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

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

                                   FORM 10-Q

[_]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998

                                       OR

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

           FOR THE TRANSITION PERIOD FROM ___________ TO ___________

                       COMMISSION FILE NUMBER:  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 March 31, 1998, was 14,176,633.

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

                                      -1-
<PAGE>
 
                         CONCENTRIC NETWORK CORPORATION

                          PART I-FINANCIAL INFORMATION

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

          Condensed Consolidated Balance Sheets at March 31, 1998 and
          December 31, 1997................................................ 3
 
          Condensed Consolidated Statements of Operations for the three
          month periods ended March 31, 1998 and 1997...................... 4
 
          Condensed Consolidated Statements of Cash Flows for the three
          month periods ended March 31, 1998 and 1997...................... 5
 
          Notes to Unaudited Condensed Consolidated Financial Statements... 6-8
 
Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations........................................ 9-16
 
                           PART II-OTHER INFORMATION
 
Item 1.   Legal Proceedings................................................  17
 
Item 2.   Changes in Securities and Use of Proceeds........................  17
 
Item 3.   Defaults Upon Senior Securities..................................  17
 
Item 4.   Submission of Matters to a Vote of Security Holders..............  17
 
Item 5.   Other Information................................................  17
 
Item 6.   Exhibits and Reports on Form 8-K.................................  17
 
Signatures.................................................................  18
</TABLE>

                                      -2-
<PAGE>
 
PART I-FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                         CONCENTRIC NETWORK CORPORATION

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                   UNAUDITED
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                             MARCH 31,        DECEMBER 31,
                                                                                               1998               1997
                                                                                           -------------------------------
<S>                                                                                        <C>                 <C>
                                      ASSETS
Current assets:
 Cash and cash equivalents.........................................................          $  63,707          $ 119,959
 Current portion of restricted cash................................................             19,125             19,125
 Accounts receivable, net..........................................................              6,542              4,549
 Goodwill and other intangible assets..............................................              3,240                 --
 Other current assets..............................................................              5,185              5,139
                                                                                             ---------          ---------
    Total current assets...........................................................             97,799            148,772
Property and equipment, net........................................................             53,916             53,710
Restricted cash, net of current portion............................................             34,148             33,400
Goodwill and other intangible assets, net of current portion.......................              8,796                 --
Other assets.......................................................................              8,211              8,607
                                                                                             ---------          ---------
Total assets.......................................................................          $ 202,870          $ 244,489
                                                                                             =========          =========
 
                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable..................................................................          $  16,141          $  10,144
 Accrued compensation and other employee benefits..................................              1,219              1,577
 Other current liabilities.........................................................              9,916              4,917
 Current portion of capital lease obligations......................................              6,911             15,326
 Deferred revenue..................................................................              1,970              1,435
                                                                                             ---------          ---------
    Total current liabilities......................................................             36,157             33,399

Capital lease obligations, net of current portion..................................              8,879             33,595
Notes payable......................................................................            145,688            145,577
Commitments
Stockholders' equity:
 Common stock......................................................................            183,083            182,721
 Accumulated deficit...............................................................           (169,761)          (149,534)
 Deferred compensation.............................................................             (1,176)            (1,269)
                                                                                             ---------          ---------
Total stockholders' equity.........................................................             12,146             31,918
                                                                                             ---------          ---------
Total liabilities and stockholders' equity.........................................          $ 202,870          $ 244,489
                                                                                             =========          =========
</TABLE>

                            See accompanying notes.

                                      -3-
<PAGE>
 
                         CONCENTRIC NETWORK CORPORATION

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                   UNAUDITED

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                                  THREE MONTHS
                                                                                 ENDED MARCH 31,
                                                                            -----------------------
                                                                               1998         1997
                                                                            ----------   ----------
<S>                                                                         <C>         <C>
Revenue...............................................................       $ 16,484    $  9,154
Costs and expenses:
 Cost of revenue......................................................         17,724
                                                                                           15,744
 Development..........................................................          1,507
                                                                                            1,025
 Marketing and sales..................................................          8,494       4,936
 General and administrative...........................................          1,852       1,060
 Amortization of goodwill and other intangible assets.................            506          --
 Write off of in-process technology...................................          5,200          --
                                                                             --------    --------
Total costs and expenses..............................................         35,283      22,765
                                                                             --------    --------
Loss from operations..................................................        (18,799)    (13,611)
Net interest expense and other........................................          4,470       1,070
                                                                             --------    --------
Loss before extraordinary item........................................        (23,269)    (14,681)
Extraordinary gain on early retirement of debt........................          3,042          --
Net loss..............................................................       $(20,227)   $(14,681)
                                                                             ========    ========
Loss per share (historical 1998, pro-forma 1997):
 Loss before extraordinary item.......................................          (1.64)      (2.17)
 Extraordinary gain...................................................           0.21          --
                                                                             --------    --------
Net loss..............................................................       $  (1.43)     $(2.17)
                                                                             ========    ========
Shares used in computing net loss per share:
Historical 1998, pro-forma 1997.......................................         14,157       6,767
                                                                             ========    ========
</TABLE>

                            See accompanying notes.

                                      -4-
<PAGE>
 
                         CONCENTRIC NETWORK CORPORATION

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   UNAUDITED
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                       THREE MONTHS ENDED
                                                                                                            MARCH 31,
                                                                                                     ----------------------
                                                                                                        1998         1997
                                                                                                     ---------    ---------
<S>                                                                                                  <C>          <C>
OPERATING ACTIVITIES
Net loss.................................................................................             $(20,227)   $(14,681)
Adjustments to reconcile net loss to net cash used in operating activities:
 Depreciation............................................................................                5,282       3,629
 Amortization of deferred interest, cost of revenue and marketing and sales..............                  304         193
  related to issuance of warrants
 Amortization of goodwill and other intangible assets....................................                  506          --
 Amortization of deferred interest related to Senior Notes...............................                  127          --
 Amortization of other deferred assets...................................................                  451          --
 Amortization of deferred compensation...................................................                   93          18
 Gain on retirement of debt..............................................................               (3,042)         --
 Write-off of in-process technology......................................................                5,200          --
Changes in current assets and liabilities:...............................................                               --
 Accounts receivable.....................................................................                 (475)       (474)
 Other current assets....................................................................                  (81)         16
 Prepaid expenses........................................................................                  (16)         33
 Accounts payable........................................................................                   93         624
 Accrued compensation and other employee benefits........................................                 (559)       (143)
 Deferred revenue........................................................................                  (66)        (57)
 Other current liabilities...............................................................                3,995        (282)
                                                                                                      --------    --------
 Net cash used in operating activities...................................................               (8,415)    (11,124)
INVESTING ACTIVITIES
Additions of property and equipment......................................................               (1,543)     (2,495)
Increase in restricted cash..............................................................                 (748)         --
Cash investment in network services business.............................................              (15,452)         --
                                                                                                      --------    --------
Net cash used in investing activities....................................................              (17,743)     (2,495)
FINANCING ACTIVITIES
Repayment of notes payable...............................................................               (1,960)         --
Repayment of lease obligations to a related party........................................               (3,079)     (1,972)
Repayment of lease obligations to a related party-early retirement of debt...............              (24,750)         --
Repayment of lease obligations...........................................................                             (344)
                                                                                                          (504)
Proceeds from issuances of stock and warrants............................................                  362       1,119
Deferred financing costs.................................................................                 (163)         --
                                                                                                      --------    --------
Net cash used in financing activities....................................................              (30,094)     (1,197)
                                                                                                      --------    --------
Decrease in cash and cash equivalents....................................................              (56,252)    (14,816)
Cash and cash equivalents at beginning of period.........................................              119,959      17,657
                                                                                                      --------    --------
Cash and cash equivalents at end of period...............................................             $ 63,707    $  2,841
                                                                                                      ========    ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations incurred with a related party..................................             $  1,285    $  6,435
Capital lease obligations incurred.......................................................             $     19    $
Reduction of accounts payable through capital lease obligations incurred.................             $    ---    $  1,726
</TABLE>

                            See accompanying notes.

                                      -5-
<PAGE>
 
                         CONCENTRIC NETWORK CORPORATION

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.   BASIS OF PRESENTATION

          These unaudited condensed consolidated 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 March 31, 1998 are not necessarily
indicative of results to be expected for the entire year ending December 31,
1998 or future operating periods.

2.   NET LOSS PER SHARE, HISTORICAL AND PRO FORMA

          Basic and Diluted Net Loss Per Share (Historical)

          In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" (FAS 128). FAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities.  Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share.  All earnings per share amounts for all periods have been
restated to conform to the FAS 128 requirements.
 
          Except as noted below, net loss per share is computed using the
weighted average number of shares of common stock outstanding. Common stock
equivalent shares from convertible preferred stock and from stock options and
warrants are not included for loss periods as the effect is antidilutive.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No.
98 (SAB No. 98) which was issued in February 1998, common and common equivalent
shares issued by the Company for nominal consideration during any of the periods
for which a statement of operations was presented in the Company's initial
public offering registration statement have been included in the calculation of
basic and diluted net loss per share for all such periods in a manner similar to
a stock split. The net loss per share calculations have been restated for all
periods presented in accordance with SAB No. 98 which replaced SAB No. 83.

          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 public offering (using the as-if-converted method).
 

                                      -6-
<PAGE>

          The following table sets forth the computation of basic and diluted
loss per share, on an historical and pro forma basis (in thousands except per
share amounts.)

<TABLE>
                                                                                                       THREE MONTHS ENDED
                                                                                                             MARCH 31,
                                                                                                     ------------------------ 
                                                                                                         1998         1997
                                                                                                     -----------   ----------     
<S>                                                                                                  <C>           <C> 
NUMERATOR:
Net loss before extraordinary item.................................................................  $   (23,269)  $  (14,681)
Extraordinary gain on early retirement of debt.....................................................        3,042           --
                                                                                                     -----------   ---------- 
Numerator for basic and diluted loss per share.....................................................      (20,227)     (14,681)
                                                                                                     ===========   ==========
DENOMINATOR
Denominator for basic and diluted earnings per share - - weighted average shares (historical)......   14,157,000    1,394,000
                                                                                                     ===========   ==========

 Adjustments to reflect the effect of the assumed conversion of convertible preferred                               
     stock from the date of issuance...............................................................                 5,373,000
                                                                                                                   ----------
 Denominator for basic and diluted earnings per share - weighted average shares (pro forma)........                 6,767,000
                                                                                                                   ==========
 Basic and diluted net loss per share (historical):
        Loss before extraordinary item.............................................................  $     (1.64)  $   (10.53)
                                                                                                     -----------   ----------
        Extraordinary gain.........................................................................          .21           --
                                                                                                     -----------   ----------
        Net loss...................................................................................  $     (1.43)  $   (10.53)
                                                                                                     ===========   ==========
 Basic and diluted net loss per share (pro forma)..................................................  $        --   $    (2.17)
                                                                                                     ===========   ==========
</TABLE>
 
3.   COMPREHENSIVE INCOME

          As of January 1, 1998, the Company adopted Statement No. 130,
"Reporting Comprehensive Income" (FAS 130). Statement 130 establishes new rules
for the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's net
income or shareholders' equity.  Statement 130 requires unrealized gains or
losses on the Company's available-for-sale securities and foreign currency
translation adjustments to be included in other comprehensive income.

          There was no effect on the Company's financial statements in
connection with adopting FAS 130.
 
4.   ACQUISITION

          On February 5, 1998, the Company acquired all of the outstanding stock
of InterNex Information Services, Inc. (InterNex). The transaction was accounted
for using the purchase method of accounting. The total purchase price of
approximately $23.9 million consisted of a $15.5 million cash payment upon
closing and the assumption of approximately $8.4 million of InterNex's
liabilities (including acquisition costs).

                                      -7-
<PAGE>
 
                        CONCENTRIC NETWORK CORPORATION

        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


          A summary of the purchase price allocation is as follows (in
 thousands):

 <TABLE>
<S>                                                                <C>   
Current and other assets.......................................    $ 1,348
Computer and telecommunications equipment......................      4,784
Goodwill.......................................................      9,496
Other intangible assets........................................      3,080
Write-off of in process technology.............................      5,200
                                                                   -------
             Total purchase price allocation...................    $23,908
                                                                   =======
</TABLE>
                                                                               
          Goodwill is being amortized over five years.  Other intangible assets
include developed technology, assembled workforce and customer lists and are
being amortized over their useful lives ranging from two to four years.
                                                                               
5.   EARLY RETIREMENT OF DEBT

          On March 31, 1998 the Company retired a portion of debt in the form of
capital lease obligations to a related party. The Company paid $24.8 million for
extinguishment of debt and has a remaining liability of $1.5 million for related
sales taxes which is classified as accounts payable. The Company recognized
an extraordinary gain of $3.0 million in connection with this transaction.
 
6.   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 1998 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.
 
7.   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 Communications, LLC (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. The Company 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 plaintiffs seek unspecified
compensatory damages. A trial date has not yet been determined.
 
          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 these matters could have a
material adverse effect on the Company's financial condition. In addition, even
if the ultimate outcomes are 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.

8.   COMMITMENTS

          The Company renewed the lease on its executive offices in Cupertino,
California.  The lease expires in April 2003.  The average annual rent expense
over the term of the lease is approximately $1.2 million per year.

                                      -8-
<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."  Readers are also encouraged to refer to the
Company's Form 10-K for the year ended December 31, 1997 for a further
discussion of the Company's business and the risks attendant thereto.


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 dedicated
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.
 
          In February 1998, the Company acquired InterNex Information Services,
Inc., a California corporation and provider of network services, colocation
services and Web-hosting facilities to enterprise customers ("InterNex")
pursuant to a Share Acquisition Agreement between the Company, InterNex and the
sole shareholder of InterNex.  This acquisition was accounted for using the
purchase method of accounting.  Accordingly, the Company's historical financial
statements do not include results of operations, financial position or cash
flows of Internex prior to its acquisition in February 1998.  In addition, as a
result of the acquisition, the Company has incurred charges relating to the cost
of acquired in-process technology of $5.2 million and recorded an aggregate of
$12.5 million of goodwill and other intangible assets, which will be amortized
on a straight-line basis over their useful lives ranging from two to five years
(see Note 4 of Notes to Financial Statements).  If the Company were to incur
additional charges for acquired in-process technology and amortization of
goodwill with respect to any future acquisitions, the Company's business,
operating results and financial condition could be materially and adversely
affected.  See "Liquidity and Capital Resources" and "Additional Factors That
Could Affect Operating Results--Risks Associated with Acquisitions."

                                      -9-
<PAGE>
 
          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 the remainder of 1998.  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 $22.0 million, $66.4 million and $55.6 million for
the years ended December 31, 1995, 1996 and 1997, respectively and $20.2 million
for the three months ended March 31, 1998.  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.
 
          The Company's operating results have fluctuated in the past and may in
the future fluctuate significantly, depending upon a variety of factors,
including the timely deployment and expansion of the Concentric network and new
network architectures, the incurrence of related capital costs, the receipt of
new value-added network services and consumer services subscriptions and the
introduction of new services by the Company and its competitors.  Additional
factors that may contribute to variability of operating results include: the
pricing and mix of services offered by the Company; customer retention rate;
market acceptance of new and enhanced versions of the Company's services;
changes in pricing policies by the Company's competitors; the Company's ability
to obtain sufficient supplies of sole- or limited-source components; user demand
for network and Internet access services; balancing of network usage over a 24-
hour period; general access services; the ability to identify, acquire and
integrate successfully suitable acquisition candidates; and charges related to
acquisitions. In response to competitive pressures, the Company may take certain
pricing or marketing actions that could have a material adverse effect on the
Company's business.  As a result, variations in the timing and amounts of
revenues could have a material adverse effect on the Company's quarterly
operating results. Due to the foregoing factors, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and that such comparisons cannot be relied upon as indicators of
future performance.  In the event that the Company's operating results in any
future period fall below the expectations of securities analysts and investors,
the trading price of the Company's Common Stock would likely be materially and
adversely affected.

          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 on a quarterly
basis in the future.

RESULTS OF OPERATIONS

          Revenue.  Revenue totaled approximately $16.5 million for the three
months ended March 31, 1998, a $7.3 million increase over revenue of
approximately $9.2 million for the three months ended March 31, 1997.  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, continued growth
in revenue derived from Internet access customers and two months of revenue
generated from InterNex which was acquired in February 1998.  For the three
months ended March 31, 1998, revenue from WebTV Networks, Inc. ("WNI")
declined to 30.8% of the Company's net revenue from 32.7% for the three months
ended March 31, 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 including those set forth below
under the caption "Additional Factors That Could Affect Operating Results --
Customer Concentration."

          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 March 31, 1998 was approximately $17.7 million, an increase
of $2.0 million from cost of revenue of $15.7 million in the first quarter of
1997. This increase is attributable to the overall growth in the size of the
network. As a percentage of revenue, such costs declined to 107.5% of revenue in
the three months ended March 31, 1998, down from 172.0% 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 network
architecture. The Company expects its cost of revenue to continue to increase in
dollar amount, while declining as 

                                      -10-
<PAGE>
 
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,
including those set forth below under the caption "Additional Factors That Could
Affect Operating Results --Limited Operating History; Continuing Operating
Losses," "--Management of Potential Growth and Expansion" and "-- Dependence
Upon New and Uncertain Markets."

          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 $1.5 million and
$1.0 million for the three months ended March 31, 1998 and 1997, 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 9.1% for
the three months ended March 31, 1998 from 11.2% in the year earlier period as a
result of the Company's increased revenue.  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, including those set forth below
under the caption "Additional Factors that Could Affect Operation Results --
Limited Operating History; Continuing Operating Losses" and "--Dependence Upon
New and Enhanced Services."

          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 $8.5
million and $4.9 million for the three months ended March 31, 1998 and 1997,
respectively.  The $3.6 million increase in 1998 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 marketing efforts related to the
introduction and expansion of enterprise products and services. Marketing and
sales expense as a percentage of revenue declined to 51.5% for the three months
ended March 31, 1998 from 53.9% in the year earlier period as a result of the
Company's increased revenue. 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 including those set forth under
"Additional Factors that Could Affect Operating Results -- Dependence on New and
Uncertain Markets," "-- Management of Potential Growth and Expansion."

          General and Administrative.  General and administrative expense
consists primarily of personnel expense and professional fees. General and
administrative expense was approximately $1.9 million and $1.1 million for the
three months ended March 31, 1998 and 1997, 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 11.2% for the
three months ended March 31, 1998 from 11.6% in the year earlier period as a
result of the Company's increased revenue.  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 including those set
forth under "Additional Factors that Could Affect Operating Results --
Dependence on New and Uncertain Markets," "-- Management of Potential Growth and
Expansion."
 
          Amortization of Goodwill and Other Intangible Assets.  During the
three months ended March 31, 1998 the Company recorded amortization of goodwill
and other intangible assets of $506,000 resulting from the acquisition of
InterNex in February 1998 (see Note 4 of Notes to Financial Statements).
 
          Write-off of In-Process Technology.  In the quarter ended March 31,
1998 the Company wrote-off $5.2 million of in-process technology related to the
InterNex acquisition (see Note 4 of Notes to Financial Statements).

                                      -11-
<PAGE>
 
          Net Interest Expense.  Net interest expense was approximately $4.5
million and $1.1 million for the quarters ending March 31, 1998 and 1997,
respectively. The increase is primarily due to interest related to the $150.0
million principal amount of 12 3/4% Senior Notes issued in December 1997 (the
Senior Notes).

          Extraordinary Gain.  During the three months ended March 31, 1998 the
Company realized an extraordinary gain of $3.0 million related to the early
retirement of debt in the form of capital lease obligations (see Note 5 of Notes
to Financial Statements).

          Net Loss.  The Company's net loss increased to approximately $20.2
million for the quarter ended March 31, 1998 as compared to approximately $14.7
million for the same quarter of 1997.  The net loss in 1998 included a one-time
charge of $5.2 million for the write-off of in process technology and an
extraordinary gain of $3.0 million for the early retirement of debt (see Notes 4
and 5 of Notes to Financial Statements).
 
LIQUIDITY AND CAPITAL RESOURCES
 
          To date, the Company has satisfied its cash requirements primarily
through capitalized lease financings,  the sale of capital stock and debt
financings. The Company's principal uses of cash are to fund working capital
requirements and capital expenditures, to service its capital lease financing
obligations, to finance and fund the InterNex acquisition and to provide for the
early retirement of debt. Net cash used in operating activities for the three
months ended March 31, 1998 and 1997 was approximately $8.4 million and $11.1
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 three months ended March
31, 1998 and 1997 was approximately $17.7 million and $2.5 million,
respectively. Investing activities primarily consisted of a cash payment of
$15.5 million for the InterNex acquisition in the first quarter of 1998 and
purchases of capital equipment in both periods.
 
          For the three months ended March 31, 1998 net cash of approximately
$30.1 million was used in financing activities, of which $24.8 million was used
for the early retirement of capital lease obligations. For the three months
ended March 31, 1997, net cash used in financing activities was $1.2 million 
relating to principal payments on lease obligations.

          The net cash decrease for the three month period ended March 31, 1998
was $56.3 million.  This included a cash payment of approximately $15.5 million
associated with the acquisition of InterNex and the related payment of $3.5 
million of certain assumed liabilities and $24.8 million used for the early
retirement of debt. The net cash decrease for the three months ended March 31,
1997 was $14.8 million. At March 31, 1998 the Company had cash and cash
equivalents of approximately $63.7 million and working capital of $61.6 million.

          The Company expects to incur additional operating losses and  will
rely primarily on the net proceeds from the Senior Notes and financing available
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 through at least the end of 1998. 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 materially as a result of number of factors, including those set
forth below under the caption "Additional Factors That Could Affect Operating
Results -- Future Capital Needs; Uncertainty of Additional Financing."  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.

                                      -12-
<PAGE>
 
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.
 
          Substantial Indebtedness; Ability to Service Debt.  The Company is and
will continue to be highly leveraged, with significant debt service
requirements.  The ability of the Company to meet its debt service obligations
will depend on the future operating performance and financial results of the
Company, which will be subject in part to factors beyond the control of the
Company.  Although the Company believes that its cash flow will be adequate to
meet its interest payments, there can be no assurance that the Company will
continue to generate sufficient cash flow in the future to meet its debt service
requirements.

          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.  The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies 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.
 
          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 substantially grow its revenue base and achieve other operating
efficiencies.  The Company experienced net losses of approximately $22.0
million, $66.4 million and $55.6 million for the years ended December 31, 1995,
1996, and 1997, respectively.  At March 31, 1998,  the Company had an
accumulated deficit of approximately $169.8 million.  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.

          Customer Concentration.  The Company currently derives a substantial
portion of its total revenue from a single customer. For the three months ended
March 31, 1998 and March 31, 1997, revenue from WebTV Networks, Inc. ("WNI")
represented approximately 30.8% and 32.7%, respectively, of the Company's
revenue. The Company's current agreement to provide services to WebTV is
terminable at will after October 1, 1999. 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 could have a
material adverse effect on the Company's business, financial condition and
results of operations.  In addition, there can be no assurance that revenue from
customers that have accounted for significant revenue in past periods,
individually or as a group, will continue, or if continued, will reach or exceed
historical levels in any future period.

          Management of Potential Growth and Expansion.  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 has recently
expanded and upgraded its network to use an ATM backbone. 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, including its
billing, accounts receivable and payable tracking, fixed assets and other
financial management systems; (ii) hire and train additional qualified
personnel; and (iii) continue to expand and upgrade 

                                      -13-
<PAGE>
 
its network infrastructure. Further, demands on the Company's network
infrastructure and technical support resources have grown rapidly with the
Company's expanding customer base, and the Company may in the future experience
difficulties meeting the demand for its access services and technical support.
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.

          Risks Associated With Acquisitions.  The Company completed the
InterNex Acquisition in February 1998 and may seek to acquire additional assets
or businesses complementary to its operations.  The InterNex Acquisition and any
subsequent acquisitions would be accompanied by the risks commonly encountered
in acquisitions of companies. Such risks include, among other things, the
difficulty of assimilating the operations and personnel of InterNex or such
other acquired companies, the additional financial resources that may need to be
applied to fund the operations of InterNex or such other acquired companies, the
potential disruption of the Company's business, the inability of the Company's
management to maximize the financial and strategic position of the Company by
the incorporation of acquired technology or businesses into the Company's
service offerings, the difficulty of maintaining uniform standards, controls,
procedures and policies, the potential loss of key employees of acquired
companies, and the impairment of relationships with employees and customers as a
result of changes in management.  No assurance can be given that InterNex will
be successfully integrated in the Company's operations.  Likewise, no assurance
can be given that any other acquisitions by the Company will or will not occur,
that if an acquisition does occur it will not materially and adversely affect
the Company or that any such acquisition will be successful in enhancing the
Company's business.  If the Company proceeds with additional significant
acquisitions in which the consideration consists of cash, a substantial portion
of the Company's available cash could be used to consummate the acquisitions.
If the Company were to consummate one or more acquisitions in which the
consideration consisted of stock, stockholders of the Company could suffer
significant dilution of their interests in the Company.  In addition, the
Internex acquisition has been accounted for using the purchase method of
accounting.  Because the acquisitions of companies of the type that the Company
is targeting, such as InterNex, typically involve the purchase of significant
amounts of intangible assets, acquisitions of such businesses also result in
goodwill and  potentially significant amortization charges for acquired
technology. For example, as a result of the Internex acquisition, the Company
incurred charges relating to in-process technology of $5.2 million for the three
months ended March 31, 1998 and has recorded an aggregate of $12.5 million of
goodwill and other intangible assets, which will be amortized on a straight line
basis over their useful lives ranging from two to five years (see Note 4 of
Notes to Financial Statements).  If the Company were to incur additional charges
for acquired in-process technology and amortization of goodwill with respect to
future acquisitions, the Company's business, operating results and financial
condition could be materially and adversely affected.

          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.

          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 and a new line of
DSL services in limited areas. The failure of these services to gain market
acceptance in a timely manner, or at all, or the failure of DSL service in
particular to achieve significant market coverage, 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. The Company's
services may contain undetected errors or defects when first introduced or as
enhancements are introduced.  There can be no assurance that, despite testing by
the Company or its customers, errors will not be found in new services after
commencement of commercial deployment, resulting in additional development
costs, loss of, or delays in, market acceptance, diversion of technical and

                                      -14-
<PAGE>
 
other resources from the Company's other development efforts and the loss of
credibility with the Company's customers and subscribers.  Any such event 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. 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.  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, which would
have a material adverse effect on the Company's business, financial condition
and results of operations.  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.

          Dependence upon Network Infrastructure.  The Company's success will
depend upon the capacity, reliability and security of its network
infrastructure. The Company currently derives a significant portion of its
revenue from customer subscriptions.  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.  Currently, the Company
has a transit agreement with network MCI, Inc. to support the exchange of
traffic between the Concentric network and the Internet.  With the acquisition
of InterNex, the Company is expanding its Internet connectivity to include not
only private transit with MCI, Sprint and UUNet, but also private peering with
other network providers as well as public peering with multiple smaller internet
service providers.  The Company is still in the process in integrating the
InterNex network resources, including the Sprint and UUNet private transit and
public peering arrangements, and has yet to determine if it can successfully
execute its private/public Internet connection strategy.  The failure of the
networks with which Concentric has public peering, private peering or private
transit, or the failure of any of the Company's data centers, or any other link
in the delivery chain, or the inability of the Company to successfully integrate
the InterNex network resources into the Company's existing infrastructure, and
resulting interruption in the Company's operations would have a material adverse
effect on the Company's business, financial condition and results of operations.
 
          Future Capital Needs; Uncertainty of Additional Financing.  The
Company currently anticipates that its available cash resources, including
existing lease and credit facilities, and funds from operations will be
sufficient to meet its anticipated working capital and capital expenditure
requirements through at least the end of 1998.  However, there can be no
assurance that such resources will be sufficient for its anticipated working
capital and capital expenditure requirements.  The Company may need to raise
additional funds through public or private debt or equity financings in order to
take advantage of unanticipated opportunities, including more rapid
international expansion or acquisitions of complementary  businesses or
technologies, or to develop new products or otherwise respond to unanticipated
competitive pressures.  The Company may also raise additional funds through
public or private debt or equity financings if such financings become available
on favorable terms.  If additional funds are raised, there can be no assurance
that additional financing will be available on terms favorable to the Company,
or at all.  If adequate funds are not available or are not available on
acceptable 

                                      -15-
<PAGE>
 
terms, the Company may not be able to take advantage of unanticipated
opportunities, develop new products or otherwise respond to unanticipated
competitive pressures. Such inability could have a material adverse effect on
the Company's business, financial condition and results of operations. 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 materially as a
result of a number of factors, including those set forth above in this
paragraph.

          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, changing 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.


                                      -16-
<PAGE>

                          PART II.  OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

          Not applicable.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

          The Company commenced its initial public offering on August 1, 1997
pursuant to a Registration Statement on Form S-1 which was declared effective by
the Securities and Exchange Commission on July 31, 1997.  The net proceeds to
the Company in the public offering were $54.1 million.  From July 31, 1997, the
effective date of the Registration Statement, to March 31, 1998, the ending date
of the reporting period, the approximate amount of net offering proceeds used
were $26.3 million for the purchase of equipment, network services and related
operational expenses, $2.7 million for capital expenditures associated with
expanding the Company's network and data center operations, $12.4 million to pay
certain capital lease obligations and expenses, $3.5 million to pay license fees
to certain strategic partners, $2.0 million to repay promissory notes issued to
certain stockholders of the Company, $4.4 million to settle a lawsuit with
Sattel Communications, Inc. and $2.2 million to repurchase common stock from
certain stockholders of the Company.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          Not applicable.
 
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          Not applicable.

ITEM 5.   OTHER INFORMATION

          Not applicable.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits.

               10.54  Lease by and between Spieker Properties, L.P., a 
                      California limited partnership and the Company.

               27.1   Financial Data Schedule.

          (b)  Reports on Form 8-K.

               The Company filed a Current Report on Form 8-K dated February 5,
               1998 to report under Item 2 the acquisition of InterNex
               Information Services, Inc.

                                      -17-
<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: May 15, 1998                 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

                                      -18-