SECURITIES
AND EXCHANGE COMMISSIONWashington, 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 March 31, 2001 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 jurisdictionof
  Incorporation or Organization)
  (IRS Employer Identification No.) 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. 
YesxNo ̈ The number
of shares outstanding of the registrant's common stock, $0.01 par value
(Common Stock) as of May 4, 2001 was 18,029,542.   PART I

FINANCIAL
INFORMATION

ITEM 1.Financial Statements.

PEAPOD, INC.

BALANCE SHEETS
(in thousands, except share and per share data)

March 31,
  2001
  December 31,
  2000Assets
  (unaudited)Current
  assets:Cash and cash equivalents
  $3,703
  $14,676Receivables, net of allowance for
  doubtful accounts of $325 and       $440 as of March 31, 2001 and
  December 31, 2000
  479
  397Merchandise inventory
  1,801
  1,662Prepaid expenses
  654
  677Other current assets
  2,577
  2,549Total current assets
  9,214
  19,961Property
  and equipment:Computer equipment and software
  11,494
  8,212Service equipment and other
  6,418
  5,813Leasehold improvements
  9,102
  9,007Property and equipment, at
  cost
  27,014
  23,032Less accumulated depreciation and
  amortization
  (11,147)
  (8,285)Net
  property and equipment
  15,867
  14,747Net
  goodwill and other intangibles
  6,781
  7,123Other
  non-current assets
  3,468
  3,902Total assets
  $35,330
  $45,733Liabilities and Stockholders EquityCurrent
  liabilities:Accounts payable
  $1,875
  $2,064Accounts payable to related party
  4,076
  2,891Accrued compensation
  1,589
  1,926Other accrued liabilities
  9,982
  9,444Borrowings under credit facility
  6,000
  Deferred revenue
  10
  58Current obligations under capital
  lease
  1,965
  1,965Total current liabilities
  25,497
  18,348Obligations
  under capital lease, less current portion
  4,226
  4,829Total liabilities
  29,723
  23,177Stockholders
  equity:Preferred stock, $.01 par value,
  10,000,000 shares authorized;    726,371 shares of
  Series C convertible preferred stock issued 
     and outstanding (aggregate liquidation preference of
  $77,082)
  65,395
  64,684Common stock, $.01 par value,
  100,000,000 shares authorized; 18,443,165 and 18,423,144 shares issued at
  March 31, 2001 and December 31, 2000
  184
  184Additional paid-in capital
  74,135
  74,832Accumulated deficit
  (132,234)
  (115,271)Treasury stock, at cost, 453,640
  shares at March 31, 2001       and December 31, 2000
  (1,873)
  (1,873)Total stockholders equity
  5,607
  22,556Total liabilities and
  stockholders' equity
  $35,330
  $45,733See accompanying notes
to financial statements.

PEAPOD, INC.

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

Three months ended March 31,2001
  2000Gross
  sales
  $25,274
  $24,914Promotional
  discounts and allowances
  (337)
  (140)Net
  sales
  24,937
  24,774Cost
  of sales
  16,963
  19,216Gross
  profit
  7,974
  5,558Operating
  expenses:Fulfillment operations
  12,443
  8,931General and administrative
  3,757
  2,039Marketing and selling
  3,019
  1,200System development and maintenance
  951
  1,189Depreciation and amortization
  1,991
  664Non-recurring expenses
  761
  4,118Total operating expenses
  22,922
  18,141Operating
  loss
  (14,948)
  (12,583)Other
  income (expense):Net investment income (expense)
  95
  (103)Non-cash interest expense
  (434)
  Interest expense
  (165)
  (56)Net
  loss
  (15,452)
  (12,742)Preferred
  stock dividends
  (1,511)
  Non-cash
  accretion on preferred stock
  (711)
  Net
  loss available to common stockholders
  $(17,674)
  $(12,742)Net
  loss per share  basic and diluted
  $(0.98)
  $(0.70)Shares
  used to compute net loss per share 
  basic and diluted
  17,981,511
  18,207,875See accompanying notes
to financial statements.

PEAPOD, INC.

STATEMENTS OF COMPREHENSIVE
LOSS
(in thousands)
(unaudited)

Three
  Months Ended March 31,2001
  2000Net
  loss
  $(15,452)
  $(12,742)Other
  comprehensive income (loss):Unrealized holding gain (loss) on
  available-for-sale securities:Unrealized holding loss arising
  during the period
  
  (1)Reclassification adjustment for
  losses realized during the period and              included
  in net loss
  
  105Comprehensive
  loss
  $(15,452)
  $(12,638)See
accompanying notes to financial statements.PEAPOD,
INC.

STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Three Months Ended March 31,2001
  2000Cash
  flows from operating activities:Net loss
  $(15,452)
  $(12,742)Adjustments to reconcile net loss to
  net cash used in operating activities:Depreciation and amortization
  1,991
  664Non-cash interest expense
  434
  Provision for doubtful accounts
  62
  97Loss on sales of marketable
  securities
  
  105Forgiveness of debt of officer
  
  1,667Changes in operating assets and
  liabilities:(Increase) decrease in
  receivables
  (144)
  66(Increase) decrease in
  merchandise inventory
  (139)
  (86)(Increase) decrease in prepaid expenses
  (166)
  30(Increase) decrease in
  other current assets
  (28)
  (1,032)(Increase) decrease in
  restricted cash
  
  (1)Increase (decrease) in
  accounts payable
  996
  3,987Increase (decrease) in
  accrued compensation
  (337)
  684Increase (decrease) in
  other accrued liabilities
  (972)
  2,185Increase (decrease) in
  deferred revenue
  (48)
  (120)Net cash used in
  operating activities
  (13,803)
  (4,496)Cash
  flows from investing activities:Property and equipment purchased
  (2,581)
  (658)Sales of marketable securities
  
  5,428Net cash provided
  by (used in) investing activities
  (2,581)
  4,770Cash
  flows from financing activities:Proceeds from borrowings under credit
  facility
  6,000
  Proceeds from issuance of stock upon
  exercise of options and employee stock purchase plan
  14
  372Payments on capital lease obligations
  (603)
  (219)Net cash
  provided by financing activities
  5,411
  153Net
  increase (decrease) in cash and cash equivalents
  (10,973)
  427Cash
  and cash equivalents at beginning of period
  14,676
  3,343Cash
  and cash equivalents at end of period
  $3,703
  $3,770Supplemental disclosure of cash flows
  informationinterest paid
  $129
  $40Supplemental
  disclosures of noncash investing and financing activity:Accrued preferred stock dividends
  1,511
  Non-cash accretion on preferred stock
  711
  See accompanying notes
to financial statements.  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 March 31,
2001, 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, 2000, 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.

3.          Stockholders
Equity.  On June 30, 2000, the
Company issued preferred securities and warrants under the terms of a purchase
agreement, dated April 14, 2000, (the Purchase Agreement) with Koninklijke
Ahold N.V. (Ahold.)  Pursuant to the
terms of the Purchase Agreement, the Company sold 726,371 shares of the
Companys series B convertible redeemable preferred stock, par value $.01 per
share (the Series B Preferred Stock) and warrants (the Warrants) to
purchase 32,894,270 shares of the Companys common stock for an aggregate
purchase price of $72,637,024.  All of
the outstanding shares of Series B Preferred Stock were exchanged on October
12, 2000 for shares of series C convertible preferred stock, par value $.01 per
share (the Series C Preferred Stock). 
The Series C Preferred Stock has the same terms as the Series B
Preferred Stock except that, in lieu of a provision for mandatory redemption by
the Company of the Series B Preferred Stock, the Series C Preferred Stock
provides for an increase in the dividend rate on the Series C Preferred Stock
beginning on June 30, 2008.  The Series
C Preferred Stock is convertible into 19,369,873 shares of common stock,
subject to adjustment for certain dilutive issuances, which represented approximately
52% of the Companys common stock outstanding as of March 31, 2001.  The Series C Preferred Stock ranks senior to
the common stock with respect to dividends and liquidation payments, and has a
liquidation preference of $100.00 per share, plus all then accrued and unpaid
dividends.  The Series C Preferred Stock
accrues cumulative dividends, payable quarterly, at the rate of 8% per annum
until June 30, 2008, and thereafter at the rate of 16% per annum.  Ahold has waived its right to receive
payment of all accumulated and unpaid dividends on the Series C Preferred
Stock, including future quarterly dividends, until the completion of a debt or
equity financing transaction (a Financing Transaction) including, without
limitation, a public offering of capital stock of Peapod, at which time Peapod
shall use the cash proceeds from the Financing Transaction to pay all
accumulated and compounded dividends on the Series C Preferred Stock.  As of March 31, 2001, such accumulated and
unpaid dividends totaled $4,445,000. 
Holders of Series C Preferred Stock are entitled to vote together with
the holders of Peapod common stock as a single class on all matters submitted
for a vote to holders of common stock. 
The Company may redeem the outstanding shares of Series C Preferred
Stock at any time after April 14, 2008 at a redemption price per share equal to
the liquidation preference for the Series C Preferred Stock, plus the amount of
any accumulated and unpaid dividends as of the date of the redemption.  The difference between the net issuance
price and the redemption value of the Series B Preferred Stock, assuming
redemption on April 14, 2008, was accreted (based on the eight-year period to
redemption) through charges to additional paid-in capital prior to conversion
of the Series B Preferred Stock to the Series C Preferred Stock.  The imputed cost of the increasing dividend
rate on the Series C Preferred Stock is being accreted using the interest
method as increases to the carrying amount of the Series C Preferred Stock
through June 30, 2008.  The Warrants have
an exercise price of $3.75, subject to adjustment, and are immediately
exercisable.  The imputed fair value of
the warrants was calculated to be $56,953,000 using the Black-Scholes
option-pricing model and was recognized in the second quarter of 2000 as a
deemed dividend on the Series B Preferred Stock, increasing the net loss
available to common stockholders.

4.          Reliance
on Certain Relationships.  In
certain markets, the Company purchases groceries from whollyowned subsidiaries
of Ahold.  Prior to the investment by
Ahold on June 30, 2000, all such purchases were made under existing
arms-length contracts.  Beginning on
July 1, 2000, purchases of groceries in these markets have transitioned to new
terms negotiated in conjunction with the Purchase Agreement which are believed
to be at arms-length terms.  Cost of
sales for the three months ended March 31, 2001 includes $9,447,000 of
groceries purchased from Ahold subsidiaries. 
At March 31, 2001, $4,076,000 was owed to subsidiaries of Ahold and is
presented as accounts payable to related party.

5.          Credit
Facility.  On April 14, 2000,
simultaneously with the signing of the Purchase Agreement, the Company entered
into a $20,000,000 secured revolving credit facility with Ahold maturing in
April 2003.  On February 26, 2001, the
revolving credit facility with Ahold was increased from $20,000,000 to
$50,000,000 on substantially identical terms as the original facility.  Pursuant to security agreements entered into
in connection with the credit facility, the Companys obligations under the
credit facility are secured by a lien on all of the Companys personal
property, including its intellectual property. 
In connection with the credit and security agreements, the Company issued
to Ahold warrants to purchase an aggregate of 3,666,667 shares of common stock
at an initial exercise price of $3.00, subject to adjustment, which are
immediately exercisable.  The imputed
fair value of the warrants was calculated to be $5,358,000 using the
Black-Scholes option-pricing model and is being recognized as non-cash interest
expense over the life of the credit facility (at March 31, 2001, $3,468,000 is
recorded as other non-current assets and $434,000 was recognized as non-cash
interest expense in the three month period ended March 31, 2001).  At March 31, 2001, the Company had
borrowings under the credit facility of $6,000,000, which bear interest from
the date of borrowing at 3% over the LIBOR rate at the date of each borrowing.  The interest rate will be adjusted every 90
days to the then current LIBOR rate plus 3% (or at a rate equal to the higher
of (i) the rate, which is 1⁄2 of 1% in excess of the Federal Funds Rate, and (ii)
the Prime Lending Rate).  Ahold has
waived its right to receive payment of all accumulated and unpaid interest on
borrowings under the credit facility, including future interest thereon until a
Financing Transaction is completed, provided that, upon a Financing
Transaction, Peapod shall pay all such accumulated and unpaid interest.  The Company is in compliance with all
covenants of the credit facility.

If Ahold exercises any of its warrants
prior to April 2003, availability under the credit facility will be reduced
dollar-for-dollar for the exercise price received.  Total warrants issued to Ahold, if exercised, would represent an
additional approximate 21% of the common stock outstanding as of March 31,
2001.  As of March 31, 2001, no warrants
had been exercised by Ahold.

6.          Termination of Employment.  The Company entered into a Separation
Agreement with William Malloy dated March 15, 2000.  Effective as of that date, William Malloy resigned from his
position as President and Chief Executive Officer and his employment agreement
was terminated.  Under the terms of the
Separation Agreement, the Company paid Mr. Malloys salary through April 30,
2000.  The options to purchase 1,100,000
and 500,000 shares of the Company common stock, respectively, which were
granted to Mr. Malloy pursuant to his employment agreement, were cancelled,
unexercised, and the option agreements relating to those option grants were
terminated.  The $2,500,000 loan, which
had been extended to Mr. Malloy in September of 1999 for the purchase of
311,891 shares of Company common stock, was cancelled, and the purchase of
common stock was rescinded and cancelled. 
The Company recognized a non-recurring expense in the first quarter of
2000 of $1,584,000 representing the difference between the balance of the loan
and the fair market value of the 311,891 shares on the date the Separation
Agreement was executed.  Mr. Malloy
returned those shares to the Company and they became treasury stock on April
24, 2000.  Under the terms of the
Separation Agreement, Mr. Malloys Severance Agreement was terminated, except
as to the Companys obligation to maintain directors and officers liability
insurance for Mr. Malloy for a period of three years.  In addition, Mr. Malloy retains certain contractual rights to
indemnification as a former officer and director.  Both the Company and Mr. Malloy signed general releases of any
and all existing claims related to Mr. Malloys employment by the Company.

7.          Nonrecurring expenses.  During the fourth quarter of 2000, the
Company recorded impairment charges for certain long-lived assets not expected
to be recoverable, lease termination costs, and other facilities closing costs
in connection with decisions to exit certain markets and abandon certain
facilities in continuing markets. 
Nonrecurring expenses of $761,000 incurred during the quarter ended
March 31, 2001 were attributable to activities relating to the closing of the
Companys San Francisco distribution center, and consisted of: (i) $178,000 of
lease termination costs, (ii) $156,000 of facility closing costs, and (iii)
$427,000 of severance and other payroll costs. 
During the quarter ended March 31, 2001, all 92 employees of the San
Francisco distribution center were notified that their employment would be
terminated and the related severance costs were accrued at that time.  All exit costs relating to facility closings
are expected to be paid by the end of 2001, except for certain contractual
obligations such as lease commitments. 
Nonrecurring expenses totaled $4,118,000 for the quarter ended March 31,
2000 and resulted from severance expenses of $1,890,000, which was incurred
primarily in connection with William Malloys termination of employment (see
Note 6); expenses attributable to a failed financing transaction of $1,000,000;
impaired asset write-offs of $832,000 related to cancelled and deferred
initiatives; and other nonrecurring expenses of $396,000.

The following table depicts the exit
charges and related liability balances as of and for the three month period
ended March 31, 2001, primarily related to the decisions to exit certain
markets and abandon certain facilities in continuing markets (in thousands):



Balance in
  Accrued
  Expenses at
  January 1, 2001
  Current
  Exit Costs
  Payments
  through
  March 31,
  2001
  Balance in
  Accrued
  Expenses at
  March 31, 2001Lease termination costs
  $345
  $178
  $(25)
  $498Severance and other payroll costs
  
  427
  (216)
  211Other facilities closing costs
  300
  156
  
  456$645
  $761
  $(241)
  $1,165Item 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 net sales:



Three Months EndedMarch  31,2001
  2000Net
  sales
  100%
  100%Cost
  of sales
  68
  78Gross
  profit
  32
  22Operating
  expenses:Fulfillment operations
  50
  36General and administrative
  15
  8Marketing and selling
  12
  5System development and maintenance
  4
  5Depreciation and amortization
  8
  3Nonrecurring expenses
  3
  16Total operating expenses
  92
  73Operating
  loss
  (60)
  (51)Other
  income (expense):Investment income (expense)
  *
  *Non-cash interest expense
  2
  *Interest expense
  *
  *Net
  loss
  (62)%
  (51)%* - Less than 1%

Comparison of Three Months
Ended March 31, 2001 and March 31, 2000

Net  sales.  Net sales are the sales of groceries and related products to
customers, net of promotional discounts and allowances, subscription, service
and other fees paid by customers and retail partners, and fees from consumer
goods companies for interactive advertising, promotion and research
services.  Net sales increased by 1%
from $24,774,000 in the quarter ended March 31, 2000 to $24,937,000 in the
quarter ended March 31, 2001.  Net sales
for the quarter ended March 31, 2001 includes net sales from two markets opened
in 2000 (Southern Connecticut opened June 2000 and Washington, D.C. opened
September 2000) and reflects the closing of four markets in September 2000
(Columbus, OH and Houston, Dallas and Austin, TX) and one market in March 2001
(San Francisco, CA).  Revenues from the
sale of groceries and related products increased 8% from $22,850,000 in the
quarter ended March 31, 2000 to $24,579,000 in the quarter ended March 31, 2001.  However, on a pro forma basis, taking the
closed markets out of the base, current market sales were up 42% for the
quarter ended March 31, 2001 versus the quarter ended March 31, 2000.  Orders were unchanged from 205,500 in the
quarter ended March 31, 2000 to 205,500 in the quarter ended March 31, 2001,
while average order size increased 8% from $111 to $120.  In current markets, orders grew 37% from
143,000 orders in the quarter ended March 31, 2000 to 196,000 orders in the
quarter ended March 31, 2001. 
Promotional discounts and allowances, which reduce the amount a customer
pays for their grocery order, increased from $140,000 in the three months ended
March 31, 2000 to $337,000 in the three months ended March 31, 2001 as (i) more
discounts were offered in new markets in order to quickly build customer
density and (ii) the cost of discounts are now the Companys costs versus the
retailers costs in certain Ahold markets. 
Fees paid by customers and retail partners decreased from $1,744,000 in
the quarter ended March 31, 2000 to $454,000 in the quarter ended March 31,
2001.  This decrease is attributable to
(i) lower fees paid by retail supply partners and (ii) reduced customer fees in
an effort to meet competitors pricing (although previously reduced fees
charged to customers have been increased in the three months ended March 31,
2001 related to the changing competitive environment and what the Companys
research shows consumers are willing to pay for the convenience of the Peapod
service).  Customers, measured as
customers transacting within the last 12 months, decreased 8% from 129,800 at
March 31, 2000 to 120,000 at March 31, 2001. 
This decrease in customers reflects the termination of approximately
38,000 customers upon the closing of a total of five markets in September 2000
and March 2001 offset somewhat by customer additions in the current markets.

Fees
from consumer goods companies for interactive advertising, promotion and
research decreased from $320,000 in the quarter ended March 31, 2000 to $61,000
in the quarter ended March 31, 2001. 
Because of a focus on completing the financing transactions in 2000, the
Company reduced its interactive advertising, promotion and research efforts
throughout 2000.  During the quarter
ended March 31, 2001, the Company began reinitiating its interactive
advertising, promotion and research efforts and expects to continue increasing
these efforts.

Cost of
sales.  Cost of sales, which are the cost of
groceries and related products, decreased 12% from $19,216,000 in the quarter
ended March 31, 2000 to $16,963,000 in the quarter ended March 31, 2001.  The decrease resulted primarily from
improved margins resulting from the Ahold relationship and other improvements
in online merchandising aimed at personalizing the online store and encouraging
the purchase of higher margin items.

Fulfillment
operations.  Fulfillment
operations expenses include (i) the direct costs relating to the picking,
packing and delivery of customer orders, (ii) salaries and overhead expenses of
each fulfillment center, (iii) salaries and overhead expenses for each
metropolitan market; (iv) salaries and overhead expenses for certain field
support functions such as recruiting, training and database merchandising and
(v) salaries and overhead expenses for certain corporate support functions such
as customer support, billing and telecom. 
Fulfillment operations expenses increased 39% from $8,931,000 for the
quarter ended March 31, 2000 to $12,443,000 for the quarter ended March 31,
2001.  This increase is primarily
attributable to (i) the Company now operating and accounting for all
fulfillment functions in all markets, whereas in 2000 the Company outsourced
much of this function to its retailer partners in exchange for a small service
fee; (ii) more of the Companys orders being fulfilled in centralized
fulfillment centers which results in higher fulfillment costs while the Company
builds scale and (iii) the addition of two fulfillment centers acquired from
Streamline in September 2000.

At
March 31, 2001, the Company fulfilled customer orders from nine fulfillment
centers across five metropolitan markets covering 5,031,600 households.  This compares to 22 fulfillment centers
across eight metropolitan markets at March 31, 2000 covering 8,586,100 households.  After the first quarter of 2000, one new
fast-pick center was opened and leases for two warehouses were acquired, while
15 fulfillment centers were closed in the five markets the Company has exited
and one fulfillment center has been temporarily closed to enable retrofitting
of certain materials handling equipment and further integration of systems.

General and
administrative.  General and
administrative expenses, which include corporate staff, accounting and human
resource functions, and occupancy expenses, increased 84% from $2,039,000 in
the quarter ended March 31, 2000 to $3,757,000 in the quarter ended March 31,
2001.  The increase is primarily
attributable to an increase in compensation related expenses as the Companys
corporate structure has expanded within the areas of (i) operations planning to
support the two facilities from the Streamline acquisition; (ii) operations
planning to support a decentralized organization structure in other markets and
(iii) costs from other markets where the Company absorbed operational
responsibilities from its retail partners. 
These absorbed expenses include functions such as logistics and
transportation planning, operational planning and development and human resources
support.

Marketing
and selling.  Marketing and
selling expenses include the cost of customer 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 152% from $1,200,000 for the quarter ended March 31, 2000
to $3,019,000 for the quarter ended March 31, 2001.  Marketing and advertising spending was very limited in the
quarter ended March 31, 2000 as the Company sought additional financing.  With the Ahold relationship now in place and
to support customer acquisitions in the new markets entered, marketing and
advertising spending was increased in the quarter ended March 31, 2001.

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 20% from
$1,189,000 for the quarter ended March 31, 2000 to $951,000 for the quarter
ended March 31, 2001.  The decrease is
primarily attributable to (i) the streamlining of the technology development
department and a corresponding reduction in IT staff and (ii) the IT staff
working on internal-use software development projects capitalized in 2001 and
(iii) lower maintenance costs resulting from the Ahold relationship.  During 2000, IT staff worked on planning and
maintenance projects that were not capitalizable.

Depreciation
and amortization.  Depreciation and amortization increased 200%
from $664,000 for the quarter ended March 31, 2000 to $1,991,000 for the
quarter ended March 31, 2001.  This
increase primarily results from equipment and leasehold improvements acquired
from Streamline, and includes $531,000 of amortization of goodwill and other
intangibles.

Nonrecurring
expenses.  During the fourth
quarter of 2000, the Company recorded impairment charges for certain long-lived
assets not expected to be recoverable, lease termination costs, and other
facilities closing costs in connection with decisions to exit certain markets
and abandon certain facilities in continuing markets.  Nonrecurring expenses of $761,000 incurred during the quarter
ended March 31, 2001 were attributable to activities relating to the closing of
the Companys San Francisco distribution center, and consisted of: (i) $178,000
of lease termination costs, (ii) $156,000 of facility closing costs, and (iii)
$427,000 of severance and other payroll costs. 
During the quarter ended March 31, 2001, employees of the San Francisco
distribution center were notified that their employment would be terminated and
the related severance costs were accrued at that time.  All exit costs relating to facility closings
are expected to be paid by the end of 2001, except for certain contractual
obligations such as lease commitments. 
Nonrecurring expenses totaled $4,118,000 for the quarter ended March 31,
2000 and result from severance expenses of $1,890,000, which was incurred
primarily in connection with William Malloys termination of employment (see
Note 6 in Notes to Financial Statements); expenses attributable to a failed
financing transaction of $1,000,000; impaired asset write-offs of $832,000
related to cancelled and deferred initiatives; and other nonrecurring expenses
of $396,000.

Other income (expense).Other income (expense) includes interest
paid on capital leases, interest on borrowings and credit facilities, non-cash
interest expense from the amortization of warrants issued with the credit
facility, and investment income and expense. 
Interest expense increased from $56,000 for the quarter ended March 31,
2000 to $223,000 in the quarter ended March 31, 2001 primarily related to
additional capitalized leases acquired from Streamline and borrowings under the
Ahold credit facility.  Investment
income for the quarter ended March 31, 2000 was $103,000 compared to no
investment income for the quarter ended March 31, 2001.  There was no non-cash interest expense in
the quarter ended March 31, 2000, as the credit facility was not in place at
that time.

LIQUIDITY AND CAPITAL RESOURCES

Cash
used in operating activities increased from $4,496,000 in 2000 to $13,803,000
in 2001.  The change in cash used in
operating activities was primarily attributable to increased net losses, an
increase in other current assets and decreases in current liabilities.  As of March 31, 2001, the Company had
$3,703,000 in cash and cash equivalents and $44,000,000 of available credit
under its $50,000,000 revolving credit facility with Ahold.  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 expects its cash needs for the nine-month period from April 1, 2001
through December 31, 2001 to be approximately $33,000,000.  The Companys principal sources of liquidity
consist of $3,703,000 of cash as of March 31, 2001 and availability of
$44,000,000 under the revolving credit facility with Ahold as of March 31,
2001.  Pursuant to a waiver letter (the
Waiver), Ahold agreed to allow the Company to defer until the Company
completes a financing transaction (i) payment of dividends due and that accrue
with respect to shares of Series C Preferred Stock (and the previously held
Series B Preferred Stock) and (ii) payment of interest under the credit
facility.  The dividends on the
preferred stock and the interest under the credit facility will continue to
accumulate in accordance with their respective terms.  Further, under the terms or the Waiver, the Company will be
required to pay any accumulated and unpaid dividends due on the preferred stock
and any overdue interest under the credit facility with proceeds from any
financing transaction that the Company completes.  In addition, under the terms of the credit facility, upon
completion of certain financings by the Company, the commitment under the
credit facility will be permanently reduced by the amount of the net cash
proceeds from such financing(s) and any amount outstanding under the credit
facility up to the amount of such net cash proceeds will become due and
payable.  After completion of a
financing by the Company, payment of dividends on the preferred stock and
interest under the credit facility will no longer be deferred and will become
due and payable in accordance with their terms.

The
Company anticipates, in light of the Waiver from Ahold, that the cash on hand
as of March 31, 2001 together with the credit facility will be sufficient to
fund the Companys operations and capital requirements for the remainder of
2001.  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 expects to require additional
capital to fund its cash needs in 2002. 
The Company is currently exploring financing alternatives to raise
additional funds to support its business plan for 2002 and beyond.  The Company cannot be certain that
additional financing will be available on favorable terms or at all.

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



RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

There
are no recently issued accounting standards that are believed to have a
material impact on the Companys financial statements.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

At
March 31, 2001, the Company had borrowings under the credit facility of $6,000,000,
which bear interest from the date of borrowing at 3% over the LIBOR rate at the
date of each borrowing.  The interest
rate will be adjusted every 90 days to the then current LIBOR rate plus 3% (or
at a rate equal to the higher of (i) the rate, which is 1⁄2 of 1% in excess of
the Federal Funds Rate, and (ii) the Prime Lending Rate).

PART II

OTHER INFORMATION



Item 5.Other Information

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

Except
for historical matters contained herein, the matters discussed in this report,
including statements herein regarding Peapod's competitive strengths and market
position, its business strategy, its sufficiency of resources and ability to
obtain financing, markets for Peapods products, general trends and trends in
Peapods operations or financial results, Peapods expansion strategy and
Peapods future prospects and profitability, are forward-looking and are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995.  Investors are
cautioned that these forward-looking statements reflect numerous assumptions
and involve risks and uncertainties that may affect Peapod's business and
prospects and cause actual results to differ materially from these
forward-looking statements.  Such risks
include, without limitation:  (1) the
sufficiency of the Company's resources and its ability to obtain financing; (2)
the Company's limited operating history; (3) the complexity of the Company's
business systems; (4) the Company's ability to manage its growth and expansion
strategy; (5) the Company's relationship with Ahold and its affiliates; (6) the
Company's ability to leverage its brand name; (7) the Company's ability to
respond to rapid technological change; (8) the impact of future losses and
negative cash flow; (9) the impact of significant future capital investments;
(10) competition from traditional and online retailers; (11) the success of the
Internet as a medium for grocery shopping; (12) the Company's ability to build
brand identity and customer loyalty; (13) the Company's ability to attract and
retain key personnel; and (14) the risk factors identified in the Company's
Annual Report on Form 10-K for the period ended December 31, 2000 and risk
factors identified from time to time in any other filings made by the Company
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:

ExhibitNo.             Description+10.1 Employment Agreement between the Company and
Michael P. Brennan, dated November 15, 1999.+10.2 Bonus Arrangement between the Company and
Michael P. Brennan+           Filed
herewith.

(b)        On
March 2, 2001, the Company filed a Form 8-K announcing that on February 26,
2001, the Company entered into a First Amendment to Credit Agreement (the
Amendment) with Koninklijke Ahold N.V. (Ahold).  Under the Amendment, Ahold agreed to increase its commitment
under the Credit Agreement dated April 14, 2000 from $20,000,000 to
$50,000,000.

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)May
  15, 2001
  /s/
  Andrew B. ParkinsonAndrew
  B. ParkinsonChief
  Financial Officer