<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, 1997

                                       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, 1997, there were 30,912,266  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, 1997 
        and December 31, 1996                                                3
  
        Consolidated Statements of Operations for the three months 
        and nine months ended September 30, 1997 and 1996                    4
 
        Consolidated Statements of Cash Flows for the nine
        months ended September 30, 1997 and 1996                             5
 
        Notes to Consolidated Financial Statements                           6
 
    ITEM 2.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations                            13

PART II - OTHER INFORMATION                                                 18
 
    ITEM 1. Legal Proceedings.
 
    ITEM 2. Changes in Securities and Use of Proceeds.
 
    ITEM 3. Defaults Upon Senior Securities.
 
    ITEM 4. Submission of Matters to a Vote of Security Holders.
 
    ITEM 5. Other Information.
 
    ITEM 6. Exhibits and Reports on Form 8-K.
 
SIGNATURES                                                                  19
 
EXHIBIT INDEX                                                               20
</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,
                                                                       1997                 1996
                                                                ----------------     ----------------
<S>                                                             <C>                  <C>
ASSETS
Current assets:
  Cash and cash equivalents                                             $ 33,111             $ 49,765
  Marketable securities                                                    8,683               22,268
  Accounts receivable, net of allowances of $1,399 and 
    $200, respectively                                                    14,717                5,126
  Loan to founder                                                          1,500                1,500
  Prepaid expenses and other current assets                                1,299                1,468
                                                                ----------------     ----------------
     Total current assets                                                 59,310               80,127
                                                                ----------------     ----------------
 
Property, plant and equipment, at cost:
  Computers and office equipment                                          10,869                6,194
  Land & building                                                          4,200                    -
  Leasehold improvements                                                   1,504                1,081
  Furniture & fixtures                                                       725                  493
                                                                ----------------     ----------------
                                                                          17,298                7,768
  Less: Accumulated depreciation and amortization                          5,136                2,568
                                                                ----------------     ----------------
                                                                          12,162                5,200
 
Intangible assets, net (Note 3)                                            8,192                    -
Other assets                                                               1,782                  475
                                                                ----------------     ----------------
                                                                        $ 81,446             $ 85,802
                                                                ================     ================
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term obligations                           $     39             $     35
  Line of Credit                                                           3,700                    -
  Note payable (Note 3)                                                   10,000                    -
  Accounts payable                                                         2,446                4,338
  Accrued expenses                                                        14,272                5,680
  Deferred revenues                                                        4,523                3,254
                                                                ----------------     ----------------
     Total current liabilities                                            34,980               13,307
                                                                ----------------     ----------------

Long-term obligations, net of current maturities                              89                  128
 
Stockholders' equity:
  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 - 30,902,623 shares and 
    28,565,246 shares at September 30, 1997 and December 
    31, 1996, respectively                                                    31                   28
  Additional paid-in capital                                             137,392              114,977
  Deferred compensation                                                     (302)                   -
  Other equity (Note 3)                                                    6,920                    -
  Accumulated deficit                                                    (97,664)             (42,638)
                                                                ----------------     ----------------
    Total stockholders' equity                                            46,377               72,367
                                                                ----------------     ----------------
                                                                        $ 81,446             $ 85,802
                                                                ================     ================
 
</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,
                                          -------------------------------     --------------------------------
                                                1997              1996              1997               1996
                                          -------------     -------------     --------------     -------------
<S>                                       <C>               <C>               <C>                <C>
 
REVENUES:
   Product revenues                             $11,859           $ 5,250           $ 33,348          $ 10,500
   Service revenues                               3,872             1,456              9,275             3,589
                                          -------------     -------------     --------------     -------------
        Total revenues                           15,731             6,706             42,623            14,089
                                          -------------     -------------     --------------     -------------
 
COST OF REVENUES:
   Product revenues                                 468               147              1,973               416
   Service revenues                               2,294             1,303              6,815             2,760
                                          -------------     -------------     --------------     -------------
        Total cost of revenues                    2,762             1,450              8,788             3,176
                                          -------------     -------------     --------------     -------------
                                          -------------     -------------     --------------     -------------
        Gross profit                             12,969             5,256             33,835            10,913
                                          -------------     -------------     --------------     -------------
 
OPERATING EXPENSES:
   Selling and marketing                          9,417             6,347             26,989            15,628
   Research and development                       7,107             4,264             19,943            11,892
   General and administrative                     3,021             1,638              8,676             4,619
   Acquired in-process research and
   development (Note 3)                               -                 -             34,250                 -
                                          -------------     -------------     --------------     -------------
        Total operating expenses                 19,545            12,249             89,858            32,139
                                          -------------     -------------     --------------     -------------
                                          -------------     -------------     --------------     -------------
        Loss from operations                     (6,576)           (6,993)           (56,023)          (21,226)
                                          -------------     -------------     --------------     -------------
 
OTHER INCOME (EXPENSE):
   Interest income                                  719             1,163              2,318             1,934
   Interest expense                                (287)               (8)              (557)              (72)
   Other expense                                    (95)               (7)              (180)               (7)
                                          -------------     -------------     --------------     -------------
 Loss before provision for foreign taxes         (6,239)           (5,845)           (54,442)          (19,371)
                                          -------------     -------------     --------------     -------------

Provision for foreign taxes                         133                25                584                25
                                          -------------     -------------     --------------     -------------
NET LOSS                                        $(6,372)          $(5,870)          $(55,026)         $(19,396)
                                          =============     =============     ==============     =============    
 
NET LOSS PER COMMON AND COMMON 
  EQUIVALENT SHARE (Note 2)                      $(0.20)           $(0.21)            $(1.79)           $(0.71)
                                          =============     =============     ==============     =============    
 
WEIGHTED AVERAGE NUMBER OF COMMON AND
  COMMON EQUIVALENT SHARES OUTSTANDING
  (Note 2)                                       31,476            28,186             30,798            27,313
                                          =============     =============     ==============     =============    

</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,
                                                                   ------------------------------------
                                                                         1997               1996
                                                                   --------------      ----------------
<S>                                                                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                             $(55,026)             $(19,396)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
  Depreciation and amortization                                           2,569                 1,233
  Amortization of intangible assets                                         946                     -
  Deferred compensation                                                      78                     -
  Charge associated with the issuance of a stock purchase
    warrant                                                                   -                   211
  Charge associated with acquired in-process research &
    development                                                          34,250                     -
 
  Changes in assets and liabilities, net of acquisition-
      Accounts receivable                                                (6,185)               (3,614)
      Prepaid expenses and other current assets                             489                  (945)
      Accounts payable                                                   (1,892)                  886
      Accrued expenses                                                    5,324                 2,753
      Deferred revenues                                                    (380)               (2,676)
                                                                 --------------        ----------------
        Net cash used in operating activities                           (19,827)              (21,548)
                                                                 --------------        ----------------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment                             (2,849)               (2,758)
  Issuance of loan to founder                                                 -                (1,500)
  Purchase of marketable securities, net                                      -               (29,512)
  Sale of marketable securities, net                                     13,585                     -
  Increase in other assets                                               (1,181)                 (115)
  Net cash acquired from the purchase of Waypoint                           372                     -
  Net cash used in the purchase of Folio                                (11,400)                    -
                                                                 --------------        ----------------
        Net cash used in investing activities                            (1,473)              (33,885)
                                                                 --------------        ----------------
  
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings from line of credit                                          3,700                     -
  Proceeds from long-term obligations                                         -                   650
  Payments on long-term obligations                                         (35)               (1,485)
  Proceeds from issuance of redeemable convertible preferred
    stock, net of issuance costs                                              -                26,050
  Proceeds from initial public offering, net of issuance costs                -                76,127
  Proceeds from issuance of common stock                                    981                   167
                                                                 --------------        ----------------
        Net cash provided by financing activities                         4,646               101,509
                                                                 --------------        ----------------
                                                          
 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                   (16,654)               46,076
 
 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          49,765                 3,712
                                                                 --------------        ----------------
 
 CASH AND CASH EQUIVALENTS, END OF PERIOD                              $ 33,111              $ 49,788
                                                                 ==============        ================
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid during the period                                      $     25              $     64
                                                                 ==============        ================
  Taxes paid during the period                                         $    143              $      -
                                                                 ==============        ================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Conversion of redeemable convertible preferred stock into 
  common stock                                                         $      -              $ 38,155
 
                                                                 ==============        ================
In connection with the acquisition of Waypoint (see Note 3), the
  following non-cash transaction occurred:
    Fair value of assets acquired                                      $  9,922              $      -
    Liabilities assumed                                                    (156)                    -
    Issuance of common stock                                             (9,548)                    -
    Cash acquired                                                          (590)                    -
                                                                 --------------        ----------------
    Cash acquired in acquisition, net of acquisition costs             $   (372)             $      -
                                                                 ==============        ================
 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES 
CONT.:
In connection with the acquisition of Folio (see Note 3), 
  the following non-cash transaction occurred:
    Fair value of assets acquired                                      $ 45,512              $      -
    Liabilities assumed                                                  (5,682)                    -
    Issuance of common stock                                            (18,430)                    -
    Issuance of note payable                                            (10,000)                    -
                                                                 --------------        ----------------
   Cash paid for acquisition and acquisition costs                      $11,400                     -$
                                                                 ==============        ================

</TABLE>

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

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

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, 1996, included in the Company's annual report on the Form 10-K filed with
the Securities and Exchange Commission on March 31, 1997.

  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 nine months
  at September 30, 1997.

                                      -6-
<PAGE>
 
  (c) Net Loss per Common and Common Equivalent Share

      For the three and nine month periods ended September 30, 1997, net loss
  per common and common equivalent share is computed by dividing the net loss by
  the weighted average number of common and common equivalent shares outstanding
  during the period, including the weighted average number of shares to be
  issued or returned as part of the Folio acquisition as discussed in Note 3.
  For the three and nine month periods ended September 30, 1996, net loss per
  common and common equivalent share is computed by dividing the net loss by the
  weighted average number of common and common equivalent shares outstanding
  during the period, which consists of (i) 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 (ii) 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.

      During the first quarter of 1997, the Financial Accounting Standards Board
  adopted Statement of Financial Accounting Standards (SFAS) No. 128,Earnings
  per Share, which supersedes APB Opinion No. 15.  The Company does not believe
  the adoption of this accounting standard will have any impact on the Company's
  financial position or results of operations.

3.    ACQUISITIONS

  (a) Waypoint Software Corporation

      On February 12, 1997, the Company acquired all of the outstanding shares
  of capital stock of Waypoint Software Corporation (Waypoint), a software
  development company specializing in the business-to-business industrial
  catalog segment of the Internet. As payment of the purchase price, the Company
  issued an aggregate of approximately 739,000 shares of its common stock to the
  stockholders of Waypoint and issued options to acquire approximately 6,000
  shares of the Company's common stock at $0.456 per share to Waypoint option
  holders. The value of the shares of, and the options to acquire, the Company's
  common stock issued in connection with the acquisition was approximately
  $11,000 based on a weighted average market price, as defined, of the Company's
  freely tradable shares. The shares issued were subject to certain selling
  restrictions and, as a result, were not freely tradable. Therefore, for
  purposes of calculating aggregate consideration paid, the value of the shares
  issued was recorded at a discounted value. In addition, in connection with
  this acquisition, the Company has entered into employment agreements with
  certain of the principals of Waypoint under which the Company has agreed to
  pay bonuses in an aggregate amount of $1,200 over two years depending on
  certain future events, as defined. For financial statement purposes, this
  acquisition was accounted for as a purchase, and accordingly, the results of
  operations of Waypoint subsequent to February 12, 1997 are included in the
  Company's consolidated statements of operations. The shares of common stock of
  the Company issued to the former stockholders of Waypoint have been registered
  for resale pursuant to a registration statement on Form S-3

                                      -7-
<PAGE>
 
  declared effective by the Securities and Exchange Commission on June 11, 1997.

     The aggregate purchase price of $9,922 consisted of the following:
 
         Description                                       Amount
         -----------                                  ---------------
         Common stock                                         $9,548
         Assumed liabilities                                     156
         Acquisition costs                                       218
                                                      ---------------
         Total purchase price:                                $9,922
                                                      ===============
                                                                               
     The purchase price was allocated based upon the fair value of the tangible
  and intangible assets acquired. These allocations represent the fair values
  determined by an independent appraisal. The appraisal incorporated proven
  valuation procedures and techniques in determining the fair value of each
  intangible asset. The purchase price has preliminarily been allocated as
  follows:

         Description                                       Amount
         -----------                                  ---------------
         Current assets                                        $ 590 
         Property, plant and equipment                            76 
         Other assets                                              6 
         Inprocess research & development                      9,250 
                                                      ---------------
         Total assets acquired:                               $9,922
                                                      ===============

The in-process research and development has been expensed as a charge against
operations as of the closing of the transaction, and is included in the
accompanying consolidated statement of operations.  The amount allocated to
acquired in-process research and development relates to projects that had not
yet reached technological feasibility and that, until completion of development,
have no alternative future use.  These projects required substantial development
and testing prior to the reaching of technological feasibility. However, there
was no assurance that these projects would reach technological feasibility or
develop into products that might be sold profitably by the Company.  The
technology acquired in the acquisition of Waypoint has required, and will
continue to require, substantial additional development by the Company.

(b)   Folio Corporation

    Pursuant to a Stock Purchase Agreement dated as of February 20, 1997 (the
"Stock Purchase Agreement"), the Company acquired all of the outstanding shares
of capital stock of Folio Corporation (Folio), a leading supplier of software
for managing business-critical information. As payment of the purchase price,
the Company (i) issued 897,866 shares of common stock of the Company, (ii) made
a cash payment of $10,000, (iii) agreed to issue 897,866 shares of common stock
of the Company in January 1998 and (iv) issued a promissory note of the Company
in the original principal amount of $10,000 payable in either cash or a
combination of cash and common stock of the Company. The value of the shares of
common stock of the Company issued or reserved for issuance was approximately
$25,000 based on a weighted average market price, as defined, of the Company's
freely tradable shares. The shares issued on March 7, 1997, as well as the
shares to be issued in January 1998 were not freely tradable due to selling
restrictions. Therefore, although 448,933 shares were registered by the Company
in August 1997 upon the request of the former stockholder of Folio as required
under the terms of the Stock Purchase Agreement, for purposes of calculating the
aggregate consideration and, the value of such shares, was recorded at a
discount. The Stock Purchase Agreement provided for a purchase price adjustment
based on the change in the net assets of Folio from the estimated value at
December 31, 1996 through the date of closing. As a result of this adjustment,
the former stockholder of Folio returned 270,116 shares of common stock of the
Company issued in the transaction. Other equity in the accompanying consolidated
balance sheet includes the value of the shares to be issued in January 1998. For
financial statement purposes, this acquisition was accounted for as a purchase,
and accordingly, the results of operations of Folio subsequent to March 7, 1997
are included in the Company's consolidated statement of operations.

                                      -8-
<PAGE>
 
The aggregate purchase price of $45,512 consisted of the following:

         Description                                       Amount
         -----------                                  ---------------
         Common stock                                        $18,430
         Cash paid                                            10,000
         Note payable                                         10,000
         Assumed liabilities                                   5,682
         Acquisition costs                                     1,400
                                                      ---------------
         Total purchase price:                               $45,512
                                                      ===============
                                                                               
     The purchase price was allocated based upon the fair value of the tangible
  and intangible assets acquired.  These allocations represent the fair values
  determined by an independent appraisal.  The appraisal incorporated proven
  valuation procedures and techniques in determining the fair value of each
  intangible asset.  The purchase price has preliminarily been allocated as
  follows:

         Description                                       Amount
         -----------                                  ---------------
         Current assets                                      $ 4,729
         Property, plant and equipment                         6,605
         Other assets                                             41
         In-process research & development                    25,000
         Other acquired intangible assets                      9,137
                                                      ---------------
         Total assets acquired:                              $45,512
                                                      ===============

The in-process research and development has been expensed as a charge against
operations as of the closing of the transaction, and is included in the
accompanying consolidated statement of operations.  The amount allocated to
acquired in-process research and development relates to projects that had not
yet reached technological feasibility and that, until completion of development,
have no alternative future use.  These projects

                                      -9-
<PAGE>
 
will require substantial development and testing prior to reaching technological
feasibility. However, there can be no assurance that these projects will reach
technological feasibility or develop into products that may be sold profitably
by the Company. The technology acquired in the acquisition of Folio has
required, and will continue to require, substantial additional development by
the Company. The intangible assets are being amortized over five to seven years.
The Company recorded approximately $946 of amortization expense relating to
these intangible assets during the first three quarters of 1997.

  (c) Pro forma results of operations

      The following unaudited pro forma combined results of operations of the
  Company assume that the Waypoint and Folio acquisitions were completed on
  January 1, 1997 and 1996, respectively (in thousands, except per share data):

<TABLE>
<CAPTION>
                                          For the three                For the nine
                                             months                       months
                                       ended September 30,          ended September 30,
                                 --------------------------------------------------------
 
                                      1997            1996         1997            1996
                                 ------------    ------------  ------------   ------------

<S>                              <C>             <C>           <C>            <C>
 
          Total revenues              $15,731         $11,002     $ 45,368        $ 26,396
          Net loss                     (6,372)         (8,393)     (23,793)        (26,128)
          Net loss per share          $ (0.20)        $ (0.28)    $  (0.76)       $  (0.88)

</TABLE>


      These pro forma amounts represent the historical operating results of
  Waypoint and Folio prior to their respective dates of acquisition, combined
  with those of the Company with appropriate adjustments which give effect to
  interest income, interest expense, amortization expense, as well as the
  exclusion of the charge for acquired in-process research and development.  For
  the three and nine month periods ended September 30, 1996, the results of
  Waypoint have not been included as they had not yet commenced operations.
  These pro forma results are not necessarily indicative of operating results
  which would have occurred if the Waypoint and Folio acquisitions had been
  operated by current management during the periods presented.

4.    STOCKHOLDERS' EQUITY

  (a) 1994 Stock Incentive Plan

      The 1994 Stock Incentive Plan, as amended, (the 1994 Plan) allows for the
  issuance of up to 15,201,000 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:

                                        Number of            Exercise Price
                                          Shares                Per Share
 
                                    ---------------     ------------------------
Outstanding, December 31, 1996....      4,967,331          $.17   -     $35.13
     Granted......................      2,439,206           .25   -      15.75
     Exercised....................       (641,481)          .17   -      12.00
     Canceled.....................       (466,448)          .25   -      21.50
                                    ---------------     ------------------------
Outstanding, September 30, 1997...      6,298,608          $.17   -     $35.13
                                    ===============    =========================
Exercisable, September 30, 1997...      1,923,613          $.17   -     $35.13
                                    ===============    =========================

                                      -10-
<PAGE>
 
      The Company records deferred compensation when stock options are granted
  at an exercise price per share that is less than the fair market value on the
  date of the grant. Deferred compensation is recorded in an amount equal to the
  excess of the fair market value per share over the exercise price multiplied
  by the number of options granted. During the nine month period ended September
  30, 1997, the Company recorded $330 of deferred compensation for the grant of
  30,000 options as described above. Deferred compensation of $28 was recognized
  as an expense in the three month period ended September 30, 1997 and the
  remaining amount will be recognized over the estimated vesting period of the
  underlying options. Additionally, in connection with the modification of a
  certain option agreement, the Company recorded $50 in compensation expense for
  the nine month period ended September, 1997.

  (b) 1996 Employee Stock Purchase Plan

      Under the 1996 Employee Stock Purchase Plan (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 last day of each six-month offering period, whichever is lower. Upon
  the completion of the second offering period on July 31, 1997, the Company
  issued 35,260 shares for gross proceeds of approximately $333.


5.    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:

                                     Significant        PERCENTAGE OF
                                     -----------     ------------------- 
                                      CUSTOMERS       CUSTOMER REVENUES
                                     -----------     -------------------
                                                  A      B*      C       D*
                                                 ---    ---     ---     ---
Three months ended September 30, 1997..1         13%     -       -       -
 
Three months ended September 30, 1996..3         15%     -       -       -

Nine months ended September 30, 1997...1          -     18%      -       -
 
Nine months ended September 30, 1996...3         25%     -      14%     14%
                                        
* - Theses customers are related parties as discussed below.

      Customer B and the Company share a common board member who represents an
investor who has an ownership interest in both companies. Customer D is a
related party through its stock ownership in the Company. The Company has
entered into agreements with certain related parties which provide for

                                      -11-
<PAGE>
 
product and service revenues. The Company believes that the terms of these
transactions are on terms no less favorable to the Company than could be
obtained from unaffiliated third parties. The Company recognized revenues from
certain related parties of approximately $1,033 and $6,058 for the three and
nine month period ended September 30, 1997, respectively and $1,068 and $2,730
for the three and nine month period ended September 30, 1996, respectively. As
of September 30, 1997, there are no accounts receivable and deferred revenue
balances for related parties.

        6.  LINE-OF-CREDIT ARRANGEMENT

  The Company has an unsecured line-of-credit arrangement with a bank, which
provides up to $15,000 in financing.  Borrowings under this line are limited to
80% of eligible domestic accounts receivable and 90% of eligible foreign
accounts receivable, as defined, and bear interest at the prime lending rate
(8.5% at October 31, 1997).  The Company is required to comply with certain
restrictive covenants under this agreement.  There was $3,700 of borrowings
outstanding as of September 30, 1997.

                                      -12-
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         --------------------------------------------------------------- 
         RESULTS OF OPERATIONS
         ---------------------

RESULTS OF OPERATIONS

Overview

    Open Market, Inc. (the Company) develops, markets, licenses and supports
high performance software products that allow its customers to engage in
business-to-business and business-to-consumer electronic commerce on the
Internet. These products have been deployed by companies across a wide spectrum
of industries, including publishing, retail, manufacturing, telecommunications,
and financial services. Open Market's Folio Products Division supplies software
for the electronic publishing of high-value information.

REVENUES

    Total revenues were approximately $15,731 for the three months ended
September 30, 1997, a significant increase from approximately $6,706 for the
three months ended September 30, 1996. Total revenues for the nine months ended
September 30, 1997 were approximately $42,623 compared to approximately $14,089
for the nine months ended September 30, 1996. One customer accounted for 13% of
the Company's revenues for the three months ended September 30, 1997 and another
single customer accounted for 18% of the Company's revenues for the nine months
ended September 30, 1997. 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. 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 $11,859 or 75% of total revenues for the
three months ended September 30, 1997 compared to $5,250 or 78% of total
revenues for the three months ended September 30, 1996. Product revenues were
approximately $33,348 or 78% of total revenues for the nine months ended
September 30, 1997 compared to $10,500 or 75% of total revenues for the nine
months ended September 30, 1996. Product revenues for the three and nine months
ended September 30, 1997 were comprised of license revenue from Transact(TM),
the Company's flagship product for Internet commerce, SecureLink(TM), a commerce
enabling technology, and Axcess(TM), as well as the line of Folio products. The
Company has delivered certain products during the first nine months of 1997 to
Raptor which allowed the Company to recognize approximately $5,000 in product
revenues. Product revenues for the first three quarters of 1996 included an
initial $2,000 license fee from a reseller for the right to sublicense the
Company's Web server products. Royalty revenues from the Company's reseller
arrangements are recognized when earned. The Company believes that product
revenues as a 

                                      -13-
<PAGE>
percentage of total revenues will fluctuate on a quarterly basis.

    Service revenues were approximately $3,872 or 25% of total revenues for the
three months ended September 30, 1997 compared to $1,456 or 22% of total
revenues for the three months ended September 30, 1996. Service revenues were
approximately $9,275 or 22% of total revenues for the nine months ended
September 30, 1997 compared to $3,589 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.

COST OF REVENUES

Cost of product revenues increased to approximately $468 for the three month
period ended September 30, 1997 from approximately $147 for the three month
period ended September 30, 1996. The increase in cost of product revenues was
directly related to the increased product revenue.  Cost of product revenues
were approximately $1,973 for the nine month period ended September 30, 1997
compared to $416 for the nine months ended September 30, 1996. In the nine month
period ended September 30, 1997, cost of product revenues included the costs to
distribute products, including the cost of media on which they are delivered, as
well as third-party royalties for technology incorporated into certain products
of the Company.
 
Cost of service revenues increased to approximately $2,294 for the three month
period ended September 30, 1997, primarily due to the increase in revenue, from
approximately $1,303 for the three month period ended September 30, 1996. Cost
of service revenues were approximately $6,815 for the nine month period ended
September 30, 1997 compared to $2,760 for the nine months ended September 30,
1996. Cost of service revenues consists primarily of personnel and related costs
incurred in providing development, consulting and other services to customers.
The increase is primarily attributable to costs associated with the higher
service revenues and the expansion of the Company's consulting practice.
Management believes that it will continue to invest in a world-wide services
organization to meet the needs of its global customers.

 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 and literature. These expenses increased to approximately
$9,417 and $26,989 for the three and nine month periods ended September 30,
1997, respectively, from approximately $6,347 and $15,628 for the three and nine
month periods ended September 30, 1996, respectively. 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 expenses, the Company's acquisition of Folio during the
first quarter of 1997 and, to a lesser 


                                      -14-
<PAGE>
extent, the preparation and distribution of new product sales literature.

    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 $7,107 and $19,943 for the three and
nine month periods ended September 30, 1997, respectively, from approximately
$4,264 and $11,892 for the three and nine month periods ended September 30,
1996, respectively. The substantial increase in these periods was primarily
attributable to the Company's acquisitions of Waypoint and Folio during the
first quarter of 1997 and the hiring of additional software engineers and
consultants to develop and enhance the Company's products. 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 continued
investments in research and development are required to remain competitive in
the software industry. 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 $3,021 and $8,676
for the three and nine month periods ended September 30, 1997, respectively,
from $1,638 and $4,619 for the three and nine month periods ended September 30,
1996, respectively. The substantial increase for these periods was primarily
attributable to the Company's acquisitions of Waypoint and Folio during the
first quarter of 1997, the related amortization of intangible assets, the hiring
of additional management and administrative personnel to support the expansion
of the Company's operations and, to a lesser extent, an increase in legal and
other professional fees.

    In connection with the acquisitions of Waypoint in February 1997 and Folio
in March 1997, the Company allocated $9,250 and $25,000, respectively, of the
purchase price to acquired in-process research and development. Accordingly,
these costs were expensed as of the acquisition dates. The amount allocated to
acquired in-process research and development relates to projects that had not
yet reached technological feasibility and that, until completion of development,
have no alternative future use. These projects will require substantial
development and testing prior to the reaching of technological feasibility.
However, there can be no assurance that these projects will reach technological
feasibility or develop into products that may be sold profitably by the Company.
The technology acquired in the acquisitions of Waypoint and Folio have required,
and will continue to require, substantial additional development by the Company.

    Interest income represents interest earned on cash, cash equivalents and
marketable securities and a loan to a founder. Interest income was approximately
$719 and $2,318 for the three and nine month periods ended 

                                      -15-
<PAGE>
 
September 30, 1997, respectively, compared to approximately $1,163 and $1,934
for the three and nine month periods ended September 30, 1996, respectively. The
decrease in the interest income for the three months ended September 30, 1997
from the three months ended September 30, 1996 was due to lower average balances
in cash, cash equivalents, and marketable securities. The balances were lower
due to cash used in normal business operations as well as cash used for the
Folio acquisition. Interest expense was approximately $287 and $557 for the
three and nine month periods ended September 30, 1997, respectively, compared to
approximately $8 and $72 for the three and nine month periods ended September
30, 1996, respectively. Interest expense relates primarily to the Company's line
of credit with a bank, a note payable issued in conjunction with the Folio
acquisition as well as an obligation under a license agreement. Other expense of
$95 and $180 for the three and nine month periods ended September 30, 1997
represents foreign currency translation losses.

  The Company has recorded a provision for foreign income taxes of $133 and $584
for the three and nine month period ended September 30, 1997 relating to
estimated taxes due in foreign jurisdictions compared to a provision of $25 for
the three and nine months ended September 30, 1996.  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.

Liquidity and Capital Resources

  At September 30, 1997, the Company had approximately $41,794 in cash, cash
equivalents and marketable securities, a decrease of $30,239 from December 31,
1996.  The Company paid $11,400 in cash as part of the purchase price and
acquisition costs of Folio in March 1997.

  The Company's operating activities utilized cash and cash equivalents of
approximately $19,827 and $21,548 for the nine month periods ended September 30,
1997 and 1996, respectively.  Accounts receivable increased by $9,591 to $14,717
from December 31, 1996 to September 30, 1997. Accrued expenses increased by
$8,592 to $14,272 from December 31, 1996 to September 30, 1997.

  The Company's investing activities used cash and cash equivalents of
approximately $1,473 and $33,885 for the nine month periods ended September 30,
1997 and 1996, respectively.  The principal uses of cash and cash equivalents
for the nine months ended September 30, 1997 were the $11,400 paid in connection
with the purchase price and the acquisition costs of  Folio as well as
purchasing $2,849 of property and equipment. These uses were partially offset by
the sale of $13,585 in marketable securities during the nine months ended
September 30, 1997.

  The Company's financing activities provided cash and cash equivalents of
approximately $4,646 and $101,509 for the nine month periods ended September 30,
1997 and 1996, respectively.  In 1997, the Company borrowed

                                      -16-
<PAGE>
 
approximately $3,700 from a line of credit. Also, the Company received proceeds
from the issuance of common stock for approximately $1,000. During the first
nine months of 1996 the financing was primarily from the proceeds from the
Company's initial public offering and the private sales of equity securities.

  Capital expenditures were approximately $2,849 and $2,758 for the nine month
period ended September 30, 1997 and 1996, respectively. While the Company has no
material purchase commitments as of September 30, 1997, in March 1997, the
Company entered into a facility lease for its new corporate headquarters under
which the Company will pay approximately $32,352 from February 1998 through
February 2010.  The Company estimates that capital expenditures for the next
twelve months will range from approximately $7,000 to $8,000.

  At December 31, 1996, the Company had net operating loss carryforwards for
income tax purposes of approximately $39,000. 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%. The Company does not believe that this change 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.

Certain Factors That May Affect Future Results

  This Quarterly Report contains certain forward-looking statements.  For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements.  Without limiting the
generality of the foregoing, the words "believes," "anticipates," "plans,"
"expects" and similar expressions are intended to identify forward-looking
statements.  There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by forward-
looking statements made in this Quarterly Report and presented elsewhere by
management from time to time.  These factors include without limitation, the
actual timing of new product introductions, the Company's ability to integrate
its recent acquisitions, competition from other providers of software products
and those factors in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.

                                      -17-
<PAGE>
 
                          PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings.

          None

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

          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 10.1* Loan and Security Agreement

            Exhibit 10.2  Export-Import Bank Loan and Security Agreement

            Exhibit 11    Computation of Earnings Per Share.

            Exhibit 27    Financial Data Schedule

       (b)  Reports on Form 8-K

            None

* Confidential materials omitted and filed separately with the Securities and 
  Exchange Commission.

                                      -18-

<PAGE>
 
                                   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 14, 1997  By:   /s/ Gary B. Eichhorn
                            -----------------------
                            GARY B. EICHHORN,
                            PRESIDENT & CHIEF EXECUTIVE OFFICER



Date: November 14, 1997  By:   /s/ Regina O. Sommer
                            -----------------------
                            REGINA O. SOMMER, 
                            SENIOR VICE PRESIDENT AND
                            CHIEF FINANCIAL OFFICER
                            (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)

                                      -19-
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------
EXHIBIT NO.                       DESCRIPTION                           
-----------                      -------------                          
                                                                        
   10.1*               Loan and Security Agreement                      
                                                                        
   10.2                Export-Import Bank Loan and Security Agreement   
                                                                        
   11                  Computation of Earnings Per Share                
                                                                        
   27                  Financial Data Schedule (EDGAR)                  

*  Confidential materials omitted and filed separately with the Securities and 
   Exchange Commission.

                                      -20-