<PAGE>

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

                                   FORM 10-QSB

             [x] Quarterly report under Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

                For the quarterly period ended September 30, 2003

      [ ] Transition report under Section 13 or 15(d) of the Exchange Act

           For the transition period from ___________ to _____________

                        Commission file number 333-86873

                               HOME DIRECTOR, INC.
              (Exact Name of Small Business Issuer in Its Charter)

             Delaware                                   52-2143430
 (State or other jurisdiction of                     (I.R.S. Employer
  incorporation or organization)                    Identification No.)


    2525 Collier Canyon Road, Livermore, California        94551
    -----------------------------------------------        -----
        (Address of Principal Executive Offices)         (Zip Code)


                    Issuer's telephone number: (925) 373-0438

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 3,751,467 as of November 14, 2003

Transitional Small Business Disclosure Format (Check one): Yes ____; No __x__


<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                             PAGE
<S>                                                                          <C>
PART I
Item 1. Financial Statements................................................   3
Item 2  Management's Discussion and Analysis or Plan of Operation...........  13
Item 3. Controls and Procedures.............................................  19

PART II
Item 1. Legal Proceedings...................................................  20
Item 2. Changes in Securities and Use of Proceeds...........................  20
Item 3. Defaults in Senior Securities.......................................  20
Item 4. Submission of Matters to a Vote of Security Holders.................  20
Item 5. Other Information...................................................  20
Item 6. Exhibits and Reports on Form 8-K....................................  20

Signatures .................................................................  21
Exhibits ...................................................................  22

</TABLE>

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This document contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are subject
to risks and uncertainties and are based on the beliefs and assumptions of
management of Home Director, based on information currently available to
management. The use of words such as "believes," "expects," "anticipates,"
"intends," "plans," "estimates," "should," "likely" or similar expressions,
indicates a forward-looking statement.

Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. Future results may differ materially from
those expressed in the forward-looking statements. Many of the factors that will
determine these results are beyond the ability of Home Director to control or
predict. Stockholders are cautioned not to put undue reliance on any
forward-looking statements. For those statements, Home Director claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.

The identification in this document of factors that may affect future
performance and the accuracy of forward-looking statements is meant to be
illustrative and by no means exhaustive. All forward-looking statements should
be evaluated with the understanding of their inherent uncertainty.

                                        2

<PAGE>

                                     PART I

ITEM 1. FINANCIAL STATEMENTS

                               HOME DIRECTOR, INC.
                           Consolidated Balance Sheets
                    September 30, 2003 and December 31, 2002

<TABLE>
<CAPTION>
                       ASSETS                           (Unaudited)
                       ------
                                                        Sept 30, 2003       Dec 31, 2002
                                                        ------------        ------------
<S>                                                     <C>                 <C>
    Cash and cash equivalents                           $    306,262        $  2,557,214
    Accounts receivable, net of allowances                 1,949,452           1,226,479
    Inventories, net of allowances                         1,743,331           1,499,014
    Other current assets                                     194,450             140,366
                                                        ------------        ------------
                Total current assets                       4,193,495           5,423,073
Property and equipment, net                                  461,258             645,328
Customer lists, net of accumulated amortization               88,045             108,844
Goodwill, net of accumulated amortization                  5,825,652           5,825,652
                                                        ------------        ------------
                                                        $ 10,568,450        $ 12,002,897
                                                        ============        ============

           LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable and accrued expenses               $  2,253,420        $  2,249,712
    Payables to related parties                                   --             291,793
    Line of credit                                           400,000                  --
    Notes payable                                            125,000             125,000
    Current portion of capital lease obligations              79,347             125,626
                                                        ------------        ------------
                Total current liabilities                  2,857,767           2,792,131
Capital lease obligations, less current portion               79,612             123,781
Other Long Term Liabilities                                  426,775                  --

Commitments and contingencies (Note 6)

Shareholders' equity:
    Preferred stock, $0.01 par value
        Authorized - 2,000,000 shares
        No shares issued or outstanding                           --                  --
    Common stock, $0.01 par value
        Authorized - 40,000,000 shares
        Issued and outstanding - 3,751,467 shares             37,515              37,515
    Additional paid-in capital                            75,767,173          75,699,296
    Accumulated deficit                                  (68,600,392)        (66,649,826)
                                                        ------------        ------------
                Total shareholders' equity                 7,204,296           9,086,985
                                                        ------------        ------------
                                                        $ 10,568,450        $ 12,002,897
                                                        ============        ============
</TABLE>

See accompanying notes to these financial statements.

                                        3

<PAGE>

                               HOME DIRECTOR, INC.
                      Consolidated Statements of Operations
         For the Three & Nine Month Periods Ended September 30, 2003 and 2002
                                   (Unaudited)

<TABLE>
<CAPTION>
                                             For the three months ended    For the nine months ended
                                            ----------------------------  ----------------------------
                                            Sept 30, 2003  Sept 30, 2002  Sept 30, 2003  Sept 30, 2002
                                             -----------    -----------    -----------    -----------
<S>                                          <C>            <C>            <C>            <C>
Revenue                                      $ 2,348,034    $ 2,656,452    $ 7,309,019    $ 8,004,434
------------------------------------------   -----------    -----------    -----------    -----------
Costs and expenses:
------------------------------------------   -----------    -----------    -----------    -----------
  Cost of revenue                              1,614,178      1,596,271      4,468,674      5,209,430
------------------------------------------   -----------    -----------    -----------    -----------
  General and administrative                     454,201        673,708      1,816,766      2,495,677
------------------------------------------   -----------    -----------    -----------    -----------
  Sales and marketing                            518,951        689,217      1,822,389      1,856,597
------------------------------------------   -----------    -----------    -----------    -----------
  Research and development                        54,307        183,757        209,009        545,594
------------------------------------------   -----------    -----------    -----------    -----------
  Depreciation and amortization                  101,053        142,759        295,943        608,732
------------------------------------------   -----------    -----------    -----------    -----------
  Provision for abandonment of facility               --             --        590,000             --
------------------------------------------   -----------    -----------    -----------    -----------
 (Gain) on extinguishment of certain
   liabilities                                        --        137,170             --     (4,523,243)
------------------------------------------   -----------    -----------    -----------    -----------
        Total costs and expenses             $ 2,742,690    $ 3,422,882    $ 9,202,781    $ 6,192,787
------------------------------------------   -----------    -----------    -----------    -----------
Income (Loss) from operations                $  (394,656)   $  (766,430)   $(1,893,762)   $ 1,811,647
------------------------------------------   -----------    -----------    -----------    -----------
Other expense, net                               (43,606)    (2,127,433)       (56,804)    (3,006,734)
------------------------------------------   -----------    -----------    -----------    -----------
Net income (loss)                            $  (438,262)   $(2,893,863)   $(1,950,566)   $(1,195,087)
------------------------------------------   -----------    -----------    -----------    -----------
Comprehensive income (loss)                  $  (438,262)   $(2,893,863)   $(1,950,566)   $(1,195,087)
------------------------------------------   -----------    -----------    -----------    -----------
Net income (loss) per common share
  - basic and diluted:
------------------------------------------   -----------    -----------    -----------    -----------
Shares used in computing basic net
  income (loss) per common share               3,751,467        625,745      3,751,467        621,850
------------------------------------------   -----------    -----------    -----------    -----------
Shares used in computing diluted net
  income (loss) per common share               3,751,467        625,745      3,751,467        621,850
------------------------------------------   -----------    -----------    -----------    -----------
Net income (loss) per share
------------------------------------------   -----------    -----------    -----------    -----------
   Basic:                                    $      (.12)   $     (4.62)   $      (.52)   $     (1.92)
------------------------------------------   -----------    -----------    -----------    -----------
  Diluted:                                   $      (.12)   $     (4.62)   $      (.52)   $     (1.92)
------------------------------------------   -----------    -----------    -----------    -----------
</TABLE>

See accompanying notes to these financial statements.

                                        4

<PAGE>

                               HOME DIRECTOR, INC.
                      Consolidated Statements of Cash Flows
                 For the Nine Months Ended Sept 30, 2003 and 2002
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                   2003           2002
                                                                -----------    -----------
<S>                                                             <C>            <C>
Cash flows from operating activities:
    Net income (loss)                                           $(1,950,566)   $(1,195,087)
    Adjustments to reconcile net loss to net cash used in
      operating activities:
        Depreciation and amortization                               295,943        608,732
        Provision for abandonment of facility                       590,000             --
        Gain from extinguishment of certain liabilities                  --     (4,523,243)
        Noncash expenses from warrant issuances                      31,412        235,677
        Interest expense on debt discount and amortization of
          deferred financing fees                                        --      2,779,014
        Changes in operating assets and liabilities, net of
           assets and liabilities acquired:
        Accounts receivable                                        (722,973)      (513,556)
        Inventories                                                (244,317)       257,692
        Other current assets                                        (54,084)       127,848
        Accounts payable and accrued expenses                      (119,733)    (2,648,714)
                                                                -----------    -----------
                Net cash used in operating activities            (2,174,317)    (4,871,637)
                                                                -----------    -----------

Cash flows from investing activities:
    Purchases of property and equipment                             (91,075)       (23,441)
    Merger costs                                                         --       (996,300)
                                                                -----------    -----------
                Net cash used in investing activities               (91,075)    (1,019,741)
                                                                -----------    -----------

Cash flows from financing activities:
    Net change in line of credit                                    400,000             --
    Net payments of payables to related parties                    (291,793)            --
    Repayment of capital lease obligations, net                     (90,448)      (212,200)
    Proceeds from issuance of common stock                               --         33,436
    Proceeds from (payment of) issuance of convertible notes         (3,319)     9,000,341
    Debt financing costs                                                 --     (1,245,876)
                                                                -----------    -----------
                Net cash provided by financing
                   activities                                        14,440      7,575,701
                                                                -----------    -----------
Net increase (decrease) in cash and cash equivalents             (2,250,952)     1,684,323

Cash and cash equivalents at beginning of period                  2,557,214        563,046
                                                                -----------    -----------

Cash and cash equivalents at end of period                      $   306,262    $ 2,247,369
                                                                ===========    ===========

       Supplemental Disclosure of Cash Flow Information
                                                                       2003           2002
                                                                -----------    -----------
Cash paid during the period
    Interest                                                    $    18,519    $    11,250
                                                                ===========    ===========
</TABLE>

See accompanying notes to these financial statements.

                                        5

<PAGE>

Home Director, Inc.
Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)

NOTE 1 - BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

Home Director Technologies Inc. (formerly Home Director, Inc. "HDT") was
incorporated on October 13, 1999 under the laws of the State of Delaware. On
December 19, 2002, HDT was acquired by Netword, Inc. (now Home Director, Inc.)
in a merger of Netword's special purpose subsidiary into HDT (the "Merger"). In
the Merger, HDT's stockholders received shares of Netword common stock in
accordance with the exchange ratio described in the merger agreement. Upon
completion of the Merger, HDT's stockholders owned approximately 86% of the
outstanding Netword common stock. The Merger was treated as a reverse merger,
with HDT being the acquirer for accounting purposes. The pre-acquisition
financial statements of HDT became the historical financial statements of the
combined companies. The transaction was accounted for as the issuance of common
stock by HDT for the net monetary assets of Netword, accompanied by a
recapitalization to reflect the legally issued and outstanding shares of the
merged companies. Pre-acquisition stockholders' equity of HDT was retroactively
restated for the equivalent number of shares of Netword received by HDT in the
Merger, with differences between the par value of Netword's and HDT's stock
recorded as paid-in capital. Transaction costs ($1,548,245 as of September 30,
2003) related to the Merger were also charged directly to equity. The
transaction did not result in any additional goodwill or other intangible
assets. All common share and per share amounts for all periods presented in the
accompanying consolidated financial statements have been retroactively restated
to reflect the effect of the Merger. References in these notes to "the Company"
are references to HDT as it existed before the Merger and the combined companies
after the Merger.

The Company, which is headquartered in Livermore, California, commenced
operations on December 8, 1999, subsequent to acquiring the assets of and
assuming certain liabilities of IBM Corporation's Home Director business unit.
The Company operates in a single industry, the provision of infrastructure
components for home networking, and is engaged in the design, sale and
installation of home networking products and services for the new home
construction market.

In January 2003, the Company transferred all of the intellectual property
associated with Netword to Netword's subsidiary, Rabbit Media, Inc., and
subsequently sold all of the stock of Rabbit Media, Inc. to a director and the
former President of Netword. As consideration for the sale, the buyer agreed to
indemnify the Company for future claims related to the Netword intellectual
property in the event that such claims are not discharged by Rabbit Media, Inc.
and to pay the Company 10% of any consideration that it receives from any sale
of the Rabbit Media, Inc. stock within two years after the date of the
agreement.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of Home
Director, Inc. (formerly Netword, Inc.) and its wholly-owned subsidiaries, HDT
and Digital Interiors, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation.

UNAUDITED INTERIM FINANCIAL STATEMENTS

The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles and applicable
Securities and Exchange Commission (SEC) regulations for interim financial
information. These financial statements are unaudited and, in the opinion of
management, include all adjustments necessary to present fairly the balance
sheets, statements of operations and statements of cash flows for the periods
presented in accordance with accounting principles generally accepted in the
United States. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to SEC rules and regulations.
Operating results for the nine months ended September 30, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003. These financial statements and notes should be read in
conjunction with the financial statements and notes thereto for the year ended
December 31, 2002 included in the Company's annual

                                        6

<PAGE>

Home Director, Inc.
Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)

report on Form 10-KSB filed with the SEC on March 31, 2003. The balance sheet at
December 31, 2002 has been derived from the audited consolidated financial
statements of the Company.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Significant estimates include the allowance for doubtful
accounts, the allowance for obsolete and slow-moving inventory and estimates
regarding the recoverability of long-lived assets. Actual results can differ
from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an original
or remaining maturity of less than three months at the date of purchase to be
cash equivalents.

INVENTORIES

Inventories consist of finished goods and are stated at the lower of cost or
market. Cost is determined by the weighted average costing method.

CREDIT RISK, SIGNIFICANT CUSTOMERS AND CONCENTRATIONS

Financial instruments that potentially subject the Company to credit risk
consist principally of accounts receivable and cash investments. Receivables are
unsecured. The Company provides an allowance for doubtful accounts equal to the
estimated losses expected to be incurred in the collection of accounts
receivable.

Cash and cash equivalents consist of cash deposits, money market funds and
highly rated commercial paper held at banks. Deposits held at banks may at times
exceed the amount of insurance provided. Generally, these deposits may be
redeemed upon demand and therefore bear minimal risk.

As of September 30, 2003, one customer accounted for 18% of the accounts
receivable balance and one customer accounted for 36% of the revenue for the
nine months ended September 30, 2003 and one customer accounted for 37% of the
revenue for the quarter ended September 30, 2003. As of December 31, 2002, two
customers accounted for 53% and 57% of the accounts receivable balance and
annual revenue, respectively.

The Company is not currently dependent upon any single manufacturer and it
believes that alternative manufacturing sources would be readily available
without material delay in the event of the interruption of supplies from any of
its current sources.

INCOME (LOSS) PER SHARE

In accordance with SFAS 128, basic and diluted net income (loss) per common
share has been computed using the weighted-average number of shares of common
stock outstanding during the period.

The effect of options to purchase 613,371 shares of the Company's common stock
outstanding during the three and nine month periods ended September 30, 2003
were not included in the computation of diluted net loss per share because their
effect would be anti-dilutive.

                                        7

<PAGE>


Home Director, Inc.
Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)

The effect of warrants to purchase 773,592 shares of the Company's common stock
outstanding during the three and nine month periods ended September 30, 2003
were not included in the computation of diluted net loss per share because their
effect would be anti-dilutive.

REVENUE RECOGNITION

The Company's revenues consist primarily of sales of home networking hardware
and services. The Company generally recognizes product revenue when persuasive
evidence of an arrangement exists, delivery has occurred, the fee is fixed or
determinable, and collectibility is reasonably assured. The Company accrues for
sales returns, rebate programs and warranty costs based on its experience.

The Company recognizes revenue on certain builder installation projects under
the percentage of completion method, based primarily on contract revenue
milestones. On certain other installation projects, the Company recognizes
revenue using the percentage of completion method, based upon actual costs
incurred compared to total estimated contract costs under the project. Changes
to total estimated contract costs or losses, if any, are recognized in the
period in which they are determined. For these other installation projects,
revenue recognized in excess of amounts billed of $248,315 and $208,648 at
September 30, 2003 and December 31, 2002, respectively, is classified as current
assets under "Accounts Receivable." Amounts billed in excess of revenue
recognized to date of $17,675 and $25,106 at September 30, 2003 and December 31,
2002, respectively, are classified as current liabilities under "Accounts
Payable and Accrued Expenses."

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost and depreciated using the
straight-line method over their estimated useful lives which generally range
from two to five years. Property and equipment includes certain equipment under
capital leases. These items are depreciated over the shorter of the lease period
or the estimated useful life of the equipment.

INTANGIBLE ASSETS

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets," which is required to be applied for fiscal years beginning after
December 15, 2001. The Company has adopted SFAS 142 as of January 1, 2002. SFAS
142 eliminates the amortization of goodwill and certain other intangible assets.
It also requires the Company to complete a test for impairment of these assets
annually, as well as a transitional goodwill impairment test within six months
from the date of adoption. The results of these tests did not indicate
additional impairment of the Company's recorded goodwill. The Company will
perform its next impairment test as of December 31, 2003.

INCOME TAXES

The Company accounts for income taxes using the liability method which requires
the recognition of deferred tax assets or liabilities for the temporary
differences between the financial reporting and tax bases of the Company's
assets and liabilities and for tax carryforwards at enacted statutory rates in
effect for the years in which the differences are expected to reverse. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. In addition, valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized. The Company has not recorded any income tax expense or benefit
as a result of its available net operating loss carryforwards, which are fully
reserved by a valuation allowance.

                                        8

<PAGE>

Home Director, Inc.
Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)

ACCOUNTING FOR STOCK-BASED COMPENSATION

As permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"), the Company has elected to account
for its stock-based compensation to employees and outside directors, where
appropriate, under the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations and amendments. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.

RECENT ACCOUNTING PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 65, Amendment of FASB Statement No.
13 and Technical Corrections. SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains
and Losses from Extinguishment of Debt," and an amendment of that statement,
SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." The statement will require gains or losses from extinguishment of
debt to be classified as operating items, as opposed to extraordinary items,
unless they meet the more stringent criteria of APB No. 30. The statement
requires retroactive reclassification for comparative financial statements
issued after adoption.

The Company began applying SFAS No. 145 in 2003 and, as a result, for the nine
months ended September 30, 2003, has reclassified the extraordinary gain from
extinguishment of certain liabilities to operating income in its comparative
financial statements issued after adoption. This reclassification did not have
an impact on previously reported net loss.

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities", which is
effective for fiscal years beginning after December 15, 2002, with earlier
application encouraged. This statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity"
(including Certain Costs Incurred in a Restructuring). The provisions of SFAS
No. 146 are to be applied prospectively from the date of adoption (See Note 5 -
Provision for Abandonment of Facility.)

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123,"
("SFAS 148"). This statement amends FASB Statement No. 123, "Accounting for
Stock-Based Compensation." ("SFAS 123") to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, the statement amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The amendments to SFAS 123 regarding disclosure are effective for
financial statements for fiscal years ending after December 15, 2002. The
Company is in the process of analyzing whether or not it will adopt fair value
methodology under SFAS 148.

At September 30, 2003, the Company has a stock-based compensation plan (the
"Plan"), more fully described in the Company's proxy statement for its 2003
annual meeting of stockholders. The Company accounts for the Plan under the
recognition and measurement principals of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. No stock-based employee
compensation is reflected in net income, as all options granted under the Plan
had an exercise price equal to the market value of the underlying common stock
on the date of grant.

                                        9

<PAGE>

Home Director, Inc.
Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)

The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation.

<TABLE>
<CAPTION>

(In thousands, except per share amounts)

                                                              Sept. 30,          Sept. 30,
                                                               2003                2002
                                                          --------------      --------------
<S>                                                       <C>                 <C>
Net income (loss), as reported                            $   (1,950,566)     $   (1,195,087)
Deduct:  Total stock-based employee compensation
 expense determined under fair value based method for
 all awards, net of income tax effects                        (1,175,736)            (34,748)
                                                          --------------      --------------
Pro forma net income (loss)                               $   (3,126,302)     $   (1,229,835)
                                                          ==============      ==============
Net income (loss) per share:
   Basic - as reported                                    $        (0.52)     $        (1.92)
                                                          ==============      ==============

   Diluted - as reported                                  $        (0.52)     $        (1.92)
                                                          ==============      ==============

      Basic - proforma                                    $        (0.83)     $        (1.98)
                                                          ==============      ==============

   Diluted - proforma                                     $        (0.83)     $        (1.98)
                                                          ==============      ==============
</TABLE>

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments imbedded in other contracts, and for hedging activities under SFAS
No. 133. This statement is effective for contracts entered into or modified
after June 30, 2003, except as for provisions that relate to SFAS No. 133
implementation issues that have been effective for fiscal quarters that began
prior to June 15, 2003, which should continue to be applied in accordance with
their respective dates. The Company does not expect the adoption of this
pronouncement to have a material effect on the results of operations or
financial position.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
requires that certain financial instruments that, under previous guidance,
issuers could account for as equity, be classified as liabilities in statements
of financial position. Most of the guidance in SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The Company does not expect the adoption of this pronouncement to have
a material effect on the results of operations or financial position.

NOTE 2 - CAPITAL STOCK

On April 1, 2002, the Company's Board of Directors approved a one-for-ten
reverse common stock split which was subsequently approved by the Company's
stockholders as of May 2, 2002. An amendment to the Company's Certificate of
Incorporation effecting the stock split was filed with the State of Delaware on
May 2, 2002. All common share and per common share amounts for all periods
presented in the accompanying consolidated financial statements have been
restated to reflect the effect of this common stock split.

As of September 30, 2003, the Company had authorized 40,000,000 shares of common
stock with a par value of $0.01. The Company also had authorized 2,000,000
shares of preferred stock, which are undesignated, with a par value of $0.01.

                                       10

<PAGE>

Home Director, Inc.
Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)

NOTE 3 - COMMON STOCK RESERVED FOR FUTURE ISSUANCE

At September 30, 2003, the Company had reserved a total of 1,552,212 of its
authorized 40,000,000 shares of common stock for future issuance as follows:


<TABLE>
<CAPTION>
<S>                                                         <C>
Outstanding common stock warrants                                773,592
Possible future issuance of common stock warrants                 40,000
Outstanding stock options                                        613,371
Possible future issuance under stock option plan                 125,249
                                                            ------------
                                                               1,552,212
</TABLE>


NOTE 4 - RELATED PARTY TRANSACTIONS

In February 2002, Donald B. Witmer, chairman of the Board of Directors and chief
executive officer of the Company, Robert Wise, president, chief operating
officer and a director of the Company, and Spencer Trask Venture Partners, LLC
("Spencer Trask"), an affiliate of the Company's financial adviser and one of
its principal shareholders, purchased $110,000, $55,000 and $270,000 of HDT's
exchangeable notes, respectively, which included 17,127 detachable warrants to
purchase the HDT common stock at $.70 per share. The exchangeable notes were
exchangeable into convertible notes upon satisfying the minimum sale
requirements of the private placement of convertible debt. These notes were
exchanged for an equal principal amount of HDT's convertible notes in May 2002.
Of the $705,000 proceeds received by HDT, $230,481 was assigned as the fair
value of the detachable warrants. The exchangeable notes contained a beneficial
conversion feature determined to be $230,481 at the date of issuance. These
amounts were recorded as an increase to interest expense during the quarter
ended June 30, 2002 when the notes were exchanged into secured convertible
notes. In fiscal 2002 (prior to the Merger), HDT sold $9,200,000 principal
amount of its 8% secured convertible notes which were converted into HDT common
stock at a price of $.10 per share immediately prior to the Merger. Upon the
Merger, all outstanding shares of HDT (including the shares that were issued
upon conversion of HDT's convertible notes) were exchanged for shares of Netword
common stock at the rate of 36.3 shares of the HDT common stock for each share
of Netword common stock.

NOTE 5- PROVISION FOR ABANDONMENT OF FACILITY

In June 2003, the Company exited its Durham, North Carolina warehouse facility
and relocated the operations to its Livermore, California facility. As a result,
the Company recorded a provision of $590,000 related to the remaining lease
commitment associated with the Durham facility. This provision is included as
part of accounts payable and accrued expenses and other long-term liabilities on
the accompanying balance sheet. There were no severance costs associated with
this abandonment.

NOTE 6 - CONTINGENCIES

The Company is subject to various legal proceedings and claims, which have
arisen in the ordinary course of its business and have not been fully
adjudicated. It is impossible at this time for the Company to predict with any
certainty the outcome of such litigation, and we cannot assure you that any
liability arising from this litigation will not be material in relation to the
Company's consolidated financial position or results of operations.

On June 18, 2001, Point West Ventures, LP ("Point West") filed a complaint
against HDT and Spencer Trask Ventures, Inc., the placement agent for HDT's
Series B convertible preferred stock financing, in New York State

                                       11

<PAGE>

Home Director, Inc.
Condensed Notes to Consolidated Financial Statements

                                   (Unaudited)

Supreme Court. Point West, one of the investors in that financing, alleged
misrepresentation in connection with that financing and sought rescission of its
$500,000 investment. Subsequent to the filing of the complaint Point West was
placed in receivership and the action against the Company and Spencer Trask was
stayed and remains inactive. The receiver may determine to pursue the action at
some future date.

The Company has received written notice from a third party alleging breach of
contract and violation of trademark law in connection with the use of the "Home
Director" trademark. Specifically, the third party has alleged that the Company
has breached the terms of an agreement by using the "Home Director" mark in
connection with certain of its products without displaying a distinctive
corporate identifier. The notice also alleged violation of certain federal and
state trademark laws. Although no cause of action has been filed and the Company
is attempting to resolve this claim, the Company can provide no assurance that a
cause of action seeking damages or injunctive relief will not be filed or that
the claim will be successfully resolved on terms favorable to the Company or at
all.

NOTE 7 - LIQUIDITY

As a result of the default under the Loan Agreement (see below) and continuing
losses, the Company has an immediate need for working capital, which, if not
satisfied within the next several months, may force it to curtail operations.
The Company's continuing operations require working capital for purchase of
inventory and payment of the expenses of operations. The Company is addressing
its working capital needs by seeking additional financing.

In an effort to raise additional capital of not less than $1 million and not
more than $2.5 million (subject to increase by up to 30% of the maximum amount),
the Company has initiated a private offering through a placement agent of units
consisting of shares of its common stock and warrants to purchase shares of its
common stock (the "Private Offering"). The units are being offered at a price
equal to 80% of the average of the closing bid price of the Company's common
stock over the 10 consecutive trading days immediately preceding each closing of
the Private Offering. Each warrant will be exercisable for three years after the
closing at the price per unit in the Private Offering.

The Company engaged a placement agent to use reasonable efforts to sell the
units in the Private Offering. The Company agreed to pay the placement agent a
cash commission equal to 10% of the gross proceeds of the units sold in the
Private Offering, plus a non-accountable expense allowance equal to 3% of the
gross proceeds. In addition, the Company agreed to issue the placement agent
warrants to purchase a number of shares of the Company's common stock equal to
20% of the shares of common stock sold in the Private Offering (including shares
underlying the warrants included in the units sold).

The Company's chief executive officer and president have both agreed with the
placement agent for the benefit of investors in the Private Offering that if the
Company does not achieve at least $1.00 in earnings before interest,
depreciation and taxes in one calendar quarter ending on or before December 31,
2003 (subject to extension until March 31, 2004 if the Company acquires another
business before December 31, 2003), they will waive their rights to receive any
bonus for 2003 and will accept a 50% reduction in their base salaries for 2004.

Historically, the Company's operations have never been self-sustaining, and it
has financed its continuing operations through a series of private offerings of
debt and equity and by obtaining advances under the Loan Agreement.


                                       12

<PAGE>

Home Director, Inc.
Condensed Notes to Consolidated Financial Statements
                                   (Unaudited)

If the Company raises the $1,000,000 minimum amount in the Private Offering, it
expects the proceeds to provide sufficient capital to finance its operations at
least through the middle of 2004. If the Company raises the $2,500,000 maximum
amount in the Private Offering, it expects the proceeds to provide sufficient
capital to finance its operations at least through mid 2005. In addition to any
proceeds of the Private Offering, the Company may require additional debt or
equity financing in the near future if it continues to incur operating losses or
if it meets unforeseen events or requires funding to expand its business into
new geographic areas, including by way of strategic acquisitions.

In July 2003, the Company entered into a Loan and Security Agreement (the "Loan
Agreement") with Venture Banking Group, a Division of Cupertino National Bank
(the "Bank"), providing for a revolving line of credit to the Company of up to
$1,000,000 at any time outstanding. Advances under the Loan Agreement are
limited to 80% of the Company's eligible receivables (as defined) and bear
interest at the Bank's prime rate plus 0.5% (4.75% as of November 12, 2003),
subject to a minimum rate of 4.75%. Amounts owing under the Loan Agreement are
secured by substantially all of the Company's assets. As of November 12, 2003,
the balance outstanding under the Loan Agreement was $300,000.

In October 2003, the Bank notified the Company of the occurrence of an event of
default under the Loan Agreement as a result of the Company's failure to comply
with certain financial covenants. Although the Bank has not exercised its
default remedies (which include the right to demand immediate repayment of the
outstanding balance), it is not providing further advances. The Company has been
advised by its independent auditors that unless the event of default is waived
or cured or in the event that the Private Offering is not completed before the
Company is prepared to file its Annual Report on Form 10-KSB for the fiscal year
ending December 31, 2003, the audit report will contain an explanatory paragraph
indicating that there is substantial doubt regarding the Company's ability to
continue as a going concern.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion of our financial condition and results of operations
should be read together with the financial statements and related notes included
elsewhere in this report. Some of the statements in this section that are not
historical facts are forward-looking statements. You are cautioned that the
forward-looking statements contained in this section are estimates and
predictions, and that 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
disclosed in our annual report on Form 10-KSB for our fiscal year ended December
31, 2002.

OVERVIEW

We are Home Director, Inc. Until December 19, 2002, we were known as Netword,
Inc. On that date, we changed our name and acquired all of the stock of Home
Director Technologies, Inc. (formerly Home Director, Inc. and referred to in
this report as "HDT"). The acquisition was accomplished by the merger of
Netword's special purpose subsidiary into HDT (the "Merger"). As a result of the
Merger, the former stockholders of HDT acquired a majority of the voting
interests in Netword; consequently, the Merger was treated as a reverse
acquisition, with HDT treated as the acquirer for accounting purposes. The
pre-Merger financial statements of HDT are treated as the historical financial
statements of the combined companies. At the time of the Merger, Netword had no
continuing operations. Its historical results would not be meaningful if
combined with the historical results of HDT. As a result of the Merger, the
business of HDT is now our only business.


                                       13

<PAGE>

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. We believe
the following critical accounting policies, which have been discussed by senior
management and our audit committee, have significant effect in the preparation
of our consolidated financial statements.

Revenue Recognition. We generally recognize product revenue upon its shipment.
We also recognize revenue using the percentage of completion method on
installation projects, primarily by comparing contractual billing milestones
with total contract value. Accounting for revenue from services, payment of
upfront fees, and achievement of contract-specific milestones involves
management making assessments of business conditions and estimates regarding
timing and cost of work associated with the revenue. Over time, these estimates
may be adjusted based on then-current circumstances, resulting in adjustment to
revenues. Changes to total estimated contract costs or losses, if any, are
recognized in the period in which they are identified.

Valuation of Accounts Receivable. Accounts receivable are unsecured and we
maintain allowances for doubtful accounts for estimated losses from customers'
inability to make payments. We assess each account that is more than 90 days
delinquent or others when information known to us indicates amounts may be
uncollectable; in order to estimate the appropriate level of the allowance, we
consider such factors as historical bad debts, current customer
credit-worthiness, changes in customer payment patterns and any correspondence
with the customer. If the financial condition of our customers were to
deteriorate and impair their ability to make payments, additional allowances
might be required in future periods and it could have a material adverse effect
on our financial condition and results of operation.

Valuation of Inventory. We present inventory value at the lower of cost or
market and net of valuation allowances for excess and obsolete units.
Establishing this reserve requires estimates of sales volumes and pricing. To
the extent that we are not able to correctly anticipate these trends, additional
reserves may be required in future periods.

Valuation of Intangible Assets and Goodwill. Intangible assets include costs in
excess of net assets acquired ("goodwill") and other purchased intangibles. The
carrying amounts of goodwill and intangibles are reviewed annually under new
accounting standards and if facts and circumstances suggest they may be
impaired. If this review indicates that goodwill and intangibles will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired, the carrying amount of the goodwill and other intangibles are reduced
to their estimated fair value. This requires us to estimate such factors as
future sales volumes and costs of business produced by these intangibles. To the
extent that we are not able to correctly anticipate these trends, additional
adjustments to estimated fair value may be required in future periods.

Valuation of Warrants and Other Equity Instruments. We have entered, and may
continue to enter, into transactions whereby we grant warrants to purchase stock
to non-employees or issue convertible debt instruments whose terms include
beneficial conversion features. These transactions sometimes require us to
determine the fair value of non-exchange traded instruments. The development of
these fair values requires significant judgment and estimates by management. We
disclose the principal assumptions used in determining these fair values in our
financial statements and we believe these assumptions are reasonable. However,
the use of different valuation models, or differing assumptions from ours, could
cause materially different values to be assigned these instruments and could
have a significant impact, positive or negative, on our reported results of
operations.

RESULTS OF OPERATIONS

             THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

Total revenues consisted of revenues from the sale of home networking hardware
and services. Revenues for the third quarter were $2,348,000 in 2003, compared
to $2,656,000 in the third quarter of 2002, a decrease of 12% and primarily
attributable to reduced hardware sales. On a year-to-date basis revenues were
$7,309,000 in 2003,

                                       14

<PAGE>


compared to $8,004,000 in 2002, a decrease of 9% and also primarily attributable
to reduced hardware sales which were offset in part by increased services
revenues. The decline in hardware sales reflects the effects of several factors,
including our strategic decisions to concentrate on cost reduction measures
while re-focusing our marketing efforts on the services sector and the sale of
hardware primarily through the still-developing Sears Connected Home program, as
well as price-related competition. Hardware sales accounted for 27% of revenues
in the third quarter and 27% year to date, as compared to 35% and 40% in the
comparable periods last year.

On the services side, thus far this year we have signed new contracts to provide
networking solutions to Shea Homes, Bright Development, SummerHill Homes,
Richmond American Homes-Los Angeles Division, Greystone Homes, Cobblestone Homes
and Jonathan Homes.

On April 17, 2003, we entered into an agreement with Sears, Roebuck & Co. (the
"Sears Agreement"), pursuant to which we are currently undergoing an expansion
of a strategic relationship with Sears called the Sears Connected Home program.
This program began as a pilot program in Florida in 2002 and, under the terms of
the Sears Agreement, is being rolled out by Sears, with support from us, on a
national basis.

Under the Sears Connected Home program, Sears enters into contracts with (1)
home builders for installation of home networking systems in the builder's new
houses and (2) one of its authorized integrators to fulfill the contract.
Pursuant to the Sears Agreement, we are the preferred supplier of hardware
products used in Sears' home networking systems.

The term of the Sears Agreement expires on April 17, 2005, subject to each
party's right to terminate the agreement at any time during the term, with or
without cause and without penalty or liability, upon 120 days prior written
notice. In addition, during the term of the Sears Agreement, we are prohibited
from entering into similar agreements with other parties (unless certain
conditions exist).

Although we expect to increase our sales as the preferred supplier under the
Sears Connected Home program, we can provide no assurance that our revenues will
increase as a result of the Sears Agreement, or any of the other agreements
referred to above.

Total costs and expenses were $2,743,000 for the third quarter of 2003, compared
to $3,423,000 in the third quarter of 2002. On a year-to-date basis total costs
and expenses were $9,203,000 in 2003, compared to $6,193,000 in 2002. The
increase in 2003 was primarily attributable to the gain on extinguishment of
certain liabilities of $4,660,000 recorded in the second quarter of 2002.
Excluding the reversal of $137,000 of the prior gain on extinguishment of
certain liabilities which was recorded in the third quarter of 2002, total costs
and expenses decreased by $543,000 (or 17%) in the third quarter of 2003,
compared to the third quarter of 2002. Excluding the provision for abandonment
of the facility of $590,000 which was recorded in 2003 and the gain on
extinguishment of liabilities recorded in 2002, year to date costs and expenses
in 2003 have decreased by $2,103,000 (or 20%), compared to 2002. We believe that
comparing the total cost and expenses as adjusted by excluding the abandonment
of the facility and gain on extinguishment of the liabilities referred to above
is meaningful because it allows the reader to compare results of operations
without one-time gains, charges and expenses. The reduction in total costs and
expenses (excluding the items described above) is primarily attributable to
reduced cost of revenues (61% of revenues in 2003 compared to 65% in 2002)
caused by lower hardware product costs and service installation costs, general
and administrative and depreciation and amortization costs. While we believe
that we will continue to have favorable expense comparisons in future periods,
from time-to-time, we may incur additional professional fees and other costs in
connection with possible future attempts to expand our business into new
geographic areas through one or more strategic acquisitions.

Other expense (net) for the nine months ended September 30, 2002 was adversely
affected by certain expenses related to the Company's sale of convertible notes.
The expenses include interest accrued on the convertible notes (subsequently
paid in common stock in December 2002) and the amortization of costs of the sale
of convertible notes, which together totaled over $2,100,000 in the third
quarter of 2002 and nearly $3,000,000 for the nine months ended September 30,
2002.

                                       15

<PAGE>

Our net loss in the third quarter of 2003 was $438,000, as compared to a net
loss of $2,894,000 in 2002. The net loss in the third quarter of 2002 included
interest and other expenses of $2,120,000 associated with convertible notes that
were retired on conversion in December 2002. On a year-to-date basis, the net
loss for the first nine months of 2003 was $1,951,000 as compared to a net loss
of $1,195,000 for the first nine months of 2002. The change was primarily
attributable to the gain on extinguishment of certain liabilities recorded in
the second quarter of 2002 ($4,523,000) and interest and other expenses of
$2,996,000 associated with convertible notes that were retired on conversion in
December 2002. The table below reconciles our reported net income (loss) to our
adjusted net income (loss) ("Adjusted Loss") by excluding the items indicated
below:

<TABLE>
<CAPTION>
                                            For the three months ended          For the nine months ended
                                          -------------------------------   --------------------------------
                                          Sept. 30, 2003   Sept. 30, 2002   Sept. 30, 2003    Sept. 30, 2002
                                          --------------   --------------   --------------    --------------
<S>                                       <C>              <C>              <C>              <C>
Net income (loss) - as reported             $  (438,262)     $(2,893,863)     $(1,950,566)     $(1,195,086)
---------------------------------------     -----------      -----------      -----------      -----------
Adjustments:
---------------------------------------     -----------      -----------      -----------      -----------
  Provision for abandonment of facility              --               --          590,000               --
---------------------------------------     -----------      -----------      -----------      -----------
  (Gain) on extinguishment of certain
   liabilities                                       --          137,170               --       (4,523,243)
---------------------------------------     -----------      -----------      -----------      -----------
  Other expense, net
  Interest and other expense
  associated with convertible notes                  --        2,119,677               --        2,995,771
---------------------------------------     -----------      -----------      -----------      -----------
Adjusted Loss                               $  (438,262)     $  (637,016)     $(1,360,566)     $(2,722,558)
</TABLE>

The Adjusted Loss from operations for the third quarter of 2003 was $438,000
compared to an Adjusted Loss from operations of $637,000 for the third quarter
of 2002 - a decrease of 31%. On a year-to-date basis the Adjusted Loss from
operations for 2003 was $1,361,000 as compared to an Adjusted Loss from
operations of $2,723,000 for 2002 - a decrease of 50%. We believe the
presentation of the Adjusted Loss, which excludes the items described above, is
meaningful because it allows the reader to compare our results of operations
without one-time gains, charges and expenses.

LIQUIDITY AND CAPITAL RESOURCES

Loan Agreement

In July 2003, the Company entered into a Loan and Security Agreement (the "Loan
Agreement") with Venture Banking Group, a Division of Cupertino National Bank
(the "Bank"), providing for a revolving line of credit to the Company of up to
$1,000,000 at any time outstanding. Advances under the Loan Agreement are
limited to 80% of the Company's eligible receivables (as defined) and bear
interest at the Bank's prime rate plus 0.5% (4.75% as of November 12, 2003),
subject to a minimum rate of 4.75%. Amounts owing under the Loan Agreement are
secured by substantially all of the Company's assets. As of November 12, 2003,
the balance outstanding under the Loan Agreement was $300,000.

In October 2003, the Bank notified the Company of the occurrence of an event of
default under the Loan Agreement as a result of the Company's failure to comply
with certain financial covenants. Although the Bank has not exercised its
default remedies (which include the right to demand immediate repayment of the
outstanding balance), it is not providing further advances. The Company has been
advised by its independent auditors that unless the event of default is waived
or cured before the Company is prepared to file its Annual Report on Form 10-KSB
for the fiscal year ending December 31, 2003, the audit report will contain an
explanatory paragraph indicating that there is substantial doubt regarding the
Company's ability to continue as a going concern.

Although we expect to restore compliance with some of the financial covenants
under the Loan Agreement if we raise at least $1,000,000 in the Private Offering
(see description below), we cannot be certain that we will do so, or that the
Bank will not accelerate repayment of the outstanding balance under the Loan
Agreement before we do so or as a

                                       16

<PAGE>

result of our failure to comply with other covenants, or that the Bank will make
additional advances even if we are able to comply with all financial covenants
under the Loan Agreement. We intend to seek modification of certain of the
existing covenants to facilitate future compliance and restore our borrowing
capacity, but we have no assurance that we will be successful in this effort.

As of September 30, 2003, we had cash, cash equivalents, investments and
interest receivable totaling approximately $306,000.

Cash used in the first nine months of 2003 totaled $2.3 million. Of that amount
approximately $730,000 was used for payment of fees for legal, accounting and
financial advisory services in connection with the Merger. The balance was
primarily used to fund the cash operating loss ($1,033,000) and an increase in
accounts receivable ($723,000), offset in part by borrowings on our bank line of
credit of $400,000, of which $100,000 was repaid in October 2003.

Net cash used in operating activities was $2.2 million for the nine months ended
September 30, 2003 and $4.9 million for the nine months ended September 30,
2002. Net cash used for both periods in operating activities was primarily due
to increases in accounts receivable, funding of operating losses and payments to
reduce accounts payable. Payments to reduce accounts payable in 2003 were
primarily attributable to payments for legal and accounting fees of $480,000
related to the Merger.

Net cash used in investing activities was $91,000 for the nine months ended
September 30, 2003 and $1,020,000 for the nine months ended September 30, 2002.
Cash was used in investing activities during 2003 primarily to purchase property
and equipment. Cash was used in investing activities during 2002 primarily for
merger costs.

Net cash provided by financing activities was $14,000 for the nine months ended
September 30, 2003 and net cash provided by financing activities during the nine
months ended September 30, 2002 was $7.6 million. Net cash provided by financing
activities during 2003 was primarily as a result of borrowings under the Loan
Agreement, offset in part by the payment of a $250,000 fee to the Company's
financial adviser in connection with the Merger, and the net cash provided by
financing activities during 2002 was primarily proceeds from the issuance of
HDT's convertible notes which were converted into shares of HDT common stock
immediately before the Merger.

Additional Capital Needs

As a result of the default under the Loan Agreement and our continuing losses,
we have an immediate need for working capital, which, if not satisfied within
the next several months, may force us to curtail operations. Our continuing
operations require working capital for purchase of inventory and payment of the
expenses of operations. We are currently having difficulty making timely
payments, resulting in delays in our receipt of materials and requiring us to
pay some vendors on delivery. Should our lack of working capital continue, it
may cause vendors to stop doing business with us, force us to reduce staff, or
otherwise make us unable to continue normal operations. We are addressing our
working capital needs by seeking additional financing.

In an effort to raise additional capital of not less than $1 million and not
more than $2.5 million (subject to increase by up to 30% of the maximum amount),
we initiated a private offering through a placement agent of units consisting of
shares of our common stock and warrants to purchase shares of our common stock
(the "Private Offering"). The units are being offered at a price equal to 80% of
the average of the closing bid price of our common stock over the 10 consecutive
trading days immediately preceding each closing of the Private Offering. Each
warrant will be exercisable for three years after the closing at the price per
unit in the Private Offering.

We have engaged a placement agent to use reasonable efforts to sell the units in
the Private Offering. We agreed to pay the placement agent a cash commission
equal to 10% of the gross proceeds of the units sold in the Private Offering,
plus a non-accountable expense allowance equal to 3% of the gross proceeds. In
addition, we agreed to issue the placement agent warrants to purchase a number
of shares of our common stock equal to 20% of the shares

                                       17

<PAGE>

of common stock sold in the Private Offering (including shares underlying the
warrants included in the units sold).

Our chief executive officer and president have both agreed with the placement
agent for the benefit of investors in the Private Offering that if we do not
achieve at least $1.00 in earnings before interest, depreciation and taxes in
one calendar quarter ending on or before December 31, 2003 (subject to extension
until March 31, 2004 if we acquire another company before December 31, 2003),
they will waive their rights to receive any bonus for 2003 and will accept a 50%
reduction in their base salaries for 2004.

Historically our operations have never been self-sustaining, and we have
financed our continuing operations through a series of private offerings of debt
and equity and by obtaining advances under the Loan Agreement. We cannot predict
when, if ever, our business will produce sufficient cash to reduce or eliminate
our dependence on external financing as our primary source of working capital.

If we raise the $1,000,000 minimum amount in the Private Offering, we expect the
proceeds to provide us with sufficient capital to finance our operations at
least through the middle of 2004. If we raise the $2,500,000 maximum amount in
the Private Offering, we expect the proceeds to provide us with sufficient
capital to finance our operations at least through mid 2005. In addition to any
proceeds of the Private Offering, we may require additional debt or equity
financing in the near future if we continue to incur operating losses or to meet
unforeseen costs or fund expansion of our business into new geographic areas,
including by way of strategic acquisitions. We can provide no assurance that any
such additional financing will be available on terms acceptable to us or at all.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The Company and its subsidiaries are parties to various leases related to office
facilities and equipment. We are also obligated to make payments related to our
long-term borrowings.

The minimum commitments under non-cancellable capital and operating leases at
September 30, 2003 are as follows:

<TABLE>
<CAPTION>
  Year                                Capital            Operating
Ending                                Leases*              Leases
------                        -----------------    ------------------
<S>                           <C>                  <C>
2003 - Remainder              $          24,038    $          105,876
2004                                    106,071               467,077
2005                                     27,611               421,799
2006                                      1,239               359,459
2007                                        ---               310,141
Thereafter                                  ---                33,492
                              -----------------    ------------------
Total minimum payments        $         158,959    $        1,697,844
                              =================    ==================
</TABLE>

*Represents principal payments only.

Cash requirements related to the repayment of debt are as follows:

<TABLE>
<CAPTION>
                                                       2003
                                                       ----
<S>                                                  <C>
Line of credit                                       $400,000
Notes payable                                         125,000
                                                      -------
Total                                                $525,000
                                                     --------
</TABLE>


                                       18

<PAGE>


ITEM 3. CONTROLS AND PROCEDURES

CEO, President and CFO Certifications. Attached as exhibits to this quarterly
report are the certifications of the CEO, President and the CFO required by
Rules 13a-15 and 15d-15 the Securities Exchange Act of 1934 (the
"Certifications"). This section of the quarterly report contains the information
concerning the evaluation of Disclosure Controls and changes to Internal
Controls over Financial Reporting referred to in the Certifications and this
information should be read in conjunction with the Certifications for a more
complete understanding of the topics presented.

Disclosure Controls. Disclosure Controls are procedures that are designed for
the purpose of ensuring that information required to be disclosed in our reports
filed under the Securities Exchange Act of 1934 (such as this quarterly report),
is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms.

Internal Controls over Financial Reporting. Internal Controls over Financial
Reporting means a process designed by, or under the supervision of, our
principal executive and principal financial officers, or persons performing
similar functions, and effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America ("GAAP"), and includes those policies and procedures
that:

-pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our assets;

-provide reasonable assurance our transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP, and that our
receipts and expenditures are being made only in accordance with authorizations
of our management and directors; and

-provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on our consolidated financial statements.

Limitations on the Effectiveness of Controls. Our management, including the CEO,
President and CFO, do not expect that our Disclosure Controls or Internal
Controls over Financial Reporting will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Because of the limitations in all control systems, no evaluation of our
controls can provide absolute assurance that all control issues and instances of
fraud, if any, have been detected. Further, the design of any control system is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Because of these inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.

Changes to Internal Controls over Financial Reporting. In accordance with the
SEC's requirements, the CEO, President and CFO note that, during the quarter
ended September 30, 2003, there have been no significant changes in Internal
Controls over Financial Reporting or in other factors that have affected or are
reasonably likely to materially affect Internal Controls over Financial
Reporting, including any corrective actions with regard to significant
deficiencies and material weaknesses.

Conclusions regarding Disclosure Controls. Based upon the required evaluation of
Disclosure Controls, the CEO, President and CFO have concluded, as of September
30, 2003, that, subject to the limitations noted above, the Company's Disclosure
Controls are effective to provide reasonable assurance that material information
relating to Home Director and its consolidated subsidiaries is made known to
management, including the CEO, President and CFO.

                                       19

<PAGE>

                                     PART II

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to various legal proceedings and claims, which have
arisen in the ordinary course of its business and have not been fully
adjudicated. It is impossible at this time for the Company to predict with any
certainty the outcome of such litigation, and we cannot assure you that any
liability arising from this litigation will not be material in relation to the
Company's consolidated financial position or results of operations.

On June 18, 2001, Point West Ventures, LP ("Point West") filed a complaint
against HDT and Spencer Trask Ventures, Inc., the placement agent for HDT's
Series B convertible preferred stock financing, in New York State Supreme Court.
Point West, one of the investors in that financing, alleged misrepresentation in
connection with that financing and sought rescission of its $500,000 investment.
Subsequent to the filing of the complaint, Point West was placed in receivership
and the action against the Company and Spencer Trask was stayed and remains
inactive. The receiver may determine to pursue the action at some future date.

We have received written notice from a third party alleging breach of contract
and violation of trademark law in connection with the use of the "Home Director"
trademark. Specifically, the third party has alleged that we have breached the
terms of an agreement by using the "Home Director" mark in connection with
certain of our products without displaying a distinctive corporate identifier.
The written notice has also alleged violation of certain federal and state
trademark laws. Although no cause of action has been filed and we are attempting
to resolve this claim, we can provide no assurance that a cause of action
seeking damages or injunctive relief will not be filed or that the claim will be
successfully resolved on terms favorable to us or at all.

ITEM 2. CHANGES 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

On October 12, 2003, Robert B. Clasen resigned as a director of the Company and
each committee of our board of directors on which he served.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

10.1     Loan and Security Agreement dated as of July 24, 2003, between Venture
         Banking Group, a division of Cupertino National Bank, and Home
         Director, Inc., Home Director Technologies, Inc. and Digital Interiors,
         Inc.

31.1     Certification of Chief Executive Officer pursuant to Rule 13a-15 or
         15d-15(a) of the Securities Exchange Act of 1934, as amended.

31.2     Certification of President pursuant to Rule 13a-15 or 15d-15(a) of the
         Securities Exchange Act of 1934, as amended.

31.3     Certification of Chief Financial Officer pursuant to Rule 13a-15 or
         15d-15(a) of the Securities Exchange Act of 1934, as amended.

32.1     Certification of Chief Executive Officer in accordance with Section 906
         of the Sarbanes-Oxley of 2002.

32.2     Certification of President in accordance with Section 906 of the
         Sarbanes-Oxley of 2002.

32.3     Certification of Chief Financial Officer in accordance with Section 906
         of the Sarbanes-Oxley of 2002.


(b) Reports on Form 8-K

None.

                                       20

<PAGE>


                                   SIGNATURES

In accordance with section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                               HOME DIRECTOR, INC.
                                  (Registrant)

                    By: /s/ Donald B. Witmer
                    ------------------------------------
                    Donald B. Witmer
                    Chairman and Chief Executive Officer


                    By: /s/ Robert N. Wise
                    ------------------------------------
                    Robert N. Wise
                    President and Chief Operating Officer


                    By: /s/ Daryl Stemm
                    ------------------------------------
                    Daryl Stemm
                    Chief Financial Officer and Secretary



Date: November 14, 2003

                                       21