<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 MARCH 31, 1999

                                       OR

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



                         COMMISSION FILE NUMBER 0-24953

                        FIRSTWORLD COMMUNICATIONS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

           DELAWARE                                    33-0521976
(STATE OR OTHER JURISDICTION OF         (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
 INCORPORATION OR ORGANIZATION)
                                ________________
                            7100 E. BELLEVIEW AVENUE
                                   SUITE 210
                          GREENWOOD VILLAGE, CO 80111
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                                   (ZIP CODE)

                                 (303) 874-8010
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


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

  INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS:

                               [ X ] YES [  ] NO
                                        
  AS OF MAY 1, 1999, THE REGISTRANT'S OUTSTANDING COMMON STOCK CONSISTED OF
10,135,164 SHARES OF SERIES A COMMON STOCK AND 16,961,201 SHARES OF SERIES B
COMMON STOCK.
<PAGE>
 
FIRSTWORLD COMMUNICATIONS, INC.
INDEX

<TABLE>
<CAPTION>
                                                                                    PAGE
                                                                                  ---------
<S>                                                                               <C>
FORWARD-LOOKING STATEMENTS                                                                3
 
PART I.  FINANCIAL INFORMATION
 
Item 1.  Financial Statements
   Consolidated Balance Sheets at March 31, 1999, (unaudited) 
     December 31, 1998 (unaudited) and September 30, 1998.......................          4
   Consolidated Statements of Operations (unaudited) for the
     Three months ended March 31, 1999 and 1998.................................          5
   Consolidated Statements of Cash Flows (unaudited) for the
     Three months ended March 31, 1999 and 1998.................................          6
   Notes to Consolidated Financial Statements...................................          7
 
Item 2.  Management's Discussion and Analysis of Financial Condition
   and Results of Operations....................................................         10
 
Item 3.  Quantitative and Qualitative Disclosures about Market Risk.............         14
 
PART II.  OTHER INFORMATION
 
Item 1.  Legal Matters..........................................................         15

Item 6.  Exhibits and Reports on Form 8-K.......................................         15
 
SIGNATURES......................................................................         16
</TABLE>

                                       2
<PAGE>
 
FORWORD-LOOKING STATEMENTS

     All statements contained herein, as well as statements made in press
releases and oral statements that may be made by the Company or by officers,
directors or employees of the Company acting on its behalf, that are not
statements of historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors that could cause the actual results of the Company to be materially
different from historical results or from any future results expressed or
implied by such forward-looking statements.  Among the factors that could cause
actual results to differ materially are the following: an unexpected business
interruption due to the failure of third parties to remediate Year 2000 issues;
the inability of the Company to retain necessary authorizations from the Federal
Communications Commission ("FCC") or state public utility commissions; an
increase in competition; the introduction of new technologies and competitors
into the internet and telephony business; a merger of existing internet and
telephony competitors; a change in the regulations governing the industry;
general business and economic conditions; and other risk factors described from
time to time in the Company's reports filed with the United States Securities
and Exchange Commission. In addition to statements that explicitly describe such
risks and uncertainties, readers are urged to consider statements that include
the terms "believes," "belief," "expects," "plans," "anticipates," "intends" or
the like to be uncertain and forward-looking. All cautionary statements made
herein should be read as being applicable to all forward-looking statements
wherever they appear. In this connection, investors should consider the risks
described herein. The Company assumes no obligation to update forward-looking
statements.

                                       3
<PAGE>
 
PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

FIRSTWORLD COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                        MARCH 31,      DECEMBER 31,     SEPTEMBER 30, 
                                                                          1999            1998             1998
                                                                      ----------------------------------------------- 
                                                                       (UNAUDITED)     (UNAUDITED)       
<S>                                                                   <C>              <C>             <C> 
                                         ASSETS                                                
Current assets:                                                                                  
  Cash and cash equivalents                                              $ 80,163       $ 29,659        $ 72,039
  Marketable securities                                                    84,235        170,030         165,591
  Interest receivable                                                         969          2,228           3,017
  Accounts receivable, net                                                  4,793          4,663             493
  Revenues in excess of billings                                            1,755          1,539               -
  Prepaid expenses and other                                                  528            399             317
                                                                         --------       --------        --------
        Total current assets                                              172,443        208,518         241,457
                                                                         --------       --------        --------
                                                                                                 
Property and equipment, net                                                67,272         61,247          44,020
Deferred financing costs, net                                               8,007          8,259           8,217
Goodwill and intangibles, net                                              35,137         16,410               -
Other assets                                                                  500            382             411
                                                                         --------       --------        --------
        Total assets                                                     $283,359       $294,816        $294,105
                                                                         ========       ========        ========
                                                                                                 
                                                                                                 
                        LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                    
                                                                                                 
Current liabilities:                                                                             
  Accounts payable                                                       $  4,741       $ 13,573        $  6,611
  Accrued interest                                                            876            586             546
  Accrued payroll related liabilities                                       2,606          1,156             222
  Other accrued expenses                                                    4,229          2,835             694
  Long-term debt, current portion                                             108             75              30
  Capital lease obligations, current portion                                  425            259             788
                                                                         --------       --------        --------
        Total current liabilities                                          12,985         18,484           8,891
                                                                         --------       --------        --------
                                                                                                 
Long-term debt, net of current portion and discount                       266,613        258,135         249,726
Capital lease obligation, net of current portion                            6,554          6,403           6,115
                                                                         --------       --------        --------
        Total liabilities                                                 286,152        283,022         264,732
                                                                         --------       --------        --------
                                                                  
Stockholders' equity (deficit):                                   
  Preferred stock, $.0001 par value per share, 10,000,000         
    shares authorized; no shares outstanding                      
  Common stock, voting, $.0001 par value, 100,000,000 shares      
    authorized;                                                   
      Series A, 10,135,164 shares designated; 10,135,164 shares   
           issued and outstanding at March 31, 1999, December 31, 
           1998 and September 30, 1998                                          1              1               1
      Series B, 89,864,836 shares designated; 16,851,134,         
           16,137,958 and 15,929,708 shares issued and outstanding at  
           March 31, 1999, December 31, 1998 and September 30, 1998,
           respectively                                                         2              2               2
  Additional paid-in capital                                               49,007         45,830          45,617    
  Warrants                                                                 31,963         31,963          31,963
  Stockholder receivables                                                    (158)          (158)            (97) 
  Accumulated deficit                                                     (83,608)       (65,844)        (48,113)   
                                                                         --------       --------        --------   
        Total stockholders' equity (deficit)                               (2,793)        11,794          29,373
                                                                         --------       --------        --------
        Total liabilities and stockholders' equity (deficit)             $283,359       $294,816        $294,105   
                                                                         ========       ========        ========   
</TABLE>

                See notes to consolidated financial statements.

                                       4
<PAGE>
 
FIRSTWORLD COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                       THREE MONTHS ENDED
                                                                                            ---------------------------------------
                                                                                                MARCH 31, 1999       MARCH 31, 1998
                                                                                            ---------------------------------------
<S>                                                                                           <C>                    <C>
Revenue:
 Internet services                                                                                      $  2,412            $    --
 Web integration and consulting services                                                                   5,207                 --
 Telephony services                                                                                          643                130
                                                                                                        --------            -------
   Total revenue                                                                                           8,262                130
                                                                                                        --------            -------
 
Cost and expenses:
 Network operations                                                                                        5,696                192
 Selling, general and administrative expenses                                                             10,912              2,525
 Depreciation and amortization                                                                             2,989                551
                                                                                                        --------            -------
   Total costs and expenses                                                                               19,597              3,268
                                                                                                        --------            -------
Loss from operations                                                                                     (11,335)            (3,138)

 
Other income (expense):
 Interest income                                                                                           2,401                 49
 Interest expense                                                                                         (8,830)            (1,131)
                                                                                                        --------            -------
   Total other expense                                                                                    (6,429)            (1,082)
                                                                                                        --------            -------
Net loss                                                                                                $(17,764)           $(4,220)
                                                                                                        ========            =======
</TABLE>

                See notes to consolidated financial statements.

                                       5
<PAGE>
 
FIRSTWORLD COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                      THREE MONTHS ENDED
                                                                                            -----------------------------------
                                                                                              MARCH 31, 1999     MARCH 31, 1998
                                                                                            -----------------------------------
<S>                                                                                           <C>                <C>
Cash flows from operating activities:
  Net loss                                                                                          $(17,764)          $ (4,220)
  Adjustments to reconcile net loss
   to net cash provided (used) by operating activities:
    Depreciation and amortization expense                                                              2,989                552
    Amortization of deferred financing costs                                                             203                416
    Amortization of debt discount                                                                      8,484                115
    Changes in assets and liabilities, net of effects of acquisitions:
      Accounts receivable                                                                                328                (58)
      Interest receivable                                                                              1,259                 --
      Other assets                                                                                      (318)              (299)
      Accounts payable                                                                                (9,086)              (185)
      Accrued payroll and related liabilities                                                          1,440                 --
      Other liabilities                                                                                  535                 --
                                                                                                    --------           --------
        Net cash used by operating activities                                                        (11,930)            (3,679)
                                                                                                    --------           --------
 
Cash flows from investing activities:
  Purchases of held-to-maturity marketable securities                                                (84,235)                --
  Maturities of held-to-maturity marketable securities                                               170,030                 --
  Acquisitions, net of cash acquired                                                                 (17,789)                --
  Purchase of property and equipment                                                                  (5,651)            (4,079)
                                                                                                    --------           --------
        Net cash provided (used) by investing activities                                              62,355             (4,079)
                                                                                                    --------           --------
 
Cash flows from financing activities:
  Proceeds from issuance of common stock                                                                  --             26,094
  Proceeds from exercise of stock options and warrants                                                   342                 43
  Principal payments of debt and capital leases                                                         (263)           (16,883)
  Proceeds from short-term borrowings and related warrants                                                --                426
  Payment of deferred financing costs                                                                     --               (392)
                                                                                                    --------           --------
        Net cash provided by financing activities                                                         79              9,288
                                                                                                    --------           --------
 
Net increase in cash and cash equivalents                                                             50,504              1,530
Cash and cash equivalents, beginning of period                                                        29,659                270
                                                                                                    --------           --------
Cash and cash equivalents, end of period                                                            $ 80,163           $  1,800
                                                                                                    ========           ========
 
Supplemental cash flow information:
  Effects of acquisition:
   Assets acquired                                                                                  $ 22,551           $     --
   Liabilities assumed                                                                                (1,927)                --
   Common stock issued                                                                                (2,835)                --
   Less cash paid                                                                                    (17,940)                --
                                                                                                    --------           --------
        Net cash acquired from acquisition                                                          $   (151)          $     --
                                                                                                    ========           ========
</TABLE>

                See notes to consolidated financial statements.

                                       6
<PAGE>
 
FIRSTWORLD COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. BASIS OF PRESENTATION

  The consolidated financial statements include the accounts of FirstWorld
Communications, Inc. ("FirstWorld") and its wholly owned subsidiaries
(collectively, the "Company"). All significant intercompany transactions and
balances have been eliminated in consolidation.

  As the Company pursues acquisitions and expansion of its network to additional
areas or if the Company's available cash resources are not sufficient to fund
all of the Company's operating expenses and capital expenditures, the Company
will require additional capital. In addition, depending on market conditions,
the Company may decide to raise additional capital from time to time. The
Company may obtain additional funding through the public or private sale of debt
and/or equity securities or through securing vendor financing and/or a bank
credit facility. However, there can be no assurance that the Company will obtain
such funding.

  In the opinion of management, the accompanying consolidated financial
statements include all adjustments (consisting of normal recurring items)
necessary for a fair presentation of results for the interim periods presented
of the Company. The results of operations for any interim period are not
necessarily indicative of results for the full year. The consolidated financial
statements and footnote disclosures should be read in conjunction with the
audited consolidated financial statements and related notes thereto filed with
the Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1998. Certain 1998 amounts have been reclassified to conform to the 1999 basis
of presentation.

2.  CHANGE IN FISCAL YEAR

  At a meeting held on October 16, 1998, the Board of Directors of the Company
voted to change the Company's fiscal year end from September 30 to December 31,
beginning with a short period ending on December 31, 1998.

3.  REVENUE RECOGNITION

  The Company primarily recognizes revenue on Internet and telephony services in
the month such services are provided.  Web integration and consulting services
revenue consists primarily of revenue generated by the Company's Optec, Inc.
subsidiary (described below).  Revenues and expenses related to web integration
and consulting services are recognized under the percentage-of-completion method
of accounting based on the ratio that costs incurred bear to the total estimated
costs for each contract.  Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.

4. BUSINESS ACQUISITIONS

Optec

  The Company completed the acquisition of Optec, Inc. ("Optec") on November 24,
1998. The Company purchased for cash all of the outstanding capital stock of
Optec from Enron Communications, Inc. ("ECI"), an affiliate of a principal
stockholder of the Company. Optec is a telecommunications systems and data
networks integrator with operations in Oregon and Washington. Simultaneous to
this transaction, the Company also purchased from ECI an indefeasible right of
use to fiber optic cable in a metropolitan area network serving Portland, Oregon
with routes connecting Beaverton and Hillsboro, Oregon ("the Indefeasible 
Right"). In addition, the Company obtained rights to OC-3 level capacity on a
wide area network being developed by ECI that will connect up to 15 cities
nationwide, for approximately seven years depending on the completion dates of
ECI's wide area network (the "WAN Rights"). The Company paid an aggregate of
$18.3 million for the Optec capital stock, the Indefeasible Right and the WAN
Rights. The Company also repaid at closing approximately $4.0 million of Optec's
indebtedness to ECI. The Company assigned values of $11.1 million, $9.2 million
and $2.0 million to the WAN Rights, Optec and the Indefeasible Right,
respectively. The WAN Rights have not yet been placed into service, as a result,
the Company is not amortizing this asset. The acquisition of Optec was accounted
for under the purchase method of accounting. The excess of the purchase price
over the estimated fair value of the acquired net assets, which is approximately
$5.4 million, was recorded as goodwill and will be amortized on a straight-line
basis over 10 years. The Company is amortizing the Indefeasible Right on a 
straight-line basis over 20 years.

Slip.Net

  On January 7, 1999, the Company purchased all of the outstanding capital stock
of Accelerated Information, Inc., a California corporation ("AI"), in exchange
for cash of approximately $10.5 million and 187,500 shares of the Company's
Series B Common Stock. By virtue of its acquisition of all of the outstanding
capital stock of AI, the Company also acquired Slip.Net, Inc., a California
corporation and a wholly owned subsidiary of AI ("Slip.Net").  Slip.Net is an
Internet service provider ("ISP") engaged in the business of providing Internet
access, web hosting services, support for e-commerce and co-location services
primarily in the San Francisco Bay area.

                                       7
<PAGE>
 
  The Company deposited an aggregate of approximately $1.5 million of the total
purchase price into an escrow account for the purpose of satisfying claims the
Company may have for breach of representations, warranties or covenants made by
the selling shareholders in the Stock Purchase Agreement on behalf of
themselves, AI and Slip.Net. Absent a claim for indemnification, all of the
funds in the escrow account other than those specifically allocated to tax
matters will be released to the selling shareholders on the first anniversary of
the closing. The Company used available cash to fund the acquisition.

  The acquisition was accounted for under the purchase method of accounting. In
order to determine the total consideration paid, the Company assigned a value of
$6.00 per share to the Series B Common Stock. This resulted in total
consideration of $11.6 million. The excess of the consideration over the
estimated fair value of the acquired net assets, which is approximately $10.9
million, was recorded as goodwill and will be amortized on a straight-line basis
over 3 years.

Sirius

  On March 2, 1999, the Company purchased all of the outstanding capital stock
of Sirius Solutions, Inc., d/b/a Sirius Connections, a California corporation
("Sirius"), in exchange for cash of approximately $7.5 million and 285,000
shares of the Company's Series B Common Stock. Sirius is an ISP engaged in the
business of providing Internet access, web hosting services, support for e-
commerce and co-location services primarily in the San Francisco Bay area.

  The Company deposited $500,000 and 83,333 shares of its Series B Common Stock
into an escrow account for the purpose of satisfying claims the Company may 
have for breach of representations, warranties or covenants made by the selling
shareholders in the Stock Purchase Agreement on behalf of themselves, Sirius.
Absent a claim for indemnification, all of the funds in the escrow account will
be released to the selling shareholders 18 months after the closing. The Company
used available cash to fund the acquisition.

  The acquisition was accounted for under the purchase method of accounting.  In
order to determine the total consideration paid, the Company assigned a value of
$6.00 per share to the Series B Common Stock.  This resulted in total
consideration of $9.2 million.    The excess of the consideration over the
estimated fair value of the acquired net assets, which is approximately $9.0
million, was recorded as goodwill and will be amortized on a straight-line basis
over 3 years.

Pro Forma Acquisition Information

  The following unaudited condensed pro forma information presents the unaudited
results of operations of the Company as if the acquisitions of the above
mentioned companies had occurred on January 1, 1998:
<TABLE>
<CAPTION>
 
                         Three Months Ended
                  -----------------------------------
                  March 31, 1999    March 31, 1998
                  --------------  -------------------
<S>               <C>             <C>
                            (In Thousands)
Revenue.........     $  9,274           $ 4,993
Net loss........     $(17,825)          $(4,400)
</TABLE>

  These pro forma results do not necessarily represent results that would have
occurred if the consolidated acquisitions had taken place as of January 1, 1998,
nor are they necessarily indicative of the results of future operations.

5.  SUBSEQUENT EVENTS

  The 1999 Equity Incentive Plan (the "Incentive Plan") was adopted by the 
Company's Board of Directors on March 8, 1999, subject to approval by the 
stockholders at the Company's 1999 Annual Meeting of Stockholders. The principal
purposes of the Incentive Plan are to provide incentives for key employees and 
consultants of the Company through granting of options and stock appreciation 
rights ("SARs," and together with the options and the, "Awards").

  The aggregate number of shares of Series B Common Stock of the Company 
("Shares") or the equivalent in other equity securities which may be issued upon
exercise of options will not exceed 5,000,000. At May 1, 1999, options covering 
an aggregate of 1,738,250 Shares were outstanding under the Incentive Plan. In
addition, as of May 1, 1999, SARs covering an aggregate of 278,550 Shares were
outstanding under the Incentive Plan.

  The Quarterly Bonus Program of the Company (the "Bonus Program") was adopted 
by the Company's Board of Directors on May 3, 1999. The Bonus Program is 
intended to incentivize both individual productivity and employee retention. A 
bonus paid out to each eligible employee in the Bonus Program is based in part 
on the productivity of that participant's profit and loss center and in part on 
that participant's individual performance. The Company expects to pay eligible 
employees approximately $610,000 worth of bonuses for the quarter ended March
31, 1999. Certain executive officers may elect to receive Shares, in lieu of a
cash bonus payment under the Bonus Program. An aggregate of 200,000 Shares will
be available for issuance under the Bonus Program. The Company has no present
knowledge of whether any eligible participant will elect to receive all or a
portion of such eligible participant's bonus in stock.


                                       8
<PAGE>

6.  OTHER MATTERS

        On May 13, 1999, the City of Anaheim (the "City") filed a lawsuit in
Orange County Superior Court, Case Number 809281, against FirstWorld and
FirstWorld Anaheim, Inc. (collectively "FirstWorld Parties"). The City alleges
that FirstWorld Parties have repudiated their contractual obligations under the
Universal Telecommunications System Participation Agreement (the "Participation
Agreement"), the Agreement for Use of Operating Property (the "Operating
Property Agreement") and the Development Fee Agreement (the "Development
Agreement," and together with the Participation Agreement and the Operating 
Property Agreement, the "UTS Agreements"). In addition, the City alleges, among
other things, that FirstWorld Parties materially breached their obligations
under the UTS Agreements by: (i) failing to commence construction of a
demonstration center in downtown Anaheim and that FirstWorld Parties will not
commence operation of this downtown demonstration center by June 30, 1999 under
the UTS Agreements; (ii) failing to provide verification that Substantial
Completion of Phase I, as each such term is defined in the UTS Agreements, has
been achieved; (iii) failing to provide a "Subsequent Implementation Program"
(as defined in the UTS Agreements); (iv) failing to comply with various auditing
procedures in the UTS Agreements; and (v) failing to make a quarterly payment
due under the Participation Agreement. The City alleges that it is entitled to
damages in excess of $45 million as well as costs, pre-judgment interest and
such other relief as the Court deems proper. The City also seeks specific
performance compelling FirstWorld Parties to completely perform under the UTS
Agreements.

        The Company believes that it is not in breach as alleged and intends to 
vigorously defend the action; however, there can be no assurance that an 
unfavorable outcome of this dispute would not have a material adverse effect on 
the Company's results of operations, liquidity or financial position.

        The Company is engaged in other legal actions arising in the ordinary 
course of its business and believes that the outcome of these actions will not 
have a material adverse effect on its results of operations, liquidity or 
financial position.


                                       9
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

     The Company is an Internet solutions and telecommunications service
provider.  Specifically, the Company provides high speed Internet access,
digital subscriber line ("DSL") service, web design and hosting, e-commerce
support, web integration and consulting services, as well as local and long
distance telephony service.  The Company's business strategy incorporates a
data-centric focus, with service offerings strategically bundled to address the
increasingly complex data and voice communications needs of small and medium
sized businesses.  The Company is designing its systems to leverage advanced IP
technology to deliver its end-to-end solution set.  The Company uses a
combination of both owned and leased facilities, with technically advanced
provisioning, billing and customer care applications.

     The Company is strategically building co-location facilities within the
central offices of incumbent local exchange carriers ("ILECs") and pursuing 
peer-like agreements with other service providers to extend the Company's
service areas. In addition, the Company is building integrated data centers
("IDCs") that will house the Company's advanced voice and data service
platforms. The Company's IDCs will also provide co-location space for customers,
offering reliable, secure and environmentally sound facilities to run mission
critical platforms and content applications.

     To date, the Company has experienced significant operating and net losses
and negative cash flow from operations. To achieve positive operating margins
over time, the Company must significantly increase the number of customers and
increase the products and services that it can provide to its customers. It is
anticipated that operating and net losses and negative operating cash flow will
increase significantly for at least the next several years as the Company
implements its growth strategy of expanding its operations. See "--Liquidity and
Capital Resources."

REVENUE

     The Company currently offers a broad array of services, including high
speed Internet access, DSL, integrated services digital network ("ISDN"), web
design and hosting, e-commerce support and web integration and consulting
services, as well as local and long distance telephony services. The Company
intends to generate near-term revenue by replacing Internet and telephony
services currently provided by ILECs, competitive local exchange carriers
("CLECs"), incumbent exchange carriers ("IXCs") and ISPs. The Company uses a
dedicated sales force, agent sales force, telemarketing, direct mail and
advertising to market its Internet solutions and telecommunications services.
The Company also offers use of its network elements on a wholesale basis to
other IXCs and ISPs.

COSTS AND EXPENSES

     NETWORK OPERATIONS. Network operations is comprised of service and network
costs. Service costs consist of payments to ILECs, CLECs and IXCs for monthly
recurring and non-recurring line and activation charges incurred to provide DSL,
ISDN, frame relay and telephony services as well as backbone transport charges
between the Company's data centers. Additional service costs include labor and
materials associated with web integration and consulting services. Network costs
primarily include rent and utilities associated with data centers, co-locations,
points of presence ("POPs") and network operations centers ("NOCs"). Labor
associated with network design and planning, technical support, customer
service, installation and line repair is also included in Network costs.

     The Company has leveraged its substantial internal expertise with respect
to engineering, planning and business processes to design and construct a
network architecture that it believes will result in enhanced product offerings
and enable the Company to improve scalability, reduce operating costs and
improve network profitability.

     SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expenses consist primarily of product marketing, sales staff and sales support
expenses, general management and administrative overhead expenses and office
leases.

     CAPITAL EXPENDITURES.  The Company employs a demand-driven approach to
network deployment. This approach is intended to minimize capital expenditure
and maximize flexibility to serve the higher margin data market as demand for
high speed data communication services grows. The Company connects customers to
its networks through 

                                       10
<PAGE>
 
direct fiber connections, DSL, unbundled network elements leased from the ILEC
or other providers, depending on the most cost-effective connection that will
support the bundle of services provided to the customer.

RESULTS OF OPERATIONS

  QUARTER ENDED MARCH 31, 1999 COMPARED WITH THE QUARTER ENDED MARCH 31, 1998

     Revenue increased from $130,000 for the quarter ended March 31, 1998 to
$8.3 million for the quarter ended March 31, 1999, an increase of $8.1 million
or 6,255%.  This increase is due primarily to the Company's various acquisitions
during the quarters ended December 31, 1998 and March 31, 1999.  Optec
contributed approximately $4.8 million of web integration and consulting
services revenue during the quarter ended March 31, 1999.  Slip.Net and Sirius
contributed approximately $1.9 million of Internet services revenue during this
same period.  Lastly, approximately $1.4 million of the total increase in
revenue resulted from growth and expansion of the Company's customer base for
Internet services, web integration and telephony primarily in the Southern
California area.

     Network operations expenses increased from $192,000 for the quarter ended
March 31, 1998 to $5.7 million for the quarter ended March 31, 1999, an increase
of $5.5 million or approximately 2,867%. Optec, Slip.Net and Sirius increased
network operations expense in aggregate by approximately $3.9 million. The
remaining increase is due to the cost of providing service to the expanded
customer base in the Southern California area.

     Selling, general and administrative expenses increased from $2.5 million
for the quarter ended March 31, 1998 to $10.9 million for the quarter ended
March 31, 1999, an increase of $8.4 million or approximately 332%.  Optec,
Slip.Net and Sirius increased selling, general and administrative expense in
aggregate by approximately $2.6 million.  Salaries and other related expenses
increased approximately $3.9 million primarily due to higher staffing levels. In
addition, bonuses in the amount of $610,000 were accrued during the quarter
ended March 31, 1999. The increase also resulted in part from the Company's
obligations under separate management consulting agreements the Company entered
into in December 1997, with a term starting in 1998, with Corporate Managers,
LLC, an affiliate of Colorado Spectra 3, LLC ("Spectra 3"), and Enron Capital &
Trade Resources Corp. ("Enron"), pursuant to which the Company incurred costs
aggregating $250,000 during the quarter ended March 31, 1999. Spectra 3 and an
affiliate of Enron are significant stockholders in the Company. The remaining
increase is due to higher overall expenses resulting from expansion of
operations in accordance with the execution of the Company's business plan.

     Depreciation and amortization expenses increased from $551,000 for the
quarter ended March 31, 1998 to $3.0 million for the quarter ended March 31,
1999, an increase of $2.4 million or approximately 442%.   The majority of the
increase in depreciation and amortization is due to the amortization of goodwill
associated with the Optec, Slip.Net and Sirius acquisitions.  Amortization of
the goodwill associated with these acquisitions approximated $1.4 million for
the quarter ended March 31, 1999.  The remaining increase primarily relates to
depreciation expense associated with equipment purchased in connection with the
overall expansion of operations in accordance with the execution of the
Company's business plan.

     Interest income increased from $49,000 for the quarter ended March 31, 1998
to $2.4 million for the quarter ended March 31, 1999, an increase of $2.4
million or approximately 4,800%.  The increase is attributable to the
availability of additional funds from the sale of the Senior Notes (as defined
below), which funds have been invested in marketable securities and cash
equivalents.  Marketable securities consist of commercial paper with original
maturities of beyond three months but less than six months. The Company has
classified its marketable securities as "held to maturity," as management has
the intent and ability to hold these securities to maturity.

     Interest expense increased from $1.1 million for the quarter ended March
31, 1998 to $8.8 million for the quarter ended March 31, 1999, an increase of
$7.7 million or approximately 681%.  This increase relates primarily to interest
expense associated with the Senior Notes (as defined below), inclusive of the
amortization of related debt discount and deferred financing costs, offset by a
reduction in interest expense associated with a revolving credit facility which
was terminated in April 1998 (the "Credit Facility"), inclusive of the
amortization of related debt discount and deferred financing costs.  During the 
quarter ended March 31, 1999 approximately $141,000 of interest was 
capitalized. No interest was capitalized during the quarter ended March 31, 
1998.

                                       11

<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

     The Company's existing operations have required and will continue to
require substantial capital investment for the installation of
telecommunications equipment, DSL, IDCs, co-locations, fiber optics and
other electronics and related equipment and the funding of operating losses
during the start-up phase of markets targeted by the Company. In addition, the
Company's strategic plan calls for expansion into additional market areas. Such
expansion will require significant additional capital for the design,
development and construction of the Company's network, business acquisitions and
the funding of operating losses as a result of expanding the network into new
markets.

     From its inception through March 31, 1999, the Company raised approximately
$67 million from the private sale of stock. On December 30, 1997, the Company
consummated a private placement of equity securities to Spectra 3 and Enron.
Aggregate proceeds from this offering totaled approximately $26.1 million, net
of offering commissions and certain other advisory fees, and were received on
January 6, 1998.  On April 13, 1998, the Company completed an offering of debt
securities (the "Debt Offering") pursuant to Rule 144A under the Securities Act
of 1933, as amended (the "Securities Act"). In the Debt Offering, the Company
sold 470,000 units consisting of 13% Senior Discount Notes due 2008 (the
"Senior Notes") and warrants to purchase an aggregate of 3,713,094 shares of the
Company's Series B Common Stock. On April 13, 1998, the Company also completed a
$20 million private placement to Spectra 3 and Enron (the "Additional Equity
Investment"), pursuant to the exercise of an existing option held by Spectra 3
and Enron. The aggregate net proceeds of the Debt Offering and the Additional
Equity Investment were $260.7 million. The Company terminated the Credit
Facility concurrently with the closing of the Debt Offering and paid a $1.0
million termination fee pursuant to the terms thereof.

     The Company's most significant sources and uses of funds for the three
months ended March 31, 1999 are as follows (000s):
<TABLE>
<CAPTION>
 
Sources of funds:
<S>                                                              <C>
     Maturities of held-to-maturity marketable securities                 $170,030
     Proceeds from the exercise of stock options and warrants                  342
                                                                          --------
          Total sources of cash                                           $170,372
                                                                          ========
 
Uses of funds:
     Net cash used by operating activities                                $ 11,930
     Purchases of held-to-maturity marketable securities                    84,235
     Acquisitions, net of cash acquired                                     17,789
     Purchase of property and equipment                                      5,651
     Payments associated with debt and capital leases                          263
                                                                          --------
          Total uses of cash                                              $119,868
                                                                          ========
</TABLE>

     The substantial capital investment required to initiate the Company's
services and the funding of the Company's initial operations has resulted in
negative cash flow since its inception. This negative cash flow is the result of
the Company's capital expansion and acquisition activities. The Company expects
to continue to experience negative cash flow for the foreseeable future due to
expansion through acquisitions and other activities associated with the
development of the Company's markets. There can be no assurance that break-even
cash flow can be attained in subsequent periods. Until sufficient cash flow is
generated, the Company will be required to utilize its current and future
capital resources to meet its cash flow requirements and may be required to
issue additional debt and/or equity securities. The Company believes that it
currently has sufficient capital to support 1999 operations and to execute its
1999 capital expenditure plan.

     Acquisition Activities

     On November 24, 1998, the Company purchased all of the outstanding capital
stock of Optec from ECI. Optec is a web integrator with operations in Oregon and
Washington and has approximately 90 employees in engineering, sales and
operations. The Company also purchased from ECI an indefeasible right of use to
fiber optic cable in a metropolitan area network serving Portland, Oregon with
routes connecting Beaverton and Hillsboro, Oregon. In addition, the Company
obtained rights to OC-3 level capacity on a wide area network ("WAN") being
developed by ECI that will connect up to 15 cities nationwide. The Company paid
an aggregate of $18 million in cash for the Optec capital stock, the
indefeasible rights of use and the WAN rights. The Company also repaid at
closing approximately $4 million of Optec's indebtedness to ECI. The Company
used available cash to fund the acquisition.

     On January 7, 1999, the Company purchased all of the outstanding capital
stock of AI, in exchange for cash of $10.5 million and 187,500 shares of the
Company's Series B Common Stock.  By virtue of its acquisition of all of the
outstanding capital stock of AI, the Company also acquired Slip.Net.  Slip.Net
is an ISP engaged in the business of providing Internet access, web hosting
services, support for e-commerce and co-location services primarily in the San
Francisco Bay area.

                                       12
<PAGE>
 
     On March 2, 1999, the Company purchased all of the outstanding capital
stock of Sirius, in exchange for cash of approximately $7.5 million and 285,000
shares of the Company's Series B Common Stock. Sirius is an ISP engaged in the
business of providing Internet access, web hosting services, support for e-
commerce and co-location services primarily in the San Francisco Bay area.
     
     Fair Value of Financial Instruments
 
     With the exception of the Company's Senior Discount Notes, management
believes that the carrying amounts shown for the Company's financial instruments
reasonably approximate their fair values.  The fair value of the Company's
Senior Discount Notes, determined based on quoted high-yield market bid prices,
approximates $181.0 million at March 31, 1999.  The carrying amount of such
Senior Discount Notes at March 31, 1999 was $266.4 million. However, on May 12, 
1999, the fair value of the Senior Discount Notes, determined based on quoted 
high-yield market bid prices, had increased to approximately $256.4 million.

YEAR 2000 READINESS DISCLOSURE

     Year 2000 Readiness:  The Company has an active program to assess its
systems as well as its vendors' subsystems to determine whether they will
properly recognize and process date sensitive information beyond January 1,
2000.  The Company is conducting an inventory of its systems and applications
and analyzing them for potential Year 2000 issues.  The Company is resolving
problems it identifies through remediation, upgrade or replacement before such
problems affect operations.  The Company's primary focus is on customer
supporting applications (such as billing and customer care applications),
network infrastructure systems (such as switching and other central office
platforms) and systems that support core business functions (such as payroll and
purchasing).  The Company expects that by July 1, 1999, its essential service
and delivery systems will be Year 2000 ready.

     Costs:  The Company has not yet determined the full cost of its Year 2000
readiness program and its related impact on its financial condition.  The
budgeted amount for the cost of the Company's Year 2000 effort is approximately
$500,000.  Through March 31, 1999, expenditures totaled less than $100,000. The
Company currently expects to use two full-time equivalent workers to support its
Year 2000 effort, a figure representing approximately 7% of the budgeted IT
staff.  While there can be no assurance, the Company believes its costs to
successfully mitigate the Year 2000 issue will not be material to its
operations.  No assurance can be made, however, as to the total cost for the
Year 2000 program until the program has been completed.

     Risks:  The Company currently believes it is taking all necessary steps to
resolve its Year 2000 issues. To date the Company has no indication that any
specific function or system is so deficient that it will threaten the Company's
Year 2000 schedule. Although the Company does not expect to incur significant
expenditures to upgrade its systems to address Year 2000 problems, there can be
no assurance the Company will be able to identify all Year 2000 problems in
advance of their occurrence, or that the Company will be able to successfully
remedy all problems.

     To the extent the Company's customers, suppliers and vendors, including
ILECs over whose networks the Company provides certain of its services, fail to
address Year 2000 issues in a timely and effective manner, the Company's ability
to provide uninterrupted, reliable service to customers serviced through such
networks may be adversely affected by 

                                       13

<PAGE>
 
Year 2000 problems beyond the Company's control. The Company currently is
analyzing such risks and will address them in the Company's contingency plan.

     The Company may make business acquisitions during 1999. The acquisition of
a company which has failed to address its Year 2000 issues could have a material
adverse affect on the Company's own Year 2000 effort. To minimize this risk, the
Company has instituted guidelines that include Year 2000 readiness as a crucial
due diligence factor.

     The expenses associated with the Company's efforts to remedy any Year 2000
problems, the liabilities to which the Company may become subject as a result of
such problems and the impact of Year 2000 problems on customers' abilities to do
business with the Company could have a material adverse effect on the Company's
business, prospects, operating results, financial condition and its ability to
service and pay its indebtedness.

     Contingency Plans:  Given the extent to which the Company relies on
external vendors and suppliers -- including ILECs -- there can be no assurance
that, despite the Company's best efforts, no Year 2000-related problems will
occur. The Company has begun to evaluate the risks associated with likely worst-
case Year 2000 scenarios, and is developing contingency plans to address each
scenario.  These contingency plans include the switching of carriers and similar
workarounds.  The Company currently expects to circulate identified risks and
potential resolutions in the form of a contingency plan by the end of May.  This
plan will be monitored and updated as part of an on-going process that the
Company currently expects to continue throughout 1999 and into the first three
months of the year 2000.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company believes there has been no significant changes in the market
risk associated with its financial instruments since September 30, 1998.

                                       14

<PAGE>
 
PART II.  OTHER INFORMATION

ITEM 1.  Legal Proceedings

         On May 13, 1999, the City of Anaheim (the "City") filed a lawsuit in
Orange County Superior Court, Case Number 809281, against FirstWorld and
FirstWorld Anaheim, Inc. (collectively "FirstWorld Parties"). The City alleges
that FirstWorld Parties have repudiated their contractual obligations under the
Universal Telecommunications System Participation Agreement (the "Participation
Agreement"), the Agreement for Use of Operating Property (the "Operating
Property Agreement") and the Development Fee Agreement (the "Development
Agreement," and together with the Participation Agreement and the Operating 
Property Agreement, the "UTS Agreements"). In addition, the City alleges, among
other things, that FirstWorld Parties materially breached their obligations
under the UTS Agreements by: (i) failing to commence construction of a
demonstration center in downtown Anaheim and that FirstWorld Parties will not
commence operation of this downtown demonstration center by June 30, 1999 under
the UTS Agreements; (ii) failing to provide verification that Substantial
Completion of Phase I, as each such term is defined in the UTS Agreements, has
been achieved; (iii) failing to provide a "Subsequent Implementation Program"
(as defined in the UTS Agreements); (iv) failing to comply with various auditing
procedures in the UTS Agreements; and (v) failing to make a quarterly payment
due under the Participation Agreement. The City alleges that it is entitled to
damages in excess of $45 million as well as costs, pre-judgment interest and
such other relief as the Court deems proper. The City also seeks specific
performance compelling FirstWorld Parties to completely perform under the UTS
Agreements.

        The Company believes that it is not in breach as alleged and intends to 
vigorously defend the action; however, there can be no assurance that an 
unfavorable outcome of this dispute would not have a material adverse effect on 
the Company's results of operations, liquidity or financial position.

        The Company is engaged in other legal actions arising in the ordinary 
course of its business and believes that the outcome of these actions will not 
have a material adverse effect on its results of operations, liquidity or 
financial position.


ITEM 6.  Exhibits And Reports On Form 8-K

  (a) Exhibits:

      Exhibit 10.35  Employment Agreement between the Company and Paul C. Adams.

      Exhibit 10.36  First Amendment to Lease between the Registrant and The
                     Prudential Insurance Company of America dated December 1,
                     1998.

      Exhibit 27.1   Financial Data Schedule

  (b) Two reports on Form 8-K were filed in the 3 month period ended March 31,
      1999:
<TABLE>
<CAPTION>
 
                                                                       Were any financial
                         Item Reported                                 statements filed?    Date of filing
---------------------------------------------------------------------  ------------------   --------------
<S>                                                                    <C>                  <C>
 
Item 5 - Other Event - Acquisition of Accelerated Information, Inc.           No            January 20, 1999
 
Item 5 - Other Event - Acquisition of Sirius Solutions, Inc.                  No            March 29, 1999
</TABLE>

                                       15
<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.



                                             FIRSTWORLD COMMUNICATIONS, INC.,
                                             a Delaware corporation
                                             (Registrant)



<TABLE>
<CAPTION>
                  SIGNATURE                                            TITLE                                   DATE
----------------------------------------------  ---------------------------------------------------  ------------------------
<S>                                             <C>                                                  <C>
 
/s/  SHELDON S. OHRINGER                          President, Chief Executive Officer and Director          May 14, 1999
----------------------------------------------    (Principal Executive Officer)
Sheldon S. Ohringer                             
 
 
/s/  PAUL C. ADAMS                                Vice President, Finance, Treasurer and Assistant         May 14, 1999
----------------------------------------------    Secretary (Principal Financial and Accounting 
Paul C. Adams                                     Officer)
                                                
</TABLE>

                                       16