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                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C. 20549

                                      FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
                of 1934 for the Fiscal Year Ended December 31, 1996

                                         or

[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
                                 Exchange Act of 1934

                            Commission File Number 0-25812

                                     PSINET INC.
                (Exact name of Registrant as specified in its charter)

                   New York                            16-1353600
         (State or other jurisdiction of          (I.R.S. Employer
         incorporation or organization)           Identification No.)

         510 Huntmar Park Drive, Herndon, VA             20170
         (Address of principal executive office)      (Zip Code)

                                    (703) 904-4100
                (Registrant's telephone number, including area code)

<TABLE>
<S>                                                             <C>
Securities registered pursuant to Section 12(g) of the Act:      Common Stock, $.01 par value
                                                                 Preferred Stock Purchase Rights
</TABLE>

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
                                       ---      ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 24, 1997, based upon the closing price of the Common Stock
on the NASDAQ Stock Market for such date, was approximately $222,880,000.

The number of outstanding shares of the registrant's Common Stock as of March
24, 1997 was approximately 40,274,000 shares.

                         DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's 1996 Annual Report to Shareholders are incorporated
by reference in Part II of this Annual Report on Form 10-K and portions of the
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to April 30, 1997 and to be used in connection with the Annual Meeting of
Shareholders expected to be held on May 10, 1997 are incorporated by reference
in Part I and Part III of this Form 10-K.  Only those portions of the Annual
Report to Shareholders which are specifically incorporated by reference are
deemed filed as part of this Annual Report on Form 10-K.

           The Index of Exhibits filed with this Report begins at page 42.
--------------------------------------------------------------------------------


<PAGE>


                                     PSINET INC.



                                  TABLE OF CONTENTS




                                                                            Page
Part I                                                                      ----

  Item 1.   Business...........................................................2

  Item 2.   Properties........................................................28

  Item 3.   Legal Proceedings.................................................29

  Item 4.   Submission of Matters to a Vote of Security-Holders...............30

Part II

  Item 5.   Market for Registrant's Common Equity and Related Stockholder
            Matters...........................................................31

  Item 6.   Selected Financial Data...........................................32

  Item 7.   Management's Discussion and Analysis of Financial Condition and
            Results of Operations.............................................34

  Item 8.   Financial Statements and Supplementary Data.......................35

  Item 9.   Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosure..............................................35
Part III

  Item 10.  Directors and Executive Officers of the Registrant................36

  Item 11.  Executive Compensation............................................36

  Item 12.  Security Ownership of Certain Beneficial Owners and Management....36

  Item 13.  Certain Relationships and Related Transactions....................36

Part IV

  Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K..37


Signatures ...................................................................41

Exhibit Index ................................................................42


<PAGE>

                                        PART I


ITEM 1. BUSINESS

        CERTAIN OF THE INFORMATION CONTAINED IN THIS FORM 10-K, INCLUDING THE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SET FORTH IN ITEM 7 OF THIS FORM 10-K, CONTAIN FORWARD-LOOKING
STATEMENTS.  ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF A NUMBER OF FACTORS.  FOR A DISCUSSION OF IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH
FORWARD-LOOKING STATEMENTS, CAREFULLY REVIEW THE DISCUSSION OF RISK FACTORS
CONTAINED IN THIS ITEM 1, AS WELL AS OTHER INFORMATION CONTAINED IN THIS FORM
10-K AND IN THE COMPANY'S PERIODIC REPORTS AND OTHER DOCUMENTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC" OR "COMMISSION").

        CERTAIN TERMS USED HEREIN ARE DEFINED IN THE GLOSSARY BEGINNING ON
PAGE 25.

INTRODUCTION

        PSINet Inc. ("PSINet" or  the "Company") is a leading provider of
Internet access, services and products. The Company offers, throughout the
United States and internationally, a broad spectrum of Internet access
services to corporate customers ranging from low-cost dial-up services to
high performance continuous access services using dedicated high-speed
telephone circuits, intranet networking services, Web site design and hosting
services, Electronic Commerce ("eCommerce"), training and consulting services
and Internet access security services. As of March 14, 1997, the Company's
network offers reliable, high-speed access to the Internet from approximately
350 Points-of-Presence ("POPs") in the United States, Canada, Europe and
Asia.  In addition, the Company provides its customers with customer support
24 hours per day, seven days per week.  The Company's customer base has grown
rapidly to approximately 19,500 corporate customers at March 14, 1997.

        One of the Company's principal competitive strengths is its early
design and deployment of an extensive, advanced frame relay network.  Since
commencing operations in 1989, the Company has undertaken a program of
developing and expanding its network.  PSINet's network, which the Company
believes is currently one of the largest Internet access networks worldwide,
is an advanced TCP/IP-based and ATM, ISDN and SMDS-compatible frame relay
network.

        The Company's objective is to be the leading full service provider of
Internet solutions to businesses worldwide.  The key elements of the
Company's business strategy are: (1) to provide high performance Internet
services through a robust network; (2) to provide customer-driven, high-value
service offerings to businesses; (3) to continue international expansion in
support of customer needs; (4) to expand its customer base through focused
marketing and active customer service; and (5) to accelerate growth and
enhance service offerings through potential acquisitions, strategic alliances
and business relationships.


                                          2

<PAGE>

        In 1996, the Company acted upon market pressures in the consumer
dial-up Internet access business by altering its strategy to include
providing wholesale access services to consumer-oriented Internet service
providers ("ISPs") in the United States, rather than providing access
services directly to consumers. Pursuant to network access agreements with
these ISPs, the Company provides Internet connection services which allow
their subscribers to connect to the Internet through PSINet's network POPs.
The agreements require the other ISPs to pay specified fees to PSINet for
using PSINet's network.

        In connection with the introduction of the Company's new consumer
wholesale strategy, the Company restructured its operations and eliminated
certain positions relating to these services.  Additionally, the Company sold
all of its consumer subscriber base and related support activities to a
regional, consumer-oriented ISP.  No significant restructuring charges were
taken as a result of this new strategy implementation.

        Additionally, to further refine the Company's focus on corporate
Internet services, in February 1997, the Company sold its software
subsidiary.  The Company believes that this divestiture will result in an
improved business focus on its core corporate Internet service offerings.

        The Company was incorporated in New York in 1988.  The mailing
address of the Company's principal executive offices is 510 Huntmar Park
Drive, Herndon, Virginia 20170, its telephone number at that address in (703)
904-4100 and its Internet address for shareholder information is
investor-relations@psi.com. Unless the context otherwise requires, "PSINet"
and the "Company" refer to PSINet Inc. and its subsidiaries.

Industry Overview

        Use of the Internet has grown rapidly since its commercialization in
the early 1990s. Industry sources indicate that the number of Internet users
has grown from approximately 21 million at the end of 1993 to approximately
90 million at the end of 1996 and further project that the number will exceed
120 million by the end of 1997.

        The Internet also has evolved dramatically over the last several
years as a result of several trends affecting the computer and communications
industries. These trends include the migration by organizations from
proprietary mainframe environments to open systems and distributed computing,
the emergence of low-cost, high-capacity telecommunications bandwidth, the
increasing use of personal computers in the home, the growth of commercial
on-line services, the growth of informational, entertainment and commercial
applications, and the increase in the number and variety of services
available on the Internet.

        Currently, the primary uses of the Internet include e-mail, Web
browsing, eCommerce, file transfer, remote log-in, news, bulletin board and
chat services and other on-line services.

        As the volume of information available on organizations' computer
systems has increased and the use of data communications has grown as a
preferred means of day-to-day communications, organizations increasingly seek
a number of geographically dispersed access points to their own networks and
to the networks of other organizations. In the business arena, the number of
interconnections businesses desire to establish with networks, customers,
suppliers


                                          3

<PAGE>

and affiliates generally has made the development of proprietary access
systems on a case-by-case basis costly and time consuming. As a result,
organizations seek reliable, high-speed and cost-effective means of
internetworking and increasingly rely on the Internet. As reliance on the
Internet for the transmission of data, applications and electronic commerce
continues to grow among organizations, the Company believes that these
organizations will require reliable, geographically dispersed and
competitively priced Internet access and services. In addition, as
organizations seek to establish a presence on the Internet through Web sites,
the Company believes they often seek Web design and hosting services in order
to minimize costs and maintain the security of their corporate LANs.
Moreover, as organizations seek to connect their LANs to the Internet, the
Company believes that they will increasingly seek interactive connectivity
and Internet access security solutions.

The PSINet Strategy

        PSINet's strategy is to offer geographically dispersed, reliable,
competitively priced, high-speed Internet access to businesses of all sizes
with varying needs.  By offering Internet access options, and consulting and
security services, PSINet seeks to provide comprehensive solutions to its
customers' Internet needs.  Key elements of the Company's strategy are
summarized below:

   -    Provide High Performance Internet Services through a Robust Network.
        The Company's control of its frame relay network and modems, switches
        and routing equipment enables the Company to offer highly flexible,
        reliable and high-speed services to its customers at a low cost to the
        Company. The Company believes that its network is well-suited to
        accommodate emerging interactive multimedia connectivity applications,
        which it expects will be increasingly demanded by Internet users, and
        allows the Company to provide other value-added services to its
        customers, such as the ability to prioritize bandwidth for selected
        applications. The Company reinforces the reliability and performance
        of its network through extensive testing, remote configuration and
        maintenance, and redundancy to reduce single points of failure. PSINet
        attempts to control costs by maintaining a scalable network, adopting
        cost-effective, advanced technologies, and controlling strategic
        assets, such as network hardware, while leasing competitively priced,
        commodity assets such as telecommunications bandwidth. In order to
        promote the rapid and cost-effective expansion of the network's
        geographic reach into new areas, the Company also has arrangements
        whereby its customers can access PSINet's network through already
        established communications networks allowing local access.  By
        offering access services to corporate customers including
        consumer-oriented Internet service providers, the Company seeks to
        achieve efficiencies in the utilization of its network infrastructure
        with both day and evening use. The Company plans to continue to
        develop its network by installing additional high-speed dedicated data
        lines as customer-driven network demand dictates.  The Company also
        plans to expand the capacity of existing POPs, as necessary, in order
        to allow more users to access the Company's systems through local
        telephone calls and further enhance PSINet's position as a leading
        Internet service provider.

   -    Provide Customer-driven, High-value Service Offerings to Businesses.
        PSINet offers a broad range of Internet services at a variety of
        prices for businesses of all sizes


                                          4

<PAGE>

        and with varying Internet needs. The Company offers services
        ranging from, low-cost dial-up connections to high-speed
        continuous access. The Company offers a Web hosting service,
        PSIWeb, which enables customers to display advertising, product
        information, news announcements, and multimedia exhibits on the
        Web.  Furthermore,  PSIWeb enables corporate customers to
        electronically take orders for products and services with its
        eCommerce option. PSINet also offers Internet access security
        services for corporate customers which are designed to permit
        general access to public sections of a customer's network, such
        as Web servers, while permitting only authorized users access to
        the private sections of the customer's network. The Company also
        offers PSI IntraNet, a turnkey solution that enables private,
        high-speed continuous connection of an organization's multiple
        sites using the customer's dedicated circuits.

   -    Continue International Expansion in Support of Customer Needs.
        Multinational and domestic companies around the world increasingly are
        exploring ways to leverage their existing technology investments in
        the international marketplace. As the Internet gains worldwide
        acceptance, PSINet is expanding its international presence to address
        the needs of these companies. As of March 14, 1997, PSINet had more
        than one out of every three of its POPs (approximately 128 POPs)
        located outside of the United States.  In order to service corporate
        customers with international networking needs, PSINet plans to expand
        further internationally.

   -    Expand Customer Base Through Focused Marketing and Active Customer
        Service.  The Company has developed marketing strategies focused on
        the data communications needs of corporations using the Internet. The
        Company utilizes distinct advertising campaigns designed to increase
        brand awareness among, and to otherwise target, current and future
        corporate users of the Internet. The Company expects that it will
        continue to enhance separate distribution channels and customer
        service and support operations for its current and future customers.
        The Company has developed a sales and marketing staff to accommodate
        its expanded sales opportunities and focus.

   -    Accelerate Growth and Enhance Service Offerings through Acquisitions,
        Strategic Alliances and Business Relationships.  In order to expand
        its service offerings and its network, the Company seeks to form
        alliances with or acquire companies that provide products or services
        complementary to PSINet's existing business. Since its inception, the
        Company has pursued opportunities to work closely with leaders of
        related industries to develop hardware, software, services and systems
        that have been incorporated into the Company's service offerings. The
        Company actively seeks out new opportunities for developing business
        alliances that will improve PSINet's global network infrastructure and
        provide a more complete customer solution. The Company believes that,
        as the Internet service marketplace expands and matures, such
        transactions, alliances and relationships will be critical to
        maintaining a leadership position as a full service Internet access
        provider.


                                          5

<PAGE>

PSINet Services

        The Company offers a broad range of reliable and high-speed Internet
access options and related services at a variety of prices designed to meet
the needs of customers.  The Company's Internet services are designed to meet
the requirements of commercial, educational, governmental and other
organizations that link their computers, LANs and information servers to, or
otherwise seek to benefit from the use of, the Internet.  Access options
range from dial-up services to high-speed continuous access provided by
dedicated circuits leased by the customer. The Company believes that its
range of Internet services and price levels allow the Company to compete
effectively in the Internet access market for corporate customers. The
Company also offers Web site design and hosting services, intranet networking
services, eCommerce, Internet access security services and other services.

Internet Services for Corporate Customers.   The Company's principal Internet
access services for corporate customers are:

   -    InterFrame.  InterFrame enables a direct, high-speed continuous
        connection of an organization's LAN to PSINet's network and the
        Internet using the customer's dedicated circuits at speeds from
        56 Kbps to 3 Mbps.  InterFrame makes use of frame relay technology to
        provide a number of features to accommodate varying levels of data
        throughput. The InterFrame service permits customers to prioritize
        bandwidth by type of application and can be tailored to a customer's
        needs by using options such as security filtering (firewalls) and
        security encryption.  Current standard monthly service charges for
        this service range from $295 to $3,795 depending on the connection
        speed and service level offered.

   -    InterMAN.  InterMAN provides cost-effective, high-speed, continuous
        access to PSINet's network and to other networks in the same
        metropolitan area.  In many metropolitan areas, PSINet has connected
        its network to the local SMDS and ATM Metropolitan Area Networks
        ("MANs") to provide local customers access at speeds ranging from 1.5
        Mbps to 45 Mbps.  Current standard monthly service charges for this
        service range from $1,200 to $12,000 depending on the connection speed
        of service offered.

   -    LAN-on-Demand.  LAN-on-Demand provides low-cost, customer-initiated
        TCP/IP connectivity and access to the Internet linking customers' LANs
        to PSINet's network through high-speed dial-up connections at speeds
        from 14.4 Kbps to 128 Kbps.  LAN-Dial is an entry-level solution that
        provides access over ordinary analog phone lines, while LAN-ISDN
        offers full digital access via ISDN lines from the local phone
        company.  Current standard monthly service charges for this service
        range from $145 to $295 depending on the service level offered.

   -    PSI IntraNet.  PSI IntraNet is a turnkey solution that enables
        private, high-speed continuous connection of an organization's
        multiple sites using the customer's dedicated circuits at speeds from
        56 Kbps to 1.5 Mbps.  Security policies regulate the flow of
        information between the customer's private intranet and the global
        Internet.   PSI IntraNet service provides full equipment configuration
        and management for the customers.  Current standard monthly charges
        range from $475 to $2,750 per site depending on the service level
        offered.


                                          6

<PAGE>

PSINet Web Services.   The PSIWeb service is an Internet service through which
PSINet provides its customers with Web page design and hosting services.
Catering to publishers, advertisers, retailers and other corporate customers,
PSIWeb is a multimedia Web service that enables PSIWeb customers to establish
and maintain an effective, continuous presence on the Internet.

   -    PSIWeb.  PSIWeb customers are able to offer interactive multimedia
        displays of advertising, product information, news announcements and
        software on the Web. PSIWeb is available to customers using shared
        servers connected at speeds of 1.5Mbps, 10 Mbps or 45 Mbps on PSINet's
        network, thereby allowing customers to select the price and
        performance characteristics to support their specific needs.  Current
        standard monthly service charges for this service range from $99 to
        $3,099 depending on the disk storage space utilized and the speed of
        service offered.

   -    PSIWeb WebStart.  PSINet WebStart is PSINet's turnkey solution for
        corporate customers to establish their own presence on the Web.
        PSINet's HTML developers assist the customer in designing and
        publishing a Web page that suits the customer's needs.  Charges for
        this service range from a basic charge of $750 to $1,250 depending on
        the number of Web pages developed and the development complexities.

   -    PSIWeb eCommerce.  PSIWeb eCommerce is an integrated electronic
        commerce solution for corporate customers, utilizing CyberCash payment
        services and Mercantec's SoftCart shopping cart software. The service
        offers a solution for incorporating an on-line "virtual storefront"
        within the customer's Web site. PSINet eCommerce enables the Company's
        customers to take orders over the Internet for products and services
        24 hours a day without geographic and time zone restrictions. The
        current standard monthly service fees for PSINet eCommerce range from
        $95 to $195 in addition to the PSIWeb service fees, depending on
        services selected,  plus 1% of the value of transactions processed.

PSINet  Security Services.   Companies doing business on the Internet continue
to be serious about their security needs.  PSINet addresses the confidentiality
and security concerns of its corporate customers by offering the following
security services:

   -    SecureEnterprise.  SecureEnterprise is a managed security service for
        business customers connecting private networks to the Internet
        provided by the Company's Security Planning and Response Team
        ("SPART").  SecureEnterprise is an integrated security solution
        including security systems, security policy consulting, installation,
        and 24 hours a day , seven days per week remote monitoring, management
        and event log reporting by PSINet SPART. SPART manages and administers
        the customer's Internet security from firewall management and access
        control to management of encryption keys and security monitoring. A
        firewall router and an applications gateway firewall are installed at
        the customer's site and Access Control Cards are used for remote user
        authentication.  SecureEnterprise also includes firewall penetration
        scans to periodically evaluate and improve the integrity of the
        security implementation.  The initial set-up fee is $4,000 and the
        current standard monthly service charge for this service is $1,600.


                                          7

<PAGE>

   -    RouteWaller.  RouteWaller is a security option for smaller corporate
        customers or branch offices and utilizes a packet filtering firewall
        router as a perimeter defense and access control cards to limit the
        inbound and outbound access by creating customized individual user
        access profiles.  RouteWaller also offers SPART  Internet security
        policy consulting, monitoring, activity reporting, administration, and
        management services.  The initial set-up fee is $195 and the current
        standard monthly service charge for this service is $250.

Value-added Services.  The Company believes that continued development of
productivity-enhancing services and products is an important strategy for PSINet
to maintain a strong competitive position in the ISP marketplace.  Recent PSINet
offerings include:

   -    PSINet InternetPaper.  This service supports distribution of documents
        over the Internet from desktop PCs to fax machines worldwide.  This
        service benefits the user by reducing transmission costs and fax
        hardware expenditures.  PSINet InternetPaper enables document delivery
        to be more efficient and allows organizations to integrate fax
        communication into their information systems infrastructure. Current
        standard monthly service charges for this service range from $50 to
        $200 depending on the frequency of use of the service.

   -    InterFrame FasTrack.  PSINet offers an enhancement to its
        dedicated-access InterFrame service called InterFrame FasTrack.
        Presently, new InterFrame customers have to wait for the dedicated
        circuit to be activated by the local telephone company.  This delay
        deprives the customer of access to the Internet.  Through InterFrame
        FasTrack, PSINet offers these customers LAN-on-Demand service on an
        interim basis until the dedicated circuit for their InterFrame service
        is ready. Charges for this service range from a basic charge of $390
        to $490 depending on the connection speed of service offered.

PSINet  Consumer Wholesale Services.   The Company contracts with numerous
consumer-oriented providers of Internet access services in the United States to
provide their dial-up customers access to the Internet using PSINet's network.
By offering access services to corporate customers, including other ISPs, the
Company seeks to achieve efficiencies in the utilization of its network
infrastructure over both daytime and evening hours.

PSINet's Network

        As of March 14, 1997, PSINet's network comprised approximately 350
POPs which provide customer access to the network in the United States,
Canada, Europe and Asia.  PSINet's network infrastructure enables customers
to access the Internet through dedicated connections or by using a modem to
call locally and connect to the nearest PSINet POP.  Once the customer is
connected, the traffic is routed through the network infrastructure to the
desired Internet location, whether on PSINet's network or elsewhere on the
Internet. The Company leases high-speed circuits to network its POPs together
within PSINet's network. PSINet's network has the following features:

   -    Scalable.  PSINet's flexible network architecture utilizes advanced
        ATM, ISDN and SMDS-compatible frame relay equipment which allows
        PSINet's network to scale the


                                          8

<PAGE>

        number of POPs and the number of users accessing a POP. In
        addition, ATM compatibility allows PSINet's network to scale
        bandwidth needs as more customers begin deploying ATM on their
        LANs.

   -    High-Speed, Low-Latency Network.  The Company believes that its
        network architecture, which is comprised of a TCP/IP-based routed
        infrastructure built upon a redundant switching fabric, enables the
        Company to provide reliable, high-speed connections, to offer its
        customers the ability to dedicate bandwidth by type of application and
        to accommodate applications that require low-latency (fast response
        times).

   -    Fault Tolerant.  The Company's network utilizes multiple, redundant
        circuits to reduce the impact of single points of failure within the
        network, thereby enabling automatic rerouting of traffic and enhancing
        connection integrity. The Company employs frame relay based switching
        equipment which enables rerouting through the creation of permanent
        virtual circuits ("PVCs"). These switches also incorporate
        equipment-specific redundancies not achievable in traditional routing
        equipment. In addition, the Company has an uninterruptible power
        supply at each POP, limiting the impact on PSINet's network of local
        power outages.

   -    Open Systems Based.  PSINet's network is based on the open systems
        internetworking protocol standard TCP/IP. As new POPs are installed,
        the Company is able to employ a variety of equipment and technologies
        without impacting network interoperability. As a result, PSINet's
        network is designed to accommodate the continued rapid adoption of
        advanced, network and communications equipment.

   -    Automated and Remote Capabilities.  The Company is able to monitor the
        network remotely, perform network diagnostics and equipment
        surveillance and connect customers from its network operations center.
        Due to PSINet's network architecture, these tasks can be performed
        quickly regardless of POP location or degree of traffic congestion.
        This allows the Company to respond quickly to network problems without
        dispatching personnel and to control network management costs.

   -    Congestion Control.  The Company is able to monitor network bandwidth
        capacity and establish permanent virtual circuits when necessary or,
        in extreme cases, control bandwidth allocation to users. Through its
        remote monitoring ability, the Company is able to monitor each POP's
        physical dial-up capacity utilization and thereby anticipate needed
        additions to the network before capacity constraints arise.

Acquisitions and Strategic Alliances

        As the Company expands its service offerings and its network, the
Company anticipates that it will continue to acquire assets and businesses
of, or enter into strategic alliances or other business relationships with,
companies providing services complementary to PSINet's existing business. The
Company believes that, as the Internet industry expands and matures, the
acquisition of such businesses will be important to maintaining a leadership
position as a full service Internet service provider. The Company has
historically sought acquisitions and strategic alliances in order to expand
its services and increase its international presence.


                                          9

<PAGE>

        In September, 1996, the Company entered into an agreement with
Chatterjee Management Company, an affiliate of Soros Fund Management, (doing
business as The Chatterjee Group) ("Chatterjee") pursuant to which the
Company and an investment group led by Chatterjee would establish a joint
venture to be known as PSINet Europe for the purpose of building an Internet
network across Europe and providing Internet-related services in Europe.  The
Company and Chatterjee are discussing a substantive amendment to this
agreement which, if entered into, would likely result in a direct investment
in PSINet by Chatterjee.  There can be no assurance that the Company and
Chatterjee will complete this transaction. In the event the Company and
Chatterjee are unable to complete this transaction, the Company may, among
other things, seek other strategic partners and/or alternative sources of
financing in connection with its international expansion or defer more rapid
network build-out in Europe.

        From time to time, the Company reviews its strategic alliances with
other entities to determine whether the alliances continue to be consistent
with the Company's overall business strategies and objectives.  As a result
of this review, the Company is in the process of negotiating changes in its
arrangements with World Online B.V. which, if entered into, could result in a
termination of certain of such arrangements, but is not expected to have a
material adverse effect on the Company's business, results of operations and
cash flows. There can be no assurance that the Company and World Online will
effect any such changes.

See "Risk Factors - Risks Associated with Acquisitions and Strategic Alliances"
in Part I, Item 1.

Business Relationships

        Since its inception, PSINet has pursued opportunities to work closely
with leaders of related industries to develop hardware, software, services
and systems which have been incorporated into the Company's service offerings
and PSINet's network. For example, the Company has worked with Ascend
Communications, Inc. ("Ascend") and Cascade Communications Corporation
("Cascade") to modify certain of their products to better accommodate
Internet requirements. Other selected alliances include:

   -    CyberCash.  PSINet has formed an alliance with CyberCash, Inc. to
        provide PSIWeb customers a payment system for processing transactions
        electronically.

   -    Mercantec, Inc. ("Mercantec").  PSINet has formed an alliance with
        Mercantec, Inc. to provide PSIWeb eCommerce customers Mercantec's
        SoftCart shopping cart software which offers a solution for
        incorporating an on-line "virtual storefront" within the customer's
        Web site

   -    Mpath Interactive ("Mpath").  PSINet also has formed an alliance with
        Mpath to bring interactive applications to the Web through PSINet's
        network.

   -    XLConnect Solutions, Inc. ("XLConnect").  The Company has entered into
        a "master reseller" contract with XLConnect whereby XLConnect recruits
        and provides direct sales support to resellers of PSINet's
        connectivity services.  There are currently over 100 Value Added
        Resellers ("VAR") in the XLConnect VAR program.


                                          10

<PAGE>

The Company actively seeks new opportunities for business alliances that will
improve PSINet's infrastructure, provide more complete customer solutions or
provide access to alternative distribution channels.  See "Risk Factors - Risks
Associated with Acquisitions and Strategic Alliances" in Part 1, Item 1.

Sales and Marketing

        PSINet attempts to reach new customers through its direct sales staff
as well as through a variety of distribution channels, including through
value added reseller programs with distributors for the bundling, joint
promotion and co-marketing of products. The Company also attempts to create
brand awareness by participating in trade shows, such as Networld, Interop,
InterNet World and COMDEX, advertising in trade journals and special-interest
publications, such as Communications Week, Wired and Byte, and relationships
with industry groups and the media. The Company uses direct mailings,
telemarketing programs, Web marketing, co-marketing agreements and joint
promotional efforts to reach new corporate customers. The Company attempts to
retain its customers through active and  responsive customer support as well
as by continually offering new value-added services.

        The Company employs a variety of sales and marketing tactics and
programs in addition to those discussed above in order to implement its sales
and marketing strategy. The Company's internal sales staff initiates calls to
and handles calls from prospective customers and follows up on leads
generated by current service promotion packages, trade shows, magazine reader
service surveys and from proprietary database searches specific to particular
service promotions.

        As of March 14, 1997, the Company employed approximately 177 persons
in its sales and marketing groups. The Company's domestic sales and marketing
operations are principally conducted from its offices in Herndon, Virginia,
while its international affiliates conduct sales and marketing operations in
Toronto, Canada, Tokyo, Japan and Cambridge, U.K.

Customers

        The Company had, as of March 14, 1997, approximately 19,500 corporate
customers. The Company's customers include businesses in the aerospace,
finance, communications, computer data processing and related industries,
governmental agencies and educational and research institutions as well as
other ISPs pursuant to the Company's new consumer wholesale strategy.

Customer Administration, Network Operations and Field Service

        A high level of continuing service and support is critical to the
Company's objective of developing long-term relationships with customers.
Network operations personnel continuously monitor PSINet's network 24 hours
per day, seven days per week.  During 1996, the Company streamlined its
customer service and support organizations by integrating a wide range of
support functions including circuit ordering and installation, network
integration, and customer billing into a unified team known as Customer
Administration. Network operations can remotely service customer connections
to PSINet's network.  Field services personnel are dispatched in the event of
an equipment failure that cannot be serviced remotely. As of March 14, 1997,
the Company employed approximately 239 customer support, network operations
and field services personnel.


                                          11

<PAGE>

The Company's customer support services are managed from its headquarters
offices located in Herndon, Virginia, and its network operations center located
in Troy, New York.

Competition

        The market for data communications services, including Internet
access services, is highly competitive. The industry has relatively
insignificant barriers to entry and numerous entities competing for the same
customers. PSINet expects that competition will continue to intensify. The
Company believes that the primary competitive factors for the provision of
Internet services are quality of service, reliability, price, technical
expertise, ease of use, variety of value-added services, quality and
availability of customer support, experience of the supplier, geographic
coverage and name recognition. PSINet's success in this market will depend
heavily upon its ability to provide high quality Internet connectivity and
value-added Internet services at competitive prices.

        The Company's current and prospective competitors generally may be
divided into the following two groups: (1) other Internet access providers,
such as Bolt, Beranek & Newman Inc., NETCOM On-Line Communications Services,
Inc. ("NETCOM") and other national and regional providers; and (2)
telecommunications companies, such as AT&T Corp. ("AT&T"), MCI Communications
Corporation ("MCI"), WorldCom, Inc. (through its mergers with MFS
Communications Co., Inc. ("MFS") and UUNET Technologies, Inc. ("UUNET")),
Sprint, Inc., regional Bell operating companies ("RBOCs") and various cable
television companies.  Many of these competitors have greater market
presence, engineering and marketing capabilities, and financial,
technological and personnel resources than those available to PSINet. As a
result, they may be able to develop and expand their communications and
network infrastructures more quickly, adapt more swiftly to new or emerging
technologies and changes in customer requirements, take advantage of
acquisition and other opportunities more readily, and devote greater
resources to the marketing and sale of their products than can PSINet. In
addition, the ability of some of the Company's competitors to bundle other
services and products with Internet access services could place PSINet at a
marketing or competitive disadvantage.  See "Risk Factors - Competition" in
Part 1, Item 1.

Proprietary Rights

        The Company's success and ability to compete is dependent in part
upon its technology and proprietary rights, although the Company believes
that its success is more dependent upon its technical expertise than its
proprietary rights. The Company relies on a combination of copyright,
trademark and trade secret laws and contractual restrictions to establish and
protect its technology. There can be no assurance that the steps taken by the
Company will be adequate to prevent misappropriation of its technology or
that the Company's competitors will not independently develop technologies
that are substantially equivalent or superior to the Company's technology.
The Company is also subject to the risk of adverse claims and litigation
alleging infringement of the intellectual property rights of others. See
"Risk Factors - Dependence on Technology; Proprietary Rights" in Part 1, Item 1.


                                          12

<PAGE>

Regulatory Matters

        The 1996 Federal telecommunications legislation imposes criminal
liability on persons sending or displaying in a manner available to minors
indecent material on an interactive computer service such as the Internet.
The 1996 Federal telecommunications legislation also imposes criminal
liability on an entity knowingly permitting facilities under its control to
be used for such activities.  Entities solely providing access to facilities
not under their control (including transmission, downloading, intermediate
storage, access software and other incidental capabilities) are exempted from
liability, as are service providers that take good faith, reasonable,
effective and appropriate actions to restrict access by minors to the
prohibited communications.  The constitutionality of these provisions is
being challenged in the U.S. Supreme Court, and the interpretation and
enforcement of them is uncertain.  This legislation may decrease demand for
Internet access, chill the development of Internet content, or have other
adverse effects on Internet access providers such as the Company.  In
addition, in light of the uncertainty attached to interpretation and
application of this law, there can be no assurance that the Company would not
have to modify its operations to comply with the statute, including
prohibiting users from maintaining home pages on the World Wide Web. See
"Risk Factors - Government Regulatory Risks" in Part 1, Item 1.

Employees

        As of March 14, 1997, the Company had approximately 515 full-time
employees, including approximately 239 in technical and operational
positions, 177 in sales and marketing and 99 in administration. PSINet
believes that its relations with its employees are good. None of PSINet's
employees are represented by a labor union or covered by a collective
bargaining agreement and PSINet has never experienced a work stoppage.

Executive Officers of the Company


         Name        Age                        Title
         ----        ---                        -----
William L. Schrader   45       Chairman of the Board of Directors, President
                               and Chief Executive Officer (Founder)

Harold S. Wills       55       Executive Vice President, Chief Operating
                               Officer, and Director

David N. Kunkel       53       Senior Vice President, General Counsel,
                               Secretary and Director

Edward D. Postal      41       Vice President and Chief Financial Officer

Mitchell Levinn       37       Vice President, Network Operations

Mary-Ann Carolan      36       Vice President, Customer Administration

Richard R.Frizalone   39       Vice President, Corporate Sales

James R. Davin        40       Vice President and Chief Technical Officer

Mark S. Fedor         33       Vice President, Engineering

David L. Hudson       55       Vice President, Business and Product Development


                                          13

<PAGE>

Additional information regarding the Company's Executive Officers is
incorporated by reference to "Executive Officers" in the Company's Proxy
Statement to be used in connection with its 1997 Annual Meeting of Shareholders
and to be filed with the Commission not later than 120 days after December 31,
1996.


                                          14

<PAGE>

RISK FACTORS

    In addition to the other information in this Annual Report, the following
Risk Factors should be considered in evaluating the Company and its business.

Limited History of Operations; Operating Deficit; Continuing Losses;
Potential Fluctuations in Operating Results

    The Company began offering its services in 1990. Although the Company has
experienced revenue growth on an annual basis with revenue increasing from $15.2
million in 1994 to $38.7 million in 1995 to $84.4 million in 1996, it has
incurred losses and experienced negative EBITDA (as defined in footnote 4 of
Part II, Item 6 "Selected Financial Data")during each of its last three fiscal
years.  The Company has incurred losses of approximately $5.3 million, $53.2
million and $55.1 million and has incurred negative EBITDA of approximately $1.5
million, $27.9 million and $28.0 million for each of the years ended December
31, 1994, 1995 and 1996, respectively.  At December 31, 1996, the Company had a
retained deficit of $116.6 million. Although the Company presently projects that
it will achieve positive EBITDA sometime during the second quarter of 1997 and
will be profitable by the first quarter of 1998 or prior thereto, there can be
no assurance that revenue growth will continue or that the Company will achieve
profitability or positive EBITDA in the future.  The Company expects to focus in
the near term on continuing to increase its corporate customer base and
expanding its consumer wholesaling strategy which will require it to continue to
incur expenses for marketing, network infrastructure, personnel and the
development of new services and software, and thereby may adversely impact cash
flow and operating performance. The Company also plans to continue to enhance
PSINet's network and the administrative and operational infrastructure necessary
to support its Internet access service domestically and internationally.

    The Company's operating results have fluctuated in the past and may
fluctuate significantly in the future as a result of a variety of factors, some
of which are outside of the Company's control, including general economic
conditions, specific economic conditions in the Internet access industry, user
demand for the Internet, capital expenditures and other costs relating to the
expansion of operations, the introduction of new services by the Company or its
competitors, the mix of services sold and the mix of channels through which
those services are sold, pricing changes and new product introductions by the
Company and its competitors and delays in obtaining sole or limited source
equipment. As a strategic response to a changing competitive environment, the
Company may elect from time to time to make certain pricing, service or
marketing decisions that could have a material adverse effect on the Company's
business, results of operations and cash flow.

Competition

    The market for data communications services, including Internet access
services, is highly competitive. The industry has relatively insignificant
barriers to entry and numerous entities competing for the same customers. PSINet
expects that competition will continue to intensify. The Company believes that
the primary competitive factors for the provision of Internet services are
quality of service, reliability, price, technical expertise, ease of use,
variety of value-added services, quality and availability of customer support,
experience of the supplier, geographic coverage and name recognition. PSINet's
success in this market will depend heavily


                                          15

<PAGE>

upon its ability to provide high quality Internet connectivity and value-added
Internet services at competitive prices.

    Many of the Company's competitors have greater market presence, engineering
and marketing capabilities, and financial, technological and personnel resources
than those available to PSINet. As a result, they may be able to develop and
expand their communications and network infrastructures more quickly, adapt more
swiftly to new or emerging technologies and changes in customer requirements,
take advantage of acquisition and other opportunities more readily, and devote
greater resources to the marketing and sale of their products than can PSINet.
In addition, the ability of some of the Company's competitors to bundle other
services and products with Internet access services could place PSINet at a
competitive disadvantage.

    The 1996 Federal telecommunications legislation contains certain provisions
lifting, or establishing procedures for lifting, restrictions on RBOCs and other
companies which may permit them to engage directly in the Internet access
business and allows the RBOCs to provide electronic publishing of information
and databases.  In addition, this legislation makes it easier for national long
distance carriers such as AT&T to offer local telephone service.  The Company
cannot predict the extent to which this legislation may result in additional
competitive pressures on the Company or have a material adverse effect on the
Company's business, results of operations and financial condition.

    PSINet believes that competition will intensify as new competitors,
including large computer hardware, software, media and other technology and
telecommunications companies, enter the Internet services market and as existing
competitors form alliances with or acquire other companies. The 1996 mergers of
UUNET with MFS and of MFS with WorldCom, Inc., for example, may create the
potential for network expense reductions which could result in a competitive
advantage for the combined entity.  Such acquisitions, alliances and expanded
service offerings may permit the Company's competitors to devote greater
resources to the development and marketing of new competitive products and
services and the marketing of existing competitive products and services.

    As PSINet continues to expand its operations outside the United States, it
will encounter new competitors and competitive environments.  In some cases, the
Company will be forced to compete with and buy services from government owned or
subsidized telecommunications providers, some of which may enjoy a monopoly on
telecommunications services essential to the Company's business. There can be no
assurance that the Company will be able to purchase such services at a
reasonable price or at all. In addition to the risks associated with the
Company's previously described competitors, foreign competitors may possess a
better understanding of their local markets and better working relationships
with local infrastructure providers and others. There can be no assurance that
the Company can obtain similar levels of local knowledge, and failure to obtain
that knowledge could place the Company at a significant competitive
disadvantage.

    As a result of industry competition, the Company expects to encounter
pricing pressure, which in turn could result in reductions in the average
selling price of the Company's services. For example, certain of the Company's
competitors which are telecommunications companies, including AT&T and MCI, may
be able to provide customers with reduced or free communications costs in
connection with their Internet access services or offer Internet access as a
standard component of their overall service package, thereby increasing price
pressure on


                                          16

<PAGE>

PSINet. The Company has in the past reduced prices on certain of its Internet
access options and may continue to do so in the future. There can be no
assurance that the Company will be able to offset the effects of any such price
reductions with an increase in the number of its customers, higher revenue from
enhanced services, cost reductions or otherwise.  PSINet is not able presently
to predict the impact which future growth in the Internet access and on-line
services businesses will have upon competition in the industry.  Increased price
or other competition could result in erosion of the Company's market share and
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will have the financial resources, technical expertise or marketing and support
capabilities to continue to compete successfully.

Recent Entry Into Consumer Wholesaling Business

    In response to competitive considerations in the market for individual
customers, the Company has determined to focus its efforts in this market on the
high-end business user and has altered its strategy to include the provision of
wholesale services to consumer-oriented Internet service providers in the United
States, rather than providing the consumer services directly.  There can be no
assurance that the Company's new strategy will be successful.

Risks of Growth and Expansion

    The Company had expanded its network to approximately 350 POPs as of
December 31, 1996 and plans to continue to expand the capacity of existing POPs
as customer-driven demand dictates during 1997.  The Company's rapid growth has
placed, and in the future may continue to place, a significant strain on the
Company's administrative, operational and financial resources and has increased
demands on its systems and controls.  The Company anticipates that its consumer
wholesale service, as well as other business growth, may require continued
enhancements to and expansion of its network.  Competition for qualified
personnel in the internetworking industry is intense and there are a limited
number of persons with knowledge of and experience in the Internet service
industry. The process of locating, training and successfully integrating
qualified personnel into the Company's operations is often lengthy and
expensive. There can be no assurance that the Company will be successful in
attracting, integrating and retaining such personnel. In addition, there can be
no assurance that the Company's existing operating and financial control systems
and infrastructure will be adequate to maintain and effectively monitor future
growth. The inability to continue to upgrade the networking systems or the
operating and financial control systems, the inability to recruit and hire
necessary personnel, the inability to successfully integrate new personnel into
the Company's operations, the inability to manage its growth effectively or the
emergence of unexpected expansion difficulties could adversely affect the
Company's business, results of operations and financial condition.

Need for Additional Capital to Finance Growth and Capital Requirements

    The Company expects to continue to enhance its network in order to maintain
its competitive position and continue to meet the increasing demands for service
quality, availability and competitive pricing.  As of December 31, 1996, the
Company's network comprised approximately 350 POPs.  Based upon its present
business plan, the Company believes that working capital, funds from operations,
existing credit facilities and additional borrowings which


                                          17

<PAGE>

the Company expects to be able to obtain when needed, will be sufficient to meet
presently anticipated working capital and capital expenditure requirements.  The
Company may seek to raise additional funds in order to take advantage of
unanticipated opportunities, more rapid international expansion or acquisitions
of complementary businesses, or to develop new products or otherwise respond to
unanticipated competitive pressures.  There can be no assurance that the Company
will be able to raise such funds on favorable terms.  In the event that the
Company is unable to obtain such additional funds on acceptable terms, the
Company may determine not to enter into various expansion opportunities.

Risks Associated with International Expansion

    A component of the Company's strategy is its planned expansion into
international markets. To date, the Company has only limited experience in
providing international Internet service. There can be no assurance that the
Company will be able to obtain the permits and operating licenses required for
it to operate, to hire and train employees or to market, sell and deliver high
quality services in these markets. In addition to the uncertainty as to the
Company's ability to expand its international presence, there are certain risks
inherent to doing business on an international level, such as unexpected changes
in regulatory requirements, tariffs, customs, duties and other trade barriers,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable, political instability,
expropriation, nationalization, war, insurrection and other political risks,
fluctuations in currency exchange rates, foreign exchange controls which
restrict or prohibit repatriation of funds, technology export and import
restrictions or prohibitions, delays from customs brokers or government
agencies, seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world and potentially adverse tax
consequences, which could adversely impact the success of the Company's
international operations. The Company may need to enter into additional joint
ventures or other strategic relationships with one or more third parties in
order to successfully conduct its foreign operations. There can be no assurance
that such factors will not have an adverse effect on the Company's future
international operations and, consequently, on the Company's business, financial
condition and results of operations. In addition, there can be no assurance that
laws or administrative practice relating to taxation, foreign exchange or other
matters of countries within which the Company operates will not change. Any such
change could have a material adverse effect on the Company's business, financial
condition and results of operations.

Risks Associated With Acquisitions and Strategic Alliances

    As part of its business strategy, the Company expects to seek to develop
strategic alliances both domestically and internationally and/or to acquire
assets and businesses principally relating to or complementary to its current
operations. Any such future strategic alliances or acquisitions would be
accompanied by the risks commonly encountered in strategic alliances with or
acquisitions of companies. Such risks include, among other things, the
difficulty of assimilating the operations and personnel of the companies, the
potential disruption of the Company's ongoing business, the inability of
management to maximize the financial and strategic position of the Company by
the successful incorporation of licensed or acquired technology and rights into
the Company's service offerings, the maintenance of uniform standards, controls,
procedures and policies and the impairment of relationships with employees and
customers as a result of changes in management. There can be no assurance that
the


                                          18

<PAGE>

Company would be successful in overcoming these risks or any other problems
encountered in connection with such strategic alliances or acquisitions.

    In addition, if the Company were to proceed with one or more significant
acquisitions in which the consideration consists of cash, a substantial portion
of the Company's available cash could be used to consummate the acquisitions. If
the Company were to consummate one or more significant acquisitions or strategic
alliances in which the consideration consists of stock, shareholders of the
Company could suffer a significant dilution of their interests in the Company.
See "Business - Acquisitions and Strategic Alliances" in Part 1, Item 1.  Many
of the businesses that might become attractive acquisition candidates for the
Company may have significant goodwill and intangible assets, and acquisition of
these businesses, if accounted for as a purchase, would typically result in
increases in the Company's amortization expenses and the length of time over
which they are reported. In connection with acquisitions, the Company could
incur substantial expenses, including the expenses of integrating the business
of the acquired company or the strategic alliance with the Company's business.
Such expenses, in addition to the financial impact of such acquisitions, could
have a material adverse effect on the Company's business, financial condition
and results of operations and could cause substantial fluctuations in the
Company's quarterly and yearly operating results.

Dependence on Key Personnel

    The Company's success depends to a significant degree upon the continued
contributions of its senior management team and technical, marketing and sales
personnel. The Company's employees may voluntarily terminate their employment
with the Company at any time.  Competition for qualified employees and personnel
in the internetworking industry is intense and there are a limited number of
persons with knowledge of and experience in the Internet service industry. The
Company's success also will depend on its ability to attract and retain
qualified management, marketing, technical and sales executives and personnel.
The process of locating such personnel with the combination of skills and
attributes required to carry out the Company's strategies is often lengthy. The
loss of the services of key personnel, or the inability to attract additional
qualified personnel, could have a material adverse effect on the Company's
results of operations, product development efforts and ability to expand its
network infrastructure. There can be no assurance that the Company will be
successful in attracting and retaining such executives and personnel. Any such
event could have a material adverse effect on the Company's business, financial
condition and results of operations.

Potential Liability for Information Disseminated through Network; Pending and
Threatened Litigation

    The law relating to the liability of on-line services companies and
Internet access providers for information carried on or disseminated through
their systems is currently unsettled in the United States. Several private
lawsuits seeking to impose such liability upon on-line services companies and
Internet access providers are currently pending. In addition, recently enacted
Federal legislation prohibits and imposed liability for the transmission on the
Internet of certain types of information and content. In one case brought
against an Internet access provider, Religious Technology Center v. Netcom
On-Line Communications Services, Inc., a Federal district court ruled that under
certain circumstances Internet access providers could be held liable for
copyright infringement.  The imposition upon the Company and other Internet
access


                                          19

<PAGE>

providers or Web hosting sites of potential liability for information carried on
or disseminated through their systems could require the Company to implement
measures to reduce its exposure to such liability, which may require the
expenditure of substantial capital and other resources, or to discontinue
certain product or service offerings. The increased attention focused upon
liability issues as a result of these lawsuits and legislative proposals could
impact the growth of the Internet.

    The Company carries errors and omissions insurance with a basic policy
limitation of $2.0 million, subject to deductibles, exclusions and
self-insurance retention amounts. Such coverage may not be adequate or available
to compensate the Company for all liability that may be imposed. The imposition
of liability in excess of, or the unavailability of, such coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations.

    The law relating to the regulation and liability of on-line services and
Internet access providers in relation to information carried or disseminated
also is undergoing a process of development in other countries. Decisions
regarding regulation and content liability may significantly affect the
development and profitability of companies offering on-line and Internet access
services, including the Company.

Risks Associated with Financing Arrangements

    The Company's financing arrangements are secured by substantially all of
the Company's assets and stock of certain subsidiaries of the Company and
require the Company to satisfy certain financial covenants and restrict the
payment of dividends.  The Company's secured lenders would be entitled to
foreclose upon those assets in the event of a default under the financing
arrangements and to be repaid from the proceeds of the liquidation of those
assets before the assets would be available for distribution to the Company's
shareholders in the event that the Company is liquidated. In addition, the
collateral security arrangements under the Company's existing financing
arrangements may adversely affect the Company's ability to obtain additional
borrowings.

Government Regulatory Risks

    The 1996 Federal telecommunications legislation imposes criminal liability
on persons sending or displaying in a manner available to minors indecent
material on an interactive computer service such as the Internet.  The 1996
Federal telecommunications legislation also imposes criminal liability on an
entity knowingly permitting facilities under its control to be used for such
activities.  Entities solely providing access to facilities not under their
control (including transmission, downloading, intermediate storage, access
software and other incidental capabilities) are exempted from liability, as are
service providers that take good faith, reasonable, effective and appropriate
actions to restrict access by minors to the prohibited communications.  The
constitutionality of these provisions is being challenged in the U.S. Supreme
Court, and the interpretation and enforcement of them is uncertain.  This
legislation may decrease demand for Internet access, chill the development of
Internet content, or have other adverse effects on Internet access providers
such as the Company.  In addition, in light of the uncertainty attached to
interpretation and application of this law, there can be no assurance that the
Company would


                                          20

<PAGE>

not have to modify its operations to comply with the statute, including
prohibiting users from maintaining home pages on the World Wide Web.

    The 1996 Federal telecommunications legislation also contains certain
provisions lifting, or establishing procedures for lifting, restrictions on
RBOCs and other companies that may permit them to engage directly in the
Internet access business and allows the RBOCs to provide electronic publishing
of information and databases.  Competition from these companies could have an
adverse effect on the Company's business, results of operations and financial
condition.

   The Company provides Internet access, in part, through transmissions over
public telephone lines.  These transmissions are governed by regulatory policies
establishing charges and terms for communications.  The Company presently is
considered an enhanced services provider and, therefore, is not currently
subject to direct regulation or access charges imposed by the Federal
Communications Commission (the "FCC") or any other agency, other than
regulations applicable to businesses generally.  The Company could become
subject in the future to access charges and FCC regulation and/or regulation by
other regulatory commissions as a provider of basic telecommunications services.
The FCC recently issued a Notice of Inquiry in which it seeks comment on whether
it should distinguish between different categories of enhanced services, and
announced that it will address issues about the continued viability of its
current regulatory division between basic and enhanced services in a future
proceeding.  If the FCC determines that such a distinction is appropriate, this
could result in increased costs being imposed upon the Company.

Risk of System Failure or Shutdown

    The success of the Company is dependent upon its ability to deliver
reliable, high-speed access to the Internet. The Company's network, as is also
the case with other networks providing similar service, is vulnerable to damage
or cessation of operations from fire, earthquakes, severe storms, power loss,
telecommunications failures and similar events, especially if such an events
occur within a high traffic location of the network.  The Company is also
dependent upon the ability of its telecommunications providers to deliver
reliable, high-speed telecommunications service through their networks.  While
the Company's network has been designed with redundant circuits among POPs to
allow traffic rerouting, lab and field testing is performed before integrating
new and emerging technology into the network, and the Company engages in
capacity planning, there can be no assurance that the Company will not
experience failures or shutdowns relating to individual POPs or even
catastrophic failure of the entire network.  The Company carries property, POP
equipment and business interruption insurance with basic policy limitations of
$4.0 million, $5.0 million and $5.0 million, respectively, subject to
deductibles, exclusions and self-insurance retention amounts. Such coverage may
not be adequate or available to compensate the Company for all losses that may
occur. In addition, the Company attempts to limit its liability to customers
arising out of network failures through contractual provisions disclaiming all
such liability and, in respect of certain services, limiting liability to a
usage credit based upon the amount of time that the system was not operational.
There can be no assurance that such limitations will be enforceable. In any
event, significant or prolonged system failures or shutdowns could damage the
reputation of the Company and result in the loss of customers.


                                          21

<PAGE>

New and Uncertain Market

    Substantially all of the Company's revenue to date has been, and for the
foreseeable future will be, derived from the sale of its Internet access,
services and products. The Company's success will depend upon the development
and expansion of the market for Internet access services and products and the
networks which comprise the Internet. The market for Internet services has only
recently developed and has been accompanied by increased press coverage
concerning the scope and nature of the information and services available on,
and potential uses of, the Internet. Certain critical issues presently
surrounding commercial use of the Internet, including security, reliability,
ease and cost of access, and quality of service, remain unresolved and may
adversely impact the growth of Internet use. If the Internet access market fails
to grow, grows more slowly than anticipated or becomes saturated with
competitors, the Company's business, financial condition and results of
operations would be materially adversely affected.

Network Security Risks; Risks Associated with Providing Security Services

    Despite the implementation of network security measures by the Company,
such as limiting physical and network access to its routers, its infrastructure
is potentially vulnerable to computer viruses, break-ins and similar disruptive
problems caused by its customers or other Internet users. Computer viruses,
break-ins or other problems caused by third parties could lead to interruptions,
delays or cessation in service to the Company's customers. Furthermore, such
inappropriate use of the Internet by third parties could also potentially
jeopardize the security of confidential information stored in the computer
systems of the Company's customers, which may deter potential customers and
adversely affect existing customer relationships. Persistent security problems
continue to plague public and private data networks. Break-ins have reportedly
reached computers connected to the Internet at General Electric Co., Sprint and
IBM as well as the computer systems of NETCOM, Netscape and the San Diego
Supercomputer Center.   Addressing problems caused by computer viruses,
break-ins or other problems caused by third parties could have a material
adverse effect on the Company.

    The security services offered by the Company for use in connection with its
customers'  networks also cannot assure complete protection from computer
viruses, break-ins and other disruptive problems.  Although the Company attempts
to limit  contractually its liability in such instances, the occurrence of such
problems may result in claims against or liability on the part of the Company.
Such claims, regardless of their ultimate outcome, could result in costly
litigation and could have a material adverse effect on the Company's business or
reputation or on its ability to attract and retain customers for its products.
Moreover, until more consumer reliance is placed on security technologies
available, the security and privacy concerns of existing and potential customers
may inhibit the growth of the Internet service industry and the Company's
customer base and revenues.

Dependence on Suppliers

    The Company has few long term-contracts with its suppliers. The Company is
dependent on third party suppliers for its leased-line connections, or
bandwidth. Certain of these suppliers are or may become competitors of the
Company, and such suppliers are not subject to any restrictions upon their
ability to compete with the Company. To the extent that these suppliers change
their pricing structures, the Company may be adversely affected. Moreover, the
Company


                                          22

<PAGE>

is dependent on certain third party suppliers of hardware components. Although
the Company attempts to maintain a minimum of two vendors for each required
product, certain components used by the Company in providing its networking
services are currently acquired or available from only one source.

    The Company has from time to time experienced delays in the receipt of
certain hardware components. A failure by a supplier to deliver quality products
on a timely basis, or the inability to develop alternative sources if and as
required, could result in delays which could materially adversely affect the
Company. The Company's remedies against suppliers who fail to deliver products
on a timely basis are limited by contractual liability limitations contained in
supply agreements and purchase orders and, in many cases, by practical
considerations relating to the Company's desire to maintain good relationships
with the suppliers. As the Company's suppliers revise and upgrade their
equipment technology, the Company may encounter difficulties in integrating the
new technology into the Company's network.

    Certain of the vendors from whom the Company purchases telecommunications
bandwidth, including the RBOCs and other local exchange carriers ("LECs"),
currently are subject to tariff controls and other price constraints which in
the future may be changed. In addition, newly enacted legislation will produce
changes in the market for telecommunications services.  These changes may affect
the prices charged by the RBOCs and other LECs to the Company, which could have
a material adverse effect on the Company's business, financial condition and
results of operations.  Moreover, the Company is subject to the effects of other
potential regulatory actions which, if taken, could increase the cost of the
Company's telecommunications bandwidth through, for example, the imposition of
access charges.

Risks of Technology Trends and Evolving Industry Standards

    PSINet's success will depend upon its ability to develop new products and
provide new services that meet customers' changing requirements. The market for
Internet access is characterized by rapidly changing technology, evolving
industry standards, emerging competition, changes in customer needs and frequent
new service and product introductions. The Company's future success will depend,
in part, on its ability to effectively use leading technologies, to continue to
develop its technical expertise, to enhance its current services, to develop new
services that meet changing customer needs, and to influence and respond to
emerging industry standards and other technological changes on a timely and
cost-effective basis. There can be no assurance that the Company will be
successful in effectively using new technologies, developing new services or
enhancing its existing services on a timely basis or that such new technologies
or enhancements will achieve market acceptance. The Company believes that its
ability to compete successfully is also dependent upon the continued
compatibility and interoperability of its services with products and
architectures offered by various vendors. There can be no assurance that the
Company will be able to effectively address the compatibility and
interoperability issues raised by technological changes or new industry
standards.  In addition, there can be no assurance that services or technologies
developed by others will not render the Company's services or technology
uncompetitive or obsolete.


                                          23

<PAGE>

Dependence on Technology; Proprietary Rights

    The Company's success and ability to compete is dependent in part upon its
technology and proprietary rights, although the Company believes that its
success is more dependent upon its technical expertise than its proprietary
rights. The Company relies on a combination of copyright, trademark and trade
secret laws and contractual restrictions to establish and protect its
technology. It may be possible for a third party to copy or otherwise obtain and
use PSINet's products or technology without authorization or to develop similar
technology independently, and there can be no assurance that such measures are
adequate to protect PSINet's proprietary technology. In addition, PSINet's
products may be licensed or otherwise utilized in foreign countries where laws
may not protect PSINet's proprietary rights to the same extent as do laws in the
United States. It is the Company's policy to require employees and consultants
and, when obtainable, suppliers to execute confidentiality agreements upon the
commencement of their relationships with the Company. There can be no assurance
that the steps taken by the Company will be adequate to prevent misappropriation
of its technology or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technology. The Company is also subject to the risk of adverse claims
and litigation alleging infringement of the intellectual property rights of
others. From time to time the Company has received claims of infringement of
other parties' proprietary rights. While the Company does not believe that it
has infringed the proprietary rights of other parties, there can be no assurance
that third parties will not assert infringement claims in the future with
respect to the Company's current or future products or that any such claims will
not require the Company to enter into license arrangements or result in
protracted and costly litigation, regardless of the merits of such claims. No
assurance can be given that any necessary licenses will be available or that, if
available, such licenses can be obtained on commercially reasonable terms.

Potential Volatility of Stock Price

    The market price and trading volume of the Company's Common Stock has been
and may continue to be highly volatile. Factors such as variations in the
Company's revenue, earnings and cash flow and announcements of new service
offerings, technological innovations or price reductions by the Company, its
competitors or providers of alternative services could cause the market price of
the Common Stock to fluctuate substantially. In addition, the stock markets
recently have experienced significant price and volume fluctuations that
particularly have affected technology based companies and resulted in changes in
the market prices of the stocks of many companies that have not been directly
related to the operating performance of those companies. Such broad market
fluctuations have adversely affected and may continue to adversely affect the
market price of the Common Stock.


                                          24

<PAGE>

                                       GLOSSARY


ATM.......................Asynchronous Transfer Mode. An information transfer
                          standard that is one of a general class of packet
                          technologies that relay traffic by way of an
                          address contained within the first five bytes of a
                          standard fifty-three byte-long packet or cell. The
                          ATM format can be used by many different
                          information systems, including LANs, to deliver
                          traffic at varying rates, permitting a mix of data,
                          voice and video.

Backbone..................A centralized high-speed network that connects
                          smaller, independent networks.

Bandwidth.................The number of bits of information which can move
                          over a communications medium in a given amount of
                          time.

Dedicated circuits........Telecommunications lines dedicated or reserved for
                          use by particular customers along predetermined
                          routes.

Electronic mail or e-mail.An application that allows a user to send or
                          receive text messages to or from any other user
                          with an Internet address, commonly termed an e-mail
                          address.

Firewall..................A gateway between two networks that buffers and
                          screens all information, and prevents unauthorized
                          traffic, passing between such networks.

Frame relay...............A data communication technology which is sometimes
                          used to provide higher speed (above 56Kbps and less
                          than 1.5Mbps) for Internet connections. Its usual
                          application is in connecting work groups rather
                          than individuals.

Graphical user interface..A means of communicating with a computer by
                          manipulating icons and windows rather than using
                          text commands.

Internet..................An open global network of interconnected
                          commercial, educational and governmental computer
                          networks which utilize a common communications
                          protocol, TCP/IP.

Internetworking...........The process of communicating between and among
                          networks.

ISDN......................Integrated Services Digital Network. A digital
                          network that combines voice and digital network
                          services through a single medium, making it
                          possible to offer customers digital data services
                          as well as voice services over dial-up connections.


                                          25

<PAGE>

Kbps......................Kilobits per second. A measure of digital
                          information transmission rates. One kilobit equals
                          1,000 bits of digital information. Normally, 10
                          bits are used for each alpha-numeric character.

LAN.......................Local Area Network. A data communications network
                          designed to interconnect personal computers,
                          workstations, minicomputers, file servers and other
                          communications and computing devices within a
                          localized environment.

Mbps......................Megabits per second. A measure of digital
                          information transmission rates. One megabit equals
                          1,000 kilobits.

Modem.....................A piece of equipment that connects a computer to an
                          analog data transmission line (typically a
                          telephone line).

On-line services..........Commercial information services that offer a
                          computer user access through a modem to a specified
                          slate of information, entertainment and
                          communications menus.

Open systems..............A networking system which is based upon
                          non-proprietary protocols (i.e., protocols which
                          are in the public domain).

POPs......................Points-of-Presence.  Geographic areas within which
                          a communications network allows local access.

Protocol..................A formal description of message formats and the
                          rules two or more machines must follow in order to
                          communicate.

Router....................A device that receives and transmits data packets
                          between segments in a network or different networks.

Server....................Software that allows a computer to offer a service
                          to another computer. Other computers contact the
                          server program by means of matching client
                          software. The term also refers to the computer on
                          which server software runs.

SMDS......................Switched Multimegabit Data Service. A public
                          packet-switching service offered by telephone
                          companies in many major metropolitan areas.

Switching system..........A system which uses devices that rapidly open or
                          close circuits or select the paths or circuits to
                          be used for transmission of information.

TCP/IP....................Transmission Control Protocol/Internet Protocol. A
                          set of open communications protocols that allow
                          computers with different architectures and
                          operating system software to communicate with other
                          computers on the Internet.


                                          26

<PAGE>

T1........................A data communications line capable of transmission
                          speeds of 1.54 Mbps.

T3........................A data communications line capable of transmission
                          speeds of 45 Mbps.

Windows...................A computer basic application system developed by
                          Microsoft Corp. that provides a graphical user
                          interface and multitasking capabilities.

World Wide Web or Web.....A network of computer servers that uses a special
                          communications protocol to link different servers
                          throughout the Internet and permits communication
                          of graphics, video and sound through a rich
                          graphical user interface.


                                          27

<PAGE>

Item 2. PROPERTIES

    The Company's principal administrative, operational and marketing and sales
facilities total approximately 61,790 square feet and are located in an office
park in Herndon, Virginia. The Company occupies 26,286 square feet of this space
under a lease which expires in September 2003, subject to a five-year renewal
option. An additional 9,804 square feet is occupied pursuant to a lease which
expires in May 1997, subject to a three-year extension option.  Additionally,
14,200 square feet is occupied pursuant to a lease which expires in February
1999 and the remaining 11,500 square feet are occupied pursuant to a sublease
which expires in October 2003. In addition, the Company also leases
approximately 19,406 square feet of office space for its network operations
center in Troy, New York.  The Company leases regional sales and field support
offices in Santa Clara, California, El Segundo, California, Orlando, Florida
Chicago, Illinois, Cambridge, Massachusetts, New York City, Columbus, Ohio,
Dallas, Texas, Tokyo, Japan, Toronto, Ontario and Cambridge, England. The
Company leases or is otherwise provided with the right to utilize space in
various geographic locations to provide an operational facility for certain of
its POPs.


                                          28

<PAGE>

Item 3. LEGAL PROCEEDINGS

    From time to time, the Company has been threatened with or named as a
defendant in lawsuits and administrative claims. Certain of such lawsuits and
threatened litigation relate to relatively novel or unresolved issues of law
arising out of or relating to the developing nature of the Internet and on-line
services industries. See "Risk Factors - Potential Liability for Information
Disseminated through Network; Pending and Threatened Litigation" in Part I, Item
1.

    The Company from time to time receives communications from third parties
asserting breach of agreements, alleged infringement of patents, trademarks and
service marks of others and other claims. Although there is currently no
material litigation arising out of any alleged breach of agreement or out of any
alleged infringement of patents, trademarks or service marks, there can be no
assurance that litigation will not be commenced regarding these or other
matters.

    The Company is not involved in any legal matters which the Company believes
would, if adversely determined, have a material adverse effect upon its business
or results of operations. There can be no assurance whether these matters will
be determined in a manner which is favorable to the Company or, if adversely
determined, whether such determination would have a material adverse effect upon
the Company's business, financial condition or results of operations.


                                          29

<PAGE>

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

    No matters were submitted to a vote of security-holders during the fourth
quarter of the fiscal year ended December 31, 1996.


                                          30

<PAGE>

                                       PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

    Prior to the initial public offering of the Company's Common Stock on
May 1, 1995, there was no established trading market for the Common Stock.  The
Company's Common Stock has been traded on the NASDAQ National Market under the
symbol "PSIX" since its initial public offering of Common Stock on May 1, 1995.
The following table sets forth for the periods indicated the high and low
closing sale prices for the Common Stock as reported during each quarterly
period in 1995 and 1996 on the NASDAQ National Market. The prices do not include
retail mark ups, mark downs or commissions.


1995                                      High            Low
----                                      ----            ---
Second Quarter (from May 1, 1995)......  $15 5/8        $12
Third Quarter..........................  $25 1/4        $15 1/4
Fourth Quarter.........................  $28 1/2        $13 3/4

1996                                      High            Low
----                                      ----            ---
First Quarter..........................  $22 3/8         $9 1/8
Second Quarter.........................  $18 1/2         $7 3/8
Third Quarter..........................  $12 5/8         $8 3/8
Fourth Quarter.........................  $14             $8 1/2


   The last reported sale price of the Company's Common Stock on the NASDAQ
National Market on March 14, 1997 was $8 per share. There were approximately
801 holders of record of the Common Stock as of March 14, 1997.

DIVIDEND POLICY

    The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain all of its earnings, if any, for use in
its business and does not anticipate paying any cash dividends in the
foreseeable future. In addition, under the terms of the Company's existing
credit facilities, the payment of dividends is restricted. See Note 5 of the
Notes to Consolidated Financial Statements incorporated by reference in Part II,
Item 8.

RECENT SALES OF UNRESTRICTED SECURITIES

    On January 25, 1996, the Company issued, as a deposit in escrow, 32,368
shares of the Company's Common Stock as additional security for the Company's
obligation under an agreement with World Online B.V. to purchase an
additional 10% of the outstanding Common Stock of World Online B.V.  The
securities issued in this transaction were exempt from registration under the
Securities Act of 1993, as amended (the "Act"), in reliance on Section 4(2)
of the Act as a transaction by an issuer not involving any public offering.
In such transaction, the acquirer of the shares had adequate access to
information about the Company, and appropriate legends regarding the
restricted nature of such securities were affixed to the certificate
representing such securities.

                                          31

<PAGE>

Item 6. SELECTED FINANCIAL DATA

    The following table sets forth for the periods indicated selected
consolidated financial and operating data for the Company and should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto and
the discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," incorporated by reference in Part II, Item
8 and Item 7, respectively.  The statement of operations and balance sheet data
have been derived from the Company's consolidated financial statements audited
by Price Waterhouse LLP.  Consolidated balance sheets at December 31, 1995 and
1996 and the related consolidated statements of operations and of cash flows for
the three years ended December 31, 1996 and the notes thereto are incorporated
by reference in Part II, Item 8 of this Form 10-K.

                  Summary Consolidated Financial and Operating Data
                 (In thousands, except per share and operating data)

<TABLE>
<CAPTION>

                                                              Year Ended December 31,
                                             -------------------------------------------------------
                                                  1992      1993        1994      1995      1996
                                                  ----      ----        ----      ----      ----
<S>                                           <C>        <C>        <C>        <C>      <C>
Statement of
Operations Data:

Revenue                                       $  6,442  $  8,665    $ 15,214  $ 38,722  $ 84,351
Other income, net (1)                                -         -           -         -     5,417
Income (loss) from operations                      819    (1,885)     (4,662)  (52,617)  (55,081)
Income (loss) before income taxes and
   extraordinary item (2)                          689    (2,159)     (5,342)  (53,160)  (55,256)
Net income (loss)                                  430    (1,913)     (5,342)  (53,160)  (55,097)
Pro forma loss per share and loss per
   share (3)                                                            (.26)    (1.78)    (1.40)
Shares used in computing pro forma
loss per share and loss per share (3)                                 20,395    29,832    39,378

Other Financial Data:
Net cash provided by (used in) operations        1,721      (209)     (1,097)  (30,093)  (32,543)
EBITDA  (4)                                      1,752      (166)     (1,479)  (27,901)  (28,046)

<CAPTION>

                                                                December 31,
                                             -------------------------------------------------------
                                                  1992      1993        1994      1995      1996
                                                  ----      ----        ----      ----      ----
<S>                                           <C>        <C>        <C>        <C>      <C>
Balance Sheet Data:
Cash and short-term investments               $    240  $  1,865    $  3,358  $102,710  $ 57,344
Working capital                                   (680)      136      (1,554)   83,627    23,186
Property and equipment, net                      2,957     8,415      10,528    51,355    72,061
Total assets                                     4,291    13,821      17,055   201,830   177,112
Lines of credit and current portion of
long-term debt and capital lease
obligations                                        701     2,540       3,369    16,643    26,915
Long-term debt and capital lease
obligations, less current portion                  599     3,581       4,397    24,130    26,938
Redeemable common and preferred stock              773     6,725      13,617         -         -
Shareholders' equity (deficit)                   1,124    (1,427)     (8,283)  143,230    89,783

<CAPTION>

                                                               December 31,
                                             -------------------------------------------------------
                                                  1992      1993        1994      1995      1996
                                                  ----      ----        ----      ----      ----
<S>                                           <C>        <C>        <C>        <C>      <C>
End of Period
Operating Data:

Number of POPs                                      38        68          82       241       350
Number of corporate customers                    1,980     2,830       4,220     8,200    17,800

</TABLE>

(1) Represents the consideration received, net of related asset costs and
transfer expenses relating to the sale of the Company's consumer dial-up
Internet access subscribers and related tangible and intangible assets.


                                          32

<PAGE>

(2) For the year ended December 31, 1992, the Company recognized extraordinary
benefits of $21,000 resulting from the utilization of operating loss
carryforwards to offset income taxes.

(3) For a description of the computation of pro forma loss per share and loss
per share and shares used in computing pro forma loss per share and loss per
share, see Note 1 of the Notes to Consolidated Financial Statements.

(4) Represents earnings (loss) before depreciation and amortization, interest
income and expense, income tax expense (benefit), extraordinary items and equity
in loss of affiliate and, in 1995, intangible asset write-down.  The Company has
included information concerning EBITDA because it understands that such
information is used in the Internet services industry as one measure of an
entity's operating performance and historical ability to service debt.  EBITDA
is not determined in accordance with generally accepted accounting principles,
is not indicative of cash used by operating activities and should not be
considered in isolation or as an alternative to, or more meaningful than,
measures of performance determined in accordance with generally accepted
accounting principles.


                                          33

<PAGE>

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

    The information required by Item 7 is incorporated herein by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained on pages 18-23 of the Company's 1996 Annual Report to
Shareholders filed as Exhibit 13 to this Annual Report on Form 10-K.


                                          34

<PAGE>

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The Consolidated Financial Statements, together with the report of Price
Waterhouse LLP dated February 7, 1997, except as to the last two paragraphs of
Note 12, which are as of February 14, 1997, appearing on pages 24 to 40 and the
quarterly results (unaudited) appearing on page 22 of the Company's 1996 Annual
Report to Shareholders are incorporated by reference and filed as Exhibit 13 to
this Form 10-K.

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

    Not applicable.


                                          35

<PAGE>

                                       PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The information required by Item 10 is incorporated by reference to the
Company's Proxy Statement to be used in connection with its 1997 Annual Meeting
of Shareholders and to be filed with the Securities and Exchange Commission (the
"Commission") not later than 120 days after December 31, 1996.

Item 11.  EXECUTIVE COMPENSATION

    The information required by Item 11 is incorporated by reference to the
Company's Proxy Statement to be used in connection with its 1997 Annual Meeting
of Shareholders and to be filed with the Commission not later than 120 days
after December 31, 1996.


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

    The information required by Item 12 is incorporated by reference to the
Company's Proxy Statement to be used in connection with its 1997 Annual Meeting
of Shareholders and to be filed with the Commission not later than 120 days
after December 31, 1996.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information required by Item 13 is incorporated by reference to the
Company's Proxy Statement to be used in connection with its 1997 Annual Meeting
of Shareholders and to be filed with the Commission not later than 120 days
after December 31, 1996.


                                          36

<PAGE>

                                       PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, and REPORTS ON FORM 8-K

Documents filed as a part of this report.

    1.   Financial Statements

    The following consolidated financial statements of PSINet Inc. and related
notes, together with the report thereon of Price Waterhouse LLP, the Company's
independent accountants, are set forth herein as indicated below.
                                                                            Page

Report of Independent Accountants on Consolidated Financial Statements...... *

Consolidated Balance Sheets as of December 31, 1995 and December 31, 1996... *

Consolidated Statements of Operations For the Three Years Ended December
  31, 1996.................................................................. *

Consolidated Statements of Cash Flows For the Three Years Ended December
  31, 1996.................................................................. *

Consolidated Statements of Changes in Shareholders' Equity (Deficit)
  For the Three Years Ended December 31, 1996............................... *

Notes to Consolidated Financial Statements.................................. *

_______________________________

 * Incorporated by reference to the Company's 1996 Annual Report to
   Shareholders.  See Part II, Item 8 of this Annual Report on Form 10-K.

No financial statements have been filed with this Form 10-K other than those
incorporated by reference in Part II, Item 8.

    2.   Financial Statement Schedules

Included in Part IV of this Form 10-K are the following:

Report of Independent Accountants on Financial Statement Schedule........... 39

Financial Statement Schedule For the Three Years Ended December 31, 1996:

         II - Valuation Accounts and Reserves............................... 40

_______________________________

    All other schedules have been omitted either because they are not required
or applicable or because the required information is included in the
consolidated financial statements or the notes thereto referred to above.


                                          37

<PAGE>

    3.   Exhibits

         See Index to Exhibits on page 42.

b.  Reports on Form 8-K.

    On March 3, 1997, the Company filed a Current Report on Form 8-K, dated
    February 14, 1997, relating to the sale of all of the issued and
    outstanding capital stock of its wholly-owned subsidiary InterCon Systems
    Corporation to Ascend Communications, Inc.


                                          38

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS ON
                             FINANCIAL STATEMENT SCHEDULE






To the Board of Directors and Shareholders of PSINet Inc.


Our audits of the consolidated financial statements referred to in our report
dated February 7, 1997, except as to the last two paragraphs of Note 12, which
are as of February 14, 1997, appearing on page 24 of the 1996 Annual Report to
Shareholders of PSINet Inc. (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the Financial Statement Schedule appearing on page 40 of this Form
10-K.  In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.



PRICE WATERHOUSE LLP


Washington, DC
February 7, 1997


                                          39

<PAGE>

                    SCHEDULE II - VALUATION ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>

                                                         Additions
                                                 --------------------------
                                   Balance at    Charged to    Balances of                Balance at
                                    beginning    costs and       acquired                   end of
                                    of period     expenses     subsidiaries   Deductions    period
                                   ----------    ----------    ------------   ----------  ----------
                                                              (In thousands)

<S>                                   <C>          <C>              <C>         <C>          <C>
Year ended December 31,1994
  Allowance for doubtful accounts         172          617                -         (662)        127
  Deferred tax valuation allowance        493        1,946                -            -       2,439

Year ended December 31,1995
  Allowances for doubtful accounts
      and returns                         127          724              252         (228)        875
  Deferred tax valuation allowance      2,439        8,936                -            -      11,375

Year ended December 31, 1996
  Allowances for doubtful accounts
      and returns                         875        3,130                -       (2,096)      1,909
  Deferred tax valuation allowance     11,375       20,948                -            -      32,323

</TABLE>

                                          40

<PAGE>

                                      SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                   PSINET INC.

Date:    March 31, 1997      By: /s/ Edward D. Postal
                                     ---------------------
                                     Edward D. Postal
                                     Vice President and Chief Financial Officer

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


        Signature                   Title                      Date
        ---------                   -----                      ----

 /s/ William L. Schrader   Chairman, President, Chief      March 31, 1997
 -----------------------    Executive Officer and
     William L. Schrader    Director (Principal
                            Executive Officer)


 /s/ Harold S. Wills        Executive Vice President,      March 31, 1997
 -------------------         Chief Operating Officer
     Harold S. Wills         and Director



 /s/ David N. Kunkel        Senior Vice President,         March 31, 1997
 -------------------         General Counsel, Secretary
     David N. Kunkel         and Director


 /s/  Edward D. Postal      Vice President and Chief       March 31, 1997
 ---------------------       Financial Officer (Principal
      Edward D. Postal       Financial and Accounting
                             Officer)


 /s/ William H. Baumer      Director                       March 31, 1997
 ---------------------
     William H. Baumer

 /s/ Wade Woodson           Director                       March 31, 1997
 ----------------
     Wade Woodson

 /s/ Ian P. Sharp           Director                       March 31, 1997
 ----------------
     Ian P. Sharp

 /s/ William A. Wilson      Director                       March 31, 1997
 ---------------------
     William A. Wilson


                                          41


<PAGE>
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>

EXHIBIT
NUMBER                DESCRIPTION OF EXHIBIT                                      LOCATION
--------  ---------------------------------------------------  ---------------------------------------------------
<S>       <C>                                                  <C>
2.1       Agreement dated July 21, 1995 for the sale and       Incorporated by reference to the Company's Current
          purchase of 425,000 Ordinary Shares in the share     Report on Form 8-K dated July 21, 1995 located
          capital of EUnet GB Limited between the University   under Securities Exchange Commission File No.
          of Kent at Canterbury and the Company                0-25812 ("July 21, 1995 8-K")

2.2       Agreement dated July 21, 1995 for the sale and       Incorporated by reference to the July 21, 1995 8-K
          purchase of 75,000 Ordinary Shares in the share
          capital of EUnet GB Limited between the University
          of Kent at Canterbury and the Company

2.3       Letter dated July 21, 1995 from Furley Page          Incorporated by reference to the July 21, 1995 8-K
          Fielding & Barton to Eversheds

2.4       Shareholder Agreement dated February 28, 1996        Incorporated by reference from Exhibit 2.8 to the
          between the Company and Hansol Telecom Co., Ltd.     Company's Annual Report on Form 10-K for the fiscal
                                                               year ended December 31, 1995 located under
                                                               Securities and Exchange Commission File No. 0-25812
                                                               ("1995 Form 10-K").

2.5       Asset Purchase Agreement dated as of June 28, 1996   Incorporated by reference from Exhibit 2 to the
          between the Company and MindSpring Enterprises,      Company's Quarterly Report on Form 10-Q for the
          Inc.                                                 quarter ended June 30, 1996 located under
                                                               Securities Exchange Commission File No. 0-25812
                                                               ("June 1996 10-Q")
2.6       Joint Venture Agreement dated as of September 19,    Incorporated by reference from Exhibit 2 to the
          1996 between the Company and Chatterjee Management   Company's Quarterly Report on Form 10-Q for the
          Company                                              quarter ended September 30, 1996 located under
                                                               Securities Exchange Commission File No. 0-25812
                                                               ("September 1996 10-Q")

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<S>       <C>                                                  <C>
2.7       Stock Acquisition Agreement, dated as of February    Incorporated by reference to the Company's Current
          1, 1997, between Ascend Communications, Inc., a      Report on Form 8-K dated February 14, 1997 located
          Delaware corporation, and PSINet Inc., a New York    under Securities Exchange Commission File No.
          corporation, with respect to all outstanding         0-25812
          capital stock of InterCon Systems Corporation, a
          Delaware corporation and a wholly-owned subsidiary
          of PSINet Inc.

3.1       Certificate of Incorporation, as amended             Incorporated by reference from Exhibit 3.1 to the
                                                               Company's Registration Statement on Form S-1
                                                               declared effective on May 1, 1995 located under
                                                               Securities and Exchange Commission File No.
                                                               33-90154 ("May 1995 Registration Statement")
3.2       Certificate of Amendment of Certificate of           Incorporated by reference from Exhibit 3.1 to the
          Incorporation dated April 25, 1995                   Company's Quarterly Report on Form 10-Q for the
                                                               quarter ended June 30, 1995 located under
                                                               Securities Exchange

3.3       Certificate of Amendment of Certificate of           Incorporated by reference from Exhibit 3.2 to the
          Incorporation dated May 5, 1995                      June 1995 10-Q

3.4       Certificate of Amendment of Certificate of           Incorporated by reference from Exhibit 3.1 to the
          Incorporation dated November 11, 1995                Company's Quarterly Report on Form 10-Q for the
                                                               quarter ended September 30, 1995 located under
                                                               Securities Exchange Commission File No. 0-25812
                                                               ("September 1995 10-Q")

3.5       Amended and Restated By-laws of the Company          Incorporated by reference from Exhibit 3.5 to the
                                                               September 1995 10-Q

3.6       Certificate of Amendment of Certificate of           Incorporated by reference from Exhibit 3 to the
          Incorporation dated May 18, 1996                     June 1996 10-Q

4.1       Form of Common Stock Certificate                     Incorporated by reference from Exhibit 4.1 to the
                                                               May 1995 Registration Statement

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<S>       <C>                                                  <C>
4.2       Form of Common Stock Certificate (name     Incorporated by reference from Exhibit 4.1A
          change)                                    to the Company's Registration Statement on
                                                     Form S-1 declared effective on December 14,
                                                     1995 located under Securities Exchange
                                                     Commission File No. 33-99610 ("December 1995
                                                     Registration Statement")

4.3       Articles Fourth, Fifth, Sixth, Ninth and   Incorporated by reference from Exhibit
          Tenth of the Certificate of Incorporation  4.2 to the December 1995 Registration
          of the Company, as amended (see Exhibits   Statement
          3.2, 3.3 and 3.4)

4.4       Article I of the Amended and Restated By-  Incorporated by reference from Exhibit
          laws of the Company, as amended (see       4.3 to the December 1995 Registration
          Exhibit 3.5)                               Statement

4.5       Forms of Rights Agreement, dated as of     Incorporated by reference from Exhibit 1
          May 8, 1996, between PSINet Inc. and       to the Company's Registration Statement
          First Chicago Trust Company of New York,   on Form 8-A dated June 3, 1996
          as Rights Agent, which includes as
          Exhibit A-- Certificate of Amendment;
          Exhibit B--Form of Rights Certificate;
          and Exhibit C-- Summary of Rights to
          Purchase Shares of Preferred Stock

10.1      Lease Agreement dated July 1, 1990         Incorporated by reference from Exhibit
          between the Company and Rensselaer         10.1 to the May 1995 Registration
          Polytechnic Institute, amended by Lease    Statement
          Renewal Agreement dated as of July 1,
          1993, Letter Agreement dated November 14,
          1994 and Letter Agreement dated February
          1, 1995

10.2      Lease Agreement dated February 8, 1995     Incorporated by reference from Exhibit
          between the Company and Rensselaer         10.2 to the May 1995 Registration
          Polytechnic Institute                      Statement

10.3      Amendment to Lease Agreement dated July    Incorporated by reference from Exhibit
          1, 1995 between the Company and            10.2A to the December 1995 Registration
          Rensselaer Polytechnic Institute           Statement

10.4      Lease Agreement dated as of April 30,      Incorporated by reference from Exhibit
          1993 by and between Vingarden Limited      10.3 to the May 1995 Registration
          Partnership and the Company                Statement

10.5      Lease Agreement dated April 1995 by and    Incorporated by reference from Exhibit
          between Brit Limited Partnership and the   10.3A to the December 1995 Registration
          Company                                    Statement

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<CAPTION>

<S>          <C>                                                  <C>
10.6      Sublease dated September 20, 1995 by and   Incorporated by reference from Exhibit
          between The Medical Sciences Research      10.3B to the December 1995 Registration
          Institute and the Company and Lease        Statement
          Agreement dated October 6, 1993 by and
          between Vingarden Associates Limited
          Partnership and The Medical Sciences
          Research Institute

10.7      Lease Agreement dated October 31, 1995     Incorporated by reference from Exhibit
          between Oakfern Properties Limited and     10.4A to the December 1995 Registration
          the Company                                Statement

10.8      Lease Agreement dated October 1994         Incorporated by reference from Exhibit
          between the Company and Cascade            10.4 to the May 1995 Registration
          Communications, Inc.                       Statement

10.9      Master Lease Agreement dated July 19,      Incorporated by reference from Exhibit
          1994 between the Company and Technology    10.5 to the May 1995 Registration
          Credit Corporation                         Statement

10.10     Lease Agreement dated as of July 9, 1993   Incorporated by reference from Exhibit
          between Applied Telecommunications         10.6 to the May 1995 Registration
          Technologies, Inc. and the Company         Statement

10.11     Lease Agreement dated as of August 27,     Incorporated by reference from Exhibit
          1993 between Applied Telecommunications    10.7A to the December 1995 Registration
          Technologies, Inc. and the Company         Statement

10.12     Lease Agreement dated as of September 29,  Incorporated by reference from Exhibit
          1993 between Applied Telecommunications    10.7B to the December 1995 Registration
          Technologies, Inc. and the Company         Statement

10.13     Lease Agreement dated as of November 8,    Incorporated by reference from Exhibit
          1993 between Applied Telecommunications    10.7C to the December 1995 Registration
          Technologies, Inc. and the Company         Statement

10.14     Lease Agreement dated as of December 8,    Incorporated by reference from Exhibit
          1993 between Applied Telecommunications    10.7D to the December 1995 Registration
          Technologies, Inc. and the Company         Statement

10.15     Lease Agreement dated as of December 31,   Incorporated by reference from Exhibit
          1993 between Applied Telecommunications    10.7E to the December 1995 Registration
          Technologies, Inc. and the Company         Statement

10.16     Lease Agreement dated as of February 10,   Incorporated by reference from Exhibit
          1994 between Applied Telecommunications    10.7F to the December 1995 Registration
          Technologies, Inc. and the Company         Statement

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                                               45

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<CAPTION>

<S>          <C>                                                  <C>
10.17     Lease Agreement dated as of March 14,      Incorporated by reference from Exhibit
          1994 between Applied Telecommunications    10.7G to the December 1995 Registration
          Technologies, Inc. and the Company         Statement

10.18     Lease Agreement dated as of June 9, 1994   Incorporated by reference from Exhibit
          between Applied Telecommunications         10.7H to the December 1995 Registration
          Technologies, Inc. and the Company         Statement

10.19     Lease Agreement dated as of September 21,  Incorporated by reference from Exhibit 10.7
          1994 between Applied Telecommunications    to the May 1995 Registration Statement
          Technologies, Inc. and the Company

*10.20    Executive Stock Option Plan of the         Incorporated by reference from Exhibit
          Company                                    10.10 to the May 1995 Registration
                                                     Statement

*10.21    Executive Stock Incentive Plan of the      Incorporated by reference from Exhibit
          Company, as amended                        10.12 to the December 1995 Registration
                                                     Statement

*10.22    Directors Stock Incentive Plan of the      Incorporated by reference from Exhibit
          Company, as amended                        10.13 to the December 1995 Registration
                                                     Statement

*10.23    Strategic Stock Incentive Plan of the      Incorporated by reference from Exhibit 10
          Company                                    to the June 1995 10-Q

*10.24    1995 Performance Bonus Plan of the         Incorporated by reference from Exhibit
          Company                                    10.15 to the May 1995
                                                     Registration Statement

*10.25    1996 Performance Bonus Plan of the         Sequentially numbered pages
          Company

*10.26    InterCon Systems Corporation 1992          Incorporated by reference from Exhibit
          Incentive Stock Plan                       99.1 to the Company's Registration
                                                     Statement on Form S-8 which became
                                                     effective on October 18, 1995 located
                                                     under Securities Exchange Commission File
                                                     No. 33-98316 ("S-8 No. 16")

*10.27    InterCon Systems Corporation 1994 Stock    Incorporated by reference from Exhibit
          Option Plan                                99.2 to the S-8 No. 16


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<S>          <C>                                                  <C>
*10.28    Software Ventures Corporation 1994 Stock   Incorporated by reference from Exhibit 99
          Option Plan                                to the Company's Registration Statement
                                                     on Form S-8 which became effective on
                                                     October 18, 1995 located under Securities
                                                     Exchange Commission File No. 33-98314
                                                     ("S-8 No. 14")

*10.29    Employment Agreement dated March 10, 1993  Incorporated by reference from Exhibit
          between the Company and William L.         10.16 to the May 1995 Registration
          Schrader                                   Statement

*10.30    Employment Agreement dated February 13,    Incorporated by reference from Exhibit
          1996 between the Company and Mitchell      10.19 to the Company's Annual Report on
          Levinn                                     Form 10-K for the fiscal year ended
                                                     December 31, 1995 located under
                                                     Securities and Exchange Commission File
                                                     No. 0-25812 ("1995 Form 10-K").

*10.31    Employment Agreement dated June 21, 1995   Incorporated by reference from Exhibit
          between the Company and David N. Kunkel    10.26 to the December 1995 Registration
                                                     Statement

*10.32    Employment Agreement dated February 9,     Incorporated by reference from Exhibit
          1996 between the Company and Mary-Ann      10.42 to the 1995 Form 10-K
          Carolan

10.33     Form of Indemnification Agreement          Incorporated by reference from Exhibit
                                                     10.21 to the May 1995 Registration
                                                     Statement

10.34     Non-Competition and Confidentiality        Incorporated by reference from Exhibit
          Agreement dated as of June 16, 1995        10.30 to the December 1995 Registration
          between Kurt D. Baumann and the Company    Statement

*10.35    Board Representation Agreement dated as    Incorporated by reference from Exhibit
          of October 1, 1993 between the Company     10.24 to the May 1995 Registration
          and William H. Baumer                      Statement

*10.36    Representation Agreement dated as of       Incorporated by reference from Exhibit 10.25
          October 1, 1993 between the Company and    to the May 1995 Registration Statement
          William H. Baumer

10.37     Securities Purchase Agreement dated as of  Incorporated by reference from Exhibit
          May 31, 1994 by and among the Company and  10.26 to the May 1995 Registration
          the Investors identified on Exhibit A      Statement
          thereto


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                                               47

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<CAPTION>

<S>          <C>                                                  <C>
10.38     Securities Purchase Agreement dated as of  Incorporated by reference from Exhibit
          June 17, 1994 by and among the Company     10.27 to the May 1995 Registration
          and the Investors identified on Exhibit A  Statement
          thereto

10.39     Securities Purchase Agreement dated as of  Incorporated by reference from Exhibit
          January 17, 1995 by and among the Company  10.28 to the May 1995 Registration
          and the First Purchasers and Subsequent    Statement
          Purchasers listed on Exhibit A thereto

10.40     Amended and Restated Registration Rights   Incorporated by reference from Exhibit
          Agreement dated as January 17, 1995 by     10.29 to the May 1995 Registration
          and among the Company and the several      Statement
          parties signatory thereto

10.41     Registration Rights Agreement dated as of  Incorporated by reference from Exhibit
          February 8, 1995 by and among the Company  10.30 to the May 1995 Registration
          and the several parties signatory thereto  Statement

10.42     Registration Rights Agreement dated as of  Incorporated by reference from Exhibit
          June 16, 1995 among the Company and        10.39 to the December 1995 Registration
          Stockholders of InterCon Systems           Statement
          Corporation

10.43     Registration Rights Agreement dated as of  Incorporated by reference from Exhibit
          July 11, 1995 among the Company and        10.40 to the December 1995 Registration
          Stockholders of Software Ventures          Statement
          Corporation

10.44     Amended and Restated Credit Agreement      Incorporated by reference from Exhibit
          dated as of November 10, 1995 between the  10.41 to the December 1995 Registration
          Company, Software Ventures Corporation,    Statement
          InterCon Systems Corporation and Fleet
          Bank of Massachusetts, N.A. ("Fleet")

10.45     Revolving Credit Note as amended and       Incorporated by reference from Exhibit
          restated as of November 10, 1995 of the    10.41A to the December 1995 Registration
          Company payable to the order of Fleet      Statement

10.46     Amended and Restated Security Agreement    Incorporated by reference from Exhibit
          dated as of November 10, 1995 by and       10.41B to the December 1995 Registration
          between the Company and Fleet              Statement

10.47     Amended and Restated Security Agreement    Incorporated by reference from Exhibit
          dated as of November 10, 1995 by and       10.41C to the December 1995 Registration
          between PSINet Pipeline New York, Inc.     Statement
          ("Pipeline") and Fleet

10.48     Amended and Restated Guaranty Agreement    Incorporated by reference from Exhibit
          dated as of November 10, 1995 between      10.41F to the December 1995 Registration
          Pipeline and Fleet                         Statement

10.49     Pledge Agreement dated as of November 10,  Incorporated by reference from Exhibit
          1995 between the Company and Fleet         10.41I to the December 1995 Registration
                                                      Statement


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                                               48

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<CAPTION>

<S>          <C>                                                  <C>
10.50     Master Equipment Lease Agreement dated as  Incorporated by reference from Exhibit
          of June 23, 1995 between the Company and   10.1 to the September 1995 10-Q
          Forsythe/McArthur Associates, Inc.
          ("FMA")

10.51     Master Lease Line Commitment Agreement     Incorporated by reference from Exhibit 10.2
          dated as of June 23, 1995 between the      to the September 1995 10-Q
          Company and FMA

10.52     Amendment Agreement dated as of August 1,  Incorporated by reference from Exhibit
          1995 between the Company and Technology    10.8 to the September 1995 10-Q
          Credit Corporation

10.53     Master Equipment Lease Agreement No.       Incorporated by reference from Exhibit
          620-0004602-000 dated November 1995        10.44A to the December 1995 Registration
          between the Company and Siemens Credit     Statement
          Corporation

10.54     Amendment to Master Lease Agreement No.    Incorporated by reference from Exhibit
          1753 dated January 26, 1996 between the    10.77 to the 1995 Form 10-K
          Company and Technology Credit Corporation

10.55     Master Equipment Lease Agreement, dated    Incorporated by reference from Exhibit
          December 15, 1995 between the Company and  10.78 to the 1995 Form 10-K
          Financing for Science International, Inc.

10.56     Security Agreement dated as of March 20,   Incorporated by reference from Exhibit
          1996 between the Company and USL Capital   10.79 to the 1995 Form 10-K
          Corporation

10.57     Warrant to purchase 182,400 shares of the  Incorporated by reference from Exhibit
          Series B Convertible Participating         10.36 to the May 1995 Registration
          Preferred Stock, $0.1 par value per share  Statement
          (the "Series B Preferred"), of the
          Company, at an exercise price of $1.60
          per share, registered in the name of Mark
          A. Cordover and related letter dated May
          27, 1994 from Mr. Cordover to the Company

10.58     Warrant to purchase 174,274 shares of the  Incorporated by reference from Exhibit
          Series B Preferred of the Company, at an   10.37 to the May 1995 Registration
          exercise price of $1.60 per share,         Statement
          registered in the name of Applied
          Telecommunications Technologies, Inc.
          ("ATTI")

10.59     Warrant to purchase up to 25,000 shares    Incorporated by reference from Exhibit
          of the Series B Preferred of the Company,  10.39 to the May 1995 Registration
          at an exercise price of $1.60 per share,   Statement
          registered in the name of William H.
          Baumer

10.60     Warrant to purchase up to 25,000 shares    Incorporated by reference from Exhibit
          of the Series B Preferred of the Company,  10.40 to the May 1995 Registration
          at an exercise price of $1.60 per share,   Statement
          registered in the name of William H.
          Baumer


</TABLE>

                                               49

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<S>          <C>                                                  <C>
10.61     Letter Agreement dated July 20, 1995       Incorporated by reference to the July 21,
          between the Company and Kent Scientific    1995 8-K
          and Industrial Projects, Ltd.

10.62     Intellectual Property License Agreement    Incorporated by reference from Exhibit
          dated March 1996 between the Company and   10.93 to the 1995 Form 10-K
          Hansol Telecom Co., Ltd.

*10.63    Employment Agreement dated April 3, 1996   Incorporated by reference from Exhibit
          between the Company and Harold S. Wills    10.2 to the June 1996 10-Q

10.64     First Amendment dated as of August 13,     Incorporated by reference from Exhibit
          1996 to the Amended and Restated Credit    10.3 to the June 1996 10-Q
          Agreement between the Company and Fleet
          Bank of Massachusetts, N.A.

10.65     Convertible Note dated as of June 28,      Incorporated by reference from Exhibit
          1996 between the Company and MindSpring    10.4 to the June 1996 10-Q
          Enterprises, Inc.

10.66     Registration Rights Agreement made as of   Incorporated by reference from Exhibit
          September 19, 1996 by and between the      10.1 to the September 1996 10-Q
          Company and The Chatterjee Management
          Company

*10.67    Employment Agreement dated October 1,      Incorporated by reference from Exhibit
          1996 between the Company and Edward D.     10.2 to the September 1996 10-Q
          Postal

*10.68    Employment Agreement dated October 9,      Incorporated by reference from Exhibit
          1996 between the Company and Richard R.    10.3 to the September 1996 10-Q
          Frizalone

10.69     Master Software/Equipment Lease Agreement  Incorporated by reference from Exhibit
          dated as of September 20, 1996 between     10.4 to the September 1996 10-Q
          the Company and LPI Software Funding
          Group, Inc.

10.70     Amendment No. 1 to Asset Purchase          Incorporated by reference from Exhibit
          Agreement and Network Services Agreement   10.5 to the September 1996 10-Q
          entered into as of June 28, 1996 by and
          between the Company and MindSpring
          Enterprises, Inc.

10.71     Amendment No. 2 to Asset Purchase          Incorporated by reference from Exhibit
          Agreement entered into as of September 1,  10.8 to the September 1996 10-Q
          1996 by and between the Company and
          MindSpring Enterprises, Inc.

10.72     Pledge Agreement dated as of October 1,    Sequentially numbered pages
          1996 between the Company and Fleet

10.73     Amendment No. 1 to Pledge Agreement dated  Sequentially numbered pages
          as of November 18, 1996 between the
          Company and Fleet

</TABLE>

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<CAPTION>

<S>          <C>                                                  <C>
10.74     Amendment No. 3 to Asset Purchase          Sequentially numbered pages
          Agreement and Amendment No. 1 to
          Convertible Note entered into as of
          January 24, 1997 by and between the
          Company and MindSpring Enterprises, Inc.

10.75     Amendment No. 2 to Network Services        Sequentially numbered pages
          Agreement entered into as of January 1,
          1997 by and between the Company and
          MindSpring Enterprises, Inc.

10.76     Convertible Note of MindSpring             Sequentially numbered pages
          Enterprises, Inc. in the principal amount
          of $3,078,324 due December 31, 1998

10.77     Master Lease Agreement dated as of         Sequentially numbered pages
          January 27, 1997 between Cascade
          Communications Corp. and the Company

*10.78    Employment Agreement dated February 12,    Sequentially numbered pages
          1997 between the Company and David L.
          Hudson

10.79     Second Amendment to Amended and Restated   Sequentially numbered pages
          Credit Agreement dated February 1, 1997
          between the Company, and Fleet

11.1      Calculation of Loss Per Share For The      Sequentially numbered pages
          Year Ended December 31, 1996

11.2      Calculation of Pro Forma Loss Per Share    Sequentially numbered pages
          For The Year Ended December 31, 1995
          (Unaudited)

11.3      Calculation of Pro Forma Loss Per Share    Sequentially numbered pages
          For The Year Ended December 31, 1994
          (Unaudited)

13        1996 Annual Report to Shareholders         Sequentially numbered pages

21        Subsidiaries of the Company                Sequentially numbered pages

23        Consent of Price Waterhouse LLP            Sequentially numbered pages

** 27     Financial Data Schedule                    Sequentially numbered pages

</TABLE>


*   Indicates a management contract or compensatory plan or arrangement required
    to be filed as an Exhibit pursuant to Item 14(a)(3).

**  Not deemed for purposes of Section 11 of the Securities Act of 1933,
    Section 18 of the Securities Exchange Act of 1934 and Section 323 of the
    Trust Indenture Act of 1939 or otherwise subject to the liabilities of such
    sections and not deemed part of any registration statement to which such
    exhibit relates.

                                               51