<PAGE>

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

                                   FORM 10-QA

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

                      FOR THE QUARTER ENDED March 31, 1999

                       COMMISSION FILE NUMBER   000-21043

                         PACIFIC GATEWAY EXCHANGE, INC.
                         ------------------------------
             (Exact Name of Registrant as Specified in its Charter)


        Delaware                                       94-3134065
 (State of Other Jurisdiction                     (IRS Employer
  of Incorporation or Organization)                Identification Number)


500 Airport Blvd, Suite 340, Burlingame, California, 94010

(Address of Principal Executive Offices)    (Zip Code)

Registrant's Telephone Number, Including Area Code (650) 375 6700
                                                   ---------------

                                      None
                                      ----
                        (Former Name, Former Address and
                Former Fiscal Year if Changed Since Last Report)

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

                               Yes  X   No _____
                                   ---

At April 29, 1999, the number of the registrant's Common Shares of $.0001 par
value outstanding was 19,277,992.
<PAGE>

                         PACIFIC GATEWAY EXCHANGE, INC.

                               TABLE OF CONTENTS
                               -----------------


<TABLE>
<CAPTION>
                                                                 Page
                                                                 ----
<S>                                                              <C>
Part I -  FINANCIAL INFORMATION

Item 1: Financial Statements (unaudited and restated)


        Consolidated condensed balance sheets as of

        March 31, 1999, and December 31, 1998

        Consolidated condensed statements of operations          1
        for the three-month periods ended
        March 31, 1999, and 1998

        Consolidated condensed statements of cash flows          2
        for the three-month periods ended
        March 31, 1999, and 1998

        Notes to consolidated condensed financial statements     3

Item 2: Management's discussion and analysis                     4
        of financial condition and results
        of operations (restated)

                                                                 6
Part II - OTHER INFORMATION

Item 1:  Legal Proceedings                                       11

Item 2:  Changes in Securities and Use of Proceeds               11

Item 3:  Defaults upon Senior Securities                         11

Item 4:  Submission of matters to a vote of security holders     11

Item 5:  Other information                                       11

Item 6:  Exhibits and reports on Form 8-K                        11
</TABLE>


This amended filing contains restated financial information and related
disclosures for the three months ended March 31, 1999 (See Note 1 to
Consolidated Condensed Financial Statements).
<PAGE>

Item 1.  Financial Statements

                        PACIFIC GATEWAY EXCHANGE,  INC.
                     CONSOLIDATED CONDENSED BALANCE SHEETS
                                (in thousands)
<TABLE>
<CAPTION>
                                                                March 31,             December 31,
                                                                  1999                    1998
                                                            ----------------          --------------
                                                             (Unaudited and
                                                               Restated)
                                    ASSETS
<S>                                                         <C>                       <C>
Current Assets:
Cash and cash equivalents                                        $    25,397             $    30,041
Accounts receivable, net of allowance for doubtful
 accounts of $4,763 in 1999 and $4,312 in 1998                        84,901                  87,725
Prepaid expenses                                                       2,062                   1,244
Income taxes receivable                                                    -                   1,358
Deferred income tax                                                    2,286                   2,207
Other current assets                                                   1,481                   1,408
                                                                 -----------             -----------
    Total current assets                                             116,127                 123,983
Property and equipment:
Undersea fiber optic cables                                           36,516                  34,663
Long distance communications equipment                                62,612                  48,710
Computers and office equipment                                        11,023                   9,352
Leasehold improvements                                                 3,063                   2,004
Construction in progress                                               3,705                  13,587
Cable construction in progress                                        15,957                  12,066
                                                                 -----------             -----------
                                                                     132,876                 120,382
Less: accumulated depreciation                                        20,068                  17,335
                                                                 -----------             -----------
    Total property and equipment, net                                112,808                 103,047
Deposits and other assets                                             10,510                   8,607
                                                                 -----------             -----------
    Total assets                                                 $   239,445             $   235,637
                                                                 ===========             ===========

                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable                                                 $   111,409             $   118,303
Accrued liabilities                                                    4,779                   4,193
Income taxes payable                                                   3,871                       -
Line of credit                                                        12,700                   8,700
Other liabilities                                                        928                   1,740
                                                                 -----------             -----------
    Total current liabilities                                        133,687                 132,936
Other non-current liabilities                                          1,963                   2,062
                                                                 -----------             -----------
    Total liabilities                                                135,650                 134,998
                                                                 -----------             -----------
Stockholders' Equity:
Common stock                                                               2                       2
Additional paid in capital                                            65,814                  65,431
Deferred compensation-restricted stock                                (4,515)                 (4,618)
Foreign currency translation                                            (926)                     34
Retained earnings                                                     43,820                  40,190
Common stock held in treasury, at cost                                  (400)                   (400)
                                                                 -----------             -----------
    Total stockholders' equity                                       103,795                 100,639
                                                                 -----------             -----------
    Total liabilities and stockholders' equity                   $   239,445             $   235,637
                                                                 ===========             ===========
</TABLE>

     See accompanying Notes to Consolidated Condensed Financial Statements

<PAGE>

                        PACIFIC GATEWAY EXCHANGE, INC.
                CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                  (in thousands, except net income per share)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                              Three Months
                                                                             Ended March 31,
                                                                       ---------------------------
                                                                           1999              1998
                                                                       ------------     ----------
                                                                        (restated)
 <S>                                                                   <C>               <C>
 Revenues                                                               $  140,529       $ 105,072
 Cost of long distance services                                            121,435          89,241
                                                                        ----------       ---------
    Gross margin                                                            19,094          15,831
 Selling, general, and administrative expenses                              11,169           7,562
 Depreciation and amortization                                               2,781           1,963
                                                                        ----------       ---------
    Total operating expenses                                                13,950           9,525
                                                                        ----------       ---------
    Operating income                                                         5,144           6,306
 Interest income                                                              (218)           (613)
 Other (income) expense, net                                                  (223)             98
                                                                        ----------       ---------
    Income before income taxes                                               5,585           6,821
 Provision for income taxes                                                  1,955           2,445
                                                                        ----------       ---------
                                                                        $    3,630       $   4,376
                                                                        ==========       =========
    Net income per share - basic                                        $     0.19       $    0.23
                                                                        ==========       =========
    Net income per share - diluted                                      $     0.18       $    0.22
                                                                        ==========       =========
    Weighted-average number of common shares outstanding - basic            19,155          19,018
                                                                        ==========       =========
    Weighted-average number of common shares outstanding - diluted          19,631          19,930
                                                                        ==========       =========
</TABLE>

    See accompanying Notes to Consolidated Condensed Financial Statements.

                                       2
<PAGE>

                        PACIFIC GATEWAY EXCHANGE, INC.
                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                (in thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                      Three Months
                                                                      Ended March 31,
                                                              -----------------------------
                                                                  1999             1998
                                                              -------------    ------------
                                                              (Restated)
<S>                                                           <C>              <C>
Operating Activities:
Net income                                                    $      3,630    $      4,376
Adjustments to net income:
   Depreciation                                                      2,781           1,963
   Stock compensation expense                                          152             152
   Bad debt provision                                                  777           1,372
   Equity in earnings of affiliated companies, net                     397              96
   Changes in operating assets and liabilities:
    Accounts receivable                                              2,047          (3,655)
    Prepaid expenses                                                  (818)            488
    Income taxes receivable                                          1,358               -
    Deferred income tax                                                (79)              -
    Other current assets                                               (73)              -
    Deposits and other assets                                       (2,300)           (310)
    Accounts payable                                                (7,854)         (7,605)
    Accrued liabilities                                                586             282
    Federal income taxes payable                                     3,871           1,706
    Other liabilities                                                 (911)            993
                                                              ------------    ------------
   Net cash provided by (used in) operating activities               3,564            (142)
                                                              ------------    ------------

Investing Activities:
   Purchase of property and equipment                              (12,542)         (9,098)
   Investments in subsidiaries and affiliates                            -          (3,300)
                                                              ------------    ------------
   Net cash used in investing activities                           (12,542)        (12,398)
                                                              ------------    ------------

Financing Activities:
   Borrowings on revolving lines of credit                           4,000               -
   Exercise of stock options                                           334              73
                                                              ------------    ------------
   Net cash provided by financing activities                         4,334              73
                                                              ------------    ------------

Net decrease in cash and cash equivalents                           (4,644)        (12,467)
Cash and cash equivalents at beginning of the period                30,041          43,850
                                                              ------------    ------------
Cash and cash equivalents at end of the period                $     25,397    $     31,383
                                                              ============    ============

Supplemental data for non-cash investing
 and financing activities:
Common stock issued to investee                               $          -    $      1,800
</TABLE>

    See accompanying Notes to Consolidated Condensed Financial Statements.

                                       3


<PAGE>

             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


(1)  RESTATEMENT AND BASIS OF PRESENTATION
------------------------------------------

          The accompanying unaudited restated condensed consolidated balance
sheet as of March 31, 1999 and the accompanying restated condensed consolidated
statement of income for the three months ended March 31, 1999 have been restated
to reflect certain adjustments. These adjustments were due to capitalization of
certain expenses in incorrect periods, incorrect capitalization of expenses and
other adjustments. The effect of these restatements is to reduce previously
reported net income for the three months ended March 31, 1999 by $593,000 or
$0.03 per diluted earnings per share. These restatements do not affect
previously reported net cash flows.

          The financial statements included herein are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and Securities Exchange Commission ("SEC") regulations.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations.  In the
opinion of management, the financial statements reflect all adjustments (of a
normal and recurring nature) that are necessary to present fairly the financial
position, results of operations, and cash flows for the interim periods.  These
financial statements should be read in conjunction with the annual report on
Form 10-K of Pacific Gateway Exchange, Inc. (the "Company" or "Pacific Gateway")
for the year ended December 31, 1998.  The results for the three-month period
ended March 31, 1999, are not necessarily indicative of the results that may be
expected for future periods.

          Certain prior-year amounts have been reclassified to conform to the
1999 financial statement presentation.

(2)  EARNINGS PER SHARE
-----------------------


<TABLE>
<CAPTION>
                                                    Income         Shares         Per-Share
     (in thousands, except per share amounts)     (Numerator)    (Denominator)      Amount
                                                  -----------    -------------    ----------
<S>                                               <C>            <C>              <C>
     Three Months Ended March 31, 1999
           (restated)
Basic EPS                                             $3,630         19,155        $   0.19
Effect of dilutive stock options and                       -            476           (0.01)
 restricted stock
                                                    --------       --------        --------
Diluted EPS                                           $3,630         19,631        $   0.18
                                                    ========       ========        ========
     Three Months Ended March 31, 1998
               Basic EPS                              $4,376         19,018        $   0.23
Effect of dilutive stock options and                       -            912            (.01)
 restricted stock                                   --------       --------        --------
Diluted EPS                                           $4,376         19,930        $   0.22
                                                    ========       ========        ========
</TABLE>

(3)  COMPREHENSIVE INCOME (restated)
------------------------------------

          In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income".  SFAS No. 130 established standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements.  Comprehensive
income as defined includes all changes in equity (net assets) during a period
from non-owner sources.  Comprehensive income includes foreign currency
translation adjustments, which are excluded from net income.  In accordance with
the adoption of SFAS No. 130, total comprehensive income was $2,670,000 for the
three-month period ending March 31, 1999.  Comprehensive income included foreign
currency translation losses totaling $960,000.

                                       4
<PAGE>

(4)  SEGMENT INFORMATION (restated)
-----------------------------------

          Based primarily on services provided and geographic areas, the
Company's operating segments are: U.S. wholesale, offshore, and value-added
services.  The Company's management regularly reviews the operating results of
these segments; these segment results are integral to management's decision
making process.

          U.S. wholesale provides international telecommunications services to
U.S.-based carriers that originate international traffic, but do not have
operating agreements with foreign carriers. U.S. wholesale also provides service
to existing international carriers who terminate their overflow
telecommunications traffic on its system. Additionally, U.S. wholesale provides
service to customers with smaller traffic volumes.

          Revenues from the Company's offshore operations are generated from
country-specific, usage-sensitive rates charged to the Company's carrier
customers and from traffic terminated in its international switching facilities.
The Company operates switching facilities in the United Kingdom, New Zealand,
Russia, Japan, and Australia.  In addition, the Company earns revenues from
traffic originating in Germany and France.

          The value-added segment includes a variety of emerging retail and
wholesale services.  Through this operating segment, the Company provides
international long distance services to the Filipino, Japanese, Chinese,
Vietnamese, Russian, and Romanian-American communities.

          Corporate and other includes cash, equity investments, and other
miscellaneous current and non-current assets.  These assets are not allocated to
the three operating segments.

          The results of operations for the Company's operating segments for the
three months ended March 31, 1999, and 1998, were:

<TABLE>
<CAPTION>

                                                U.S.                  Value-    Corporate
            (in thousands)                   Wholesale     Offshore   Added     And other     Total
                                             ---------     --------   -----     ---------     ------
<S>                                          <C>           <C>        <C>       <C>          <C>
     Three Months Ended March 31, 1999
               (Restated)
Total sales                                   $132,043      $31,469   $6,324    $      -     $169,836
Sales and transfers between segments           (20,968)      (8,339)       -           -      (29,307)
                                              --------      -------   ------    --------     --------
Revenues                                      $111,075      $23,130   $6,324    $      -     $140,529
Depreciation and amartization                 $  2,197      $   579   $    5    $      -     $  2,781
                                              --------      -------   ------    --------     --------
Operating income                              $  1,813      $ 2,468   $  863    $      -     $  5,144
                                              ========      =======   ======    ========     ========
Total assets at March 31, 1999                $159,006      $35,391   $5,101    $ 39,947     $239,445
                                              --------      -------   ------    --------     --------
     Three Months Ended March 31, 1998
Total sales                                   $ 98,540      $16,872   $3,044    $      -     $118,456
Sales and transfers between segments            (8,046)      (5,338)       -           -      (13,384)
                                              --------      -------   ------    --------     --------
Revenues                                      $ 90,494      $11,534   $3,044    $      -     $105,072
Depreciation and amortization                 $  1,607      $   356   $    -    $      -     $  1,963
                                              --------      -------   ------    --------     --------
Operating income                              $  4,602      $ 1,544   $  160    $      -     $  6,306
                                              ========      =======   ======    ========     ========
 Total assets at December 31, 1998            $151,491      $34,831   $5,857    $ 43,458     $235,637
                                              --------      -------   ------    --------     --------
</TABLE>

                                       5
<PAGE>

     Item 2: Management Discussion and Analysis of Financial Condition and
                       Results of Operations (Restated)

         This Quarterly Report contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements are statements other than historical information or statements of
current condition. Some forward-looking statements may be identified by use of
terms such as "believes," "anticipates," "plans," "intends," or "expects." These
forward-looking statements relate to the plans, objectives, and expectations of
Pacific Gateway Exchange, Inc. ("Pacific Gateway" or the "Company") regarding
its future operations or financial performance or related to the Company's
expectations regarding the telecommunications industry. In light of the inherent
risks and uncertainties of any forward-looking statement, the inclusion of
forward-looking statements in this report should not be regarded as a
representation by the Company or any other person that the forward-looking
statements will come true. The revenues and results of operations of the Company
and future developments in the telecommunications industry are difficult to
forecast and could differ materially from those projected in the forward-looking
statements as a result of numerous factors, including the following: (i) changes
in international settlement rates; (ii) changes in the ratios between outgoing
and incoming traffic and changes in expected future revenue from delayed
proportional return traffic from foreign partners pursuant to certain operating
agreements; (iii) foreign currency fluctuations; (iv) termination of certain
operating agreements or inability to enter into additional operating agreements;
(v) inaccuracies in the Company's forecasts of traffic; (vi) changes in or
developments under domestic or foreign laws, regulations, licensing
requirements, or telecommunications standards; (vii) foreign political or
economic instability; (viii) changes in the availability of transmission
facilities such as domestic, international, and undersea fiber optic cable or in
the feasibility and expense of building or leasing such facilities; (ix) loss of
the services of key officers, such as Howard A. Neckowitz, Chairman of the
Board, President and Chief Executive Officer or Gail E. Granton, Executive Vice
President, International Business Development and Secretary; (x) loss of a
customer that provides significant revenues to the Company; (xi) highly
competitive market conditions in the industry and rapid technological change;
(xii) future management decisions regarding, for example, acquisitions, capital
expenditures, or financings; (xiii) concentration of credit risk; (xiv) natural
disasters and catastrophic events, including network outages or failures; (xv)
opportunities for (and problems resulting to) the acquisition of other companies
or offshore facilities; (xvi) difficulties that may be encountered in the
development of bandwidth services including construction delays, regulatory
obstacles, and the availability of opportunities for additional bandwidth
services; (xvii) uncertainties in the development of ethnic marketing programs
and new business lines, such as the Company's commencement of Internet
operations and sales to switchless resellers relating , for example, to the
difficulty of hiring appropriate personnel and competitive conditions; (xvii)
Internet growth at slower rates than expected due to market conditions; or (xix)
any failure of our computer systems or the computer systems of third parties
that are material to our operations (such as computer systems of service
providers, suppliers, and brokers) to process information correctly relating to
dates in and after the Year 2000. The foregoing review of important factors,
including those discussed in detail below, should not be construed as
exhaustive. The Company undertakes no obligation to release publicly the results
of any future revisions it may make to forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

                                       6
<PAGE>

 PAGE>

Results of Operations


         The following table sets forth statements of operations data as a
         percentage of revenues for the period indicated.

                                                        Three Months
                                                      Ended March 31,
                                                 ---------------------------
                                                    1999            1998
                                                 -----------     -----------
                                                 (restated)
Total Revenues                                       100.0%          100.0%
Cost of long distance services                        86.4%           84.9%
                                                 ---------       ---------
     Gross margin                                     13.6%           15.1%
Selling, general, and administrative expenses          7.9%            7.2%
Depreciation and amortization                          2.0%            1.9%
                                                 ---------       ---------
     Total operating expenses                          9.9%            9.1%
                                                 ---------       ---------
     Operating income                                  3.7%            6.0%
Interest income                                       -0.1%           -0.6%
Other (income) expense, net                           -0.2%            0.1%
                                                 ---------       ---------
      Income before income taxes                       4.0%            6.5%
Provision for income taxes                             1.4%            2.3%
                                                 ---------       ---------
      Net income                                       2.6%            4.2%
                                                 =========       =========

                                       7
<PAGE>

Three Months Ended March 31, 1999, Compared to Three Months Ended March 31,
1998.

Revenues: Total revenues for the three months ended March 31, 1999, increased
34% to $140.5 million from $105.1 million. The increase from the quarter ended
March 31, 1998, was the result of several factors: first, the Company increased
the number of its operating agreements to 44 at March 31, 1999, from 43 at March
31, 1998; second, the number of wholesale-carrier customers increased to 188 at
March 31, 1999, from 146 at March 31, 1998; and third, the Company's retail
business grew significantly, resulting in revenues of $6.3 million for the three
months ended March 31, 1999, compared to $3.0 million for the three months ended
March 31, 1998. As a result of these factors, total minutes increased 47.4% from
the three months ended March 31, 1998, while the average price per minute
charged to customers decreased slightly to $0.28 in the three months ended March
31, 1999, compared to $0.30 in the same quarter last year. Changes in the
terminating country mix with significantly different rates per minute,
reductions in the rates received for the traffic terminating in and transiting
the U.S. and increases in the incidental U.S. domestic terminating traffic
influenced the average customer price per minute. During the first quarter of
1999 (as in all prior quarters), the Company sent more minutes out than it
received under its operating agreements. Because the same rate is charged by the
foreign carrier to terminate calls in their country as the Company charges the
foreign carrier to terminate calls in the United States, decreasing rates have
an adverse effect on revenue and estimated return traffic revenue backlog, but,
as a result of sending more calls out than the Company receives, decreasing
rates improve the gross margin received on the entire transaction of a minute
delivered with such foreign carriers.

Gross Margin: As a percentage of revenue, gross margin was 13.6% in the current
three-month period, a decrease from 15.1% in the same period in the prior year.
Increased competition continues to drive prices downward resulting in decreased
gross margins. The cost of long distance service increased to $121.4 million in
the three-month period ended March 31, 1999, from $89.2 million in the
three-month period ended March 31, 1998. This increase in costs represents
continued growth in outbound traffic on new and existing routes.

Selling, General, and Administrative Expenses (as restated): Selling, general,
and administrative expenses ("SG&A") as a percentage of revenues were 7.9% in
the three months ended March 31, 1999, a slight increase from 7.2% in the same
period in the prior year. Actual expenses increased to $11.2 million in the
three months ended March 31, 1999, from $7.6 million in the three months ended
March 31, 1998. This increase was due primarily to greater personnel and sales
commission expenses. The increase in personnel expenses was directly related to
the increase in the number of employees in the Company's wholly-owned
subsidiaries to 203 at March 31, 1999, from 107 at March 31, 1998. The increase
in sales commission expenses was primarily due to increased revenues.

Depreciation (as restated): Depreciation increased 41.7% to $2.8 million in the
quarter ended March 31, 1999, from $2.0 million in the quarter ended March 31,
1998. Depreciation as a percentage of revenues was 2.0% of revenue for the
current quarter and 1.9% for the same quarter in the prior year. The increase
was primarily due to depreciation of additional U.S. wholesale and offshore
fiber optic cables and communications equipment acquired since March 31, 1998.

Income Tax (as restated): Income taxes decreased to $2.0 million in the three
months ended March 31, 1999, from $2.4 million in the three months ended March
31, 1998, primarily due to decreased operating income. The effective tax rate
was 35% in the quarter ended March 31, 1999 and 36% in the quarter ended March
31, 1998.

                                       8
<PAGE>

Liquidity and Capital Resources

         The Company uses its existing cash balances, cash provided by operating
activities, existing lines of credit, and debt commitments to finance its
operations.

         Net cash provided by operating activities (as restated) was $3.6
million for the three months ended March 31, 1999, compared to net cash used of
$0.1 million for the three months ended March 31, 1998. This increase in cash
provided by operating activities was primarily due to greater cash generating
revenue and decreases in accounts receivable. Due to the timing differences in
the international settlement process, the Company's accounts receivable turnover
varies from its accounts payable turnover. The length of these turnovers is a
function of different timing requirements in the Company's agreements with
foreign partners. For example, the length of the Company's accounts payable
turnover is partially due to its accounts payable with foreign partners, which
generally have 180 day terms as a result of the six-month lag in the
international settlement process.

         Net cash used in investing activities (as restated) was $12.5 million
for the three months ended March 31, 1999, and $12.4 million for the three
months ended March 31, 1998. Capital expenditures for the three months ended
March 31, 1999, were $12.5 million, an increase from $9.1 million in the same
period in 1998. Capital expenditures in both 1999 and 1998 were for the
acquisition of partial ownership interests in international fiber optic cable
transmission systems and related equipment. In addition, in the first quarter of
1998, the Company acquired 16.66% of Ekonom S.A. de C.V. ("Ekonom"), a Mexican
multimedia company, for $3.3 million in cash and $1.8 million in Pacific
Gateway's common stock.

         Net cash provided by financing activities (as restated) was $4.3
million for the three months ended March 31, 1999, and $0.1 for the same period
in 1998. In 1999, the Company borrowed an additional $4.0 million under its line
of credit (discussed below). The remainder of these cash inflows was from the
exercise of stock options.

         In December 1998, the Company obtained a one-year, $30 million credit
facility with Bank of America, NT&SA, and NationsBancMontgomery LLC. The Company
uses this credit to fund its purchase commitments, letters of credit, working
capital, and for general corporate purposes. At March 31, 1999, the Company held
$12.7 million in borrowings under this credit facility.

         In March 1999, the Company signed a commitment letter for a $200
million senior secured credit facility with Salomon Brothers Holding Company,
Inc. and Goldman Sachs Credit Partners L.P. The facility may be increased in the
future by up to $100 million if lenders provide additional commitments. The
Company plans to use the borrowings to finance its undersea fiber optic cable
investments and its expansion into the global Internet market.

         At March 31, 1999, the Company had outstanding commitments of $160
million for the acquisition of additional ownership in digital undersea fiber
optic cables and network equipment. This includes the commitment to purchase
undersea fiber optic cable in the US-Japan cable network for $76 million and in
the TAT-14 cable system for $67 million. The Company expects to fund its
investment in these two cable systems through operating cash flows, existing
cash balances, and bank borrowings over the next two years. In April 1999, the
Company committed to purchase $30 million of U.S. domestic broadband capacity
from Williams Communications Group, Inc. and Williams agreed to purchase up to
$30 million of capacity on Pacific Gateway's trans-Atlantic city center network.

         The Company believes that existing cash balances, cash provided by
operating activities, existing lines of credit, and debt commitments will be
sufficient to meet its outstanding capital commitments, current capital
expenditures, and working capital needs through the end of 1999. However, the
Company may raise additional funds through offerings of equity or debt
securities or other financing arrangements to fund growth opportunities that
management believes are beneficial to the Company.

                                       9
<PAGE>

Year 2000 Readiness

         The "Year 2000" issue affects the Company's internal computer systems,
network elements, software applications, and other business systems that may not
properly reflect or recognize the year 2000. Because many computers and computer
applications define dates by the last two digits of the year, "00" may not be
properly identified as the year 2000. This error could result in miscalculations
or system failures.

         The Company has identified its Year 2000 risks: internal information
systems; non-financial software; and external noncompliance by vendors and
customers.

         Internal information systems. The Company's internal information
systems were initially designed to be Year 2000 ready. These systems, such as
the Company's billing system, have been tested in a simulated Year 2000
environment and were preliminarily determined to be Year 2000 ready. Additional
tests will be conducted for final determination of Year 2000 readiness by
mid-1999. The costs associated with testing Year 2000 readiness are not expected
to be material to the Company's business, financial condition, or results of
operations.

         Other internal systems. The Company has assessed the Year 2000 impact
on its other internal systems, primarily its telecommunications switching
equipment in the U.S. in Dallas, Los Angeles, and New York and offshore in the
UK, New Zealand, Russia, and Japan and has conducted tests on such systems. The
Company ordered software and hardware upgrades for all non-compliant switching
equipment to be installed by mid-1999. The costs associated with testing and
upgrading equipment to function after December 31, 1999, are not expected to be
material to the Company's business, financial condition, or results of
operations. The Company is identifying and evaluating other operational systems
and applications, which the Company believes are not mission critical, such as
building operations and individual personal computers used by Company personnel.

         Vendors and customer systems. The Company is requesting written
verification from its significant vendors and customers on their Year 2000
readiness with respect to information systems used by those entities that could
impact business with the Company. To the extent that their responses are
unsatisfactory, the Company will seek alternate or new vendors who have
demonstrated Year 2000 readiness. The Company is still awaiting responses from
its most significant vendors and customers. There is no assurance, however, that
such third parties will achieve full Year 2000 readiness or that the Company
will receive assurances from such third parties. In the event that any of the
Company's significant vendors and customers do not successfully and timely
achieve Year 2000 readiness and the Company is unable to replace them with new
or alternative vendors and customers, the Company's business or operations could
be adversely affected.

         As part of the Company's Year 2000 risk program, the Company is
evaluating scenarios that may occur as a result of the century change. The
Company anticipates completing its contingency and business continuity plans
designed to mitigate the effects of any significant Year 2000 disruptions by
mid-1999.

                                       10
<PAGE>

                          PART II. OTHER INFORMATION


Item 1.   Legal proceedings

          The Company is party to various legal proceedings in the ordinary
          course of business. Although the ultimate resolution of these
          proceedings cannot be ascertained, management does not expect that
          they will have a material adverse impact on the Company's financial
          position or results of operations.


Item 2.   Changes in Securities and Use of Proceeds

          None


Item 3.   Defaults upon Senior Securities

          None


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

          None


Item 5.   Other Information

          None


Item 6.   Exhibits and Reports on Form 8-K

          (a)  The Exhibit filed as part of this report is listed below:

          27   Financial Data Schedule

          (b)  No reports on Form 8-K have been filed during the quarter ended
               March 31, 1999.

                                       11
<PAGE>

                                  SIGNATURES

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


                                       PACIFIC GATEWAY EXCHANGE, INC.



Dated: May 4, 2000

                                       By: /s/ Howard A. Neckowitz
                                           ---------------------------------
                                           Howard A. Neckowitz
                                           President and CEO
                                           (Authorized Signatory)


                                       By: /s/ Caye Hursey
                                           ---------------------------------
                                           Caye Hursey
                                           Acting Chief Financial Officer
                                           (Principal Accounting Officer)

                                       12