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

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934 for the Quarterly Period Ended March 31, 1997

                                       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)

                                 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 -- 40,186,459 shares as of May 1, 1997

(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)

                    The Index of Exhibits appears on page 14.

================================================================================
<PAGE>

                                   PSINET INC.

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                       <C>
PART I.  FINANCIAL INFORMATION

    Item 1.   Financial Statements:

              Consolidated Balance Sheets as of December 31, 1996 and March 31, 1997.......................3

              Consolidated Statements of Operations for the three months ended
                 March 31, 1996 and March 31, 1997.........................................................4

              Consolidated Statements of Cash Flows for the three months ended
                 March 31, 1996 and March 31, 1997.........................................................5

              Notes to Consolidated Financial Statements...................................................6

    Item 2.   Management's Discussion and Analysis of Financial Condition
                 and Results of Operations ................................................................8

PART II.  OTHER INFORMATION

    Item 6.   Exhibits and Reports on Form 8-K ...........................................................12

Signatures    ............................................................................................13

Exhibit Index ............................................................................................14
</TABLE>
<PAGE>

                          PART I. FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

                                   PSINET INC.

                           CONSOLIDATED BALANCE SHEETS

                                 (in thousands)

<TABLE>
<CAPTION>
                                ASSETS

                                                     December 31, 1996                  March 31, 1997
                                                     -----------------                  --------------
                                                         (Audited)                        (Unaudited)
<S>                                                         <C>                               <C>     
  Current assets:
         Cash and cash equivalents                          $ 52,695                          $ 55,154
         Short-term investments and
              marketable securities                            4,649                             4,649
         Accounts receivable, net                             17,421                            17,579
         Inventories                                             643                               693
         Prepaid expenses                                      1,963                             1,494
         Other current assets                                  4,940                             3,551
                                                      ---------------                  ----------------
                     Total current assets                     82,311                            83,120

Property and equipment, net                                   72,061                            75,781
Goodwill and other intangibles, net                           13,589                             2,385
Software costs, net                                            3,084                                 -
Other assets and deferred charges                              6,067                             6,052
                                                      ---------------                  ----------------

Total assets                                                $177,112                          $167,338
                                                     ================                  ================

                 LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
         Line of credit                                     $  2,000                          $  2,000
         Current portion of long-term debt                    24,915                            26,850
         Trade accounts payable                               19,868                            18,993
         Accrued payroll and related expenses                  3,098                             2,123
         Other accounts payable and accrued liabilities        3,632                             3,699
         Deferred revenue                                      5,612                             5,001
                                                      ---------------                  ----------------
                Total current liabilities                     59,125                            58,666
         
Long-term debt                                                26,938                            27,295
Deferred income taxes                                            476                                 -
Other liabilities                                                790                               837
                                                     ----------------                  ----------------
         Total liabilities                                    87,329                            86,798
                                                     ----------------                  ----------------

Shareholders' equity:
         Preferred stock                                           -                                 -
         Common stock                                            402                               403
         Capital in excess of par value                      208,000                           208,092
         Retained deficit                                  (116,636)                         (125,905)
         Treasury stock, at cost                             (2,005)                           (2,005)
         Cumulative foreign currency translation
            adjustment                                           22                               (45)
                                                     ----------------                  ----------------
               Total shareholders' equity                    89,783                            80,540
                                                     ----------------                  ----------------

Total liabilities and shareholders' equity                  $177,112                          $167,338
                                                     ================                  ================
</TABLE>


The accompanying notes are an integral part of these financial statements 


                                       3
<PAGE>

                                  PSINET INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                    Three Months Ended
                                                                         March 31,
                                                     --------------------------------------------------
                                                            1996                              1997
                                                     -----------------                 ----------------
                                                          (in thousands, except per share amounts)
<S>                                                     <C>                              <C>          
Revenue                                                 $      17,181                    $      25,639

Operating costs and expenses:

         Data communications and operations                    13,942                          20,968
         Sales and marketing                                    7,844                           6,002
         General and administrative                             5,475                           5,481
         Depreciation and amortization                          6,182                           8,034
                                                     -----------------                 ----------------
              Total operating costs and expenses               33,443                          40,485
                                                     -----------------                 ----------------

Loss from operations                                         (16,262)                         (14,846)

Interest expense                                                (857)                          (1,350)
Interest income                                                 1,224                              775
Other income (expense)                                          1,068                             (25)
Gain on sale of subsidiary                                          -                            5,701
Equity in loss of affiliate                                     (100)                                -
                                                     -----------------                 ----------------

Loss before income taxes                                     (14,927)                          (9,745)

Income tax benefit                                                 39                              476
                                                     -----------------                 ----------------

Net loss                                                $    (14,888)                    $     (9,269)
                                                      ================                 ================

Loss per share                                          $      (0.39)                    $      (0.23)
                                                     =================                 ================
Shares used in computing
     loss per share                                            38,178                           40,158
                                                     =================                 ================
</TABLE>


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


                                       4
<PAGE>

                                   PSINET INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                              Three Months Ended
                                                                                  March 31,
                                                                   -----------------------------------------
                                                                      1996                         1997
                                                                   ---------                    -----------
                                                                                (in thousands)
<S>                                                                <C>                          <C>        
Net cash used in operating activities                              $ (10,818)                   $   (9,495)
                                                                   ---------                    -----------
Cash flows from investing activities:
      Purchases of property and equipment, net                        (4,369)                       (2,678)
      Purchases of short-term investments and
           marketable securities                                     (12,215)                             -
      Net proceeds from sale of subsidiary                                  -                        20,353
      Payments received on note receivable from
      MindSpring                                                            -                            93
      Capitalized software costs                                        (269)                             -
      Loan to affiliate                                                 (169)                             -
      Other                                                                 -                           (74)
                                                                   ---------                    -----------
          Net cash (used in) provided by investing activities        (17,022)                        17,694
                                                                   ---------                    -----------

Cash flows from financing activities:
      Net payments on lines of credit                                 (2,803)                             -
      Proceeds from issuance of notes payable                          2,010                              -
      Repayments of notes payable                                       (876)                        (1,591)
      Principal payments under capital lease obligations              (5,133)                        (4,241)
      Proceeds from exercise of common stock warrants                       -                             4
      Proceeds from exercise of common stock options                     313                             88
      Other                                                              (29)                             -
                                                                   ---------                    -----------
          Net cash used in financing activities                       (6,518)                        (5,740)
                                                                   ---------                    -----------

Net (decrease) increase in cash and cash equivalents                 (34,358)                         2,459
Cash and cash equivalents, beginning of year                         102,710                         52,695
                                                                   ---------                    -----------
Cash and cash equivalents, end of period                           $  68,352                    $    55,154
                                                                   =========                    ===========
</TABLE>


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


                                       5
<PAGE>

                                   PSINET INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note l - Basis of Presentation

     These consolidated financial statements for the three months ended March
31, 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 subsidiaries (collectively, "PSINet" or
the "Company") as of December 31, 1996 incorporated by reference 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 December 31,
1996 incorporated by reference in the Company's Annual Report. 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 March 31, 1997 and the results of operations and cash flows for the
three month periods ended March 31, 1996 and 1997. The results of operations for
the three month period ended March 31, 1997 may not be indicative of the results
expected for any succeeding quarter or for the entire year ending December 31,
1997.

     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 - Loss per Share

     Loss per share is computed using the weighted average number of shares of
common stock, adjusted for the dilutive effect of common stock equivalent shares
of common stock options and warrants. Common stock equivalent shares are
calculated using the treasury stock method.

     Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," (EPS) which is effective for the Company's December 31, 1997 financial
statements, requires disclosure of Basic EPS and Diluted EPS. Basic EPS excludes
the dilutive effects of common stock equivalents. Diluted EPS reflects the
potential dilution that could occur if common stock equivalents or other
contracts to issue common stock were exercised or converted into common stock.
The Company anticipates that the adoption of SFAS No. 128 will not have a
material effect on the Company's loss per share data.

Note 3 - Short-term Investments and Marketable Securities

     The Company classifies its investment holdings in debt and equity
securities as either held-to-maturity securities, trading securities or
available-for-sale securities and reports the investments at amortized cost,
fair value with unrealized gains and losses included in earnings and fair value
with unrealized gains and losses included in shareholders' equity, respectively.

     At March 31, 1997, short-term investments and marketable securities
included debt securities classified as held-to-maturity with original maturities
of greater than 90 days of approximately $1.5 million.


                                       6
<PAGE>

                                   PSINET INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Short-term Investments and Marketable Securities (continued)

     In August 1995, the Company entered into an agreement to form a joint
venture with Hansol Paper Co. Ltd. ("Hansol Paper"), of Seoul, Korea for the
purpose of building an Internet network and providing Internet-related services
in Korea. In March 1996, pursuant to these arrangements, the Company acquired a
10% interest in Hansol Telecom Co., Ltd. ("Hansol"), an affiliate of Hansol
Paper, for approximately $3.1 million. This investment is reflected in
short-term investments and marketable securities.

     Other income for the three months ended March 31, 1996 consists of
approximately $1.1 million of realized gains on equity securities sold by the
Company.

Note 4 - Long-term Debt

     During the three months ended March 31, 1997, the Company incurred capital
lease obligations of approximately $8.1 million upon the execution of leases for
new data communications equipment and other fixed assets.

     At March 31, 1997, the aggregate unused portion under the Company's various
financing arrangements for purchases of data communications equipment and other
fixed assets was $11.1 million.

     Additionally, the Company has a secured revolving credit agreement with a
bank under which the Company may borrow up to a maximum principal amount of the
lesser of $5.0 million or 75% of qualified accounts receivable which secure the
loan less 20% of the aggregate principal amount of certain term credit advances
(approximately $4.1 million at March 31, 1997). There was $2.0 million advanced
under this credit agreement at March 31, 1997. Interest is payable monthly at an
annual rate of prime plus 1.5% (9.75% at March 31, 1997).

Note 5 - Sale of Software Subsidiary

     Effective as of February 1, 1997, the Company sold all of the issued and
outstanding capital stock of its wholly-owned subsidiary, InterCon Systems
Corporation ("InterCon"), to Ascend Communications, Inc. ("Ascend") in exchange
for $12 million in cash pursuant to a Stock Acquisition Agreement between the
Company and Ascend. In addition, in connection with the sale, the Company
received $8.5 million in cash from Ascend as repayment of intercompany debt owed
by InterCon to the Company. The Company recognized a gain of approximately $5.7
million in connection with the sale of InterCon in the three months ended March
31, 1997.


                                       7
<PAGE>

Item 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the accompanying
unaudited Consolidated Financial Statements and associated Notes thereto and the
audited Consolidated Financial Statements, the Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Company as of December 31, 1996 incorporated by reference to the Company's
Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission. This discussion includes certain 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 the risk factors that could cause
actual results to differ materially from the forward-looking statements, see
"Risk Factors" set forth in Exhibit 99.1 filed herewith and the Company's other
filings with the Securities and Exchange Commission.

General

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, training and consulting
services and Internet access security services. Pursuant to network access
agreements with consumer-oriented Internet service providers ("ISPs"), the
Company also provides Internet connection services which allow the subscribers
of the ISPs to connect to the Internet through PSINet's network local access
points called Points-of-Presence or "POPs" for specified fees payable by the
ISPs. At March 31, 1997, the Company served approximately 20,900 corporate
customers, including 33 consumer-oriented ISPs, through approximately 350 POPs.

To further refine the Company's focus on corporate Internet services, in
February 1997 the Company sold its software subsidiary, InterCon Systems
Corporation ("InterCon"), to Ascend Communications, Inc. ("Ascend") for cash
consideration of $12 million. The Company also was paid $8.5 million in cash by
Ascend as repayment of intercompany debt owed by InterCon to the Company.
Revenue and expenses of its software subsidiary included in the Company's
consolidated statements of operations were $1.6 million and $4.1 million,
respectively, for the three months ended March 31, 1996 and $0.3 million and
$1.1 million, respectively, for the three months ended March 31, 1997.

Since the commencement of the Company's operations in 1989, the Company has
undertaken a program of developing and expanding its network. In connection with
this development and expansion, the Company has made significant investments in
telecommunications circuits and equipment. These investments generally are made
in advance of anticipated customer growth and resulting revenue. The Company
also has increased its sales and marketing, customer support, network operations
and field services commitments in anticipation of the expansion of its customer
base.

These expansion efforts have caused the Company to experience increases in
expenses from time to time, both in absolute terms and as a percentage of
revenue, in anticipation of potential future growth in the Company's customer
base. The nature and amount of these expenses may fluctuate over time as the
Company shifts its focus from expanding its network to refining and enhancing
its existing network.


                                       8
<PAGE>

Three Months Ended March 31, 1997 as Compared to the Three Months Ended March
31, 1996

Results of Operations

     Revenue. Revenue is derived from the sale of Internet access and related
services to businesses. Revenue increased by 49.2% from approximately $17.2
million for the three months ended March 31, 1996 to approximately $25.6 million
for the three months ended March 31, 1997. The increase in revenue over the same
three month period in 1996 resulted principally from greater sales of Internet
services to businesses offset by a decrease in revenue relating to the strategy,
which was implemented in mid-1996, of providing wholesale network services to
consumer-oriented providers of Internet access services rather than providing
the consumer access services directly. More specifically, the Company believes
the greater sales were attributable to a number of factors including: an
increase in the number of customers facilitated by an increase in the number of
POPs in operation; an expansion of the Company's sales force; and greater public
awareness and acceptance of the Internet. The Company's corporate customer base
increased by approximately 102.9% from approximately 10,300 corporate customers
at March 31, 1996 to approximately 20,900 corporate customers, including 33
consumer-oriented ISPs, at March 31, 1997. The Company's network infrastructure
increased from approximately 300 POPs at March 31, 1996 to approximately 350
POPs at March 31, 1997.

     Data Communications and Operations. Data communications and operations
expenses consist primarily of leased long distance circuit costs, local loop
costs and expenses associated with network operations, customer support and
field service. Data communications and operations expenses were approximately
$13.9 million (81.2% of revenue) and approximately $21.0 million (81.8% of
revenue) for the three months ended March 31, 1996 and 1997, respectively. The
$7.1 million increase in data communications and operations expenses during the
three months ended March 31, 1997 as compared to the same period in 1996 related
principally to increases in (i) costs associated with providing dedicated
circuits to the Company's InterFrame and InterMan customers and (ii) circuit
costs relating to the Company's new POPs deployed in early 1996 and network
infrastructure enhancements. Circuit costs relating to the Company's new and
expanded POPs generally are incurred by the Company in advance of anticipated
growth in the Company's customer base. Although the Company expects that data
communications and operations expenses will continue to increase as the
Company's customer base continues to grow, it anticipates that such expenses
will decrease as a percentage of revenue.

     Sales and Marketing. Sales and marketing expenses consist primarily of
sales and marketing personnel costs, advertising costs, distribution costs and
related occupancy costs. Sales and marketing expenses decreased from
approximately $7.8 million (45.7% of revenue) during the three months ended
March 31, 1996 to approximately $6.0 million (23.4% of revenue) during the three
months ended March 31, 1997. The $1.8 million decrease during the three months
ended March 31, 1997 as compared to the same period in 1996 resulted principally
from an aggregate reduction in sales and marketing expenses of approximately
$2.9 million which resulted principally from the implementation of the Company's
wholesale network services strategy and the sale of InterCon. These decreased
expenses were offset, in part, by an increase of approximately $1.5 million in
sales and marketing expenses relating to the expansion of the Company's
operations in Canada, Japan and the United Kingdom. All advertising and
marketing costs are expensed in the period incurred. The Company expects that,
as a result of the implementation of its wholesale network services strategy and
its continued efforts to focus on increasing its corporate customer base, its
sales and marketing expenses will decrease as a percentage of revenue over time.

     General and Administrative. General and administrative expenses consist
primarily of salaries and occupancy costs for executive, financial, legal and
administrative personnel. General and administrative expenses were approximately
$5.5 million (31.9% of revenue) during the three months ended March 31, 


                                       9
<PAGE>

1996 and approximately $5.5 million (21.4% of revenue) during the three months
ended March 31, 1997. Although the Company experienced decreased expenses
primarily due to the implementation of the Company's wholesale network services
strategy (approximately $0.5 million) and the sale of InterCon (approximately
$0.4 million) in June 1996 and February 1997, respectively, overall general and
administrative expenses remained fairly constant due to offsetting increases of
approximately $1.4 million relating to the Company's corporate Internet access
business. The Company may from time to time adjust its general and
administrative function in response to current business developments.

     Depreciation and Amortization. Depreciation and amortization costs were
approximately $6.2 million (36.0% of revenue) during the three months ended
March 31, 1996 and approximately $8.0 million (31.3% of revenue) during the
three months ended March 31, 1997. This increase was principally the result of
one-time charges relating to the acceleration of amortization of certain
intangible assets of the Company totaling approximately $2.0 million. The
Company anticipates that, based upon its present business plan for its existing
operations, the net effect of the decreases in depreciation and amortization due
to the transfer of certain tangible and intangible assets, in connection with
the implementation of the Company's wholesale network services strategy in the
second and third quarters of 1996 and the sale of its software operations in the
first quarter of 1997 and the increases due to anticipated capital expenditures
associated with network infrastructure enhancements will likely result in no
material changes in the level of depreciation and amortization when compared to
1996.

     Interest Expense. Interest expense increased from approximately $0.9
million during the three months ended March 31, 1996 to approximately $1.4
million during the three months ended March 31, 1997. The approximately $0.5
million increase in interest expense during the three months ended March 31,
1997 as compared to the same period in 1996 was principally due to increased
borrowings and capital lease obligations incurred by the Company to finance
network expansion and to fund working capital requirements. The Company may
incur increased borrowings and capital lease obligations in the near term in
connection with its network enhancements which will further impact the amount of
the Company's interest expense.

     Interest Income. Interest income decreased from approximately $1.2 million
during the three months ended March 31, 1996 to approximately $0.8 million
during the three months ended March 31, 1997. The $0.4 million decrease in
interest income during the three months ended March 31, 1997 as compared to the
same period in 1996 was principally due to a decrease in the amount of proceeds
remaining from the Company's public offerings in 1995. All remaining proceeds
are currently invested in short-term, investment grade, interest bearing
securities.

     Other income. Other income of approximately $1.1 million during the three
months ended March 31, 1996 relates to the recognition of realized gains on
equity securities which were sold by the Company.

     Gain on sale of subsidiary. The gain on the sale of subsidiary of
approximately $5.7 million relates to the sale of the Company's software
subsidiary, InterCon, to Ascend for cash consideration of $12.0 million. In
connection with the sale, the Company also was paid $8.5 million in cash by
Ascend as repayment of intercompany debt owed by InterCon to the Company.

     Net loss and loss per share. As a result of the factors discussed above,
the Company's net loss was $14.9 million or $0.39 per share during the three
months ended March 31, 1996, compared with a net loss of $9.3 million or $0.23
per share during the three months ended March 31, 1997.

In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," (EPS) which
is effective for the Company's December 31, 1997 financial statements. The
Company anticipates that the adoption of SFAS No. 128 will not have a material
effect on the Company's reported loss per share data.


                                       10
<PAGE>

Liquidity and Capital Resources

The Company historically has satisfied its cash requirements through cash from
operations, through borrowings and capital lease financings from financial
institutions and other third parties and through the issuance of equity
securities.

Cash flow used in operating activities was approximately $10.8 million and $9.5
million for the three months ended March 31, 1996 and 1997, respectively. Cash
flow used in operating activities can vary significantly from period to period
depending upon the timing of operating cash receipts and payments, especially
accounts receivable, prepaid expenses and other assets, and accounts payable and
accrued liabilities.

Cash flow used in investing activities for the three months ended March 31, 1996
was approximately $17.0 million and cash flow provided by investing activities
for the three months ended March 31, 1997 was approximately $17.7 million. The
expansion of the Company's network resulted in capital expenditures of
approximately $22.9 million and $10.8 million for the three months ended March
31, 1996 and 1997, respectively (which included capital expenditures financed
under equipment financing agreements aggregating approximately $18.5 million and
$8.1 million for the three months ended March 31, 1996 and 1997, respectively).
Additionally, during the three months ended March 31, 1996, the Company invested
approximately $12.2 million in equity and debt securities with original
maturities of greater than 90 days. In February 1997, the Company sold its
software subsidiary, InterCon to Ascend for cash consideration of $12.0 million.
The Company also was paid $8.5 million by Ascend as repayment of intercompany
debt owed by InterCon to the Company.

Cash flow used in financing activities was approximately $6.5 million and $5.7
million for the three months ended March 31, 1996 and 1997, respectively. During
the three months ended March 31, 1996 and 1997, the Company made repayments
aggregating $8.8 million and $5.8 million, respectively, on its financing
facilities. Additionally, during the three months ended March 31, 1996, the
Company received proceeds from the issuance of $2.0 million of notes payable.

As of March 31, 1997, the Company had approximately $55.2 million of cash and
cash equivalents, approximately $4.6 million of short-term investments and
marketable securities and approximately $11.1 million available under financing
facilities for the future financing of data communications equipment and other
fixed assets, and a $5.0 million working capital facility, subject to
availability under a borrowing base formula (at March 31, 1997 a maximum
availability of approximately $4.1 million), under which $2.0 million was
outstanding. The Company's financing arrangements, which are secured by
substantially all of the Company's assets, require the Company to satisfy
certain financial covenants and restrict the payment of dividends.

As of March 31, 1997, the Company had commitments to certain telecommunications
vendors totaling approximately $13.2 million. The commitments require minimum
monthly usage levels of data and voice communications over the next five years.
Additionally, the Company has various agreements to lease office space and
facilities and, as of March 31, 1997, the Company was obligated to make future
minimum lease payments of approximately $11.3 million on non-cancellable
operating leases expiring in various years through 2005.

Based upon its present business plan, the Company believes that working capital,
funds from operations, existing credit facilities and additional borrowings
which the Company expects to be able to obtain when needed, will be sufficient
to meet the presently anticipated working capital and capital expenditure
requirements of its existing operations.


                                       11
<PAGE>

PART II. OTHER INFORMATION

Item 6.       EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

              The following Exhibits are filed herewith:

              Exhibit 11.1          Calculation of Loss per Share and Weighted 
                                    Average Shares Used in Calculation for the 
                                    Three Months Ended March 31, 1997

              Exhibit 27            Financial Data Schedule **

              Exhibit 99.1          Risk Factors

              **   Not deemed filed 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.

(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.


                                       12
<PAGE>

                                   PSINET INC.
                                    FORM 10-Q
                                 MARCH 31, 1997

                                   SIGNATURES

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

                                  PSINet Inc.


May 15, 1997                      By: /s/ William L. Schrader
------------                      ---------------------------
    Date                              William L. Schrader
                                      Chairman, President, Chief
                                      Executive Officer and Director


May 15, 1997                      By: /s/ Edward D. Postal
------------                      ---------------------------
   Date                               Edward D. Postal
                                      Vice President and Chief Financial Officer
                                      (Principal Financial and Chief Accounting
                                      Officer)

                                       13
<PAGE>

                                  EXHIBIT INDEX

Item 6 (a)   Exhibits:

Exhibit                           Exhibit Name                          Location
-------                         ----------------                        --------

    11.1     Calculation of Loss per Share and Weighted
             Average Shares Used in Calculation for the Three Months
             Ended March 31, 1997.........................................15

    27       Financial Data Schedule......................................16

    99.1     Risk Factors.................................................17


                                       14