<PAGE>

                       U.S. SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, DC  20549

                                     FORM 10-K/A
                                   AMENDMENT NO. 1

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.  (Mark One)

  /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934
      [NO FEE REQUIRED] for the fiscal year ended September 30, 1998.

  / /  Transitional report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934
       [NO FEE REQUIRED] for the transition period from ___________ to
        ____________.

                           COMMISSION FILE NUMBER:  0-24953

                           FIRSTWORLD COMMUNICATIONS, INC.
                (Exact name of registrant as specified in its charter)

     DELAWARE                                          33-0521976
(State of other jurisdiction of         (I.R.S. Employer Identification Number)
incorporation or organization)

       7100 E. BELLEVIEW AVENUE, SUITE 210, GREENWOOD VILLAGE, COLORADO  80111
                  (Address of principal executive offices, Zip Code)

     Registrant's  telephone number, including area code:  (303) 874-8010

     Securities registered pursuant to Section 12(b) of the Act:  NONE

     Securities registered pursuant to Section 12(g) of the Act:  

                       SERIES B COMMON STOCK, $.0001 PAR VALUE
                                   (Title of Class)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days.   Yes / /  No /X/

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of November 30, 1998 was approximately $46,338,420.
     
     As of November 30, 1998, 10,135,164 shares of Series A Common Stock and
16,137,958 shares of Series B Common Stock were outstanding.

<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's exposure to market risk for changes in interest rates 
relates primarily to the Company's investment portfolio and long-term debt 
obligations.

     As of September 30, 1998, the Company's interest bearing cash 
equivalents and short-term investments consist exclusively of commercial 
paper having original maturities of six months or less. The Company 
classifies those instruments having original maturities of three months or 
less as cash equivalents whereas instruments having original maturities of 
greater than three months but less than six months are classified as short 
term investments. The Company places its commercial paper investments with 
high credit-quality counterparts and limits the amount of credit exposure to 
any one entity. The Company has the ability and intent to hold such 
investments, which are not held for trading or speculative purposes, through 
their maturity dates.

     The Company's long-term debt at September 30, 1998 consists principally 
of Senior Discount Notes which bear interest at a fixed rate. The Senior 
Discount Notes accrete in value at a stated rate of 13% per annum through 
April 2003 and thereafter bear interest at a stated rate of 13% per annum 
payable semi-annually in arrears. The Senior Discount Notes mature as to 
principal in the aggregate amount of $470,000,000 in April 2008. The Company 
has no cash flow exposure due to rate changes for its Senior Discount Notes.

     The following table presents notional amounts and related weighted-average 
interest rates by year of maturity for the Company's investment portfolio and 
Senior Discount Note obligations of which have fixed interest rates:

                                 Interest Rate Sensitivity
                               Principal Amount by Maturity
                                   (Dollars in Millions)

<TABLE>
<CAPTION>
                                  Year ended September 30,
                            ------------------------------------                   Fair Value
                            1999    2000    2001    2002    2003    Thereafter     at 9/30/98
                            ----    ----    ----    ----    ----    ----------     ----------
<S>                         <C>     <C>     <C>     <C>     <C>     <C>            <C>
CASH EQUIVALENTS
Commercial paper            $70.1     -       -       -       -         -             $70.1
Average interest rate        5.8%

HELD-TO-MATURITY
INVESTMENTS
Commercial paper            $165.6    -       -       -       -         -             $165.6
Average interest rate        5.8%

SENIOR NOTES (A)              -       -       -       -       -       $470.0          $141.0
Average interest rate (B)                                                 13.0%

</TABLE>

(A) The carrying amount of the Senior Discount Notes at September 30, 1998 is 
    approximately $249.6 million, which amount represents the $470.0 million 
    principal amount due at maturity less the unamortized debt discount of 
    approximately $220.4 million at September 30, 1998.

(B) Represents the stated interest rate of the Senior Discount Notes per the 
    indenture. The Senior Discount Notes' effective interest rate, inclusive 
    of the amortization of debt discount and deferred financing costs over 
    their term, approximates 14.2%.

                                       2

<PAGE>


                                       PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                               NUMBER
                                                                                                               ------
<S>                                                                                                            <C>
     (a)  DOCUMENTS FILED AS PART OF THE REPORT:

  Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     F-2

  Consolidated Balance Sheets at September 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . .     F-3

  Consolidated Statements of Operations for each of the three years in the period ended September 30, 1998 .     F-4

  Consolidated Statements of Stockholders' Equity (Deficit) for each of the three years in the period ended
    September 30, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     F-5

  Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 1998 .     F-6

  Notes to Consolidated Financial Statements.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     F-7

FINANCIAL STATEMENT SCHEDULE:

  Schedule II - Valuation and Qualifying Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    F-27

</TABLE>

     Financial statement schedules other than those listed above have been
omitted because they are either not required, not applicable or the information
is otherwise included herein.



                                       3

<PAGE>



     (c)  Exhibits

<TABLE>
<CAPTION>

      EXHIBIT     
        NO.       DESCRIPTION
      -------     ------------
<S>               <C>

         3.1      Form of Certificate of Incorporation, as amended. (2)

         3.2      Form of Bylaws, as amended. (2)

         4.1      Indenture dated as of April 13, 1998 between the Registrant
                  and The Bank of New York. (1)

         4.2      Form of 13% Senior Discount Notes due 2008 and schedule of 13%
                  Senior Discount Notes due 2008. (1)

         4.3      Registration Rights Agreement dated as of April 13, 1998 among
                  the Registrant and the Initial Purchasers. (1)

         10.1     Form of Indemnification Agreement entered into by the
                  Registrant and each of its executive officers and directors
                  and schedule listing all executive officers and directors who
                  have executed an Indemnification Agreement. (2)

         10.2     1995 Stock Option Plan and related form of option agreement.
                  (1)

         10.3     1997 Stock Option Plan and related form of option agreement.
                  (1)

         10.4     Warrant Agreement dated as of April 13, 1998 among the
                  Registrant and the Initial Purchasers and related form of
                  warrant attached thereto. (1)

         10.5     Warrant Registration Rights Agreement dated as of April 13,
                  1998 among the Registrant and the Initial Purchasers. (1)

         10.6     Common Stock Purchase Agreement dated as of December 30, 1997
                  among the Registrant, Colorado Spectra 3, LLC, Enron Capital &
                  Trade Resources Corp. and the holders of $405,000 in principal
                  amount of the Company's convertible subordinated promissory
                  notes. (1)

         10.7     First Amendment to Common Stock Purchase Agreement dated as of
                  February 9, 1998 among the Registrant, Colorado Spectra 3, LLC
                  and Enron Capital & Trade Resources Corp. (1)

         10.8     Amended and Restated Investor Rights Agreement dated as of
                  April 13, 1998 among the Registrant and the Investors set
                  forth therein. (1)

         10.9     Securityholders Agreement dated as of December 30, 1997 among
                  the Registrant, Enron Capital & Trade Resources Corp.,
                  Colorado Spectra 1, LLC, Colorado Spectra 2, LLC and Colorado
                  Spectra 3, LLC. (1)

         10.10    Business Opportunity Agreement dated as of December 30, 1997
                  among the Registrant, Enron Capital & Trade Resources Corp.,
                  Colorado Spectra 1, LLC, Colorado Spectra 2, LLC and Colorado
                  Spectra 3, LLC. (1)

         10.11    Management Consulting Services Agreement dated as of December
                  30, 1997, as amended by that First Amendment to Management
                  Consulting Services Agreement dated as of March 17, 1998,
                  between the Registrant and Corporate Managers, LLC. (1)

         10.12    Management Consulting Services Agreement dated as of December
                  30, 1997 between the Registrant and Enron Trade & Capital
                  Resources Corp. (1)

         10.13    Form of Warrant to Purchase Series B Common Stock and schedule
                  listing all holders of such warrants entitled to purchase a
                  number of shares of Series B Common Stock equal to or greater
                  than 1% of the Company's common stock outstanding as of May
                  31, 1998. (1)

         10.14    Warrant to Purchase 2,110,140 shares of Series B Common Stock
                  issued to Colorado Spectra 2, LLC on December 30, 1997 (1)

         10.15    Agreement for Use of Operating Property dated as of February
                  25, 1997 between FirstWorld Anaheim and the City of Anaheim.
                  (1)

         10.16    Universal Telecommunications System Participation Agreement
                  dated as of February 25, 1997

</TABLE>


                                       4

<PAGE>

<TABLE>
<CAPTION>

      EXHIBIT     
        NO.       DESCRIPTION
      -------     ------------
<S>               <C>

                  among the Registrant, FirstWorld Anaheim and the City of
                  Anaheim. (1)

         10.17    Development Fee Agreement dated as of February 25, 1997
                  between the Registrant and the City of Anaheim. (1)

        *10.18    Agreement for Lease of Telecommunications Conduit dated as
                  of March 5, 1998 between FirstWorld Orange Coast and The
                  Irvine Company. (3)

        *10.19    Telecommunications System License Agreement dated as of
                  March 5, 1998 between FirstWorld Orange Coast and The Irvine
                  Company. (3)

         10.20    Office Lease for Genesee Executive Plaza dated as of September
                  4, 1996 between Talcott Realty I Limited Partnership and the
                  Registrant. (1)

         10.21    Standard Industrial/Commercial Single-Tenant Lease-Gross dated
                  as of August 26, 1996 between Scope Development and FirstWorld
                  Anaheim. (1)

         10.22    SpectraNet International Founders' Sale Agreement. (2)

         10.23    System Acquisition Agreement. (2)

         10.24    Employment Agreement between the Registrant and Sheldon S.
                  Ohringer. (3)

         10.25    Stock Option Agreement between the Registrant and Sheldon S.
                  Ohringer.

         10.26    Employment Agreement between the Registrant and Scott Chase.

         10.27    Employment Agreement between the Registrant and Marion K.
                  Jenkins.

         10.28    Employment Agreement between the Registrant and David Gandini.

         10.29    Employment Agreement between the Registrant and Doug Kramer.

         10.30    Lease between the Registrant and The Prudential Insurance
                  Company of America.

         10.31    First Amendment to Lease (Genesee Executive Plaza) dated as of 
                  July 31, 1998 between Arden Realty Limited Partnership 
                  (successor in interest to Talcott Realty I Limited 
                  Partnership) and the Registrant.

         10.32    Second Amendment to Management Consulting Services Agreement,
                  dated as of October 1, 1998, by and between the Registrant and
                  Corporate Managers, LLC.

         10.33    First Amendment to Amended and Restated Investor Rights 
                  Agreement, dated as of September 28, 1998, among the 
                  Registrant, Enron Capital & Trade Resources Corp., Colorado 
                  Spectra 1, LLC, Colorado Spectra 2, LCC and Colorado 
                  Spectra 3, LLC.

         12.1     Computation of Ratio of Earnings to Fixed Charges.

         16.1     Letter Regarding Change in Certifying Accountant. (2)

         21.1     Subsidiaries of the Registrant. (2)

         23.1     Consent of PricewaterhouseCoopers LLP.

         24.1     Power of Attorney (included on signature page hereof).

         27.1     Financial Data Schedule.

</TABLE>

----------------

*    Portions of this exhibit have been omitted pursuant to an order granting
     confidential treatment filed with the Securities and Exchange Commission

(1)  Incorporated herein by reference to the Registrant's Registration Statement
     on Form S-4 (No. 333-57829) filed with the Securities and Exchange
     Commission on June 26, 1998.

(2)  Incorporated herein by reference to Amendment No. 1 to the Registrant's
     Registration Statement on Form S-4 (No. 333-57829) filed with the
     Securities and Exchange Commission on August 24, 1998.

(3)  Incorporated herein by reference to Amendment No. 2 to the Registrant's
     Registration Statement on Form S-4 (No. 333-57829) filed with the
     Securities and Exchange Commission on October 8, 1998.


                                       5

<PAGE>


(b)  REPORTS ON FORM 8-K

     There were no reports on Form 8-K filed by the Company during the fourth
     quarter of the fiscal year ended September 30, 1998.

(c)  EXHIBITS

     The exhibits required by this Item are listed under Item 14(a)(3).

(d)  FINANCIAL STATEMENT SCHEDULES

     The consolidated financial statement schedules required by this Item are
     listed under Item 14(a)(2).



                                       6

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: April 16, 1999          FIRSTWORLD COMMUNICATIONS, INC.


                               By:  /s/ SHELDON S. OHRINGER
                                    -----------------------
                                    Name: Sheldon S. Ohringer
                                    Title: President, Chief Executive Officer,
                                    and Director (Principal Executive Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>

           Name               Title                                 Date
<S>                          <C>                               <C>

/s/ SHELDON S. OHRINGER      President, Chief Executive        April 16, 1999
-----------------------      Officer and Director (Principal
    Sheldon S. Ohringer      Executive Officer)

/s/ PAUL C. ADAMS            Vice President, Finance and       April 16, 1999
-----------------------      Treasurer (Principal
    Paul C. Adams            Financial Officer)

</TABLE>

                                       7
<PAGE>

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                                                                PAGE
                                                                                                               ---------
<S>                                                                                                            <C>
FINANCIAL STATEMENTS:


  Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     F-2

  Consolidated Balance Sheets at September 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . .     F-3

  Consolidated Statements of Operations for each of the three years in the period ended September 30, 1998 .     F-4

  Consolidated Statements of Stockholders' Equity (Deficit) for each of the three years in the period ended
    September 30, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     F-5

  Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 1998 .     F-6

  Notes to Consolidated Financial Statements.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     F-7

FINANCIAL STATEMENT SCHEDULE:

  Schedule II - Valuation and Qualifying Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    F-27

</TABLE>

                                      F-1


<PAGE>

                          REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of FirstWorld Communications, Inc.
(formerly SpectraNet International)

    In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of FirstWorld Communications, Inc. (formerly SpectraNet International)
and its subsidiaries at September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICEWATERHOUSECOOPERS LLP

San Diego, California
December 11, 1998


                                       F-2

<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                        SEPTEMBER 30,
                                                                                  1998                1997
                                                                            -----------------   ------------------
<S>                                                                         <C>                 <C>
ASSETS

Current assets:
   Cash and cash equivalents                                                     $72,039,498             $536,275
   Restricted cash                                                                         -               50,000
   Marketable securities                                                         165,591,010                    -
   Interest receivable                                                             3,016,623                    -
   Accounts receivable, net of allowance for doubtful accounts of
      $9,765 and $0                                                                  493,393               72,567
   Prepaid expenses                                                                  305,834              100,442
   Other current assets                                                               10,453               14,709
                                                                            -----------------   ------------------

        Total current assets                                                     241,456,811              773,993

Property and equipment, net                                                       44,020,418           20,331,353
Deferred financing costs, net of accumulated amortization
   of $429,818 and $60,872                                                         8,217,102            4,067,932
Other assets                                                                         411,026              147,812
                                                                            -----------------   ------------------

                                                                               $ 294,105,357         $ 25,321,090
                                                                            -----------------   ------------------
                                                                            -----------------   ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                                             $  6,611,380           $2,483,793
   Accrued interest                                                                  546,416              569,816
   Accrued employee costs                                                            221,785              205,012
   Other accrued expenses                                                            694,398              113,266
   Short-term borrowings, net of discount                                                  -              401,262
   Current portion of long-term debt                                                  30,070                8,446
   Current portion of capital lease obligations                                      787,874              311,166
                                                                            -----------------   ------------------

        Total current liabilities                                                  8,891,923            4,092,761

Long-term debt, net of discount                                                  249,725,538           11,756,283
Convertible bridge notes                                                                   -              405,500
Capital lease obligations                                                          6,114,509            6,801,926
                                                                            -----------------   ------------------

        Total liabilities                                                        264,731,970           23,056,470
                                                                            -----------------   ------------------

Commitments (Notes 7, 8 and 14)                                                            -                    -

Stockholders' equity:
   Preferred stock, no par value, 5,160,335 shares authorized at September 30,
      1997:
        Series C, convertible, voting, 2,600,000 shares issued and
           outstanding                                                                     -           12,279,362
        Series B, convertible, voting, 2,016,638 shares issued and
           outstanding                                                                     -            3,670,060
        Series A, convertible, non-voting, 118,667 shares issued and
           outstanding                                                                     -              395,162
   Preferred stock, $.0001 par value, 10,000,000 shares authorized at
      September 30, 1998; no shares designated, issued or outstanding                      -                    -
   Common stock, voting, no par value, 15,000,000 shares authorized
      at September 30, 1997; 3,262,900 shares issued and outstanding                       -            (226,984)
   Common stock, voting, $.0001 par value, 100,000,000 shares authorized
      at September 30, 1998:
        Series A, 10,135,164 shares designated; 10,135,164 shares
           issued and outstanding                                                      1,014                    -
        Series B, 89,864,836 shares designated; 15,929,708 shares
           issued and outstanding                                                      1,591                    -
   Additional paid-in capital                                                     45,617,220                    -
   Warrants                                                                       31,963,295            1,000,960
   Stockholder receivables                                                           (96,500)             (96,500)
   Accumulated deficit                                                           (48,113,233)         (14,757,440)
                                                                            -----------------   ------------------

        Total stockholders' equity                                                29,373,387            2,264,620
                                                                            -----------------   ------------------

                                                                               $ 294,105,357         $ 25,321,090
                                                                            -----------------   ------------------
                                                                            -----------------   ------------------
</TABLE>

            See accompanying notes to consolidated financial statements

                                       F-3
<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                         YEAR ENDED SEPTEMBER 30,
                                                          --------------------------------------------------------
                                                               1998                1997                1996
<S>                                                       <C>                 <C>                 <C>
Service revenue                                                $1,078,288            $ 75,118            $279,483
Other revenue                                                      12,373              95,715              75,000
                                                          ----------------    ----------------    ----------------
                                                                1,090,661             170,833             354,483
                                                          ----------------    ----------------    ----------------

Costs and expenses:
   Network development and operations                           6,501,105           3,169,854           1,708,416
   Selling, general and administrative expenses                10,641,312           4,724,649           2,409,442
   Depreciation and amortization                                2,424,466             501,354              75,258
                                                          ----------------    ----------------    ----------------
                                                               19,566,883           8,395,857           4,193,116
                                                          ----------------    ----------------    ----------------

Loss from operations                                          (18,476,222)         (8,225,024)         (3,838,633)

Other income (expense):
   Interest expense                                           (16,898,271)         (1,372,377)            (26,517)
   Interest income                                              6,749,367             149,243               8,958
                                                          ----------------    ----------------    ----------------

Loss before extraordinary item                                (28,625,126)         (9,448,158)         (3,856,192)

Extraordinary item - extinguishment of debt
   (Notes 4 and 5)                                             (4,730,667)           (104,680)                  -
                                                          ----------------    ----------------    ----------------

Net loss                                                     $(33,355,793)       $ (9,552,838)      $  (3,856,192)
                                                          ----------------    ----------------    ----------------
                                                          ----------------    ----------------    ----------------
</TABLE>

            See accompanying notes to consolidated financial statements

                                       F-4

<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                        SERIES A                        SERIES B
                                                      COMMON STOCK                    COMMON STOCK              ADDITIONAL
                                             ------------------------------  -------------------------------      PAID-IN
                                                SHARES           AMOUNT         SHARES            AMOUNT          CAPITAL
                                             -------------   --------------  -------------    --------------  ---------------
<S>                                          <C>             <C>             <C>              <C>             <C>
 BALANCE AT OCTOBER 1, 1995                             -              $ -              -               $ -              $ - 

 Issuance of Series B preferred stock                                                                                        

 Issuance of Series B preferred stock for settlement
    of notes payable and for consulting services                                                                             

 Repurchase of Series A preferred stock                                                                                      

 Issuance of Series B preferred stock for property
    and equipment                                                                                                            

 Issuance of common stock for notes receivable                                                                               

 Exercise of options to purchase common stock for
    shareholder notes receivable                                                                                             

 Net loss for 1996
                                             -------------   --------------  -------------    --------------  ---------------

 BALANCE AT SEPTEMBER 30, 1996                          -                -              -                 -                - 

 Cancellation of shareholder notes receivable for
    common stock repurchase                                                                                                  

 Repayment of shareholder notes receivable

 Issuance of Series C preferred stock with warrants to purchase 520,000 shares
    of common stock, net
    of issuance costs of $704,638                                                                                            

 Issuance of common stock warrants as finders fees

 Issuance of common stock warrant for cash

 Exercise of options and warrants to purchase
    common stock                                                                                                             

 Issuance of common stock warrants with debt

 Net loss for 1997
                                             -------------   --------------  -------------    --------------  ---------------

 BALANCE AT SEPTEMBER 30, 1997                          -                -              -                 -                - 

 Exercise of options to purchase common stock -
    October 1997 to December 1997                       -                -              -                 -                - 

 Issuance of Series A common stock with warrants to purchase 10,135,164 shares
    of Series B common stock, net of offering costs of
    $3,863,691                                 10,135,164       16,913,809              -                 -                - 

 Conversion of Series C preferred stock, Series B preferred stock, Series A
    preferred stock and common stock to Series B common stock as follows:

       Series C preferred stock; conversion ratio of
         1.39:1, including anti-dilutive adjustments    -                -      3,621,120        12,279,362                - 

       Series B preferred stock and common stock;
         conversion ratio of 1:1                        -                -      5,545,638         3,486,426                - 

       Series A preferred stock; conversion ratio
         of 1:10                                        -                -         11,867           395,162                - 

 Issuance of Series B common stock with warrants to purchase 6,666,666 shares of
    Series B common stock, net of offering costs of
    $1,800,000                                          -                -      6,666,666        12,466,665                - 

 Issuance of warrants to purchase 3,713,094 shares
    of Series B common stock in connection with the
    issuance of 13% Senior Discount Notes               -                -              -                 -                - 

 Exercise of options to purchase Series B common
    stock                                               -                -         67,917            55,901                - 

 Establishment of $.0001 par value for Series A and
    B common stock in connection with Delaware
    reincorporation                                     -      (16,912,795)             -       (28,681,925)      45,594,720 

 Exercise of options to purchase Series B common                                   16,500                 -           22,500
    stock - post Delaware reincorporation

 Net loss for 1998                                      -                -              -                 -                - 
                                             -------------   --------------  -------------    --------------  ---------------

 BALANCE AT SEPTEMBER 30, 1998                 10,135,164          $ 1,014     15,929,708           $ 1,591     $ 45,617,220 
                                             -------------   --------------  -------------    --------------  ---------------
                                             -------------   --------------  -------------    --------------  ---------------


                                                                                          SERIES C
                                                                                        CONVERTIBLE
                                                                                      PREFERRED STOCK
                                                                              ------------------------------
                                                                                  SHARES           AMOUNT
                                                                              -------------   --------------
<S>                                                                           <C>             <C>
 BALANCE AT OCTOBER 1, 1995                                                               -               -
                                                                                                           
 Issuance of Series B preferred stock                                                                      
                                                                                                           
 Issuance of Series B preferred stock for settlement                                                       
    of notes payable and for consulting services                                                           
                                                                                                           
 Repurchase of Series A preferred stock                                                                    
                                                                                                           
 Issuance of Series B preferred stock for property                                                         
    and equipment                                                                                          
                                                                                                           
 Issuance of common stock for notes receivable                                                             
                                                                                                           
 Exercise of options to purchase common stock for
    shareholder notes receivable
                                                                                                           
 Net loss for 1996
                                                                              -------------   --------------
                                                                                                           
 BALANCE AT SEPTEMBER 30, 1996                                                            -               -
                                                                                                           
 Cancellation of shareholder notes receivable for                                                          
    common stock repurchase                                                                                
                                                                                                           
 Repayment of shareholder notes receivable                                                                 
                                                                                                           
 Issuance of Series C preferred stock with warrants to purchase 520,000 shares
    of common stock, net                                                                                   
    of issuance costs of $704,638                                                2,600,000       12,279,362
                                                                                                           
 Issuance of common stock warrants as finders fees                                                         
                                                                                                           
 Issuance of common stock warrant for cash                                                                 
                                                                                                           
 Exercise of options and warrants to purchase                                                              
    common stock                                                                                           
                                                                                                           
 Issuance of common stock warrants with debt                                                               
                                                                                                           
 Net loss for 1997                                                                                         
                                                                              -------------   --------------
                                                                                                           
 BALANCE AT SEPTEMBER 30, 1997                                                    2,600,000      12,279,362
                                                                                                           
 Exercise of options to purchase common stock -                                                            
    October 1997 to December 1997                                                         -               -
                                                                                                           
 Issuance of Series A common stock with warrants to purchase 10,135,164 shares
    of Series B common stock, net of offering costs of                                                     
    $3,863,691                                                                            -               - 
                                                                                                           
 Conversion of Series C preferred stock, Series B preferred stock, Series A                                
    preferred stock and common stock to Series B common stock as follows:                                  
                                                                                                           
       Series C preferred stock; conversion ratio of                                                       
         1.39:1, including anti-dilutive adjustments                             (2,600,000)    (12,279,362)
                                                                                                           
       Series B preferred stock and common stock;                                                          
         conversion ratio of 1:1                                                         -               - 
                                                                                                           
       Series A preferred stock; conversion ratio                                                          
         of 1:10                                                                         -               - 
                                                                                                           
 Issuance of Series B common stock with warrants to purchase 6,666,666 shares
    Series B common stock, net of offering costs of                                                        
    $1,800,000                                                                           -               - 
                                                                                                           
 Issuance of warrants to purchase 3,713,094 shares                                                         
    of Series B common stock in connection with the                                                        
    issuance of 13% Senior Discount Notes                                                -               - 
                                                                                                           
 Exercise of options to purchase Series B common                                                           
    stock                                                                                -               - 
                                                                                                           
 Establishment of $.0001 par value for Series A and                                                        
    B common stock in connection with Delaware                                                             
    reincorporation                                                                      -               - 
                                                                                                           
 Exercise of options to purchase Series B common                                                           
    stock - post Delaware reincorporation                                                                  
                                                                                                           
 Net loss for 1998                                                                       -               - 
                                                                              -------------   --------------
                                                                                                           
 BALANCE AT SEPTEMBER 30, 1998                                                           -             $ - 
                                                                              -------------   --------------
                                                                              -------------   --------------


                                                                                          SERIES B
                                                                                        CONVERTIBLE
                                                                                      PREFERRED STOCK
                                                                              ------------------------------
                                                                                 SHARES          AMOUNT
                                                                              -------------   --------------
<S>                                                                           <C>             <C>
 BALANCE AT OCTOBER 1, 1995                                                         837,667      $1,256,502
                                                                                                           
 Issuance of Series B preferred stock                                             1,142,304       2,355,226
                                                                                                           
 Issuance of Series B preferred stock for settlement                                                       
    of notes payable and for consulting services                                     33,334         50,000 
                                                                                                           
 Repurchase of Series A preferred stock                                                                    
                                                                                                           
 Issuance of Series B preferred stock for property                                                         
    and equipment                                                                     3,333          8,332 
                                                                                                           
 Issuance of common stock for notes receivable                                                             
                                                                                                           
 Exercise of options to purchase common stock for                                                          
    shareholder notes receivable                                                                           
                                                                                                           
 Net loss for 1996                                                                                         
                                                                              -------------   --------------
                                                                                                           
 BALANCE AT SEPTEMBER 30, 1996                                                    2,016,638      3,670,060 
                                                                                                           
 Cancellation of shareholder notes receivable for                                                          
    common stock repurchase                                                                                
                                                                                                           
 Repayment of shareholder notes receivable                                                                 
                                                                                                           
 Issuance of Series C preferred stock with warrants to purchase 520,000 shares
    of common stock, net                                                                                   
    of issuance costs of $704,638                                                                          
                                                                                                           
 Issuance of common stock warrants as finders fees                                                         
                                                                                                           
 Issuance of common stock warrant for cash                                                                 
                                                                                                           
 Exercise of options and warrants to purchase                                                              
    common stock                                                                                           
                                                                                                           
 Issuance of common stock warrants with debt                                                               
                                                                                                           
 Net loss for 1997                                                                                         
                                                                              -------------   --------------
                                                                                                           
 BALANCE AT SEPTEMBER 30, 1997                                                    2,016,638      3,670,060
                                                                                                           
 Exercise of options to purchase common stock -                                                            
    October 1997 to December 1997                                                         -              - 
                                                                                                           
 Issuance of Series A common stock with warrants to purchase 10,135,164 shares
    of Series B common stock, net of offering costs of                                                     
    $3,863,691                                                                            -              - 
                                                                                                           
 Conversion of Series C preferred stock, Series B preferred stock, Series A                                
    preferred stock and common stock to Series B common stock as follows:                                  
                                                                                                           
       Series C preferred stock; conversion ratio of                                                       
         1.39:1, including anti-dilutive adjustments                                      -              - 
                                                                                                           
       Series B preferred stock and common stock;                                                          
         conversion ratio of 1:1                                                 (2,016,638)    (3,670,060)
                                                                                                           
       Series A preferred stock; conversion ratio                                                          
         of 1:10                                                                          -              - 
                                                                                                           
 Issuance of Series B common stock with warrants to purchase 6,666,666 shares
    Series B common stock, net of offering costs of                                                        
    $1,800,000                                                                            -              - 
                                                                                                           
 Issuance of warrants to purchase 3,713,094 shares                                                         
    of Series B common stock in connection with the                                                        
    issuance of 13% Senior Discount Notes                                                 -              - 
                                                                                                           
 Exercise of options to purchase Series B common                                                           
    stock                                                                                 -              - 
                                                                                                           
 Establishment of $.0001 par value for Series A and                                                        
    B common stock in connection with Delaware                                                             
    reincorporation                                                                       -              - 
                                                                                                           
 Exercise of options to purchase Series B common                                                           
    stock - post Delaware reincorporation                                                                  
                                                                                                           
 Net loss for 1998                                                                        -              - 
                                                                              -------------   --------------
                                                                                                           
 BALANCE AT SEPTEMBER 30, 1998                                                            -            $ - 
                                                                              -------------   --------------
                                                                              -------------   --------------

                                                                                     SERIES A                                      
                                                                                    CONVERTIBLE                                    
                                                                                  PREFERRED STOCK              COMMON STOCK        
                                                                             -------------------------  ---------------------------
                                                                                SHARES        AMOUNT        SHARES        AMOUNT    
                                                                             -----------  ------------  ------------  -------------
<S>                                                                          <C>          <C>           <C>           <C>
 BALANCE AT OCTOBER 1, 1995                                                     127,601     $ 424,912     2,520,000     $ (402,101)
                                                                                                                                   
 Issuance of Series B preferred stock                                                                                              
                                                                                                                                   
 Issuance of Series B preferred stock for settlement                                                                               
    of notes payable and for consulting services                                                                                   
                                                                                                                                   
 Repurchase of Series A preferred stock                                          (8,934)      (29,750)
                                                                                                                                   
 Issuance of Series B preferred stock for property                                                                                 
    and equipment                                                                                                                  
                                                                                                                                   
 Issuance of common stock for notes receivable                                                              396,000         99,000 
                                                                                                                                   
 Exercise of options to purchase common stock for                                                                                  
    shareholder notes receivable                                                                            330,000         74,167 
                                                                                                                                   
 Net loss for 1996                                                                                                                 
                                                                             -----------  ------------  ------------  -------------
                                                                                                                                   
 BALANCE AT SEPTEMBER 30, 1996                                                  118,667       395,162     3,246,000       (228,934)
                                                                                                                                   
 Cancellation of shareholder notes receivable for                                                                                  
    common stock repurchase                                                                                 (90,000)       (22,500)
                                                                                                                                   
 Repayment of shareholder notes receivable                                                                                         
                                                                                                                                   
 Issuance of Series C preferred stock with warrants to purchase 520,000 shares
    of common stock, net                                                                                                           
    of issuance costs of $704,638                                                                                                  
                                                                                                                                   
 Issuance of common stock warrants as finders fees                                                                                 
                                                                                                                                   
 Issuance of common stock warrant for cash                                                                                         
                                                                                                                                   
 Exercise of options and warrants to purchase                                                                                      
    common stock                                                                                            106,900         24,450 
                                                                                                                                   
 Issuance of common stock warrants with debt                                                                                       
                                                                                                                                   
 Net loss for 1997                                                                                                                 
                                                                             -----------  ------------  ------------  -------------
                                                                                                                                   
 BALANCE AT SEPTEMBER 30, 1997                                                  118,667       395,162     3,262,900       (226,984)
                                                                                                                                   
 Exercise of options to purchase common stock -                                                                                    
    October 1997 to December 1997                                                     -             -       266,100         43,350 
                                                                                                                                   
 Issuance of Series A common stock with warrants to purchase 10,135,164 shares
    of Series B common stock, net of offering costs of                                                                             
    $3,863,691                                                                        -             -             -              - 
                                                                                                                                   
 Conversion of Series C preferred stock, Series B preferred stock, Series A                                                        
    preferred stock and common stock to Series B common stock as follows:                                                          
                                                                                                                                   
       Series C preferred stock; conversion ratio of                                                                               
         1.39:1, including anti-dilutive adjustments                                  -             -             -              - 
                                                                                                                                   
       Series B preferred stock and common stock;                                                                                  
         conversion ratio of 1:1                                                      -             -    (3,529,000)       183,634 
                                                                                                                                   
       Series A preferred stock; conversion ratio                                                                                  
         of 1:10                                                               (118,667)     (395,162)            -              - 
                                                                                                                                   
 Issuance of Series B common stock with warrants to purchase 6,666,666 shares
    Series B common stock, net of offering costs of                                                                                
    $1,800,000                                                                        -             -             -              - 
                                                                                                                                   
 Issuance of warrants to purchase 3,713,094 shares                                                                                 
    of Series B common stock in connection with the                                                                                
    issuance of 13% Senior Discount Notes                                             -             -             -              - 
                                                                                                                                   
 Exercise of options to purchase Series B common                                                                                   
    stock                                                                             -             -             -              - 
                                                                                                                                   
 Establishment of $.0001 par value for Series A and                                                                                
    B common stock in connection with Delaware                                                                                     
    reincorporation                                                                   -             -             -              - 
                                                                                                                                   
 Exercise of options to purchase Series B common                                                                                   
    stock - post Delaware reincorporation                                                                                          
                                                                                                                                   
 Net loss for 1998                                                                    -             -             -              - 
                                                                             -----------  ------------  ------------  -------------
                                                                                                                                   
 BALANCE AT SEPTEMBER 30, 1998                                                        -           $ -             -            $ - 
                                                                             -----------  ------------  ------------  -------------
                                                                             -----------  ------------  ------------  -------------



                                                                                                 Shareholder
                                                                                  Warrants       Receivables
                                                                               --------------    ------------
<S>                                                                            <C>               <C>
 BALANCE AT OCTOBER 1, 1995                                                              $ -            $ - 
                                                                                                            
 Issuance of Series B preferred stock                                                                       
                                                                                                            
 Issuance of Series B preferred stock for settlement                                                        
    of notes payable and for consulting services                                                            
                                                                                                            
 Repurchase of Series A preferred stock                                                                     
                                                                                                            
 Issuance of Series B preferred stock for property                                                          
    and equipment                                                                                           
                                                                                                            
 Issuance of common stock for notes receivable                                                      (99,000)
                                                                                                            
 Exercise of options to purchase common stock for                                                           
    shareholder notes receivable                                                                    (74,167)
                                                                                                            
 Net loss for 1996                                                                                          
                                                                               --------------    ------------
                                                                                                            
 BALANCE AT SEPTEMBER 30, 1996                                                              -      (173,167)
                                                                                                            
 Cancellation of shareholder notes receivable for                                                           
    common stock repurchase                                                                          22,500 
                                                                                                            
 Repayment of shareholder notes receivable                                                           54,167 
                                                                                                            
 Issuance of Series C preferred stock with warrants to purchase 520,000 shares
    of common stock, net                                                                                    
    of issuance costs of $704,638                                                      16,000               
                                                                                                            
 Issuance of common stock warrants as finders fees                                     37,200               
                                                                                                            
 Issuance of common stock warrant for cash                                            200,000               
                                                                                                            
 Exercise of options and warrants to purchase                                                               
    common stock                                                                                            
                                                                                                            
 Issuance of common stock warrants with debt                                          747,760               
                                                                                                            
 Net loss for 1997                                                                                          
                                                                               --------------    ------------
                                                                                                            
 BALANCE AT SEPTEMBER 30, 1997                                                      1,000,960       (96,500)
                                                                                                            
 Exercise of options to purchase common stock -                                                             
    October 1997 to December 1997                                                           -             - 
                                                                                                            
 Issuance of Series A common stock with warrants to purchase 10,135,164 shares
    of Series B common stock, net of offering costs of                                                      
    $3,863,691                                                                      9,628,000             - 
 Conversion of Series C preferred stock, Series B preferred stock, Series A                                 
    preferred stock and common stock to Series B common stock as follows:                                   
                                                                                                            
       Series C preferred stock; conversion ratio of                                        -             - 
         1.39:1, including anti-dilutive adjustments                                                        
                                                                                                            
       Series B preferred stock and common stock;                                           
         conversion ratio of 1:1                                                            -             - 

       Series A preferred stock; conversion ratio                                           
         of 1:10                                                                            -             - 
                                                                                                            
 Issuance of Series B common stock with warrants to purchase 6,666,666 shares
    Series B common stock, net of offering costs of                                                         
    $1,800,000                                                                      6,333,335             - 
                                                                                                            
 Issuance of warrants to purchase 3,713,094 shares                                                          
    of Series B common stock in connection with the                                                         
    issuance of 13% Senior Discount Notes                                          15,001,000             - 
                                                                                                            
 Exercise of options to purchase Series B common                                                            
    stock                                                                                   -             - 
                                                                                                            
 Establishment of $.0001 par value for Series A and                                                         
    B common stock in connection with Delaware                                                              
    reincorporation                                                                         -             - 
                                                                                                            
 Exercise of options to purchase Series B common
    stock - post Delaware reincorporation                                                                   
                                                                                                            
 Net loss for 1998                                                                          -             - 
                                                                               --------------    ------------
                                                                                                            
 BALANCE AT SEPTEMBER 30, 1998                                                    $31,963,295     $ (96,500)
                                                                               --------------    ------------
                                                                               --------------    ------------


                                                                                                        Total
                                                                                                    Stockholders'
                                                                                    Accumulated        Equity
                                                                                      Deficit        (Deficit)
                                                                                -----------------  --------------  
<S>                                                                             <C>                <C>
 BALANCE AT OCTOBER 1, 1995                                                         $ (1,348,410)      $ (69,097)  
                                                                                                                   
 Issuance of Series B preferred stock                                                                  2,355,226   
                                                                                                                   
 Issuance of Series B preferred stock for settlement                                                               
    of notes payable and for consulting services                                                          50,000   
                                                                                                                   
 Repurchase of Series A preferred stock                                                                  (29,750)  
                                                                                                                   
 Issuance of Series B preferred stock for property                                                                 
    and equipment                                                                                          8,332   
                                                                                                                   
 Issuance of common stock for notes receivable                                                                 -   
                                                                                                                   
 Exercise of options to purchase common stock for                                                                  
    shareholder notes receivable                                                                               -   
                                                                                                                   
 Net loss for 1996                                                                    (3,856,192)     (3,856,192)  
                                                                                -----------------  --------------  
                                                                                                                   
 BALANCE AT SEPTEMBER 30, 1996                                                        (5,204,602)     (1,541,481)  
                                                                                                                   
 Cancellation of shareholder notes receivable for                                                                  
    common stock repurchase                                                                                    -   
                                                                                                                   
 Repayment of shareholder notes receivable                                                                54,167   
                                                                                                                   
 Issuance of Series C preferred stock with warrants to purchase 520,000 shares
    of common stock, net                                                                                           
    of issuance costs of $704,638                                                                     12,295,362   
                                                                                                                   
 Issuance of common stock warrants as finders fees                                                        37,200   
                                                                                                                   
 Issuance of common stock warrant for cash                                                               200,000   
                                                                                                                   
 Exercise of options and warrants to purchase                                                                      
    common stock                                                                                          24,450   
                                                                                                                   
 Issuance of common stock warrants with debt                                                             747,760   
                                                                                                                   
 Net loss for 1997                                                                    (9,552,838)     (9,552,838)  
                                                                                -----------------  --------------  
                                                                                                                   
 BALANCE AT SEPTEMBER 30, 1997                                                       (14,757,440)      2,264,620   
                                                                                                                   
 Exercise of options to purchase common stock -                                                                    
    October 1997 to December 1997                                                              -          43,350   
                                                                                                                   
 Issuance of Series A common stock with warrants to purchase 10,135,164 shares
    of Series B common stock, net of offering costs of  $3,863,691                                    26,541,809

 Conversion of Series C preferred stock, Series B preferred stock, Series A                                        
    preferred stock and common stock to Series B common stock as follows:                                          
                                                                                                                   
       Series C preferred stock; conversion ratio of                      
         1.39:1, including anti-dilutive adjustments                                           -               -   
                                                                                                                   
       Series B preferred stock and common stock;                          
         conversion ratio of 1:1                                                               -               -   

       Series A preferred stock; conversion ratio
         of 1:10                                                                                                   
                                                                                                                   
 Issuance of Series B common stock with warrants to purchase 6,666,666 shares
    Series B common stock, net of offering costs of                                                                
    $1,800,000                                                                                 -      18,800,000   
                                                                                                                   
 Issuance of warrants to purchase 3,713,094 shares                                                                 
    of Series B common stock in connection with the                                                                
    issuance of 13% Senior Discount Notes                                                      -      15,001,000   
                                                                                                                   
 Exercise of options to purchase Series B common                                                                   
    stock                                                                                      -          55,901   
                                                                                                                   
 Establishment of $.0001 par value for Series A and                                                                
    B common stock in connection with Delaware                                                                     
    reincorporation                                                                            -               -   
                                                                                                                   
 Exercise of options to purchase Series B common                                                          22,500   
    stock - post Delaware reincorporation                                                                          
                                                                                                                   
 Net loss for 1998                                                                   (33,355,793)    (33,355,793)  
                                                                                -----------------  --------------  
                                                                                                                   
 BALANCE AT SEPTEMBER 30, 1998                                                     $ (48,113,233)   $ 29,373,387   
                                                                                -----------------  --------------  
                                                                                -----------------  --------------  

</TABLE>

         See accompanying notes to consolidated financial statements

                                      F-5

<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                            YEAR ENDED SEPTEMBER 30,
                                                             -----------------------------------------------------
                                                                   1998               1997              1996
<S>                                                          <C>                    <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                     $ (33,355,793)       $(9,552,838)    $ (3,856,192)
      Adjustments to reconcile net loss to net cash used 
        in operating activities:
          Depreciation and amortization                             2,424,466            501,354           75,258
          Amortization of deferred financing costs                  1,203,452             60,872                -
          Amortization of debt discount                            14,571,093             58,242                -
          Non-cash interest expense                                   293,264             37,782                -
          Extraordinary loss on extinguishment of debt              3,730,667            104,680                -
          Changes in assets and liabilities:
             Restricted cash related to operating activities           50,000            (50,000)               -
             Accounts receivable                                     (420,826)            29,954         (101,771)
             Interest receivable                                   (3,016,623)                 -                -
             Other assets                                            (314,350)           (98,219)        (116,117)
             Accounts payable and accrued expenses                  4,702,092          1,462,457        1,830,947
                                                             -----------------  -----------------   --------------

               Net cash used in operating activities              (10,132,558)        (7,445,716)      (2,167,875)
                                                             -----------------  -----------------   --------------


CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment                            (26,068,310)       (12,636,918)        (908,120)
   Purchases of held-to-maturity marketable securities           (236,701,191)                 -                -
   Maturities of held-to-maturity marketable securities            71,110,181                  -                -
   Procurement of patents                                                   -             (9,827)         (15,317)
                                                             -----------------  -----------------   --------------

               Net cash used in investing activities             (191,659,320)       (12,646,745)        (923,437)
                                                             -----------------  -----------------   --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of Senior Discount Notes and
      related warrants                                            250,205,000                  -                -
   Proceeds from issuance of Series A common stock and
      related warrants, net of offering costs                      26,136,309                  -                -
   Proceeds from issuance of Series B common stock and
   related
      warrants, net of offering costs                              18,800,000                  -                -
   Proceeds from stock option and warrant exercises                   121,751             24,450                -
   Proceeds from issuance of Series B preferred stock                       -                  -        2,355,226
   Proceeds from issuance of Series C preferred stock
      and related common stock warrants, net of
      offering costs                                                        -          4,528,862                -
   Proceeds from issuance of commons stock warrants                         -            200,000                -
   Proceeds from collection of stockholder receivables                      -             54,167                -
   Principal payments on capital leases                              (255,930)          (114,197)         (34,371)
   Proceeds from issuance of convertible bridge notes                       -          7,347,000          835,000
   Proceeds from draws under revolving credit facility and
      related warrants                                              3,796,262         12,172,592                -
   Proceeds from short-term borrowings and related warrants                 -          1,000,000                -
   Principal payments on short-term borrowings                       (550,000)          (500,000)               -
   Proceeds from other long-term debt                                       -                  -           27,510
   Principal payments on other long-term debt                         (11,471)           (26,643)         (26,934)
   Principal payments on revolving credit facility                (16,299,900)                                  -
   Payment of deferred financing costs                             (8,646,920)        (4,129,017)               -
                                                             -----------------  -----------------   --------------

               Net cash provided by financing activities          273,295,101         20,557,214        3,156,431
                                                             -----------------  -----------------   --------------

Net increase in cash and cash equivalents                          71,503,223            464,753           65,119

Cash and cash equivalents at beginning of period                      536,275             71,522            6,403
                                                             -----------------  -----------------   --------------

Cash and cash equivalents at end of period                      $  72,039,498          $ 536,275         $ 71,522
                                                             -----------------  -----------------   --------------
                                                             -----------------  -----------------   --------------
</TABLE>

         See accompanying notes to consolidated financial statements


                                     F-6

<PAGE>

<TABLE>
<CAPTION>
                                                                            YEAR ENDED SEPTEMBER 30,
                                                             -----------------------------------------------------
                                                                   1998               1997              1996
<S>                                                          <C>                    <C>             <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
   Cash paid during the period for interest                       $ 1,292,511          $ 440,178         $ 14,142

NON-CASH TRANSACTIONS:
   Property and equipment purchased under capitalized leases           45,221          7,097,437          105,808
   Issuance of Series B preferred stock for settlement of
      note payable, for consulting services received,
      and for procurement of property and equipment                         -                  -           58,332
   Issuance of common stock for stockholder receivables                     -                  -          173,167
   Issuance of note payable to repurchase Series A
      preferred stock                                                       -                  -           29,750
   Conversion of convertible bridge notes into Series C
      preferred stock and related warrants                                  -          7,776,500                -
   Conversion of convertible bridge notes into Series A
      common stock and related warrants                               405,000                  -                -
   Issuance of common stock warrants as finders fees                        -             10,000                -
   Non-cash deferred financing costs                                        -             27,200                -
   Issuance of note payable to vendor for up-front service            150,000                  -                -
      fees
   Issuance of note payable for consulting services received                -             50,000                -
   Cancellation of stockholder receivable for stock                         -             22,500                -
      repurchase
</TABLE>


         See accompanying notes to consolidated financial statements


                                     F-7

<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

NOTE 1 - THE COMPANY

FirstWorld Communications, Inc. (the Company) commenced operations on September
1, 1993 under the name SpectraNet International. On January 29, 1998, the
Company changed its name to FirstWorld Communications, Inc. Effective June 26,
1998, the Company changed its state of incorporation from California to Delaware
(Note 9). Prior to fiscal 1998, the Company was considered a development stage
enterprise, as defined in Statement of Financial Accounting Standards No. 7.

The Company is a facilities-based integrated communications provider. The
Company has a data-centric focus, with service offerings bundled to address the
data and voice communications needs of emerging businesses. The Company's
service offerings include data connectivity, high speed Internet access, local
and wide area network (LAN/WAN) connectivity, web hosting, video communications
and system integration services, as well as switch-based local and long distance
telephone services.


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of FirstWorld
Communications, Inc. and its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the financial statement date,
as well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities of
three months or less at the time of purchase to be cash equivalents. The Company
invests primarily in high-grade short-term investments which consist of money
market instruments and commercial paper.

MARKETABLE SECURITIES

Marketable securities consist principally 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 those securities to maturity. Such securities are
recorded at cost, which approximates fair value.

RESTRICTED CASH

Restricted cash in support of outstanding letters of credit totaled $50,000 at
September 30, 1997. No restricted cash exists at September 30, 1998.


                                    F-8

<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

REVENUE RECOGNITION

The Company recognizes service revenue on local competitive access services in
the month such services are provided. Billings to customers for services in
advance of providing such services are deferred and recognized as revenue when
earned. Other revenues consist primarily of royalties earned under a certain
patent licensing agreement and are recorded when earned and when payment is
reasonably assured.

During fiscal 1998, approximately 25% of the Company's service revenue was
derived from a single telecommunications customer. During fiscal 1997,
approximately 73% of the Company's service revenue was derived under
non-recurring service contracts with two governmental entities.

CONCENTRATION OF CREDIT RISK

The Company's financial instruments that are exposed to concentrations of credit
risk consist principally of cash equivalents, marketable securities and accounts
receivable. The Company places its short-term cash investments with high
credit-quality financial institutions while commercial paper investments are
placed with high credit-caliber corporate issuers. The Company limits the amount
of credit exposure in any one institution or type of investment instrument.
Credit risk with respect to accounts receivable is minimized because of the
diversification of the Company's commercial telecommunications customer base.
Credit is extended to commercial customers based on an evaluation of the
customer's financial condition and generally collateral is not required.
The Company maintains reserves for potential credit losses from such customers.

As of September 30, 1998 and 1997, approximately 25% and 70% of accounts
receivable, respectively, was due from a single customer.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost and is depreciated using the
straight-line method over the estimated useful lives of the assets. Costs
capitalized in connection with the development of communication networks include
expenses associated with network engineering, design and construction.
Depreciation of communications networks and related infrastructure commences
when the applicable network becomes commercially operational.

The estimated useful lives of the Company's principal classes of assets are as
follows:

<TABLE>
<S>                                                     <C>
Network infrastructure                                     20  years
Telecommunications                                      5 - 7  years
Building and improvements                                  30  years
Furniture, office equipment and other                   3 - 7  years
Leasehold improvements                                  Shorter of estimated useful life or lease term
</TABLE>

CAPITALIZATION OF INTEREST

Interest costs incurred during the period of time that internally constructed
assets are being made ready for their intended use are capitalized as part of
acquiring such assets to the extent that these interest costs relate to
financing obtained in order to prepare such assets for use. During fiscal 1998
and 1997, the Company capitalized approximately $450,000 and $52,000,
respectively, in interest costs associated with the development of the Company's
telecommunications networks.

                                    F-9

<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

DEFERRED FINANCING COSTS

Deferred financing costs include commitment fees and other costs related to
certain debt financing transactions and are being amortized over the term of the
related debt using the interest method.

DEBT DISCOUNT

Discounts recorded in connection with the issuance of debt financing are
deferred and amortized over the term of the related debt using the interest
method.

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 $141,000,000 at September 30, 1998. The carrying amount of such
Senior Discount Notes at September 30, 1998 is $249,596,346.

LONG-LIVED ASSETS

The Company assesses potential impairments to its long-lived assets when there
is evidence that events or changes in circumstances have made recovery of the
asset's carrying value unlikely. Potential impairment associated with network
infrastructure costs is measured on the basis of specific network projects. An
impairment loss would be recognized when the sum of the expected future net cash
flows is less than the carrying amount of the asset. No such impairment losses
have been identified by the Company during the fiscal years presented.

STOCK-BASED COMPENSATION ACCOUNTING

The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net loss as if the minimum value method had been applied in
measuring compensation expense. Compensation charges for non-employee
stock-based compensation is measured using fair value-based methods.

INCOME TAXES

Current income tax expense is the amount of income taxes expected to be payable
for the current year. A deferred tax asset or liability is computed for both the
expected future impact of differences between the financial statement and tax
bases of assets and liabilities and for the expected future tax benefit to be
derived from tax loss and tax credit carryforwards. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be "more likely than not" realized in future tax returns. Tax rate changes
are reflected in the statement of operations in the period such changes are
enacted.

                                    F-10

<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                       SEPTEMBER 30,
                                                                 1998                1997
<S>                                                             <C>                 <C>
Network infrastructure                                          $19,758,122         $12,636,955
Telecommunications equipment                                      8,971,835           5,048,156
Building and improvements                                         1,328,237           1,328,237
Furniture, office equipment and other                             4,447,438             976,341
Leasehold improvements                                              633,175             507,573
Construction in process                                          11,881,300             427,986
                                                                -----------         -----------

                                                                 47,020,107          20,925,248
Accumulated depreciation                                         (2,999,689)           (593,895)
                                                                -----------         -----------

                                                                $44,020,418         $20,331,353
                                                                -----------         -----------
                                                                -----------         -----------
</TABLE>

The following is a summary of property and equipment acquired under capital
leases, included in the above:

<TABLE>
<CAPTION>
                                                                       SEPTEMBER 30,
                                                                   1998                1997
<S>                                                             <C>                 <C>
Network infrastructure                                          $ 6,000,000         $ 6,000,000
Telecommunications equipment                                        218,747             218,747
Building and improvements                                           557,612             557,612
Furniture, office equipment and other                               519,761             474,540
                                                                -----------         -----------

                                                                  7,296,120           7,250,899
Accumulated depreciation                                           (613,035)           (191,847)
                                                                -----------         -----------

                                                                $ 6,683,085         $ 7,059,052
                                                                -----------         -----------
                                                                -----------         -----------
</TABLE>

NOTE 4 - SHORT-TERM BORROWINGS

On August 29, 1997, the Company obtained a $1,000,000, 18% per annum, short-term
bridge loan with an institutional lender which was due on October 15, 1997. On
September 17, 1997, the Company repaid $500,000 of the outstanding principal
balance associated with this loan, plus accrued interest thereon, and extended
the maturity date of the remaining principal balance of $500,000 to March 16,
1998 through the consummation of a new loan agreement with the lender.
Simultaneous to the execution of the new loan agreement on September 17, 1997,
which was considered to be a substantial modification of the original loan
agreement which it superseded, the Company recognized an extraordinary charge on
debt extinguishment totaling $104,680. The extraordinary charge consisted of the
write-off of unamortized debt discount and deferred financing costs associated
with the original bridge loan. The remaining $500,000 bridge loan balance was
repaid during January 1998.

On September 2, 1997, the Company issued a $50,000, 10% per annum, unsecured
promissory note to a financial adviser of the Company as payment for services
performed in connection with the attainment of debt financing.
The note was repaid on October 2, 1997.

                                          F-11

<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

NOTE 5 - LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                           SEPTEMBER 30,
                                                                                     1998                1997
<S>                                                                                <C>                   <C>
13% senior Discount Notes, net of unamortized discount totaling
$220,403,654 at September 30, 1998                                                 $249,596,346         $         -

14% Revolving Credit Facility, net of unamortized discount totaling
$463,513 at September 30, 1997                                                                -          11,746,861

14% unsecured term note  with a vendor; monthly installments of
principal and interest payable through December 2000                                    150,000                   -

Other                                                                                     9,262              17,868
                                                                                   ------------         -----------

                                                                                    249,755,608          11,764,729
Less current portion                                                                    (30,070)             (8,446)
                                                                                   ------------         -----------

                                                                                   $249,725,538         $11,756,283
                                                                                   ------------         -----------
                                                                                   ------------         -----------
</TABLE>

Aggregate principal maturities of long-term debt are as follows:

<TABLE>
<S>                                                            <C>
FISCAL YEAR
1999                                                           $      30,070
2000                                                                  88,514
2001                                                                  40,678
2002                                                                       -
2003                                                                       -
Thereafter                                                       470,000,000
                                                               -------------

                                                                 470,159,262
Less unamortized discount on the 13% Senior Discount Notes      (220,403,654)
                                                               -------------

                                                               $ 249,755,608
                                                               -------------
                                                               -------------
</TABLE>


SENIOR DISCOUNT NOTES

On April 13, 1998, the Company completed an offering of debt securities pursuant
to Rule 144A under the Securities Act of 1933, as amended (the Act), for gross
proceeds of $250,205,000 (the High Yield Debt Offering). In the High Yield Debt
Offering, the Company sold 470,000 units consisting of 13% Senior Discount Notes
due 2008 (the Notes) and warrants to purchase an aggregate of 3,713,094 shares
of the Company's Series B common stock (Note 10). The Company allocated
$235,204,000 of the proceeds to the Notes and $15,001,000 to the warrants,
representing their estimated fair value at the date of issuance as determined
via an independent valuation.

                                        F-12
<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

The Notes will accrete in value through April 15, 2003 at a rate of 13% per 
annum, compounded semi-annually, at which time $470,000,000 in aggregate 
principal amount at maturity will be outstanding. Cash interest will neither 
accrue nor be payable prior to April 15, 2003. Thereafter, cash interest on 
the Notes will accrue and will be payable semiannually in arrears on each 
April 15 and October 15, commencing October 15, 2003, at a rate of 13% per 
annum. The Company is not required to make mandatory redemption or sinking 
fund payments with respect to the Notes prior to maturity. The Notes are 
redeemable at the option of the Company, in whole or in part, at any time on 
or after April 15, 2003, at a premium declining to par on April 15, 2006, 
plus accrued and unpaid interest through the date of redemption. In the event 
of a change in control, as defined in the indenture governing the Notes, the 
holders of the Notes will have the right to require the Company to purchase 
their Notes in an amount equal to 101% of the aggregate principal amount at 
maturity or accreted value thereof, as applicable, plus accrued and unpaid 
interest to the date of purchase.

The indenture pursuant to which the Notes are issued contains certain 
covenants which, among other things, limit the ability of the Company and its 
subsidiaries to incur additional indebtedness, issue stock in subsidiaries, 
pay dividends or make other distributions, engage in sale and leaseback 
transactions, create certain liens, enter into certain transactions with 
affiliates, sell assets of the Company and its subsidiaries, and enter into 
certain mergers and consolidations. The Company is in compliance with such 
covenants at September 30, 1998.

REVOLVING CREDIT FACILITY

On September 16, 1997, the Company entered into a five-year $23,000,000 
revolving credit facility (the Credit Facility) with a syndicate of lenders 
(the Lenders) to provide financing for the construction of telecommunication 
networks and for general working capital purposes. The Company terminated 
this facility April 13, 1998, concurrent with the closing of the High Yield 
Debt Offering, and paid the Lenders a $1,000,000 termination fee pursuant to 
the terms thereof. The Company has recorded an extraordinary loss of 
$4,730,667 associated with such debt extinguishment, which loss is inclusive 
of the aforementioned termination fee and the write-off of unamortized debt 
discount and deferred financing costs associated with the Credit Facility.

NOTE 6 - CONVERTIBLE BRIDGE NOTES

Convertible bridge notes outstanding at September 30, 1997 consist of 
$405,500 in principal funding received through the issuance of 8% 
subordinated, convertible bridge notes pursuant to a private placement in 
fiscal 1997. On December 30, 1997, such convertible bridge notes were 
converted into shares of the Company's Series A common stock and related 
warrants at the conversion rate of $3.00 per share (Note 9).

NOTE 7 - COMMITMENTS

LEASE COMMITMENTS

The Company leases its office space, certain network access facilities and 
fiber transport, and automobiles under noncancelable operating lease 
arrangements which expire on varying dates through fiscal 2008. Rent expense 
under noncancelable operating leases totaled $549,400, $361,156, and 
$108,429, during each of fiscal 1998, 1997 and 1996, respectively.

The Company has procured certain of its property and equipment, including its 
Anaheim network central office switching facility, through capital leases 
which expire through fiscal 2001. Additionally, the Company has accounted for 
certain agreements with the City of Anaheim, as more fully described below 
and which extend through fiscal 2027, as both capital leases and executory 
contracts in the accompanying financial statements.


                                     F-13

<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

Future minimum payments under capital leases (inclusive of the minimum 
payments allocated from the agreements with the City of Anaheim) and 
noncancelable operating leases are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR                                          CAPITAL            OPERATING
                                                     LEASES              LEASES
<S>                                              <C>                 <C>
1999                                                  $1,539,459          $1,206,955
2000                                                   1,396,141           1,190,403
2001                                                   1,289,953           1,205,561
2002                                                   1,277,226           1,112,133
2003                                                   1,277,226             223,713
Thereafter                                            30,014,822             462,916
                                                 ----------------    ----------------

Total minimum lease payments                          36,794,827          $5,401,681
                                                 ----------------    ----------------
                                                                     ----------------

Amount representing interest                         (29,892,444)
                                                 ----------------


Present value of minimum lease payments               $6,902,383
                                                 ----------------
                                                 ----------------
</TABLE>

COMMITMENTS RELATING TO AGREEMENTS WITH THE CITY OF ANAHEIM

During February 1997, the Company and its wholly-owned subsidiary FirstWorld 
Anaheim (FWA) entered into a 30-year Universal Telecommunications System 
Participation Agreement (as amended, the UTS Agreement) with the City of 
Anaheim, California (the City), under which FWA has agreed to design, construct
and operate a fiber-optic telecommunications network in cooperation with the 
City. The UTS Agreement requires FWA to pay to the City (i) an annual payment 
in lieu of a franchise fee based on a percentage of FWA's "adjusted gross 
revenues," as defined, related to the Anaheim network, subject to a minimum 
annual payment of $1,000,000 for periods after June 30, 1999 through the term 
of the agreement, (ii) a percentage of FWA's "net revenues," as defined, 
derived from the Anaheim network, (iii) certain of the City's annual 
operating costs associated with the UTS Agreement, not to exceed $175,000 per 
year prior to the commencement of the third phase of the Anaheim network (as 
discussed below), and not to exceed $350,000 per year thereafter, subject to 
inflationary adjustments, and (iv) $20,000 per year to support the City's 
presence on the Internet, subject to inflationary adjustments. The UTS 
Agreement also requires the Company to deposit an amount equal to up to 15% 
of "net revenues" derived from the Anaheim network, as defined, to fund and 
maintain a $6,000,000 reserve account for debt service and capital 
improvements. As of September 30, 1998, no amounts have been deposited into 
such reserve account as "net revenues" have not yet been generated from the 
Anaheim network. Pursuant to the UTS Agreement, the City has been granted an 
irrevocable option to purchase all of the issued and outstanding stock of FWA 
at anytime after July 1, 2012 for its then current appraised fair value, the 
determination of which is to be derived by qualified independent appraisers 
selected by both the Company and the City, as more specifically defined 
within the UTS Agreement. Any sale or issuance of FWA stock can only be made 
if such sale or issuance is expressly made subject to the City's purchase 
option. Moreover, any sale of the Anaheim network or other sale of 
substantially all of FWA's assets can only be made if the City is equitably 
compensated for the loss of its future income stream under the UTS Agreement 
or the buyer expressly assumes the obligations of FWA under the UTS Agreement.

Simultaneous to the execution of the UTS Agreement, FWA entered into a 
30-year Agreement for Use of Operating Property (the Operating Property 
Agreement) with the City under which FWA has been granted the exclusive right 
to lease 60 of 96 fiber strands contained in an approximate 50 mile loop of 
fiber optic cable owned by the City, 


                                     F-14

<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

together with related facilities and rights. Under the terms of the Operating 
Property Agreement, the Company is obligated to make quarterly payments to 
the City in the amount of $113,862. In addition, the Company is obligated to 
pay all costs associated with operating and maintaining the leased property, 
including maintenance expenses, taxes, insurance premiums and pole usage 
fees. FWA has the right to assign its rights under the Operating Property 
Agreement, but will not be released from liability unless the City expressly 
consents. FWA also has the right to encumber its interest in the leased 
property.

Although the Company considers the Operating Property Agreement to be a 
capital lease and the UTS Agreement to be an executory contract, certain of 
the minimum payments prescribed by the UTS Agreement have been accounted for 
as additional minimum capital lease payments. The Operating Property 
Agreement and the UTS Agreement were bid, negotiated and consummated 
simultaneously with each other. In addition, both agreements have identical 
30-year terms and include certain cross-default provisions. Moreover, the 
Operating Property Agreement contains payment terms which are below the fair 
value of the benefits conferred by such agreement; whereas, the UTS Agreement 
contains payment terms which are above the fair value of the benefits 
conferred by such agreement. Accordingly, the Company has allocated the 
collective payments prescribed by the agreements between the two contracts 
based upon the estimated fair value of the benefits the Company receives 
under each of the two agreements. Future minimum payments prescribed by the 
UTS Agreement and not allocated to the capital lease total $239,555, 
$373,220, $373,220, $373,220, $373,220 and $8,770,670 during each of fiscal 
1999, 2000, 2001, 2002, 2003 and thereafter, respectively.

Pursuant to the UTS Agreement, FWA is required to meet certain future 
performance requirements for the completion of network design and the 
commencement of network construction related to certain phases of the 
city-wide network. The first phase, which extended service to identified 
municipal facilities, was substantially completed in October 1997. The second 
phase requires service to be extended in the ordinary course of business 
(i.e., within six months following execution of a customer service agreement) 
to commercial, industrial and governmental customers within certain defined 
service areas.  The Company was required to complete 44% of the first and 
second phases by April 1, 1998 and is further required to complete 90% of the 
first and second phases by December 31, 1998, plus a 180-day cure period in 
each case.  The Company has constructed and installed the necessary 
infrastructure to satisfy the 44% completion requirement and expects that the 
completion of infrastructure currently under construction and approved for 
construction will satisfy the 90% completion requirement in a timely manner.  
In the event that FWA does not meet the specified performance deadlines 
related to completion of the first and second phases of the Anaheim network 
due to financial or other reasons, the City may elect to either terminate the 
Operating Property Agreement or to immediately exercise its option to 
purchase all of the issued and outstanding stock of FWA under the same option 
terms, as defined within the UTS Agreement, which otherwise do not become 
effective until after July 1, 2012.  Any termination of the Operating 
Property Agreement would have a material adverse effect on the Company's 
business, financial condition and results of operations.

Under the UTS Agreement, the third phase of the Anaheim network, which allows 
service to be extended in the ordinary course of business to all customers 
within the city, including residential customers, will be commenced only 
after the economic feasibility of the third phase is validated by an 
independent consultant's report and financing is arranged. FWA has agreed to 
cause a feasibility study with respect to the third phase to be completed no 
later than January 1, 2000, and thereafter to provide annual updates to the 
study if  necessary. If the Company determines not to proceed with the 
development of the third phase of the Anaheim network, or if for any reason 
the principal financing  for the third phase is not funded or construction of 
the third phase is not commenced by December 31, 2002, then the City may 
pursue development of the  third phase on its own.  

The UTS Agreement also requires FWA to commence construction of a 
demonstration center in the City's downtown area by November 30, 1998, and to 
complete such demonstration center by June 30, 1999. However, as a result of 
a change in the proposed scope of the project, FWA now contemplates leasing 
additional office space in the downtown area of Anaheim and housing a 
demonstration center in the leased facilities.  The Company expects the 
demonstration center to be operational prior to March 31, 1999. Although 
the Company believes that it is in compliance with its obligations with 
respect to the demonstration center, the City has asserted its belief that 
the Company is not satisfying such obligations.  The parties are currently in 
the process of attempting to resolve these issues.  The Company does not 
believe that the ultimate resolution will have a material adverse effect on 
the Company's results of operations, liquidity or financial position.

Pursuant to a Development Fee Arrangement dated simultaneous to the 
aforementioned City agreements, for a period of five years, commencing with 
the earlier to occur of the closing of the financing for or the commencement 
of construction of the first Additional Network (as defined below), the 
Company must pay to the City a lump sum development fee for each Additional 
Network which the Company develops ($300,000 for each Additional Network 
financed in the first year; $200,000 for each Additional Network financed in 
the second year; and $100,000 for each Additional Network financed in the 
third, fourth and fifth years, which amounts must be paid within thirty days 


                                     F-15

<PAGE>


FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

following the closing of the principal financing for an Additional Network or 
the commencement of construction of such Additional Network, whichever occurs 
first). "Additional Network" means (a) any expansion of the Anaheim network 
into one or more adjacent or nearby cities where FWA enters into a revenue 
sharing agreement with any such city, and (b) any separate communications 
system developed by any other subsidiary of the Company that holds a 
Certificate of Public Convenience and Necessity issued by the Public 
Utilities Commission and enters into a revenue sharing agreement with one or 
more public entities.

COMMITMENTS RELATING TO AGREEMENTS WITH THE IRVINE COMPANY

On March 5, 1998, FirstWorld Orange Coast (FWOC), a wholly-owned subsidiary 
of the Company, and The Irvine Company entered into two agreements regarding 
FWOC's development of a network to serve certain areas that have been or are 
planned to be developed by The Irvine Company (the Irvine Network). The 
Company has guaranteed the payment obligations of FWOC under each of such 
agreements.

Pursuant to an Agreement for Lease of Telecommunications Conduit dated as of 
March 5, 1998 (the Conduit Lease), FWOC leases from The Irvine Company space 
within two underground telecommunications tubes (the Conduit), and, in 
connection therewith, has received the non-exclusive right to use undivided 
space within the pull boxes serving such Conduit (collectively, the Leased 
Premises). The Conduit Lease applies to (i) an existing Conduit system within 
certain already-developed areas in the Irvine Spectrum and (ii) Conduit to be 
constructed in the future in the as yet undeveloped areas of the Irvine 
Spectrum. The Irvine Company may also install Conduit in other areas it may 
develop in the cities of Irvine, Newport Beach and Tustin, and in 
unincorporated areas of Orange County, and such areas may in the future be 
incorporated into the Conduit Lease upon the mutual agreement of the parties 
(Additional Areas). The term of the Conduit Lease runs through December 31, 
2027.

The Conduit Lease obligates FWOC to install fiber optic cable (Cable) in the 
Conduit pursuant to a phasing plan. A phase is completed when sufficient 
Cable has been installed to enable FWOC to connect and provide service (for 
that portion of the Irvine Network) to property abutting the Conduit. Upon 
termination of the agreement, the Cable will be owned by The Irvine Company. 
If FWOC fails to complete installation of the required Conduit within 18 
months following March 5, 1998, The Irvine Company may, until such 
installation is completed, terminate the Conduit Lease.

The Conduit Lease obligates FWOC to make quarterly rent payments to The 
Irvine Company based upon its "adjusted gross revenue", as defined, from the 
Irvine Network. In addition, FWOC is obligated to pay all costs associated 
with its lease, operation, maintenance, repair and use of the Leased 
Premises, including maintenance expenses, taxes and insurance premiums. Any 
assignment of FWOC's rights under the Conduit Lease and any sale of a 
controlling interest in FWOC require The Irvine Company's prior approval, and 
The Irvine Company has a right of first refusal in the event of any such 
proposed sale.

Based upon its term, the Conduit Lease is a capital lease. However, as such 
lease does not prescribe any fixed rental payments and as it is not 
practicable for the Company to estimate any future probable contingent rental 
payments associated with such lease, no amount has been capitalized in the 
accompanying Consolidated Financial Statements. Contingent rental payments 
associated with this lease are recorded as additional operating expenditures 
when they become due pursuant to the lease.

Concurrently with the execution of the Conduit Lease, FWOC and The Irvine 
Company executed a Telecommunications System License Agreement (the License 
Agreement) which provides FWOC, with some exceptions, with the right and 
obligation to provide telecommunications services to (i) the 106 buildings 
currently owned by The Irvine Company in the Irvine Spectrum area, (ii) 
commercial, industrial and retail buildings in the future owned by The Irvine 
Company in the Irvine Spectrum, and (iii) under certain circumstances in The 
Irvine Company's discretion, similar buildings located in the Additional 
Areas and other locations in California.


                                     F-16

<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

The License Agreement requires FWOC to pay The Irvine Company a license fee 
each calendar quarter, subject to an annual CPI increase that will not be 
less than 2% or greater than 6%. The base license fee was initially $62,500 
for the buildings owned by Irvine in the Irvine Spectrum area at the time 
that the License Agreement was consummated. Pursuant to the License 
Agreement, such fee is increased or decreased over its term based on the 
rentable square footage of the buildings that are from time to time subject 
to the License Agreement. As of September 30, 1998, such fee totals $88,000 
per calendar quarter. Future minimum payments prescribed by the License 
Agreement, based upon this current fee and assuming a 2% per annum upward CPI 
adjustment over its term, total approximately $359,000, $366,000, $374,000, 
$381,000, $389,000 and $11,747,000 during each of fiscal 1999, 2000, 2001, 
2002, 2003 and thereafter, respectively.

The License Agreement provides FWOC with the right to install, maintain, 
operate, replace and remove Cable and associated communications equipment 
(Equipment) in, as well as access rights to, such buildings, subject to the 
rights of The Irvine Company's tenants and to reasonable requirements and 
procedures imposed by The Irvine Company. Except with respect to buildings 
that are leased to a single tenant, The Irvine Company is required to provide 
FWOC with a reasonable amount of equipment room space in each building, 
sufficient to enable FWOC to install Cable and Equipment and deliver 
services. FWOC's rights to a building are non-exclusive, meaning that The 
Irvine Company can grant similar licenses to other service providers. 
Although all the Cable becomes the property of The Irvine Company upon 
termination of the License Agreement, FWOC has the right to remove and retain 
ownership of the Equipment, subject to The Irvine Company's election to 
purchase the Equipment at a price to be negotiated by the parties.

Subject to certain qualifications, FWOC will have the obligation to provide 
telecommunications services to any tenant who wishes to subscribe with FWOC 
for those services, and FWOC is required to install Cable and Equipment in 
that tenant's building if FWOC owns or leases Conduit located within 1,000 
feet of that building. Under certain circumstances, FWOC may be required to 
provide completion and performance bonds to The Irvine Company in connection 
with that work.  To the extent that FWOC provides fiber optic service to a 
building, it is required to achieve and maintain standards of minimum 
reliability. Subject to force majeure, if there is a system-wide failure to 
provide such service that exceeds five consecutive days, The Irvine Company 
has the right to use the network (and if necessary bring in an alternative 
service provider) and to charge its costs to FWOC.

Whenever FWOC is the first competitive access provider to a building, it is 
required to install a building entrance conduit system (which connects the 
building to the street access point) (a BECS), with a capacity equal to 200% 
of the capacity required by FWOC to service the building. The Irvine Company 
can grant other providers the right to use that BECS, but must pay or cause 
that provider to pay FWOC 50% of FWOC's cost of installing the BECS, which 
costs are subject to increase based on a CPI calculation. Where a BECS 
already exists, The Irvine Company must make any excess capacity therein 
available to FWOC.

OTHER COMMITMENTS

The Company is party to a contract with a long distance carrier pursuant to 
which the Company is committed to minimum service fees. Such minimum fees 
aggregate $487,500 and $1,437,500 during fiscal 1999 and 2000, respectively.

The Company is party to a network services agreement with a provider of 
voicemail and data services under which future minimum payments aggregate 
$239,040, $286,560 and $23,880 during fiscal 1999, 2000 and 2001, 
respectively. Additionally, the Company is party to an agreement with a 
provider of data processing and billing services under which future minimum 
payments aggregate $150,000 during each of fiscal 1999, 2000 and 2001.

During fiscal 1998, the Company entered into separate management consulting 
service agreements with its two majority shareholders (or affiliates thereof) 
whereby such parties will provide general management consulting services to 
the Company for a period of three years commencing January 1, 1998. Pursuant 
to such agreements, as 


                                     F-17

<PAGE>

amended, the Company is required to pay to the related parties aggregate 
consulting fees totaling $500,000 per annum. Related party consulting fees 
recorded by the Company during fiscal 1998 totaled $840,000. Future minimum 
consulting fees under these agreements aggregate $1,000,000, $1,000,000 and 
$250,000 during each of fiscal 1999, 2000 and 2001, respectively.

The Company is party to an arrangement with the owner of a retail development 
located in Orange County, California, whereby it is required to remit to the 
owner of such development a percentage of "adjusted gross revenues", as 
defined, derived from serving tenant customers located within such 
development.

NOTE 8 - CEO EMPLOYMENT AGREEMENT

On September 28, 1998, the Company entered into an Employment Agreement (the 
Employment Agreement) pursuant to which the Company retained the services of 
a new President and Chief Executive Officer (the CEO) effective October 1, 
1998 (the Commencement Date). The Employment Agreement has a three-year term 
ending on the close of business on September 30, 2001, unless terminated 
earlier by either party, and provides an initial annual base salary of 
$200,000 per annum. Additionally, the Employment Agreement granted the CEO an 
Equalization Payment (as defined within the Employment Agreement) in the 
amount of $4,000,000, payable in three separate installments. The first 
$2,000,000 installment became due and was paid on October 1, 1998, the 
employment Commencement Date, while the second and third $1,000,000 
installments are due and payable on October 1, 1999 and October 1, 2000, 
respectively. The CEO must be employed by the Company on the date that the 
second and third installments become due to be eligible to receive such 
payments unless the Company terminates the CEO's employment other than for 
cause or the CEO terminates his own employment for good reason (as defined in 
the Employment Agreement) prior to the installment date. In addition, the CEO 
may elect to receive all or any portion of the second and third installment 
payments in the form of the Company's Series B common stock. If the CEO 
elects to receive any of the second or third installment payments in Series B 
common stock, such stock shall be valued at $5.00 and $7.50 per share, 
respectively.

The Employment Agreement stipulates that the CEO will also be eligible for 
the following performance-based bonuses: (i) if the Company consummates a 
Qualified Initial Public Offering (as defined in the Employment Agreement) 
with a price of at least $10.00 per share (subject to adjustment as set forth 
in the Employment Agreement) within the first 18 months after the 
Commencement Date, the Company will pay the CEO a $1,000,000 cash bonus; (ii) 
if the Company consummates a Qualified Initial Public Offering with a price 
of at least $10.00 per share (subject to adjustment as set forth in the 
Employment Agreement) within the first 12 months after the Commencement Date, 
the Company will be obligated to pay the CEO a $4,207,500 cash bonus on 
September 30, 2001 (unless otherwise accelerated as described in the 
Employment Agreement); (iii) if the Company consummates a Qualified Initial 
Public Offering with a price of at least $12.50 per share (subject to 
adjustment as set forth in the Employment Agreement) within the first 24 
months after the Commencement Date, the Company will be obligated to pay the 
CEO a $8,415,000 cash bonus on September 30, 2001 (unless otherwise 
accelerated as described in the Employment Agreement); provided that if the 
CEO earns the payment described in this clause (iii) he will not be entitled 
to receive the payment described in clause (ii) above; and (iv) if the 
Company has a market capitalization of at least $1.2 billion (as adjusted as 
described in the Employment Agreement) for a period of 20 consecutive trading 
days during a three-year period beginning on the Commencement Date, the 
Company will be obligated to pay the CEO a cash payment equal to $16,830,000 
minus any amounts he receives pursuant to clause (ii) or (iii) above on 
September 30, 2001 (unless otherwise accelerated as described in the 
Employment Agreement).

The Employment Agreement also granted the CEO on October 1, 1998 an option to 
purchase 2,805,000 shares of Series B common stock at an exercise price of 
$6.00 per share (subject to anti-dilution protections set forth in the 
Employment Agreement). The option vests (i) with respect to 1/3 of the shares 
covered by the option on the Commencement Date, (ii) with respect to 1/3 of 
the shares covered by the option on the first anniversary of the Commencement 
Date and (iii) with respect to the remaining 1/3 of the shares covered by the 
option on the second anniversary of the Commencement Date (unless otherwise 
accelerated in accordance with the terms of the Employment Agreement).


                                     F-18

<PAGE>


FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 9 - STOCKHOLDERS' EQUITY

EQUITY RECAPITALIZATION

On December 30, 1997, the Company (i) converted its three existing classes of 
preferred stock into common stock in accordance with the automatic conversion 
provision of its then existing charter in order to simplify the Company's 
capital structure and to eliminate the rights, preferences and privileges of 
the preferred stock; (ii) amended its Articles of Incorporation to 
substantially increase the Company's authorized capital; and (iii) amended 
its Articles of Incorporation to designate two series of common stock, with 
the investors in the below-referenced private placement occurring on December 
30, 1997 receiving Series A common stock and all then existing shares of 
common stock (including common stock issued upon conversion of the then 
existing preferred stock) being designated as Series B common stock. The 
Series A common stock and Series B common stock are identical in all material 
respects, except that the holders of Series A common stock possess ten votes 
per share on all matters subject to a vote of shareholders while the holders 
of Series B common stock possess one vote per share. Pursuant to the amended 
Articles of Incorporation, the Company may also issue Preferred stock from 
time to time in one or more series. As of September 30, 1998, no such 
preferred stock has been issued.

PRIVATE PLACEMENTS

On April 13, 1998, the Company consummated a private placement of equity 
securities with Spectra 3 and Enron (the Additional Equity Investment) 
pursuant to the exercise of an existing option held by Spectra 3 and Enron. 
Pursuant to the Additional Equity Investment, the Company sold to each of 
Spectra 3 and Enron 3,333,333 shares of Series B common stock, resulting in 
aggregate offering proceeds totaling $18,800,000, net of offering 
commissions. In connection with this private placement, the Company also 
issued to Spectra 3 and Enron warrants to purchase an additional 3,333,333 
shares of Series B common stock (Note 10).

On December 30, 1997, the Company consummated a private placement of equity 
securities with Colorado Spectra 3, LLC (Spectra 3) and Enron Capital & Trade 
Resources Corp. (Enron). In connection with this placement, the Company 
issued 5,000,000 shares of newly created Series A common stock to each of 
Spectra 3 and Enron at an issue price of $3.00 per share pursuant to a common 
stock purchase agreement by and among the Company, Enron, Spectra 3 and the 
holders (the Noteholders) of $405,500 in principal amount of the Company's 
convertible subordinated bridge notes (Note 6). The Company also issued an 
aggregate of 135,164 shares of Series A common stock to the Noteholders upon 
the automatic conversion of the bridge notes pursuant to the terms thereof at 
a conversion price of $3.00 per share. Aggregate proceeds from this offering, 
exclusive of the conversion of the bridge notes, totaled 
$26,136,309, net of offering commissions and certain other advisory fees paid 
in connection with the consummation of this equity placement. In connection 
with this private placement, the Company also issued i) to each of Spectra 3 
and Enron warrants to purchase 5,000,000 shares of newly created Series B 
common stock, and ii) to the Noteholders warrants to purchase an aggregate of 
135,164 shares of such Series B common stock (Note 10).

On January 31, 1997, in connection with a private placement offering, the 
Company issued 2,600,000 shares of Series C preferred stock, consisting of 
1,044,700 shares issued for cash proceeds totaling $4,518,862, net of 
placement agent commissions and related fees, and 1,555,300 shares issued 
through the retirement of convertible bridge notes at $5.00 per share. In 
connection with this offering, the holders of Series C shares also received 
warrants for the purchase of 520,000 shares of common stock (Note 10).

During fiscal 1996, in connection with various private placement offerings, 
the Company issued 1,142,304 shares of Series B preferred stock for proceeds 
totaling $2,355,226.


                                     F-19

<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

DELAWARE REINCORPORATION

Effective June 26, 1998, the Company changed its state of incorporation from 
California to Delaware. In connection therewith, a par value equal to $.0001 
per share was assigned to each series of common and preferred stock. As a 
result, the Consolidated Statement of Stockholders' Equity for fiscal 1998 
reflects a reclassification to additional paid-in capital for the amounts in 
excess of par value.

NOTE 10 - WARRANTS

During fiscal 1998, 1997 and 1996, the Company's non-employee warrant 
activity was as follows:

In connection with the High Yield Debt Offering which was consummated on 
April 13, 1998, the Company issued to the initial purchasers of the Notes 
warrants to purchase 3,713,094 shares of Series B common stock at an exercise 
price of $0.01 per share. Such warrants are exercisable at any time on or 
after the earlier to occur of May 1, 1999, an initial public offering of the 
Company's common stock or in the event of a change in control, as defined in 
the warrant agreement, and expire on April 15, 2008. Such warrants contain 
customary adjustments to protect against dilution, as well as certain 
additional anti-dilutive adjustments as defined in the warrant agreement. As 
of September 30, 1998, all of these warrants remain outstanding.

In connection with the April 13, 1998 private placement of Series B common 
stock, the Company issued warrants for the purchase of 6,666,666 shares of 
Series B common stock to the investors therein. Such warrants were issued with 
an exercise price of $3.00 per share, contain customary adjustments to 
protect against dilution, and may be exercised at any time prior to the first 
to occur of (i) April 13, 2005; (ii) the merger of the Company with or into 
another entity in which the shareholders of the Company immediately prior to 
the merger own less than 50% of the voting securities of the surviving entity 
immediately following the merger; and (iii) the sale by the Company of all or 
substantially all of its assets. As of September 30, 1998, all of these 
warrants remain outstanding.

In connection with the December 1997 private placement of Series A common 
stock, the Company issued warrants for the purchase of 10,135,164 shares of 
Series B common stock to the investors therein. Such warrants were issued 
with an exercise price of $3.00 per share, contain customary adjustments to 
protect against dilution, and may be exercised at any time prior to the first 
to occur of (i) December 30, 2004; (ii) the merger of the Company with or 
into another entity in which the shareholders of the Company immediately 
prior to the merger own less than 50% of the voting securities of the 
surviving entity immediately following the merger; and (iii) the sale by the 
Company of all or substantially all of its assets. As of September 30, 1998, 
all of these warrants remain outstanding.

In connection with the private placement of Series A common stock referred to 
above, the Company also issued to certain financial advisors warrants to 
purchase 17,500 and 30,000 shares of Series B common stock at exercise prices 
of $6.00 and $5.00, respectively, all of which have terms of five years and 
contain customary adjustments to protect against dilution. As of September 
30, 1998, all of these warrants remain outstanding.

During fiscal 1997, in connection with the attainment of a revolving credit 
facility, the Company issued to the lender warrants to purchase 800,000 
shares of common stock. Such warrants were issued with an exercise price of 
$6.00 per share, a term of five years, and contain customary adjustments to 
protect against dilution, as well as certain additional anti-dilutive 
adjustments as defined in the warrant agreement. As a result of the capital 
transaction and the equity recapitalization which occurred on December 30, 
1997, these warrants are currently exercisable into 800,000 shares of Series 
B common stock at an exercise price of $3.00 per share. As of September 30, 
1998, all of these warrants remain outstanding.

In connection with the consummation of the credit facility described above, 
the Company also issued to certain financial advisors warrants to purchase 
83,400 shares of common stock, which warrants have an exercise price of $6.00 
and a term of five years. As a result of the equity recapitalization which 
occurred on December 30, 1997, these warrants are currently exercisable into 
shares of Series B common stock. As of September 30, 1998, all of these 
warrants remain outstanding.

During fiscal 1997, in connection with the attainment of short-term bridge 
financing, the Company issued to the lender warrants to purchase 300,000 
shares of common stock. Such warrants were issued with an exercise price of 
$6.00 per share, a term of seven years, and contain customary adjustments to 
protect against dilution, as well as certain additional anti-dilutive 
adjustments as defined in the warrant agreements. As a result of the capital 
transaction and the equity recapitalization which occurred on December 30, 
1997 and the capital transaction occurring on April 13, 1998, such warrants 
are currently exercisable into 470,092 shares of Series B common stock 


                                     F-20

<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

at an exercise price of $3.83 per share. As of September 30, 1998, all of 
these warrants remain outstanding.

During fiscal 1997, in connection with the issuance of convertible bridge 
notes, warrants for the purchase of 33,789 shares of common stock were issued 
to the note holders. Such warrants, which expire in July 2002, have an 
exercise price of $6.00 per share and contain customary adjustments to 
protect against dilution. As a result of the equity recapitalization which 
occurred on December 30, 1997, these warrants are currently exercisable into 
shares of Series B common stock. As of September 30, 1998, all of these 
warrants remain outstanding.

During fiscal 1997, the Company issued to certain legal service providers 
warrants to purchase 19,000 and 5,000 shares of common stock at exercise 
prices of $.50 and $5.00, respectively. Such warrants have terms of five 
years and contain customary adjustments to protect against dilution. As a 
result of the equity recapitalization which occurred on December 30, 1997, 
these warrants are currently exercisable into shares of Series B common 
stock. As of September 30, 1998, all of these warrants remain outstanding.

During fiscal 1997, the Company issued a warrant for the purchase of 800,000 
shares of common stock to a single investor for cash proceeds totaling 
$200,000, which warrant has a term of five years. As issued, the original 
warrant agreement contained a complex anti-dilution provision pursuant to 
which the number of underlying common shares and exercise price per common 
share would have been adjusted based upon the occurrence of certain future 
events, as defined in the warrant agreement. On December 30, 1997, the 
warrant agreement was amended whereby the number of shares purchasable under 
the warrant was set at 2,110,140 shares of Series B common stock with an 
exercise price of $1.80 per share. This warrant, as amended, remains subject 
to certain customary adjustments to protect against dilution. As of September 
30, 1998, no shares have been issued pursuant to this warrant.

In connection with a fiscal 1997 private placement of Series C preferred 
stock, the Company issued warrants for the purchase of 520,000 shares of 
common stock to the investors. Such warrants were issued with an exercise 
price of $5.00 per share, a term of five years, and contain customary 
adjustments to protect against dilution, as well as certain additional 
anti-dilutive adjustments as defined in the warrant agreements. As a result 
of the capital transactions which occurred on December 30, 1997 and April 13, 
1998, such warrants are currently exercisable into 736,564 shares of Series B 
common stock at an exercise price of $3.53 per share. As of September 30, 
1998, all of these warrants remain outstanding.

In connection with the private placement of Series C preferred stock referred 
to above, the Company also issued to certain financial advisors warrants to 
purchase 218,118 and 15,000 shares of common stock at exercise prices of 
$5.00 and $.50, respectively, all of which have terms of five years and 
contain customary adjustments to protect against dilution. During fiscal 
1997, 5,000 of the $.50 warrants were exercised for proceeds totaling $2,500. 
As a result of the equity recapitalization which occurred on December 30, 
1997, the remaining outstanding warrants are currently exercisable into 
shares of Series B common stock. As of September 30, 1998, all of the 
remaining warrants remain outstanding.

As a result of the equity recapitalization which occurred on December 30, 
1997, outstanding warrants to purchase 139,494 shares of Series B preferred 
stock at $1.50 per share, as previously issued in fiscal 1994, are currently 
exercisable into shares of Series B common stock. Such warrants expire in 
April 1, 1999 and contain customary adjustments to protect against dilution. 
As of September 30, 1998, all of these warrants remain outstanding.

The fair value of the above-referenced warrants was determined at their time 
of grant via application of the Black-Scholes option pricing model or, with 
respect to those warrants issued in connection with the High Yield Debt 
Offering, based on an independent valuation.


                                     F-21

<PAGE>


FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

The following table summarizes information about warrants outstanding at
September 30, 1998:

<TABLE>
<CAPTION>
                                           OUTSTANDING                                       EXERCISABLE
                     ---------------------------------------------------------     ---------------------------------

                             NUMBER            WEIGHTED-                               NUMBER
                          OUTSTANDING           AVERAGE           WEIGHTED-          EXERCISABLE        WEIGHTED-
     RANGE OF                AS OF             REMAINING           AVERAGE              AS OF            AVERAGE
     EXERCISE            SEPTEMBER 30,        CONTRACTUAL          EXERCISE         SEPTEMBER 30,        EXERCISE
      PRICES                  1998            LIFE (YEARS)           PRICE              1998              PRICE
<S>                      <C>                  <C>                 <C>               <C>                 <C>
               $.01          3,713,094            9.6                  $.01                    -                -
               $.50             29,000            3.3                  $.50               29,000             $.50
         $1.50-1.80          2,249,634            3.1                 $1.78            2,249,634            $1.78
         $3.00-3.83         18,808,486            6.1                 $3.04           18,808,486            $3.04
         $5.00-6.00            387,807            3.6                 $5.35              387,807            $5.35
                        -----------------                                          ----------------

                            25,188,021                                                21,474,927
                        -----------------                                          ----------------
                        -----------------                                          ----------------
</TABLE>

NOTE 11 - STOCK OPTIONS AND PURCHASE RIGHTS

The Company has a 1995 Incentive Stock Option Plan (the 1995 Plan) and a 1997
Stock Plan (the 1997 Plan) (collectively, the Plans) under which stock options
or stock purchase rights to acquire an aggregate of 1,500,000 shares and
1,500,000 shares, respectively, of Series B common stock may be granted to
employees and directors of the Company, as well as to non-employee consultants
of the Company under the 1997 Plan. Both plans provide for the granting of
incentive stock options (within the meaning of Section 422A of the Internal
Revenue Code) while the 1997 Plan also provides for the granting of
non-statutory stock options. Additionally, stock purchase rights may also be
granted under the 1997 Plan.

The terms of stock options granted under the Plans are determined by the Board
of Directors. Stock options may be granted for periods of up to ten years at a
price per share not less than the fair market value of the Company's Series B
common stock at the date of grant for incentive stock options and not less than
85% of the fair market value of the Company's Series B common stock at the date
of grant for non-statutory stock options. In the case of incentive and
non-statutory stock options granted under Plans to employees, directors or
consultants who, at the time of grant of such options, own stock representing
more than 10% of the voting power of all classes of stock of the Company, the
exercise price shall be no less than 110% of the fair market value of the
Company's Series B common stock at the date of grant. Additionally, the term of
incentive stock option grants under the Plans is limited to five years if the
grantee owns in excess of 10% of the voting power of all classes of stock of the
Company at the time of grant. Options granted under the Plans generally vest to
the option holder ratably over a period of four to five years beginning on the
grant date. The terms of stock purchase rights granted under the 1997 Plan are
determined by the Board of Directors. Such purchase rights may be issued either
alone, in addition to, or in tandem with other awards granted under the 1997
Plan and/or cash awards made outside of the 1997 Plan.

The Company has a 1998 Stock Purchase Plan (the 1998 Plan) pursuant to which it
may grant to key employees and directors stock purchase rights to acquire an
aggregate of 500,000 shares of Series B common stock. The terms of stock
purchase rights granted under the 1998 Plan are determined by the Board of
Directors. Under the 1998 Plan, up to 50% of the aggregate purchase price for
shares subject to stock purchase rights may be paid by the offeree in the form
of a promissory note to the Company.

The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net loss as if the minimum value method had been applied in
measuring compensation expense. Had compensation cost for the Company's
stock-based compensation plans been determined based on the minimum value method
at the grant dates for awards under this plan consistent with the method
prescribed by Statement of Financial Accounting Standards No. 123, the Company's
net loss would have been increased to the pro forma amounts indicated below:

                                      F-22

<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                          YEAR ENDED
                                         SEPTEMBER 30,

                          1998                 1997                1996
<S>                    <C>                   <C>                 <C>
NET LOSS:
   As reported         $33,355,793           $9,552,838          $3,856,192
   Pro forma           $33,434,078           $9,564,128          $3,859,992
</TABLE>

The minimum value of each option and stock purchase right grant is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants during fiscal 1998, 1997
and 1996: dividend yield of 0.0% for all periods; volatility of 0.0% for all
periods; risk-free interest rates of 5.88%, 6.07% and 5.79%; and an expected
life of 5.0 years for all periods, except with respect to stock purchase rights
granted during fiscal 1998, which rights have a term of .17 years. The weighted
average fair value of options and stock purchase rights granted during fiscal
1998, 1997 and 1996 was approximately $.57, $.09 and $.06, respectively.

Stock option and stock purchase right transactions during the three fiscal years
ended September 30, 1998, all of which relate to employee transactions, are
summarized as follows:

<TABLE>
<CAPTION>
                                                               WEIGHTED                                WEIGHTED
                                                               AVERAGE               STOCK              AVERAGE
                                                               EXERCISE            PURCHASE            EXERCISE
                                            OPTIONS              PRICE               RIGHTS               PRICE
<S>                                     <C>                    <C>              <C>                    <C>
Outstanding at September 30, 1995            763,333             $ .15                     -                 -
Granted                                      788,667             $ .25                     -                 -
Exercised                                   (330,000)            $ .22                     -                 -
Canceled                                    (432,000)            $ .21                     -                 -
                                        ---------------                         ----------------

Outstanding at September 30, 1996            790,000             $ .18                     -                 -
Granted                                      489,400             $ .82                     -                 -
Exercised                                   (101,900)            $ .22                     -                 -
Canceled                                    (138,700)            $ .48                     -                 -
                                        ---------------                         ----------------

Outstanding at September 30, 1997          1,038,800             $ .44                     -                 -
Granted                                    1,420,766             $3.71               300,000             $4.50
Exercised                                   (350,517)            $ .35                     -                 -
Canceled                                     (75,854)            $2.44                     -                 -
                                        ---------------                         ----------------

Outstanding at September 30, 1998          2,033,195             $2.66               300,000             $4.50
                                        ---------------                         ----------------
                                        ---------------                         ----------------
</TABLE>


                                      F-23


<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

The following table summarizes information about stock options and stock
purchase rights outstanding at September 30, 1998:

<TABLE>
<CAPTION>
                                           OUTSTANDING                                       EXERCISABLE
                     ---------------------------------------------------------     ---------------------------------

                             NUMBER            WEIGHTED-                               NUMBER
                          OUTSTANDING           AVERAGE           WEIGHTED-          EXERCISABLE        WEIGHTED-
     RANGE OF                AS OF             REMAINING           AVERAGE              AS OF            AVERAGE
     EXERCISE            SEPTEMBER 30,        CONTRACTUAL          EXERCISE         SEPTEMBER 30,        EXERCISE
      PRICES                  1998            LIFE (YEARS)           PRICE              1998              PRICE
<S>                     <C>                   <C>                 <C>              <C>                  <C>
STOCK OPTIONS
    $  .15 -.25                301,000            7.2              $ .22               253,600           $ .22
    $       .50                341,400            8.2              $ .50               153,840           $ .50
    $      3.00                721,960            9.2              $3.00               453,753           $3.00
    $      4.50                668,835            9.8              $4.50               181,196           $4.50
                        -----------------                                          ----------------


                             2,033,195                                               1,042,389
                        -----------------                                          ----------------
                        -----------------                                          ----------------

STOCK PURCHASE RIGHTS

    $      4.50                300,000            .13              $4.50               300,000           $4.50
                        -----------------                                          ----------------
                        -----------------                                          ----------------
</TABLE>

The Company's Board of Directors approved a repricing of stock options in
December 1997, pursuant to which the exercise price of certain stock options
designated at $3.20 per share was reduced to $3.00 per share.


NOTE 12 - INCOME TAXES

Deferred tax assets (liabilities) are comprised of the following:

<TABLE>
<CAPTION>
                                                                                           SEPTEMBER 30,
                                                                                     1998                1997
<S>                                                                             <C>                 <C>
Net operating loss carryforwards                                                $   11,523,433      $    4,733,931
High yield debt interest deductible when paid                                        4,945,868                   -
Accrued employee costs                                                                  70,009              39,834
Depreciation and amortization                                                       (1,537,964)            (78,845)
                                                                                ----------------    ----------------

                                                                                    15,001,346           4,694,920
Valuation allowance                                                                (15,001,346)         (4,694,920)
                                                                                ----------------    ----------------

Deferred tax assets (liabilities), net                                          $            -      $  -
                                                                                ----------------    ----------------
                                                                                ----------------    ----------------
</TABLE>

As of September 30, 1998, the Company has federal and state net operating loss
carryforwards of approximately $37,436,000 and $23,997,000 respectively, which
amounts expire beginning in fiscal 2009 and fiscal 2000, respectively. As a
result of the private equity placement which occurred on December 30, 1997 (Note
9), which resulted in a change of ownership as defined by Section 382 of the
Internal Revenue Code, the Company's utilization of net operating loss
carryforwards generated through December 30, 1997 will be subject to an annual
limitation of approximately $878,000 for both federal and state tax purposes,
the effect of which has been reflected in the summary of deferred tax assets
above. Additionally, if the Company is able to recognize certain built-in gains


                                      F-24


<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

in the future, the annual utilization rate of the net operating losses would be
increased. If the Company were to recognize certain built-in losses, they will
be subject to the annual utilization limitation when recognized.

Based upon the Company's lack of prior earnings history and other available 
evidence, management has recorded a full valuation allowance for the benefit 
of deferred tax assets. A reconciliation of the income tax benefit computed 
using the U.S. federal statutory rate (34%) and the Company's effective tax 
rate follows:


<TABLE>
<CAPTION>
                                                                                  YEAR ENDED
                                                                                 SEPTEMBER 30,

                                                                 1998                1997                1996
<S>                                                         <C>                 <C>                 <C>
Computed expected federal tax benefit                       $  (11,340,970)     $   (3,247,965)     $   (1,311,105)
Non-deductible high yield debt interest                            684,111                   -                   -
State income taxes, net of federal benefit                      (1,069,310)            161,439            (356,087)
Change in valuation allowance                                   10,306,426           2,426,858           1,689,863
Section 382 net operating loss limitations                       1,457,713             557,451                   -
Other                                                              (37,970)            102,217             (22,671)
                                                            ---------------     ----------------    ----------------

                                                            $            -      $            -      $            -
                                                            ---------------     ----------------    ----------------
                                                            ---------------     ----------------    ----------------
</TABLE>

NOTE 13 - LEGAL PROCEEDINGS

On October 16, 1998, the Company filed a declaratory relief action in San Diego
Superior Court, asking the Court to find that the Company is not obligated to
offer stock to Dina Partners L.P. (Dina) with respect to the December 30, 1997
equity investment by Spectra 3 and Enron (Note 9). Dina had previously indicated
in conversations with FirstWorld officers and counsel and in writing that it
believed the Company had breached a certain Amended and Restated Investor Rights
Agreement to which the Company and Dina were parties by refusing to allow Dina
to purchase additional stock in the Company. On December 3, 1998, in answer to
the Company's complaint, Dina filed a general denial with the court. Although
the ultimate resolution of this dispute is subject to the uncertainties inherent
in litigation, the Company does not believe that the resolution of the
declaratory relief action will have a material adverse effect on the Company's
results of operations, liquidity or financial position.


NOTE 14 - SUBSEQUENT EVENTS

On October 8, 1998, the Company commenced an offer to exchange (the Exchange
Offer) its outstanding 13% Senior Discount Notes due 2008 (the Original Notes)
for a new issue of 13% Senior Discount Notes due 2008, which were registered
with the Securities and Exchange Commission pursuant to a Registration Statement
on Form S-4 (the Exchange Notes). The Exchange Offer expired on November 9,
1998. Under the terms of the Exchange Offer, the Company accepted for exchange
all $470,000,000 in aggregate principal amount at maturity of Original Notes 
and caused the cancellation of the Original Notes and
the issuance of the Exchange Notes.

On October 16, 1998, the Board of Directors of the Company elected to change the
Company's fiscal year end from September 30 to December 31, commencing with the
short fiscal year ending on December 31, 1998. The Company intends to file a
transition report on Form 10-Q with the Securities and Exchange Commission for
the period from October 1, 1998 through December 31, 1998.

On November 1, 1998, the Company adopted a 401(k) retirement plan (the Plan)
pursuant to which eligible employees may elect to defer up to 20% of their
compensation into the Plan up to a maximum of $10,000 per annum. The Plan also
stipulates that the Company may provide discretionary matching contributions to
the 


                                      F-25


<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(formerly SpectraNet International)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

participants of the Plan, which matching contributions would be allocated to
the participants on December 31 of each Plan year and would vest to the
participants at the rate of 25% per annum. All administrative expenses of the
Plan will be borne by the Company.

On November 24, 1998, pursuant to a Stock Purchase Agreement between the Company
and Enron Communications, Inc. (ECI), the Company purchased for cash all of the
outstanding capital stock of Optec, Inc. (Optec) from ECI. ECI is the parent
company of Enron Capital & Trade Resources Corp., a principal stockholder of the
Company. Optec is a telecommunications systems integrator with operations in
Oregon and Washington. Simultaneous to such transaction, the Company also
purchased from ECI an indefeasible right of use to fiber optic cable in a
metropolitan area network serving Portland with routes connecting Beaverton and
Hillsboro, Oregon. 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. The Company paid an aggregate of $18,000,000 for the Optec
capital stock, the indefeasible rights of use and the wide area network rights.
The Company also repaid at closing approximately $4,000,000 of Optec's
indebtedness to ECI. The Company has deposited $1,000,000 of the total purchase
price into an escrow account to be held for a three year period for the purpose
of satisfying any claim made by the Company for breach of any representations,
warranties or covenants made by ECI in the agreement relating to the Company's
purchase of the Optec capital stock.

During the period October 1998 to December 1998, the Company entered into
certain employment agreements with key executive officials. Future minimum
salaries prescribed by such agreements, inclusive of equalization payments (as
defined in such agreements), total $688,000, $805,000, $421,000 and $31,000
during each of fiscal 1999, 2000, 2001 and 2002, respectively. Pursuant to such
agreements, the Company has also granted or committed to grant to the executives
a total of 950,000 options to purchase Series B common stock at exercise prices
that range from $4.50 to $7.50 per share.



                                      F-26
<PAGE>

FIRSTWORLD COMMUNICATIONS, INC.
(FORMERLY SPECTRANET INTERNATIONAL)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>

                                             Balance at                            Balance at
                                            beginning of                             end of
                                               period      Additions    Deductions   period
                                            ------------- ------------  ---------- ----------
<S>                                        <C>           <C>          <C>        <C>
DEFERRED TAX ASSET VALUATION ALLOWANCE:

       Year ended September 30, 1996 ..         578,199    1,689,863      --      2,268,062

       Year ended September 30, 1997 ..       2,268,062    2,426,858      --      4,694,920

       Year ended September 30, 1998 ..       4,694,920   10,306,426      --     15,001,346


ALLOWANCE FOR DOUBTFUL ACCOUNTS:

       Year ended September 30, 1996 ..            --           --        --           --
 
       Year ended September 30, 1997 ..            --           --        --           --

       Year ended September 30, 1998 ..            --          9,765      --          9,765

</TABLE>

                                      F-27