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, 1999

                                       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, 1999 was 17,469,521.

<PAGE>
<TABLE>
<CAPTION>
                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.           Financial Statements.

                                  PEAPOD, INC.
                                 BALANCE SHEETS
                        (in thousands, except share data)
                                                                             June 30,        December 31,
                                                                               1999              1998
                                                                       ----------------- ------------------
                  Assets                                                   (unaudited)
<S>                                                                           <C>                <C>
Current assets:
     Cash and cash equivalents..........................................      $ 3,087            $ 4,341
     Marketable securities..............................................       17,182             15,836
     Receivables, net of bad debt allowance of $310 and $287 as
       of June 30, 1999 and December 31, 1998...........................        1,555              2,516
     Merchandise inventories............................................          219                --
     Prepaid expenses...................................................          488                186
     Other current assets...............................................          837                974
                                                                        ----------------- ------------------
          Total current assets..........................................       23,368             23,853
Property and equipment:
     Computer equipment and software....................................        4,634              4,010
     Service equipment and other........................................        4,549              2,147
                                                                        ----------------- ------------------
Property and equipment, at cost.........................................        9,183              6,157
     Accumulated depreciation...........................................       (3,259)            (2,252)
                                                                        ----------------- ------------------
Net property and equipment..............................................        5,924              3,905
Non-current marketable securities                                               5,166             15,213
                                                                        ----------------- ------------------
          Total assets..................................................      $34,458            $42,971
                                                                        ================= ==================
                  Liabilities and Stockholders' Equity Current liabilities:
     Accounts payable...................................................      $ 3,519            $ 3,442
     Accrued compensation...............................................        1,361                802
     Other accrued liabilities..........................................        1,631              2,688
     Current deferred revenue...........................................          995              1,000
     Current obligations under capital lease............................          723                590
                                                                        ----------------- ------------------
          Total current liabilities.....................................        8,229              8,522
Deferred revenue........................................................          217                448
Obligations under capital lease, less current portion...................        1,146                395
                                                                        ----------------- ------------------
          Total liabilities.............................................        9,592              9,365
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,
            17,609,559 and 17,245,828 shares issued at  June 30, 1999
            and December 31, 1998.......................................          176                172
     Additional paid-in capital.........................................       66,178             64,319
     Accumulated other comprehensive income -
          unrealized gain (loss) on available-for-sale securities.......         (263)                83
     Accumulated deficit................................................      (40,054)           (30,060)
     Treasury stock, at cost, 141,749 and 117,476 shares at June 30,
         1999 and December 31, 1998.....................................       (1,171)              (908)
                                                                        ----------------- ------------------
          Total stockholders' equity....................................       24,866             33,606
                                                                        ================= ==================
          Total liabilities and stockholders' equity....................      $34,458            $42,971
                                                                        ================= ==================
</TABLE>

                     See accompanying notes to financial statements.

<TABLE>
<CAPTION>
                                  PEAPOD, INC.
                            STATEMENTS OF OPERATIONS
               (in thousands, except for share and per share data)
                                   (unaudited)
                                                                       Three months ended June 30,
                                                                -------------------------------------------
                                                                ------------------       ------------------
                                                                      1999                     1998
                                                                ------------------       ------------------
<S>                                                                   <C>                      <C>
Net sales    ..................................................       $   17,073               $   17,530
Cost of sales..................................................           12,903                   13,586
                                                                ------------------       ------------------
Gross profit  .................................................            4,170                    3,944

Operating expenses:
     Fulfillment operations....................................            5,017                    4,221
     General and administrative................................            1,636                    2,091
     Marketing and selling.....................................            1,190                    1,455
     System development and maintenance........................              787                      821
     Depreciation and amortization.............................              604                      509
     Pre-opening costs.........................................              360                       41
                                                                ------------------       ------------------
          Total operating expenses.............................            9,594                    9,138
                                                                ------------------       ------------------

Operating loss.................................................           (5,424)                  (5,194)
Other income (expense):
     Investment income.........................................              586                      752
     Interest expense..........................................              (87)                     (33)
                                                                ==================       ==================
Net loss.......................................................       $   (4,925)              $   (4,475)
                                                                ==================       ==================
Net loss per share:
     Basic.....................................................       $    (0.28)              $    (0.26)
     Diluted...................................................       $    (0.28)              $    (0.26)

Shares used to compute net loss per share:
     Basic.....................................................       17,403,382               16,925,120
     Diluted...................................................       17,403,382               16,925,120

</TABLE>
                See accompanying notes to financial statements.

<PAGE>
<TABLE>
<CAPTION>
                                  PEAPOD, INC.
                            STATEMENTS OF OPERATIONS
               (in thousands, except for share and per share data)
                                   (unaudited)
                                                                        Six months ended June 30,
                                                                -------------------------------------------
                                                                ------------------       ------------------
                                                                      1999                     1998
                                                                ------------------       ------------------
<S>                                                                   <C>                      <C>
Net sales    ..................................................       $   35,081               $   36,394
Cost of sales..................................................           27,269                   28,159
                                                                ------------------       ------------------
Gross profit  .................................................            7,812                    8,235

Operating expenses:
     Fulfillment operations....................................            9,889                    8,739
     General and administrative................................            3,190                    3,828
     Marketing and selling.....................................            2,428                    3,127
     System development and maintenance........................            1,510                    1,431
     Depreciation and amortization.............................            1,078                      972
     Pre-opening costs.........................................              640                       41
                                                                ------------------       ------------------
          Total operating expenses.............................           18,735                   18,138
                                                                ------------------       ------------------

Operating loss.................................................          (10,923)                  (9,903)
Other income (expense):
     Investment income.........................................            1,064                    1,535
     Interest expense..........................................             (135)                     (89)
                                                                ==================       ==================
Net loss.......................................................       $   (9,994)              $   (8,457)
                                                                ==================       ==================
Net loss per share:
     Basic.....................................................       $    (0.58)              $    (0.50)
     Diluted...................................................       $    (0.58)              $    (0.50)

Shares used to compute net loss per share:
     Basic.....................................................       17,296,539               16,892,460
     Diluted...................................................       17,296,539               16,892,460

</TABLE>
                See accompanying notes to financial statements.

<PAGE>
<TABLE>
<CAPTION>
                                PEAPOD, INC.
                       STATEMENTS OF COMPREHENSIVE INCOME
                                 (in thousands)
                                   (unaudited)
                                                                            Three Months Ended June 30,
                                                                          ----------------------------------
                                                                               1999               1998
                                                                          ---------------     --------------
<S>                                                                       <C>                 <C>
Net loss.............................................................      $ (4,925)          $ (4,475)

Other comprehensive income:
      Unrealized gain/(loss) on available-for-sale securities........          (247)                46
                                                                          ---------------     --------------
Comprehensive income (loss)..........................................      $ (5,172)          $ (4,429)
                                                                          ===============     ==============

</TABLE>
              See accompanying notes to financial statements.

<PAGE>
<TABLE>
<CAPTION>
                                  PEAPOD, INC.
                       STATEMENTS OF COMPREHENSIVE INCOME
                                 (in thousands)
                                   (unaudited)
                                                                           Six Months Ended June 30,
                                                                       -----------------------------------
                                                                            1999                1998
                                                                       ---------------     ---------------
<S>                                                                       <C>                <C>
Net loss........................................................          $  (9,994)          $ (8,457)

Other comprehensive income:
      Unrealized loss on available-for-sale securities..........               (346)               (25)
                                                                       ---------------     ---------------

Comprehensive income (loss).....................................          $ (10,340)          $ (8,482)
                                                                       ===============     ===============
</TABLE>

                See accompanying notes to financial statements.

<PAGE>
<TABLE>
<CAPTION>

                                 PEAPOD, INC.
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

                                                                         Six Months Ended June 30,
                            (unaudited)
                                                                   ---------------------------------------

                                                                         1999                  1998
                                                                   -----------------      ----------------
<S>                                                                       <C>                   <C>
Cash flows from operating activities:

    Net loss.......................................................       $ (9,994)             $ (8,457)

    Adjustments to reconcile net loss to net cash used in operating activities:
        Depreciation and amortization..............................          1,078                   972
        Stock issued for services rendered.........................             --                    45
        Loss on disposition of fixed assets........................             28                    --
        Changes in operating assets and liabilities:
            (Increase) decrease in receivables, net................            960                   259
            (Increase) decrease in merchandise inventories.........           (219)                   --
            (Increase) decrease in prepaid expenses................           (302)                  (11)
            (Increase) decrease in other current assets............            137                  (638)
            Increase (decrease) in accounts payable................             76                (4,298)
            Increase (decrease) in accrued compensation............            559                  (779)
            Increase (decrease) in other accrued liabilities.......         (1,056)                    6
            Increase (decrease) in deferred revenue................           (236)                 (741)
                                                                   -----------------      ----------------
                Net cash used in operating activities..............         (8,969)              (13,642)

Cash flows from investing activities:
    Property and equipment purchased...............................         (1,843)               (1,155)
    Capitalized software development costs.........................             --                  (463)
    Purchases of marketable securities.............................         (7,275)              (34,173)
    Sales of marketable securities.................................         15,629                    --
    Proceeds from sale of property and equipment...................              5                    --
                                                                   -----------------      ----------------
                Net cash provided by (used in) investing activities          6,516               (35,791)

Cash flows from financing activities:
    Proceeds from issuance of stock upon exercise of warrants......             50                    --
    Proceeds from issuance of stock upon exercise of options and
       employee stock purchase plan................................          1,551                   269
    Payments on capital lease obligations..........................           (402)                 (404)
                                                                   -----------------      ----------------
                Net cash provided by (used in) financing activities          1,199                  (135)
                                                                   -----------------      ----------------

Net increase (decrease) in cash and cash equivalents...............         (1,254)              (49,568)
Cash and cash equivalents at beginning of period...................          4,341                54,079
                                                                   =================      ================
Cash and cash equivalents at end of period.........................       $  3,087               $ 4,511
                                                                   =================      ================

Supplemental disclosure of cash flows information--interest paid...       $    135                $   85

Supplemental disclosures of noncash investing and financing activity:
          Options exercised by sale of stock to the Company........            262                   150
          Equipment on capital leases..............................          1,287                    40
                                                                   =================      ================
</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 June  30,  1999,  and the  results  of its  operations,
     comprehensive income 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, 1998,  which are included in the  Company's  Annual  Report on
     Form 10-K filed with the Securities and Exchange Commission.

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




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,
                                             --------------------------       ---------------------------
                                             ------------   -----------       ------------
                                                1999           1998              1999           1998
                                             ------------   -----------       ------------   ------------
<S>                                            <C>             <C>                <C>            <C>
Net sales..................................    100    %        100  %             100  %         100  %
Cost of sales..............................     76              78                 78             77
                                           ------------   -----------       ------------   ------------
Gross profit ..............................     24              22                 22             23

Operating expenses:
     Fulfillment operations................     29              24                 28             24
     General and administrative............      9              12                  9             10
     Marketing and selling.................      7               8                  7              9
     System development and maintenance....      5               5                  4              4
     Depreciation and amortization.........      4               3                  3              3
     Pre-opening costs ....................      2               *                  2              *
                                           ------------   -----------       ------------   ------------
          Total costs and expenses.........     56              52                 53             50
                                           ------------   -----------       ------------   ------------
Operating loss.............................    (32)            (30)               (31)           (27)

Other income (expense):
     Investment income.....................      3               4                  3              4
     Interest expense......................      *               *                  *              *
                                           ============   ===========       ============   ============
Net loss...................................    (29)  %         (26) %             (28) %         (23) %
                                           ============   ===========       ============   ============

 * - Less than 1%
</TABLE>


Comparison of Three Months Ended June 30, 1999 and June 30, 1998

         Net sales. Net sales include (i) revenue from the sale of groceries and
related  products,  (ii) fees paid by customers and retail partners,  (iii) fees
from  consumer  goods  companies  for  interactive  advertising,  promotion  and
research,  and (iv) revenues  from  maintenance  and licensing  fees relating to
licensing of the Company's software to Coles Myer Ltd. Net sales decreased by 3%
from  $17,530,000  in the  quarter  ended June 30,  1998 to  $17,073,000  in the
quarter ended June 30, 1999.

         Revenues from the sale of groceries and related products increased from
$14,438,000  in the quarter  ended June 30, 1998 to  $14,787,000  in the quarter
ended June 30,1999.  Orders increased from 123,800 in the quarter ended June 30,
1998 to 128,200 in the quarter  ended June 30, 1999,  while  average  order size
experienced a slight  decrease of 1%. Fees paid by customers and retail partners
decreased  from  $2,606,000  in the quarter ended June 30, 1998 to $1,922,000 in
the quarter ended June 30, 1999.  This decrease is  attributable  to (i) reduced
shopping and delivery fees, (ii) lower  contractual fees due to less reliance on
retailers in centralized  markets,  and (iii) lower  subscription fees resulting
from reduced customer  pricing in centralized  markets.  Customers,  measured as
customers  transacting within the last 12 months,  decreased 14% from 104,000 at
June 30, 1998 to 89,900 at June 30, 1999.  Reductions in the Company's  customer
base resulted largely from a mid-1998 decision to scale back marketing  programs
in order to focus  resources  on the new  service  model and on  initiatives  to
centralize fulfillment operations in a number of markets.

         Fees  from  consumer  goods  companies  for  interactive   advertising,
promotion  and research  decreased  from  $436,000 in the quarter ended June 30,
1998 to $364,000 in the quarter ended June 30, 1999.  This  reduction is largely
the  result of the  Company's  temporarily  cutting  back on  marketing  and new
customer  initiatives  while  transitioning its fulfillment model to centralized
distribution.

         Licensing revenues were $50,000 in the quarter ended June 30, 1998. The
licensing division was spun-off as a separate entity on December 31, 1998 and no
such revenues are anticipated in the future.

         Cost of sales.  Cost of sales  are the cost of  groceries  and  related
products. Cost of sales decreased from $13,586,000 in the quarter ended June 30,
1998 to $12,903,000 in the quarter ended June 30, 1999.  Gross margins  improved
from 22% in the quarter ended June 30, 1998 to 24% in the quarter ended June 30,
1999.  The  improvement  resulted  from  increased  volumes  filled  through our
centralized  fulfillment  centers that generate higher margins on products sold.
These  improvements  more than offset decreases in fees charged to customers and
for interactive advertising, promotion and research.

         Fulfillment operations. Fulfillment operations expenses include (i) the
direct costs relating to the shopping,  packing and delivery of customer 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  and
customer support.  Fulfillment operations expenses increased 19% from $4,221,000
for the quarter ended June 30, 1998 to $5,017,000 for the quarter ended June 30,
1999. The increase is primarily  attributable  to higher grocery  delivery costs
while we build scale,  gain expertise,  and incur  duplicative  costs during the
initial  months  of  warehouse  operations  in  Chicago,  Long  Island  and  San
Francisco.  These  increases  were  offset,  in part,  by  decreases in customer
support and fulfillment center overhead functions.

         At June  30,  1999,  the  Company  fulfilled  customer  orders  from 24
fulfillment  centers  across  eight  metropolitan   markets  covering  7,392,100
households.  This compares to 39 fulfillment  centers across seven  metropolitan
markets at June 30, 1998 covering  6,273,000  households.  While the Company has
incurred start-up costs related to opening the centralized  fulfillment centers,
the  evolution of its  fulfillment  model has  resulted in certain  economies of
scale as fulfillment  centers have been  consolidated  into more  centralized or
dedicated facilities.

         General and administrative.  General and administrative expenses, which
include  corporate staff,  accounting and human  resources,  occupancy and other
fixed expenses, decreased 22% from $2,091,000 in the quarter ended June 30, 1998
to  $1,636,000  in the quarter  ended June 30,  1999.  The decrease is primarily
attributable  to a  smaller  corporate  staff  during  1999,  resulting  from  a
reorganization in the second half of 1998.

         Marketing and selling.  Marketing and selling expenses include the cost
of customer  marketing,  such as radio  advertising  and direct mail, as well as
certain costs relating to public relations and the sale of interactive marketing
products. The Company expenses all such costs as incurred. Marketing and selling
expenses decreased by 18% from $1,455,000 for the quarter ended June 30, 1998 to
$1,190,000  for the quarter  ended June 30,  1999.  The  decrease  is  primarily
attributable to the Company's mid-1998 decision to limit marketing  expenditures
in order to focus on modifying  its service model and  centralizing  fulfillment
operations in a number of markets.

         System development and maintenance.  System development and maintenance
expenses,  which include new product  development as well as the maintenance and
enhancement  of existing  systems,  decreased  4% from  $821,000 for the quarter
ended  June 30,  1998 to  $787,000  for the  quarter  ended June 30,  1999.  The
decrease is  attributable  to the absence of expenses  related to the  licensing
division which was spun-off as a separate entity on December 31, 1998. Partially
offsetting this decrease were expenses related to additional resources needed to
support  the  Company's  new  website  technology,   its  proprietary  warehouse
technologies,  and  additional  resources  necessary to support  24/7  warehouse
operations.  No development costs were capitalized in the second quarter of 1999
while  development  costs of $155,000 were  capitalized in the second quarter of
1998.

         Depreciation and amortization.  Depreciation and amortization increased
19% from  $509,000  for the  quarter  ended June 30,  1998 to  $604,000  for the
quarter ended June 30, 1999.  This increase is the result of equipment  added to
support new centralized  distribution facilities as well as additional equipment
needed to update certain hardware and software in the data center.

         Pre-opening Expense.  Pre-opening expense includes costs incurred prior
to a centralized  fulfillment  center becoming  operational and certain one-time
expenditures  to support these  initiatives.  These costs  include  building and
equipment lease expense,  utilities,  supplies,  permits, licenses, and staffing
related  expenses.  Pre-opening  expenses  increased from $41,000 in the quarter
ended June 30, 1998 to $360,000 in the quarter ended June 30, 1999. The increase
results  primarily  from the opening of the San Francisco  warehouse  during the
second quarter of 1999 while no warehouses were opened during the same period in
1998.

         Other income (expense).  Other income (expense)  includes interest from
investment  earnings  and interest  paid on capital  leases.  Investment  income
decreased  from  $752,000 in the quarter  ended June 30, 1998 to $586,000 in the
quarter ended June 30, 1999 due primarily to a reduction in invested  principal.
Interest  expense  increased from $33,000 for the quarter ended June 30, 1998 to
$87,000  in the  quarter  ended  June 30,  1999 as a result of  greater  leasing
activity utilized in the new centralized distribution facilities.

Comparison of Six Months Ended June 30, 1999 and June 30, 1998

         Net sales.  Net sales  decreased by 4% from  $36,394,000 for the six
month period ended June 30, 1998 to $35,081,000 for the six month period ended
June 30, 1999.

         Revenues from the sale of groceries and related products increased from
$29,933,000  for the six month period ended June 30, 1998 to $30,529,000 for the
six month period ended June 30, 1999.  Orders increased from 260,400 for the six
month  period ended June 30, 1998 to 263,400 for the six month period ended June
30, 1999 and average order size  increased 1%. Fees paid by customers and retail
partners  decreased from $5,398,000 for the six month period ended June 30, 1998
to  $3,981,000  for the six month period ended June 30, 1999.  This  decrease is
attributable to (i) reduced  shopping and delivery fees, (ii) lower  contractual
fees due to less reliance on retailers in centralized  markets,  and (iii) lower
subscription  fees  resulting  from  reduced  customer  pricing  in  centralized
markets. Customers, measured as customers transacting within the last 12 months,
decreased  14%  from  104,000  at June 30,  1998 to  89,900  at June  30,  1999.
Reductions  in the  Company's  customer  base  resulted  largely from a mid-1998
decision to scale back marketing programs in order to focus resources on the new
service  model and on  initiatives  to  centralize  fulfillment  operations in a
number of markets.

         Fees  from  consumer  goods  companies  for  interactive   advertising,
promotion  and research  decreased  from $962,000 for the six month period ended
June 30, 1998 to $570,000 for the six month  period  ended June 30,  1999.  This
reduction  is largely the result of the  Company's  temporarily  cutting back on
marketing and new customer initiatives while transitioning its fulfillment model
to centralized distribution.

         Licensing  revenues  were  $100,000 for the six month period ended June
30, 1998. The licensing  division was spun-off as a separate  entity on December
31, 1998 and no such revenues are anticipated in the future.

         Cost of sales.  Cost of sales decreased 3% from $28,159,000 for the six
month period ended June 30, 1998 to  $27,269,000  for the six month period ended
June 30, 1999.  This decrease  occurred in spite of an increase of 2% in grocery
and related  product sales and was achieved due to increasing  profit margins in
markets with centralized distribution.

         Fulfillment  operations.  Fulfillment operations expenses increased 13%
from  $8,739,000  for the six month period ended June 30, 1998 to $9,889,000 for
the six month period ended June 30, 1999. The increase is primarily attributable
to higher grocery delivery costs while we build scale, gain expertise, and incur
duplicative costs during the initial months of warehouse  operations in Chicago,
Long  Island  and San  Francisco.  These  increases  were  offset,  in part,  by
decreases in customer support and fulfillment center overhead functions.

         General  and  administrative.   General  and  administrative   expenses
decreased  17% from  3,828,000  for the six month  period ended June 30, 1998 to
$3,190,000  for the six month  period  ended  June 30,  1999.  The  decrease  is
primarily attributable to a smaller corporate staff in 1999.

         Marketing and selling.  Marketing and selling expenses decreased by 22%
from  $3,127,000  for the six month period ended June 30, 1998 to $2,428,000 for
the six month period ended June 30, 1999. The decrease is primarily attributable
to the Company's  mid-1998 decision to limit marketing  expenditures in order to
focus on modifying its service model and centralizing  fulfillment operations in
a number of markets. The Company expenses all such costs as incurred.

         System development and maintenance.  System development and maintenance
expenses  increased  6% from  $1,431,000  for the six month  period  ended  June
30,1998 to $1,510,000 for the six month period ended June 30, 1999. The increase
is primarily  attributable to additional  resources to support the Company's new
website  technology,  its  proprietary  warehouse  technologies,  and additional
resources necessary to support 24/7 warehouse  operations.  No development costs
were capitalized  during the first six months of 1999 while development costs of
$463,000 were capitalized during the first six months of 1998.

         Depreciation and amortization.  Depreciation and amortization increased
11% from $972,000 for the six month period ended June 30, 1998 to $1,078,000 for
the six month  period  ended  June 30,  1999.  This  increase  is the  result of
equipment added to support new centralized distribution facilities and equipment
necessary to update the data center.

         Pre-opening Expense. Pre-opening expenses increased from $41,000 in the
six month  period  ended June 30, 1998 to $640,000 in the six month period ended
June 30,  1999.  The  increase  results from  expenses  incurred  related to the
opening of the San  Francisco  warehouse in May and June of 1999 and the Chicago
warehouse in December 1998 and January 1999. In comparison,  no warehouses  were
opened during the same period in 1998.

         Other income (expense).  Other income (expense)  includes interest from
investment  earnings  and interest  paid on capital  leases.  Investment  income
decreased  from  $1,535,000  for the six month  period  ended  June 30,  1998 to
$1,064,000  for the six month  period  ended June 30,  1999 due  primarily  to a
reduction in invested principal. Interest expense increased from $89,000 for the
six month  period ended June 30, 1998 to $135,000 for the six month period ended
June 30,  1999 as a result  of  greater  leasing  activity  utilized  in the new
centralized distribution facilities.


LIQUIDITY AND CAPITAL RESOURCES

         Cash used in operating  activities  decreased  from  $13,642,000 in the
first six  months of 1998 to  $8,969,000  in the first six  months of 1999.  The
decrease in cash used in operating  activities was primarily  attributable  to a
$4,298,000  decrease  in  accounts  payable in 1998.  As of June 30,  1999,  the
Company  had  $3,087,000  in  cash  and  cash  equivalents  and  $22,348,000  in
marketable  securities.  The Company  uses its working  capital to fund  ongoing
operations,  marketing programs, 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
at least  the next  year.  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 DISCLOSURE

         The "Year 2000" problem  concerns the inability of information  systems
to properly recognize and process date-sensitive information beyond December 31,
1999.  The  Company  has  evaluated  the  impact of the Year  2000  issue on its
business and believes the costs associated with its own Year 2000 compliance and
internal   Year  2000  issues  will  be   comprised  of  software  and  hardware
expenditures totaling less than $500,000.  Therefore, it is not anticipated that
the Year 2000  issue  will have a  material  impact on the  Company's  business,
results of operations or financial condition.  The Company believes its internal
software  systems and  applications  are currently  Year 2000  compliant and are
currently being recompiled on Y2K compliant operation systems.

         Nonetheless,  failure  of  certain  third  party  systems  could have a
material adverse impact on the Company.  Because of the range of possible issues
and the large number of variables  involved,  it is  impossible  to quantify the
potential cost of problems should remediation efforts of third parties with whom
the Company does business not be successful.  For example, the Company relies on
its retail  partners  and on other third party  vendors for  inventory  that the
Company  sells.  The Company is  addressing  whether  these third parties in its
supply chain are adequately  addressing their Year 2000 compliance  issues.  The
Company is  communicating  with its  significant  suppliers and other vendors to
monitor the Year 2000 issue and evaluate  the impact on the Company.  Failure by
such parties to timely  address the Year 2000 issue could  impact the  Company's
ability to obtain  inventory,  among other  things,  which could have a material
adverse  impact on the  Company's  business,  financial  condition or results of
operations. With respect to the Company's ability to obtain product information,
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.  The
Company has not incurred to date,  and does not expect to incur,  material costs
with respect to its initiatives mentioned above.

         Furthermore,  the Company utilizes third party equipment,  software and
content,   including  non-information   technology  systems  (such  as  building
equipment and security systems) that may not be Year 2000 compliant. The Company
has assessed  whether  critical  third-party  systems and equipment and critical
non-information  technology systems and equipment are adequately  addressing the
Year 2000 issue. For example,  certain  operating systems of third party vendors
on which  certain  Company  software  resides  are not yet Year 2000  compliant.
Several of these vendors have  indicated to the Company that Year 2000 compliant
upgrades are  available  and the Company is in the process of  installing  these
upgrades.  Failure  of  third-party  equipment,  software  or content to operate
properly  with regard to the Year 2000 issue could  require the Company to incur
unanticipated  expense to remedy  problems,  which could have a material adverse
effect on the Company's business, results of operation and financial condition.


                                     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,  including
                  effectively    implementing    a    centralized    fulfillment
                  distribution  model;  (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, 1999.

<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)



July 29, 1999                              /s/ Dan Rabinowitz
                                           ------------------------------------
                                           Dan Rabinowitz
                                           Chief Financial Officer