<PAGE>
 

                                 UNITED STATES

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C.  20549


                               FORM 10-Q/A NO. 1


 X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
---                                                                            

         ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998


                                       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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
 
510 HUNTMAR PARK DRIVE, HERNDON, VA                          20170
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)                    (ZIP CODE)


                                 (703) 904-4100

              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


                                 NOT APPLICABLE

   (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
                                  REPORT DATE)


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  __
                                        ---        

    COMMON STOCK, $.01 PAR VALUE - 51,809,243 SHARES AS OF NOVEMBER 2, 1998

 (INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
                COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE)
<PAGE>
 
                                  PSINET INC.

                               TABLE OF CONTENTS

This Form 10-Q/A No. 1 amends Part I, Item 1 of the Quarterly Report on Form 10-
Q of PSINet Inc. (the "Company") for the nine months ended September 30, 1998
filed with the Securities and Exchange Commission on November 16, 1998.  The
amended item corrects a typographical error in the amount reported as deferred
revenue on the Company's Consolidated Balance Sheet as of September 30, 1998,
changing it from $9,678 to $9,878.

PART I.  FINANCIAL INFORMATION

<TABLE> 
Item 1.  Financial Statements:
<S>                                                                                 <C>
      Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997.....  3
 
      Consolidated Statements of Operations for the three and nine months ended
         September 30, 1998 and September 30 1997....................................  4
 
      Consolidated Statements of Cash Flows for the nine months ended
         September 30, 1998 and September 30 1997....................................  5
 
      Notes to Consolidated Financial Statements.....................................  6
</TABLE>
<PAGE>
 
                         PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                  PSINET INC.
                          CONSOLIDATED BALANCE SHEETS

<TABLE> 
<CAPTION> 
                                                               SEPTEMBER 30, 1998       DECEMBER 31, 1997          
                                                            ---------------------------------------------      
                                                                      (IN THOUSANDS OF U.S. DOLLARS)           
                                                                   (UNAUDITED)              (AUDITED)          
          ASSETS                                                                                              
<S>                                                         <C>                         <C>                   
Current assets:                                                                                               
  Cash and cash equivalents                                 $         282,586           $      33,322         
  Restricted cash and short-term investments                          127,617                  20,690         
  Short-term investments                                               52,842                       -         
  Accounts receivable, net                                             36,932                  11,022         
  Notes receivable                                                      1,347                   7,224         
  Prepaid expenses                                                      5,052                   1,478         
  Other current assets                                                 16,906                   5,162         
                                                            ------------------          --------------        
     Total current assets                                             523,282                  78,898         
                                                                                                              
Property and equipment, net                                           221,390                  95,619         
Goodwill and other intangibles, net                                   103,504                   4,675         
Other assets and deferred charges                                      30,454                   6,969         
                                                            ------------------          --------------         
     Total assets                                           $         878,630           $     186,181         
                                                            ==================          ==============         
    LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
  
Current liabilities:
  Lines of credit                                           $               -           $       5,648  
  Current portion of long-term debt                                    44,746                  33,985
  Trade accounts payable                                               34,727                  25,031
  Accrued payroll and related expenses                                  7,646                   4,636
  Other accounts payable and accrued liabilities                       25,667                   2,382
  Deferred revenue                                                      9,878                   5,944   
                                                            ------------------          --------------         
     Total current liabilities                                        122,664                  77,626

Long-term debt                                                        772,998                  33,820
Other liabilities                                                       9,601                   1,306
                                                            ------------------          --------------         
     Total liabilities                                                905,263                 112,752
                                                            ------------------          --------------         
Shareholders' equity (deficit):
  Preferred stock                                                           -                       -
  Convertible preferred stock                                          28,637                  28,135
  Common stock                                                            519                     406
  Capital in excess of par value                                      400,949                 210,162
  Accumulated deficit                                                (295,033)               (162,649)
  Treasury stock                                                       (2,005)                 (2,005)
  Accumulated other comprehensive income                               (1,150)                   (620)
  Bandwidth asset to be delivered under IRU agreement                (158,550)                      -
                                                            ------------------          --------------         
     Total shareholders' equity (deficit)                             (26,633)                 73,429
                                                            ------------------          --------------         
     Total liabilities and shareholders' equity (deficit)   $         878,630           $     186,181
                                                            ==================          ==============
</TABLE> 

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

                                       3
<PAGE>
 
                                  PSINET INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                    SEPTEMBER 30,             SEPTEMBER 30,
                                                              ------------------------   ---------------------- 
                                                                 1998         1997          1998         1997
                                                              ----------    ----------   ----------    -------- 
                                                          (IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
                                                                   (UNAUDITED)                (UNAUDITED)
<S>                                                       <C>             <C>            <C>          <C>
Revenue                                                        $ 67,550       $ 32,001    $ 165,732    $ 87,147
 
Operating costs and expenses:
   Data communications and operations                            51,908         23,765      130,517      66,847
   Sales and marketing                                           14,701          6,210       37,919      18,070
   General and administrative                                    11,566          5,354       29,439      16,976
   Depreciation and amortization                                 14,658          6,557       37,011      20,648
   Charge for acquired in-process          
    research and development                                     13,400              -       40,400           -
                                                              ----------    ----------   ----------    --------
     Total operating costs and expenses                         106,233         41,886      275,286     122,541
                                                              ----------    ----------   ----------    --------

Loss from operations                                            (38,683)        (9,885)    (109,554)    (35,394)

Interest expense                                                (18,722)        (1,516)     (38,193)     (4,162)
Interest income                                                   4,747            550       11,391       1,995
Other income (expense)                                             (301)           177          703         119
Gain on sale of investments                                       5,647              -        5,647       5,701
                                                              ----------    ----------   ----------    --------
Loss before income taxes                                        (47,312)       (10,674)    (130,006)    (31,741)
Income tax benefit (expense)                                        (36)             -          (65)        476
                                                              ----------    ----------   ----------    --------
Net loss                                                        (47,348)       (10,674)    (130,071)    (31,265)
Return to preferred shareholders                                   (768)             -       (2,313)          -
                                                              ----------    ----------   ----------    --------
Net loss to common shareholders                                $(48,116)      $(10,674)   $(132,384)   $(31,265)
                                                              ==========    ==========   ==========    ========

Basic and diluted loss per share                                $ (0.93)        $(0.26)      $(2.70)     $(0.78)
                                                              ==========    ==========   ==========    ========
Shares used in computing basic and
  diluted loss per share (thousands)                             51,659         40,407       49,120      40,264
                                                              ==========    ==========   ==========    ========
</TABLE>

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

                                       4
<PAGE>
 
                                  PSINET INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE> 
<CAPTION> 
                                                                 NINE MONTHS ENDED SEPTEMBER 30,
                                                                 ------------------------------ 
                                                                    1998              1997      
                                                                 -----------       ------------ 
                                                                 (IN THOUSANDS OF U.S. DOLLARS) 
                                                                            (UNAUDITED)          
<S>                                                              <C>               <C>   
Net cash used in operating activities                              $   (76,931)    $   (13,009) 
                                                                   ------------    ------------ 
                                                                                                
Cash flows from Investing activities:                                                           
  Purchases of property and equipment, net                             (48,635)         (9,120)  
  Purchases of short-term investments                                 (247,223)         (3,000) 
  Proceeds from sale of short-term investments                         200,044           4,649  
  Investments in certain businesses, net of cash acquired             (123,797)              -  
  Change in restricted cash and short-term investments, net           (106,212)              -   
  Net proceeds from sale of subsidiary                                       -          20,353  
  Other, net                                                              (205)            148
                                                                   ------------    ------------  
     Net cash (used in) provided by investing activities              (326,028)         13,030 
                                                                   ------------    ------------  

Cash flows from financing activities: 
  Net (payments) proceeds on lines of credit                            (5,603)          1,000 
  Proceeds from issuance of notes payable, net                         718,575           5,988 
  Repayments of notes payable                                          (37,313)         (5,290)
  Principal payments under capital lease obligations                   (24,205)        (14,313) 
  Dividends paid to preferred shareholders                              (2,140)              -
  Other, net                                                             4,914             409 
                                                                   ------------    ------------ 
     Net cash provided by (used in) financing activities               654,228         (12,206)                                   
                                                                   ------------    ------------ 

Effect of exchange rate changes on cash                                 (2,005)              -
                                                                   ------------    ------------   
                                                                                                                 
Net increase (decrease) in cash and cash equivalents                   249,264         (12,185) 
Cash and cash equivalents, beginning of period                          33,322          52,695 
                                                                   ------------    ------------ 

Cash and cash equivalents, end of period                           $   282,586      $   40,510 
                                                                   ============    ============
</TABLE>

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

                                       5
<PAGE>
 
                                  PSINET INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

These consolidated financial statements for the three and nine month periods
ended September 30, 1998 and 1997 and the related footnote information are
unaudited and have been prepared on a basis substantially consistent with the
audited consolidated financial statements of PSINet Inc. and its subsidiaries
(collectively, "PSINet" or the "Company") as of and for the year ended December
31, 1997 included in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission (the "Annual Report").  These financial
statements should be read in conjunction with the audited consolidated financial
statements and the related notes to consolidated financial statements of the
Company as of and for the year ended December 31, 1997 included in the Annual
Report and the unaudited quarterly consolidated financial statements and related
notes to unaudited consolidated financial statements of the Company for the
three month period ended March 31, 1998 and the three and six month periods
ended June 30, 1998 included in the Company's Form 10-Q for the quarters then
ended, as filed with the Securities and Exchange Commission.  In the opinion of
management, the accompanying unaudited financial statements contain all
adjustments (consisting of normal recurring adjustments) which management
considers necessary to present fairly the consolidated financial position of the
Company at September 30, 1998 and the results of its operations and cash flows
for the three and nine month periods ended September 30, 1998 and 1997. The
results of operations for the three and nine month periods ended September 30,
1998 may not be indicative of the results expected for any succeeding quarter or
for the entire year ending December 31, 1998.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements.  Actual results may
differ from those estimates.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Comprehensive Income
--------------------

On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which establishes
standards for reporting and displaying comprehensive income, as defined, and its
components.  Accumulated other comprehensive income is reported in the
consolidated balance sheets and includes unrealized gain on investments and
cumulative foreign currency translation adjustment.

Comprehensive income for the three and nine months ended September 30, 1998 and
1997 was as follows (in thousands of U.S. dollars):

<TABLE>
<CAPTION>
                                           Three Months Ended Sept. 30,    Nine Months Ended Sept. 30,
                                          ------------------------------  -----------------------------
                                               1998            1997            1998           1997
                                          --------------  --------------  --------------  -------------
<S>                                       <C>             <C>             <C>             <C>
Net loss                                       $(47,348)       $(10,674)      $(130,071)      $(31,265)
Other comprehensive income:
  Change in unrealized holding gain
    (loss) on investments                        (4,955)              -               -              -
  Foreign currency translation                      343            (117)           (530)          (110)
   adjustment                                  --------        --------       ---------       --------
                                                 (4,612)           (117)           (530)          (110)
                                               --------        --------       ---------       --------
Comprehensive income                           $(51,960)       $(10,791)      $(130,601)      $(31,375)
                                               ========        ========       =========       ========
</TABLE>

The Company classifies certain of its investment holdings in equity securities
as available-for-sale and reports such investments at fair value, with
unrealized gains and losses included in shareholders' equity as a component of
accumulated other comprehensive income.  During the quarter ended June 30, 1998,
the Company purchased equity securities by exercising a warrant, and at June 30,
1998 reported an unrealized gain of $5.0 million on such investment.  During the
quarter ended September 30, 1998, the Company sold these securities and realized
a gain of $5.6 million.


                                       6
<PAGE>
 
Segment Reporting
-----------------
 
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information",
which is effective for fiscal years beginning after December 15, 1997.  The
Statement establishes standards for reporting information about operating
segments in annual and interim financial statements.  Generally, the Statement
requires financial information to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments.  The Company will adopt the Statement's disclosure
requirements in its financial statements as of and for the year ending December
31, 1998.

Derivative Financial Instruments
--------------------------------

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999.  This Statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging securities.
To the extent the Company enters into such transactions in the future, the
Company will adopt the Statement's requirements in the financial statements for
the year ending December 31, 2000.

NOTE 3 - LONG-TERM DEBT

During the nine months ended September 30, 1998, the Company incurred capital
lease obligations of $54.9 million upon the execution of leases for new
equipment and other fixed assets.

At September 30, 1998, the aggregate unused portion under the Company's various
financing arrangements for purchases of equipment and other fixed assets was
$60.4 million.  The aggregate unused portion of the Company's operating lines of
credit was $0.4 million.

On April 13, 1998, the Company completed an offering of $600.0 million aggregate
principal amount of 10% Senior Notes due 2005, Series A (the "10% Initial
Notes").  The 10% Initial Notes were issued and sold in accordance with Rule
144A and Regulation S under the Securities Act of 1933, as amended (the
"Securities Act").

On June 11, 1998, the Company completed an exchange offer of the 10% Initial
Notes for equivalent 10% Senior Notes due 2005, Series B (the "10% Exchange
Notes" and, together with the 10% Initial Notes, the "10% Senior Notes") which
have been registered under the Securities Act.  The 10% Senior Notes are senior
unsecured obligations of the Company ranking equivalent in right of payment to
all existing and future unsecured and unsubordinated indebtedness of the Company
and senior in right of payment to all existing and future subordinated
indebtedness of the Company.  The net proceeds of the offering, after deducting
discounts and commissions and expenses payable by the Company, were
approximately $581.0 million.

Concurrently with the closing of the offering, the Company deposited $138.7
million of such net proceeds into an escrow account, which, together with the
proceeds of the investment thereof, is expected to be sufficient to pay when due
the first five semi-annual interest payments on the 10% Senior Notes. At
September 30, 1998, the balance in the escrow account was $122.8 million. Of the
remaining net proceeds of the offering, $20.0 million was used to repay certain
indebtedness incurred primarily to finance the Company's acquisition of iSTAR
internet inc. ("iSTAR") and the balance is expected to be used to finance
capital expenditures (including facilities and equipment in connection with the
development and expansion of the Company's domestic and international network)
and working capital requirements (including debt service obligations) of the
Company.

On September 29, 1998, the Company entered into a three-year senior secured
revolving credit facility to replace the Company's then existing bank credit
arrangements in the United States (the "Credit Facility"). The Credit Facility
is a secured revolving credit facility with borrowing availability thereunder in
the maximum principal amount of $110.0 million, $108.5 million of which was
drawn upon at September 30, 1998 to finance a portion of the purchase price for
the acquisition of Tokyo Internet Corporation (Note 6).

                                       7
<PAGE>
 
The 10% Senior Notes and the Credit Facility have certain financial covenants.
The Company was in compliance with all financial covenants at September 30,
1998.  Prior to the completion of an offering of 11 1/2% Senior Notes, the
Company repaid, with other cash on hand, all borrowings outstanding under the
Credit Facility.  Following the repayment, the Company continues to have
borrowing capacity of up to $110 million under the Credit Facility, subject to
its terms.

In November 1998, the Company completed offerings of $350.0 million aggregate
principal amount of 11 1/2% Senior Notes due 2008 (the "11 1/2% Senior Notes").
The 11 1/2% Senior Notes were issued and sold in accordance with Rule 144A and
Regulation S under the Securities Act. The Company has agreed (1) to file a
registration statement with the SEC to exchange the 11 1/2% Senior Notes for its
senior debt securities with terms identical to the 11 1/2% Senior Notes by
January 18, 1999; (2) to use its best efforts to cause such registration
statement to be declared effective under the Securities Act by April 2, 1999;
and (3) to keep that exchange offer open for not less than 20 business days and
cause that exchange offer to be consummated no later than the 30th business day
after such registration statement is declared effective. The 11 1/2% Senior
Notes are senior unsecured obligations ranking equivalent in right of payment to
all our existing and future unsecured and unsubordinated indebtedness and senior
in right of payment to all our existing and future subordinated indebtedness.
The net proceeds of the 11 1/2% Senior Notes offerings, after deducting
discounts and commissions and estimated expenses payable by the Company, were
approximately $342.8 million.

NOTE 4 - STRATEGIC ALLIANCES

Strategic Alliance with IXC Internet Services, Inc.
---------------------------------------------------

On February 25, 1998, the Company acquired from IXC Internet Services, Inc.
("IXC"), an indirect subsidiary of IXC Communications, Inc., 20-year
noncancellable indefeasible rights of use ("IRUs") in up to 10,000 equivalent
route miles of fiber-based OC-48 network bandwidth (the "PSINet IRUs") in
selected portions across the IXC fiber optic telecommunications network within
the United States.  The PSINet IRUs were acquired in exchange for 10,229,789
shares of common stock of the Company (the "IXC Initial Shares") pursuant to an
IRU and Stock Purchase Agreement dated as of July 22, 1997 between the Company
and IXC, as amended (the "IRU Purchase Agreement").  The issuance of the IXC
Initial Shares was recorded at $7.6875 per share (the last reported quoted
market price of the Company's common stock on the date of the closing).  Such
amount equaled $78.6 million.  If the fair market value of the IXC Initial
Shares (based on a 20 trading day volume-weighted average share price) is less
than $240.0 million at the earlier of one year following delivery and acceptance
of the total amount of bandwidth corresponding to the PSINet IRUs or February
25, 2002 (the "Determination Date"), the Company will be obligated to provide
IXC with additional shares of its common stock, or at the sole option of the
Company, cash or a combination thereof equal to the shortfall (the "Contingent
Payment Obligation").  The Company has the right to accelerate the Contingent
Payment Obligation to any date (the "Acceleration Date") prior to the
Determination Date.  In addition, the right of IXC to receive additional shares
of common stock and/or cash pursuant to the Contingent Payment Obligation will
terminate on such date as the fair market value of the IXC Initial Shares (based
on a 20 trading day volume-weighted average share price) is equal to or greater
than $240.0 million.  At September 30, 1998, the IXC Initial Shares had an
aggregate market value of $142.6 million based on the closing market price per
share of the Company's common stock on such date of $13.938.

The Contingent Payment Obligation was recorded as capital in excess of par value
based on its fair value of $107.3 million.  The fair value of the Contingent
Payment Obligation was determined utilizing a Black-Scholes valuation model
using an assumed term of four years, the closing market price per share of the
common stock on the date of the closing ($7.6875), an exercise price of $23.46
(which is the price per share required in order for the calculation of the IXC
Initial Shares to result in a value equal to $240.0 million), expected
volatility of 76% and an interest rate of 11%.  The amount recorded for the fair
value 

                                       8
<PAGE>
 
of the Contingent Payment Obligation could be adjusted upward in a future period
under certain circumstances.

The amount representing the initial aggregate of the fair value of the IXC
Initial Shares and the Contingent Payment Obligation, $186.0 million, was
recorded as an offset to shareholders' equity similar to a stock subscription
receivable.  Such amount will be reduced, and a long-term asset relating to the
PSINet IRUs will be recorded, as each bandwidth unit corresponding to the PSINet
IRUs is accepted by the Company.  The Company expects to amortize the
capitalized amount of the asset relating to the PSINet IRUs ratably over the 20-
year period during which the Company has the right to utilize the bandwidth
corresponding to the PSINet IRUs.

The bandwidth corresponding to the PSINet IRUs is contemplated to be delivered
to the Company (to the extent then available) in specified minimum increments
every six months during the two year period following closing.  As of September
30, 1998, the Company had accepted from IXC 1,475 equivalent route miles of OC-
48 bandwidth and had recorded $27.4 million as an increase to fixed assets and a
decrease to "Bandwidth asset to be delivered under IRU agreement" in
shareholders' equity (deficit).

The Company expects to incur on an annual basis approximately $1.15 million in
operations and maintenance fees with respect to the PSINet IRUs for each 1,000
equivalent route miles of OC-48 bandwidth accepted under the agreement.

NOTE 5 - INVESTMENTS IN AND ACQUISITIONS OF CERTAIN BUSINESSES

During the nine months ended September 30, 1998, the Company acquired 12
companies.  The Company also acquired an equity interest in one company.  The
following table summarizes certain information concerning these acquisitions or
investments:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                Principal                              Ownership
       Business Name         Market Location   Acquisition Date         Interest
--------------------------------------------------------------------------------------- 
<S>                          <C>               <C>                     <C> 
Internet Prolink S.A.        Switzerland       January 1998                100%
--------------------------------------------------------------------------------------- 
iSTAR internet inc.          Canada            February and                100%
                                               May 1998
--------------------------------------------------------------------------------------- 
Interactive Telephony        Channel           April 1998                  100%
Limited                      Islands, Jersey
--------------------------------------------------------------------------------------- 
WorldPay Limited*            Channel           April 1998                 12.5%
                             Islands, Jersey
--------------------------------------------------------------------------------------- 
Interactive Networx GmbH     Germany           May 1998                    100%
--------------------------------------------------------------------------------------- 
LinkAge Online Limited       Hong Kong         June 1998                   100%
--------------------------------------------------------------------------------------- 
ioNET Internetworking        United States     June 1998                   100%
Services
--------------------------------------------------------------------------------------- 
SCII-CalvaPro                Sub-Sahara        June 1998                   100%
                             Africa
--------------------------------------------------------------------------------------- 
INTERLOG Internet Service,   Canada            July 1998                   100%
Inc.
--------------------------------------------------------------------------------------- 
Rimnet Corporation           Japan             August 1998                 100%
--------------------------------------------------------------------------------------- 
TWICS Co., Ltd.              Japan             September 1998              100%
--------------------------------------------------------------------------------------- 
Hong Kong Internet &         Hong Kong         September 1998              100%
Gateway Services
--------------------------------------------------------------------------------------- 
Inet, Inc.                   Korea             September 1998              100%
--------------------------------------------------------------------------------------- 
</TABLE>

*The investment in WorldPay is accounted for under the cost method.

                                       9
<PAGE>
 
Certain portions of the purchase prices have been retained to secure performance
by certain sellers of indemnification or other contractual obligations.
 
Each of the acquisitions was accounted for using the purchase method of
accounting and, accordingly, the net assets and results of operations of the
acquired companies have been included in the Company's financial statements
since the acquisition dates.  The purchase price of the acquisitions was
allocated to assets acquired, including intangible assets and liabilities
assumed, based on their respective fair values at the acquisition dates.  The
excess of the purchase price over the fair value of the net tangible assets of
the acquisitions is being amortized over periods up to 15 years from the dates
of acquisition.

In connection with these acquisitions, the Company recorded a $40.4 million
charge in the nine months ended September 30, 1998 for acquired in-process
research and development. This represents the value of purchased in-process
technology on projects that have not yet reached technological feasibility and
have no alternative future use. The charge is comprised of $7.0 million in the
first quarter of 1998 relating to the acquisition of iSTAR, $20.0 million in the
second quarter relating to the acquisitions of INX, ioNet and LinkAge, and $13.4
million in the third quarter relating to the acquisitions of Interlog, Rimnet
and Inet.

The amount of purchase price allocated to in-process research and development
was determined using appropriate valuation techniques, including percentage-of-
completion which utilizes the key milestones to estimate the stage of
development of each in-process research and development project at the date of
acquisition, estimating cash flows resulting from the expected revenues
generated from such projects, and discounting the net cash flows back to their
present value. The discount rate includes a factor that takes into account the
uncertainty surrounding the successful development of the purchased in-process
technology.

The value assigned to purchased in-process technology was determined by
identifying research projects in areas including network applications such as
Internet Protocol telephony, access technologies such as asymmetric digital
subscriber line access and wireless local loop access, and other technologies
for which technological feasibility has not been established.  The value of the
in-process projects was adjusted to reflect the relative value and contribution
of the acquired research and development.  In doing so, consideration was given,
as appropriate, to the stage of completion, the complexity of the work completed
to date, the difficulty of completing the remaining development, costs already
incurred, and the projected cost to complete the projects.  The value assigned
to purchased in-process technology was based on the following assumptions.

The estimated revenue associated with the respective business enterprise
valuations assumes five-year compound annual revenue growth rates of between 22%
to 45%. Revenue growth rates for each technology were developed considering,
among other things, the current and expected industry trends, acceptance of the
technologies and historical growth rates for similar industry products.
Estimated total revenue from the purchased in-process technology projects
generally peak in the year 2003 and decline through 2007 as other new products
are expected to be introduced. These revenue projections were based on
management's estimates of market size and growth, expected trends in technology
and the expected timing of new product introductions. The estimated net cash
flows were discounted back to their present value using a discount rate of
between 17.0% and 27.5%, which represents a premium to the Company's cost of
capital. The estimated percentage-of-completion of the various in-process
research and development projects ranged from 50% to 85% complete.

The resulting net cash flows from such projects were based on our estimates of
revenues, cost of sales, research and development costs, selling, general and
administrative costs, and income taxes associated with such projects.

If none of these projects is successfully developed, the Company's sales and
profitability may be adversely affected in future periods.  However, the failure
of any particular individual project in-process would not have a material impact
on the Company's financial condition or its results of operations.
Additionally, the failure of any particular individual project in-process could
impair the value of other intangible assets acquired.  We expect to begin to
benefit from the purchased in-process technology in late 1998 or early 1999.

All of the companies acquired are Internet service providers ("ISPs"), or data
transmission companies, offering a wide range of Internet-protocol based
solutions for businesses, institutions and small-office/home-office users.
Depending on the particular business activities of the company acquired, revenue
may also be derived from service to consumer users, network integration, web
hosting, managed co-location, as well as vertical market Internet services,
including comprehensive banking, medical and telecommunications Internet
solutions.

The purchase price relating to one transaction may be increased by up to $8.0
million pursuant to an earnout provision in the event the acquired company
achieves certain levels of operating results in the period following the
acquisition.  Such amount will be recorded as additional cost of the acquired

                                       10
<PAGE>
 
company and reflected as additional purchased goodwill when it becomes probable
that the amount will be paid.

In connection with the acquisition of these companies, liabilities assumed were
as follows (in thousands of U.S. dollars):


Fair value of assets acquired      $ 211,502
Cash paid for the capital stock     (141,580)
                                   ---------
  Liabilities assumed              $  69,922
                                   =========


The following presents the unaudited pro forma results of operations of the
Company for the nine month periods ended September 30, 1998 and 1997 as if all
of the companies acquired since the beginning of 1998 in business combinations
accounted for under the purchase method had been consummated at the beginning of
the periods presented.  The pro forma results of operations include certain pro
forma adjustments, including the amortization of intangible assets and the
write-off of intangible assets consisting of in-process research and development
costs relating to the acquisitions.  The pro forma results of operations are
prepared for comparative purposes only and do not necessarily reflect the
results that would have occurred had the acquisitions occurred at the beginning
of the periods presented or the results which may occur in the future.

<TABLE>
<CAPTION>
                                                       Nine  Months Ended
                                    ---------------------------------------------------------
                                         September 30, 1998           September 30, 1997
                                    ----------------------------  ---------------------------
<S>                                 <C>                           <C>
                                    (in millions of U.S. dollars, except per share amounts)
Revenue                                                 $ 201.6                      $ 154.6
Net loss                                                $(150.8)                     $(120.1)
Basic and diluted loss per share                        $ (3.07)                     $ (2.98)
</TABLE>

NOTE 6 - SUBSEQUENT EVENTS

In October 1998, the Company acquired two Internet service providers: Tokyo
Internet Corporation in Japan, and Internet Exchange Europe, B.V./Unix Support
Netherland B.V. in the Netherlands. The aggregate amount of the purchase prices
and related payments for these acquisitions was approximately $147.7 million,
exclusive of indebtedness assumed in connection with such acquisitions. Of such
amount, the Company paid $120.7 million and retained the balance to secure
performance by certain sellers of indemnification or other contractual
obligations.

                                       11
<PAGE>
 
                                   SIGNATURES

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

                            PSINet Inc.


December 16, 1998           By:  /s/ Edward D. Postal
                                 --------------------------------
                                    Edward D. Postal
                                    Senior Vice President and
                                    Chief Financial Officer
                                    (Principal Financial Officer)