<PAGE>
 
================================================================================
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   ---------
                                   FORM 10-Q
                                   ---------
(Mark One)

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

     For the quarterly period ended September 30, 1996

                                       OR

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

     For the transition period from ________ to ________

                        COMMISSION FILE NUMBER 0-28436


                               OPEN MARKET, INC.
             (Exact name of registrant as specified in its charter)


           DELAWARE                                         04-3214536
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                       Identification Number)

                                245 FIRST STREET
                        CAMBRIDGE, MASSACHUSETTS  02142
              (Address of principal executive offices)  (Zip Code)

                                 (617) 949-7000
              (Registrant's telephone number, including area code)


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



As of October 31, 1996, there were 28,283,503 shares of the Registrant's Common
Stock outstanding.

================================================================================

                                      -1-
<PAGE>
 
                               OPEN MARKET, INC.

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
PART I - FINANCIAL INFORMATION

  ITEM 1.  Financial Statements
 
    Consolidated Balance Sheets as of September 30, 1996 and
    December 31, 1995                                                      3
  
    Consolidated Statements of Operations for the three months
    and nine months ended September 30, 1996 and 1995                      4
 
    Consolidated Statements of Cash Flows for the nine
    months ended September 30, 1996 and 1995                               5
 
    Notes to Consolidated Financial Statements                             6
 
  ITEM 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                            10
          
 
PART II - OTHER INFORMATION                                               15
 
SIGNATURES                                                                15
 
EXHIBIT INDEX                                                             16
 
</TABLE>

                                      -2-
<PAGE>
 
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
                               OPEN MARKET, INC.
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
                                            SEPTEMBER 30,    DECEMBER 31,
                                                 1996            1995
                                          ---------------   -------------
<S>                                       <C>               <C>
ASSETS
Current assets:
  Cash and cash equivalents                    $ 49,788       $  3,712
  Marketable securities                          29,512              - 
  Accounts receivable, net of
    allowance for doubtful accounts of
    $195 and $25, respectively                    4,841          1,227
  Loan to founder                                 1,500              -
  Deferred charges                                  167            391
  Prepaid expenses and other current 
    assets                                        1,326            157
                                          ---------------   -------------
     Total current assets                        87,134          5,487
                                          ---------------   -------------
 
Property and equipment, at cost:
  Computers and office equipment                  4,221          2,429
  Furniture & fixtures                              395            245
  Leasehold improvements                          1,344            528
                                          ---------------   -------------
  Less: Accumulated depreciation and              5,960          3,202
   amortization                                   2,078            845
                                          ---------------   -------------
                                                  3,882          2,357
 
Other assets                                        218            103
                                          ---------------   -------------
                                               $ 91,234       $  7,947
                                          ===============   =============
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 (DEFICIT)
Current liabilities:
  Accounts payable                             $  2,259       $  1,373
  Accrued expenses                                5,410          2,657
  Deferred revenues                               4,225          6,901
  Current maturities of long-term              
   obligations                                       35            339
                                          ---------------   -------------
          Total current liabilities              11,929         11,270
                                          ---------------   -------------

Long-term obligations, net of current    
 maturities                                         128            659 
 
Commitments
 
Redeemable convertible preferred stock                -         11,205
 
Stockholders' equity (deficit):
     Preferred stock, $.10 par value -
      Authorized - 2,000,000 shares; 
      Issued and outstanding - none                   -              -
     Common stock, $.001 par value -
      Authorized - 100,000,000 shares;
      Issued and outstanding - 28,230,622
      shares and 9,390,312 shares at
      September 30, 1996 and December 31,             
      1995, respectively                             28              9 
     Additional paid-in capital                 114,673             32
     Accumulated deficit                        (35,524)       (15,228)
                                          ---------------   -------------
      Total stockholders' equity
       (deficit)                                 79,177        (15,187)
                                          ---------------   -------------
                                               $ 91,234       $  7,947
                                          ===============   =============
</TABLE>

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

                                      -3-
<PAGE>
 
                               OPEN MARKET, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
                                                THREE MONTHS ENDED                         NINE MONTHS ENDED
                                                  SEPTEMBER 30,                              SEPTEMBER 30,
                                        -------------------------------          ---------------------------------
                                           1996                1995                  1996                  1995
                                        ----------          -----------          ------------          -----------
<S>                                       <C>                  <C>                  <C>                  <C>      
REVENUES:
     Product revenues                      $ 5,250              $    33              $ 10,500              $    33
     Service revenues                        1,456                  506                 3,589                  767
                                        ----------          -----------          ------------          -----------
               Total revenues                6,706                  539                14,089                  800
                                        ----------          -----------          ------------          -----------
 
COST OF REVENUES:
     Product revenues                          147                    4                   416                    4
     Service revenues                        1,303                  328                 2,760                  507
                                        ----------          -----------          ------------          -----------
               Total cost of revenues        1,450                  332                 3,176                  511
                                        ----------          -----------          ------------          -----------
                                        ----------          -----------          ------------          -----------
               Gross profit                  5,256                  207                10,913                  289
                                        ----------          -----------          ------------          -----------
 
OPERATING EXPENSES:
     Selling and marketing                   6,347                1,007                15,628                2,063
     Research and development                4,264                1,555                11,892                3,507
     General and administrative              1,638                  611                 4,619                1,279
                                        ----------          -----------          ------------          ----------- 
               Total operating expenses     12,249                3,173                32,139                6,849
                                        ----------          -----------          ------------          -----------
                                        ----------          -----------          ------------          -----------
               Loss from operations         (6,993)              (2,966)              (21,226)              (6,560)
                                        ----------          -----------          ------------          -----------
 
OTHER INCOME (EXPENSE):
     Interest income                         1,163                   90                 1,934                  168
     Interest expense                           (8)                 (29)                  (72)                 (65)
     Other expense                              (7)                   -                    (7)                   -
                                        ----------          -----------          ------------          -----------
LOSS BEFORE PROVISION FOR INCOME TAXES      (5,845)              (2,905)              (19,371)              (6,457)
                                        ----------          -----------          ------------          -----------
PROVISION FOR FOREIGN INCOME TAXES              25                    -                    25                    -
                                        ----------          -----------          ------------          -----------
NET LOSS                                   $(5,870)             $(2,905)             $(19,396)             $(6,457)
                                        ==========          ===========          ============          =========== 
PRO FORMA NET LOSS PER COMMON AND
   COMMON EQUIVALENT SHARE (NOTE 2)        $ (0.21)             $ (0.11)             $  (0.71)             $ (0.25)
                                        ==========          ===========          ============          =========== 
PRO FORMA WEIGHTED AVERAGE
   NUMBER OF COMMON AND COMMON
   EQUIVALENT SHARES OUTSTANDING   
   (NOTE 2)                                 28,186               26,319                27,313               26,323 
                                        ==========          ===========          ============          =========== 

</TABLE>





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

                                      -4-
<PAGE>
 
                               OPEN MARKET, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
                                                       NINE MONTHS ENDED
                                                          SEPTEMBER 30,
                                                ------------------------------
                                                    1996               1995
                                                -----------       ------------
<S>                                            <C>                 <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                     $(19,396)            $(6,457)
   Adjustments to reconcile net     
      loss to net cash used in        
      operating activities:           
     Depreciation and amortization                 1,233                 393
     Charge associated with      
      the issuance of a stock                    
      purchase warrant                               211                   - 
                                       
     Changes in assets and           
      liabilities-                   
       Accounts receivable                        (3,614)               (525)
       Deferred charges                              224                (256)
       Prepaid expenses and other                 (1,169)                (75)
        current assets                      
       Accounts payable                              886                 249
       Accrued expenses                            2,753                 565
       Deferred revenues                          (2,676)              4,731
                                                -----------       -------------
       Net cash used in operating                
        activities                               (21,548)             (1,375) 
                                                -----------       -------------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and          
      equipment                                   (2,758)             (1,714) 
   Issuance of loan to founder                    (1,500)                  -
   Purchases of marketable                       (29,512)                  -
      securities, net
   Increase in other assets                         (115)                (27)
                                                -----------       -------------
        Net cash used in investing               
         activities                              (33,885)             (1,741) 
                                                -----------       -------------
  
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long-term               
      obligations                                    650                 850 
   Payments on long-term              
      obligations                                 (1,485)                (23) 
   Proceeds from issuance of
      redeemable convertible                   
      preferred stock, net of
      issuance costs                              26,050               7,741 
   Proceeds from initial public
      offering, net of                           
      underwriters' discount and
      offering costs                              76,127                   _
   Proceeds from issuance of
      common stock, net of                       
      repurchases                                    167                   -
   Proceeds from bridge financing                      -               1,050
                                                -----------       -------------
        Net cash provided by financing      
         activities                              101,509               9,618 
                                                -----------       -------------
  NET INCREASE IN CASH AND CASH              
  EQUIVALENTS                                     46,076               6,502 
 
 CASH AND CASH EQUIVALENTS, BEGINNING        
  OF PERIOD                                        3,712                 636 
                                                -----------       -------------
 CASH AND CASH EQUIVALENTS, END OF            
  PERIOD                                        $ 49,788             $ 7,138 
                                                ===========       =============
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
   Interest paid during the period              $     64             $    65
                                                ===========       =============
 
SUPPLEMENTAL DISCLOSURE OF NON-CASH
 INVESTING ACTIVITIES:
   Conversion of redeemable
      convertible preferred stock    
      into common stock                         $ 38,155                   - 
                                                ===========       =============
 
   Conversion of bridge
      financing into redeemable     
      convertible preferred stock               $      -             $ 1,050 
                                                ===========       =============
</TABLE>




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

                                      -5-
<PAGE>
 
                               OPEN MARKET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

1.  BASIS OF PRESENTATION

    The consolidated financial statements of Open Market, Inc. (the Company)
presented herein have been prepared pursuant to the rules of the Securities and
Exchange Commission for quarterly reports on Form 10-Q and do not include all of
the information and note disclosures required by generally accepted accounting
principles.  These statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 1995, included in the Company's prospectus within the Form S-1 filed with
the Securities and Exchange Commission on May 22, 1996.

    The consolidated financial statements and notes herein are unaudited but, in
the opinion of management, include all adjustments (consisting of normal,
recurring adjustments) necessary to present fairly the consolidated financial
position, results of operations and cash flows of the Company and its
subsidiaries.

    The results of operations for the interim periods shown herein are not
necessarily indicative of the results to be expected for any future interim
period or for the entire year.


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    The accompanying consolidated financial statements reflect the application
of certain accounting policies described in this and other notes to these
consolidated financial statements.

    (a) Principles of Consolidation

        The accompanying consolidated financial statements reflect the accounts
    of the Company and its wholly owned subsidiaries. All material intercompany
    accounts and transactions have been eliminated in consolidation.

    (b) Cash, Cash Equivalents and Marketable Securities

        The Company accounts for investments under Statement of Financial
    Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in
    Debt and Equity Securities. Under SFAS No. 115, investments for which the
    Company has the positive intent and ability to hold to maturity, consisting
    of cash equivalents and marketable securities, are reported at amortized
    cost, which approximates fair market value. Cash equivalents are highly
    liquid investments with maturities of less than three months at the time of
    acquisition. Marketable securities consist of investment grade commercial
    paper, corporate notes, certificates of deposit, and obligations of a U.S.
    governmental agency and certain municipalities with maturities at the time
    of acquisition of greater than three months but less than one year. The
    average maturity of the Company's marketable securities is approximately
    five months.

    (c) Pro Forma Net Loss per Common and Common Equivalent Share

        For the three and nine month periods ended September 30, 1996 and 1995,
    pro forma net loss per common and common equivalent share is computed by
    dividing the net loss by the pro forma weighted average number of common and
    common equivalent shares outstanding during

                                      -6-
<PAGE>
 
    the period, which consists of (i) the weighted average number of common
    shares outstanding, (ii) the weighted average number of shares of common
    stock issuable upon conversion of all shares of Series A, B and C redeemable
    convertible preferred stock and (iii) for periods prior to the initial
    public offering, stock options granted after March 31, 1995 and prior to the
    initial public offering as required by the Securities and Exchange
    Commission using the treasury stock method. Other common stock equivalents
    have not been included, as the effect would be antidilutive. Historical net
    loss per share data has not been presented, as such information is not
    considered to be relevant or meaningful.

3.  STOCKHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK

    (a) Initial Public Offering

        In May 1996, the Company completed an initial public offering of
    4,600,000 shares of its common stock at $18.00 per share. The Company
    received net proceeds of approximately $76,127,000, after deducting the
    underwriters' discount and offering costs. Upon the closing of the initial
    public offering, all shares of the Company's Series A, B and C redeemable
    convertible preferred stock automatically converted into 13,437,025 shares
    of the Company's common stock.

    (b) Series C Redeemable Convertible Preferred Stock

        In January 1996, the Company received net proceeds of approximately
    $26,050,000 from the sale of 2,695,000 shares of its Series C Redeemable
    Convertible Preferred Stock, after deducting the underwriter's discount and
    offering costs. As discussed above, these shares were converted into common
    stock on a one-for-one basis upon the closing of the Company's initial
    public offering.

    (c) 1994 Stock Incentive Plan

        The 1994 Stock Incentive Plan (the 1994 Plan) allows for the issuance of
    up to 13,001,000 shares of the Company's common stock through the grant of
    incentive stock options, nonqualified stock options or the issuance of
    restricted common stock to employees and consultants.

        A summary of stock option activity under the 1994 Plan is as follows:
<TABLE>
<CAPTION>
 
                                        Number of         Exercise Price   
                                         Shares              Per Share     
                                      -------------    --------------------
<S>                                     <C>             <C>
Outstanding, December 31, 1995...         4,904,290      $ .17  -  $ 1.50  
   Granted.......................         1,336,437       4.00  -   35.13  
   Exercised.....................          (803,285)       .17  -   10.00  
   Terminated....................          (113,598)       .17  -   10.00  
                                      -------------    --------------------
Outstanding, September 30, 1996..         5,323,844      $ .17  -   $35.13 
                                      =============    ====================
Exercisable, September 30, 1996..         2,194,735      $ .17  -   $12.00 
                                      =============    ==================== 
</TABLE>

    (d) 1996 Employee Stock Purchase Plan

        Effective upon the closing of the Company's initial public offering, the
    Company adopted the 1996 Employee Stock Purchase Plan (the Purchase Plan).
    Under the Purchase Plan, the Company has reserved 250,000 shares of its
    common stock for issuance in accordance with the Purchase Plan. Under the
    terms of the Purchase Plan, employees who meet certain eligibility
    requirements may purchase shares of the Company's common stock at 85% of the
    closing price of the common stock on the first or 

                                      -7-
<PAGE>
 
    last day of each offering period, whichever is lower. Offering periods are
    every six months commencing August 1, 1996. Participants may have up to 10%
    of their qualifying compensation deducted and set aside for purchasing
    shares in each offering under the Purchase Plan. The Purchase Plan may be
    terminated by the Board of Directors at any time.

    (e) 1996 Director Option Plan

        Effective upon the closing of the Company's initial public offering, the
    Company adopted the 1996 Director Option Plan (the Director Plan) under
    which each new outside director will be granted an option to purchase that
    number of shares of common stock determined by dividing $100,000 by the
    option exercise price, at the fair market value, as defined. In addition,
    commencing with the 1997 Annual Meeting of the Stockholders, each Director
    who is not a founder or employee of the Company will annually be granted an
    option to purchase that number of shares of common stock determined by
    dividing $30,000 by the option exercise price. These options vest quarterly
    over a four-year period and expire 10 years from the date of grant. The
    vesting of these options will accelerate upon a change in control, as
    defined. The Company has reserved 100,000 shares for the Director Plan.

    (f) Common Stock Purchase Warrant

        During September 1996, the Company issued a stock purchase warrant to
    one of its customers for the purchase of 100,000 shares of the Company's
    common stock at an exercise price of $25.00 per share. The warrant may be
    exercised at any time and expires on December 31, 1997. The Company has
    reserved the number of shares of common stock necessary for issuance under
    this stock purchase warrant. In accordance with SFAS No. 123, Accounting for
    Stock-Based Compensation, the Company recorded a charge of $211,000 during
    the third quarter of 1996 as a component of selling and marketing expense,
    representing the fair market value of the warrant as calculated using the
    Black-Scholes model.

4.  SIGNIFICANT CUSTOMERS AND RELATED PARTY TRANSACTIONS

    The Company recorded revenues of greater than 10% of total revenues from the
following customers during the following periods:

<TABLE>
<CAPTION>
 
 
                                         SIGNIFICANT          PERCENTAGE OF
                                          CUSTOMERS         CUSTOMER REVENUES
                                         -----------  ---------------------------------
                                                       A    B    C    D    E    F    G
                                                      ---  ---  ---  ---  ---  ---  ---
<S>                                      <C>          <C>  <C>  <C>  <C>  <C>  <C>  <C>
Three months ended September 30, 1996..      3        29%  15%  14%   -    -    -    -
 
Three months ended September 30, 1995..      3         -    -    -   60%  14%  11%   -
 
Nine months ended September 30, 1996...      3        14%  25%  14%   -    -    -    -
 
Nine months ended September 30, 1995...      4         -    -    -   41%  20%   7%  11%

</TABLE>

  Customer C is a related party through its presence on  the Company's Board of
Directors. The Company has entered into agreements with certain stockholders
which provide for product and service revenues. The Company believes that the
terms of these transactions are on terms no less

                                      -8-
<PAGE>
 
favorable to the Company than could be obtained from unaffiliated third parties.
The Company recognized revenues from certain stockholders of approximately
$1,068,000 and $2,730,000 for the three and nine month periods ended September
30, 1996, respectively.

  On February 5, 1996, the Company loaned $1,500,000 to a founder and director
of the Company. The loan is non-recourse, secured by a pledge of 375,000 shares
of common stock, bears interest at a rate of 5.61% per annum and is due when the
founder and director can sell a sufficient number of shares of his common stock
to repay the principal and accrued interest on the loan.

                                      -9-
<PAGE>
 
 ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          --------------------------------------------------------------- 
          RESULTS OF OPERATIONS
          ---------------------

RESULTS OF OPERATIONS

 REVENUES

  Total revenues were approximately $6,706,000 for the three months ended
September 30, 1996, a significant increase from approximately $539,000 for the
three months ended September 30, 1995.  Total revenues for the nine months ended
September 30, 1996 were approximately $14,089,000 compared to approximately
$800,000 for the nine months ended September 30, 1995. Three customers accounted
for an aggregate of approximately 58% and 53% of total revenues for the three
months and nine months ended September 30, 1996, respectively. In the
corresponding periods of 1995, three customers accounted for 85% of the
Company's revenues for the three months ended September 30, 1995 and three
customers accounted for 72% of the Company's revenues for the nine months ended
September 30, 1995.  While in any particular quarter a single customer may
account for a material portion of revenues, the Company does not expect that it
will derive a material portion of its future revenues from a single customer.

  Product revenues were approximately $5,250,000 or 78% of total revenues for
the three months ended September 30, 1996 and approximately $10,500,000 or 75%
of total revenues for the nine months ended September 30, 1996. During the
second quarter of 1996, the Company began commercial shipment of OM-
Transact/TM/, its flagship product for Internet commerce, OM-SecureLink/TM/, a
commerce enabling technology, and OM-Axcess/TM/, a product that manages access
control. The Company began recognizing revenues from these products during the
second quarter of 1996 and believes that revenues from these products will
represent a significant percentage of total product revenues for the year ending
December 31, 1996. Product revenues for the nine month period ended September
30, 1996 also includes an initial $2 million license fee recognized in the first
quarter of 1996 from a reseller for the right to sublicense the Company's Web
server products. Although product revenues from its Web server products
represent a significant portion of the product revenues for the nine months
ended September 30, 1996, revenues from these products are not expected to
represent a significant percentage of the Company's product revenues in 1997 and
beyond. Royalty revenues from the Company's reseller arrangements are recognized
when earned. The Company believes that product revenues as a percentage of total
revenues will fluctuate on a quarterly basis.

  Service revenues were approximately $1,456,000 or 22% of total revenues for
the three months ended September 30, 1996 and approximately $3,589,000 or 25% of
total revenues for the nine months ended September 30, 1996.  Service revenues
relate to (i) development, consulting and other services performed for certain
customers to assist them in their development of services and products for the
Internet and (ii) customer support services, which include postcontract customer
support, installation, training and other services related to product sales. The
Company expects that total service revenues as a percentage of total revenues
will fluctuate on a quarterly basis, due in part to the timing of significant
development and consulting contracts.

                                      -10-
<PAGE>
 
 COST OF REVENUES

  Cost of product revenues for the three and nine month periods ended September
30, 1996 and 1995 consisted primarily of the costs to distribute the products,
including the cost of media on which they are delivered.  If, in the future, the
Company incorporates in its products additional technology licensed from third
parties, the Company believes that cost of product revenues may increase as a
percentage of the related product revenues due to increased costs related to
such licensed technology. Cost of service revenues consists primarily of
personnel and related costs incurred in providing development, consulting and
other services to customers. Cost of service revenues increased to approximately
$1,303,000 and $2,760,000 for the three and nine month periods ended September
30, 1996, respectively, from approximately $328,000 and $507,000 for the three
and nine month periods ended September 30, 1995, respectively.  The increase is
primarily attributable to costs associated with the higher service revenues and
the expansion of the Company's consulting practice.

  Gross profits may fluctuate based on the mix of distribution channels used by
the Company, the mix of products sold, the mix of product revenues versus
service revenues and the mix of international versus domestic revenues. The
Company expects to realize higher gross profits on direct product sales than on
product sales through indirect channels and higher gross profits on product
revenues than on services revenues. In addition, gross profits vary by product
and are generally higher on international product sales as compared to domestic
product sales.  The decline in the gross profit on service revenues during the
third quarter of 1996 was primarily due to the expansion of the Company's
consulting practice which was not immediately offset by additional service
revenues.  The Company expects this trend to continue during the fourth quarter
of 1996 and possibly into early 1997 before enough revenues are generated to
offset these expenses.  Due to its limited operating history, the Company cannot
accurately predict the mix of future product and service revenues.

 OPERATING EXPENSES

  Selling and marketing expenses consist primarily of the cost of sales and
marketing personnel and consultants, as well as the costs associated with
marketing programs, advertising costs and literature. These expenses increased
to approximately $6,347,000 and $15,628,000 for the three and nine month periods
ended September 30, 1996 from approximately $1,007,000 and $2,063,000 for the
three and nine month periods ended September 30, 1995. The substantial increase
in these expenses for these periods was primarily attributable to increases in
the number of domestic and foreign sales and marketing personnel, sales
commissions, promotional and advertising expenses, and, to a lesser extent, the
preparation and distribution of new product sales literature. The Company
intends to increase selling and marketing expenditures in future periods.

  Research and development expenses consist primarily of the cost of research
and development personnel and independent contractors, certain purchased
technology, as well as equipment and facility costs related to such activities.
These expenses increased to approximately $4,264,000 and $11,892,000 for the
three and nine month periods ended September 30, 1996, respectively, from
approximately $1,555,000 and $3,507,000 for the three and nine month periods
ended September 30, 1995, respectively. The substantial increase in these
periods was primarily attributable

                                      -11-
<PAGE>
 
to the hiring of additional software engineers and consultants to develop and
enhance the Company's products as well as increased equipment and facilities-
related costs. Qualifying capitalizable software development costs were
immaterial in both periods, and accordingly, the Company has charged all such
expenses to research and development in the period incurred. The Company
believes that significant investments in research and development are required
to remain competitive in the software industry. As a result, the Company intends
to increase the amounts of its research and development expenditures in the
future. Certain research and development expenditures are incurred substantially
in advance of the related revenue and in some cases do not generate revenue.

  General and administrative expenses consist primarily of the cost of finance,
management and administrative personnel, as well as legal and other professional
fees. These expenses increased to approximately $1,638,000 and $4,619,000 for
the three and nine month periods ended September 30, 1996, respectively, from
approximately $611,000 and $1,279,000 for the three and nine month periods ended
September 30, 1995, respectively. The substantial increase for these periods was
primarily attributable to the hiring of additional management and administrative
personnel from the expansion of the Company's operations and, to a lesser
extent, an increase in legal and other professional fees. The Company intends to
increase general and administrative expenditures in future periods.

  Interest income represents interest earned on cash, cash equivalents and
marketable securities. Interest income increased to approximately $1,163,000 and
$1,934,000 for the three and nine month periods ended September 30, 1996,
respectively, from approximately $90,000 and $168,000 for the three and nine
month periods ended September 30, 1995, respectively.  The increase is primarily
attributable to higher average investments in cash, cash equivalents and
marketable securities during the periods, primarily as a result of the closing
of the Company's initial public offering in May 1996 and the sale of Series C
Redeemable Convertible Preferred Stock in January 1996.  Interest expense was
approximately $8,000 and $72,000 for the three and nine month periods ended
September 30, 1996, respectively, compared to approximately $29,000 and $65,000
for the three and nine month periods ended September 30, 1995, respectively.
Interest expense relates primarily to the Company's equipment line of credit and
term notes payable, which were paid off during the second quarter of 1996, and
an obligation under a license agreement.

  The Company has recorded a provision for foreign income taxes of $25,000 for
the three and nine month periods ended September 30, 1996 relating to estimated
taxes due in foreign jurisdictions.  The Company has had losses for U.S. tax
purposes for all periods to date and, accordingly, there has been no provision
for U.S. income taxes.

  To date, inflation has not had a significant impact on the Company's
operations.

                                      -12-
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

  At September 30, 1996, the Company had approximately $79,300,000 in cash, cash
equivalents and marketable securities.  In May 1996, the Company completed an
initial public offering of 4,600,000 shares of its common stock for net proceeds
of approximately $76,127,000.  In January 1996, the Company received net
proceeds of approximately $26,050,000 from the sale of 2,695,000 shares of its
Series C Redeemable Convertible Preferred Stock.

  The Company had a $1,500,000 capital equipment line of credit that was
converted into an $850,000, 36-month term note payable and a $650,000, 33-month
term notes payable.  Both term notes were paid off during the second quarter of
1996 with the proceeds from the Company's initial public offering.

  The Company's operating activities utilized cash and cash equivalents of
approximately $21,548,000 and $1,375,000 for the nine month periods ended
September 30, 1996 and 1995, respectively.  Deferred revenues, which have
provided approximately $4,225,000 of cash for operating activities from
inception through September 30, 1996, represent cash received from customers for
product and service revenues in advance of revenue recognition by the Company.
Deferred revenues will fluctuate based upon the timing of cash receipts relative
to the recognition of product and service revenues.  There can be no assurance
that certain deferred revenues will be recognized as revenues in future periods
and that the Company will not be required to refund certain cash payments
received from its customers.

  The Company's investing activities used cash and cash equivalents of
approximately $33,885,000 and $1,741,000 for the nine month periods ended
September 30, 1996 and 1995, respectively.  The principal uses for the nine
months ended September 30, 1996 were to invest $29,512,000 in marketable
securities and to purchase $2,758,000 of property and equipment.  The Company
also loaned $1,500,000 to a founder of the Company.  See Note 4 of Notes to
Consolidated Financial Statements.

  The Company's financing activities provided cash and cash equivalents of
approximately $101,509,000 and $9,618,000 for the nine month periods ended
September 30, 1996 and 1995, respectively, primarily from the proceeds from the
Company's initial public offering and the private sales of equity securities.

  Capital expenditures were approximately $2,758,000 for the nine month period
ended September 30, 1996.  The Company has no material purchase commitments as
of September 30, 1996.  The Company estimates that capital expenditures for the
remainder of 1996 will range from approximately $1,300,000 to $2,200,000.

  At December 31, 1995, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $13,588,000. These losses
are available to reduce federal and state taxable income, if any, in future
years. These losses are subject to review and possible adjustment by the
Internal Revenue Service and may be limited in the event of certain cumulative
changes in ownership interests of significant shareholders over a three-year
period in excess of 50%. The Company believes that it has experienced a change
in ownership in excess of 50% and that it may have experienced an additional
change in ownership in excess of 50% upon completion of the Company's initial
public offering. The Company

                                      -13-
<PAGE>
 
does not believe that these changes in ownership will significantly impact the
Company's ability to utilize its net operating loss carryforwards.

  The Company believes that its existing capital resources are adequate to meet
its cash requirements for at least the next 12 months. There can be no
assurance, however, that changes in the Company's plans or other events
affecting the Company's operations will not result in accelerated or unexpected
expenditures.

                                      -14-
<PAGE>
 
                          PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

         None

ITEM 2. CHANGES IN SECURITIES.

         None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

         None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         None


ITEM 5. OTHER INFORMATION.

         None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

       (a)  Exhibits

            Exhibit 11  Computation of Earnings Per Share.

            Exhibit 27  Financial Data Schedule

       (b)  Reports on Form 8-K

            None


                                   SIGNATURES

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

                                   OPEN MARKET, INC.
                                     (Registrant)



Date: November 12, 1996    By:   /s/ Gary B. Eichhorn
                                 --------------------
                                 GARY B. EICHHORN,
                                 PRESIDENT & CHIEF EXECUTIVE OFFICER

Date: November 12, 1996    By:   /s/ Regina O. Sommer
                                 --------------------
                                 REGINA O. SOMMER,
                                 CHIEF FINANCIAL OFFICER
                                 (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)

                                      -15-
<PAGE>
 
<TABLE>
<CAPTION>
                                 EXHIBIT INDEX
                                ---------------
EXHIBIT NO.                       DESCRIPTION                        PAGE
-----------                     ---------------                      ----
<S>              <C>                                                 <C>
 
   11            Computation of Earnings Per Share                    17
 
   27            Financial Data Schedule (EDGAR)                      18
</TABLE>