<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED June 30, 1998 OR


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

FOR THE TRANSITION PERIOD FROM _________ TO ____________

COMMISSION FILE NUMBER:  333-12977

                               IMPSAT CORPORATION
                                   IMPSAT S.A.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                                             <C>
                              Delaware                                                       52-1910372
                              Argentina                                                    Not Applicable
(STATE OR OTHER JURISDICTION INCORPORATION OR ORGANIZATION)                     (IRS EMPLOYER IDENTIFICATION NUMBER)
</TABLE>


                            Alferez Pareja 256 (1107)
                             Buenos Aires, Argentina
                                 (541) 300-4007
   (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                    REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)

Indicate by check mark whether the Registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
                                                    -      -

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

INDICATE BY CHECK MARK WHETHER THE COMPANY HAS FILED ALL DOCUMENTS AND REPORTS
REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A
COURT. YES  n/a  NO  n/a
           -----    -----

                      APPLICABLE ONLY TO CORPORATE ISSUERS

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: As of June 30, 1998 the Company
had outstanding 75,594,480 shares of Common Stock, $1.00 par value, and 25,000
shares of Series A Convertible Preferred Stock, liquidation preference $5,140
per share, outstanding.



<PAGE>   2


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

                               IMPSAT CORPORATION
                                   IMPSAT S.A.

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

                                      INDEX

<TABLE>
<CAPTION>
                                                                                      PAGE NO.
                                                                                      --------
<S>                                                                                   <C>
PART I.......................................................................................3

FINANCIAL INFORMATION........................................................................3

     ITEM 1.  FINANCIAL STATEMENTS...........................................................3
     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS.....................................................25

PART II.....................................................................................34

OTHER INFORMATION...........................................................................34

     ITEM 1.  LEGAL PROCEEDINGS.............................................................34
     ITEM 2.  CHANGES IN SECURITIES.........................................................34
     ITEM 3.  DEFAULTS UPON SENIOR SECURITIES...............................................34
     ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS...........................34
     ITEM 5.  OTHER INFORMATION.............................................................34
     ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K..............................................34

SIGNATURES..................................................................................35
</TABLE>


<PAGE>   3


                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                      IMPSAT CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                         (IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,          JUNE 30,
                                                                                      1997                1998
                                                                                  ------------        ------------
                                                                                                       (UNAUDITED)
<S>                                                                               <C>                 <C>
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents ............................................            $10,439            $200,638
   Trade accounts receivable, net .......................................             36,596              42,967
   Other receivables ....................................................             15,583              20,359
   Prepaid expenses .....................................................              2,397               3,318
                                                                                    --------            --------
           Total current assets .........................................             65,015             267,282
                                                                                    --------            --------
PROPERTY, PLANT & EQUIPMENT, NET ........................................            255,422             290,822
                                                                                    --------            --------
NON-CURRENT ASSETS:
   Trade accounts receivable, net .......................................              5,143               5,143
   Intangible assets, net ...............................................              2,003               8,120
   Investment at cost ...................................................              4,178               9,149
   Deferred financing costs, net ........................................              4,044               9,872
   Deferred income taxes, net............................................                                  1,345
   Other non-current assets .............................................              4,111               1,498
                                                                                    --------            --------
          Total non-current assets ......................................             19,479              35,127
                                                                                    --------            --------
TOTAL                                                                               $339,916            $593,231
                                                                                    ========            ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
   Account payable - trade ..............................................            $25,289             $35,443
   Short-term debt ......................................................             50,189              65,656
   Current portion of long-term debt ....................................             10,186              14,441
   Accrued liabilities ..................................................              8,878              13,038
   Deferred income taxes, net ...........................................                247
   Other liabilities ....................................................              8,649              15,668
                                                                                    --------            --------
            Total current liabilities                                                103,438             147,753
                                                                                    --------            --------
LONG-TERM DEBT, NET .....................................................            159,677             384,567
                                                                                    --------            --------
OTHER LONG-TERM LIABILITIES .............................................              3,014               3,710
                                                                                    --------            --------
COMMITMENTS AND CONTINGENCIES (Note 11)
MINORITY INTEREST .......................................................             10,398              11,563
                                                                                    --------            --------
REDEEMABLE PREFERRED STOCK, Convertible, Series A,
     10%, cumulative dividend, 25,000 shares authorized, issued
     and outstanding liquidation preference $5,140 per share ............                                128,507
STOCKHOLDERS' EQUITY (DEFICIT)
   Common stock, $1 par value; 100,792,640 shares issued and
     outstanding at December 31, 1997 and June 30, 1998,
     respectively .......................................................            100,793             100,793
   Treasury stock, 25,198,160 shares, at cost ...........................                              (125,000)
   Amount paid in excess of carrying value of assets acquired from
     related party                                                                                       (5,679)
   Accumulated deficit ..................................................           (37,404)            (49,476)
                                                                                    --------            --------
          Total stockholders' equity (deficit) ..........................             63,389            (79,362)
                                                                                    --------            --------
TOTAL ...................................................................           $339,916            $593,231
                                                                                    ========            ========
</TABLE>


See notes to consolidated financial statements.


                                       3
<PAGE>   4


                       IMPSAT CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         (IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED               SIX MONTHS ENDED
                                                       JUNE 30,                        JUNE 30,
                                               ------------------------        ------------------------
                                                 1997            1998            1997            1998
                                               --------        --------        --------       ---------
                                                                      (UNAUDITED)
<S>                                            <C>             <C>             <C>            <C>
NET REVENUES FROM SERVICES .............        $38,694         $48,498         $75,721         $93,651
                                                -------         -------         -------         -------
COSTS AND EXPENSES:
   Variable cost of services ...........          7,172           7,261          12,226          14,980
   Salaries, wages and benefits ........          7,276           9,191          13,662          16,962
   Satellite capacity cost .............          4,406           6,726           8,841          12,841
   Selling, general and administrative .          6,567          12,590          14,031          21,106
   Depreciation and amortization .......          7,026           8,568          13,776          16,629
                                                  -----           -----          ------          ------
   Total costs and expenses ............         32,447          44,336          62,536          82,518
                                                 ------          ------          ------          ------
      Operating income .................          6,247           4,162          13,185          11,133
                                                 ------          ------          ------          ------
OTHER INCOME (EXPENSES):
   Interest expense, net ...............        (6,089)         (9,406)        (12,271)        (17,191)
   Net (loss) gain on foreign exchange .           (34)           (181)           (196)           (158)
   Other income (expense), net .........          (293)             166           (260)             498
                                                 ------          ------          ------          ------
INC0ME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST ..................          (169)         (8,766)             458         (5,718)
PROVISION FOR INCOME TAXES .............        (1,032)           (616)         (2,729)         (2,251)
                                                -------           -----         -------          ------
LOSS BEFORE MINORITY INTEREST ..........        (1,201)         (5,875)         (2,271)         (7,969)
INCOME ATTRIBUTABLE TO MINORITY
INTEREST ...............................             46           (327)           (581)           (596)
                                               --------        --------        --------       ---------
NET LOSS ...............................        (1,155)         (6,202)         (2,852)         (8,565)
   Dividends on redeemable preferred
     stock..............................                                                        (3,507)
                                               --------        --------        --------       ---------
NET LOSS ATTRIBUTABLE TO COMMON
  SHAREHOLDERS..........................       $(1,155)        $(9,709)        $(2,852)       $(12,072)
                                               ========        ========        ========       =========

</TABLE>


See notes to consolidated financial statements


                                       4
<PAGE>   5


                       IMPSAT CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                         (IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
                                                                           AMOUNT PAID IN
                                                                           EXCESS OF
                                            COMMON STOCK                   CARRYING VALUE
                                       ----------------------              OF NET ASSETS
                                                                TREASURY   ACQUIRED FROM   ACCUMULATED                  MINORITY
                                          SHARES      STOCK      AMOUNT    RELATED PARTY     DEFICIT           TOTAL    INTEREST
                                       ------------  --------  ----------  --------------  -----------      ----------  --------
<S>                                    <C>           <C>       <C>         <C>             <C>              <C>         <C>
BALANCE AT DECEMBER 31, 1997.........   100,792,640  $100,793                              $  (37,404)      $   63,389  $ 10,398
Change in minority interest in
IMPSAT Argentina.....................                                                                                      (354)
Acquisition of Treasury stock........  (25,198,160)            $(125,000)                                    (125,000)
Amount paid in excess of
carrying value of net assets
acquired from related party..........                                         $   (5,679)                      (5,679)
Change in minority interest
related to the acquisition of
Mandic S.A...........................                                                                                        923
Dividends on redeemable preferred
stock................................                                                          (3,507)         (3,507)
Net loss for the six months ended
  June 30, 1998......................                                                          (8,565) (*)     (8,565)       596
                                         ----------  --------  ----------     -----------  -----------      ----------  --------
BALANCE AT JUNE 30, 1998.............    75,594,480  $100,793  $(125,000)     $   (5,679)  $  (49,476)      $ (79,362)  $ 11,563
                                         ==========  ========  ==========     ===========  ===========      ==========  ========
</TABLE>


(*) Includes an appropriation of retained earnings amounting to $1,622 to comply
with legal reserve requirements in Argentina.


See notes to consolidated financial statements


                                       5
<PAGE>   6


                       IMPSAT CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                         (IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
                                                                                SIX MONTHS ENDED JUNE 30,
                                                                                 1997             1998
                                                                                      (UNAUDITED)
<S>                                                                            <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss ..........................................................       $ (2,852)        $ (8,565) 
         Adjustments to reconcile net loss to net cash provided by
operating activities:
         Amortization and depreciation .................................          13,776           16,629
         Deferred income tax provision (benefit) .......................           1,268          (1,592)
         Income attributable to minority interest ......................             581              242
         Changes in assets and liabilities:
         Increase in trade accounts receivable, net ....................         (5,933)          (6,121)
         Increase in prepaid expenses ..................................         (1,277)            (723)
         Increase in other receivables and
              other non-current assets .................................         (1,095)            (436)
         (Decrease) increase in accounts payable-trade .................         (2,930)            7,497
         Increase in accrued and other liabilities .....................           5,204           10,711
         (Decrease) increase in other long-term liabilities ............         (2,290)              696
                                                                               ---------        ---------
     Net cash provided by (used in) operating activities ...............           4,452           18,338
                                                                               ---------        ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property, plant and equipment ........................        (19,911)         (48,226)
     Cash paid in Mandic S.A. acquisition, net .........................                          (6,307)
     Cash paid in IMPSAT Brazil merger .................................                          (5,100)
     Increase in investment ............................................         (3,052)          (5,001)
                                                                               ---------        ---------
     Net cash used by investing activities .............................        (22,903)         (64,634)
                                                                               ---------        ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net borrowings from short-term debt ...............................          22,553           15,036
     Acquisition of treasury stock .....................................                        (125,000)
     Proceed of issuance of redeemable preferred stock .................                          125,000
     Proceeds from long-term debt, net .................................           3,810          228,097
     Repayments of long-term debt ......................................         (7,292)          (6,638)
                                                                               ---------        ---------
     Net cash provided by financing activities .........................          19,071          236,495
                                                                               ---------        ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ..............................             560          190,199
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................          28,895           10,439
                                                                               ---------        ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............................       $  29,455        $ 200,638
                                                                               =========        =========
SUPPLEMENTAL CASH FLOW INFORMATION:
     Interest paid .....................................................       $  11,344        $  20,317
                                                                               =========
     Foreign taxes paid ................................................       $       2
                                                                               =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
     Equipment in transit ..............................................       $   9,394        $   2,207
                                                                               =========        =========
     Common stock issued in exchange for an additional 44% of
         IMPSAT Argentina ..............................................       $  23,043
                                                                               =========
     Accrued dividends on redeemable preferred stock ...................                        $   3,507
                                                                                                =========
     Mandic S.A. Acquisition:
         Fair Value of net assets acquired .............................                        $   1,300
                                                                                                =========
</TABLE>


See notes to consolidated financial statements


                                       6
<PAGE>   7


                       IMPSAT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         (IN THOUSANDS OF U.S. DOLLARS)

1.   GENERAL 

IMPSAT Corporation, a Delaware holding company (the "Company"), is a
privately-held corporation which provides and operates private networks of
integrated data and voice telecommunications systems in a number of countries in
Latin America. The Company's principal line of business comprises the provision
of data transmission services for large national and multinational companies,
financial institutions, and governmental agencies and other business customers
in Latin America. The Company provides its services through its advanced
telecommunications networks comprised of owned teleports, earth stations, fiber
optic and microwave links and leased satellite and fiber optic links.

The Company was formed in August 1994 for the purpose of combining operating
entities in Argentina, Colombia and Venezuela, which were previously controlled
by common ownership. The original operating entity was established in Argentina
in 1990 under the name of IMPSAT S.A. ("IMPSAT Argentina"). Thereafter,
operating entities were established in Colombia in 1992 ("IMPSAT Colombia") and
in Venezuela in 1993 ("IMPSAT Venezuela"). Other operating subsidiaries have
been created or acquired in Mexico, Ecuador, Peru (inactive), the United States
and Brazil. Accordingly, the Company's operating subsidiaries at June 30, 1998
are as follows:


<TABLE>
<CAPTION>
                                                                                    NET
                                                                                  REVENUES    OPERATING
                                                      OWNERSHIP       TOTAL         FROM        INCOME
COUNTRY       OPERATING SUBSIDIARIES                  PERCENTAGE      ASSETS      SERVICES      (LOSS)
-------       ----------------------                  ----------      ------      --------      ------
<S>       <C>                                         <C>           <C>          <C>          <C>
Argentina     Impsat S.A.                                   95.2%   $ 234,808    $  47,533    $   9,511
Colombia      Impsat S.A.                                   74.2      102,064       28,095       11,319
Venezuela     Telecomunicaciones Impsat S.A.                75.0       32,203        6,387          693
Mexico        Impsat S.A. de C.V.                           99.9        9,912        1,645       (1,055)
Ecuador       Impsatel del Ecuador S.A                     100.0       18,142        4,140        1,208
USA           Impsat USA, Inc.                             100.0        9,355        4,348          953
Brazil        Impsat Comunicacoes Ltda.                     99.9       10,624          504       (5,175)
Brazil        Mandic BBS Planejamento e
              Informatica S.A.                              58.5        3,599          999          174
                                                                    ---------    ---------    ---------


              Subtotal for operating subsidiaries                     420,707       93,651       17,628

          Parent company, others and eliminations                     171,601                    (6,495)
                                                                    ---------    ---------    ---------

              Consolidated total                                      592,308    $  93,651    $  11,133
                                                                    =========    =========    =========
</TABLE>


In addition, the Company owns other subsidiaries which serve as intermediaries
or provide support functions to the Company and its operating subsidiaries. They
are Resis Ingenieria, S.A. (Argentina) and International Satellite Capacity
Holding, NG (Liechtenstein).


                                       7
<PAGE>   8


2.   MERGERS AND ACQUISITIONS

On June 1, 1998, the Company acquired from Nevasa Holdings Limited ("Nevasa"),
the Company's parent, 99.9% of the capital stock of IMPSAT Comunicacoes Ltda.
("IMPSAT Brazil"), a Brazilian company, for approximately $5.1 million. The
purchase price for IMPSAT Brazil represented the total amount of pre-operating
and development costs and expenses incurred for IMPSAT Brazil by Nevasa. IMPSAT
Brazil was established by Nevasa and operates under a value added
telecommunications license permitting IMPSAT Brazil to lease satellite capacity
directly from EMBRATEL, Brazil's long-distance carrier and sell corporate
private telecommunications network services (data, voice and video) using
terrestrial and satellite links to third parties. The acquisition, as is
generally the case for transactions among companies under common control, has
been accounted for in a manner similar to the pooling of interests method of
accounting, whereby all assets and liabilities have been recorded at their
historical carrying amounts and the acquisition was recorded as if the
transaction occurred on January 1, 1998. IMPSAT Brazil did not have material
operations in 1997 as it was in the pre-operating phase. Amounts paid in excess
of carrying value of the underlying net assets acquired is recorded as a
reduction of stockholders' equity (deficit) and will be amortized on a
straight-line basis over a period of 10 years.

On April 20, 1998, the Company signed a definitive agreement to purchase a 75.1%
interest in Mandic BBS Planejamento e Informatica S.A. ("Mandic S.A."), a
Brazilian internet access provider, for approximately $9.8 million. Upon
consummation of the transaction, the Company will acquire 75.1% of the common
stock of Mandic S.A., and the remaining 24.9% will be owned by Mr. Aleksander
Mandic, the founder and current president of Mandic S.A. The initial stage of
the acquisition of Mandic S.A., pursuant to which the Company acquired a 58.5%
interest, was consummated on May 29, 1998, and the remaining 16.6% interest is
scheduled to be acquired by May 1, 1999. The acquisition was accounted for as a
purchase.

The purchase price was allocated as follows:

<TABLE>
<S>                                       <C>
Estimated fair value of net 
  assets acquired:                        $ 1,300
Goodwill                                    6,307
                                          -------
Purchase price for 58.5% interest:        $ 7,607
                                          =======
</TABLE>


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION -- The financial statements are presented on a
consolidated basis and include the accounts of the Company and its subsidiaries.
Effective December 31, 1997, IMPSAT Argentina changed its fiscal year to
December 31. All significant intercompany transactions and balances have been
eliminated.

INTERIM FINANCIAL INFORMATION -- The unaudited consolidated statements as of
June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been
prepared on the same basis as the audited consolidated financial statements. In
the opinion of management, such unaudited consolidated financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the results for such period. The operating results
for the


                                       8
<PAGE>   9


six months period ended June 30, 1998 and 1997 are not necessarily indicative of
the operating results to be expected for the full fiscal year or for any future
period.

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

CASH AND CASH EQUIVALENTS -- Cash and cash equivalents are highly liquid
investments, including short-term investments and time deposits with maturities
of three months or less at the time of purchase. Cash equivalents and short-term
investments are stated at cost, which approximates market value.

REVENUE RECOGNITION -- The Company provides services to its customers pursuant
to contracts which range from six months to five years but generally are for
three years. The customer generally pays an installation charge at the beginning
of the contract and a monthly fee based on the number of microsystem
installations. The fees stipulated in the contracts are generally denominated
in U.S. dollars equivalents. Services are billed on a monthly, predetermined
basis, which coincides with when the services are rendered. No single customer
accounted for greater than 10% of total revenue from services for the six
months ended June 30, 1998 and 1997.

PROPERTY, PLANT AND EQUIPMENT COSTS -- Property, plant and equipment are
recorded at cost and depreciated using the straight-line method over the
following estimated useful lives:

<TABLE>
            <S>                                                       <C>
            Buildings and improvements                                10-25 years
            Operating communications equipment                         5-10 years
            Furniture, fixtures and other equipment                    2-10 years
</TABLE>

INTANGIBLE ASSETS - Intangible assets include license and permit costs and
goodwill. License and permit costs, such as legal costs, regulatory fees and
application costs incurred to obtain and make functional the operating licenses
in each respective country in the amount of approximately $3,700, were
capitalized and are being amortized on the straight-line basis over periods not
to exceed ten years. Goodwill, representing the excess of the purchase price
over the estimated fair value of the net assets acquired of Mandic S.A. (see
note 2), of approximately $6,307 is being amortized on a straight-line basis of
over a period of 15 years. The Company reviews the carrying value of its
intangible assets on an ongoing basis. If such review indicates that these
values may not be recoverable, the Company's carrying value will be reduced to
its estimated fair value.

INCOME TAXES -- Deferred income taxes result from temporary differences in the
recognition of expenses for tax and financial reporting purposes and are
accounted for in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, Accounting for Income Taxes, which requires the liability
method of computing deferred income taxes. Under the liability method, deferred
taxes are adjusted for tax rate changes as they occur.

DEFERRED FINANCING COSTS -- Debt issuance costs and transaction fees, which are
associated with the issuance of the Company's 12 1/8 % Senior Guaranteed Notes
due 2003 (the "Senior


                                       9
<PAGE>   10


Guaranteed Notes") and the 12 3/8 % Senior Notes due 2008 (the "Senior Notes")
(see Note 7) are being amortized (and charged to interest expense) over the term
of the related notes on a method which approximates the level yield method.

INVESTMENT - Investment represents a less than 1.0% ownership interest by the
Company in an unaffiliated cooperative established for the purchase and leasing
of satellite capacity time and is accounted for under the cost method.

FOREIGN CURRENCY TRANSLATION -- The Company's subsidiaries use the U.S. dollar
as the functional currency. Accordingly, the financial statements of the
subsidiaries were remeasured. The effects of foreign currency transactions and
of remeasuring the financial position and results of operations into the
functional currency are included as net gain or loss on foreign exchange.

LONG LIVED ASSETS -- Long lived assets are reviewed on an ongoing basis for
impairment based on comparison of carrying value against undiscounted future
cash flows. If an impairment is identified, the assets carrying amount is
adjusted to fair value. No such adjustments were recorded during the six months
ended June 30, 1998 and 1997.

RECLASSIFICATIONS -- Certain amounts in the period for the six months ended June
30, 1997 consolidated financial statements have been reclassified to conform
with the six months ended June 30, 1998 presentation.

NEW ACCOUNTING PRONOUNCEMENTS -- In June 1997, the FASB issued SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 requires that all components of
comprehensive income be reported on one of the following: (1) the statement of
income; (2) the statement of changes in stockholders' equity; or (3) a separate
statement of comprehensive income. Comprehensive income is comprised of net
income and all changes to stockholders' equity, except those due to investments
by owners (changes in paid-in capital) and distributions to owners (dividends).
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS No. 130 during the first quarter of 1998 did not have a
material impact on the Company's consolidated financial statements presentation.

In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 changes the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. SFAS No. 131 also requires
entity-wide disclosures about the products and services an entity provides, the
foreign countries in which it holds assets and reports revenues, and its major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The adoption of SFAS No. 131 during the first quarter of 1998 did not
have a material impact on the Company's consolidated financial statement
presentation.


                                       10
<PAGE>   11


4.   TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable, by operating subsidiaries are summarized as follows:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,      JUNE 30,
                                                             1997            1998
                                                         ------------    ------------
                                                                          (UNAUDITED)
<S>                                                      <C>             <C>
IMPSAT Argentina                                           $ 27,531        $ 31,109
IMPSAT Colombia                                              10,102          13,443
IMPSAT Venezuela                                              2,202           3,090
IMPSAT USA                                                    1,359           2,679
Others                                                        1,335           1,980
                                                           --------        --------
    Total                                                    42,529          52,301
Less: allowance for doubtful accounts                        (5,933)         (9,334)
                                                             ------          ------
Trade accounts receivable, net                             $ 36,596        $ 42,967
                                                           ========        ========
</TABLE>

The Company's subsidiaries provide trade credit to their customers in the normal
course of business. The collection of a substantial portion of the trade
receivables are susceptible to changes in the Latin American economies and
political climates. Prior to extending credit, the customers' financial history
is analyzed.

The activity for the allowance for doubtful accounts is as follows:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,      JUNE 30,
                                                             1997            1998
                                                         ------------    ------------
                                                                          (UNAUDITED)
<S>                                                      <C>             <C>
Beginning balance                                          $  2,803        $  5,933
Provision for doubtful accounts                               3,269           4,158
Write-offs                                                     (139)           (757)
                                                           --------        --------
Ending balance                                             $  5,933        $  9,334
                                                           ========        ========
</TABLE>

  See note 11.


5.   OTHER RECEIVABLES

Other receivables consist primarily of refunds or credits pending from local
governments for taxes other than income and other miscellaneous amounts due to
the Company and its operating subsidiaries as follows:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,      JUNE 30,
                                                             1997            1998
                                                         ------------    ------------
                                                                          (UNAUDITED)
<S>                                                      <C>             <C>
       IMPSAT Argentina                                    $  4,753        $  6,322
       IMPSAT Colombia                                        4,460           4,917
       IMPSAT Venezuela                                       2,133           2,052
       IMPSAT Ecuador                                           548             967
       Others                                                 3,689           6,101
                                                           --------        --------
              Total                                        $ 15,583        $ 20,359
                                                           ========        ========
</TABLE>


                                       11
<PAGE>   12


6.   PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following at:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,      JUNE 30,
                                                             1997            1998
                                                         ------------    ------------
                                                                          (UNAUDITED)
<S>                                                      <C>             <C>
 Land                                                     $   1,478       $   1,528
 Building and improvements                                   23,312          25,165
 Operating communications equipment                         310,321         354,510
 Furniture, fixtures and other equipment                     14,503          17,379
                                                          ---------       ---------
     Total                                                  349,614         398,582
 Less: accumulated depreciation                            (101,051)       (116,826)
                                                          ---------       ---------
     Total                                                  248,563         281,756

 Deposit on purchase of equipment and in transit              6,859           9,066
                                                          ---------       ----------
 Property, plant and equipment, net                       $ 255,422       $ 290,822
                                                          =========       =========
</TABLE>


The recap of accumulated depreciation is as follows:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,      JUNE 30,
                                                             1997            1998
                                                         ------------    ------------
                                                                          (UNAUDITED)
<S>                                                      <C>             <C>
      Beginning balance                                   $  73,046       $ 101,051
      Depreciation expense                                   29,665          16,430
      Retirements and disposals                              (1,660)           (655)
                                                          ---------       ---------
      Ending balance                                      $ 101,051       $ 116,826
                                                          =========       =========
</TABLE>


7.   SHORT-TERM DEBT

The Company's short-term debt is detailed as follows:

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,     JUNE 30,
                                                                                1997           1998
                                                                                ----           ----
                                                                                            (UNAUDITED)
<S>                                                                         <C>             <C>
      Commercial paper (7.55% to 11%)                                        $  25,000       $  50,000
      Short-term credit facilities, denominated in
          US dollars; interest rates ranging from 6.26% to 15%;
            IMPSAT Argentina                                                    15,850
            IMPSAT Colombia                                                      5,414           7,079
            IMPSAT Venezuela                                                     1,714             566
            IMPSAT Ecuador                                                         992           2,803
            IMPSAT USA                                                                              65
            IMPSAT Brazil                                                                          606
            Mandic S.A.                                                                            390
      Short-term credit facilities, denominated in
          local currencies; local interest rates;
            IMPSAT Argentina (8.75% to 9%)                                                       1,157
            IMPSAT Colombia (47.15%)                                                             1,878
            IMPSAT Venezuela (32%)                                               1,219           1,112
                                                                             ---------       ---------
      Total short-term debt                                                  $  50,189       $  65,656
                                                                             =========       =========
</TABLE>

The Company has historically refinanced these short-term credit facilities on an
annual basis.



                                       12
<PAGE>   13


8.   LONG-TERM DEBT

The Company's long-term debt is detailed as follows:

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,     JUNE 30,
                                                                                1997           1998
                                                                                ----           ----
                                                                                            (UNAUDITED)
<S>                                                                         <C>             <C>
      12-1/8% Senior Guaranteed Notes due 2003                               $ 125,000       $ 125,000
      12-3/8% Senior Notes due 2008                                                            225,000
      Term notes payable:
         IMPSAT Colombia maturing through 2002
         collateralized by equipment with a carrying value of
         approximately $14,000 and the assignment of customer
         contracts totaling approximately $12,000 denominated in:
                    U.S. dollars (Interest rates 8.5% - 13%)                    27,111          21,663
                    Local currency (24.93% - 34%)                                6,380          13,527
         IMPSAT Argentina (6.56% - 7%), maturing semiannually
            through 2001, collateralized by certain assets                       2,435           6,217
         IMPSAT Venezuela (9% - 10.75%), maturing through 2000                   5,550           4,505
         IMPSAT USA (8.75%), maturing through 2003                                                 556
      Eximbank notes payable (7%), maturing
         semiannually through 1999                                               3,387           2,540
                                                                             ---------       ---------
                 Total long-term debt                                          169,863         399,009
      Less: current portion                                                    (10,186)        (14,441)
                                                                             ---------       ---------
      Long-term debt, net                                                    $ 159,677       $ 384,567
                                                                             =========       =========
</TABLE>

The Senior Guaranteed Notes, Senior Notes and some of the term notes payable for
IMPSAT Colombia and IMPSAT Venezuela contain certain covenants requiring certain
financial ratios, limiting the incurrence of additional indebtedness and capital
expenditures, and restricting the ability to pay dividends.


9.   INCOME TAXES

For the six months ended June 30, 1998 and 1997, the provision for income taxes,
all of which are for foreign taxes, consist of a current provision of $3,843 and
$1,461, respectively, and a deferred (benefit) provision of $(1,592) and $1,268,
respectively. The foreign statutory tax rates range from 20% to 35% depending on
the particular country. Deferred taxes result from temporary differences in the
capitalization policies of preoperating costs and net operating loss
carryforwards.


10.  REDEEMABLE PREFERRED STOCK

On March 19, 1998, the Company redeemed 25% of its outstanding common stock
previously held by STET International Netherlands NV (the "STET Shares") with
the proceeds of a substantially concurrent issuance and sale of $125,000 of the
Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock").
The Series A Preferred Stock were offered and sold to Princes Gate Investors II,
L.P. ("Princes Gate") and Morgan Stanley Global Emerging Markets Private
Investment Fund, L.P. ("MSGEM"), two private equity funds that are affiliates of
Morgan Stanley Dean Witter & Co., and to certain other investors affiliated with
Princes Gate and MSGEM (such investors along with Princes Gate and MSGEM, the
"Purchasers"). The


                                       13
<PAGE>   14


Series A Preferred Stock was convertible at the date of issuance into 25% of the
common stock of the Company and as of June 30, 1998 was convertible into 25.5
of the Common Stock of the Company.

The following are some of the principal features of the Series A Preferred
Stock: (a) cumulative dividends at the rate of 10% per annum, compounded
quarterly and, with certain exceptions, payable in kind; (b) mandatorily
redeemable in cash by the Company at maturity (ten years after issuance) plus
accrued and unpaid dividends; (c) callable under certain circumstances by the
Company, in whole, at 100% of the principal amount, plus accrued and unpaid
dividends; (d) convertible into common stock of the Company at any time at the
option of the Purchasers (including upon a call by the Company), at a specified
conversion rate subject to certain antidilution rights; (e) the right by
Purchasers holding a certain minimum number of outstanding Series A Preferred
Stock to appoint two directors to the Company's Board of Directors as well as to
immediately appoint half of the members of the Company's Board of Directors upon
the occurrence of certain specified events; and (f) the right by Directors
appointed by the Purchasers holding a certain minimum number of outstanding
Series A Preferred Stock, to a veto over certain major corporate actions.


11.  COMMITMENTS AND CONTINGENCIES

The Company leases satellite capacity with annual rental commitments of
approximately $26,000. In addition, the Company has commitments to purchase
communications equipment amounting to approximately $11,600 and was obligated
under letter of credits amounting to approximately $350 at June 30, 1998.

The Company is a third party guarantor of up to 75% of a $6,000 credit facility
provided to IMPSAT Venezuela by a regional development fund. At June 30, 1998,
the balance outstanding on this credit facility amounted to approximately
$4,500.

During May, 1997, the Company and IMPSAT Argentina entered into a three party
arrangement with a financial institution whereby $60 million was borrowed by the
subsidiary and concurrently a like amount certificate of deposit was placed at
the financial institution by the Company. The arrangements establish a right of
setoff and, accordingly, the amounts have been netted for purposes of the
consolidated financial statement presentation. The arrangements expire in July
1999.

The Company is involved in or subject to various litigation and legal
proceedings incidental to the normal conduct of its business. Whenever
justified, the Company expects to vigorously prosecute or defend such claims,
although there can be no assurance that the Company will ultimately prevail with
respect to any such matters.

In November 1996, IMPSAT Argentina filed suit against one of its customers,
ENCOTESA for amounts due and arising under IMPSAT Argentina's contracts with
ENCOTESA, the Argentine national postal service. On December 27, 1996, ENCOTESA
filed its reply to IMPSAT Argentina's claim. The court has not yet ruled upon
IMPSAT Argentina's claim against


                                       14
<PAGE>   15


ENCOTESA. In September 1997, ENCOTESA was privatized and emerged as Correo
Argentino S.A. In connection therewith, the claim by IMPSAT Argentina remained
with ENCOTESA and the operating contract was transferred to Correo Argentino.
Based on these developments, the Company has reclassified the trade account
receivables from ENCOTESA to non-current assets at the estimated net realizable
value of $5,143 as determined by the Company's management based on the advice of
local legal counsel. IMPSAT Argentina and ENCOTESA have held discussions in an
effort to settle IMPSAT Argentina's claims against ENCOTESA, and during the
pendency of such discussions the parties have deferred further court
proceedings. To date, the parties have been unable to reach any settlement of
the matter. The Company will continue to assess the effect that the ENCOTESA
receivables situation and its contract negotiation with Correo Argentino will
have on its results of operations, liquidity or capital resources.

                                     ******













                                       15
<PAGE>   16


IMPSAT S.A.
BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,                 JUNE 30,
                                                                                      1997                        1998
                                                                          --------------------------  -------------------
             <S>                                                          <C>                         <C>

             ASSETS                                                                                         (UNAUDITED)

             CURRENT ASSETS:
              Cash and cash equivalents.................................  $             6,065         $            33,087
              Trade accounts receivable, net............................               22,034                      22,899
              Receivables from affiliated companies.....................                  734                       1,514
              Other receivables.........................................                4,753                       6,322
              Prepaid expenses..........................................                  789                       1,813
                                                                          -------------------         -------------------
               Total current assets.....................................               34,375                      65,635
                                                                          -------------------         -------------------
             PROPERTY, PLANT AND EQUIPMENT, NET.........................              146,940                     158,791
                                                                          -------------------         -------------------
             NON-CURRENT ASSETS:
              Trade accounts receivable, net............................                5,143                       5,143
              Investment, at cost.......................................                4,178                       9,149
              Other non-current assets..................................                  393                         391
                                                                          -------------------         -------------------
               Total non-current assets.................................                9,714                      14,683
                                                                          -------------------         -------------------
             TOTAL......................................................  $           191,029         $           239,109
                                                                          ===================         ===================
             LIABILITIES AND STOCKHOLDERS' EQUITY
             CURRENT LIABILITIES:
              Accounts payables - trade.................................  $            13,521         $            20,616
              Short-term debt...........................................               40,850                      51,157
              Advances from affiliated companies........................                5,194                      30,867
              Current portion of long-term debt.........................                2,794                       5,694
              Accrued liabilities.......................................                  432                       1,455
              Deferred income taxes.....................................                4,301                       4,301
              Other liabilities.........................................                4,569                       4,294
                                                                          -------------------         -------------------
               Total current liabilities................................               71,661                     118,384
                                                                          -------------------         -------------------
             LONG-TERM DEBT, NET........................................               63,029                      63,063
                                                                          -------------------         -------------------
             OTHER LONG-TERM LIABILITIES................................                1,383                       1,807
                                                                          -------------------         -------------------

             COMMITMENTS AND CONTINGENCIES (Note 9)
             STOCKHOLDERS' EQUITY
              Common Stock; 5,123 shares authorized,
               issued, and outstanding..................................                    3                           3
              Paid-in capital...........................................               26,191                      26,191
              Retained earnings.........................................               28,762                      29,661
                                                                          -------------------         -------------------
               Total stockholders' equity...............................               54,956                      55,855
                                                                          -------------------         -------------------
             TOTAL......................................................  $           191,029         $           239,109
                                                                          ===================         ===================
</TABLE>


See notes to financial statements



                                       16
<PAGE>   17


IMPSAT S.A.
STATEMENTS OF INCOME
(IN THOUSANDS OF U.S. DOLLARS)
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED JUNE 30,             SIX MONTHS ENDED JUNE 30,
                                                               ---------------------------             -------------------------
                                                                 1997                1998               1997               1998
                                                               -------             -------            -------            -------
                                                                       (UNAUDITED)                            (UNAUDITED)
<S>                                                            <C>                 <C>                <C>                <C>
           NET REVENUES FROM SERVICES.....................     $21,115              $24,126            $43,953            $48,070
           COSTS AND EXPENSES:
              Variable cost of services...................       3,717               3,900              6,951              8,467
              Satellite capacity cost.....................       2,299               3,072              4,517              5,903
              Salaries, wages and benefits................       3,017               3,131              5,931              6,183
              Selling, general and administrative.........       3,775               5,940              8,073              9,002
              Depreciation and amortization...............       4,439               4,877              8,716              9,609
                                                               -------             -------            -------            -------
                 Total costs and expenses.................      17,247              20,920             34,188             39,164
                                                               -------             -------            -------            -------
                Operating income..........................       3,868               3,206              9,765              8,906
                                                               -------             -------            -------            -------
           OTHER EXPENSES
              Interest expense, net.......................      (3,387)             (3,502)            (6,806)            (6,611)
              Other expenses, net.........................         (91)                 43                (91)                38
                                                               -------             -------            -------            -------
                Total other expenses......................      (3,478)             (3,459)            (6,897)            (6,573)
                                                               -------             -------            -------            -------
           INCOME BEFORE INCOME TAXES.....................         390                (253)             2,868              2,333
           PROVISION FOR INCOME TAX.......................        (594)               (384)            (1,905)            (1,434)
                                                               -------             -------            -------            -------
           NET INCOME.....................................     $  (204)            $  (637)           $   963            $   899
                                                               =======             =======            =======            =======
</TABLE>


See notes to financial statements



                                       17
<PAGE>   18


IMPSAT S.A.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                  COMMON STOCKHOLDERS'
                                                                  --------------------
                                                                 COMMON          PAID-IN        RETAINED
                                                                  STOCK          CAPITAL        EARNINGS             TOTAL
                                                                  -----          -------        --------             -----
<S>                                                            <C>              <C>            <C>                 <C>
          BALANCE AT DECEMBER 31, 1997.....................    $           3    $    26,191    $      28,762          $54,956

          Net income for the six months ended (unaudited)..                                              899              899
                                                               -------------    ------------   -------------       ----------

          BALANCE AT JUNE 30, 1998.........................    $           3    $    26,191    $      29,661 (*)   $   55,855
                                                               =============    ===========    =============       ==========
</TABLE>

(*) Includes an appropriation of retained earnings amounting to $1,622 in 1998
to comply with legal reserve requirements in Argentina.


See notes to financial statements










                                       18
<PAGE>   19


IMPSAT S.A.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                  SIX MONTHS ENDED JUNE 30,
                                                                                        ------------------------------------------
                                                                                                1997                    1998
                                                                                        --------------------    ------------------
                                                                                                         (UNAUDITED)
<S>                                                                                     <C>                     <C>
                CASH FLOWS FROM OPERATING ACTIVITIES:
                 Net income...........................................................  $                963    $              899
                 Adjustment to reconcile net income to net cash provided by
                operating activities:
                     Amortization and depreciation....................................                 8,716                 9,609
                     Deferred income tax provision....................................                 1,006
                     Changes in assets and liabilities:
                     Increase in trade accounts receivable, net.......................                (1,808)                 (865)
                     Increase in prepaid expenses.....................................                  (636)               (1,024)
                     Decrease (Increase) in other receivable assets and other 
                          non-current assets..........................................                 1,017                (1,537)
                     (Decrease) increase in accounts payable trade....................                (1,254)                4,888
                     Increase accrued and other liabilities...........................                 2,114                   748
                     Decrease in other long-term liabilities..........................                (1,525)                  424
                                                                                        ---------------------   ------------------
                 Net cash provided by operating activities............................                 5,541                13,142
                                                                                        --------------------    ------------------
                CASH FLOWS FROM INVESTING ACTIVITIES:
                     Purchases of property, plant and equipment.......................                (5,673)              (19,253)

                     Increase in investment...........................................                (3,052)               (5,001)
                                                                                        --------------------    ------------------
                     Net cash used by investing activities............................                (8,725)              (24,254)
                                                                                        --------------------    -------------------
                CASH FLOWS FROM FINANCING ACTIVITIES:
                     Net borrowings (payments of) from short-term debt................                18,567                10,307
                     Decrease (Increase) in advances from/to affiliates and parent....               (57,680)               24,893
                     Repayments of long-term debt.....................................                (4,610)               (2,252)
                     Proceeds from long-term debt.....................................                63,098                 5,186
                                                                                        --------------------    ------------------
                Net cash provided by financing activities.............................                19,415                38,134
                                                                                        --------------------    ------------------
                NET INCREASE IN CASH AND CASH EQUIVALENTS.............................                19,283                27,022
                CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......................                 1,002                 6,065
                                                                                        --------------------    ------------------
                CASH AND CASH EQUIVALENTS AT END OF PERIOD............................  $             21,165    $           33,087
                                                                                        ====================    ==================
                SUPPLEMENTAL CASH FLOW INFORMATION:
                     Interest paid....................................................  $              6,873    $            3,999
                                                                                        ====================    ==================
                SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
                     Equipment in transit.............................................  $              6,155    $            2,207
                                                                                        ====================    ==================
</TABLE>


See notes to financial statements





                                       19
<PAGE>   20


IMPSAT S.A.
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------


1.   BACKGROUND

     IMPSAT S.A. provides and operates private networks of integrated data and
     voice telecommunications systems in Argentina. IMPSAT S.A.'s principal line
     of business comprises the provision of data transmission services for large
     national and multinational companies, financial institutions, governmental
     agencies and other business customers in Argentina. It provides its
     services through its advanced telecommunications networks comprised of
     owned teleports, earth stations, fiber optic and microwave links and leased
     satellite capacity. IMPSAT S.A. is a 95.2% owned subsidiary of IMPSAT
     Corporation, a Delaware holding company (the "Parent Company").


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     INTERIM FINANCIAL INFORMATION -- The unaudited statements as of June 30,
     1998 and 1997 have been prepared on the same basis as the audited financial
     statements. In the opinion of management, such unaudited financial
     statements include all adjustments (consisting only of normal recurring
     adjustments) necessary to present fairly the results for such period. The
     operating results for the six months period ended June 30, 1998 and 1997
     are not necessarily indicative of the operating results to be expected for
     the full fiscal year or for any future period.

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

     CASH AND CASH EQUIVALENTS -- Cash and cash equivalents are highly liquid
     investments, including short-term investments and time deposits with
     maturities of three months or less at the time of purchase. Cash
     equivalents and short-term investments are stated at cost, which
     approximates market value.

     REVENUE RECOGNITION -- IMPSAT S.A. provides services to its customers
     pursuant to contracts which range from six months to five years but
     generally are for three years. The customer generally pays an engineering
     fee, an installation charge and a monthly fee based on the number of
     microsystem installations. The fees stipulated in the contracts are
     generally denominated in U.S. dollars. Services are billed on a monthly,
     predetermined basis, which coincides with when the services are rendered.
     For the six months ended June 30, 1998 and 1997, no single customer
     accounted for greater than 10% of total revenue from services.


                                       20
<PAGE>   21


     PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are recorded
     at cost and depreciated using the straight-line method over the following
     estimated useful lives:

<TABLE>
               <S>                                                   <C>
               Building and improvement                              10-25 years
               Operating communications equipment                       10 years
               Furniture, fixtures and other equipment                5-10 years
</TABLE>

     INVESTMENT - Investment represents a less than 1% ownership interest by the
     IMPSAT S.A. in an unaffiliated cooperative established for the purchase and
     leasing of satellite capacity time and is accounted for under the cost
     method.

     INCOME TAXES -- Deferred income taxes result from timing differences in the
     recognition of expenses for tax and financial reporting purposes and are
     accounted for in accordance with Financial Accounting Standards Board (the
     "FASB") Statements of Financial Accounting Standards ("SFAS") No. 109,
     Accounting for Income Taxes, which required the liability method of
     computing deferred income taxes. Under the liability method, deferred taxes
     are adjusted for tax rate changes as they occur.

     FOREIGN CURRENCIES TRANSLATION -- The translation of these financial
     statements into U.S. dollars has been made following the guidelines of SFAS
     No. 52, Foreign Currency Translation. Major operations of IMPSAT S.A. are
     stated in U.S. dollars. Accordingly, the U.S. dollar has been designated as
     the functional currency. Local currency denominated transactions are
     remeasured into the functional currency. Accordingly, fixed assets and
     stockholders account have been translated into U.S. dollars taking into
     account the exchange rate prevailing at each transaction date. Monetary
     assets and liabilities are translated using the period-end exchange rate.
     Profit and loss accounts were translated using average exchange rates for
     periods in which they were accrued, except for the consumption of
     non-monetary assets for which their respective dollar translated costs were
     considered.

     LONG LIVED ASSETS -- Long-lived assets are reviewed on an ongoing basis for
     impairment. Estimated fair value is calculated using the present value of
     the undiscounted cash flow of the assets.

     RECLASSIFICATIONS -- Certain amounts in the 1997 financial statements have
     been reclassified to conform with the 1998 presentation.


3.   TRADE ACCOUNTS RECEIVABLE

     The detail of trade accounts receivable is the following:


<TABLE>
<CAPTION>
                                                                   DECEMBER 31,                  JUNE 30,
                                                                       1997                        1998
                                                                       ----                        ----
                                                                                               (UNAUDITED)
       <S>                                                  <C>                         <C>
       Trade accounts receivable                            $             27,531        $             31,109
       Less: allowance for doubtful accounts                              (5,497)                     (8,210)
                                                            --------------------        --------------------
       Trade accounts receivable, net                       $             22,034        $             22,899
                                                            ====================        ====================
</TABLE>


                                       21
<PAGE>   22


     IMPSAT S.A. provides trade credit to its customers in the normal course of
     business. Prior to extending credit, the customers' financial history is
     analyzed.

The activity for the allowance for doubtful account is as follows:


<TABLE>
<CAPTION>
                                                               DECEMBER 31,                JUNE 30,
                                                                   1997                      1998
                                                                   ----                      ----
                                                                                         (UNAUDITED)
       <S>                                               <C>                       <C>
       Beginning balance                                 $              5,282      $              5,497
       Provision for doubtful accounts                                    215                     2,713
                                                         --------------------      --------------------
       Ending balance                                    $              5,497      $              8,210
                                                         ====================      ====================
</TABLE>

4.   OTHER RECEIVABLES

     Other receivables consist primarily of refunds or credits pending from
     local government for taxes other than income, advances to suppliers other
     than for fixed assets, related parties receivables and other miscellaneous
     amounts due to IMPSAT S.A.

5.   PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of:


<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,                  JUNE 30,
                                                                                       1997                        1998
                                                                                       ----                        ----
                                                                                                               (UNAUDITED)
            <S>                                                             <C>                         <C>
            Building installations and improvements                         $                15,993     $              16,003
            Operating communications equipment                                              200,019                   216,634
            Furniture, fixtures and other equipment                                           6,517                     6,903
                                                                            -----------------------     ---------------------
                     Total                                                                  222,529                   239,540
            Less: accumulated depreciation                                                  (76,976)                  (86,049)
                                                                            -----------------------     ---------------------
                     Total                                                                  145,553                   153,491
            Deposit on purchase of equipment and in transit                                   1,387                     5,300
                                                                            -----------------------     ---------------------
            Property, plant and equipment, net                              $               146,940     $             158,791
                                                                            =======================     =====================
</TABLE>

The recap of accumulated depreciation is as follows:


<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,                  JUNE 30,
                                                                                       1997                        1998
                                                                                       ----                        ----
                                                                                                               (UNAUDITED)
               <S>                                                          <C>                         <C>
               Beginning balance                                            $                61,063     $           76,976
               Depreciation expense                                                          17,951                  9,609
               Retirements and Disposals                                                     (2,038)                  (536)
                                                                            ------------------------    -------------------
               Ending balance                                               $                76,976     $           86,049
                                                                            =======================     ==================
</TABLE>



                                       22

<PAGE>   23


6.   SHORT-TERM DEBT


IMPSAT S.A.'s short-term debt is detailed as follows:


<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,                  JUNE 30,
                                                                                       1997                        1998
                                                                                       ----                        ----
                                                                                                               (UNAUDITED)
          <S>                                                               <C>                         <C>
          Commercial paper (7.55% to 11%)                                   $                25,000     $           50,000
          Short-term credit facilities, denominated in
             U.S. dollars, interests rates ranges from 9.5% to 12%                           15,850
          Short-term credit facilities, denominated in
             local currency, interests rates ranges from 8.75% to 9%                                                 1,157
                                                                            -----------------------     ------------------
          Total short-term debt                                             $                40,850     $           51,157
                                                                            =======================     ==================
</TABLE>

     IMPSAT S.A. has historically refinanced its short-term credit facilities on
     an annual basis.


7.   LONG-TERM DEBT

IMPSAT S.A.'s long-term debt is detailed as follows:


<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,                  JUNE 30,
                                                                                       1997                        1998
                                                                                       ----                        ----
                                                                                                               (UNAUDITED)
           <S>                                                              <C>                         <C>
           Term notes payable (6.69% - 12.63%) maturing
           semiannually through 1999, collateralized
             certain assets                                                 $             62,435        $             66,217
           Eximbank notes payable (7%) maturing semiannually
               through 1999                                                                3,388                       2,540
                                                                            --------------------        --------------------
           Total long-term debt                                                           65,823                      68,757
           Less: current portion                                                          (2,794)                     (5,694)
                                                                            --------------------        --------------------
           Long-term debt, net                                              $             63,029        $             63,063
                                                                            ====================        ====================
</TABLE>


8.   ADVANCES FROM AFFILIATED COMPANY

     Included in advances from affiliated company are advances totaling $25,000 
     from IMPSAT S.A.'s Parent Company. These advances bear interest at 7.15% 
     and are due June 30, 1999.

9.   INCOME TAXES

     The provision for income taxes for the six months ended June 31, 1998 and
     1997 consists of $1,434 in current taxes and $1,905 in deferred taxes,
     respectively. The statutory tax rate in Argentina is 33%.

10.  COMMITMENTS AND CONTINGENCIES

     IMPSAT S.A. leases satellite capacity with annual rental commitments of
     approximately $11,000 through the year 2001. In addition, IMPSAT S.A. has
     commitments to purchase communications equipment amounting to approximately
     $8,400 at June 30, 1998.


                                       23
<PAGE>   24


     IMPSAT S.A. is guarantor on the $125,000,000, 12 1/8% Senior Guaranteed
     Notes Due 2003 issued on July 30, 1996 by the Parent Company.

     During May, 1997, the Parent Company and IMPSAT S.A. entered into a three
     party arrangement with a financial institution whereby $ 60 million was
     borrowed by IMPSAT S.A. and concurrently a like amount Certificate of
     Deposit was placed at the financial institution by the Parent Company. The
     arrangement expires in May 1999.

     IMPSAT S.A. is involved in or subject to various litigation and legal
     proceedings incidental to the normal conduct of its business. Whenever
     justified, IMPSAT S.A. expects to vigorously prosecute or defend such
     claims, although there can be no assurance that IMPSAT S.A. will ultimately
     prevail with respect to any such matters.

     In November 1996, IMPSAT S.A. filed suit against one of its customers,
     ENCOTESA for amounts due and arising under IMPSAT S.A.'s contracts with
     ENCOTESA, the Argentine national postal service. On December 27, 1996,
     ENCOTESA filed its reply to IMPSAT S.A.'s claim. The court has not yet
     ruled upon IMPSAT S.A.'s claim against ENCOTESA. In September 1997,
     ENCOTESA was privatized and emerged as Correo Argentino S.A. In connection
     therewith, the claim by IMPSAT Argentina remained with ENCOTESA and the
     operating contract was transferred to Correo Argentino. Based on these
     developments, the IMPSAT S.A. has reclassified the trade account
     receivables from ENCOTESA to non-current assets at the estimated net
     realizable value of $5,143 as determined by the IMPSAT S.A.'s management
     based on the advice of local legal counsel. IMPSAT Argentina and ENCOTESA
     have held discussions in an effort to settle IMPSAT Argentina's claims
     against ENCOTESA, and during the pendency of such discussions the parties
     have deferred further court proceedings. To date, the parties have been
     unable to reach any settlement of the matter. IMPSAT S.A. will continue to
     assess the effect that the ENCOTESA receivables situation and its contract
     negotiations with Correo Argentino will have on its results of operations,
     liquidity or capital resources.





                                       24
<PAGE>   25


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

RESULTS OF OPERATIONS

           Recent Acquisitions. On April 20, 1998, the Company signed a
definitive agreement to purchase a majority interest in Mandic BBS Planejamento
e Informatica S.A. ("Mandic S.A."), a Brazilian Internet access provider, for
approximately $9.8 million. Upon consummation of the transaction, the Company
will acquire 75.1% of the common stock of Mandic S.A., and the remaining 24.9%
will be owned by Mr. Aleksander Mandic, the founder and current president of
Mandic S.A. The initial stage of the acquisition of Mandic S.A., pursuant to
which the Company acquired a 58.5% interest, was consummated on May 28, 1998,
and the remaining 16.6% interest is scheduled to be acquired by May 1, 1999.

           In addition to the Company's acquisition of a majority interest in
Mandic S.A., on June 1, 1998, the Company acquired from Nevasa Holdings Limited
("Nevasa"), the Company's parent, 99.9% of the capital stock of IMPSAT
Comunicacoes Ltda. ("IMPSAT Brazil"), a Brazilian company engaged in the
provision of private network telecommunications services, for approximately $5.1
million. The purchase price for IMPSAT Brazil represented the total amount of
pre-operating and development costs and expenses incurred for IMPSAT Brazil by
Nevasa. IMPSAT Brazil was established by Nevasa and operates under a value added
telecommunications license permitting IMPSAT Brazil to lease satellite capacity
directly from satellite carriers and sell corporate private telecommunications
network services (data, voice and video), using terrestrial and satellite links,
to third parties.


           The Company's acquisition of IMPSAT Brazil, as is generally the case
for transactions among companies under common control, has been accounted for
in a manner similar to a "pooling of interests" method of accounting, whereby
all assets and liabilities have been recorded as if the transaction occurred on
January 1, 1998. IMPSAT Brazil did not have material operations in 1997 as it
was in the pre-operating phase. Amounts paid in excess of carrying value of the
underlying assets acquired is recorded as a reduction of stockholders' equity
(deficit) and will be amortized on a straight-line basis over a period of 10
years. The Company's interest in Mandic S.A. was purchased from an unaffiliated
third party and, accordingly, the Company's consolidated results for the second
quarter of 1998 only include net revenues and operating expenses of Mandic S.A.
that were recorded after the date of its acquisition by the Company.

     The following table presents the Company's results of operations as a
percentage of revenues:

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED JUNE 30,                 SIX MONTHS ENDED JUNE 30,
                                                ----------------------------------------    ---------------------------------------
                                                       1997                  1998                 1997                  1998
                                                ------------------    ------------------    -----------------    ------------------
                                                            (IN THOUSANDS AND AS A PERCENTAGE OF CONSOLIDATED REVENUES)
<S>                                             <C>         <C>       <C>         <C>       <C>        <C>       <C>         <C>
Net revenues from services....................  $38,694     100.0%     48,498     100.0%     75,721    100.0%      93,651    100.0%
Variable costs of services....................    7,172      18.5       7,261      15.0      12,226     16.2       14,980     16.0
Salaries, wages and benefits..................    7,276      18.8       9,191      19.0      13,662     18.0       16,962     18.1
Satellite capacity cost.......................    4,406      11.4       6,726      13.9       8,841     11.7       12,841     13.7
Selling, general and administrative expenses..    6,567      17.0      12,590      26.0      14,031     18.5       21,106     22.5
Depreciation and amortization.................    7,026      18.2       8,568      17.7      13,776     18.2       16,629     17.8
Interest expense, net.........................    6,089      15.7       9,406      19.4      12,271     16.2       17,191     18.4
Net loss on foreign exchange..................       34       0.1         181       0.4         196      0.3          158      0.2
Provision for foreign income taxes............    1,032       2.7         616       1.3       2,729      3.6        2,251      2.4
Net loss......................................   1,155)      (3.0)    (6,202)     (12.8)    (2,852)     (3.8)     (8,565)     (9.1)
</TABLE>


           Revenues. Revenues for the three and six months ended June 30, 1998
totaled $48.5 million and $93.7 million, respectively. This represents an
increase of $9.8 million (or 25.3 %) and $17.9 million (or 23.6%), respectively,
from revenues for the three and six months ended June 30, 1997. Revenues at


                                       25
<PAGE>   26


IMPSAT Argentina for the three and six months ended June 30, 1998 totaled $24.1
million and $48.1 million, respectively. This represents an increase of $3.0
million (or 14.3%) and $4.1 million (or 9.4%), respectively, from IMPSAT
Argentina's revenues for the three and six months ended June 30, 1997. IMPSAT
Colombia's revenues for the three and six months ended June 30, 1998 totaled
$14.3 million and $28.1 million, respectively. This represents an increase of
$1.4 million (or 10.7%) and $4.3 million (or 18.1%), respectively, from IMPSAT
Colombia's revenues for the three and six months ended June 30, 1997. Revenues
at IMPSAT Venezuela totaled $3.4 million and $6.4 million, respectively, for the
three and six months ended June 30, 1998 (an increase of $1.3 million (or 65.4%)
and $2.5 million (or 64.1%), respectively, over the corresponding periods in
1997). Revenues at IMPSAT Ecuador totaled $2.3 million and $4.1 million,
respectively, for the three and six months ended June 30, 1998 (an increase of
$1.0 million (or 76.4%) and $1.7 million (or 75.2%), respectively, over the
corresponding periods in 1997).  Excluding Internet and Global Fax customers,
the Company had a total of 1,321 customers at June 30, 1998, compared to 897
customers at June 30, 1997.

     Revenues for the three months ended June 30, 1998 also increased as a
result of the two acquisitions undertaken by the Company in Brazil. The
Company's net revenues for the three months ended June 30, 1998 include revenues
of $1.0 million recorded by Mandic S.A. from May 28, 1998 through June 30, 1998,
and $0.5 million recorded by IMPSAT Brazil during the first six months of 1998.

     The increase in the Company's net revenues for the first half of 1998 is
derived principally from growth in the Company's services other than its VSAT
based service offerings. The Company anticipates that the percentage, and
absolute amount, of total revenues represented by non-VSAT based service
offerings (i.e., SCPC, value-added and terrestrial services) will continue to
grow at a faster rate than its VSAT based service offerings. Revenues from VSAT
services during the first six months of 1998 totaled $27.8 million, a decrease
of $1.8 million (or 6.1%) from revenues from VSAT services for the corresponding
period in 1997. As a percentage of the Company's net revenues, revenues from
VSAT services declined to 30.0% for the first six months of 1998 from 39.1% for
the corresponding period in 1997. Revenues from Dataplus services for the six
months ended June 30,1998 totaled $21.1 million, an increase of $3.0 million,
(or 16.5%), compared to Dataplus revenues for the corresponding period in 1997.
Many of the Company's customers have supplemented or replaced their VSAT
services with Dataplus services over time as they have increased the amount of
private telecommunications network capacity contracted with the Company, and the
Company expects this trend to continue.

     In addition, the Company's revenues from newer service offerings, such as
Internet, recorded significant increases in the first half of 1998, totaling
$7.4 million, as compared to $2.7 million for the first half of 1997. At June
30, 1998, the Company (including Mandic S.A.) had in excess of 77,200 retail
dial-up access Internet customers and 142 corporate dedicated access Internet
customers, compared to 14,665 retail Internet customers and 25 corporate
Internet customers at June 30, 1997. IMPSAT Argentina's net revenues from
Internet services for the first six months of 1998 totaled $3.5 million, an
increase of $1.8 million (or 105%) compared to the corresponding period in 1997.
The acquisition Mandic S.A. is expected by the Company to generate approximately
$8.7 million for 1998 from Internet services, although there can be no assurance
in this regard. On July 2, 1998, the IMPSAT Argentina's agreement with
VideoCable Comunicaciones S.A. ("VCC"), pursuant to which VCC agreed to market
IMPSAT Argentina's Internet access service under the IMPSAT brand name, to VCC's
customers in Argentina, was terminated. During the six months ended June 30,
1997 and 1998, IMPSAT Argentina recorded $0.9 million and $1.3 million,
respectively, in revenues relating to the VCC agreement. The termination of
IMPSAT Argentina's


                                       26
<PAGE>   27


agreement with VCC is expected to have an adverse effect in the short term in
the growth of the Company's Internet access related business. However, the
Company has commenced contracts directly with certain of the subscribers that
were previously contracted through VCC.

     Competitive pressures, including lower pricing, have resulted in IMPSAT
Argentina recording flat growth in revenues from its value added service
offerings during the first half of 1998. IMPSAT Argentina's revenues from VSAT
and Dataplus services for the six months ended June 30,1998 totaled $17.9
million and $11.5 million, respectively, a decrease of $1.0 million (or 5.2%)
and $0.1 million (or 0.9%) compared to the corresponding period in 1997.

     As part of net revenues, the Company recorded revenues of $0.9 million and
$1.3 million, respectively, from certain equipment sales during the three and
six months ended June 30, 1998, as compared to revenues from such sales of $1.0
million and $1.2 million during the corresponding periods in 1997.

       Variable Cost of Services. The Company's variable cost of services for
the three and six months ended June 30, 1998 totaled $7.3 million and $15.0
million, respectively, an increase of $0.1 million (or 1.2%) and $2.8 million
(or 22.5%), from the Company's variable cost of services for the three and six
months ended June 30, 1997. Of total variable cost of services for the three and
six months ending June 30, 1998, $3.9 million and $8.5 million, respectively,
related to the operations of IMPSAT Argentina, and $1.7 million and $3.2
million, respectively related to the operations of IMPSAT Colombia (compared to
cvariable cost of services of $3.7 million and $7.0 million, respectively, at
IMPSAT Argentina and $1.8 million and $3.2 million, respectively, at IMPSAT
Colombia, for the three and six months ended June 30, 1997).

         The principal items comprising total variable cost of services are
maintenance and installation (including de-installation) costs, and sales
commissions paid to third-party sales representatives.

       Maintenance costs for the Company totaled $3.1 million and $6.9 million,
respectively, during the three and six months ended June 30, 1998. This
represents a decrease of $1.1 million and an increase of $1.1 million,
respectively, over maintenance costs incurred by the Company for the three and
six months ended June 30, 1997. Maintenance costs include maintenance services
contracted by the Company from outside providers and interconnection and access
charges incurred by the Company in completing telecommunications through the
networks of other telecommunications carriers.

         Installation costs totaled $1.7 million and $3.2 million, respectively,
for the three and six months ended June 30, 1998. In comparison, installation
costs totaled $0.8 million and $2.2 million for the three and six months ended
June 30, 1997. The Company contracts equipment installation services from
outside providers.

       Sales commissions paid to third party sales representatives totaled $1.8
million and $3.2 million, respectively, for the three and six months ended June
30, 1998. In comparison, sales commissions paid to third party sales
representatives totaled $1.1 million and $2.5 million, respectively, for the
three and six months ended June 30, 1997. Sales commissions paid to third-party
sales representatives in Argentina totaled $1.5 million and $2.6 million,
respectively, for the three and six months ended June 30, 1998, compared to $1.0
million and $2.2 million, respectively, for the three and six months ended June
30, 1997. Sales commissions increased during the first six months of 1998
compared to the corresponding period in 1997 as a result of certain new private
telecommunications network services contracts that were obtained by the Company
during the first half of 1998 through the use


                                       27
<PAGE>   28


of third-party sales representatives. These new agreements include a five-year
contract to provide private telecommunications network services to Instituto
Nacional de Hipodromos ("INH"), a Venezuelan horse racing track, and a new
18-month contract to provide private network telecommunications services to
Gobierno de la Provincia de Buenos Aires ("GBPA"), an Argentine provincial
government. The contract with INH contemplates monthly revenues to IMPSAT
Venezuela of $240,000 per month. The GBPA contract is expected to generate
revenues of $320,000 per month for IMPSAT Argentina.

           In addition, the Company incurred costs of equipment sold during the
three and six months ended June 30 1998 of $0.5 million and $1.1 million,
respectively, as compared with costs of equipment sold during the corresponding
periods in 1997 of $0.6 million and $0.7 million, respectively.

           Salaries, Wages and Benefits. Salaries, wages and benefits paid by
the Company for the three and six months ended June 30, 1998 totaled $9.2
million and $17.0 million, respectively, an increase of $1.9 million (or 26%)
and $3.3 million (or 24.1%), over the Company's expenses for salaries, wages and
benefits during the corresponding periods in 1997. The Company increased
salaries, wages and benefits of its personnel to match market rates and
increases in cost of living. The increase in salaries, wages and benefits also
reflects the acquisitions of IMPSAT Brazil, which had 65 employees at June 30,
1998, and Mandic S.A., which has 47 employees at June 30, 1998. Salaries, wages
and benefits paid by the Company with respect to IMPSAT Brazil and Mandic S.A.
for the three months ended June 30, 1998 totaled $1.1 million and $0.2 million,
respectively. In percentage terms, the number of employees remained relatively
stable in Argentina, Colombia and Ecuador during the first half of 1998, and
increased during the period in Venezuela, Mexico and the United States. The
Company maintained a total of 874 employees at June 30, 1998, compared to 665
employees at June 30, 1997.

           Satellite Capacity Cost. The Company's satellite lease payments for
the three and six months ended June 30, 1998 totaled $6.7 million and $12.8
million, respectively, an increase of $2.3 million (or 52.7%) and $4.0 million
(or 45.2%), respectively, over satellite lease payments for the corresponding
periods in 1997. IMPSAT Argentina's satellite lease payments for the three and
six months ended June 30, 1998 totaled $3.1 million and $5.9 million,
respectively, an increase of $0.8 million (or 34.8%) and $1.4 million (or
31.1%), respectively, over satellite lease payments for the corresponding
periods in 1997. The Company had approximately 516.7 MHz and 368.0 MHz of leased
satellite capacity at June 30, 1998 and 1997, respectively. The expansion of the
Company's satellite capacity during the first half of 1998 compared to the first
half of 1997 is attributable primarily to contractually scheduled increases in
satellite capacity to match anticipated growth in the total number of Dataplus
earth stations to be installed by the Company over time which, because of their
greater transmission capacity and bandwidth requirements compared to VSAT,
utilize larger amounts of satellite capacity. Increases in the Company's
utilization of satellite capacity have not been matched by proportionate
increases in revenues from its services.

           Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses ("SG&A") expenses for the Company consist principally of
publicity and promotion costs; provisions for doubtful accounts; fees and other
remuneration; travel and entertainment; rent; and plant services, telephone and
energy expenses.

           The Company incurred SG&A expenses of $12.6 million and $21.1
million, respectively, for the three and six months ended June 30, 1998, an
increase of $5.9 million and $6.9 million, respectively (or 88.1% and 48.6%,
respectively), from SG&A expenses incurred by the Company during the three and
six months ended June 30, 1997. The increase in SG&A expenses for the three
months ended June 30, 1998 relates principally to: (i) an increase in the
Company's provision for doubtful accounts as discussed below; (ii) SG&A expenses
incurred by the two new subsidiaries of the Company, IMPSAT Brazil and Mandic
S.A.; and (iii) expenses related to legal, tax and consultancy advice with
respect to the Company's


                                       28
<PAGE>   29


consideration of potential opportunities for expansion into new
telecommunications services upon further deregulation of the telecommunications
industry in Latin America.

     SG&A expenses at IMPSAT Argentina for the three and six months ended June
30, 1998 totaled $5.9 million and $9.0 million, respectively, an increase of
$2.2 million and $0.9 million, respectively (or 57.4% and 11.5%, respectively),
from SG&A expenses incurred by IMPSAT Argentina for the three and six months
ended June 30, 1997.

     On a Company-wide basis, the Company recorded a provision for doubtful
accounts in the first half of 1998 of $4.2 million (compared to a provision of
$0.8 million in the first half of 1997) as a result of certain payment arrears
experienced by certain customers in Argentina and Ecuador. Of this amount,
IMPSAT Argentina recorded a provision for doubtful accounts during the first
half of 1998 of $2.7 million, in comparison to a provision for the first half of
1997 of $0.8 million.

     Prior to June 30, 1998, the Company's general policy had been to reserve
30% for accounts receivable in excess of 180 days but less than one year, and
100% for all accounts receivable in excess of 360 days. These guidelines were
not, however, applied in cases where the Company determined that applying the
guidelines would not be appropriate. For example, the Company had only reserved
54.5% of the total amount due to IMPSAT Argentina under with respect to a
receivable totaling $2.2 million from Banco de la Nacion Argentina ("BNA") that
was generated during 1996 and 1997 under a subcontract between IMPSAT Argentina
and IBM de Argentina, S.A. that was terminated by BNA in the second quarter of
1997, based on the Company's assessment of the likely recoverability of such
amounts. At the end of the first quarter of 1998 (excluding (i) the BNA contract
discussed above, and (ii) amounts totaling $8.4 million owed to the Company by
Empresa Nacional de Correos y Telegrafos S.A. ("ENCOTESA"), the former Argentine
national postal service, under IMPSAT Argentina's contracts with ENCOTESA see
Note 11 to the Company's Consolidated Financial Statements included in Item 1
hereto) approximately 10% of the Company's gross current trade accounts
receivable were past due more than six months but less than one year and
approximately 10% of gross accounts receivable were past due more than one year.
On the same basis, as of June 30, 1998 approximately 11% of the Company's gross
current trade accounts receivable were past due more than six months but less
than one year and approximately 13% of gross accounts receivable were past due
more than one year.

     At the end of the second quarter of 1998, the Company decided to change its
policy of reserving for doubtful accounts and has reserved 100% for all accounts
receivable in excess of 180 days. This new policy will not be applied to a
receivable if the president of an operating subsidiary determines that such
receivable will be collected within a further 60 days. Management believes that
the change in the Company's receivables policy will provide a more appropriately
comprehensive reserve against uncollectible customer accounts. The Company
reviews the status of accounts receivable from its customers and makes
adjustments to its reserve for uncollectible receivables as it deems
appropriate.

     The increase in the Company's SG&A expenses for the six months ended June
30, 1998 also reflects increased entertainment, advertising and promotion costs
during the period ($3.2 million, representing an increase of $1.9 million, or
146%, compared to the six months ended June 30, 1997) relating to: (i) the
Company's expansion of its operations into Brazil; (ii) promotion campaigns for
the Company's newer services (Internet, Conexia and Telecampus); (iii)
consultant fees relating to the exploration of a new public image for the
Company; and (iv) related travel and entertainment expenses.

           Depreciation and Amortization.  The Company's depreciation and
amortization for the three and six months ended June 30, 1998 totaled $8.6
million and $16.6 million, respectively, representing an increase of $1.5
million (or 21.9%) and $2.9 million (or 20.7%), compared to depreciation and
amortization for the three and six months ended June 30, 1997. Depreciation and
amortization for


                                       29
<PAGE>   30


IMPSAT Argentina for the three and six months ended June 30, 1998, totaled $4.9
million and $9.6 million, respectively, an increase of $0.4 million (or 9.9%)
and $0.9 million (or 10.2%), respectively, compared to the three and six months
ended June 30, 1997.

           Interest Expense, Net. The Company's net interest expense for three
and six months ended June 30, 1998 totaled $9.4 million and $17.2 million,
respectively, consisting of interest expense of $9.9 million and interest
income of $0.5 million for the three months ended June 30, 1998 and interest
expense of $18.1 million and interest income of $0.9 million for the six months
ended June 30, 1998. Net interest expense increased $3.3 million (or 54.5%) and
$4.9 million (or 40.1%), respectively, from net interest expense for the three
and six months ended June 30, 1997. IMPSAT Argentina's net interest expense for
the three and six months ended June 30, 1998 totaled $3.5 million and $6.6
million, respectively ($2.4 million and $3.7 million, respectively, after
eliminating intercompany items). In comparison, IMPSAT Argentina's net interest
expense for the three and six months ended June 30, 1997 totaled $3.4 million
and $6.8 million, respectively ($0.7 million and $1.4 million, respectively,
after eliminating intercompany items). Net interest expense at IMPSAT Colombia
for the three and six months ended June 30, 1998 totaled $2.2 million and $4.2
million ($1.7 million and $3.4 million after eliminating intercompany items),
respectively. In comparison, IMPSAT Colombia' s net interest expense for the
three and six months ended June 30, 1997 totaled $1.4 million and $2.9 million
($1.0 million and $2.0 million after eliminating intercompany items),
respectively. Interest expense with respect to intercompany loans are eliminated
in the Company's Consolidated Statement of Operations.

            The increase in net interest expense is primarily attributable to
the  increased indebtedness of the Company, which grew from $218.2 million as of
June 30, 1997 to $464.7 million as of June 30 1998. Such increased indebtedness
of the Company relates primarily to the issuance by the Company on June 17, 1998
(the "1998 Note Offering"), of $225 million principal amount of 12 3/8% Senior
Notes due 2008 (the "1998 Notes"). The 1998 Notes were sold to a limited number
of institutional investors pursuant to exemptions from registration requirements
of the Securities Act.

           As of June 30, 1998, total outstanding indebtedness at IMPSAT
Argentina equaled $150.7 million ($59.7 million after eliminating intercompany
items), compared to $107.6 million as of June 30, 1997. Total outstanding
indebtedness at IMPSAT Colombia as of June 30, 1998 equaled $57.2 million ($44.2
million after eliminating intercompany items), compared to $50.0 million as of
June 30, 1997. The average interest rate on the Company's indebtedness for the
first half of 1998 was 12.7%, compared to an average interest rate of 11.2% for
the first half of 1997.

           Interest expense is expected to increase in future periods as a
result of the 1998 Note Offering. Such increased interest expense is likely to
produce a corresponding reduction in the Company's operating results during the
application of the proceeds of the 1998 Note Offering over the next 18 months.
See "-- Liquidity and Capital Resources" for a description of the Company's
planned uses of such proceeds.


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<PAGE>   31


           Provision for Income Taxes. The Company recorded a provision for
income taxes for the three and six months ended June 30, 1998 of $0.6 million
and $2.3 million, respectively, compared to $1.0 million and $2.7 million,
respectively, for the corresponding periods in 1997. IMPSAT Argentina recorded a
provision for income taxes for the three and six months ended June 30, 1998 of
$0.4 million and $1.4 million, respectively, compared to $0.6 million and $1.9
million, respectively, for the corresponding periods in 1997. IMPSAT Colombia
recorded a provision for income taxes for the three and six months ended June
30, 1998 of $0.6 million and $1.5 million, respectively, compared to $0.4
million and $0.8 million, respectively, for the corresponding periods in 1997.

     Net Loss. For the three and six months ended June 30, 1998, the Company
incurred a net loss of $6.2 million and $8.6 million, respectively, an increase
of $5.0 million and $5.7 million, respectively, compared to the Company's net
loss for the three and six months ended June 30, 1997. The principal reasons for
the increase in the Company's net loss as compared to prior periods related to
the following items, as discussed above: (i) the increase in the Company's
provision for doubtful accounts; and (ii) the incurrence of a net loss of $1.5
million by IMPSAT Brazil during its development stage. For the three and six
month periods ended June 30, 1998, IMPSAT Argentina recorded net loss of $0.1
million and net income of $0.9 million, respectively, compared to a net income
of $0.5 million and $1.0 million, respectively, for the corresponding periods in
1997. IMPSAT Colombia recorded net income for the three and six months ended
June 30, 1998 of $1.7 million and $3.5 million, respectively, compared to a net
income of $2.8 million and $3.9 million, respectively, for the corresponding
periods in 1997.

LIQUIDITY AND CAPITAL RESOURCES

     The Company anticipates that it will continue to incur significant capital
expenditures in the next several years in connection with the expected growth of
its existing commercial operations (Argentina, Colombia, Venezuela, Ecuador,
Mexico and the United States), and the development of its operations in Brazil.
The Company intends to meet its capital requirements during the remainder of
1998 and for 1999 from proceeds of the 1998 Note Offering. Of total net proceeds
of the 1998 Note Offering of $218 million, the Company anticipates that $35.2
million will be used to refinance existing short-term indebtedness and the
remainder used for capital expenditures. The Company currently anticipates that
it will require approximately $360 million during the period 1998 to 2000 for
capital expenditures (including amounts already expended in 1998 to date). The
Company's projected capital expenditure requirements include the establishment
of operations and development of private telecommunications network systems in
Brazil and continued additions to its private telecommunications network
infrastructure in order to maintain the Company's ability to provide high
quality, competitive services. The Company's budget contemplates that the
Company will need approximately $90 million for the period from 1998 to 2000
(including amounts already expended in 1998 to date) for capital expenditures
related to the adequate build-out of its private telecommunications network
system in Brazil.

     In addition to the Company's currently planned capital expenditures, with
continued deregulation of the Latin American telecommunications market, the
Company may in the future expand its business in the region to include other
business telecommunications services, including switched international, domestic
long distance and local services, which would require significant amounts of
additional financing for capital expenditures.

     The ability of the Company to continue the expansion of its private
telecommunications network systems as is necessary to provide high-quality,
competitive private network services to its customers and to meet its debt
service obligations will be dependent upon the future performance of the
Company, including the ability of the Company to obtain additional debt
financing and potential equity financing. The Company's ability to maintain its
planned program of capital expenditures will be dependent on its ability to
obtain additional sources of financing. If the Company is unable to obtain such
additional


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sources of financing, it will not be able to maintain its levels of growth and
market position in any of the countries in which it operates, which could have
an adverse effect on the business and prospects of the Company.

      As of August 15, 1998, IMPSAT Argentina had outstanding $25 million of
commercial paper (which is scheduled to mature on December 17, 1998) issued
under its $50 million Euro-Commercial Paper Program (the "ECP Program"). IMPSAT
Argentina repaid $25 million of short-term promissory notes issued under the ECP
Program upon maturity on August 10, 1998 using parent company advances from the
proceeds of the 1998 Note Offering.

      As set forth in its consolidated statements of cash flow, in the six
months ended June 30, 1998, the Company generated $18.3 million in net cash flow
from operating activities, compared with $4.5 million generated for the six
months ended June 30, 1997. The increase in cash flow from operating activities
in the first half of 1997 was primarily attributable to (i) increases in accrued
and other liabilities of $10.7 million (compared to an increase of $5.2 million
in the first half of 1997); (ii) increases in trade accounts payable of $7.5
million (compared to a decrease of $2.9 million in the first half of 1997); and
(iii) a decrease in other receivables and other non-current assets of $0.4
million (compared to a decrease of $4.1 million in the first half of 1997).
Financing activities provided $236.5 million in net cash flow for the six months
ended June 30, 1998, compared with $19.1 million from cash flow generated by
financing activities for the six months ended June 30, 1997. Such increase is
primarily attributable to the proceeds of the 1998 Note Offering. The Company's
net outstanding indebtedness increased by $246.5 million during the six months
ended June 30, 1998, compared to the corresponding period in 1997. On June 30,
1998, the Company had approximately $65.7 million in outstanding short-term
debt, of which $51.2 million was owed by IMPSAT Argentina.

     During the six months ended June 30, 1998, the Company used $64.6 million
in net cash flow for investing activities, compared to $23.0 million for the six
months ended June 30, 1997. The Company had a cash balance of $200.6 million as
of June 30, 1998.

      The Company leases satellite capacity with annual rental commitments of
approximately $26.0 million through the year 2001. In addition, the Company has
commitments to purchase communications equipment amounting to approximately
$11.6 million at June 30, 1998.

YEAR 2000

     The Company's equipment and operational systems are being reviewed and,
where required, detailed plans have been, or are being, developed and
implemented on a schedule intended to permit the Company's computer systems and
services to continue to function properly in the year 2000. Such plans are
likely to involve a combination of software modification, upgrades and
replacement. Ensuring that the Company's equipment and operational systems are
year 2000 compliant is expected to increase costs in 1998 and 1999. While final
cost estimates are not complete, Management does not expect these costs to have
a material adverse impact on the Company's financial position, results of
operations or cash flows. In addition, the Company faces risks to the extent
that suppliers, customers and others with whom the Company transacts business do
not have business systems or products that comply with the year 2000
requirements. In providing its services, the Company's systems may sometimes be
required to communicate electronically with customer-owned systems with respect
to a variety of functions. Failure of the systems of the Company's customers to
address the year 2000 issue could impair the Company's ability to perform such
functions. Furthermore, in the event any of the Company's suppliers cannot
timely provide the Company with products, services or systems that meet the year
2000 requirements, the Company's operating results could be materially adversely
affected. The Company is not yet able to estimate the cost for year 2000
compliance with respect to customers and suppliers; however, based on a


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<PAGE>   33


preliminary review, Management does not expect that such costs will have a
material adverse effect on the future consolidated results of operations of the
Company. However, the Company could be adversely impacted by the year 2000 date
issue if suppliers, customers and other businesses do not address this issue
successfully.


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<PAGE>   34


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

           Not Applicable.

                                     PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

           Not applicable.

ITEM 2.  CHANGES IN SECURITIES

           Not applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

           Not applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

           Not Applicable.

ITEM 5.  OTHER INFORMATION

      Effective August 1, 1998, Mr. Marcelo Girotti succeeded Mr. Rafael Carchak
Canes as President of IMPSAT Argentina. Mr. Girotti, who started working at
IMPSAT Argentina in 1992, has held several other managerial positions in IMPSAT
Argentina, including Business Manager of the Interior Unit from 1992 to 1996;
Manager of Special Accounts from 1996 to 1997 and Business Manager of the Value
Added Unit from 1997 to 1998. Mr. Girotti holds a degree in electronic
engineering from the Universidad Nacional de Rosario.

      Mr. Carchak Canes, who is a director of IMPSAT Argentina, has assumed a
new position at IMPSAT Corporation as an executive officer in charge of the
Organizational Development Unit. In his new position, Mr. Carchak Canes will
report to the Company's Chief Operating Officer and is charged with
responsibilities for special projects, including human resources strategy,
information systems, unification of business processes, and consolidation of the
Company's service offerings.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)(1)  Exhibits.  27.1  Financial Data Schedule.

(a)(2)  List of Schedules. All schedules for which provision is made in the
applicable accounting regulations of the Commission are omitted because they are
not applicable, or the information is included in the financial statements
included herein.

(b)    Reports on Form 8-K. The following reports on Form 8-K filed for the
       period covered under this Quarterly Report are incorporated herein by
       reference.

           Report on Form 8-K dated June 22, 1998, filed with the Commission on
June 22, 1998.


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<PAGE>   35


                                   SIGNATURES

           Pursuant to the requirements of the Securities Act of 1934, as
amended, the registrants have duly caused this report to be signed on their
behalf by the undersigned thereunto duly authorized, in the City of Buenos Aires
in the Republic of Argentina, in the capacities and on the dates indicated.

                                          IMPSAT Corporation





                                          By: /s/ Guillermo Jofre
                                              ----------------------------------
                                             Guillermo Jofre
                                             Vice President, Finance and
                                             Chief Financial Officer

                                          Date: August 14, 1998


                                          IMPSAT S.A.





                                          By: /s/ Jose Torres
                                              ----------------------------------
                                             Jose Torres
                                             Director and
                                             Chief Accounting Officer

                                          Date: August 14, 1998






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