COMMISSION Washington, D.C. 20549



FORM 10-QSB



QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For Quarter Ended June
30, 2001 - Commission file Number 333-86873



Netword, Inc. (Exact name of
registrant as specified in its charter)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Delaware(State or other Jurisdiction of Incorporation) | 52-2143430(I.R.S. Employer Identification No.)
|------------------------------------------------------ | ----------------------------------------------

|702 Russell Avenue,
Third Floor, Gaithersburg, MD 20877
(Address of principal executive offices) (Zip code)



240/631-1100 
(Registrant's telephone number, including area code)



Check whether the issuer
(1) 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_____


The number of outstanding
shares of the issuers common stock, par value $.01 per share, as of August 9, 2001, was 19,348,083.


Transitional Small Business
Disclosure Format (check one):


Yes X     No_____
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NETWORD, INC.



INDEX TO FORM 10-QSB


June 30, 2001
|-----------------------------------------------------

|PART I - FINANCIAL INFORMATION | PAGE
|------------------------------ | ----
|                               |     
|Item -1                        |     
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|                               |     
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|Item - 2                       |     
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|PART II - OTHER INFORMATION    | 8   
|                              
|SIGNATURE                      |     

|NETWORD, INC.Balance Sheets
|---------------------------

|                                              | June 30, 2001(Unaudited) | December 31, 2000(Note)
|--------------------------------------------- | ------------------------ | -----------------------
|                                              |                          |                        
|ASSETS                                        |                         
|Current assets:                               |                         
|Cash                                          |                          | $   1,970,833          
|Prepaid expenses                              |                          | 297                    
|                                              |                          |                        
|Total current assets                          |                          | 1,971,130              
|Property and equipment, net                   |                          | 24,158                 
|                                             
|Intangible assets:                            |                         
|Trademark, net                                |                          | 20,710                 
|Intellectual property, net                    |                          | 2,500                  
|                                              |                          |                        
|Total intangible assets                       |                          | 23,210                 
|                                             
|Other Asset - Loan Receivable                 |                          | 8,000                  
|                                              |                          |                        
|                                              |                          | $   2,026,498          
|                                              |                          |                        
|                                             
|LIABILITIES AND STOCKHOLDERS' EQUITY          |                         
|Current liabilities:                          |                         
|Current portion of long-term liability        |                          | $          9,600       
|Accounts payable                              |                          | 219,538                
|Loans payable                                 |                          | 33,027                 
|                                              |                          |                        
|Total current liabilities                     |                          | 262,165                
|Long-term liability, net of current portion   |                          | 4,800                  
|                                             
|Note payable                                  |                          | 30,602                 
|Convertible note payable                      |                          | 22,703                 
|                                             
|Stockholders' equity:                         |                         
|Common stock, $.01 par value;                 |                         
|Authorized - 40,000,000 shares                |                         
|Issued and outstanding - 19,348,083 shares at |                         
|6/30/01 and 12/31/00                          |                          | 193,481                
|Additional paid-in capital                    |                          | 10,218,022             
|Accumulated deficit                           |                          | (8,693,976             
|Subscriptions receivable                      |                          | (11,299                
|                                              |                          |                        
|Total stockholders' equity                    |                          | 1,706,228              
|                                              |                          |                        
|                                              |                          | $   2,026,498          
|                                              |                          |                        

|Note: The balance sheet at
December 31, 2000 has been derived from the audited financial statements at that
date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.


See accompanying notes.



1
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NETWORD, INC.
Statements of Operations (Unaudited)
|--------------------------------------------------

|                                             | Three MonthsEnded June 30,
|-------------------------------------------- | --------------------------
|
|                                             |                           
|Sales                                        |                           
|                                            
|Selling, general and administrative expenses |                           
|                                             |                           
|Operating loss                               |                           
|                                            
|Interest income                              |                           
|                                             |                           
|Net loss                                     |                           
|                                             |                           
|Basic and diluted loss per common share      |                           
|                                             |                           
|Weighted average number of shares            |                           
|outstanding                                  |                           
|                                             |                           

|See accompanying notes.



2
|----------------------------

|NETWORD, INC.
Statements of Operations (Unaudited)
|--------------------------------------------------

|                                             | Six MonthsEnded June 30,
|-------------------------------------------- | ------------------------
|
|                                             |                         
|Sales                                        |                         
|                                            
|Selling, general and administrative expenses |                         
|                                             |                         
|Operating loss                               |                         
|                                            
|Interest income                              |                         
|                                             |                         
|Net loss                                     |                         
|                                             |                         
|Basic and diluted loss per common share      |                         
|                                             |                         
|Weighted average number of shares            |                         
|outstanding                                  |                         
|                                             |                         

|See accompanying notes.



3
|----------------------------

|NETWORD, INC.
Statements of Cash Flows (Unaudited)
|--------------------------------------------------

|                                                                     | Six Months  Ended June 30,
|-------------------------------------------------------------------- | --------------------------
|
|                                                                     |                           
|Net loss                                                             |                           
|Adjustments to reconcile net loss to cash                            |                           
|used in operating activities:                                        |                           
|Depreciation and amortization                                        |                           
|Interest on notes payable                                            |                           
|Loan to employee for moving expense                                  |                           
|Amortization of prepaid expense                                      |                           
|Change in assets and liabilities:                                    |                           
|Prepaid expenses                                                     |                           
|Accounts payable                                                     |                           
|                                                                     |                           
|Net cash used in operating activities                                |                           
|                                                                     |                           
|Cash flows from investing activities:                                |                           
|Acquisition of property and equipment                                |                           
|                                                                     |                           
|                                                                     |                           
|Net cash used in investing activities                                |                           
|                                                                     |                           
|Cash flows from financing activities:                                |                           
|Exercise of warrants                                                 |                           
|                                                                     |                           
|Net cash provided by financing activities                            |                           
|                                                                     |                           
|Net increase (decrease) in cash                                      |                           
|                                                                     |                           
|Cash, beginning of period                                            |                           
|                                                                     |                           
|Cash, end of period                                                  |                           
|                                                                     |                           
|                                                                    
|Supplemental Schedule of Non-Cash Investing and Financing Activities |                           
|                                                                    
|Exchange of note payable for                                         |                           
|accounts payable                                                     |                           
|                                                                     |                           
|Issuance of stock options and warrants for                           |                           
|consulting, legal and marketing services                             |                           
|                                                                     |                           

|See accompanying notes.



4
|----------------------------

|NETWORD, INC. NOTES TO
FINANCIAL STATEMENTS June 30, 2001 (Unaudited)


Note 1 - Basis of Presentation


Netword,
Inc. (the Company, us, we, or
our) owns and operates an Internet utility known as the Netword
System, which we believe offers a comprehensive solution to problems created by
a lack of consumer-friendly addresses or URLs for Internet resources.


The
accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of our management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three and
six month periods ended June 30, 2001 are not necessarily indicative of the
results that may be expected for the full year ended December 31, 2001, These
unaudited financial statements should be read in conjunction with the financial
statements and footnotes thereto included in our Annual Report on Form 10-KSB
for the year ended December 31, 2000.




5
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|ITEM 2. Managements
Discussion and Analysis or Plan of Operation


Second Quarter 2001
Overview


During the quarter ended
June 30, 2001, we concentrated our research and develpoment activities on the
development of a new product which is intended to facilitate Internet
users (Users) viewing of movie previews and other online video
clips.


Results of Operations


Quarter ended June 30,
2001 compared to the quarter ended June 30, 2000


During the quarter ended
June 30, 2001, compensation costs increased to approximately $234,500 versus approximately $202,300 for the
comparable period of last year due to hiring of support personnel and salary
increases for certain key technical personnel. The additional personnel were
utilized to enhance the Netword System and develop ne Internet applications.


Marketing and advertising
costs decreased to approximately $38,300 versus approximately $530,000 for the same period last year
primarily because the 2nd quarter of last year included $375,000 of amortization
attributable to the Net2Phone warrant and $150,000 of payments to InfoSpace for
Internet advertising while the 2nd quarter of this year did not include the said
amortization since the Net2Phone warrant was fully amortized in the 4th quarter
of 2000 and the InfoSpace contract terminated in 2000.


Six Months ended June 30,
2001 compared to the six months ended June 30, 2000


During the six months ended
June 30, 2001, compensation costs increased to approximately $470,500 versus approximately $374,400 for the
comparable period of last year due to hiring support personnel and salary
increases for certain for certain key technical personnel. The additional
personnel were utilized to enhance the Netword System and develop ne Internet
applications.


Marketing and advertising
costs decreased to approximately $358,400 versus approximately $1,027,500 for the same period last year
primarily because (i) the 1st and 2nd quarters of last year included $750,000 of
amortization attributable to the Net2Phone warrant and $225,000 of payments to
InfoSpace for Internet advertising while the 1st and 2nd quarters of this year
did not include the said amortization and Internet advertising since the
Net2Phone warrant was fully amortized in the 4th quarter of 2000 and the
InfoSpace contract terminated in 2000 and (ii) the 1st and 2nd quarter of this
year includes approximately $334,800 of advertising costs related to an advertising campaign
while the same period of last year includes no such expense.


Liquidity and Capital
Resources


Our cash balance at June 30, 2001
was approximately $1,970,800. Our net cash used in operations



6
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|during the 2nd quarter was
approximately $309,900. Based upon our current operations it is unlikely that additional funds
will be required during the next twelve months.


Forward Looking
Statements


Some of the statements in
this 10-QSB that are not historical facts are forward-looking statements.
Forward-looking statements can be identified by the use of words such as
estimates, projects, anticipates, expects, intends, believes or the negative
thereof or other variations thereon or by discussions of strategy that involve
risks and uncertainties. We caution you that all the forward-looking statements
contained in this 10-QSB are only estimates and predictions. Our actual results
could differ materially from those anticipated in the forward-looking statements
due to risks, uncertainties or actual events differing from the assumptions
underlying these statements. The risks, uncertainties and assumptions include,
but are not limited to, those discussed in this 10-QSB.



7
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART II - OTHER
INFORMATION



Item 1. Legal Proceedings
|--------------------------------------------------------

| | In
July 1998, we filed a patent infringement suit against Centraal Corporation, now known as
RealNames Corporation, in the U.S. District Court for the Eastern District of Virginia.
We sought an injunction and damages in an amount to be determined by the court.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 8, 1999, the court granted RealNames' motion for summary judgement, holding that
the RealNames system did not infringe our patent, without ruling on the validity of our
patent. We appealed the decision. On March 15, 2001, the United States Court of Appeals
for the Federal Circuit upheld the decision of the District Court.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 2. Changes in Securities



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
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a) |  | Exhibits:
| |  | -- |  | ---------

| |  |  |  | 3.1(1) |  | Certificate
of Incorporation of Netword, Inc.
| |  |  |  | ------ |  | ---------------------------------------------

| |  |  |  | 3.2(1) |  | Bylaws
of Netword, Inc.
| |  |  |  | ------ |  | -----------------------

| |  |  |  | 4.1(1) |  | Stock
option plan of Netword, Inc.
| |  |  |  | ------ |  | ----------------------------------

| |  |  |  | 4.2(1) |  | Form
of award letter for optionees
| |  |  |  | ------ |  | ----------------------------------

| |  |  |  | 10.1(1) |  | Contract
regarding assignment of trademarks and trade names Netword and Netword, Inc.
| |  |  |  | ------- |  | -----------------------------------------------------------------------------------------

|8
|-

|
|

| |  |  |  | 10.2(1) |  | Internet
Data Center Services Agreement between Netword, Inc. and
Exodus Communications, Inc.
| |  |  |  | ------- |  | ---------------------------------------------------------------------------------------------

| |  |  |  | 10.3(1) |  | Agreement
dated September 29, 1999 between Netword, Inc. and Net2Phone, Inc.
| |  |  |  | ------- |  | ----------------------------------------------------------------------------

|(1) |  | Filed
as an Exhibit to Networds registration statement on Form SB-1 (Commission File No.
333-86873) and incorporated herein by reference.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------

| |  | b) |  | Reports
on Form 8-K:
| |  | -- |  | --------------------

| | None
| | ----

|9
|-

|S I G N A T U R E



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.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: August 9, 2001 |  | Netword, Inc.(Registrant)By: /s/ Murray M. Rubin
Murray M. RubinTreasurer and Chief Financial Officer(Principal Financial Officer and Officer DulyAuthorized to Sign on behalf of Registrant)
|--------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10
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