SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

 (Mark One)

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

                For the quarterly period ended September 30, 1998

                                       OR

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


                         Commission file number 0-22557


                                  PEAPOD, INC.
             (Exact name of Registrant as specified in its charter)

              Delaware                                   36-4118175
-----------------------------------         ------------------------------------
     (State or other jurisdiction              (IRS Employer Identification No.)
      of Incorporation or Organization)


                    9933 Woods Drive, Skokie, Illinois 60077
               (Address of principal executive offices) (ZIP Code)


                                    (847) 583-9400
                   (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 [ ]


         The number of shares  outstanding  of the  registrant's  common  stock,
$0.01 par value ("Common Stock") as of October 22, 1998 was 17,129,949.



<PAGE>
                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.           Financial Statements.
<TABLE>

                                  PEAPOD, INC.
                                 BALANCE SHEETS
                      (in thousands, except for share data)

<CAPTION>
                                                                        September 30,      December 31,
                                                                             1998              1997
                                                                        ----------------- -----------------
                                                                          (unaudited) 
                                 Assets
<S>                                                                           <C>               <C>
Current assets:
     Cash and cash equivalents..........................................      $ 8,783           $54,079 
     Marketable securities..............................................       33,318             8,798 
     Receivables, net of bad debt allowance of $358 and $352 as
       of September 30, 1998 and December 31, 1997, respectively........        1,415             1,195 
     Prepaid expenses...................................................          621               444 
     Other current assets...............................................          811               228 
                                                                        ----------------- -----------------
 Total current assets...................................................       44,948            64,744 
Property and equipment:
     Computer equipment and software....................................        5,700             4,499 
     Service equipment and other........................................        1,615             1,053 
                                                                        ----------------- -----------------
Property and equipment, at cost.........................................        7,315             5,552 
     Accumulated depreciation...........................................       (3,545)           (2,301)
                                                                        ----------------- -----------------
Net property and equipment..............................................        3,770             3,251 
Capitalized software development costs..................................        1,284               998 
Goodwill, net of accumulated amortization of $203 and $174
   as of September 30, 1998 and December 31, 1997, respectively.........           87               117 
                                                                        ----------------- -----------------
          Total assets..................................................      $50,089           $69,110 
                                                                        ================= =================
                  Liabilities and Stockholders' Equity Current liabilities:
     Accounts payable...................................................      $ 2,953           $ 7,514 
     Accrued compensation...............................................          973             1,258 
     Other accrued liabilities..........................................        1,204               926 
     Current deferred service fees......................................        1,821             1,969 
     Current obligations under capital lease............................          622               727 
                                                                        ----------------- -----------------
          Total current liabilities.....................................        7,573            12,394 
Deferred service fees...................................................          652             1,212 
Obligations under capital lease, less current obligations...............          340               701 
                                                                        ----------------- -----------------
          Total liabilities.............................................        8,565            14,307 
Stockholders' equity:
     Preferred stock, $.01 par value, authorized 5,000,000
        shares, none issued and outstanding.............................          --                --  
     Common stock, $.01 par value, 50,000,000 shares authorized,
          17,124,920 and 16,852,557 shares issued and outstanding at
          September 30, 1998 and December 31, 1997, respectively........          171               169 
     Additional paid-in capital.........................................       63,906            63,148 
     Accumulated other comprehensive income -
          Unrealized gain on available for sale securities..............          151               --  
     Accumulated deficit................................................      (22,077)           (8,495)
     Treasury stock,  at cost,  84,127 and 2,000 shares at September 30,
     1998 and December 31, 1997, respectively...........................         (627)              (19)
                                                                        ----------------- -----------------
          Total stockholders' equity....................................       41,524            54,803 
                                                                        ================= =================
          Total liabilities and stockholders' equity....................      $50,089           $69,110 
                                                                        ================= =================
                    See accompanying  notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                  PEAPOD, INC.
                            STATEMENTS OF OPERATIONS
               (in thousands, except for share and per share data)
                                   (unaudited)

                                                                     Three months ended September 30,
                                                                -------------------------------------------
                                                                ------------------       ------------------
                                                                      1998                     1997
                                                                ------------------       ------------------
<S>                                                                   <C>                      <C>
Revenues:
     Net product sales.........................................         $ 13,057                 $ 10,208 
     Member and retailer services..............................            2,306                    2,784 
     Interactive marketing services............................              263                      614 
     Licensing services........................................               50                    --  
                                                                ------------------       ------------------
          Total revenues.......................................           15,676                   13,606 
Costs and expenses:
     Cost of goods sold........................................           12,295                    9,599 
     Fulfillment operations....................................            4,735                    4,020 
     General and administrative................................            1,523                    1,053 
     Marketing and selling.....................................            1,243                    1,857 
     System development and maintenance........................              999                      378 
     Depreciation and amortization.............................              529                      366 
                                                                ------------------       ------------------
          Total costs and expenses.............................           21,324                   17,273 
                                                                ------------------       ------------------

Operating loss.................................................           (5,648)                  (3,667)
Other income (expense):
     Interest expense..........................................              (44)                     (13)
     Interest income...........................................              609                      866 
                                                                ==================       ==================
Net loss.......................................................         $ (5,083)                $ (2,814)
                                                                ==================       ==================

Net loss per share:
     Basic.....................................................         $  (0.30)                $  (0.17)
     Diluted...................................................         $  (0.30)                $  (0.17)

Shares used to compute net loss per share:
     Basic.....................................................       17,075,309               16,856,070 
     Diluted...................................................       17,075,309               16,856,070 

                    See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
                                 PEAPOD, INC.
                            STATEMENTS OF OPERATIONS
               (in thousands, except for share and per share data)
                                   (unaudited)

                                                                     Nine months ended September 30,
                                                                -------------------------------------------
                                                                -----------------        ------------------
                                                                      1998                     1997
                                                                -----------------        ------------------
<S>                                                                  <C>                       <C>
Revenues:
     Net product sales.........................................      $   42,999                $   29,601 
     Member and retailer services..............................           7,695                     8,525 
     Interactive marketing services............................           1,225                     1,604 
     Licensing services........................................             150                     --  
                                                                -----------------        ------------------
          Total revenues.......................................          52,069                    39,730 
Costs and expenses:
     Cost of goods sold........................................          40,454                    27,761 
     Fulfillment operations....................................          14,942                    12,177 
     General and administrative................................           4,521                     3,348 
     Marketing and selling.....................................           3,781                     4,353 
     System development and maintenance........................           2,430                     1,057 
     Depreciation and amortization.............................           1,501                       956 
                                                                -----------------        ------------------
          Total costs and expenses.............................          67,629                    49,652 
                                                                -----------------        ------------------

Operating loss.................................................         (15,560)                   (9,922)
Other income (expense):
     Interest expense..........................................            (132)                      (58)
     Interest income...........................................           2,111                     1,188 
                                                                =================        ==================
Net loss.......................................................      $  (13,581)                $  (8,792)
                                                                =================        ==================

Net loss per share:
     Basic.....................................................      $    (0.80)                $   (0.62)
     Diluted...................................................      $    (0.80)                $   (0.62)

Shares used to compute net loss per share:
     Basic.....................................................      16,954,079                14,279,385 
     Diluted...................................................      16,954,079                14,279,385 

                  See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                  PEAPOD, INC.
                       STATEMENTS OF COMPREHENSIVE INCOME
                                 (in thousands)
                                   (unaudited)
                                                                       Three Months Ended September 30,
                                                                       ----------------------------------
                                                                           1998                1997
                                                                       --------------      --------------
<S>                                                                        <C>                 <C> 
Net loss                                                                   $ (5,083)           $ (2,814)

Other comprehensive income:
      Unrealized gain on available for sale securities                          176                 --  
                                                                       --------------      --------------

Comprehensive loss                                                         $ (4,907)           $ (2,814)
                                                                       ==============      ==============
                 See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                 PEAPOD, INC.
                       STATEMENTS OF COMPREHENSIVE INCOME
                                 (in thousands)
                                   (unaudited)
                                                                       Nine Months Ended September 30,
                                                                    --------------------------------------
                                                                         1998                 1997
                                                                    ---------------     ------------------
<S>                                                                     <C>                     <C> 
Net loss                                                                $ (13,581)              $ (8,792)

Other comprehensive income:
      Unrealized gain on available for sale securities                        151                    --  
                                                                    ---------------     ------------------

Comprehensive loss                                                      $ (13,430)              $ (8,792)
                                                                    ===============     ==================
              See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                  PEAPOD, INC.
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)
                                                                       Nine Months Ended September 30,
                                                                    --------------------------------------

                                                                         1998                  1997
                                                                    ----------------      ----------------
<S>                                                                       <C>                   <C>
Cash flows from operating activities:

    Net loss.......................................................       $(13,581)             $ (8,792)

    Adjustments to reconcile net loss to net cash used in operating activities:

        Depreciation and amortization..............................          1,501                   956 

        Stock issued for services rendered.........................             45                   533 

        Changes in operating assets and liabilities:

            (Increase) decrease in receivables, net................           (220)               (1,897)

            (Increase) decrease in prepaid expenses................           (177)                 (567)

            (Increase) decrease in other current assets............           (583)                  (23)

            Increase (decrease) in accounts payable................         (4,561)                  782 

            Increase (decrease) in accrued compensation............           (285)                  344 

            Increase (decrease) in other accrued liabilities.......            278                   959 

            Increase (decrease) in deferred service fees...........           (708)                1,295 
                                                                    ----------------      ----------------

                Net cash used in operating activities..............        (18,291)               (6,410)

Cash flows from investing activities:

    Property and equipment purchased...............................         (1,637)               (1,183)

    Capitalized software development costs.........................           (514)                 (565)

     Net purchases of marketable securities........................        (24,369)               (6,058)
                                                                    ----------------      ----------------

                Net cash used in investing activities..............        (26,520)               (7,806)

Cash flows from financing activities:

    Proceeds from issuance of stock, net of offering costs.........            --                 58,286 

    Proceeds from issuance of stock upon exercise of options.......            107                    57 

    Payments on capital lease obligations..........................           (592)                 (367)
                                                                    ----------------      ----------------

                Net cash provided by (used in) financing activities           (485)               57,976 
                                                                    ----------------      ----------------

Net increase (decrease) in cash....................................        (45,296)               43,760 

Cash and cash equivalents at beginning of period...................         54,079                13,039 
                                                                    ================      ================

Cash and cash equivalents at end of period.........................       $  8,783               $56,799 
                                                                    ================      ================


Supplemental disclosure of cash flows information--interest paid          $    117               $    61

Supplemental disclosures of noncash investing and financing activity:
          Options exercised by sale of stock to the Company........            608                    19 
          Equipment on capital leases..............................            126                   907
                                                                    ================      ================
</TABLE>

                   See accompanying notes to financial statements.

<PAGE>
                                  PEAPOD, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (unaudited)

1.   Basis of Presentation.  The unaudited interim financial statements included
     herein  have  been  prepared  by the  Company,  pursuant  to the  rules and
     regulations of the Securities  and Exchange  Commission.  Certain notes and
     other  information  normally included in financial  statements  prepared in
     accordance  with  generally  accepted   accounting   principles  have  been
     condensed or omitted  from the interim  financial  statements  presented in
     this  quarterly  report on Form  10-Q in  accordance  with  such  rules and
     regulations.  In the opinion of the Company's management,  the accompanying
     financial  statements  include all  adjustments,  consisting only of normal
     recurring adjustments,  necessary to state fairly the financial position of
     the Company as of September 30, 1998, and the results of its operations and
     cash flows for the periods  indicated.  The results of  operations  for the
     periods  covered  are  not  necessarily  indicative  of the  results  to be
     expected for the full year.

     These financial  statements  should be read in conjunction with the audited
     financial  statements  and notes  thereto of the Company for the year ended
     December 31, 1997,  which are included in the  Company's  Annual  Report on
     Form 10-K filed with the Securities and Exchange Commission.

2.   Conversion.  Peapod,  Inc.  ("Company")  is  the  successor  to a  business
     originally  founded in 1989 as a Delaware  corporation  and operated  since
     1992 through an Illinois  limited  partnership  ("Peapod  LP"). In December
     1996,  the Company was  incorporated  in  Delaware.  In a  conversion  (the
     "Conversion")  that was  effected  on May 31,  1997  (i) all of the  equity
     interests  in Peapod LP were  transferred  to the Company in  exchange  for
     12,656,417 shares of Common Stock, (ii) Peapod LP was dissolved,  (iii) all
     of the assets and liabilities of Peapod LP were  transferred to the Company
     and (iv) outstanding options and warrants for equity interests in Peapod LP
     were  converted  into options and warrants for shares of Common Stock.  The
     transfer of the assets and  liabilities  of Peapod LP to the  Company  have
     been recorded by the Company at the  historical  carrying  values of Peapod
     LP. On June 16,  1997  ("Offering  Date"),  the  Company  closed an initial
     public  offering of  4,000,000  shares of Common  Stock at $16.00 per share
     generating net proceeds of approximately $58.1 million.

3.   Earnings Per Share.  The Company applies SFAS No. 128,  Earnings Per Share,
     in computing earnings per share. Basic net loss per share is computed using
     the weighted average number of common shares outstanding.  Diluted net loss
     per share is computed  using the weighted  average  number of common shares
     outstanding  and equivalent  shares based on the assumed  exercise of stock
     options  and   warrants   (using  the   treasury   stock   method)   unless
     anti-dilutive.

4.   Reclassifications.  Certain prior year balances have been  reclassified  to
     conform with the current year presentation.


<PAGE>


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

RESULTS OF OPERATIONS

         The following table sets forth certain unaudited financial  information
from the Statements of Operations as a percentage of total revenues:
<TABLE>
<CAPTION>
                                                Three Months Ended                Nine Months Ended
                                                   September 30,                    September 30,
                                             --------------------------       ---------------------------
                                             ------------   -----------       ------------   ------------
                                                1998           1997              1998           1997
                                             ------------   -----------       ------------   ------------
<S>                                                <C>           <C>                <C>            <C> 
Revenues:
     Net product sales.......................       83  %         75  %              83  %          75  %
     Member and retailer services............       15            20                 15             21 
     Interactive marketing services..........        2             5                  2              4 
     Licensing services......................        *            --                  *           --  
                                             ------------   -----------       ------------   ------------
          Total revenues.....................      100           100                100            100 
Costs and expenses:
     Cost of goods sold......................       79            70                 78             70 
     Fulfillment operations..................       30            29                 28             31
     General and administrative..............       10             8                  9              8 
     Marketing and selling...................        8            14                  7             11 
     System development and maintenance......        6             3                  5              3 
     Depreciation and amortization...........        3             3                  3              2 
                                             ------------   -----------       ------------   ------------
          Total costs and expenses...........      136           127                130            125 
                                             ------------   -----------       ------------   ------------
Operating loss...............................      (36)          (27)               (30)           (25)

Other income (expense):
     Interest expense........................        *             *                  *              * 
     Interest income.........................        4             6                  4              3 
                                             ============   ===========       ============   ============
Net loss.....................................      (32) %        (21) %             (26) %         (22) %
                                             ============   ===========       ============   ============

 * - Less than 1%                                       
</TABLE>

Comparison of Three Months Ended September 30, 1998 and September 30, 1997


         Net product sales. Net product sales, which is revenue from the sale of
groceries and other  products to members,  increased by 28% from  $10,208,000 in
the quarter  ended  September  30,  1997 to  $13,057,000  in the  quarter  ended
September  30, 1998.  This  increase was  primarily due to a 20% increase in the
number of orders, from 93,700 in the quarter ended September 30, 1997 to 112,300
in the quarter ended  September 30, 1998, and a 7% increase in the average order
size for the same time period.  Membership,  measured as  customers  transacting
within the last 12 months,  increased  18% from 84,000  members at September 30,
1997 to 98,900 at September 30, 1998. Increases in the Company's membership base
and orders resulted largely from increased market penetration.


         Member  and  retailer  services.  Revenues  from  member  and  retailer
services include subscription, service and other fees paid by members and retail
partners related to Peapod's online shopping and delivery operations.  Fees from
such services  decreased 17% from  $2,784,000 in the quarter ended September 30,
1997 to  $2,306,000 in the quarter  ended  September 30, 1998.  This decrease is
primarily  attributable to an absence of market openings and related fees in the
quarter ended  September 30, 1998 compared to the openings of two new markets in
the quarter ended  September 30, 1997.  Market opening fees,  paid by retailers,
are  recognized  over the  period  in which a new  market  opens.  Discounts  on
groceries  purchased  by the  Company  from  retailers,  which  were  previously
included in member and retailer services,  have been reclassified as a reduction
in cost of goods sold.

         Interactive  marketing  services.  Revenues from interactive  marketing
services   consist  of  fees  from  consumer  goods  companies  for  interactive
advertising,  promotion and research services. Fees from such services decreased
by 57% from $614,000 in the quarter ended  September 30, 1997 to $263,000 in the
quarter  ended  September  30,  1998.  The decrease is due to a reduction in the
number and size of interactive marketing programs during the period, which may
have resulted from the Company's decision to limit acquisition spending and 
geographic growth during 1998.

         Licensing  services.  Revenues  from  licensing  services  include  the
license and related  maintenance  and service fees  received  for the  Company's
proprietary  software. In the quarter ended September 30, 1998, $50,000 has been
recognized  for  maintenance  fees  relating to the  licensing of the  Company's
software to Coles-Myer,  Ltd. No such fees were  recognized in the quarter ended
September 30, 1997.

         Cost of goods sold.  Cost of goods sold  includes the cost of groceries
and other  products  purchased  on behalf of its  members,  net of  returns  and
discounts. Cost of goods sold increased 28% from $9,599,000 in the quarter ended
September  30, 1997 to  $12,295,000  in the quarter  ended  September  30, 1998,
commensurate with the growth in net product sales.

         Fulfillment operations. Fulfillment operations expenses include (i) the
direct costs  relating to the shopping,  packing and delivery of member  orders,
(ii) salaries and overhead expenses of each fulfillment  center,  (iii) salaries
and  overhead  expenses  for each  metropolitan  market  and (iv)  salaries  and
overhead  expenses  for certain  field  support  functions  such as  recruiting,
training,  database  merchandising and customer support.  Fulfillment operations
expenses  increased 18% from  $4,020,000 in the quarter ended September 30, 1997
to $4,735,000 in the quarter ended September 30, 1998, and at a slower rate than
the  increase  in number of orders.  The  change is  primarily  attributable  to
increases in direct  costs of shopping,  packing and  delivering  the  increased
volume of member  orders,  and  increases in salaries and overhead  expenses for
fulfillment centers; offset in part by decreases in telecommunication costs.

         At  September  30,  1998,   Peapod  fulfilled  member  orders  from  36
fulfillment   centers  across  seven  metropolitan   markets  serving  6,400,400
households.  This compares to 57 fulfillment  centers across eight  metropolitan
markets at September 30, 1997 covering  6,605,000  households.  The evolution of
the  Company's   fulfillment  model  has  resulted  in  economies  of  scale  as
fulfillment  centers have been consolidated into more centralized  facilities or
dedicated facilities. The Atlanta market ceased operations in January 1998.

         General and administrative.  General and administrative expenses, which
include corporate staff,  accounting,  finance,  human resources,  occupancy and
business development  departments,  increased 45% from $1,053,000 in the quarter
ended  September 30, 1997 to $1,523,000 in the quarter ended September 30, 1998.
The increase is primarily attributable to occupancy, professional fees and 
compensation related expenses to support the centralized fulfillment model and
Company's growth.

         Marketing and selling.  Marketing and selling expenses include the cost
of member  acquisition and retention  marketing,  such as radio  advertising and
direct mail, as well as certain costs relating to public  relations and the sale
of  interactive  marketing  services.  The  Company  expenses  all such costs as
incurred. Marketing and selling expenses decreased by 33% from $1,857,000 in the
quarter ended  September  30, 1997 to $1,243,000 in the quarter ended  September
30, 1998. The decrease is primarily  attributable  to the Company's  decision to
limit  marketing  expenditures  during  1998 while  focusing on  initiatives  to
centralize fulfillment operations and modify its service model.

         System development and maintenance.  System development and maintenance
expenses,  which include new product  development as well as the maintenance and
enhancement  of existing  systems,  increased  164% from $378,000 in the quarter
ended  September 30, 1997 to $999,000 in the quarter  ended  September 30, 1998.
The increase is primarily  attributable to increased  compensation  expenses and
consulting  fees to support  the  Company's  growth and its  software  licensing
initiative.  In addition,  $210,000 of development costs were capitalized in the
third  quarter of 1997  related to the next  version of the  Company's  consumer
software compared to $51,000 of such costs in the third quarter of 1998.

         Depreciation and amortization.  Depreciation and amortization increased
45% from  $366,000 in the quarter  ended  September  30, 1997 to $529,000 in the
quarter ended September 30, 1998. This increase is the result of amortization of
capitalized software  development costs,  equipment added to support new members
and employees and changes in the  depreciable  lives of certain  capital  assets
already in service.

         Other income (expense).  Other income (expense)  includes interest paid
on capital leases and interest earned on cash balances and marketable securities
resulting  from the  investment  of proceeds from the issuance of equity in both
1996 and 1997.  Interest  expense  increased  from $13,000 in the quarter  ended
September 30, 1997 to $44,000 in the quarter ended September 30, 1998.  Interest
income  decreased  from  $866,000 in the  quarter  ended  September  30, 1997 to
$609,000 in the quarter ended September 30, 1998.


Comparison of  Nine Months Ended September 30, 1998 and September 30, 1997

         Net product sales.  Net product sales increased by 45% from $29,601,000
in the nine months ended  September 30, 1997 to  $42,999,000  in the nine months
ended  September 30, 1998.  This increase was primarily due to a 37% increase in
the number of orders,  from 271,700 in the nine months ended  September 30, 1997
to 372,700 for the same  period in 1998 and a 7%  increase in the average  order
size.

         Member  and  retailer  services.  Revenues  from  member  and  retailer
services  decreased 10% from  $8,525,000 in the nine months ended  September 30,
1997 to $7,695,000 in the nine months ended September 30, 1998. This decrease is
primarily  attributable to an absence of market openings and the related fees in
the nine months  ended  September  30, 1998  compared to the openings of two new
markets in the nine months ended September 30, 1997.

         Interactive  marketing  services.  Revenues from interactive  marketing
services decreased by 24% from $1,604,000 in the nine months ended September 30,
1997 to $1,225,000 in the nine months ended  September 30, 1998. The decrease is
due to a reduction in the number and size of interactive marketing programs
during the period, which may have resulted from the Company's decision to limit
acquisition spending and geographic growth during 1998.

         Licensing  services.  In the nine  months  ended  September  30,  1998,
$150,000 has been recognized for  maintenance  fees relating to the licensing of
the Company's  software to Coles-Myer,  Ltd. No such fees were recognized in the
nine months ended September 30, 1997.

         Cost of goods sold.  Cost of goods sold increased 46% from  $27,761,000
in the nine months ended  September 30, 1997 to  $40,454,000  in the nine months
ended September 30, 1998, commensurate with the growth in net product sales.

     Fulfillment operations.  Fulfillment operations expenses increased 23% from
$12,177,000  in the nine months ended  September 30, 1997 to  $14,942,000 in the
nine months ended September 30, 1998. The increase is primarily  attributable to
(i) the direct costs of shopping, packing and delivering the increased volume of
member orders;  (ii) increases in salaries and overhead expenses for fulfillment
centers; and (iii) salaries and overhead expenses for customer support functions
to support increases in the Company's membership base.

         General  and  administrative.   General  and  administrative   expenses
increased  35% from  $3,348,000  in the nine months ended  September 30, 1997 to
$4,521,000  in the nine  months  ended  September  30,  1998.  The  increase  is
primarily  attributable to occupancy, professional fees and compensation related
expenses to support the centralized fulfillment model and Company's growth.

         Marketing and selling.  Marketing and selling expenses decreased by 13%
from $4,353,000 in the nine months ended September 30, 1997 to $3,781,000 in the
nine months ended September 30, 1998. The decrease is primarily  attributable to
the  Company's  decision  to limit  marketing  expenditures  during  1998  while
focusing on  initiatives  to centralize  fulfillment  operations  and modify its
service model.

         System development and maintenance.  System development and maintenance
expenses  increased 130% from  $1,057,000 in the nine months ended September 30,
1997 to $2,430,000 in the nine months ended  September 30, 1998. The increase is
primarily  attributable  to  increased  compensation  expenses  to  support  the
Company's growth and its software licensing initiative. In addition, $565,000 of
development  costs were  capitalized in the first nine months of 1997 related to
the next version of the Company's consumer software compared to $514,000 of such
costs in the first nine months of 1998.

         Depreciation and amortization.  Depreciation and amortization increased
57% from  $956,000 in the nine months ended  September 30, 1997 to $1,501,000 in
the nine  months  ended  September  30,  1998.  This  increase  is the result of
amortization  of capitalized  software  development  costs,  equipment  added to
support new  members  and  employees  and  changes in the  depreciable  lives of
certain capital assets already in service.

         Other income (expense).  Interest expense increased from $58,000 in the
nine months  ended  September  30,  1997 to  $132,000  in the nine months  ended
September 30, 1998.  Interest  income  increased 78% from $1,188,000 in the nine
months ended September 30, 1997 to $2,111,000 in the nine months ended September
30, 1998.


LIQUIDITY AND CAPITAL RESOURCES

         Cash used in operating  activities  increased  from  $6,410,000  in the
first nine months of 1997 to  $18,291,000  in the first nine months of 1998. The
increase in cash used in operating  activities  was  primarily  attributable  to
decreases in accounts payable early in 1998,  increased net losses and decreases
in deferred  service fees. As of September 30, 1998,  the Company had $8,783,000
in cash and cash equivalents and $33,318,000 in marketable securities.  In 1997,
the Company sold equity which  generated  aggregate net proceeds of $58,846,000,
including $58,120,000 net proceeds from the Company's initial public offering of
Common Stock in June 1997 (the "IPO").  The Company uses its working  capital to
fund ongoing operations, marketing programs, to further develop its products and
services and geographic expansion.

         The Company  anticipates  that existing cash and marketable  securities
will be sufficient to fund the Company's operations and capital requirements for
the  foreseeable  future.  However,  no  assurance  can be given  that  changing
business  circumstances will not require additional capital for reasons that are
not currently  anticipated or that the necessary  capital will then be available
to the Company on favorable terms, or at all.

         The Company  believes that  inflation has not had a material  effect on
its operations.


YEAR 2000

         The  Company  has  evaluated  the  impact of the Year 2000 issue on its
business and does not expect to incur  significant  costs  associated  with Year
2000  compliance  or that Year 2000  issues  will have a material  impact on the
Company's business,  results of operations or financial condition. The Company's
proprietary software systems and applications are currently Year 2000 compliant.
Certain  operating  systems  of third  party  vendors on which  certain  Company
software  resides are not yet Year 2000 compliant.  However,  these vendors have
indicated to the Company that Year 2000 compliant upgrades are either available,
or will be available shortly,  and the Company intends to install these upgrades
in the first half of 1999.  Certain  third-party  software for which the Company
pays maintenance  fees is not yet Year 2000 compliant,  but the Company has made
provisions to upgrade these  third-party  software  systems in the first half of
1999. With respect to its grocery retail partners, to the extent that any of the
Company's  retail partners'  computer  systems are not Year 2000 compliant,  the
Company has established  alternative  procedures for obtaining relevant retailer
information at a minimal cost to the Company.




                                     PART II
                                OTHER INFORMATION



Item 5.           Other Information

                  Safe Harbor Statement under the Private Securities Litigation
                  Reform Act of 1995.

                  Certain  statements in this report relative to markets for the
                  Company's  products and trends in the Company's  operations or
                  financial results, as well as other statements including words
                  such as "anticipate," "believe," "plan," "estimate," "expect,"
                  "intend"   or   other    similar    expressions,    constitute
                  "forward-looking  statements"  under  The  Private  Securities
                  Litigation Reform Act of 1995. Such forward-looking statements
                  are  contained  in  "Management's  Discussion  and Analysis of
                  Financial  Condition and Results of  Operations"  and in other
                  portions of this report. Such  forward-looking  statements are
                  subject to known and unknown  risks,  uncertainties  and other
                  factors  which  may  cause  actual  results  to be  materially
                  different  from  those  contemplated  by  the  forward-looking
                  statements.  Such factors include, among other things: (1) the
                  developing  nature of the markets for the  Company's  services
                  and the rapid technological  change relating thereto;  (2) the
                  Company's  relationship  with its  retail  partners  and other
                  suppliers, and its interactive marketing services and research
                  customers;  (3) the  Company's  ability to execute  its growth
                  strategies;  (4) the  extent to which the  Company  is able to
                  attract and retain key personnel; (5) competition; (6) general
                  economic conditions; (7) regulations; and (8) the risk factors
                  or  uncertainties  listed  from time to time in the  Company's
                  filings with the Securities and Exchange Commission.

Item 6.           Exhibits and Reports on form 8-K.

(a) Exhibits - The  following  exhibits are filed  herewith or are  incorporated
herein:

                      Exhibit
                           No.              Description
                         27 --               Financial Data Schedule

(b) Reports on Form 8-K - The Registrant filed no Current Reports on Form 8-K
    during the quarter ended September 30, 1998.

<PAGE>

                                    SIGNATURE


         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.


                                         Peapod, Inc.
                                         ------------------
                                              (Registrant)

October 30, 1998
                                         /s/ Dan Rabinowitz
                                         --------------------
                                         Dan Rabinowitz
                                         Chief Financial Officer