<PAGE>

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

                                   FORM 10-Q

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

                     FOR THE QUARTER ENDED March 31, 2000

                      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 May 8, 2000, the number of the registrant's Common Shares of $.0001 par value
outstanding was 20,003,085.
<PAGE>

                        PACIFIC GATEWAY EXCHANGE, INC.

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

<TABLE>
<S>                                                             <C>

                                                              Page
                                                              ----

Part I -  FINANCIAL INFORMATION

Item 1: Financial Statements (unaudited)

        Condensed consolidated balance sheets as of
        March 31, 2000, and December 31, 1999                   1

        Condensed consolidated statements of operations
        for the three-month periods ended
        March 31 , 2000 and 1999                                2

        Condensed consolidated statements of cash flows
        for the three-month periods ended
        March 31 , 2000 and 1999                                3

        Notes to condensed consolidated financial statements    4

Item 2: Management's discussion and analysis
        of financial condition and results
        of operations                                           10


Part II - OTHER INFORMATION

Item 1:  Legal Proceedings                                      19

Item 2:  Changes in Securities and Use of Proceeds              19

Item 3:  Defaults upon Senior Securities                        19

Item 4:  Submission of matters to a vote of security holders    19

Item 5:  Other information                                      19

Item 6:  Exhibits and reports on Form 8-K                       20

</TABLE>
<PAGE>


                        PACIFIC GATEWAY EXCHANGE, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (in thousands)

<TABLE>
<CAPTION>
                                                                      March 31,       December 31,
                                                                        2000             1999
                                                                   --------------     -------------
<S>                                                                <C>                <C>
                              ASSETS                                 (Unaudited)
Current Assets:
Cash and cash equivalents                                                $ 27,725          $ 27,189
Accounts receivable, net of allowance for doubtful accounts
      of $10,700 and $7,846, respectively                                 155,214           133,998
Prepaid expenses                                                            1,070             1,065
Deferred income tax                                                         2,790             3,701
Other current assets                                                        6,995             6,455
                                                                   --------------     -------------
      Total current assets                                                193,794           172,408
Property and equipment, net                                               184,944           169,187
Intangible assets, net                                                     27,006            17,830
Deferred income tax                                                         2,090             2,227
Deposits and other assets                                                   9,871            13,153
                                                                   --------------     -------------
      Total assets                                                      $ 417,705         $ 374,805
                                                                   ==============     =============


                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable                                                        $ 200,670         $ 154,601
Line of credit                                                             75,400            54,100
Accrued liabilities                                                         9,466            13,156
Income taxes payable                                                        2,938             4,279
Equipment financing                                                         3,333                 -
Vendor financing                                                            2,700                 -
Other current liabilities                                                  15,678               660
                                                                   --------------     -------------
      Total current liabilities                                           310,185           226,796

Equipment financing                                                         6,119            10,000
Deferred income tax                                                         5,666             5,850
Other liabilities                                                           2,153            17,140
                                                                   --------------     -------------
      Total liabilities                                                   324,123           259,786
                                                                   --------------     -------------

Stockholders' Equity:
Common stock and additional paid-in capital                                84,824            76,534
Deferred compensation-restricted stock                                     (6,676)           (8,065)
Foreign currency translation                                               (1,714)           (1,285)
Retained earnings                                                          17,548            48,235
Common stock held in treasury, at cost                                       (400)             (400)
                                                                   --------------     -------------
      Total stockholders' equity                                           93,582           115,019
                                                                   --------------     -------------
      Total liabilities and stockholders' equity                        $ 417,705         $ 374,805
                                                                   ==============     =============
</TABLE>
     See accompanying Notes to Condensed Consolidated Financial Statements

                                       1
<PAGE>

                        PACIFIC GATEWAY EXCHANGE, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (in thousands, except net income per share)
<TABLE>
<CAPTION>
                                                                 Three Months
                                                                Ended March 31,
                                                           ------------------------
                                                              2000          1999
                                                           ----------    ----------
<S>                                                        <C>           <C>
                                                                   (Unaudited)

 Revenues                                                    $126,549      $140,529
 Cost of services and capacity sold                           113,854       121,435
                                                           ----------    ----------
      Gross profit                                             12,695        19,094
 Selling, general, and administrative expenses                 24,704        10,392
 Bad debt expense                                               4,300           777
 Depreciation and amortization                                  5,809         2,781
                                                           ----------    ----------
      Total operating expenses                                 34,813        13,950
                                                           ----------    ----------
      Operating income (loss)                                 (22,118)        5,144
 Acquisition and investment losses                              8,957             -
 Interest income, net                                            (216)         (218)
 Other income, net                                               (293)         (223)
                                                           ----------    ----------
      Income (loss) before income taxes                       (30,566)        5,585
 Provision for income taxes                                       121         1,955
                                                           ----------    ----------
      Net income (loss)                                     $ (30,687)      $ 3,630
                                                           ==========    ==========
      Net income (loss) per share - basic                     $ (1.57)       $ 0.19
                                                           ==========    ==========
      Net income (loss) per share - diluted                   $ (1.57)       $ 0.18
                                                           ==========    ==========
      Weighted-average number of common shares
        outstanding - basic                                    19,516        19,155
                                                           ==========    ==========
      Weighted-average number of common shares
        outstanding - diluted                                  19,516        19,631
                                                           ==========    ==========
</TABLE>
    See accompanying Notes to Condensed Consolidated Financial Statements.

                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                       Three Months
                                                                      Ended March 31,
                                                                 -------------------------
                                                                     2000          1999
                                                                 ---------       ---------
<S>                                                              <C>             <C>
Operating Activities:
Net income (loss)                                                $ (30,687)        $ 3,630
Adjustments to net income:
     Depreciation and amortization                                   5,809           2,781
     Stock compensation expense                                        332             152
     Bad debt expense                                                4,300             777
     Acquisition and investment losses                               8,957               -
     Equity in earnings of affiliated companies, net                  (316)            397
     Changes in operating assets and liabilities:
        Accounts receivable                                        (25,207)          2,047
        Prepaid expenses                                                (5)           (818)
        Income taxes receivable                                          -           1,358
        Deferred tax asset                                           1,048             (79)
        Other current assets                                          (540)            (73)
        Deposits and other assets                                    3,240          (2,300)
        Accounts payable                                            46,443          (7,854)
        Accrued liabilities                                         (3,690)            586
        Income taxes payable (recoverable)                          (1,341)          3,871
        Deferred tax liability                                        (184)              -
        Other liabilities                                             (517)           (911)
                                                                 ---------       ---------
     Net cash provided by operating activities                       7,642           3,564
                                                                 ---------       ---------

Investing Activities:
     Purchase of property and equipment                            (21,566)        (12,542)
     Investments in subsidiaries and affiliates                     (9,551)              -
                                                                 ---------       ---------
     Net cash used in investing activities                         (31,117)        (12,542)
                                                                 ---------       ---------

Financing Activities:
     Borrowings on revolving line of credit                         21,300           4,000
     Vendor financing                                                2,700               -
     Exercise of stock options                                          11             334
                                                                 ---------       ---------
     Net cash provided by financing activities                      24,011           4,334
                                                                 ---------       ---------

Net increase (decrease) in cash and cash equivalents                   536          (4,644)
Cash and cash equivalents at beginning of the period                27,189          30,041
                                                                 ---------       ---------
Cash and cash equivalents at end of the period                    $ 27,725        $ 25,397
                                                                 =========       =========
Supplemental data:
Common stock issued for acquisitions                               $ 9,336             $ -
Interest paid                                                      $ 1,840           $ 233
</TABLE>
    See accompanying Notes to Condensed Consolidated Financial Statements.

                                       3
<PAGE>

               NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
(1)  GENERAL
------------

     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, 1999.  The results for the three months ended
March 31, 2000, 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 2000
financial statement presentation.


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

<TABLE>
<CAPTION>
                                                         Income                             Per Share
(in thousands, except per share amounts)                 (loss)              Shares           Amount
                                                      -------------      ------------     ------------
<S>                                                     <C>                <C>              <C>
    Three Months Ended March 31, 2000
Basic EPS                                                 ($30,687 )           19,516         ($ 1.57 )
Effect of dilutive stock options and restricted stock             -                 -                -
                                                      -------------      ------------     ------------
Diluted EPS                                                ($30,687)           19,516         ($ 1.57 )
                                                      =============      ============     ============

    Three Months Ended March 31, 1999
Basic EPS                                                $    3,630            19,155        $    0.19
Effect of dilutive stock options and restricted stock             -               476            (0.01)
                                                      -------------      ------------     ------------
Diluted EPS                                              $    3,630            19,631        $    0.18
                                                      =============      ============     ============
</TABLE>


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

     Comprehensive income 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. Total comprehensive
income (loss) was ($31.1) million and $2.7 million for the three months ended
March 31, 2000 and 1999, respectively.

                                       4
<PAGE>

               NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

(4)  PROPERTY AND EQUIPMENT
---------------------------

    The Company has expanded its communications network.  Costs associated
directly with the construction are capitalized and depreciated over their useful
lives.

    Property and Equipment consisted of:
<TABLE>
<CAPTION>
                                            Depreciable         March 31,        December 31,
(dollars in thousands)                     Lives (Years)          1999              1999
                                         ---------------    ---------------   ---------------

<S>                                        <C>                <C>               <C>
Fiber optic cables                                    20           $ 37,281          $ 37,531
Long distance communications equipment               5-7             85,421            84,433
Computers and office equipment                       4-7             18,245            16,725
Leasehold improvements                     Term of lease              8,224             8,332
Construction in progress                               -             13,008            12,605
Cable construction in progress                         -             57,739            40,782
                                                            ---------------   ---------------
                                                                    219,918           200,408
                                                            ---------------   ---------------
Less: accumulated depreciation                                       34,974            31,221
                                                            ---------------   ---------------
  Total property and equipment, net                                $184,944          $169,187
                                                            ===============   ===============
</TABLE>


(5)  ACQUISITIONS AND INVESTMENTS
---------------------------------

     In July 1999, the Company acquired a retail customer base for $7.0 million
in cash.  In March 2000, the Company paid an additional $1.6 million based on
earnings of the acquired business.  Under purchase accounting, the excess of the
aggregate purchase price over the net assets acquired resulted in total
intangible assets and goodwill of $8.6 million, which will be amortized over
periods ranging from three to 10 years.

     In November 1999, the Company acquired a retail customer base for $4.2
million in cash and 60,000 shares of the Company's common stock.  In the three
months ended March 31, 2000, the Company made the final cash payments of $2.8
million and issued the 60,000 shares of its common stock valued at $0.9 million
on the issue date. Under purchase accounting, the excess of the aggregate
purchase price over the net assets acquired resulted in total goodwill of $5.1
million, which will be amortized over periods ranging from three to 10 years.

     Also in November 1999, the Company acquired a retail customer base for $3.4
million.  The agreement stipulated that the Company pledge $5.4 million of its
common stock as collateral for a $2.7 million cash payment due in 2000.  In
March 2000, the Company did not meet its cash payment obligation for this
acquisition and instead issued 330,000 of its common shares with a value of $5.4
million at issuance.  The Company believes that the $5.4 was impaired by $2.7
million.  As a result, the Company has recorded an expense of $2.7 million in
the three months ended March 31, 2000.  The Company has recorded the remaining
aggregate purchase price of $3.4 million as goodwill and will amortize the
intangible asset over three to 10 years.

      In December 1999, the Company agreed to purchase the international retail
division of NOSVA Limited Partnership for $40.2 million.  The purchase price was
comprised of $21.0 million in cash and $19.2 million of the Company's common
stock.  In January 2000, the Company paid $3.0 million in cash and issued
154,887 of its common shares with a value of $3.0 million at issuance.  The
aggregate consideration of $6.0 million represented a non-refundable deposit.
The Company does not believe that it will complete the acquisition; therefore,
it expensed the $6.0 million deposit in the three months ended March 31, 2000.

      In February 2000, the Company acquired a retail customer base for $0.2
million and the forgiveness of $0.3 million owed to the Company by the seller.
Pending consummation of the purchase, the Company has recorded the $0.5 million
in deposits and other assets.

                                       5
<PAGE>

               NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

(6)  SEGMENT INFORMATION
------------------------

     The Company is organized on the basis of products and services.  Based on
management's perspective, the Company's reportable segments are: (1)
telecommunication services, which includes wholesale, offshore, and retail; (2)
Internet services, representing the Company's acquisition of Onyx Internet in
the third quarter of 1999 and its increased focus on the provision of services
to the Internet industry; and (3) bandwidth services representing the Company's
interests in high capacity fiber optic networks.  The Company has announced the
sale of its fiber optic cable capacity on both the TAT-14 and Japan-U.S. Cable
Networks.  This sale will significantly reduce the Company's bandwidth services
operations.

     Telecommunication services includes U.S. and offshore wholesale and retail
services.  U.S. wholesale provides international telecommunications services to:
(1) U.S.-based carriers that originate international traffic, but do not have
operating agreements with foreign carriers; (2) existing international carriers
who terminate their overflow telecommunications traffic on its system; and (3)
customers with smaller traffic volumes.  Revenues from the Company's offshore
wholesale operations is 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, Russia, Australia, Japan, and New Zealand.  The Company
provides retail international long distance services to the Filipino, Japanese,
Chinese, Vietnamese, Russian, Korean, and Romanian communities in the United
States.

     The Company has sold excess bandwidth capacity on its global network. The
Company also exchanged bandwidth capacity for additional network facilities,
which it will record as fixed assets.

     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, 2000 and 1999, were:
<TABLE>
<CAPTION>

                                  Telecommunication          Internet          Bandwidth          Corp./
(in thousands)                         Services              Services          Services           Other             Total
                                --------------------       ------------      --------------    --------------   ---------------
<S>                               <C>                      <C>               <C>               <C>              <C>
    Three Months Ended
      March 31, 2000
Total sales                               $  146,626            $   670           $    92      $          -        $  147,388
Inter-company                                (20,839)                 -                 -                 -           (20,839)
                                --------------------    --------------     --------------    --------------   ---------------
Revenues                                  $  125,787            $   670           $    92      $          -        $  126,549
                                ====================    ===============    ==============    ==============   ===============
Depreciation                              $    5,627            $   182           $   -        $          -        $    5,809
                                ====================    ===============    ==============    ==============   ===============
Operating income (loss)                   $  (13,677)           $(8,375)          $   (66)     $          -         $ (22,118)
                                ====================    ===============    ==============    ==============   ===============

    Three Months Ended
      March 31, 1999
Total sales                               $  169,836       $          -      $          -      $          -        $  169,836
Inter-company                                (29,307)                 -                 -                 -           (29,307)
                                --------------------    ---------------    --------------    --------------   ---------------
Revenues                                  $  140,529       $          -      $          -      $          -        $  140,529
                                ====================    ===============    ==============    ==============   ===============
Depreciation                              $    2,781       $          -      $          -      $          -        $    2,781
                                ====================    ===============    ==============    ==============   ===============
Operating income                          $    5,144       $          -      $          -      $          -        $    5,144
                                ====================    ===============    ==============    ==============   ===============
Total assets at
March 31, 2000                            $  300,528            $ 9,398           $64,535           $43,244        $  417,705
                                ====================    ===============    ==============    ==============   ===============

Total assets at
December 31, 1999                         $  261,381            $ 8,998           $53,054           $51,372        $  374,805
                                ====================    ===============    ==============    ==============   ===============
</TABLE>

                                       6
<PAGE>

               NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

(7) DEBT
--------

 Line of Credit

     In November 1999, the Company obtained a $100 million credit facility from
Deutsche Bank Securities Inc. and Bank of America Securities LLC. At March 31,
2000, the Company had $75.4 million in borrowings under this credit facility. At
March 31, 2000, due the Company's default on certain of its covenants, the
facility was reduced to $75.4 million.

     At May 15, 2000, the Company was in default of certain provisions of its
bank credit facility, including a payment default.  The banks agreed to waive
these defaults through May 22, 2000, to permit the orderly re-negotiation of its
credit facility.  The Company is actively negotiating with its banks to amend
the terms of the bank credit facility and to receive a further waiver of its
existing defaults as well as an extension of its May 15, 2000, repayment
obligation.  The Company is seeking to retain a portion of the approximately
$52.0 million in cash proceeds that it expects to receive from the sale of its
interests in the Japan-U.S. and TAT-14 Cable Networks.

 Equipment Financing

     In December 1999, the Company obtained $10.0 million in equipment financing
from GE Capital CEF (GECC), to be used to finance its expansion and to meet its
working capital needs.  The Company used certain of its switching equipment as
collateral for the 3 year financing arrangement.  At March 31, 2000, the balance
was $3.3 million and $6.1 million of current and non-current debt, respectively.
There are no defaults under this financing arrangement.

 Vendor Financing

     In December 1999, the Company obtained a $15.0 million vendor financing
facility from Cisco Systems Capital Corporation. The facility may be used to
finance the purchase of Cisco Internet routers and related hardware and
software. At March 31, 2000, the Company had $2.7 million outstanding under this
facility. The Company's default under its bank credit agreement also resulted in
a cross default under its Cisco financing arrangement, therefore, it may not
utilize any additional credit under this facility until it remedies its default
status. The Company is seeking a waiver from Cisco to retain the facility.

 Security Interest

     In April 2000, the Company agreed to pledge certain of its assets to MCI
WorldCom, Inc. ("MCI WorldCom") due to its inability to meet its obligation for
telecommunication services. The Company pledged the security interest to avoid
termination of services from MCI, one of its most significant vendors. The
Company also made a cash payment to MCI WorldCom and agreed to make weekly
payments until the account is current.

                                       7
<PAGE>

               NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

(8) Other Liabilities

The Company's other current liabilities consisted of:

<TABLE>
<CAPTION>
(dollars in thousands)                          March 31,       December 31,
                                                  1999              1999
                                            ---------------   ---------------

<S>                                           <C>               <C>
Bandwidth Commitment (1)                            $ 7,532              $  -
Deferred Revenue                                      5,611                 -
Other                                                 2,535               660
                                            ---------------   ---------------
  Other liabilities                                 $15,678              $660
                                            ===============   ===============
</TABLE>

(1) The Company will settle this liability in kind with the delivery of
bandwidth capacity to third parties.


The Company's other (non-current) liabilities consisted of:

<TABLE>
<CAPTION>
(dollars in thousands)                          March 31,       December 31,
                                                  1999              1999
                                            ---------------   ---------------

<S>                                           <C>            <C>
Bandwidth Commitment (1)                             $    -           $ 7,532
Deferred Revenue                                          -             7,057
Other                                                 2,153             2,551
  Other liabilities                                  $2,153           $17,140
                                            ===============   ===============
</TABLE>

(1) The Company will settle this liability in kind with the delivery of
bandwidth capacity to third parties.

(9)  RELATED PARTY TRANSACTIONS
-------------------------------

     The Company is provided services by a legal firm in which one of the
Company's directors is a partner. The Company recorded legal expenses of $0.9
million and $0.4 million in the three months ended March 31, 2000 and 1999,
respectively. At March 31, 2000 and 1999, the Company owed the firm $0.9 million
and $0.3 million, respectively.

                                       8
<PAGE>

               NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

(10)  CONTINGENCIES
-------------------

     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.

     In addition, on April 7, 2000, a complaint was filed naming certain
officers of the Company.  The complaint purports to be a securities class action
on behalf of persons who purchased publicly traded securities of the Company
between May 13, 1999, and March 31, 2000.  The complaint alleges that between
May 13, 1999, and March 31, 2000, material false and misleading statements were
made about the Company's financial results and condition.  The complaint seeks
monetary damages, interest, and costs, as well as other relief that may be
proper.  After the filing of this complaint, other complaints were filed in the
United States District Court for the Northern District of California, making
similar allegations.  The Company anticipates that all of these actions will be
consolidated into a single action.  While management denies liability and
intends to vigorously defend these actions, there can be no assurance that an
adverse result or settlement with regards to these lawsuits would not have a
material adverse impact on the Company's financial condition or results of
operations.

     In March 2000, a leading developer of Internet infrastructure software
agreed to make an equity investment of up to $8.0 million in Onyx Networks, the
Company's Internet subsidiary, conditioned upon other investments of an equal
amount. In addition, Onyx committed to purchase approximately $28.0 million of
software from the investor. The $28.0 million is payable monthly over 15 to 24
months, beginning June 1, 2000. The Company has guaranteed these payments.


(11)  SUBSEQUENT EVENT
----------------------

     In May 2000, the Company announced the sale of its fiber optic cable
capacity on both the TAT-14 and the Japan-U.S. Cable Networks and two of its
related Japanese subsidiaries to Metromedia Fiber Network, Inc. ("MFN").

     Under the terms of the sale, the Company will receive approximately $52
million in net cash proceeds from the sale and MFN will assume the Company's
future payment obligations of approximately $105 million to the cable
consortiums that own and operate them.  The Company intends to use the cash
proceeds to immediately reduce its indebtedness.  Additionally, the Company will
retain the right to purchase cable capacity to meet its existing customer
capacity obligations and for its growing Internet operations.  Under the terms
of the sale, the Company is purchasing capacity on the Japan-U.S. and TAT-14
Cable Networks at the in-service dates and upon expansion for approximately
$74.0 million. The Company will not be required to purchase capacity in the
event of customer cancellation prior to the applicable in-service date. The
Company expects the Japan-U.S. Cable Network in-service date will be November
2000 and the expansion date will be July 2001. It also expects that the TAT-14
Cable Network in-service date will be in February 2001.

     The Company expects that the Japan-U.S. transaction will close by the end
of May 2000 and that the TAT-14 transaction will close by mid-August 2000.  The
TAT-14 agreement is subject to the approval of the management committee of the
TAT-14 Cable Network.

                                       9
<PAGE>

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

     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," "expects,"
"estimates," or other similar expressions.  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 and Internet industries.  They also relate to the Company's
ongoing negotiations with its lenders and the outcome of pending litigation.  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 forward looking statements in this Quarterly Report are subject to
risks and uncertainties and could differ materially from those projected in the
forward-looking statements as a result of numerous factors, including the
following:

1.  availability of financing on acceptable terms and conditions in the credit
    market;
2.  actions and positions taken by the Company's lenders;
3.  the availability of additional bandwidth for the Company's capacity
    obligations;
4.  uncertainties in the development and growth of the Company's new business
    lines, such as the Company's Internet operations, including uncertainties
    about the difficulty of hiring appropriate personnel and competitive
    conditions;
5.  the termination of operating agreements with other carriers or the inability
    to enter into additional operating agreements;
6.  inaccuracies in the Company's forecasts of traffic;
7.  changes in the availability of transmission facilities such as domestic,
    international, and undersea fiber optic cable facilities or in the
    feasibility, timing, or expense of building or leasing such facilities;
8.  loss of the services of key officers;
9.  loss of a customer that provides significant revenues to the Company;
10. problems arising from recent acquisitions of other companies or facilities;
11. changes in the ratios between the amount of telephone traffic that the
    Company delivers and the amount that it receives and changes in expected
    future revenue from delayed proportional return traffic from foreign
    partners under the Company's operating agreements;
12. Internet growth at slower rates than expected;
13. consolidation of the Company's competitors within the telecommunications or
    Internet industries;
14. vendor responses to potential payment delays or defaults;
15. higher than anticipated costs;
16. the uncertainties inherent in litigation;
17. finding buyers for its possible, selected asset sales or delays in closing
    its agreed upon asset sales; or
18. other risk factors included in the Company's Report on Form 10-K, on file
    with the Securities and Exchange Commission.

     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.

                                      10
<PAGE>

Overview

     Pacific Gateway Exchange was founded in August 1991 to capitalize on the
significant growth opportunities in the international telecommunications
services market.  Since then, the Company has undertaken five strategic
initiatives in response to regulatory and technological developments: (1) as
foreign countries deregulated their telecommunications markets, the Company
started offshore wholesale operations; (2) in response to technological
innovation and consumer demand, the Company entered the market for retail
services; (3) to participate in the growth of the Internet, the Company recently
began its own Internet operations providing connectivity services and it plans
to provide co-location and other Internet services to the global Internet
community; (4) to take advantage of the Internet as a medium of telephony, the
Company recently began providing VoIP services to telecommunications carriers,
ISPs, and other value-added service providers; and (5) to meet the growing
global demand for high bandwidth fiber optic capacity, the Company acquired
interests in strategic state-of-the-art undersea and land-based cable systems.

     Two major developments have caused the Company to re-focus its business
operations.  First, the Company's business has changed because margins in its
international wholesale long-distance traffic have generally decreased as a
result of competition.  In addition, the Company has recently experienced a
liquidity shortage.  In response to these developments, the Company has taken
the following steps:

     1) The Company has begun selling non-strategic assets.  In May, 2000, the
Company agreed to sell its fiber optic cable capacity on both the TAT-14 and the
Japan-U.S. Cable Networks and two of its related Japanese subsidiaries to
Metromedia Fiber Network, Inc. ("MFN").  Under the terms of the sale, the
Company will receive approximately $52 million in net cash proceeds from the
sale and will be relieved of the $105 million of cash payment obligations that
would have been due in 2000.  Under the MFN agreement, MFN will assume the
Company's future payment obligations to the cable consortiums that own and
operate them.  The Company intends to use a portion of the cash proceeds to
immediately reduce a substantial portion of its indebtedness. Additionally, the
Company will retain the right to purchase cable capacity to meet its existing
customer capacity obligations and for its growing Internet operations. The
Company expects that the Japan-U.S. transaction will close by the end of May
2000 and that the TAT-14 transaction will close by mid-August 2000. The TAT-14
agreement is subject to the approval of the management committee of the TAT-14
Cable Network. Upon closing these sales, the Company will significantly reduce
its bandwidth services.

     2) The Company is negotiating with its bankers to restructure its credit
facility so that the bank covenants are suitable for its future operations and
to provide the Company with working capital. At May 15, 2000, the Company was in
default of certain provisions of its bank credit facility, including a payment
default. The banks agreed to waive these defaults through May 22, 2000, to
permit the orderly re-negotiation of its credit facility. The Company is
actively negotiating with its banks to amend the terms of the bank credit
facility and to receive a further waiver of its existing defaults as well as an
extension of its May 15, 2000, repayment obligation. The Company is seeking to
retain a portion of the approximately $52.0 million in cash proceeds that it
expects to receive from the sale of its interests in the Japan-U.S. and TAT-14
Cable Networks. Although no assurances are possible, the Company expects that
these discussions will quickly result in the consummation of a definitive
agreement with terms beneficial to the Company. The Company is also seeking a
waiver from Cisco Systems Capital Corporation of a cross-default under its $15.0
million vendor financing arrangement caused by the Company's default under its
bank credit facility. In addition, the Company is engaged in negotiations with
other possible lenders.

                                      11
<PAGE>
     3) The Company has begun to aggressively reduce costs in non-strategic
areas of the Company's business.  As a result of employee turnover and through
targeted staff reductions, the Company has reduced the number of its employees
from 386 at December 31, 1999, to 323 at May 19, 2000.  The Company is also
exploring other cost saving measures, including reducing its use of consultants
in selected areas of the business.

     4) The Company also has reduced its planned expenditures by allowing its
agreement to acquire the retail division of NOSVA Limited Partnership to
terminate. As a result, the Company no longer is obligated to pay $18.0 million
in cash or to issue $16.2 million of its common stock at or subsequent to
closing.

     5) The Company has reinforced its financial and cash management executive
functions by retaining the services of Caye Hursey as its Acting Chief Financial
Officer and Deanna Lord, a CPA previously with PricewaterhouseCoopers LLP, as
its Acting Controller. Ms. Hursey and Ms. Lord bring 20 years and 8 years,
respectively, of finance and accounting experience to the Company.

     6) Finally, the Company is considering retaining the services of a
management consulting firm to sell assets that are not essential to the
Company's future operations.  The Company is considering a sale of certain of
its voice operations, including its offshore subsidiaries or its retail
subsidiary.

     The Company believes that these measures, plus others that may be
implemented in the future, will position the Company to meet the challenges now
posed by the changing telecommunications marketplace and its liquidity
situation.  The Company expects its strategy to have a number of effects on its
future results of operations.  In particular, the Company expects to: (1)
generate losses from its Internet services business as a result of substantial
start-up costs; (2) incur increased interest expense attributable to
indebtedness; and (3) incur increased administrative expenses as it pursues
strategic and financing alternatives to address liquidity.  The Company is
increasingly focusing on its Internet operations and is de-emphasizing its
wholesale selling efforts.

     The Company has been deriving its revenues from three operating segments:
telecommunications, Internet, and bandwidth services.  The Company's
telecommunications revenues are based upon the number of minutes billable and
recorded upon completion of a call.  The Company generally prices its services
at a lower cost than the major carriers operating in its global markets.  The
Company derives telecommunication revenues from carrying a mix of wholesale and
retail long distance traffic in the U.S. and offshore.

                                      12
<PAGE>

     Prices in the long distance industry have declined in recent years and, as
competition continues to increase, the Company believes that prices are likely
to continue to decrease.  In addition, as deregulation accelerates and
competition increases in offshore markets, the Company's revenues per minute
could be adversely impacted.

     Cost of telecommunications revenue is comprised primarily of costs incurred
from other domestic and foreign telecommunications carriers to originate,
transport, and terminate calls.  The majority of the Company's cost of
telecommunication revenue is variable, based upon the number of minutes of use,
with transmission and termination costs being its most significant expense.  As
the Company increases the portion of traffic transmitted over its owned or
leased facilities, the cost of telecommunication revenue will be increasingly
comprised of fixed costs.  The Company seeks to lower its cost of
telecommunication revenue by:

     .  optimizing the routing of calls over the lowest cost route;
     .  increasing volumes on its owned lines to the extent possible; and
     .  negotiating lower variable usage based costs with domestic and foreign
        service providers and negotiating additional and lower cost foreign
        carrier agreements with the foreign incumbent carriers and others.

     The Company generally realizes a higher average price per minute and gross
margin on its international calls as compared to its domestic long distance
services and a higher average price per minute and gross margin on its retail
services as compared to its wholesale services.  Although wholesale services
generate a lower gross margin than retail services, they are an important part
of the Company's business because the high traffic volume of its wholesale
customers improves the utilization of the network and allows for greater
flexibility in negotiating rates from suppliers.  The Company's overall average
price per minute and gross margin may fluctuate based on its relative volume of
international versus domestic long distance services, wholesale services versus
retail services, and the proportion of traffic carried on its owned network
versus resale of other carrier services.

        In the third quarter of 1999, the Company began generating Internet
service revenues.  Internet revenues include service provider fees and web
design revenue.  In the first quarter of 2000, Internet service revenues
accounted for 1% of the Company's total revenues.

     In 1999, the Company entered into agreements to sell or lease bandwidth
capacity. Upon completion of the sale of its fiber optic cable capacity on the
TAT-14 and Japan-U.S. Cable Networks to MFN, the Company will retain purchase
rights to meet its capacity obligations under these agreements; however, the MFN
sale will significantly reduce the Comapny's future bandwidth services
operations.

     The Company's selling, general, and administrative expenses are comprised
primarily of salaries, commissions, occupancy costs, sales and marketing
expenses, advertising expenses, administrative costs, and sales allowances.
These expenses have been increasing consistently with the expansion of the
Company's operations into retail and Internet services.  The expansion of its
Internet operations will require additional personnel, which likely will affect
our operating results.  In addition, the Company's current financial condition
has resulted in increased administrative expenses for professional services.
However, the Company is also reducing it workforce and expects that the
resulting cost savings will partially offset its other expenditures that are
expected to increase.

                                      13
<PAGE>

     The Company expects its capital investment activity to affect its operating
results in the near term. Depreciation expense will increase when the Company's
remaining bandwidth interests, related backhaul, and Internet service equipment
are placed in-service.  In addition, interest expense will increase in
connection with borrowings to fund such expenditures.  These costs will be
incurred in advance of the expected improvements in operating results from such
investments.

     Although the Company's functional currency is the United States dollar, a
significant portion of its revenues are derived from sales and operations
outside the United States.  In the future, the Company expects to continue to
derive a portion of its revenues and incur operating costs from its operations
outside the United States and therefore changes in exchange rates may have an
effect on its results of operations.  The Company historically has not engaged
in hedging transactions and does not currently contemplate engaging in hedging
transactions to mitigate foreign exchange risks.


Results of Operations

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

<TABLE>
<CAPTION>
                                                 Three Months
                                                Ended March 31,
                                         ----------------------------
<S>                                        <C>              <C>
                                                2000             1999
                                          -----------      -----------
Total revenues                                 100.0%           100.0%
Cost of services and capacity sold              90.0%            86.4%
                                          -----------      -----------
    Gross profit                                10.0%            13.6%
Selling, general, and administrative
 expenses                                       19.5%             7.4%
                                          -----------      -----------
Bad debt expense                                 3.4%             0.5%
Depreciation and amortization                    4.6%             2.0%
                                          -----------      -----------
    Total operating expenses                    27.5%             9.9%
                                          -----------      -----------
    Operating income (loss)                    -17.5%             3.7%
Acquisition and investment loss                  7.1%             0.0%
Interest (income) expense, net                  -0.2%            -0.1%
Other (income) expense, net                     -0.2%            -0.2%
                                          -----------      -----------
    Income before income taxes                 -24.2%             4.0%
Provision for income taxes                       0.1%             1.4%
                                          -----------      -----------
    Net income (loss)                          -24.1%             2.6%
                                         ===========      ===========
</TABLE>

                                      14
<PAGE>

Three Months Ended March 31, 2000, Compared to the Three Months Ended March 31,
1999

Revenues: Total revenues for the three-month period ended March 31, 2000,
decreased 10.5% to $126.4 million from $140.5 million. Telecommunications
revenues decreased 10.0% to $125.8 million in the three months ended March 31,
2000, from $140.5 million in the same period in 1999. The decrease in revenue
was primarily due to the Company's shift to higher margin operations and the
loss of key customers because of the Company's liquidity shortage, which it is
working to remedy. Although the Company's minutes of use increased to 610
million from 511 million, the average price per minute charged to customers
decreased to $0.21 in the three months ended March 31, 2000, compared to $0.28
for the same period in 1999. The decrease was a result of increased competition.
Partially offsetting the decrease in the per minute price was an increase in the
Company's retail volume. Internet revenue for the current three months was $0.7
million, reflecting the commencement of the Company's Internet services in
September 1999.

Gross profit:   Gross profit decreased 34% to $12.7 million in the three months
ended March 31, 2000, from $19.1 million in the same period in 1999.  Gross
margin decreased to 10.0% for the three months ended March 31, 2000, from 13.6%
in the same period in 1999.  Telecommunication gross profit decreased to $12.1
million in the three months ended March 31, 2000, from $19.1 million in the same
period in 1999.  Increased competition continues to drive wholesale
telecommunication prices downward resulting in decreased wholesale
telecommunication gross margins.  This decrease was partially offset by higher
gross profit generated from the Company's retail operations.  Internet service
gross profit was $0.5 million for the three months ended March 31, 2000.

Selling, general, and administrative expenses ("SG&A"): SG&A expenses increased
138% to $24.7 million in the three months ended March 31, 2000, from $10.4
million in the same period in 1999. As a percentage of revenues, SG&A expenses
were 19.5% in the three months ended March 31, 2000, up from 7.4% in the same
period in 1999. This increase was due primarily to increased personnel expenses,
legal and professional expenses, and start-up and related costs for the
Company's Internet operations. At March 31, 2000, the Company employed 406
people, up from 203 at March 31, 1999. In the near term, the Company expects to
incur additional start-up costs to provide Internet services. However, the
Company has reduced its number of employees to 323 at May 19, 2000, and expects
that the cost savings will partially offset increased SG&A costs associated with
its Internet services' expansion.

Bad debt expense:   Bad debt expense increased to $4.3 million in the three
months ended March 31, 2000, up from $0.8 million in the same period in 1999.
During the period, the Company expensed $2.3 million in bad debts in addition to
its budgeted expense for bad debts. The increase is due primarily to a
deterioration in the aging of the Company's wholesale receivables and increased
retail receivables as a result of the acquisition of several retail businesses
in the second half of 1999. In the three months ended March 31, 2000, the
Company also experienced write-offs related to the integration of receivables
acquired as part of the Company's retail acquisitions completed in 1999.
Although there can be no guarantees, the Company expects that future bad debt
expense will decrease as the Company's acquisitions and current financial
position stabilize.

                                      15
<PAGE>

Acquisition and investment losses:   In the three months ended March 31, 2000,
the Company expensed approximately $9.0 million related to its acquisitions and
investments.  In March 2000, the Company expensed $6.0 million in non-refundable
deposits related to planned acquisition of NOSVA Limited Partnership, as the
Company believes that it will not complete the acquisition.   Also in March
2000, the Company issued 330,000 of its common shares to satisfy a $2.7 million
cash payment obligation for the purchase of a retail customer business.  At
issuance, the shares were worth $5.4 million as stipulated in the asset purchase
agreement.  The Company expensed the excess value of the shares or $2.7 million
related to this acquisition.  In addition, the Company's equity investment in a
Belgian company required a letter of credit payment of $0.2 million, which it
also expensed during the period.  The Belgian company is no longer in business
and the Company had previously fully written-down its equity investment as it
incurred losses.

Depreciation and amortization:   Depreciation and amortization increased 109% to
$5.8 million in the three months ended March 31, 2000, from $2.8 million in the
same period in 1999.  Depreciation as a percentage of revenues was 4.6% for the
three months ended March 31, 2000, and 2.0% for the same period in 1999.  The
increase was primarily due to depreciation of additional U.S. wholesale and
offshore fiber optic cables and communications equipment acquired since March
31, 1999.  In addition, the Company recorded amortization expense of $1.7
million related to its intangible assets recorded as a result of its retail
acquisitions.

Interest:   Interest income remained unchanged at $0.2 million for the three
months ended March 31, 2000, from $0.2 million in the same period in 1999.  In
addition, the Company has capitalized the interest costs that relate to network
and facility construction per SFAS No. 34, "Capitalization of Interest Cost."
The Company will depreciate the capitalized interest over the related asset's
life.

Income tax:   Income taxes decreased 94% to $0.1 million in the three months
ended March 31, 2000, from $2.0 million in the same period in 1999, due to
decreased operating income.  The Company recorded a full valuation allowance
against the deferred tax asset related to its net operating loss for the
quarter.  The Company recorded the valuation allowance due to the uncertainty of
its ability to offset its current period losses with future profits.  The
effective tax rate was 35% in the quarter ended March 31, 1999.

                                      16
<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 increased to $7.4 million for the
three-month period ended March 31, 2000, from $3.6 million for the same period
in 1999.  This increase in cash provided by operating activities was due
primarily to the Company's delayed payments to its vendors resulting in its
increased accounts payable balance at March 31, 2000, an increase in bad debt
expense, and an increase in depreciation and amortization, partially offset by
increase in accounts receivable.

     Net cash used in investing activities was $31.0 million for the three-month
period ended March 31, 2000, from $12.5 million for the same period in 1999.
Capital expenditures for the three-month period ended March 31, 2000, were $21.6
million, compared to $12.5 million in the same period in 1999.  The capital
expenditures in both 2000 and 1999 were primarily for undersea fiber optic cable
and offshore transmission equipment.  In addition, the Company invested $9.3
million in the acquisition of several retail customer businesses and a wholesale
network acquired from another carrier.

     Net cash provided by financing activities was $24.0 million for the three-
month period ended March 31, 2000, and $4.3 million for the same period in 1999.
During the period, the Company borrowed an additional $21.3 million under its
existing credit facility and$2.7 million in cash from vendor financing.

     In November 1999, the Company obtained a $100 million credit facility from
Deutsche Bank Securities Inc. and Bank of America Securities LLC. At March 31,
2000, the Company had $75.4 million in borrowings under its existing credit
facility. At March 31, 2000, due to the Company's cash shortage and default on
certain of its covenants, the facility was reduced to $75.4 million.

     At May 15, 2000, the Company was in default of certain provisions of its
bank credit facility, including a payment default. The banks agreed to waive
these defaults through May 22, 2000, to permit the orderly re-negotiation of its
credit facility. The Company is actively negotiating with its banks to amend the
terms of the bank credit facility and expects to receive a further waiver of its
existing defaults as well as an extension of its May 15, 2000, repayment
obligation. The Company is seeking to retain a portion of the approximately
$52.0 million in cash proceeds that it expects to receive from the sale of its
interests in the Japan-U.S. and TAT-14 Cable Networks. Although no assurances
are possible, the Company expects that these discussions will quickly result in
the consummation of a definitive agreement with terms beneficial to the Company.

     In December 1999, the Company obtained $10.0 million in financing from GE
Capital Corporation to finance its expansion and to meet its working capital
needs.  At March 31, 2000, the balance was $3.3 million and $6.1 million of
current and non-current debt, respectively.  There are no defaults under this
financing arrangement.

     Also in December 1999, the Company obtained a $15.0 million vendor
financing facility from Cisco Systems Capital Corporation.  The facility may be
used to finance the purchase of Cisco Internet routers and related hardware and
software.  At March 31, 2000, the Company had $2.7 million outstanding under
this facility.  The Company's default under its bank credit agreement also
resulted in a cross default under its Cisco financing arrangement, therefore, it
may not utilize any additional credit under this facility until it remedies its
default status.  The Company is seeking a waiver from Cisco to retain the
facility.

                                      17
<PAGE>

     At March 31, 2000, the Company had outstanding commitments, due before
December 31, 2000, of approximately $110.0 million, principally for the
acquisition of additional ownership in digital undersea fiber optic cables and
network equipment.  This included the Company's $105.0 million commitment to
purchase undersea fiber optic cable in the Japan-U.S. and in the TAT-14 Cable
Networks.  In May 2000, the Company announced the agreement to sell its capacity
on both Cable Networks, which, upon closing, will relieve it of its $105.0
million cable network purchase commitment.  Under the terms of the sale, the
Company is also purchasing capacity on the Japan-U.S. and TAT-14 Cable Networks
at the in-service dates and upon expansion for approximately $74.0 million. The
Company expects the Japan-U.S. Cable Network in-service date will be in November
2000 and the expansion date will be in July 2001. It also expects that the TAT-
14 Cable Network in-service date will be in February 2001.

     In March 2000, a leading developer of Internet infrastructure software
agreed to make an equity investment of up to $8.0 million in Onyx Networks, the
Company's Internet subsidiary, conditioned upon other investments of an equal
amount.  In addition, Onyx committed to purchase approximately $28.0 million of
software from the investor.  The $28.0 million is payable monthly over 15 to 24
months, beginning June 1, 2000.  The Company has guaranteed these payments.

     The Company has experienced difficulty in making timely payments to its
vendors, which has caused a number of its vendors to terminate service..  In
April 2000, the Company agreed to pledge certain of its assets to MCI WorldCom,
Inc. ("MCI WorldCom") due to its inability to meet its obligation for
telecommunication services.  The Company pledged the security interest to avoid
termination of services from MCI, one of its most significant vendors.  The
Company also made a cash payment to MCI WorldCom and agreed to make weekly
payments until the account is current.

     In 1999, the Company entered into agreements to lease and exchange
bandwidth capacity, including maintenance services.  The Company committed to
sell capacity for $57.5 million to be received over three years and provide
maintenance for $30.0 million to be received over the terms of the contracts,
which is generally 20 years.  Of the capacity exchanged, the Company received
domestic capacity in exchange for future capacity on the TAT-14 Cable Network.
Under the terms of the Cable Network sale to MFN, the Company retained the right
to purchase capacity to meet its obligations under these agreements.

     Additional financing arrangements are necessary for the Company to satisfy
its capital requirements and the failure to obtain such arrangements could have
a material adverse effect on the Company's results of operations and financial
condition.  As a result of the Company's liquidity situation, its auditors
included a going concern explanation in their opinion on the Company's financial
statements as of and for the year ended December 31, 1999.  To fund its planned
capital requirements and operations, the Company is actively exploring several
alternatives to fund or further reduce its capital commitments, including: (1)
asset sales; (2) minority investments in Onyx Networks, its Internet subsidiary;
(3) a sale of one or more of its subsidiaries; and (4) selected asset financing.
The timing and terms of any financing activities will be subject to market
conditions and other factors beyond the Company's control.  There can be no
assurance that such financing arrangements will be consummated.

                                      18
<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.

         In addition, on April 7, 2000, a complaint entitled Jeffrey Winick, on
         Behalf of Himself and All Others Similarly Situated v. Pacific Gateway
         Exchange, Inc., et al., was filed in the United States District Court,
         Northern District of California (Case No. C 00-1211). The complaint
         also names certain officers of the Company. The complaint purports to
         be a securities class action on behalf of persons who purchased
         publicly traded securities of the Company between May 13, 1999, and
         March 31, 2000. The complaint alleges that between May 13, 1999, and
         March 31, 2000, material false and misleading statements were made
         about the Company's financial results and condition in violation of
         Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
         Rule 10b-5 promulgated thereunder. The complaint seeks monetary
         damages, interest, and costs, as well as other relief that may be
         proper. After the filing of this complaint, other complaints were filed
         in the United States District Court for the Northern District of
         California, making similar allegations. It is anticipated that all of
         these actions will be consolidated into a single action. While
         management denies liability and intends to vigorously defend these
         actions, there can be no assurance that an adverse result or settlement
         with regards to these lawsuits would not have a material adverse impact
         on the Company's financial condition 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

                                      19
<PAGE>

Item 6.  Exhibits and Reports on Form 8-K

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

             10.9  First Amendment and Limited Conditional Waiver to First
                   Amended and Restated Credit Agreement among Pacific Gateway
                   Exchange, Inc., Pacific Gateway Exchange (Bermuda) Limited,
                   Bank of America, N.A. and Deutsche Bank Securities Inc. dated
                   March 31, 2000

             27    Financial Data Schedule

         (b) No reports on Form 8-K have been filed during the quarter ended
             March 31, 2000.

                                      20
<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 22, 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)

                                      21