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 June 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 July 22, 1998 was 16,966,853.



<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.           Financial Statements.


<PAGE>
<TABLE>
<CAPTION>
                                  PEAPOD, INC.
                                 BALANCE SHEETS
                      (in thousands, except for share data)
                                                                             June 30,   December 31,
                                                                              1998          1997
                                                                          ------------  -----------
                                                                            (unaudited)
                                 Assets
<S>                                                                           <C>         <C>
Current assets:
     Cash and cash equivalents ............................................   $  4,511    $ 54,079
     Marketable securities ................................................     42,945       8,798
     Receivables, net of bad debt allowance of $351 and $352 as
       of June 30, 1998 and December 31, 1997, respectively ...............        936       1,195
     Prepaid expenses .....................................................        455         444
     Other current assets .................................................        867         228
                                                                              --------    --------
          Total current assets ............................................     49,714      64,744
Property and equipment:
     Computer equipment and software ......................................      5,420       4,499
     Service equipment and other ..........................................      1,327       1,053
                                                                              --------    --------
Property and equipment, at cost ...........................................      6,747       5,552
     Accumulated depreciation .............................................     (3,124)     (2,301)
                                                                              --------    --------
Net property and equipment ................................................      3,623       3,251
Capitalized software development costs ....................................      1,330         998
Goodwill, net of accumulated amortization of $193 and $174
   as of June 30, 1998 and December 31, 1997, respectively ................         97         117
                                                                              --------    --------
          Total assets ....................................................   $ 54,764    $ 69,110
                                                                              ========    ========
                  Liabilities and Stockholders' Equity Current liabilities:
     Accounts payable .....................................................   $  3,216    $  7,514
     Accrued compensation .................................................        479       1,258
     Other accrued liabilities ............................................        932         926
     Current deferred service fees ........................................      1,553       1,969
     Current obligations under capital lease ..............................        675         727
                                                                              --------    --------
          Total current liabilities .......................................      6,855      12,394
Deferred service fees .....................................................        887       1,212
Obligations under capital lease, less current obligations .................        389         701
                                                                              --------    --------
          Total liabilities ...............................................      8,131      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,
          16,984,940 and 16,852,557 shares issued and outstanding at
          June 30, 1998 and December 31, 1997, respectively ...............        170         169
     Additional paid-in capital ...........................................     63,611      63,148
     Accumulated other comprehensive income -
          Unrealized loss on available for sale securities ................        (25)       --
     Accumulated deficit ..................................................    (16,954)     (8,495)
     Treasury stock, at cost, 23,014 and 2,000 shares at June 30, 1998
             and December 31, 1997, respectively ..........................       (169)        (19)
                                                                               --------    --------
          Total stockholders' equity ......................................     46,633      54,803
                                                                              ========    ========
          Total liabilities and stockholders' equity ......................     54,764    $ 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 June 30,
                                                --------------------------------
                                                ---------------  ---------------
                                                       1998            1997
                                                ---------------  ---------------
<S>                                               <C>              <C>
Revenues:
     Net product sales .......................    $     14,438     $     10,177
     Member and retailer services ............           2,606            3,271
     Interactive marketing services ..........             436              565
     Licensing services ......................              50             --
                                                  ------------     ------------
          Total revenues .....................          17,530           14,013
Costs and expenses:
     Cost of goods sold ......................          13,586            9,539
     Fulfillment operations ..................           5,028            4,287
     General and administrative ..............           1,626            1,570
     Marketing and selling ...................           1,154            1,138
     System development and maintenance ......             821              303
     Depreciation and amortization ...........             509              378
                                                  ------------     ------------
          Total costs and expenses ...........          22,724           17,215
                                                  ------------     ------------
Operating loss ...............................          (5,194)          (3,202)
Other income (expense):
     Interest expense ........................             (33)             (30)
     Interest income .........................             752              201
                                                  ============     ============
Net loss .....................................    $     (4,475)    $     (3,031)
                                                  ============     ============

Net loss per share:
     Basic ...................................    $      (0.26)    $      (0.22)
     Diluted .................................    $      (0.26)    $      (0.22)

Shares used to compute net loss per share:
     Basic ...................................      16,925,120       13,522,753
     Diluted .................................      16,925,120       13,522,753

            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)

                                                      Six months ended June 30,
                                                 -------------------------------
                                                 -------------       -----------
                                                     1998                1997
                                                 -------------       -----------
<S>                                               <C>              <C>
Revenues:
     Net product sales .......................    $     29,933     $     19,393
     Member and retailer services ............           5,399            5,741
     Interactive marketing services ..........             962              990
     Licensing services ......................             100             --
                                                  ------------     ------------
          Total revenues .....................          36,394           26,124
Costs and expenses:
     Cost of goods sold ......................          28,159           18,162
     Fulfillment operations ..................          10,207            8,157
     General and administrative ..............           2,991            2,309
     Marketing and selling ...................           2,538            2,496
     System development and maintenance ......           1,431              679
     Depreciation and amortization ...........             972              590
                                                  ------------     ------------
          Total costs and expenses ...........          46,298           32,393
                                                  ------------     ------------
Operating loss ...............................          (9,904)          (6,269)
Other income (expense):
     Interest expense ........................             (89)             (45)
     Interest income .........................           1,535              336
                                                  ============     ============
Net loss .....................................    $     (8,458)    $     (5,978)
                                                  ============     ============

Net loss per share:
     Basic ...................................    $      (0.50)    $      (0.46)
     Diluted .................................    $      (0.50)    $      (0.46)

Shares used to compute net loss per share:
     Basic ...................................      16,892,460       13,063,494
     Diluted .................................      16,892,460       13,063,494


    See accompanying  notes to financial statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                  PEAPOD, INC.
                       STATEMENTS OF COMPREHENSIVE INCOME
                                 (in thousands)
                                   (unaudited)
                                                     Three Months Ended June 30,
                                                      --------------------------
                                                            1998       1997
                                                         -------    -------
<S>                                                      <C>        <C>
Net loss .............................................   $(4,475)   $(3,031)

Other comprehensive loss:
      Unrealized gain on available for sale securities        46       --
                                                         -------    -------

Comprehensive loss ...................................   $(4,429)   $(3,031)
                                                         =======    =======

                 See accompanying notes to financial statements
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                  PEAPOD, INC.
                       STATEMENTS OF COMPREHENSIVE INCOME
                                 (in thousands)
                                   (unaudited)
                                                      Six Months Ended June 30,
                                                     --------------------------
                                                            1998       1997
                                                         -------    -------
<S>                                                      <C>        <C>
Net loss .............................................   $(8,458)   $(5,978)

Other comprehensive loss:
      Unrealized loss on available for sale securities       (25)      --
                                                         -------    -------

Comprehensive loss ...................................   $(8,483)   $(5,978)
                                                         =======    =======

                 See accompanying notes to financial statements
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                  PEAPOD, INC.
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)


                                                                                Six Months Ended June 30,
                                                                                 -----------------------
                                                                                      1998        1997
                                                                                   --------    --------
<S>                                                                               <C>         <C>
Cash flows from operating activities:

    Net loss ..................................................................   $ (8,458)   $ (5,978)

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

        Depreciation and amortization .........................................        972         590

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

        Changes in operating assets and liabilities:

            (Increase) decrease in receivables, net ...........................        259      (1,936)

            (Increase) decrease in prepaid expenses ...........................        (11)        101

            (Increase) decrease in other current assets .......................       (638)        (60)

            Increase (decrease) in accounts payable ...........................     (4,298)       (145)

            Increase (decrease) in accrued compensation .......................       (779)        155

            Increase (decrease) in other accrued liabilities ..................          6       1,056

            Increase (decrease) in deferred service fees ......................       (741)      1,114
                                                                                  --------    --------

                Net cash used in operating activities .........................    (13,643)     (4,570)

Cash flows from investing activities:

    Property and equipment purchased ..........................................     (1,155)       (658)

    Capitalized software development costs ....................................       (463)       (355)

    Unrealized loss on investments ............................................        (25)         --

     Net purchases of marketable securities ...................................    (34,147)         --
                                                                                  --------     --------

                Net cash used in investing activities .........................    (35,790)     (1,013)

Cash flows from financing activities:

    Proceeds from issuance of stock, net of offering costs ....................         --      58,449

    Proceeds from issuance of stock upon exercise of options ..................        269          57

    Payments on capital lease obligations .....................................       (404)       (175)
                                                                                  --------    --------

                Net cash provided by (used in) financing activities ...........       (135)     58,331
                                                                                  --------    --------

Net increase (decrease) in cash ...............................................    (49,568)     52,748

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

Cash and cash equivalents at end of period ....................................   $  4,511    $ 65,787
                                                                                  ========    ========

Supplemental disclosure of cash flows information--interest paid                  $     85    $     30

Supplemental disclosures of noncash investing and
financing activity:                
          Options exercised by sale of stock to the Company ...................        150          --
          Equipment on capital leases..........................................         40         625
                                                                                  ========    ========

          See accompanying  notes to financial statements .....................
</TABLE>

<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 June 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).  Prior periods' net
     loss per share has been restated to conform to the requirements of SFAS No.
     128.

4.   Reclassifications.  Certain prior year balances have been  reclassified  to
     conform  with the current  year  presentation  (i.e.,  for the three months
     ended June 30, 1998 and June 30,  1997,  grocery  discounts of $852,000 and
     $638,000,  respectively,  have been  reclassified  from Member and retailer
     services to a reduction in Cost of goods sold).


<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                 Six Months Ended
                                                     June 30,                          June 30,
                                             --------------------------       ---------------------------
                                             ------------   -----------       ------------   ------------
                                                1998           1997              1998           1997
                                             ------------   -----------       ------------   ------------
<S>                                                <C>           <C>                <C>            <C>
Revenues:
     Net product sales.......................       82  %         73  %              82  %          74 %
     Member and retailer services............       15            23                 15             22
     Interactive marketing services..........        3             4                  3              4
     Licensing services......................        *            --                  *             --
                                            ------------   -----------       ------------   ------------
          Total revenues.....................      100           100                100            100
Costs and expenses:
     Cost of goods sold......................       77            68                 77             69
     Fulfillment operations..................       29            31                 28             31
     General and administrative..............        9            11                  8              9
     Marketing and selling...................        7             8                  7             10
     System development and maintenance......        5             2                  4              3
     Depreciation and amortization...........        3             3                  3              2
                                             ------------   -----------       ------------   ------------
          Total costs and expenses...........      130           123                127            124
                                             ------------   -----------       ------------   ------------
Operating loss...............................      (30)          (23)               (27)           (24)

Other income (expense):
     Interest expense........................        *             *                  *              *
     Interest income.........................        4             1                  4              1
                                             ============   ===========       ============   ============
Net loss.....................................      (26) %        (22) %             (23) %         (23) %
                                             ============   ===========       ============   ============
 * - Less than 1%
</TABLE>

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


         Net product sales. Net product sales, which is revenue from the sale of
groceries and other  products to members,  increased by 42% from  $10,177,000 in
the quarter  ended June 30, 1997 to  $14,438,000  in the quarter  ended June 30,
1998.  This  increase  was due to a 33%  increase in the number of orders,  from
93,200 in the quarter  ended June 30, 1997 to 123,800 in the quarter  ended June
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 42% from 73,400  members at June 30, 1997 to 104,000 at June 30, 1998.
Increases in the  Company's  membership  base and orders  resulted  largely from
increased penetration in existing markets (i.e., Boston, Columbus, San Francisco
and Chicago) and the  development of the Peapod service in markets that were new
on June 30, 1997 (i.e., Houston, Dallas and Austin).

         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 20% from  $3,271,000 in the quarter ended June 30, 1997
to  $2,606,000  in the quarter  ended June 30, 1998.  This decrease is primarily
attributable  to an absence of market  openings  and related fees in the quarter
ended June 30, 1998 compared to the openings of the Texas and Atlanta markets in
the quarter ended June 30, 1997.  Market  opening fees,  paid by retailers,  are
recognized during the period in which a new market opens. Discounts on groceries
received 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 include fees from consumer goods companies for interactive advertising,
promotion and research  services.  Fees from such services decreased by 23% from
$565,000  in the quarter  ended June 30,  1997 to $436,000 in the quarter  ended
June  30,  1998.  The  decrease  is  primarily  due to lower  contract  fees for
interactive sponsorships during the period.

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

         Cost of goods sold.  Cost of goods sold  includes  groceries  and other
products purchased on behalf of its members, net of returns and discounts.  Cost
of goods sold  increased  from  $9,539,000 in the quarter ended June 30, 1997 to
$13,586,000 in the quarter ended June 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  17% from  $4,287,000  in the quarter ended June 30, 1997 to
$5,028,000  in the  quarter  ended June 30,  1998.  The  increase  is  primarily
attributable to (i) increases in salaries and overhead  expenses for fulfillment
centers; (ii) the direct costs of shopping, packing and delivering the increased
volume of member orders;  and (iii) salaries and overhead  expenses for customer
support functions to support increases in the Company's membership.

         At June 30, 1998,  Peapod  fulfilled  member orders from 39 fulfillment
centers across seven metropolitan  markets serving 6,273,000 households compared
to 59  fulfillment  centers across eight  metropolitan  markets at June 30, 1997
covering 6,414,000 households.  The evolution of the Company's fulfillment model
has resulted in economies of scale as fulfillment centers have been consolidated
into more centralized and dedicated facilities.  In addition, 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 4% from  $1,570,000 in the quarter
ended June 30,  1997 to  $1,626,000  in the  quarter  ended June 30,  1998.  The
increase  is  primarily   attributable  to  occupancy,   telecommunications  and
compensation related expenses to support the Company's growth in these corporate
staff functions.

         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
interactive marketing services. The Company expenses all such costs as incurred.
Marketing and selling  expenses  increased by 1% from  $1,138,000 in the quarter
ended June 30, 1997 to $1,154,000 in the quarter ended June 30, 1998.

         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  171% from $303,000 in the quarter
ended June 30, 1997 to $821,000 in the quarter ended June 30, 1998. The increase
is  primarily  attributable  to increased  compensation  expenses to support the
Company's growth and its software licensing initiative. In addition, $158,000 of
development  costs were capitalized in the second quarter of 1998 related to the
next version of the  Company's  consumer  software  compared to $193,000 of such
costs in the second quarter of 1997.

         Depreciation and amortization.  Depreciation and amortization increased
35% from  $378,000 in the quarter ended June 30, 1997 to $509,000 in the quarter
ended June 30, 1998.  This increase is the result of equipment  added to support
new  members,   fulfillment  centers  and  new  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.  Interest  expense  increased from $30,000 in the quarter ended June
30,  1997 to  $33,000  in the  quarter  ended  June 30,  1998.  Interest  income
increased  from  $201,000 in the quarter  ended June 30, 1997 to $752,000 in the
quarter ended June 30, 1998,  resulting from the investment of proceeds from the
issuance of equity in both 1996 and 1997.


Comparison of  Six Months Ended June 30, 1998 and June 30, 1997
---------------------------------------------------------------

         Net product sales.  Net product sales increased by 54% from $19,393,000
in the six months ended June 30, 1998 compared to  $29,933,000  in the first six
months  ended June 30,  1997.  This  increase  was due to a 46%  increase in the
number of orders,  from 178,100 in the six months ended June 30, 1997 to 260,400
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 6% from  $5,741,000 in the six months ended June 30, 1997 to
$5,399,000  in the six months ended June 30,  1998..  This decrease is primarily
attributable  to an absence of market  openings  and the related fees in the six
months  ended June 30, 1998  compared  to the  openings of the Texas and Atlanta
markets in the six months  ended June 30, 1997.  Market  opening  fees,  paid by
retailers,  are  recognized  during  the  period  in which a new  market  opens.
Discounts on groceries received 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  decreased by 3% from $990,000 in the six months ended June 30, 1997 to
$962,000 in the six months ended June 30, 1998. The decrease is primarily due to
lower contract fees for interactive sponsorships during the period.

         Licensing  services.  In the six months ended June 30, 1998, $100,000
has been recognized for maintenance fees relating to the licensing of the 
Company's software to Coles-Myer, where no such fees were recognized in the six
months ended June 30, 1997.

         Cost of goods sold.  Cost of goods sold increased  from  $18,162,000 in
the six months ended June 30, 1997 to  $28,159,000  in the six months ended June
30, 1998, commensurate with the growth in Net product sales.

         Fulfillment  operations.  Fulfillment operations expenses increased 25%
from  $8,157,000 in the six months ended June 30, 1997 to $10,207,000 in the six
months ended June 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  30%  from  $2,309,000  in the  six  months  ended  June  30,  1997 to
$2,991,000  in the six months  ended June 30,  1998.  The  increase is primarily
attributable to occupancy,  telecommunications and compensation related expenses
to support the Company's growth in these corporate staff functions.

     Marketing and selling.  Marketing and selling expenses increased by 2% from
$2,496,000 in the six months ended June 30, 1997 to $2,538,000 in the six months
ended June 30, 1998.

         System development and maintenance.  System development and maintenance
expenses  increased  111% from $679,000 in the six months ended June 30, 1997 to
$1,431,000  in the six months  ended June 30,  1998.  The  increase is primarily
attributable to increased  compensation expenses to support the Company's growth
and its software  licensing  initiative.  In addition,  $463,000 of  development
costs  were  capitalized  in the first six  months of 1998  related  to the next
version of the Company's consumer software compared to $355,000 of such costs in
the first six months of 1997.

         Depreciation and amortization.  Depreciation and amortization increased
65% from  $590,000 in the six months  ended June 30, 1997 to $972,000 in the six
months ended June 30, 1998.  This  increase is the result of equipment  added to
support new members,  fulfillment  centers and new  employees and changes in the
depreciable lives of certain capital assets already in service.

         Other income (expense).  Interest expense increased from $45,000 in the
six months ended June 30, 1997 to $89,000 in the six months ended June 30, 1998.
Interest income increased from $336,000 in the six months ended June 30, 1997 to
$1,535,000 in the six months ended June 30, 1998,  resulting from the investment
of proceeds from the issuance of equity in both 1996 and 1997.


LIQUIDITY AND CAPITAL RESOURCES

     Cash used in operating  activities  increased from  $4,570,000 in the first
six months of 1997 to  $13,643,000 in the first six months of 1998. The increase
in cash used in operating activities was primarily  attributable to decreases in
accounts  payable,  increased net losses and decreases in deferred service fees,
partially  offset by decreases in receivables.  As of June 30, 1998, the Company
had  $4,511,000  in cash and cash  equivalents,  and  $42,945,000  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 and
geographic expansion and to further develop its products and services.

         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 net 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
by the end of 1998. 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  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 June 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)



August 3, 1998   
                                           /s/ Dan Rabinowitz
                                           -----------------------
                                           Dan Rabinowitz
                                           Chief Financial Officer