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

                                 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 JUNE 30, 1997

                                       OR

[_}   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

           FOR THE TRANSITION PERIOD FROM ___________ TO ___________

                       COMMISSION FILE NUMBER: 000-22575

                         CONCENTRIC NETWORK CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

          DELAWARE                                         65-0257497
(STATE OR OTHER JURISDICTION OF                         (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NUMBER)
 
                       10590 NORTH TANTAU AVENUE
                      CUPERTINO, CALIFORNIA  95014
      (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
 
                                (408) 342-2800
             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days.

                                YES  [_]    NO  [X]

     The number of issued and outstanding shares of the Registrant's Common
Stock, $0.001 par value, as of June 30, 1997, was 7,720,264.

================================================================================
<PAGE>
 
                         CONCENTRIC NETWORK CORPORATION

                          PART I-FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                                         PAGE
                                                                                         ----
<S>                                                                                      <C>
Item 1.  Financial Statements:

         Condensed Balance Sheets at June 30, 1997 and December 31, 1996.................  3

         Condensed Statements of Operations for the three and six month
         periods ended June 30, 1997 and 1996............................................  4

         Condensed Statements of Cash Flows for the six month periods ended
         June 30, 1997 and 1996..........................................................  5

         Notes to Unaudited Condensed Financial Statements...............................  6-10

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations.......................................................  11-17

                           PART II-OTHER INFORMATION

Item 1.  Legal Proceedings...............................................................  18

Item 2.  Changes in Securities...........................................................  18

Item 3.  Defaults Upon Senior Securities.................................................  18

Item 4.  Submission of Matters to a Vote of Security Holders.............................  18

Item 5.  Other Information...............................................................  18

Item 6.  Exhibits and Reports on Form 8-K................................................  19-23

Signatures...............................................................................  24
</TABLE>

                                      -2-
<PAGE>
 
PART I-FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                         CONCENTRIC NETWORK CORPORATION

                            CONDENSED BALANCE SHEETS
                                   UNAUDITED
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                         PRO FORMA
                                                                                        STOCKHOLDERS'
                                                                                           EQUITY
                                                          DECEMBER 31,      JUNE 30,    (DEFICIT) AT
                                                             1996            1997       JUNE 30, 1997
                                                          ------------   ------------   -------------
<S>                                                       <C>             <C>          <C>
                        ASSETS
Current assets:
   Cash and cash equivalents...........................   $     17,657     $  3,464
   Accounts receivable, net............................          1,849        3,838
   Prepaid expenses....................................            950        4,024
   Other current assets................................            772        2,611
                                                          ------------    ---------
             Total current assets......................         21,228       13,937
Property and equipment, net............................         47,927       58,556
Other assets...........................................          1,567        3,874
                                                          ------------    ---------
Total assets...........................................   $     70,722    $  76,367
                                                          ============    =========

      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
   Accounts payable....................................       $ 16,723    $  20,927
   Accrued expenses....................................          2,877        6,789
   Current portion of capital lease obligations........         11,258       16,397
   Notes payable.......................................             --        5,000
   Deferred revenue....................................          1,238        1,449
                                                          ------------    ---------
             Total current liabilities.................         32,096       50,562
Capital lease obligations, net of current portion......         30,551       38,734

Commitments and contingencies
Class A common stock subject to rescission.............          5,150        1,400
Stockholders' equity (deficit):
   Preferred stock.....................................         95,215       99,604    $          ---
   Common stock........................................          1,850        8,443           108,047
Accumulated deficit....................................        (93,952)    (121,537)         (121,537)
Deferred compensation..................................           (188)        (839)             (839)
                                                          ------------    ---------    --------------
Total stockholders' equity (deficit)...................          2,925      (14,329)   $      (14,329)
                                                          ------------    ---------    ==============
Total liabilities and stockholders' equity (deficit)...   $     70,722    $  76,367
                                                          ============    =========
</TABLE>

                            See accompanying notes.
                                        

                                      -3-
<PAGE>
 
                         CONCENTRIC NETWORK CORPORATION

                       CONDENSED STATEMENTS OF OPERATIONS
                                   UNAUDITED
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                     THREE MONTHS             SIX MONTHS
                                                     ENDED JUNE 30,          ENDED JUNE 30,
                                                  --------------------   ---------------------
                                                    1996        1997       1996          1997
                                                  ---------   --------   --------    ---------
<S>                                              <C>         <C>         <C>         <C>
Revenue........................................  $  2,489    $ 10,814    $  4,022    $  19,968
Costs and expenses:
   Cost of revenue.............................    11,782      14,913      19,038       30,657
   Development.................................       571       1,200         911        2,225
   Marketing and sales.........................     3,868       6,094       6,988       11,030
   General and administrative..................     1,036       1,127       1,772        2,187
                                                 --------    --------    --------    ---------
Total costs and expenses.......................    17,257      23,334      28,709       46,099
                                                 --------    --------    --------    ---------
Loss from operations...........................   (14,768)    (12,520)    (24,687)     (26,131)
Other income...................................         -      (1,395)          -       (1,395)
Net interest expense...........................       652       1,779       1,113        2,849
Net loss.......................................  $(15,420)   $(12,904)   $(25,800)   $ (27,585)
                                                 ========    ========    ========    =========
Net loss per share.............................  $  (7.55)   $  (5.84)   $ (12.64)   $  (12.96)
                                                 ========    ========    ========    =========
Shares used in computing net loss per share....     2,042       2,209       2,042        2,128
                                                 ========    ========    ========    =========
</TABLE>


                            See accompanying notes.

                                      -4-
<PAGE>
 
                         CONCENTRIC NETWORK CORPORATION

                       CONDENSED STATEMENTS OF CASH FLOWS
                                   UNAUDITED
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                      SIX MONTHS
                                                                                    ENDED JUNE 30,
                                                                                 --------------------
                                                                                   1996       1997
                                                                                 --------   ---------
<S>                                                                              <C>        <C>
Operating activities
Net loss........................................................................ $(25,800)   $(27,585)
Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization................................................    2,992       7,961
   Amortization of deferred interest and marketing and sales related to
       issuance of warrants.....................................................      130         593
   Amortization of deferred compensation........................................       --          45
Changes in current assets and liabilities:
   Prepaid expenses.............................................................     (139)     (3,074)
   Other current assets.........................................................       --      (1,100)
   Accounts receivable..........................................................     (483)     (1,989)
   Accounts payable.............................................................    2,389       3,496
   Accrued expenses.............................................................      646       3,912
   Deferred revenue.............................................................      625         211
                                                                                 --------    --------
   Net cash used in operating activities........................................  (19,640)    (17,530)

INVESTING ACTIVITIES
Additions of property and equipment.............................................     (963)     (4,494)
                                                                                 --------    --------
Net cash used in investing activities...........................................     (963)     (4,494)

FINANCING ACTIVITIES
Proceeds from notes payable.....................................................    5,000       5,000
Repayment of lease obligations..................................................   (1,843)     (2,775)
Proceeds from issuances of stock and warrants...................................      (41)      5,606
                                                                                 --------    --------
Net cash provided by (used in) financing activities.............................    3,116       7,831
                                                                                 --------    --------
Increase (decrease) in cash and cash equivalents................................  (17,489)    (14,193)
Cash and cash equivalents at beginning of period................................   19,054      17,657
                                                                                 --------    --------
Cash and cash equivalents at end of period...................................... $  1,565    $  3,464
                                                                                 ========    ========

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Series C Convertible Preferred Stock exchanged for notes payable, including..... $  3,010    $     --
   accrued interest
Capital lease obligations incurred.............................................. $  7,389    $ 14,097

Reduction of accounts payable through capital lease obligations incurred........ $     --    $  2,000

Issuance of warrants in connection with bridge financing........................ $     --    $    930
</TABLE>

                            See accompanying notes.

                                      -5-
<PAGE>
 
                         CONCENTRIC NETWORK CORPORATION

               NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


1. BASIS OF PRESENTATION

    These unaudited condensed financial statements and the related footnote
information have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission.  Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations.  In the opinion of the Company's
management, the accompanying unaudited interim condensed financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information for the periods presented.
The results for the interim period ended June 30, 1997 are not necessarily
indicative of results to be expected for the entire year ending December 31,
1997 or future operating periods.

2. NET LOSS PER SHARE (HISTORICAL) AND UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
(DEFICIT)

    Net Loss Per Share (Historical)

    Except as noted below, net loss per share is computed using the weighted
average number of shares of common stock outstanding excluding common stock
subject to rescission. Common stock equivalent shares from convertible preferred
stock and from stock options and warrants are not included as the effect is
antidilutive. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins, common and common equivalent shares issued by the Company
at prices below the initial public offering price during the twelve-month period
prior to the August 1, 1997 initial public offering (see Note 9) have been
included in the calculation as if they were outstanding for all periods
presented (using the treasury stock method and the public offering
price in calculating equivalent shares).

    Per share information calculated on the above noted basis is as follows (in
thousands, except for per share amounts):

<TABLE>
<CAPTION>
                                                       THREE MONTHS              SIX MONTHS
                                                       ENDED JUNE 30            ENDED JUNE 30
                                                   --------------------     -------------------
                                                     1996        1997        1996        1997
                                                   --------    --------     -------    --------
<S>                                                <C>         <C>         <C>         <C>
Net loss.........................................  $(15,420)   $(12,904)   $(25,800)   $(27,585)
                                                   ========    ========    ========    ========

Net loss per share...............................  $  (7.55)   $  (5.84)   $ (12.64)   $ (12.96)
                                                   ========    ========    ========    ========

Weighted average shares of common stock..........     1,389       1,396       1,389       1,396
 outstanding
Shares related to Staff Accounting Bulletins.....       653         813         653         732
                                                   --------    --------     -------    --------
Shares used in net loss per share calculation....     2,042       2,209       2,042       2,128
                                                   ========    ========    ========    ========
</TABLE>


    Pro Forma Net Loss Per Share

    Pro forma net loss per share has been computed as described above and also
gives effect, even if antidilutive, to common equivalent shares from convertible
preferred stock that automatically converted upon the closing of the Company's
initial 

                                      -6-
<PAGE>
 
                         CONCENTRIC NETWORK CORPORATION

        NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)

public offering (the "Public Offering") (using the if-converted method). Pro
forma per share information calculated on the above basis is as follows (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                   THREE MONTHS     SIX MONTHS
                                                                       ENDED          ENDED
                                                                   JUNE 30 1997    JUNE 30 1997
                                                                   ------------    ------------
<S>                                                                <C>             <C>
Net loss........................................................   $    (12,904)   $    (27,585)
                                                                   ============    ============

Net loss per share..............................................   $      (1.67)   $      (3.64)
                                                                   ============    ============

Shares used in calculating historical net loss per share........          2,209           2,128
Adjustment to reflect the effect of the assumed conversion of
 convertible preferred stock from the date of issuance..........          5,535           5,455
                                                                   ------------    ------------
Shares used in net loss per share calculation...................          7,744           7,582
                                                                   ============    ============
</TABLE>

    Unaudited Pro Forma Stockholders' Equity (Deficit)

    In August 1997, the Company consummated an initial public offering of its
Common Stock. All of the convertible preferred stock outstanding as of the
effective date of the offering converted into shares of common stock. The
unaudited pro forma stockholders' equity (deficit) at June 30, 1997 reflects
the actual stockholders' equity at such date, as adjusted to reflect the
conversion of preferred stock as if such conversion had occurred at June 30,
1997.

    In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (FAS 128), which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of FAS 128 on
the calculation of primary and fully diluted earnings per share is not expected
to be material.

3. STOCKHOLDERS' EQUITY

    In March 1997, the Company issued warrants to purchase an aggregate of
184,934 shares of Common Stock (after giving effect to the conversion of
Preferred Stock into Common Stock in connection with the Company's initial
public offering) for a net consideration of $1,108,000 in March 1997. These
warrants will expire in March 2000 and are exercisable at $20.40 per share.

    On April 18, 1997, certain preferred stockholders holding warrants to
purchase an aggregate number of 181,876 shares of Class A common stock and
66,688 shares of Series B convertible preferred stock at $11.00 per share,
exercised such warrants at a discounted price of $6.60 per share in
consideration of their early exercise. Additionally, certain preferred
stockholders exercised warrants to purchase an aggregate number of 233,660
shares of Series D convertible preferred stock at a price of $12.24, discounted
from the original price of $20.40. The Company received total consideration of
approximately $4.5 million related to the exercise of these warrants.

                                      -7-
<PAGE>
 
                         CONCENTRIC NETWORK CORPORATION

        NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)

4. INCOME TAXES

    The Company accounts for income taxes using the liability method in
accordance with Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes" ("FAS 109"). No provision for income taxes is
expected for 1997 as the Company expects to incur a net loss for the year and
does not meet the criteria for recognizing an income tax benefit under the
provisions of FAS 109.

5. COMMON STOCK SUBJECT TO RESCISSION

    Beginning in August 1993 and continuing through May 31, 1995, the Company
sold convertible debentures aggregating $4,260,000 and issued common stock
aggregating $890,000. Although at the time the Company believed the sale and
conversion of debentures into common stock, if applicable, was exempt from
provisions of the Securities Act of 1933 and applicable State Blue Sky Laws, it
appears that the appropriate exemptions may not have been available. As a
result, the Company will conduct a rescission offer (the "Rescission Offer")
and purchasers of these securities will be entitled to a return of the
consideration paid for their stock or debentures. As such, these shares have
been classified as common stock subject to rescission in the accompanying
financial statements. Additionally, options issued pursuant to the Company's
1995 Stock Incentive Plan to Employees and Consultants and non-plan options
were issued in various states for which the Company may not have had an
available exemption under state laws. Such options are potentially subject to
rescission and the Company intends to include them in the rescission offer. As
of June 30, 1997, there have been no claims asserted against the Company. As
of June 30, 1997, a number of statutes of limitations under federal and state
securities laws applicable to the shares which may have been issued without
securities laws exemptions have lapsed. Pursuant to the Rescission Offer, the
Company will offer to rescind the issuance of shares and options as to which
the applicable statute of limitations has not run, but there can be no
assurances that the Company will not otherwise be subject to additional
liabilities with respect to such issuances. If the Rescission Offer were
accepted in full, the Company would be required to pay approximately $1.4
million plus interest thereon totaling approximately $300,000 related to the
issuance of the stock and an amount equal to approximately $940,000 with
respect to options.

6. LITIGATION

    On April 22, 1997, a complaint was filed in the Los Angeles County,
California Superior Court against the Company and other unnamed defendants by
Sattel Communications LLC (Sattel). Sattel's complaint alleged that the Company
was in breach of an agreement to pay for up to $4.3 million of DSS Switches from
Sattel for use in the Company's network and also sought unspecified
consequential and punitive damages. On July 11, 1997, the Company settled the
complaint with Sattel in the amount of $4.4 million. The Company also agreed to
purchase, at the election of Sattel, up to 25% of the Company's common stock
held by Sattel on the day after the closing of the offering at the initial
public offering price. During the three months ended June 30, 1997, the Company
recorded $970,000 of other income relating to the reversal of reserves which had
previously been established for such litigation.

    In late April and early May, 1997, three putative securities class action
complaints were filed in the United States District Court, Central District by
certain stockholders of Diana Corporation (Diana), the parent corporation of
Sattel, alleging securities fraud related to plaintiffs' purchase of shares of
Diana Common Stock in reliance upon allegedly misleading statements made by
defendants, Diana, Sattel and certain of their respective affiliates, officers
and directors. Concentric was named as a defendant in the complaint in
connection with certain statements made by Diana and officers of Diana related
to Concentric's purchase of network switching equipment from Diana's Sattel
subsidiary. The complaints do not appear to allege that Concentric made any
false or misleading statements. The plaintiffs seek unspecified compensatory
damages. The Company is currently unable to estimate a range of possible losses
associated with such lawsuits.  While the ultimate outcome 

                                      -8-
<PAGE>
 
                         CONCENTRIC NETWORK CORPORATION

        NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)

of such litigation is uncertain, the Company believes it has meritorious
defenses to the claims and intends to conduct a vigorous defense. An unfavorable
outcome in this matter could have a material adverse effect on the Company's
financial condition. In addition, even if the ultimate outcome is resolved in
favor of the Company, the defense of such litigation could entail considerable
cost and the diversion of efforts of management, either of which could have a
material adverse effect on the Company's results of operations.

7. BRIDGE LOANS

    In June 1997, the Company borrowed $3 million from a third-party in the form
of a 10% convertible secured promissory note (the Secured Note). The Secured
Note automatically converted into 253,403 shares of Common Stock
upon the closing of the initial public offering at a per share conversion price
equal to the initial public offering price of $12.00. In connection with the
Secured Note, the Company issued a warrant to purchase 63,351 shares of 
Common Stock at an exercise price of $6.00 per share.  This warrant
will expire five years from the date of grant.

    In June 1997, the Company borrowed $2 million from a stockholder in the
form of a 10% unsecured promissory note (the Unsecured Note). The Unsecured
Note was repaid in August 1997. In connection with the Unsecured Note, the
Company issued a warrant to purchase 83,333 shares of Common Stock at an
exercise price of $6.00 per share. This warrant will expire five years from
the date of grant.

    The Company deemed the fair value of the warrants issued in connection with
the Secured Note and the Unsecured Note, using the Black-Scholes method, to be
approximately $930,000  of which approximately $191,000 was amortized as
interest expense in the three months ended June 30, 1997.  The remaining balance
will be amortized to interest expense in the third quarter of 1997 as a result
of the cancellation and conversion of the indebtedness in conjunction with the
initial public offering.

8. COMMITMENT

    Effective in August 1997, the Company entered into a five-year service and
equipment agreement under which a third-party will provide telecommunication
services and equipment.  The agreement provides for minimum payments as follows:
$1.2 million in 1998, $2.5 million in 1999, $7.0 million in 2000, $6.5 million
in 2001 and $4.0 million in 2002.  At the election of the third party, $2.0
million of the minimum payments may be paid by the issuance of Common Stock of
the Company at the then-current fair market value.

9. SUBSEQUENT EVENTS

    On August 1, 1997, the Company effected its Public Offering of Common
Stock. The Public Offering consisted of 4,300,000 shares of Common Stock issued
to the public at $12.00 per share. Additionally, the underwriters have been
granted an option to purchase up to an additional 645,000 shares of
Common Stock at the Public Offering price of $12.00 per share. Concurrent with
the closing of the Company's Public Offering, certain strategic investors
purchased directly from the Company 1,499,236 shares of Common Stock having an
aggregate purchase price of approximately $18,000,000 (including the
cancellation of approximately $3,000,000 in indebtedness). Such shares are
unregistered shares and were purchased at the Public Offering price of $12.00
per share. In connection with the direct purchase, the Company issued warrants
to one of the strategic investors to purchase 291,667 shares of the Company's
Common Stock at $6.00 per share. These warrants will expire five years from the
date of grant.

                                      -9-
<PAGE>
 
                         CONCENTRIC NETWORK CORPORATION

        NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)

    Effective July 30, 1997, the Company reincorporated under the laws of the
state of Delaware, at which time a one for 15 reverse stock split took effect.
Upon closing of the initial public offering, all outstanding shares of Series
A, B, C, and D convertible preferred stock were converted into Common Stock.
All share and per share data in these financial statements have been
retroactively restated to reflect the reverse stock split.

                                      -10-
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  The following discussion should be read in conjunction with the unaudited
interim condensed financial statements and related notes thereto included in
Part 1- Item 1 of this Quarterly Report.

IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS

  This quarterly report on Form 10-Q contains forward looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934.  Predictions of future events are inherently
uncertain.  Actual events could differ materially from those predicted in the
forward looking statements due to a number of factors including but not limited
to the risks set forth in the following discussion, and in particular, the risks
discussed below under the caption "Additional Factors that Could Affect
Operating Results."


OVERVIEW

  The Company was founded in 1991. From 1991 to mid-1993, the Company conducted
development and network services planning activities and realized no revenues.
Initially, the Company was focused on providing consumers with direct dial-up
connectivity to bulletin board services. On-line gaming and entertainment
services for consumers were commenced in July 1993 through the utilization of a
third party network infrastructure. The Company commenced operation of its own
network in late 1994.  In May 1995, new management led by Henry R. Nothhaft
redefined and broadened the Company's strategy to provide a range of Internet
and tailored, value-added Internet Protocol-based network services to consumers
and businesses.

  The Company's revenue prior to 1996 has been primarily generated from
providing Internet access to consumers. The Company's current focus is on
developing and deploying Virtual Private Networks and providing network access
and Web hosting services for enterprise customers. Contracts with enterprise
customers typically have a term ranging from one to three years. The Company
expects enterprise-related revenue to represent an increasing portion of total
revenue in future periods. The foregoing expectation is a forward-looking
statement that involves risks and uncertainties, and actual results could vary
as a result of a number of factors including the Company's operating results,
the results and timing of the Company's launch of new products and services,
governmental or regulatory changes, the ability of the Company to meet product
and project demands, the success of the Company's marketing efforts, competition
and acquisitions of complementary businesses, technologies or products.

  The Company has incurred net losses and experienced negative cash flow from
operations since inception and expects to continue to operate at a net loss and
experience negative cash flow at least through 1998, although the Company's
ability to achieve profitability and positive cash flow from operations is
dependent upon the Company's ability to substantially grow its revenue base and
achieve other operating efficiencies. The Company experienced net losses of
approximately $4.3 million, $22.0 million and $66.4 million for the years ended
December 31, 1994, 1995 and 1996, respectively and $27.6 million for the six
months ended June 30, 1997.  There can be no assurance that the Company will be
able to achieve or sustain revenue growth, profitability or positive cash flow
on either a quarterly or an annual basis.

  Management believes that period-to-period comparisons of its financial results
should not be relied upon as an indication of future performance. The Company
may experience significant period-to-period fluctuations in operating results
depending upon factors such as the success of the Company's efforts to expand
and retain its subscriber and third party partnership base, changes in pricing
and mix of services offered by the Company or its competitors, market acceptance
of new or enhanced services offered by the Company and changes in, and the
timing of, expenses relating to development and sales and marketing. Other
factors that may contribute to variability of operating results include the
timely deployment and implementation of expansion of the Concentric network and
new network architectures, the Company's ability to obtain sufficient supplies
of sole- or limited-source components, user demand for network and Internet
access services and balancing of network usage 

                                      -11-
<PAGE>
 
over a 24-hour period. Additionally, the Company's expense levels are relatively
fixed in the short term and are based, in part, upon the Company's estimates of
growth of its business.

  The Company expects to focus in the near term on building and increasing its
revenue base, which will require it to significantly increase its expenses for
personnel, marketing, network infrastructure and the development of new
services, and may adversely impact short term operating results. As a result,
the Company believes that it will incur losses in the near term and there can
be no assurance that the Company will be profitable in the future.

  Revenue. Revenue totaled approximately $10.8 million for the three months
ended June 30, 1997, an $8.3 million increase over revenue of approximately $2.5
million for the three months ended June 30, 1996. This increased revenue
reflects growth in revenue from the Company's broadened product offerings to its
enterprise customers and through the Company's leveraged marketing arrangements
with its strategic partners, as well as continued growth in revenue derived from
Internet access customers. For the three months ended June 30, 1997, revenue
from WebTV Networks, Inc. (''WNI'') accounted for 37.8% of the Company's
revenue. No other customer accounted for more than 10% of the Company's revenue
during the period. Revenue for the six months ended June 30, 1997 totaled
approximately $20.0 million, an increase of $16.0 million over revenue of $4.0
million for the six month period ended June 30, 1996. WNI accounted for
approximately 35.5% of total revenue for the six months ended June 30, 1997. The
Company expects revenue from WNI to decrease as a percentage of revenue. The
foregoing expectation is a forward looking statement that involves risks and
uncertainties and the actual results could vary materially as a result of a
number of factors. See "Additional Factors That Could Affect Operating 
Results."

  Cost of Revenue. Cost of revenue consists primarily of personnel costs to
maintain and operate the Company's network, access charges from local exchange
carriers, backbone and Internet access costs, depreciation of network equipment
and amortization of related assets. Cost of revenue for the three month period
ended June 30, 1997 was approximately $14.9 million, an increase of $3.1 million
from cost of revenue of $11.8 million in the second quarter of 1996. This
increase is attributable to the overall growth in the size of the network. As a
percentage of revenue, such costs declined to 137.9% of revenue in the three
months ended June 30, 1997 from 473.3% of revenue in the year earlier period,
due to increased network utilization associated with the Company's revenue
growth and lower per port costs of the Company's SuperPOP network architecture
deployed in the second half of 1996. Cost of revenue for the six months ended
June 30, 1997 totaled approximately $30.7 million compared with $19.0 million
for the six months ended June 30, 1996. As a percent of revenue for the same
periods, these amounts represented 153.5% and 473.3%, respectively. The Company
expects its cost of revenue to continue to increase in dollar amount, while
declining as a percentage of revenue as the Company expands its customer base.
The foregoing expectation is a forward looking statement that involves risks and
uncertainties and the actual results could vary materially as a result of a
number of factors. See "Additional Factors That Could Affect Operating 
Results."

  Development. Development expense consists primarily of personnel and equipment
related expenses associated with the development of products and services of the
Company. Development expense was approximately $1.2 million and $571,000 for the
three months ended June 30, 1997 and 1996, respectively. This higher level of
development expense reflects an overall increase in personnel to develop new
product offerings and to manage the overall growth in the network. Development
expense as a percentage of revenue declined to 11.1% for the three months ended
June 30, 1997 from 22.9% in the year earlier period as a result of the Company's
increased revenue. Development expense for the six month periods ending June 30,
1997 and 1996 was approximately $2.2 million and $911,000, respectively. As a
percent of revenue, development expense declined to 11.1% for the six months
ended June 30, 1997 from 22.7% for the six months ended June 30, 1996. The
Company expects its development spending to continue to increase in dollar
amount, but to decline as a percentage of revenue. The foregoing expectation is
a forward looking statement that involves risks and uncertainties and the actual
results could vary materially as a result of a number of factors.

  Marketing and Sales. Marketing and sales expense consists primarily of
personnel expenses, including salary and commissions, costs of marketing
programs and the cost of 800 number circuits utilized by the Company for
customer support functions. Marketing and sales expense was approximately $6.1
million and $3.9 million for the three months ended June 

                                      -12-
<PAGE>
 
30, 1997 and 1996, respectively. The $2.2 million increase in 1997 reflects a
substantial investment in the customer support, marketing and sales
organizations necessary to support the Company's expanded customer base. This
increase also reflects a growth in subscriber acquisition costs, related to both
increased direct marketing efforts as well as commissions paid to distribution
partners. Additionally, the increase reflects the ramp-up of marketing efforts
related to the introduction of enterprise products and services. Marketing and
sales expense as a percentage of revenue declined to 56.4% for the three months
ended June 30, 1997 from 155.4% in the year earlier period as a result of the
Company's increased revenue. For the six months ended June 30, 1997 and 1996,
marketing and sales expense was approximately $11.0 million and $7.0 million,
representing 55.2% and 173.7% of revenue, respectively. The Company expects
marketing and sales expenditures to continue to increase in dollar amount, but
to decline as a percentage of revenue. The foregoing expectation is a forward
looking statement that involves risks and uncertainties and the actual results
could vary materially as a result of a number of factors. See "Additional 
Factors That Could Affect Operating Results."

  General and Administrative. General and administrative expense consists
primarily of personnel expense and professional fees. General and administrative
expense was approximately $1.1 million and $1.0 million for the three months
ended June 30, 1997 and 1996, respectively. For the six months ended June 30,
1997 and 1996, general and administrative expenses were approximately $2.2
million and $1.8 million, respectively. This higher level of expense reflects an
increase in personnel and professional fees necessary to manage the financial,
legal and administrative aspects of the business. General and administrative
expense as a percentage of revenue declined to 10.4% for the three months ended
June 30, 1997 from 41.6% in the year earlier period as a result of the Company's
increased revenue. For the six months ended June 30, 1997, general and
administrative expense declined to 11.0% from 44.1% for the six months ended
June 30, 1996. The Company expects general and administrative expense to
increase in dollar amount, reflecting its growth in operations and costs
associated with being a publicly held entity, but to decline as a percentage of
revenue. The foregoing expectation is a forward looking statement that involves
risks and uncertainties and the actual results could vary materially as a result
of a number of factors. See "Additional Factors That Could Affect Operating 
Results."

  Net Interest Expense. Net interest expense was approximately $1.8 million and
$652,000 for the quarters ending June 30, 1997 and 1996, respectively. The
increase is primarily due to an increase of $35.5 million in principal amount of
capitalized lease obligations from June 30, 1996 to June 30, 1997. The three
month period ended June 30, 1997 also includes a cost of financing charge of
$191,000 associated with the value of warrants issued in connection with $5.0
million of bridge loans received in June 1997. Net interest expense for the six
months ended June 30, 1997 and 1996 was $2.8 million and $1.1 million,
respectively.

  Other income. During the three months ended June 30, 1997, upon settlement of
the Sattel litigation, the Company recorded $970,000 of other income related to
the reversal of previously established reserves. 

  Net Loss. The Company's net loss declined to approximately $12.9 million for
the quarter ended June 30, 1997 as compared to approximately $15.4 million for
the same quarter of 1996. For the six months ended June 30, 1997 the net loss
totaled $27.6 million as compared to $25.8 for the six months ended June 30,
1996.

LIQUIDITY AND CAPITAL RESOURCES

  To date, the Company has satisfied its cash requirements primarily through
capitalized lease financings and the sale of capital stock. The Company's
principal uses of cash are to fund working capital requirements and capital
expenditures and to service its capital lease financing obligations. Net cash
used in operating activities for the six months ended June 30, 1997 and 1996 was
approximately $17.5  million and $19.6 million, respectively.  Cash used in
operating activities in both periods was primarily affected by the net losses,
caused by increased costs relating to the expansion of the Company's network and
organizational infrastructure.

  Net cash used in investing activities for the six months ended June 30, 1997
and 1996 was approximately $4.5 million and $963,000, respectively.  Investing
activities were comprised entirely of purchases of capital equipment to support
the growing infrastructure.

                                      -13-
<PAGE>
 
  For the six months ended June 30, 1997 cash of approximately $7.8 million was
generated from financing activities. Included in this amount was $5.0 million of
debt financing  received in June 1997, of which $2.0 million will be repaid and
$3.0 million was converted into Common Stock, respectively, upon closing of the
Company's initial public offering.  The Company also received approximately $4.5
million from the exercise of warrants in April 1997 and another $1.1 million as
consideration for warrants issued.  The remainder of financing activities is
comprised of $2.8 million used for repayment of capital lease obligations.  For
the six months ended June 30, 1996 cash of approximately $3.1 million was
generated from financing activities, which reflects receipt of a $5.0 million
bridge loan which was later converted into Series D Convertible Preferred Stock,
and $1.8 million used for repayment of capital lease obligations.

  The net cash decrease for the six month periods ended June 30, 1997 and 1996
was $14.2 million and $17.5 million, respectively.  At June 30, 1997, the
Company had cash and cash equivalents of approximately $3.5 million and a
working capital deficit of $36.6 million.

  For the six months ended June 30, 1997, the Company added approximately $14.1
million of network equipment through additional capital lease obligations under
its network equipment financing arrangement, and reduced accounts payable by
$2.0 million under a sale leaseback arrangement.  The Company expects to make
additional investments in capital equipment to expand and enhance its network,
with approximately $5.0 million of anticipated purchases of capital equipment
throughout the remainder of 1997.  The foregoing expectation with respect to
additional capital investments is a forward-looking statement that involves
risks and uncertainties and the actual amount of capital investment could vary
materially as a result of a number of factors.

  On August 1, 1997, the Company effected its initial public offering of Common
Stock.  The offering consisted of 4,300,000 shares of Common Stock issued to the
public at $12.00 per share.  Additionally, the underwriters hold an
overallotment option to exercise up to an additional 645,000 shares at the
initial public offering price of $12.00 per share. Concurrent with the closing
of this offering, certain strategic investors purchased directly from the
Company shares of Common Stock having an aggregate purchase price of
approximately $18,000,000 (including the cancellation of approximately
$3,000,000 in indebtedness).  Such shares totaling 1,499,236 are unregistered
shares and were purchased at the initial public offering price of $12.00.

  The Company expects to incur additional operating losses and  will rely
primarily on the net proceeds from the initial public offering and the Direct
Placements, and financing availability under a network equipment lease agreement
that currently has no maximum borrowing limit. The Company believes that such
financing will be sufficient to meet its anticipated cash needs for working
capital and for the acquisition of capital equipment at least for the next 12
months. However, there can be no assurance that the Company will not require
additional financing within this time frame. The Company's forecast of the
period of time through which its financial resources will be adequate to support
its operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary. The Company may be required to
raise additional funds through public or private financing, strategic
relationships or other arrangements. There can be no assurance that such
additional funding, if needed, will be available on terms attractive to the
Company, or at all.

ADDITIONAL FACTORS THAT COULD AFFECT OPERATING RESULTS

  The following factors, together with other risk factors discussed in the
"Overview" section of Management's Discussion and Analysis of Financial
Condition and Results of Operations and other information contained elsewhere
herein, should be considered carefully in evaluating the Company and its
business.

  Limited Operating History; Continuing Operating Losses. The Company was
incorporated in 1991, commenced network operations in 1994 and completed initial
deployment of its current network architecture and use of an advanced ATM
backbone network in late 1996. Accordingly, the Company has a limited operating
history upon which an evaluation of the Company and its prospects can be based.
In addition, a majority of the Company's senior management team have been
working together at the Company for less than two years. The Company's prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stages of development, particularly
companies 

                                      -14-
<PAGE>
 
in new and rapidly evolving markets. To address these risks, the Company must,
among other things, respond to competitive developments, continue to attract,
retain and motivate qualified persons, and continue to upgrade its technologies
and commercialize its network services incorporating such technologies. There
can be no assurance that the Company will be successful in addressing such risks
and the failure to do so could have a material adverse effect on the Company's
business, financial condition and results of operations.

  Customer Concentration. The Company currently derives a substantial portion of
its total revenue from a single customer. For the three and six months ended
June 30, 1997, revenue from WebTV Networks, Inc. ("WNI") represented
approximately 37.8% and 35.5%, respectively, of the Company's revenue. The
Company's current agreement to provide services to WNI expires on December 1,
1997. After such date, the agreement continues in effect until terminated by
either party, which may occur at any time on or after September 30, 1997 upon
one hundred twenty (120) days' notice. Although the Company currently is
negotiating a new agreement with WNI, there can be no assurance such
negotiations will be successfully concluded. While the Company expects revenue
from WNI to decrease as a percentage of revenue in future periods, the Company
believes that revenue derived from a limited number of current and future
customers may continue to represent a significant portion of its revenue. As a
result, the loss of one or more of the Company's major customers or a decline in
revenue from such customers could have a material adverse effect on the
Company's business, financial condition and results of operations.

  Management of Potential Growth and Expansion and Dependence upon Key
Personnel. The growth and expansion of the Company's business and its service
offerings have placed, and are expected to continue to place, a significant
strain on the Company's management, operational and financial resources. The
Company plans to continue to substantially expand its network in the future.
There can be no assurance that the Company will be able to add services at the
rate or according to the schedule presently planned by the Company.

  To manage its growth, the Company must, among other things, (i) continue to
implement and improve its operational, financial and management information
systems; (ii) hire and train additional qualified personnel; and (iii) continue
to expand and upgrade its network infrastructure.  As the Company strives to
increase total network utilization and to optimize this utilization by targeting
both business and consumer users to balance the network's usage throughout a 24-
hour period, there will be additional demands on the Company's customer support,
sales and marketing resources. Any failure of the Company to manage its growth
effectively could have a material adverse effect on the Company's business,
financial condition and results of operations.

  The Company's success will depend upon the continued service of members of its
senior management team and technical, marketing and sales personnel. The Company
does not have employment agreements with any of its employees, including the
senior officers. The Company's success depends upon its ability to attract and
retain additional highly qualified management, technical, sales and marketing
and customer support personnel. The loss of the services of key personnel, or
the inability to attract additional qualified personnel, could have a material
adverse effect upon the Company's results of operations, development efforts and
ability to complete the expansion of its network infrastructure.  Any such event
could have a material adverse effect on the Company's business, financial
condition and results of operations

  Dependence upon New and Uncertain Markets. The markets for tailored, value-
added network services for businesses and consumers offered by the Company,
including Internet access, are in the early stages of development. Since these
markets are relatively new and because current and future competitors are likely
to introduce competing services or products, it is difficult to predict the rate
at which the market will grow, if at all, or whether new or increased
competition will result in market saturation. Certain critical issues concerning
commercial use of tailored value-added services and Internet services, including
security, reliability, ease and cost of access and quality of service, remain
unresolved and may impact the growth of such services. If the markets for the
services offered by the Company, including Internet access, fail to grow, grow
more slowly than anticipated, or become saturated with competitors, the
Company's business, financial condition and results of operations would be
materially adversely affected.

                                      -15-
<PAGE>
 
  Dependence upon New and Enhanced Services. The Company has recently
introduced new enterprise service offerings, including the introduction of
value-added, IP-based communication services to enterprises. The failure of
these services to gain market acceptance in a timely manner or at all could have
a material adverse effect on the business, financial condition and results of
operations of the Company. Introduction by the Company of new or enhanced
services with reliability, quality or compatibility problems could significantly
delay or hinder market acceptance of such services, which could adversely affect
the Company's ability to attract new customers and subscribers. Any such event
could have a material adverse effect on the Company's business, financial
condition and results of operations.  Additionally, if the Company is unable to
achieve balanced network utilization over a 24-hour period, the Concentric
network could become overburdened at certain periods during the day, which could
adversely affect the quality of service provided by the Company. Conversely, due
to the high fixed cost nature of Concentric's infrastructure, under-utilization
of the Concentric network during certain periods of the day could adversely
affect the Company's ability to provide cost-efficient services at other times.
The failure of the Company to achieve balanced network utilization, because of
either over- or under-utilization, could have a material adverse effect on the
Company's business, financial condition and results of operations.

  Dependence upon Suppliers; Sole and Limited Sources of Supply. The Company
relies on other companies to supply certain key components of its network
infrastructure, including telecommunications services and networking equipment,
which, in the quantities and quality demanded by the Company, are available only
from sole or limited sources. The Company from time to time has experienced
delays in receiving telecommunications services, and there can be no assurance
that the Company will be able to obtain such services on the scale and within
the time frames required by the Company at an affordable cost, or at all. Any
failure to obtain such services on a timely basis at an affordable cost would
have a material adverse effect on the Company's business, financial condition
and results of operations.  Additionally, the Company purchases network
equipment pursuant to purchase orders placed from time to time, does not carry
significant inventories of these components and has no guaranteed supply
arrangements for such components. The Company's suppliers also sell products to
the Company's competitors and may in the future themselves become competitors of
the Company. There can be no assurance that the Company's suppliers will not
enter into exclusive arrangements with the Company's competitors or stop selling
their products or components to the Company at commercially reasonable prices or
at all.

  Expansion of network infrastructures by the Company and others is placing, and
will continue to place, a significant demand on the Company's suppliers, some of
which have limited resources and production capacity. In addition, certain of
the Company's suppliers, in turn, rely on sole or limited sources of supply of
components included in their products. Failure of the Company's suppliers to
adjust to meet such increasing demand may prevent them from continuing to supply
components and products in the quantities and quality and at the times required
by the Company, or at all. The Company's inability to obtain sufficient
quantities of sole- or limited-source components or to develop alternative
sources if required could result in delays and increased costs in expanding, and
overburdening of, the Company's network infrastructure.  Additionally, any
failure of the Company's sole- or limited-source suppliers to provide products
or components that comply with Internet standards or that interoperate with
other products or components used by the Company in its network infrastructure
would also have a material adverse effect on the Company's business, financial
condition and results of operations.

  Dependence upon Network Infrastructure. The Company's success will depend
upon the capacity, reliability and security of its network infrastructure. The
Company must continue to expand and adapt its network infrastructure as the
number of users and the amount of information they wish to transfer increase,
and as customer requirements change. The expansion and adaptation of the
Company's network infrastructure will require substantial financial, operational
and management resources. There can be no assurance that the Company will be
able to expand or adapt its network infrastructure to meet additional demand or
its customers' changing requirements on a timely basis, at a commercially
reasonable cost, or at all. In addition, if demand for usage of the Concentric
network were to increase faster than projected or were to exceed the Company's
current forecasts, the network could experience capacity constraints, which
would adversely affect the performance of the system. Any failure of the Company
to expand its network infrastructure on a timely basis or adapt it to either
changing customer requirements or evolving industry standards, or capacity
constraints experienced by the Concentric network for any reason, could have a
material adverse effect on the Company's business, financial condition and
results of operations.

                                      -16-
<PAGE>
 
  As the Company expands its network and usage grows, increased stress will be
placed upon network hardware and traffic management systems. While the Company's
network has been designed with redundant backbone circuits to allow traffic re-
routing, there can be no assurance that the Company will not experience
failures, occurrence of natural disasters or other problems  relating to any
link in the delivery chain or even catastrophic failure of the entire network.
Any damage or failure that causes interruptions in the Company's operations
could have a material adverse effect on the Company's business, financial
condition and results of operations.

  Despite the implementation of network security measures, the core of the
Company's network infrastructure is vulnerable to computer viruses, break-ins
and similar disruptive problems caused by its customers or 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 and
subscribers. Furthermore, such inappropriate use of the network by third parties
could also potentially jeopardize the security of confidential information
stored in the computer systems of the Company and its customers, which may
result in liability to the Company and also may deter potential subscribers.
Although the Company intends to continue to implement industry-standard security
measures, such measures occasionally have been circumvented in the past, and
there can be no assurance that measures implemented by the Company will not be
circumvented in the future. The costs and resources required to eliminate
computer viruses and alleviate other security problems may result in
interruptions, delays or cessation of service to the Company's customers that
could have a material adverse effect on the Company's business, financial
condition and results of operations.

  Competition. The market for tailored value-added network services is
extremely competitive. There are no substantial barriers to entry, and the
Company expects that competition will intensify in the future. Many of the
Company's current and prospective competitors have greater market presence,
engineering and marketing capabilities, and financial, technological and
personnel resources than those available to the Company. 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 and services than can the Company.  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.

  Risks of Technological Change and Evolving Industry Standards. The markets
for the Company's services are characterized by rapidly changing technology,
evolving industry standards, changes in customer needs, emerging competition and
frequent new product and service 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 networking
services; to develop new services that meet changing customer needs; to
advertise and market its services; and to influence and respond to emerging
industry standards and other technological changes in 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.

                                      -17-
<PAGE>
 

                          PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

     On April 22, 1997, a complaint was filed in the Los Angeles County,
California Superior Court against the Company and other unnamed defendants by
Sattel Communications LLC (Sattel).  Sattel's complaint alleged that the Company
was in breach of an agreement to pay for up to $4.3 million of DSS Switches from
Sattel for use in the Company's network and also sought unspecified
consequential and punitive damages. On July 11, 1997, the Company settled  the
complaint with Sattel in the amount of $4.4 million. The Company also agreed to
purchase, at the election of Sattel, up to 25% of the Company's common stock
held by Sattel on the day after the closing of the offering at the initial
public offering price.  During the three months ended June 30, 1997, the Company
recorded $970,000 of other income relating to the reversal of reserves which had
previously been established for such litigation.

     In late April and early May, 1997, three putative securities class action
complaints were filed in the United States District Court, Central District by
certain stockholders of Diana Corporation (Diana), the parent corporation of
Sattel, alleging securities fraud related to plaintiffs' purchase of shares of
Diana Common Stock in reliance upon allegedly misleading statements made by
defendants, Diana, Sattel and certain of their respective affiliates, officers
and directors. Concentric was named as a defendant in the complaint in
connection with certain statements made by Diana and officers of Diana related
to Concentric's purchase of network switching equipment from Diana's Sattel
subsidiary. The complaints do not appear to allege that Concentric made any
false or misleading statements. The plaintiffs seek unspecified compensatory
damages. The Company is currently unable to estimate a range of possible losses
associated with such lawsuits.  While the ultimate outcome of such litigation is
uncertain, the Company believes it has meritorious defenses to the claims and
intends to conduct a vigorous defense. An unfavorable outcome in this matter
could have a material adverse effect on the Company's financial condition. In
addition, even if the ultimate outcome is resolved in favor of the Company, the
defense of such litigation could entail considerable cost and the diversion of
efforts of management, either of which could have a material adverse effect on
the Company's results of operations.

ITEM 2.   CHANGES IN SECURITIES

     Not applicable.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

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

     On June 30, 1997,  at the annual stockholder's meeting, a quorum of
stockholders of the Company approved the following proposals: (1) the re-
election of the Board of Directors; (2) the amendment and restatement of the
Company's Certificate of Incorporation; (3) the designation of a new Series E
Preferred Stock to be designated solely in the event that the Company did not
affect an initial public offering of Common Stock by August 31, 1997; (4) the
reincorporation of the Company from the state of Florida into the state of
Delaware; (5) adoption of the Company's Amended and Restated 1996 Stock Plan and
the reservation of up to 1,100,000 shares of Common Stock for issuance
thereunder; (6) adoption of the Company's 1997 Stock Plan and the reservation of
1,500,000 shares of Common Stock for issuance thereunder; (7) adoption of the
Company's 1997 Employee Stock Purchase Plan and the reservation of 500,000
shares of Common Stock for issuance thereunder; (8) allowing the Company to
exceed the 30% limit for outstanding options and warrants of the Company as set
forth in Section 260.140.45 and related sections of the California Code of
Regulations and allowing for a 36% limit instead; and (9) ratification of the
appointment of Ernst & Young LLP to serve as the Company's independent auditors
for the ensuing year.

<TABLE>
<CAPTION>

Proposal 1.  Election of Directors:
--------
                   DIRECTOR                                                               FOR       AGAINST  ABSTAIN 
-------------------------------------------------------------------------               ---------  --------- -------
<S>                                                                                     <C>         <C>      <C>    
                                                                                                                       
Henry R. Nothhaft                                                                       2,278,689    145,890    666    
Robert W. Doede                                                                         2,427,875      8,211    666    
Randy A. Maslow                                                                         2,431,208      4,877    666    
Terence M. O'Toole                                                                      2,386,026          0      0    
Vinod Khosla                                                                            2,386,026          0      0    
Franco Regis                                                                            2,746,529          0      0    
Gary E. Rieschel                                                                        2,746,529          0      0    
Louis P. Bender III                                                                     2,746,529          0      0     
 
Proposal 2. Amendment and Restatement of the Company's Certificate of Incorporation:
----------
<CAPTION> 
                                                                                          FOR       AGAINST  ABSTAIN 
                                                                                        ---------  --------- -------
                                                                                        7,994,662     6,622    5,411
 

Proposal 3. Designation of a new Series E Preferred Stock to be designated solely in the event that the Company did not affect an
----------
initial public offering of Common Stock by August 31, 1997:
<CAPTION> 
                                                                                          FOR       AGAINST  ABSTAIN 
                                                                                        ---------  --------- -------
                                                                                        7,994,662      5,511   6,522


Proposal 4. Reincorporation of the Company from the state of Florida into the state of  Delaware:
----------                                                                   
<CAPTION> 
                                                                                          FOR       AGAINST  ABSTAIN 
                                                                                        ---------  --------- -------
                                                                                        7,979,663      6,733  20,299

Proposal 5. Adoption of the Company's Amended and Restated 1996 Stock Plan and the reservation of up to 1,100,000 shares of
----------                                                                    
Common Stock for issuance thereunder:
<CAPTION> 
                                                                                          FOR       AGAINST  ABSTAIN 
                                                                                        ---------  --------- -------
                                                                                        7,962,781     33,103  10,812

Proposal 6.  Adoption of the Company's 1997 Stock Plan and the reservation of 1,500,000 shares of Common Stock for issuance 
----------                                                                   
thereunder:
<CAPTION> 
                                                                                          FOR       AGAINST  ABSTAIN 
                                                                                        ---------  --------- -------
                                                                                        7,796,852    197,476  12,233

Proposal 7.  Adoption of the Company's 1997 Employee Stock Purchase Plan and the reservation of 500,000 shares of Common Stock 
----------                                                                      
for issuance thereunder:
<CAPTION> 
                                                                                          FOR       AGAINST  ABSTAIN 
                                                                                        ---------  --------- -------
                                                                                        7,966,882     63,880  12,368

Proposal 8.  Allowing the Company to exceed the 30% limit for outstanding options and warrants of the Company as set forth
----------                                                               
in Section 260.140.45 and related sections of the California Code of Regulations and allowing for a 36% limit instead:
<CAPTION> 
                                                                                          FOR       AGAINST  ABSTAIN 
                                                                                        ---------  --------- -------
                                                                                        7,928,991     63,880  13,826

Proposal 9.  Ratify the appointment of Ernst & Young LLP as the Company's certified public accountants:
----------                                                               
<CAPTION> 
                                                                                          FOR       AGAINST  ABSTAIN 
                                                                                        ---------  --------- -------
                                                                                         7,993,262     3,288  10,145

</TABLE> 

Note: The foregoing stockholder tally reflects the votes of the shareholders of
the Company's predecessor corporation prior to the reincorporation of the 
Company into Delaware.
 

ITEM 5.   OTHER INFORMATION

     Not applicable.

                                      -18-
<PAGE>
 
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)      Exhibits

<TABLE>
<CAPTION>
                         EXHIBIT NO.                         EXHIBIT TITLE
                     ---------------  ---------------------------------------------------------------
                         <C>          <S>
                               3.1*   Form of Amended and Restated Certificate of Incorporation of
                                      Registrant prior to completion of this offering.
                               3.2*   Form of Amended and Restated Certificate of Incorporation of
                                      Registrant to be effective upon completion of this offering.
                               3.3*   Amended and Restated Bylaws of Registrant prior to completion of
                                      this offering.
                               3.4*   Amended and Restated Bylaws of Registrant to be effective upon
                                      completion of this offering.
                               4.1*   Form of Registrant's Common Stock Certificate.
                              10.1*   Amended and Restated Registration Rights Agreement, as amended
                                      and restated as of August 21, 1996, by and among the Registrant,
                                      GS Capital Partners, L.P., Kleiner Perkins Caufield & Byers VII,
                                      Comdisco, Inc., Intuit, Inc., certain listed holders of Series C
                                      Convertible Preferred Stock, certain listed holders of Common
                                      Stock, certain listed holders of Series D Convertible Preferred
                                      Stock, and Racal-Datacom, Inc.
                              10.2*   Preferred Stock and Warrant Purchase Agreement, dated as of April
                                      20, 1995, by and among the Registrant, GS Capital Partners, L.P.,
                                      and Kleiner Perkins Caufield & Byers VII and KPCB Information
                                      Sciences Zaibatsu Fund II, as amended.
                              10.3*   Form of Director and Officer Indemnification Agreement.
                              10.4*   1995 Stock Incentive Plan for Employees and Consultants, as
                                      amended February 21, 1996.
                              10.5*   Amended and Restated 1996 Stock Plan.
                              10.6*   1997 Stock Plan.
                              10.7*   1997 Employee Stock Purchase Plan.
                              10.8*   Termination of Services and Indemnification Agreement, dated as
                                      of February 15, 1996, by and between the Registrant and Marc
                                      Collins-Rector and Chad Shackley.
                              10.9*   Agreement, dated as of February 15, 1996, by and between the
                                      Registrant and Randy Maslow.
                              10.10*  Governance Agreement, dated May 15, 1997, by and among the
                                      Registrant, Marc Collins-Rector, Chad Shackley, GS Capital
                                      Partners, L.P., Kleiner Perkins Caufield & Byers VII, KPCB VII
                                      Founders Fund, KPCB Information Sciences Zaibatsu Fund II, and
                                      Intuit, Inc.
</TABLE> 

                                      -19-
<PAGE>
 
<TABLE> 
                         EXHIBIT NO.                         EXHIBIT TITLE
                     ---------------  ---------------------------------------------------------------
                         <C>          <S>
                            10.11+*   Employee Services and Staffing Agreement, dated November 1,
                                      1995, between the Registrant and Critical Technologies, Inc., as
                                      amended on September 30, 1996, and October 23, 1996, including
                                      Colocation Services Agreement, dated as of November 1, 1994,
                                      between the Registrant and Critical Technologies, Inc. and
                                      amendments thereto.
                            10.12+*   Internet-Sign Up Wizard Referral and Microsoft Internet Explorer
                                      License and Distribution Agreement, dated March 28, 1997,
                                      between the Registrant and Microsoft Corporation.
                            10.13+*   OEM License Agreement dated July 27, 1995, between the
                                      Registrant and Netscape Communications Corporation, as amended
                                      by First Amendment, dated January 2, 1996, Second Amendment,
                                      effective January 2, 1996, and Third Amendment, dated May 21,
                                      1996.
                            10.14+*   "Dial up Client" Agreement, dated August 21, 1995, between the
                                      Registrant and Netscape Communications Corporation.
                            10.15+*   "Internet Account Server" Participation Agreement, dated as
                                      of January 14, 1997, between the Registrant and Netscape
                                      Communications Corporation.
                            10.16+*   Special Customer Arrangement, dated May 17, 1996, between MCI
                                      Telecommunications Corporation and Sattel Communications LLC,
                                      as amended by First Amendment, dated July 2, 1996; assigned to
                                      Registrant by Assignment and Novation Agreement #2, dated as of
                                      August 7, 1996.
                            10.17+*   Master Agreement for MCI Enhanced Services, effective November
                                      1, 1996, between the Registrant and MCI Telecommunications
                                      Corporation.
                            10.18+*   Amended and Restated Employee Services and Staffing Agreement,
                                      dated June 19, 1997, between the Registrant and Critical
                                      Technologies, Inc., as amended on September 30, 1996, and
                                      October 23, 1996, including Colocation Services Agreement, dated
                                      as of November 1, 1994, between the Registrant and Critical
                                      Technologies, Inc. and amendments thereto.
                            10.19+*   Amendment No. 3 to Internet Access Services Agreement, dated
                                      August 23, 1996, between the Registrant and Intuit Inc.
                            10.20+*   Contract for Services, dated June 17, 1996, by and between the
                                      Registrant and MFS Telephone, Inc.
                            10.21+*   AT&T Contract Tariff Order, dated June 17, 1996, and Addendum
                                      of even date therewith.
                            10.22+*   Master Lease Agreement Number CONO1C Between Concentric
                                      Research Corporation and Racal-Datacom, Inc. ("Racal"), dated
                                      August 4, 1994, as Supplemented by Letter Agreement,  dated
                                      March 30, 1995, Between the Corporation and Racal.
</TABLE> 
 
                                      -20-
<PAGE>
 
<TABLE> 
                         EXHIBIT NO.                         EXHIBIT TITLE
                     ---------------  ---------------------------------------------------------------
                         <C>          <S>
                            10.23+*   Lease Agreement Number CON04C between Concentric Network
                                      Corporation and Racal-Datacom, Inc., dated June 26, 1996.
                            10.24+*   Master On-site Maintenance Plan Agreement Number CON02C
                                      Between Concentric Research Corporation and Racal-Datacom,
                                      Inc., dated August 24, 1994.
                            10.25*    Lease Agreement, dated November 1, 1996, effective March 11,
                                      1996, by and between the Registrant and Saginaw Video
                                      Associates, d.b.a. Saginaw Conference Center.
                            10.26*    Amended and Restated Lease Agreement, dated as of October 7,
                                      1996, between the Registrant and Larry Shackley.
                            10.27*    (Master) Lease, dated January 26, 1988, between Tandem
                                      Computers Incorporated and Spieker-French #130, Limited
                                      Partnership, as amended by Lease Amendment No. 1, effective
                                      February 5,  1990,  and Extension Agreement, dated March 23,
                                      1993.
                            10.28*    Sublease, dated June 22, 1995, between the Registrant and Tandem
                                      Computers Incorporated.
                            10.29*    Sublease, dated April 25, 1995, between Tandem Computers
                                      Incorporated and Passage Systems, Inc.
                            10.30*    Assignment Agreement, dated December 6, 1996, by and between
                                      the Registrant and Passage  Systems, Inc.
                            10.31+*   Internet Access Service Agreement, dated December 11, 1995,
                                      effective as of August 1, 1995, between the Registrant and Intuit,
                                      Inc., as amended.
                            10.32+*   Revised Virtual Private Network Services, dated February 1, 1997,
                                      between the Registrant and WebTV Networks, Inc.
                            10.33+*   Support Services Agreement, dated March 31, 1997, by and
                                      between the Registrant and MCI Telecommunications Corporation.
                            10.34*    Note and Warrant Purchase Agreement, dated June 19, 1997, by and
                                      between the Registrant and Williams Communications Group, Inc.
                                      ("WCG")
                            10.35*    Service Credits Letter Agreement, dated June 19, 1997, by and
                                      between the Registrant and WCG.
                            10.36*    $1,100,000 Obligation Letter Agreement, dated June 19, 1997,
                                      between the Registrant and WCG.
                            10.37*    Agency Agreement and Distribution Agreement, dated June 19,
                                      1997, between the Registrant and WCG.
                            10.38+*   Co-Marketing Service Agreement, dated June 23, 1997 between the
                                      Registrant and Netscape Communications, Inc. ("Netscape")
</TABLE>             

                                      -21-
<PAGE>
 
<TABLE> 
                         EXHIBIT NO.                         EXHIBIT TITLE
                     ---------------  ---------------------------------------------------------------
                         <C>          <S>
                            10.39+*   Trademark License Agreement, dated June 23, 1997, between the
                                      Registrant and Netscape.
                            10.40+*   Software License Order Form, dated June 23, 1997, between the
                                      Registrant and Netscape.
                            10.41*    Note and Warrant Purchase Agreement, dated June 23, 1997,
                                      between the Registrant, Kleiner Perkins, Caufield & Byers VII and
                                      KPCB Information Science Zaibatsu Fund VII
                            10.42     Common Stock and Warrant Purchase Agreement, dated July 25,
                                      1997, between the Registrant and WCG.
                            10.43     Common Stock Purchase Agreement, dated July 30, 1997, between
                                      the Registrant and Bay Networks, Inc.
                            10.44     Amended and Restated Common Stock Purchase Warrant, dated as
                                      of June 19, 1997, between the Registrant and WCG.
                            10.45     Agreement for Purchase and Sale of Services and Equipment,
                                      effective as of August 6, 1997, between the Registrant and WCG.
                            10.46     Agency Agreement, effective as of August 6, 1997, between the
                                      Registrant and WCG.
                            10.47     Reseller Agreement, effective as of August 6, 1997, between the
                                      Registrant and WCG.
                            10.48     License Purchase Agreement, effective as of August 6, 1997,
                                      between the Registrant and WCG.
                            11.1      Statement of computation of earnings per share.
                            27.1      Financial Data Schedule
</TABLE>

     ---------------------------------------- 
     *    Incorporated by reference to exhibits filed with the Company's
          Registration Statement on Form S-1 (File No. 333-27241), in the form
          declared effective on July 31, 1997.

     +    Certain information in these exhibits has been omitted and filed
          separately with the Securities and Exchange Commission pursuant to a
          confidential treatment request under 17 C.F.R. (S)(S) 200.80(b)(4),
          200.83 and 230.46.
 
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
    ended June 30, 1997.

                                      -22-
<PAGE>
 
                                   SIGNATURES

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


Date: August 14, 1997                CONCENTRIC NETWORK CORPORATION


                                     By /s/ Henry R. Nothhaft
                                        ------------------------------
                                        Henry R. Nothhaft,
                                        President, Chief Executive
                                        Officer and Director



                                     By /s/ Michael F. Anthofer
                                        ------------------------------
                                        Michael F. Anthofer,
                                        Senior Vice President and
                                        Chief Financial Officer

                                      -23-