<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 June 30, 1998

                                       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)



                               ONE WAYSIDE ROAD
                        BURLINGTON, MASSACHUSETTS 01803
              (Address of principal executive offices)  (Zip Code)

                                 (781) 359-3000
              (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 July 31, 1998, there were 34,641,969 shares of the Registrant's Common
Stock outstanding.

================================================================================
<PAGE>
 
                               OPEN MARKET, INC.

                               TABLE OF CONTENTS

                                                                            Page
                                                                            ----
PART I - FINANCIAL INFORMATION

     ITEM 1.  Financial Statements

          Consolidated Balance Sheets as of June 30, 1998 and 
          December 31, 1997.                                                  3
 
          Consolidated Statements of Operations for the three and six 
          months ended June 30, 1998 and 1997.                                4
 
          Consolidated Statements of Cash Flows for the six
          months ended June 30, 1998 and 1997.                                5
 
          Notes to Consolidated Financial Statements                          6
 
     ITEM 2.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations                            14
  
     ITEM 3.  Quantitative and Qualitative Disclosures about
              Market Risk.                                                   22


PART II - OTHER INFORMATION
 
     ITEM 1.  Legal Proceedings                                              22
 
     ITEM 2.  Changes in Securities and Use of Proceeds                      23
 
     ITEM 3.  Defaults Upon Senior Securities                                23
 
     ITEM 4.  Submission of Matters to a Vote of Security Holders            23
 
     ITEM 5.  Other Information                                              23
 
     ITEM 6.  Exhibits and Reports on Form 8-K                               24

SIGNATURES                                                                   25
 
EXHIBIT INDEX                                                                26
                                      -2-
<PAGE>
 
                         PART I - FINANCIAL INFORMATION
                                        
ITEM 1. FINANCIAL STATEMENTS
                               OPEN MARKET, INC.
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                             JUNE 30,     DECEMBER 31,
                                                               1998           1997
                                                            ----------   --------------
<S>                                                         <C>          <C>
ASSETS                                                  
Current assets:                                         
  Cash and cash equivalents                                 $  10,423        $  19,666
  Marketable securities                                        12,800           10,972
  Accounts receivable, net of allowances of $1,761 and  
     $1,470, respectively                                      25,188           23,102
  Loan to founder                                                   -              993
  Prepaid expenses and other current assets                     2,223            1,423
                                                            ----------   --------------
     Total current assets                                      50,634           56,156
                                                            ----------   --------------
Property, plant and equipment, at cost:                 
  Computers and office equipment                               13,756           12,129
  Land & building                                               4,200            4,200
  Construction in progress                                          -            3,300
  Leasehold improvements                                        5,458            1,072
  Furniture & fixtures                                          2,080              812
                                                            ----------   --------------
                                                               25,494           21,513
  Less: Accumulated depreciation and amortization               8,655            6,356
                                                            ----------   --------------
                                                               16,839           15,157
                                                        
Intangible assets, net (Note 3)                                 8,137            7,787
Other assets                                                    1,957            1,774
                                                            ----------   --------------
                                                            $  77,567        $  80,874
                                                            ==========   ==============
                                                        
LIABILITIES AND STOCKHOLDERS' EQUITY                    
Current liabilities:                                    
  Line of credit                                            $   9,150        $   5,168
  Accounts payable                                              3,557            3,268
  Note payable (Note 3)                                         5,000           10,000
  Accrued expenses                                             13,476           14,440
  Deferred revenues                                             4,359            4,390
  Current maturities of long-term obligations                      52               50
                                                            ----------   --------------
     Total current liabilities                                 35,594           37,316
                                                            ----------   --------------
Long-term obligations, net of current maturities                   54               99
                                                        
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 33,165,500 shares and         
    30,970,791 shares at June 30, 1998 and              
    December 31, 1997, respectively                                33               31
  Additional paid-in capital                                  164,645          137,427
  Deferred compensation                                          (220)            (275)
  Other equity (Note 3)                                             -            6,920
  Accumulated deficit                                        (122,539)        (100,644)
                                                            ----------   --------------
   Total stockholders' equity                                  41,919           43,459
                                                            ----------   --------------
                                                            $  77,567        $  80,874
                                                            ==========   ==============
</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         SIX MONTHS ENDED
                                                                    JUNE 30,                  JUNE 30,
                                                            ------------------------  -----------------------
                                                               1998         1997         1998         1997
                                                            ----------   ----------   ----------   ----------
<S>                                                         <C>          <C>          <C>          <C>
REVENUES:
   Product revenues                                          $ 12,157      $12,433     $ 23,430     $ 21,489
   Service revenues                                             4,369        3,101        8,298        5,403
                                                            ----------   ----------   ----------   ----------
        Total revenues                                         16,526       15,534       31,728       26,892
                                                            ----------   ----------   ----------   ----------

COST OF REVENUES:
   Product revenues                                               742          639        1,342        1,505
   Service revenues                                             3,503        2,400        6,409        4,522
                                                            ----------   ----------   ----------   ----------
        Total cost of revenues                                  4,245        3,039        7,751        6,027
                                                            ----------   ----------   ----------   ----------
        Gross profit                                           12,281       12,495       23,977       20,865
                                                            ----------   ----------   ----------   ----------

OPERATING EXPENSES:
   Selling and marketing                                        8,007        9,590       15,883       17,572
   Research and development                                     6,568        7,461       13,344       12,836
   General and administrative                                   2,851        3,284        5,780        5,655
   Acquired in-process research &
   development (Note 3)                                        10,800            -       10,800       34,250
                                                            ----------   ----------   ----------   ----------
        Total operating expenses                               28,226       20,335       45,807       70,313
                                                            ----------   ----------   ----------   ----------
        Loss from operations                                  (15,945)      (7,840)     (21,830)     (49,448)
                                                            ----------   ----------   ----------   ----------
OTHER INCOME (EXPENSE):
    Interest Income                                               291          710          609        1,600
    Interest expense                                             (296)        (220)        (536)        (270)
    Other expense                                                 (62)         (49)         (72)         (85)
                                                            ----------   ----------   ----------   ----------
Loss before provision for incomes taxes                       (16,012)      (7,399)     (21,829)     (48,203)
                                                            ----------   ----------   ----------   ----------
Provision for foreign income taxes                                 33          111           65          451
                                                            ----------   ----------   ----------   ----------
NET LOSS                                                     $(16,045)     $(7,510)    $(21,894)    $(48,654)
                                                            ==========   ==========   ==========   ==========
NET LOSS PER SHARE  BASIC AND DILUTED (Note 2)                 $(0.49)      $(0.24)       $(.68)      $(1.60)
                                                            ==========   ==========   ==========   ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND 
  COMMON EQUIVALENT SHARES OUTSTANDING  
  - BASIC AND DILUTED (NOTE 2)                                 32,742       31,328       32,255       30,459
                                                            ==========   ==========   ==========   ==========
</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>
                                                                                                    SIX MONTHS ENDED
                                                                                                        JUNE 30,
                                                                                           --------------------------------
                                                                                               1998                 1997
                                                                                           ------------         ------------
<S>                                                                                        <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                                     $(21,894)            $(48,654)
 Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization                                                                 2,299                1,781
   Amortization of intangible assets                                                               850                  540
   Charge associated with acquired in-process research & development                            10,800               34,250
   Deferred Compensation                                                                            77                    -
   Changes in assets and liabilities-
      Accounts receivable                                                                       (5,196)              (3,209)
      Prepaid expenses and other current assets                                                   (795)                 176
      Accounts payable                                                                             255               (1,155)
      Accrued expenses                                                                          (1,631)               5,674
      Deferred revenues                                                                            (31)                (538)
                                                                                           ------------         ------------
        Net cash used in operating activities                                                  (15,266)             (11,135)
                                                                                           ------------         ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of property, plant and equipment                                                     (3,937)              (2,387)
 Payment from founder on loan                                                                      993                    -
 (Purchase) sales of marketable securities, net                                                 (1,829)              12,604
 Increase in other assets                                                                         (101)              (1,180)
 Net cash used in the purchase of ICentral                                                      (1,420)                   -
 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                                                   (6,294)              (1,991)
                                                                                           ------------         ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from Line of Credit                                                                    3,981                    -
 Payments on note payable                                                                       (1,818)                   -
 Proceeds from the factoring of accounts receivable                                              3,128                    -
 Payments on long-term obligations                                                                 (47)                 (35)
 Proceeds from issuance of common stock                                                          7,074                  599
                                                                                           ------------         ------------
        Net cash provided by financing activities                                               12,318                  564
                                                                                           ------------         ------------
 NET DECREASE IN CASH AND CASH EQUIVALENTS                                                      (9,242)             (12,562)
 
 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                 19,666               49,765
                                                                                           ------------         ------------
 CASH AND CASH EQUIVALENTS, END OF PERIOD                                                     $ 10,423             $ 37,203
                                                                                           ============         ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 Interest paid during the period                                                              $  1,010             $     17
                                                                                           ============         ============
 Taxes paid during the period                                                                 $     41             $     66
                                                                                           ============         ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
In connection with the acquisition of ICentral (see Note 3), the following non-cash
 transaction occurred:
   Fair value of assets acquired                                                              $ 12,086             $      -
   Liabilities assumed                                                                            (666)                   -
   Issuance of common stock                                                                    (10,000)                   -
                                                                                           ============         ============
   Cash paid for acquisition and acquisition costs                                            $  1,420             $      -
                                                                                           ============         ============
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)
                                                                                           ============         ============
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)
   Issuance of common stock for repayment of note payable                                       (3,182)                   -
   Issuance of common stock for repayment of note payable                                        5,000                    -
                                                                                           ------------         ------------
   Cash paid for acquisition and acquisition costs                                            $  1,818             $ 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
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                  (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, 1997, included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1998.

  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 and corporate notes, and obligations of certain municipalities as of
  June 30, 1998, have maturities of greater than three months but less than one
  year.  The average maturity of the Company's marketable securities is
  approximately seven months.

                                      -6-
<PAGE>
 
  (c) Net Loss Per Share

    Effective December 31, 1997, the Company adopted SFAS No. 128 Earnings Per
  Share. SFAS NO. 128 establishes standards for computing and presenting
  earnings per share and applies to entities with publicly held common stock or
  potential common stock. The Company has applied the provisions of SFAS No. 128
  and Staff Accounting Bulletin (SAB) No. 98 retroactively to all periods
  presented. Weighted average shares outstanding includes the shares issued to
  Reed Elsevier in January 1998 relating to the Folio acquisition. Diluted net
  loss per share for the three and six months ended June 30, 1998 and 1997 are
  the same as basic net loss per share as the inclusion of potential common
  stock would be antidilutive. Calculations of basic and diluted net loss per
  common share are as follows:

<TABLE> 
<CAPTION>
 
    (in thousands, except                       Three Months Ended                   Six Months Ended
    per share data)                        ----------------------------        ----------------------------
                                             June 30,        June 30,            June 30,        June 30,
                                               1998            1997                1998            1997
                                             --------        --------            --------        --------
<S>                                        <C>               <C>               <C>               <C>
    Net loss                                 $(16,045)        $(7,510)           $(21,894)       $(48,654)
    Net loss per common
    share - basic and diluted                   $(.49)          $(.24)             $(0.68)         $(1.60)           
    Weighted average common 
    shares outstanding - basic and diluted     32,742          31,328              32,255          30,459
    Antidilutive securities that were not
    included - common stock options             6,202           6,344               6,202           6,344
</TABLE>

  (d) Comprehensive Income

    Effective January 1, 1998, the Company adopted Statement of Financial
  Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income.
  SFAS No. 130 establishes standards for reporting and display of
  comprehensive income and its components in financial statements.
  Comprehensive income includes all changes in equity during a period except
  those resulting from investments by owners and distribution to owners. The
  comprehensive net loss is the same as net loss for all periods presented.

  (e) New Accounting Standards

    In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
  the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires all costs
  associated with pre-opening, pre-operating and organization activities to be
  expensed as incurred. The Company will adopt SOP 98-5 beginning January 1,
  1999. Adoption of this Statement

                                      -7-
<PAGE>
 
  will not have a material impact on the Company's consolidated financial 
  position or results of operations.

3.   ACQUISITIONS

  (a) ICentral Incorporated

    On April 30, 1998, the Company acquired all of the outstanding shares of
  capital stock of ICentral, Incorporated (ICentral) based in Provo, Utah.
  ICentral specializes in Internet store-building products geared to small and
  medium-sized businesses. As payment of the purchase price, the  Company (1)
  issued an aggregate of approximately 480,140 shares of the Common Stock of the
  Company and (2) made a cash payment of $720 to the former stockholders of
  ICentral. The value of the shares of the Company's Common Stock issued in
  connection with the acquisition was approximately $10,000 based on a weighted
  average market price, as defined. In addition, in connection with this
  acquisition, the Company  entered into employment agreements with certain key
  employees of ICentral under which the Company agreed to pay bonuses in an
  aggregate amount of $1,000, 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 ICentral subsequent to
  April 30, 1998 are included in the Company's consolidated statements of
  operations.

     The aggregate purchase price of $12,086 consisted of the following:

<TABLE>
<CAPTION>
     Description                                       Amount
     -----------                                       ------
<S>                                                    <C>
     Common stock                                      $10,000
     Cash                                                  720
     Assumed liabilities                                   666
     Acquisition costs                                     700
                                                       -------
     Total purchase price:                             $12,086
                                                       =======
</TABLE>
                                                                               
    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 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:

<TABLE>
<CAPTION>
     Description                                       Amount
     -----------                                       ------
<S>                                                    <C>
     Current assets                                     $    86
     Other acquired intangible assets                     1,200
     In-process research & development                   10,800
                                                       --------
     Total assets acquired:                             $12,086
                                                       ========
</TABLE>

     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 for the three and six
  months ended June 30, 1998.  The amount allocated to acquired in-process
  research and development relates to projects that had not yet

                                      -8-
<PAGE>
 
  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 was no assurance that these projects would reach technological
  feasibility or develop into products that might be sold profitably by the
  Company. The intangible assets are being amortized over five years. The
  Company recorded approximately $40 of amortization expense relating to these
  intangible assets during the second quarter of 1998.

    The results prior to the acquisition were not material to the Company
  accordingly pro forma results for 1998 and 1997 were not presented.

  (b) 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 of Common Stock.  The shares 
  of Common Stock issued were subject to certain selling restrictions.
  Therefore, for purposes of calculating aggregate consideration paid, the value
  of the shares of Common Stock issued was recorded at a discounted value. In
  addition, in connection with this acquisition, the Company entered into
  employment agreements with certain of the principals of Waypoint under which
  the Company agreed to pay bonuses in an aggregate amount of $1,200 over two
  years depending on certain future events, as defined. The employees earned
  $600 under their employment agreements in the year ended December 31, 1997
  with the final payment expected in February 1999. 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
  declared effective by the Securities and Exchange Commission on June 11, 1997.

    The aggregate purchase price of $9,922 consisted of the following:
<TABLE> 
<CAPTION>  
     Description                                       Amount
     -----------                                       ------
<S>                                                    <C>
     Common stock                                        $9,548
     Assumed liabilities                                    156
     Acquisition costs                                      218
                                                        --------
     Total purchase price:                               $9,922
                                                        ========
</TABLE>
                                                                               
    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

                                      -9-
<PAGE>
 
  the fair value of each intangible asset.  The purchase price has been
  allocated as follows:

<TABLE>
<CAPTION>
     Description                                       Amount
     -----------                                       ------
<S>                                                    <C>
     Current assets                                      $  590
     Property, plant and equipment                           76
     Other assets                                             6
     In-process research & development                    9,250
                                                        --------
     Total assets acquired:                              $9,922
                                                        ========
</TABLE>

    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 for the six months ended
  June 30, 1997.  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 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 may require,
  substantial additional development by the Company.

  (c) 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 (1) issued 897,866 shares of Common Stock of the
  Company, (2) made a cash payment of $10,000, (3) agreed to issue 897,866
  shares of Common Stock of the Company subject to adjustment in January 1998
  and (4) 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 the Company's Common Stock
  issued in connection with the acquisition was approximately $25,000 based on a
  weighted average market price, as defined, of the Company's freely tradable
  shares of Common Stock. The shares of Common Stock issued on March 7, 1997, 
  as well as the shares of Common Stock issued in January 1998 were not freely
  tradable due to selling restrictions. Therefore, although 448,993 and 538,342
  shares were registered by the Company in August 1997 and February 1998,
  respectively, upon the request of the former stockholder of Folio as required
  under the terms of the Stock Purchase Agreement, for purposes of calculating
  aggregate consideration paid, the value of the shares issued was recorded at a
  discounted value at the time of issuance. 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 forfeited
  270,116 shares of Common Stock of the Company to be issued in the transaction.
  Other equity in the accompanying December 31, 1997 Consolidated Balance Sheet
  included the value of the shares issued in January 1998, net of the forfeited

                                      -10-
<PAGE>
 
  shares. 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 statements of
  operations. For tax purposes, this transaction was treated as a deemed asset
  purchase in accordance with the Internal Revenue Code section 338 (h)(10).

The aggregate purchase price of $45,512 consisted of the following:
<TABLE>
<CAPTION>
     Description                                        Amount
     -----------                                       --------
<S>                                                    <C>
     Common stock                                       $21,612
     Cash paid                                           11,818
     Note payable                                         5,000
     Assumed liabilities                                  5,682
     Acquisition costs                                    1,400
                                                        --------
     Total purchase price:                              $45,512
                                                        ========
</TABLE>
                                                                               
    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 been allocated as follows:

<TABLE>
<CAPTION>
     Description                                       Amount
     -----------                                       ------
<S>                                                    <C>
     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
                                                       =======
</TABLE>

    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 will require
  substantial development and testing prior to reaching 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 Folio
  has required, and may require, substantial additional development by the
  Company. The intangible assets are being amortized over five to seven years.
  The Company recorded approximately $1,351 of amortization expense relating to
  these intangible assets during 1997 and $810 of amortization expense during
  the first six months of 1998.

                                      -11-
<PAGE>
 
  (d) 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. (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                     For the six
                                                        months
                                                    ended June 30,
                                                         1997
                                                    --------------
<S>                                                 <C>
     Total revenues                                    $ 29,637
     Net loss                                           (17,734)
     Net loss per share                                $  (0.56)
</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.
  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.  RELATED PARTY TRANSACTIONS
                                        
    The Company has entered into agreements with certain stockholders that
  provide for 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 stockholders of approximately $407 for the three and six months
  ended June 30, 1998, respectively and revenues of $4,103 and $5,024 for the
  three and six months ended June 30, 1997, respectively.


5. SALE OF ACCOUNTS RECEIVABLE

    The Company has a non-recourse factoring agreement under which it can factor
  up to $8,000 of qualified accounts receivable, as defined. The Company sold
  approximately $3,000 during the second quarter of 1998 and had $5,000
  available under this agreement at June 30, 1998. The Company records these
  transactions as a sale of financial assets in accordance with SFAS No. 125,
  Accounting for Transfers and Servicing of Financial Assets and Extinguishment
  of Liabilities, as it surrenders control to these receivables upon transfer.
 

6. COMMON STOCK

    On June 4, 1998, the Company announced that Intel Corporation had made an
  investment in the Company, purchasing 335,852 unregistered shares of the
  Company's Common Stock for an aggregate purchase price of $5,000,000. In
  addition, the Company plans to port its Transact software to Intel Pentium(R)
  processor II-based servers running Windows NT and Intel's next-generation IA-
  64 processor. The estimated costs of $1,000 associated with the port will be
  expensed

                                      -12-
<PAGE>
 
  as incurred with a completion of the IA-64 version expected at the time of 
  the release of Intel's next-generation IA-64 processor. The two companies also
  plan to collaborate on joint marketing activities.
 

7. SUBSEQUENT EVENTS

(a)  Private Placement

     On July 31, 1998, Open Market, Inc. (the "Company") announced that CMG
Information Services, Inc., an investor and developer of Internet companies
("CMG") and Capital Ventures International, a fund managed by Heights Capital
Management, a leader in equity financing for emerging growth companies ("CVI"),
made a $20,000 equity investment in the Company. Pursuant to the terms of the
agreements, the Company issued an aggregate of 1,338,912 shares of Common Stock
of the Company to CMG and CVI at a price of $14.94 per share. In addition, the
Company issued to CMG and CVI warrants to purchase additional 334,728 shares of
Common Stock of the Company at a price of $16.43 per share. The Company will
file a registration statement covering all such shares of Common Stock. Included
in the terms of the agreements are certain adjustments and other provisions,
including a repurchase provision which becomes operative in the event that the
registration statement is not declared effective in a timely manner.

(b)  Mortgage

     In July 1998, the Company entered into a $2,800 mortgage of its Provo, Utah
building which bears interest at the prime-lending rate of 8.5%. The mortgage
principal payments are based upon a twenty year term, but a balloon payment is
required at the end of the fifth year.

                                      -13-
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        --------------------------------------------------------------- 
        RESULTS OF OPERATIONS  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 
        --------------------------------------------------------------
        AND SHARE DATA)
        ---------------

RESULTS OF OPERATIONS

OVERVIEW

  Open Market, Inc. (the Company) develops, markets, licenses and supports
enterprise-class, packaged application software products and professional
services that allow its customers to engage in business-to-consumer and
business-to-business Internet commerce, information commerce and commercial
publishing. Open Market's software includes a wide spectrum of functionality
required to effectively conduct business on the Internet, allowing companies to
attract customers to their Web site, engage them in acting upon an offer,
complete a transaction and service them once a transaction has been completed.

REVENUES

  Total revenues for the three months ended June 30, 1998 were approximately
$16,526 or a 6% increase when compared to $15,534 for the three months ended
June 30, 1997, which included a one-time payment to the Company for the
licensing of its Axcess software product. For the six months ended June 30,
1998, total revenues were $31,728 or an 18% increase when compared to $26,892
for the same period of the prior year.

  Product revenues were $12,157 or 74% of total revenues for the three months
ended June 30, 1998 compared to $12,433 or 80% of total revenues for the three
months ended June 30, 1997. Product revenues contain two categories: (1)
software products which includes the licensing of Transact, LiveCommerce, the
Folio product suite and ShopSite products and (2) royalties revenues which
include Publisher royalties and merchant license fees. Revenues from software
products during the second quarter of 1998 were 43% of total revenues while
royalty revenues were 31% of total revenues. During the second quarter of 1998,
software product revenues were attributable to the licensing of the Company's
Transact product, compared to the second quarter of 1997 when software product
revenues were attributable to the licensing of the Company's Axcess product to
Raptor Systems Inc. Royalty revenues for the second quarter of 1998 consisted
principally of merchant license fees.

  Product revenues were $23,430 or 74% of total revenues for the six months
ended June 30, 1998 compared to $21,489 or 80% of total revenues for the six
months ended June 30,1997. During the first six months of 1997 the Company's
revenues from the licensing of its products to Raptor were approximately 
$4,200. The total value of the contract with Raptor was approximately $6,000. In
addition, during the first six months of 1997 the Company recorded product and
roylaty revenues of $17,289 from Transact, SecureLink, and the Folio product
suite which was acquired in March 1997.

  Service revenues were approximately $4,369 or 26% of total revenues for the
three months ended June 30, 1998 compared to $3,101 or 20% of total 

                                      -14-
<PAGE>
 
revenues for the three months ended June 30, 1997. Service revenues were
approximately $8,298 or 26% of total revenues for the six months ended June 30,
1998 compared to $5,403 or 20% of total revenues for the six months ended June
30, 1997. Of the total service revenues for the three months ended June 30,
1998, 43% came from maintenance and support and 57% came from professional
services which includes consulting, implementation, training and education. For
the three months ended June 30, 1997 maintenance and support represented 29% and
professional services represented 71% of total service revenues. The increase in
maintenance and support revenues in the three and six months of 1998 was due
primarily to an increased customer base receiving maintenance and support.

COST OF REVENUES

  Cost of product revenues increased to $742 for the three months ended June 30,
1998 from $639 for the three months ended June 30, 1997. Cost of product
revenues was $1,342 for the six months ended June 30, 1998 compared to $1,505
for the six months ended June 30, 1997. For all periods presented, cost of
product revenues included the costs to distribute products as well as third-
party royalties for technology incorporated into certain products of the
Company. Management believes that these costs as a percentage of product
revenues may increase in the future as the Company's sales of these products
increase and as it incorporates more third-party technology into its products.
 
  Cost of service revenues increased to $3,503 for the three months ended June
30, 1998 from $2,400 for the three months ended June 30, 1997. Cost of service
revenues was $6,409 for the six months ended June 30, 1998 compared to $4,522
for the six months ended June 30, 1997. Cost of service revenues consists
primarily of personnel and related costs incurred in providing development,
consulting and other technical services to customers. The increase was primarily
attributable to costs associated with the higher service revenues as well as the
planned expansion of the Company's consulting business.  The decrease of
approximately 3% in the gross margins on services from the three months ended
June 30, 1998 compared to the same period of the prior year was primarily
attributable to lower utilization rates from the Company's consulting business
during the period. The lower utilization rates were due principally to the
investments made during the first half of 1998 to expand the consulting
business. Management believes these margins will increase over the next six
months as utilization rates improve.

OPERATING EXPENSES

  Selling and marketing expenses consisted primarily of the cost of sales and
marketing personnel and consultants, as well as the costs associated with
marketing programs, advertising costs and literature. Selling and marketing
expenses decreased to $8,007 and $15,883 for the three and six month periods
ended June 30, 1998, respectively, from  $9,590 and $17,572 for the three and
six month periods ended June 30, 1997, respectively. The decrease in these
expenses for the three and six months was primarily attributable to decreases in
the number of sales and marketing personnel, 

                                      -15-
<PAGE>
 
which was due to continued integration with Folio of the sales and marketing
organization across the Company.

  Research and development expenses consist primarily of the cost of research
and development personnel and independent contractors, as well as equipment and
facilities costs related to such activities. For the three months ended June 30,
1998 these expenses decreased to $6,568 from $7,461  compared to the three
months ended June 30, 1997. The decrease in expenses of $893, or 12%, was due
primarily to a reduction in the cost of independent contractors used in the
development and enhancements of the Company's products. For the six months ended
June 30, 1998, research and development expenses increased slightly to $13,344
compared to $12,836 for the six months ended June 30, 1997. The increase of $508
or 4% for the six months period was primarily attributable to higher cost
associated with employees such as salary increases partially offset by a
reduction in the costs of independent contractors. 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. 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 decreased for the three months ended June 30, 1998 to
$2,851 compared to $3,284 for the three months ended June 30, 1997. The decrease
was due mainly to a lower level of legal and professional fees. For the six
months ended June 30, 1998 these expenses increased slightly to $5,780 compared
to $5,655 for the six months ended June 30, 1997. The increase was due mainly to
amortization of goodwill associated with the Folio and ICentral acquisitions.

  In connection with the acquisition of ICentral in May 1998, the Company
allocated $10,800 of the purchase price to acquired in-process research and
development. 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. The technologies acquired in the
acquisitions of Waypoint, Folio and ICentral 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. Interest income decreased to $290 and $609 for the three
and six month periods ended June 30, 1998, respectively, from approximately $710
and $1,600 for the three and six month periods ended June 30, 1997,
respectively.  The decrease was primarily attributable to 

                                      -16-
<PAGE>
 
lower average investments in cash, cash equivalents and marketable securities
during the periods. Interest expense increased to $296 and $536 for the three
and six month periods ended June 30, 1998, respectively, from approximately $220
and $270 for the three and six month periods ended June 30, 1997, respectively.
Interest expense relates to the accounts receivable line of credit, the
Company's note payable issued in conjunction with the Folio acquisition, a non-
recourse factoring agreement as well as an obligation under a license agreement.
Other expense of $62 and $72 for the three and six month periods ended June 30,
1998 represents foreign currency translation losses.

  The Company has recorded a provision for foreign income taxes of $33 and $65
compared to $111 and $451 for the three and six months ended June 30, 1998, and
1997, respectively. This provision for foreign taxes related 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.

LIQUIDITY AND CAPITAL RESOURCES

  At June 30, 1998, the Company had $23,223 in cash, cash equivalents and
marketable securities; a decrease of $7,415 from December 31, 1997. The decrease
was primarily due to funding of operations.

  The Company's operating activities utilized cash and cash equivalents of
approximately $15,266 and $11,135 for the six months ended June 30, 1998 and
1997, respectively. Accounts receivable increased by $2,086 to $25,188 from
December 31, 1997 to June 30, 1998, primarily as a result of the timing of
revenues during the quarter as well as the granting of extended payment terms to
certain new and long standing creditworthy customers.

  The Company's investing activities used cash and cash equivalents of
approximately $6,294 and $1,991 for the six months ended June 30, 1998 and 1997,
respectively. The principal use for the six months ended June 30, 1998 was the
$3,937 paid in connection with the purchase of property and equipment for use in
the normal course of business. Additionally, the Company paid $1,420 in cash for
part of the purchase price and acquisition costs of ICentral.

  The Company's financing activities provided cash and cash equivalents of
approximately $12,318 and $564 for the six months ended June 30, 1998 and 1997,
respectively. During the first six months of 1998, the Company received proceeds
of $5,000 from Intel for the private sale of equity securities and proceeds of
$2,074 from the exercise of stock options and stock purchases under the
Company's Employee Stock Purchase Plan. The Company repaid $5,000 of the note
payable issued to Reed Elsevier in 1997 in connection with the Folio acquisition
with a $1,818 cash payment and the balance of $3,182 was settled by the issuance
of common stock.

  The Company has an unsecured bank credit facility 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 

                                      -17-
<PAGE>
 
receivable, as defined, and bears interest at the prime lending rate (8.5% at
June 30, 1998). The Company is required to comply with certain restrictive
covenants under this agreement. During the six months of 1998 the Company
increase its borrowings under this facility to $9,150 and at June 30, 1998 there
was $5,850 remaining under this facility.

  The Company has a non-recourse factoring agreement under which it can factor
up to $8,000 of qualified accounts receivable, as defined. The Company sold
approximately $3,000 during the second quarter of 1998 and had $5,000 available
under this agreement at June 30, 1998.

  On July 31, 1998, Open Market, Inc. (the "Company") announced that CMG
Information Services, Inc., an investor in and developer of Internet companies
("CMG") and Capital Ventures International, a fund managed by Heights Capital
Management, a leader in equity financing for emerging growth companies ("CVI"),
made a $20,000 equity investment in the Company. Pursuant to the terms of the
agreements, the Company issued an aggregate of 1,338,912 shares of Common Stock
of the Company to CMG and CVI at a price of $14.94 per share. In addition, the
Company issued to CMG and CVI warrants to purchase an additional 334,728 shares 
of Common Stock of the Company at a price of $16.43 per share. The Company will
file a registration statement covering the resale of all such shares of Common
Stock. Included in the terms of the agreements are certain adjustments and other
provisions, including a repurchase provision which becomes operative in the
event that the registration statement is not declared effective in a timely
manner.

  In July 1998, the Company entered into a $2,800 mortgage of its Provo, Utah
building which bears interest at the prime-lending rate of 8.5%. The mortgage
principal payments are based upon a twenty year term, but a balloon payment is
required at the end of the fifth year.

  At December 31, 1997, the Company had net operating loss carryforwards for
income tax purposes of approximately $65,000. 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%.
While the Company believes that it has experienced a change in ownership in
excess of 50%, it 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 

                                      -18-
<PAGE>
 
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. Some of the important risks and uncertainties
which may cause the Company's operating results to differ materially or
adversely are discussed below and in the Company's Annual report on Form 10-K
for the fiscal year ended December 31, 1997 filed with the SEC.

 
                                 RISK FACTORS

     The Shares offered hereby involve a high degree of risk.  The following
risk factors should be considered carefully in addition to the other information
included or incorporated by reference in this Prospectus before purchasing the
Shares offered hereby.

RAPID TECHNOLOGICAL CHANGE

     The computer software industry is characterized by rapid technological
change.  As a result, there is uncertainty about the widespread acceptance of
new products which can cause significant delays in the sales cycle.  The Company
must continue to upgrade its own technologies and commercialize products and
services incorporating such technologies which may also lengthen the sales
cycle.  The introduction of product or service enhancements or new products or
services embodying new technologies, industry standards or customer requirements
could supplant or make obsolete the Company's existing products and services.

DEVELOPING INTERNET MARKET

     The market for the Company's Internet products and services has only
recently begun to develop, is rapidly evolving and is characterized by an
increasing number of market entrants that have introduced and developed products
and services for Internet commerce.  The Company's future operating results 
depend upon the development and growth of the market for Internet-based packaged
software applications, including electronic commerce applications. The 
acceptance of electronic commerce in general and, in particular, the Internet as
a sales marketing and order receipt and processing medium are highly uncertain 
and subject to a number of risks. Critical issues concerning the commercial use 
of the Internet (including security, reliability, cost, ease of use, quality and
service and the effect of government regulation) remain unresolved and may 
impact the growth of the Internet. If the market fails to develop or develops
more slowly than expected, the Company's operating results could be materially
adversely affected.

RECENT ACQUISITION

     In April 1998, the Company completed the strategic acquisition of Icentral,
Incorporated. The Company faces challenges relating to integration of operations
such as coordinating geographically separate organizations, integrating
personnel with disparate business backgrounds and combining different corporate
cultures.  There can be no assurance that the acquired business or its products
will be successful, that the Company will successfully integrate the acquired
business into the Company, or that the Company will achieve the desired
synergies from the transaction.

PRODUCT RELEASE SCHEDULES

     Delays in the planned release of the Company's new products may adversely
affect forecasted revenues, and create operational inefficiencies resulting from
staffing levels designed to support the forecasted revenues.  The Company's
failure to introduce new products, services or product enhancements on a timely
basis could delay or hinder market acceptance and allow competitors to gain
greater market share than the Company.

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES

     The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to, or commerce
on, the Internet. However, due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet, covering issues such as user privacy, taxation and
the content of products and the nature of services. The adoption of any such
laws or regulations may decrease the growth of the Internet or inhibit
companies' ability to conduct electronic commerce, which could in turn adversely
affect the Company's business, operating results or financial condition.
Moreover, the applicability of the Internet of existing laws governing issues
such as property ownership, libel and personal privacy is uncertain. Further,
due to the encryption technology contained in the Company's products, such
products are subject to U.S. export controls. There can be no assurance that
such export controls, either in their current form or as may be subsequently
enacted, will not delay the introduction of new products or limit the Company's
ability to distribute products outside of the United States. While the Company
intends to take precautions against unlawful exportation, the global nature of
the Internet makes it difficult to effectively control the distribution of the
Company's products. In addition, federal or state legislation or regulation may
further limit levels of encryption or authentication technology. Further,
various countries regulate the import of certain encryption technology and have
adopted laws relating to personal privacy issues which could limit the Company's
ability to distribute products in those countries. Any such export or import
restrictions, new legislation or regulation or government enforcement of
existing regulations could have a material adverse impact on the Company's
business, operating results and financial condition.

COMPLEX PRODUCTS; LENGTHY SALES CYCLES

     The Company's products are complex and often involve significant investment
decisions by prospective customers. Accordingly, the license of the Company's 
software products can be expected to require the Company to engage in a lengthy 
sales cycle to provide a significant level of education to prospective customers
regarding the use and benefits of the Company's products. As a result, the
Company's sales cycles may be subject to a number of significant delays over
which it has little or no control. Delays in such transactions due to lengthy
sales cycles or delays in customer production or deployment of a system could
have a material adverse effect on the Company's business, operating results and
financial condition and could be expected to cause the Company's operating
results to vary significantly from quarter to quarter.

SECURITY

     A significant barrier to market acceptance of online commerce and 
communication is the concern regarding the secure exchange of valuable and 
confidential information over public networks. The Company relies on encryption 
and authentication technology to provide the security and authentication 
necessary to effect the secure exchange of valuable and confidential 
information. There can be no assurance that advances in computer capabilities, 
new discoveries in the field of cryptography or other events or developments 
(such as break-ins and similar disruptive problems caused by Internet users)
will not result in a compromise or breach of algorithms used by the Company in
its products to protect customer transaction data. If any such compromise or
breach were to occur, it could have a material adverse effect on the Company's
business, financial condition, and operating results.

COMPETITION

     The market for electronic commerce software is new, rapidly evolving and 
intensely competitive. The Internet is characterized by an increasing number of
market entrants that have introduced or developed products and services for
commerce on the Internet. Many of the Company's competitors have greater
financial, technical and marketing resources and greater name recognition than
does the Company. The market is still new and rapidly evolving, and the
Company's operating results will be affected by the number of competitors and
their pricing strategies and market acceptance of their products.

                                      -19-
<PAGE>
 
DEPENDENCE ON PERSONNEL

     The Company's future success depends in significant part upon the continued
service of its key technical and senior management personnel, and its continuing
ability to attract and retain highly qualified technical and managerial
personnel.  The Company's ability to establish and maintain a position of
technology leadership in the industry depends in large part upon the skills of
its development personnel.

PRICING

     Future prices that the Company is able to charge for its products may
decline from historical levels due to competitive reasons and other factors. In
the future, the Company may have to reduce the prices of its products
substantially or introduce lower-priced lines of products to gain greater market
share.

LIMITED OPERATING HISTORY

     The Company has a limited operating history.  The Company's ability to
successfully market its existing products and to develop and market new products
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

     The Company's expense levels are fixed in advance and based in part on its
expectations as to future revenues. Quarterly sales and operating results will
generally depend on the volume and timing of orders received within the quarter.
The Company may be unable to adjust spending in a timely manner to compensate
for unexpected revenue shortfalls. The Company expects in the future to
experience significant fluctuations in quarterly operating results that may be
caused by many factors, including among other things, the number, timing and
sigificance of product enhancements and new product announcements by the Company
or its competitors, the length of the Company's sales cycle, market acceptance
of and demand for the Company's products, the pace of development of electronic
commerce conducted on the Internet, customer order deferrals in anticipation of
enhancements or new products offered by the Company or its competitors,
nonrenewal of service agreements, software defects and other product quality
problems, the Company's ability to attract and retain key personnel, the extent
of international sales, changes in the level of operating expenses and general
economic conditions. As a result, the Company's operating results in future
quarters may be below the expectations of market analysts and investors.

FOREIGN EXCHANGE

     To the extent that foreign currency exchange rates fluctuate in the future,
the Company may be exposed to continued financial risk. Although the Company
attempts to limit this risk by denominating most sales in United States dollars
and limiting the amount of assets in its foreign operations, there can be no
assurance that the Company will be successful in limiting its exposure.

VOLATILITY OF STOCK PRICE

     Open Market's Common Stock is quoted on the Nasdaq National Market.  The
market price of Open Market's Common Stock, like that for the shares of many
other high technology companies, has been and may continue to be volatile.
Recently, the stock market in general and the shares of software companies in
particular have experienced significant price fluctuations.  These broad market
fluctuations, as well as general economic and political conditions in the United
States and internationally and factors such as quarterly fluctuations in results
of operations, the announcement of technological innovations, the introduction
of new products by the Company or its competitors and general conditions in the
computer hardware and software industries may have a significant impact on the
market price of Open Market's Common Stock.

                                      -20-
<PAGE>
 
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS

     The Company's success is dependent to a significant degree on its
proprietary software technology. The Company provides its products to end
users generally under nonexclusive, nontransferable licenses for the term of the
agreement, which is usually in perpetuity.  The Company's policy is to enter
into confidentiality and assignment agreements with its employees, consultants,
and vendors and generally to control access to and distribution of its software,
documentation, and other proprietary information.  Notwithstanding these
precautions, it may be possible for a third party to copy or otherwise obtain
and use the Company's software or other proprietary information without
authorization or to develop similar software independently. Although the Company
holds three patents, issued in March, 1998, covering certain aspects or uses of
electronic commerce software, there can be no assurance as to the degree of
intellectual property protection such patents will provide. Policing
unauthorized use of the Company's products is difficult, particularly because
the global nature of the Internet makes it difficult to control the ultimate
destination or security of software or other data transmitted. The laws of other
countries may afford the Company little or no effective protection of its
intellectual property. There can be no assurance that the steps taken by the
Company will prevent misappropriation of its technology or that agreements
entered into for that purpose will be enforceable.

RISK OF INFRINGEMENT

     The Company may, in the future, receive notices of claims of infringement
of other parties' patent, trademark, copyright, and other proprietary rights.
There can be no assurance that claims for infringement or invalidity (or claims
for indemnification from our customers resulting from infringement claims) will
not be asserted or prosecuted against the Company. In particular, claims could
be asserted against the Company for violation of patent, trademark, copyright,
or other laws as a result of the use by the Company, its customers, or other
third parties of the Company's products to transmit, disseminate, or display
information over or on the Internet. Any such claims, with or without merit,
could be time consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays, or require
the Company to enter into royalty or licensing agreements. There can be no
assurance that such licenses would be available on reasonable terms, if at all,
and the assertion or prosecution of any such claims could have a material
adverse effect on the Company's business, financial condition, and operating
results.

RISKS OF PRODUCT DEFECTS

     Sophisticated software products, such as those of the Company, may contain 
undetected errors or failures that become apparent when the products are 
introduced or when the volume of services provided increases. There can be no 
assurance that, despite testing by the Company and potential customers, errors 
will not be found in the Company's products, resulting in loss of revenues, 
delay in market acceptance, diversion of development resources, damage to the 
Company's reputation, or increased service and warranty costs, which would have 
a material adverse effect on the Company's business, financial condition, and 
operating results.

LITIGATION

     Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's patents, copyright or
trade secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation, whether successful or unsuccessful, could result in substantial
costs and diversions of resources, either of which could have a material adverse
effect on the Company's business, financial condition, and operating results.
Litigation regarding intellectual property rights, copyrights, and patents is
increasingly common in the software industry. Intellectual property litigation
is complex and expensive, and the outcome of such litigation is difficult to
predict. In addition, the Company faces risks on other general corporate legal
matters.

YEAR 2000 COMPLIANCE

     The Company recognizes that it must ensure that its products and operations
will not be adversely impacted by Year 2000 software failures, which can arise
in time-sensitive software applications which utilize a field of two digits to
define the applicable year.  In such applications, a date using "00" as the year
may be recognized as the year 1900 rather than the year 2000.  The 

                                      -21-
<PAGE>
 
Company has developed and implemented a detailed Year 2000 test procedure into
the phase review and software release process to ensure that its software
products are Year 2000 compliant. Although management does not expect Year 2000
issues to have a material adverse impact on the Company's business or future
results of operations, there can be no assurance that there will not be
interruptions of operations, other limitations of system or product
functionality or that the Company will not incur significant costs to avoid such
interruptions or limitations. In addition, even if the Company's products are
Year 2000 compliant, other systems or software used by the Company's customers
may not be Year 2000 compliant. The failure of such noncompliant third-party
software or systems could affect the performance of the Company's products,
which could have a material adverse effect on the Company's business, financial
condition and operating results.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

  Not Applicable.

                             II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

  None

                                      -22-
<PAGE>
 
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

    On June 4, 1998, the Company issued 335,852 shares of the Company's Common
  Stock to Intel Corporation for an aggregate purchase price of $5,000. For
  this issuance, the Company has relied upon an exemption from registration
  under Section 4(2) of the Securities Act. The basis for this exemption is
  satisfaction of the conditions of Rule 506 under the Securities Act in that
  the offers and sales satisfied all of the terms and conditions of Rule 501 and
  502 under the Securities Act, there were no more than 35 purchasers of
  securities from the Company other than accredited investors, and the purchaser
  had such knowledge and experience and business matters that is was capable of
  evaluating the merits and risks of the prospective investment.
  None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

  None

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

    At the Company's Annual Meeting of Stockholders held on May 20, 1998, the
  following proposals were adopted by the vote specified below:

<TABLE>
<CAPTION>
Proposal                                                   For              Against         Abstain      Broker Nonvotes
<S>                                                  <C>                  <C>               <C>          <C>
(1) To elect two Class II Directors:
 
    Guirez Arshad                                       29,032,887                           56,828
    Brian J. Knez                                       29,034,844                           54,871
 
(2) To approve amendments to the Company's 
    Stock Incentive Plan increasing the 
    number of shares of Common Stock for
    issuance under such plan from 15,201,000
    to 19,201,000                                       19,376,356         2,248,371        144,674          7,320,314
 
(3) To approve amendments to the Company's
    Employee Stock Purchase Plan increasing 
    the number of shares of Common Stock for
    issuance under such plan from 250,000 
    to 750,000                                          21,038,291           115,567        151,001          7,784,856
 
(4) To amend the Company's 1996 Director
    Option Plan                                         26,897,010         1,562,513        165,650            464,542
  
(5) To ratify the selection by the Board
    of Directors of Arthur Andersen LLP 
    as the Company's independent public
    accountants for the current year.                   28,927,295            20,560        141,860

</TABLE>

ITEM 5. OTHER INFORMATION.

    None

                                      -23-
<PAGE>
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

  (a)  Exhibits

    Exhibit 27  Financial Data Schedule

  (b) During the second quarter of 1998, the Company filed the following
      reports on Form 8-K:

      (1) On April 30, 1998, the Company acquired all of the outstanding shares
          of capital stock of ICentral, Incorporated (ICentral) based in Provo,
          Utah. ICentral specializes in Internet store-building products geared
          to small and medium-sized businesses. As payment of the purchase
          price, the Company (1) issued an aggregate of approximately 480,140
          shares of the Common Stock of the Company and (2) made a cash payment 
          of $720 to the former stockholders of ICentral. The value of the
          shares of the Company's Common Stock issued in connection with the
          acquisition was approximately $10,000 based on a weighted average
          market price, as defined. In addition, in connection with this
          acquisition, the Company entered into employment agreements with
          certain key employees of ICentral under which the Company agreed to
          pay bonuses in an aggregate amount of $1,000, depending on certain
          future events, as defined.

      (2) On June 4, 1998, the Company announced that Intel Corporation had 
          made an investment in the Company, purchasing 335,852 unregistered
          shares of the Company's Common Stock for an aggregate purchase price
          of $5,000. In addition, the Company plans to port its Transact
          software to Intel Pentium(R) processor II-based servers running
          Windows NT and Intel's next-generation IA-64 processor. The estimated
          costs of $1,000 associated with the port will be expensed as incurred
          with a completion of the IA-64 version expected at the time of the
          release of Intel's next-generation IA-64 processor. The two companies
          also plan to collaborate on joint marketing activities.


                                      -24-
<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: August 7, 1998                          By:   /s/ Robert C. Weinberger
                                                 -----------------------------
                                                 ROBERT C. WEINBERGER
                                                 VICE PRESIDENT OF CORPORATE
                                                 MARKETING


Date: August 7, 1998                          By:   /s/ Regina O. Sommer
                                                 -----------------------------
                                                 REGINA O. SOMMER,
                                                 SENIOR VICE PRESIDENT AND 
                                                 CHIEF FINANCIAL OFFICER
                                                 (PRINCIPAL FINANCIAL AND 
                                                 ACCOUNTING OFFICER)

                                      -25-
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------
                                        
EXHIBIT NO.                       DESCRIPTION                               PAGE
-----------                       -----------                               ----

   27          Financial Data Schedule (EDGAR)                               27

                                      -26-