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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)

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

                  For the quarterly period ended March 31, 2000

                                       or

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

                        Commission File Number 000-26925


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


                Delaware                             13-3818716
                --------                             ----------
     (State or other jurisdiction of               (I.R.S. Employer
     incorporation or organization)              Identification Number)


                          395 Hudson Street, 6th Floor
                             New York, NY 10014-3669
                             -----------------------
               (Address of principal executive offices) (Zip code)

                                 (212) 301-2500
                                 --------------
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]


As of April 30, 2000, there were 28,256,995 shares of the Registrant's Common
Stock issued and outstanding.

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<PAGE>

                             INTERWORLD CORPORATION
                                TABLE OF CONTENTS

                                                                      Page
                                                                      ----
PART I - FINANCIAL INFORMATION

 Item 1. Financial Statements

   Consolidated Balance Sheets as of March 31, 2000 (unaudited) and
     December 31, 1999                                                  2

   Consolidated Statements of Operations for the three months ended
     March 31, 2000 (unaudited) and 1999 (unaudited)                    3

   Consolidated Statements of Cash Flows for the three months ended
     March 31, 2000 (unaudited) and 1999 (unaudited)                    4

   Notes to Consolidated Financial Statements                           5

 Item 2. Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                      9

PART II - OTHER INFORMATION

 Item 1.  Legal Proceedings                                            13

 Item 4.  Submission of Matters to a Vote of Security Holders          13

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


SIGNATURES                                                             14


EXHIBIT INDEX                                                          14


                                        1
<PAGE>


PART I
 Item 1.       FINANCIAL STATEMENTS

                             INTERWORLD CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                      (In Thousands, Except Share Amounts)

                                                      March 31,   December 31,
                                                        2000          1999
                                                        ----          ----
                                                    (Unaudited)
ASSETS
<TABLE>
<S>                                                  <C>           <C>
Current assets:
 Cash and cash equivalents                           $   8,857     $  21,583
 Short-term investments                                 23,792        17,986
 Accounts receivable, net                               10,646         6,505
 Prepayments and other current assets                    1,107         1,580
 Deferred offering costs                                   770             -
                                                     ---------     ---------
     Total current assets                               45,172        47,654
                                                     ---------     ---------

Property and equipment, net                              7,496         7,161
Other assets                                               475           486
                                                     ---------     ---------
       Total assets                                  $  53,143     $  55,301
                                                     =========     =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
 Accounts payable and accrued expenses               $   9,211     $   8,637
 Capital lease obligations to related
   party - current                                         248           599
 Deferred revenue and customer deposits                  5,248         5,201
                                                     ---------     ---------
     Total current liabilities                          14,707        14,437
                                                     ---------     ---------
Deferred rent                                            1,954         1,586
                                                     ---------     ---------
       Total liabilities                                16,661        16,023
                                                     ---------     ---------

Stockholders' equity (deficit):
 Preferred stock
   ($0.01 par value; 15,000,000 shares authorized,
   -0- issued and outstanding at March 31, 2000
   and December 31, 1999)                                    -             -
 Common stock
   ($0.01 par value; 100,000,000 shares authorized,
   28,068,991 and 27,234,238 issued and outstanding
   at March 31, 2000 and December 31, 1999,
   respectively)                                           281           272
 Additional paid-in capital                            127,134       122,612
 Equity adjustments                                       (67)          (52)
 Accumulated deficit                                  (90,866)      (83,554)
                                                     ---------     ---------
       Total stockholders' equity (deficit)             36,482        39,278
                                                     ---------     ---------
       Total liabilities and stockholders' equity    $  53,143     $  55,301
                                                     =========     =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

                                       2
<PAGE>

                             INTERWORLD CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In Thousands, Except Share Amounts)
                                   (Unaudited)

                                                         Three Months Ended
                                                             March 31,
                                                             ---------
                                                        2000          1999
                                                        ----          ----
<TABLE>
<S>                                                  <C>             <C>
Revenues, net:
 Product licenses                                    $   8,978       $   4,386
 Services                                                6,244           2,615
 Other                                                       -               -
                                                     ---------       ---------
   Total revenues, net                                  15,222           7,001
                                                     ---------       ---------

Cost of revenues:
 Product licenses                                          978             208
 Services                                                4,347           2,756
 Other                                                       -               -
                                                     ---------       ---------
   Total cost of revenues                                5,325           2,964
                                                     ---------       ---------
     Gross profit                                        9,897           4,037
                                                     ---------       ---------

Operating expenses:
 Research and development                                5,328           3,637
 Sales and marketing                                     7,404           4,968
 General and administrative                              2,942           1,213
 Noncash employee compensation                           2,030           1,121
                                                     ---------       ---------
   Total operating expenses                             17,704          10,939
                                                     ---------       ---------
     Loss from operations                               (7,807)         (6,902)

Other income (expense):
 Interest income                                           521              92
 Interest expense                                          (26)           (296)
                                                     ---------       ---------
   Total other income (expense)                            495            (204)
                                                     ---------       ---------
     Loss before income taxes                           (7,312)         (7,106)

Income taxes                                                 -             (44)
                                                     ---------       ---------
     Net loss                                        $  (7,312)      $  (7,150)
                                                     =========       =========

Basic loss per share and diluted loss per share      $   (0.26)      $   (0.52)
                                                     =========       =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       3
<PAGE>


                             INTERWORLD CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
                                   (Unaudited)

                                                        Three Months Ended
                                                             March 31,
                                                             ---------
                                                        2000         1999
                                                        ----         ----
<TABLE>
<S>                                                   <C>          <C>
Cash flows from operating activities:
 Net loss                                             $ (7,312)    $ (7,150)
 Adjustments to reconcile net loss to net cash
 used in operating activities:
   Depreciation and amortization                           787          707
   Loss on disposition of property and equipment             2            -
   Noncash consulting expense                              316          410
   Noncash employee compensation                         2,030        1,121
   Noncash interest expense                                 18          262
   Tax payments on noncash compensation                   (666)           -
   Changes in assets and liabilities:
     Accounts receivable, net                           (4,141)        (606)
     Prepayments and other current assets                  479         (397)
     Deferred offering costs                              (770)         (60)
     Other assets                                           11           27
     Accounts payable and accrued expenses                 561       (1,199)
     Deferred revenue and customer deposits                 47        2,028
     Deferred rent                                         368          101
                                                      --------     --------
       Net cash used in operating activities            (8,270)      (4,756)
                                                      --------     --------
Cash flows from investing activities:
   Short-term investments                               (5,806)           -
   Capital expenditures                                 (1,130)      (1,584)
                                                      --------     --------
       Net cash used in investing activities            (6,936)      (1,584)
                                                      --------     --------

Cash flows from financing activities:

   Principal payments on capital lease obligations        (369)        (321)
   Net Proceeds from issuance of Series B
    preferred stock                                          -       16,500
   Proceeds from exercise of common stock options        2,476          406
   Proceeds from employee stock purchase plan              388            -
   Payments of notes payable to related party                -       (4,000)
                                                      --------     --------
       Net cash provided by financing activities         2,495       12,585
                                                      --------     --------

Effect of exchange rate changes in cash and
 cash equivalents                                          (15)           -
                                                      --------     --------

Net (decrease) increase in cash and cash equivalents   (12,726)       6,245

Cash and cash equivalents, beginning of period          21,583          858
                                                      --------     --------

Cash and cash equivalents, end of period              $  8,857     $  7,103
                                                      ========     ========

Cash paid for interest                                $      8     $     34
                                                      ========     ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       4
<PAGE>


                             INTERWORLD CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (In Thousands, Except Share and Per Share Amounts)
                                   (Unaudited)

NOTE 1. BASIS OF PRESENTATION

The accompanying financial statements have been prepared in conformity with the
guidelines set forth by the Securities and Exchange Commission for quarterly
reporting on Form 10-Q. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The consolidated financial statements include the accounts
of InterWorld and its wholly owned and majority-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.

The financial statements and the related Notes are unaudited and should be
reviewed in conjunction with InterWorld's Consolidated Financial Statements for
the year ended December 31, 1999, as set forth in InterWorld's Annual Report on
Form 10-K. In the opinion of management, the Consolidated Financial Statements
and the related notes included herein present fairly, in all material respects,
the financial position and results of operations of InterWorld and its wholly
owned subsidiaries as of and for the three months ended March 31, 2000. In
addition, the stated financial position and quarterly results of operations are
not necessarily indicative of expected results for future periods.

NOTE 2. ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles 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.

NOTE 3. NEW ACCOUNTING PRONOUNCEMENTS

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial
Statements". SAB 101 summarizes certain of the SEC staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. In March 2000, the SEC issued SAB 101A, an amendment to SAB 101,
which delays the implementation of SAB 101 to no later than June 30, 2000 for
companies with fiscal years that begin between December 16, 1999 and March 15,
2000. InterWorld does not believe that SAB 101 will have a material impact on
its financial statements.

NOTE 4. LOSS PER COMMON SHARE

The computations of basic loss per share and diluted loss per share for the
three months ended March 31, 2000 and 1999 are as follows:

                                                         Three Months Ended
                                                              March 31,
                                                              ---------
                                                       2000              1999
                                                       ----              ----
<TABLE>
<S>                                                 <C>          <C>
Net loss                                            $   (7,312)  $   (7,150)
                                                    ----------   ----------
Weighted average shares outstanding used
   for basic loss and diluted loss per share        27,631,508   13,867,442

Basic loss and diluted loss per share*              $    (0.26)  $    (0.52)
                                                    ==========   ==========
</TABLE>

* Common stock equivalents are not included since they would be antidilutive.

                                       5
<PAGE>

At March 31, 2000, outstanding options to purchase 5,445,368 shares of common
stock, with exercise prices ranging from $1.25 to $72.50 per share, and at March
31, 1999, outstanding options to purchase 4,716,331 shares of common stock, with
exercise prices ranging from $1.25 to $10.00, have been excluded from the
computation of diluted loss per share as they are antidilutive. At March 31,
2000, outstanding warrants to purchase 253,690 shares of common stock, with an
exercise price of $9.775 per share, and at March 31, 1999, warrants to purchase
534,070 shares of mandatorily redeemable series A convertible preferred stock
(converted to common stock upon consummation of the initial public offering in
August 1999) with exercise prices ranging from $2.00 to $9.775, all of which are
antidilutive, have been excluded from the computation of diluted loss per share.

NOTE 5. STOCK PLANS

In January 2000, the Compensation Committee granted to an executive officer
options to purchase 150,000 shares of common stock at an exercise price of
$15.00. No options were issued to the executive officer. After determining that
this below fair market grant was invalid under the 2000 Equity Incentive Plan,
the Compensation Committee on April 5, 2000, granted an aggregate of 109,500
shares of restricted common stock, of which 40,750 shares were to be issued
immediately. InterWorld will recognize approximately $1,833 in non-cash
compensation during the quarter ended June 30, 2000, and approximately $2,485 in
the subsequent performance period ending January 1, 2003. The executive officer
may elect to have InterWorld reduce the number of shares issued to him for
payment of applicable federal, state and local taxes.

In January 2000, InterWorld vested previously unvested options to purchase
25,000 shares of common stock granted to a consultant. InterWorld recognized
approximately $316 in noncash compensation expense during the three months ended
March 31, 2000.

In February 2000, InterWorld granted to employees and one consultant options to
purchase an aggregate of 578,000 shares of common stock at exercise prices
ranging from $51.50 to $72.50. InterWorld expects that it will recognize
approximately $2,635 in noncash compensation over the vesting period of the
consultant's options.

In March 2000, InterWorld granted to two executive officers options to purchase
an aggregate of 150,000 shares of common stock at an exercise price of $64.50.
InterWorld does not expect to recognize noncash compensation over the vesting
period of these options.

During the quarter ended March 31, 2000, InterWorld issued 617,702 shares of
common stock from exercises of outstanding options, 196,593 shares of common
stock from warrant exercises, 7,158 shares of common stock under the Employee
Stock Purchase Plan and 13,300 shares in restricted stock grants.

NOTE 6. COMPREHENSIVE INCOME

Statement of Financial Account Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") establishes new rules for reporting and displaying
comprehensive income and its components and requires unrealized gains and losses
on InterWorld's available-for-sale securities and foreign currency translation
adjustments, to be included in comprehensive income. The adoption of SFAS 130
had no impact on InterWorld's reported net income or shareholder's equity.
Comprehensive income includes foreign currency translation adjustments, which
prior to adoption were reported in current assets and liabilities. The
comprehensive income for the three months ended March 31, 2000 and 1999 was as
follows:

                                                       Three Months Ended
                                                            March 31,
                                                            ---------
                                                      2000           1999
                                                      ----           ----
<TABLE>
<S>                                                <C>            <C>
Net loss                                           $  (7,312)     $  (7,150)
                                                   ---------      ---------
Foreign currency translation adjustment                  (15)            (0)
                                                   ---------      ---------
Comprehensive loss                                 $  (7,327)     $  (7,150)
                                                   =========      =========
</TABLE>
                                       6
<PAGE>

NOTE 7. EMPLOYMENT AGREEMENTS

Effective January 2000, Jeremy Davis, InterWorld's Chief Executive Officer and
President, entered into an employment agreement with InterWorld with an initial
term of three years. This agreement establishes a base salary and bonus
eligibility based on performance. InterWorld has also agreed to loan Mr. Davis
$750 to assist in his relocation expenses. The loan will bear interest at the
prime rate and is due to be repaid upon the sale of his former principal
residence. InterWorld granted Mr. Davis a non-qualified option grant to purchase
500,000 shares of common stock at an exercise price of $51.125. This stock
option vests 20% on January 5, 2001 and 5% on the last day of each completed
quarter thereafter. In addition, InterWorld has agreed to issue an aggregate of
50,000 shares of common stock to Mr. Davis of which 16,667 shares were issued on
February 11, 2000 and 16,666 and 16,666 to be issued on or about January 5, 2001
and 2002, respectively. Mr. Davis may elect to have InterWorld reduce the number
of shares issued to him for payment of applicable federal, state and local
taxes, which he did for his initial issuance of 16,667 shares. As a result,
8,800 shares were issued to Mr. Davis, net of his tax obligations. InterWorld
recognized approximately $992 in noncash compensation during the three months
ended March 31, 2000 in connection with this issuance.

Effective February 2000, Russell Fleischer, InterWorld's Senior Vice President,
Finance, entered into an employment agreement with InterWorld with an initial
term of three years. This agreement establishes a base salary and bonus
eligibility based on performance. InterWorld granted Mr. Fleischer a
non-qualified option grant to purchase 250,000 shares of common stock at an
exercise price of $51.50. This stock option vests 20% on January 5, 2001 and 5%
on the last day of each completed quarter thereafter. In addition, InterWorld
has agreed to issue an aggregate of 25,000 shares of common stock to Mr.
Fleischer of which 8,334 shares were issued on February 28, 2000 and 8,333 and
8,333 to be issued on or about February 18, 2001 and 2002, respectively. Mr.
Fleischer may also elect to have InterWorld reduce the number of shares issued
to him for payment of applicable federal, state and local taxes, which he did
for his initial issuance of 8,334 shares. As a result, 4,500 shares were issued
to Mr. Fleischer, net of his tax obligations. InterWorld recognized
approximately $429 in noncash compensation during the three months ended March
31, 2000 in connection with this issuance.

InterWorld entered into a separation agreement with Daniel A. Turano, the former
Senior Vice President, Worldwide Sales pursuant to which Mr. Turano terminated
his employment with InterWorld as of March 31, 2000. Mr. Turano received his
regular base pay and health benefits through such date together with a .33%
commission rate on revenue recognized on commissionable InterWorld product
licenses and first year maintenance earned through such date. Under the terms of
the agreement, Mr. Turano may provide consulting services to InterWorld until
June 30, 2000. If such consulting services are at a level satisfactory to the
President and CEO of the Company, 10% of Mr. Turano's unvested options,
representing the right to purchase 5,625 shares of the InterWorld's common
stock, will be eligible for accelerated vesting on June 30, 2000. In the event
of such vesting, Mr. Turano will have until September 30, 2000 to exercise such
options. Mr. Turano's agreement contains other customary terms regarding
non-disclosure of confidential information, including the nature of any future
public statements, and InterWorld has agreed that Mr. Turano may retain his
laptop computer.

NOTE 8. FOLLOW-ON OFFERING

In January 2000, the Board of Directors of InterWorld authorized management to
pursue an underwritten sale of InterWorld's common stock in a follow-on public
offering (the "Offering") (File Number 333-96254) pursuant to the Securities Act
of 1933, in which 1,250,000 shares were to be offered by InterWorld, and
2,500,000 share were to be offered by the selling stockholders. Subsequently on
April 14, 2000, in view of the market conditions at that time, InterWorld filed
a request with the Securities and Exchange Commission for withdrawal of the
Offering.

                                       7
<PAGE>

NOTE 9. SUBSEQUENT EVENTS

In April 2000, InterWorld granted to employees options to purchase an aggregate
of 155,500 shares of common stock, all at an exercise price of $17.187.
InterWorld does not expect that it will recognize noncash compensation over the
vesting period of these options.


                                       8
<PAGE>


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FORWARD LOOKING STATEMENTS

This Quarterly Report, on Form 10-Q, contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Forward-looking statements are subject
to a number of risks, uncertainties and assumptions. Among the factors that
could cause actual results to differ significantly from those expressed or
implied by such forward-looking statements are: uncertainties relative to global
economic conditions; our reliance on a single family of products for
substantially all of our sales; our need to attract significant new clients on
an ongoing basis; lack of market acceptance of our products; the introduction by
our competitors of new or competing technologies; delays in delivery of new
products or features; our ability to continue to update business application
products, including upgrades to meet international requirements; our inability
to successfully maintain or increase market share in our core business while
expanding our product base into other markets; our inability to enter into or
maintain relationships with system integration companies; the strength of our
distribution channels; our inability either internally or through third-party
service providers to support client implementation of our products; our
inability to recover our costs in sales of our products and services; product
defects; changes in our business strategies; as well as the other factors
discussed in this Form 10-Q and in other documents filed by InterWorld with the
SEC, including those under the caption "Certain Factors That May Affect Future
Results" in InterWorld's Annual Report on Form 10-K.

OVERVIEW

We derive revenues primarily from licensing our Internet commerce software
products and providing related services and support to our clients. We
commercially introduced our first product in December 1995.

We generally price licenses of our platform and applications on a per server or
site basis. Standard per server license fees for the Windows NT solutions are
$150,000 and for Unix solutions are $250,000. The recommended production
configuration that supports redundancy, fault-tolerance and distributed load
balancing across multiple processors is generally available for a license fee of
approximately $300,000 to $500,000. Licenses for product configurations that
support additional servers and users are available. Additional applications,
tools, business adapters, professional services and maintenance services are
provided at an additional cost to the client. Site licenses are also available.
Site licenses typically require the client to pay additional fees based on the
client achieving specified electronic commerce revenues. Payment terms are
generally net 30 days.

Revenue from product licenses is recognized upon shipment to the client under an
executed software license agreement when no significant obligations or
contractual commitments remain and collection is probable. If acceptance by the
client is required, revenue is recognized upon client acceptance. License
revenue from resellers of our products is recognized upon shipment by the
reseller when collection is probable.

Revenue from services is recognized as the services are rendered. Revenue from
services requiring significant modification or customization of our software
products is recognized on a percentage-of-completion basis. Revenue from
maintenance and client support services is recognized ratably over the term of
the agreement for such services. Our license agreements typically require the
client to purchase one year of maintenance and client support services.

Beginning in the fourth quarter of 1998, we increased our use of systems
integration companies for implementation of our products. As a result, the cost
of our service revenues has increased substantially. We anticipate that our
increased use of systems integration companies will continue for the foreseeable
future and, accordingly, that our cost of services revenues will in all
probability exceed historical amounts. In addition, our

                                       9
<PAGE>

service revenues may decrease as a percentage of our aggregate revenues in
future periods as a result of our increased use and training of systems
integration companies.

We have incurred significant research and development expenses to develop our
products. We charge all research and development costs incurred to establish the
technological feasibility of a product or product enhancement to research and
development expense as incurred. In addition, we have made substantial
investments in our infrastructure to support revenue growth. We intend to
increase our staffing in all functional areas as required to accommodate any
revenue growth.

RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
InterWorld's unaudited Consolidated Financial Statements and related Notes,
included herein, as well as InterWorld's Consolidated Financial Statements and
related Notes for the fiscal year ended December 31, 1999, included in
InterWorld's Annual Report on Form 10-K.

Our operating results will generally depend on the volume and timing of our
product license sales, and to a lesser extent, services revenues and expenses,
all of which are difficult to predict. We plan to increase our operating
expenses to achieve revenue growth. If our revenues do not increase as
anticipated and our spending levels are not reduced accordingly, a significant
decline in quarterly operating results could occur. We expect to experience
fluctuations in quarterly operating results due to many factors, including:

-    the size and timing of significant client agreements, which typically occur
     near the end of our fiscal quarter, but, if delayed, may not occur until
     the next quarter;
-    the length of the sales cycle for our products;
-    fluctuations in demand for our products;
-    the introduction of new products by us or our competitors;
-    changes in prices by us or our competition; and
-    the timing and amount of expenditures by us.

In addition, we believe, based on general software industry trends, that sales
of our products will typically be highest in the fourth quarter of the year and
lowest in the first quarter. As a result, period-to-period comparisons of our
results of operations may not be meaningful, and should not be relied on as an
indication of future performance.

THREE MONTHS ENDED MARCH 31, 2000 AND 1999

Total Revenues, net.

Total revenues, net include fees from product licenses and associated consulting
services engagements. Total revenues for the quarter ended March 31, 2000 were
$15.2 million, an increase of $8.2 million, or 117%, over total revenues for the
quarter ended March 31, 1999. Product license revenues increased $4.6 million,
to $9.0 million in the quarter ended March 31, 2000, from $4.4 million in the
quarter ended March 31, 1999. This increase was largely the result of licensing
more of our software products at a higher average license fee per client.
Service revenues increased $3.6 million, to $6.2 million in the quarter ended
March 31, 2000, from $2.6 million in the quarter ended March 31, 1999, primarily
due to an increase in billings from a larger number of InterWorld professional
services employees, and the use of systems integration partners on a
subcontracting basis. During the three months ended March 31, 2000, one customer
accounted for approximately 18% of total revenues. For the three months ended
March 31, 1999, two customers accounted for approximately 27% and 15% of total
revenues.

                                       10
<PAGE>

Cost of Revenues.

Total cost of revenues increased to $5.3 million for the quarter ended March 31,
2000, from $3.0 million for the quarter ended March 31, 1999, an increase of
$2.3 million. Total cost of revenues as a percent of total revenues decreased to
35% for the quarter ended March 31, 2000 from 42% for the same period in 1999.

Cost of product license revenues consists of royalties payable to third parties
for software that is embedded in or bundled with our products, the costs of
product media, documentation and manufacturing costs. Cost of product license
revenues, which increased $0.8 million to $1.0 million for the quarter ended
March 31, 2000, from the same quarter in 1999, reflects the costs of higher
third party OEM royalties and the increased volume of sales. We expect to incur
increased third party OEM royalties in future periods.

Cost of services revenues consists primarily of costs related to employees and
systems integration consultants providing installation and modification services
and support. Cost of services revenues increased to $4.3 million in the first
quarter of 2000, from $2.8 million in the first quarter of 1999. This increase
is attributable to the increased use and training of InterWorld and third-party
systems integration personnel, and to a lesser extent, the training of clients
and partners. We expect that our use of systems integration companies will
continue and that these expenses will increase significantly in future periods.

Research and Development.

Research and development expenses consist of costs related to research and
development personnel, including salaries, related benefits costs and consulting
fees, as well as costs related to facilities and equipment used in research and
development. Research and development expenses increased $1.7 million, to $5.3
million in the first quarter of 2000 from $3.6 million in the first quarter of
1999. This increase was principally due to the addition of personnel to support
the continuous improvements and additions to our licensed products. We expect to
continue to increase our research and development expenses in future periods.

Sales and Marketing.

Sales and marketing expenses consist of salaries and related benefits costs for
sales and marketing personnel, sales commissions and other incentive
compensation, travel and entertainment expenses and the costs of marketing
programs, including trade shows, promotional materials and advertising. Sales
and marketing expenses increased to $7.4 million in the first quarter of 2000,
from $5.0 million in the first quarter of 1999, an increase of $2.4 million.
These increases were due primarily to the expansion of our sales and marketing
organizations and initiation of more extensive marketing activities, including
advertising designed to increase awareness of our brand. We expect to continue
to increase our sales and marketing expenses in future periods.

General and Administrative.

General and administrative expenses consist of salaries and related benefits
costs for administrative, finance and human resources personnel, plus related
facilities and equipment costs. General and administrative expenses increased to
$2.9 million from $1.2 million for the three months ended March 31, 2000 and
1999, respectively. This increase reflects additional administrative personnel
and infrastructure necessary to manage and support our growth. As our various
operations grow, we expect our general and administrative costs to increase as
well.

Noncash Compensation.

Noncash employee compensation consists primarily of noncash charges for stock
options granted to employees at exercise prices deemed below the fair market
value of our common stock at the time of grant, as well as grants of restricted
common stock. For option grants the amount of the charge is equal to the
difference between the exercise price of the stock option and the deemed fair
market value of our common stock

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multiplied by the number of options granted. The charge is amortized over the
vesting period of the options (typically, three to five years). For restricted
stock grants, the amount of the charge is equal to the number of shares granted
multiplied by the fair market value on the date of issuance.

Noncash employee compensation increased to $2.0 million for the quarter ended
March 31, 2000 from $1.1 million for the quarter ended March 31, 1999. This
increase was due largely to restricted stock grants to two executive officers.
We estimate that we will recognize approximately $9.4 million of noncash
employee compensation expense in future periods through October 2004, including
approximately $4.0 million during the remainder of 2000.

Total Other Income (Expense).

Other income (expense) consists primarily of interest income earned on cash and
cash equivalents, net of cash and noncash interest expense for leased equipment.

Other income for the first quarter of 2000 increased by approximately $0.4
million from the first quarter of 1999. This increase was largely attributable
to interest income earned on higher cash and short-term investment balances
resulting from the proceeds from our August 1999 initial public offering.

Other expense decreased by approximately $0.3 million in the three months ended
March 31, 2000 from the quarter ended March 31, 1999. This decrease was
primarily due to the elimination of interest expenses associated with warrants
issued in conjunction with our secured loan agreement with Comdisco, which was
terminated upon consummation of our initial public offering.

LIQUIDITY AND CAPITAL RESOURCES

From inception through InterWorld's initial public offering in August 1999, we
financed our operations primarily through approximately $64.6 million in private
sales of mandatorily redeemable preferred stock, all of which automatically
converted to common stock upon consummation of our initial public offering in
August 1999. At March 31, 2000, we had cash and cash equivalents and short-term
investments of $32.6 million and working capital of $29.7 million.

We have had significant negative cash flows from operating activities to date.
Net cash used in operating activities for the three months ended March 31, 2000
and 1999 were $8.3 and $4.8 million, respectively. Net cash used in operating
activities in each of these periods was primarily the result of expenditures for
product development, sales and marketing and infrastructure enhancements. For
the three months ended March 31, 2000, our net accounts receivable increased
$4.1 million, to $10.6 million in 2000 from $6.5 million in 1999. This increase
was primarily attributable to the signing of an increased number of license and
maintenance agreements at the end of the quarter.

Net cash used in investing activities consists primarily of the purchase of
short-term investments, specifically three to six month government securities
and capital expenditures for computer equipment, purchased software, office
equipment, furniture, fixtures and leasehold improvements. Capital expenditures
for the three months ended March 31, 2000 aggregated $1.1 million, primarily for
computer equipment and leasehold improvements. Short-term investments in
securities exceeding three months were $23.8 million for the quarter ended March
31, 2000.

We believe that our available cash resources will be sufficient to meet our
working capital requirements for at least the next twelve months. However, we
may need additional financing to support more rapid growth and/or to respond to
competitive pressures or unanticipated cash requirements. Additional financing,
if needed, may not be available on satisfactory terms or at all.

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PART II

Item 1. LEGAL PROCEEDINGS

On April 19, 2000, InterWorld filed a suit in the Arizona Superior Court,
Maricopa County, to enforce the payment terms and conditions of its software
license and maintenance agreement with Insight Enterprises, Inc. The amount of
relief requested is approximately $1.6 million, plus associated legal costs.
There can be no assurance that we will prevail in this action or that, in the
event we do prevail, we will be able to collect on a judgement.

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

On January 25, 2000, the shareholders of InterWorld at a special meeting
approved the InterWorld Corporation 2000 Equity Incentive Plan (the "2000
Plan"), which was approved by InterWorld's Board of Directors in November 1999.
The aggregate number of shares of common stock for which options may be granted
under the 2000 Plan is 3,000,000 plus any available shares not covered by an
option granted under the 1996 Plan. The vesting periods and the exercise price
for options granted under the 2000 Plan are determined by the Board of Directors
or a Committee of the Board of Directors. The fair market value of InterWorld's
common stock is determined by the Board of Directors. Options granted under the
Plan generally vest over a period of four years, 25% on the first anniversary of
the date of grant and 6.25% each quarter thereafter.

Additional information required in Item 4 is incorporated by reference to
InterWorld's Definitive Proxy Statement on form DEFS14A (File No. 000-26925).
The ballot for the adoption of the InterWorld 2000 Equity Incentive Plan was as
follows: 15,875,991 shares present; 15,421,640 votes for; 414,968 votes
withheld; and 39,383 votes abstained.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

   (a). Exhibits
       27.1 - Financial Data Schedule

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SIGNATURES

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

                                         INTERWORLD CORPORATION

DATE:   May 15, 2000                     BY:   /s/ Jeremy M. Davis
     ------------------------               -----------------------------------
                                            Jeremy M. Davis
                                            President, Chief Executive Officer


DATE:   May 15, 2000                     BY:   /s/ Peter Schwartz
     ------------------------               -----------------------------------
                                            Peter Schwartz
                                            Chief Financial Officer

EXHIBIT INDEX

 Exhibit
 Number                              Description
 ------                              -----------
  27.1   Financial Data Schedule for the three-month period ended March 31, 2000


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