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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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|x | Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2006

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: 000-29085



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IMPSAT Fiber
Networks, Inc.

(Exact name of registrant as specified in its charter)



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|                                                            |  |                                     
|----------------------------------------------------------- |  | ------------------------------------
|Delaware                                                    |  | 52-1910372                          
|(state or other jurisdiction incorporation or organization) |  | (IRS employer identification number)

Elvira Rawson de Dellepiane 150

Piso 8, C1107BCA

Buenos Aires, Argentina

(5411) 5170-0000

(Address, including
zip code, and telephone number, including area code, of registrants principal executive offices)



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

Indicate by check mark whether the registrant is a large accredited filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filed and larger accelerated filer in Rule 12b-2
of the Exchange Act.

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Securities Exchange Act Rule
12b-2).    YES ̈NO  x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant 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  x    NO ̈

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 March 31, 2006, the registrant had outstanding 10,116,100 shares of common stock, $0.01 par value.



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC.

Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2006



|                             |  |                                                                                                            |  |         
|---------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | --------
|                             |  |                                                                                                           
|                             |  |                                                                                                            |  | Page No.
|PART I FINANCIAL INFORMATION |  |                                                                                                           
|                             |  |                                                                                                           
|                             |  | ITEM 1. FINANCIAL STATEMENTS (unaudited)                                                                   |  | 3       
|                             |  |                                                                                                           
|                             |  | CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2005 AND MARCH 31,
2006                           |  | 3       
|                             |  |                                                                                                           
|                             |  | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2005 AND 2006         |  | 4       
|                             |  |                                                                                                           
|                             |  | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE THREE MONTHS
ENDED MARCH 31, 2005 AND 2006 |  | 5       
|                             |  |                                                                                                           
|                             |  | CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY FOR THE THREE
MONTHS ENDED MARCH 31, 2006        |  | 6       
|                             |  |                                                                                                           
|                             |  | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED MARCH 31, 2005 AND 2006         |  | 7       
|                             |  |                                                                                                           
|                             |  | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                       |  | 8       
|                             |  |                                                                                                           
|                             |  | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS              |  | 24      
|                             |  |                                                                                                           
|                             |  | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                         |  | 39      
|                             |  |                                                                                                           
|                             |  | ITEM 4. CONTROLS AND PROCEDURES                                                                            |  | 41      
|                             | 
|PART II OTHER INFORMATION    |  | 41                                                                                                        
|                             |  |                                                                                                           
|                             |  | ITEM 1. LEGAL PROCEEDINGS                                                                                  |  | 41      
|                             |  |                                                                                                           
|                             |  | ITEM 1A. RISK FACTORS                                                                                      |  | 41      
|                             |  |                                                                                                           
|                             |  | ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS                                        |  | 41      
|                             |  |                                                                                                           
|                             |  | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                                    |  | 41      
|                             |  |                                                                                                           
|                             |  | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY-HOLDERS                                                |  | 41      
|                             |  |                                                                                                           
|                             |  | ITEM 5. OTHER INFORMATION                                                                                  |  | 41      
|                             |  |                                                                                                           
|                             |  | ITEM 6. EXHIBITS                                                                                           |  | 41      
|                             | 
|SIGNATURES                   |  | 43                                                                                                        



2



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##### Table of Contents

PART I -FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2005 AND MARCH 31, 2006

(In thousands of U.S. Dollars, except share amounts)

( Unaudited )



|                                                                                                                                                                                                         |  |                   |         |   |                |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | -------------- | - | ------- | -
|                                                                                                                                                                                                         |  | December 31, 2005 |         |   | March 31, 2006 |  
|ASSETS                                                                                                                                                                                                   |  |                   |         |   |                |   |         |  
|CURRENT ASSETS:                                                                                                                                                                                          |  |                   |         |   |                |   |         |  
|Cash and cash equivalents                                                                                                                                                                                |  | $                 | 24,070  |   |                | $ | 21,482  |  
|Trade accounts receivable, net                                                                                                                                                                           |  |                   | 35,812  |   |                |   | 38,779  |  
|Other receivables                                                                                                                                                                                        |  |                   | 10,784  |   |                |   | 12,004  |  
|Prepaid expenses                                                                                                                                                                                         |  |                   | 2,824   |   |                |   | 2,887   |  
|                                                                                                                                                                                                         |  |                   |         |   |                |   |         |  
|Total current assets                                                                                                                                                                                     |  |                   | 73,490  |   |                |   | 75,152  |  
|                                                                                                                                                                                                         |  |                   |         |   |                |   |         |  
|PROPERTY, PLANT AND EQUIPMENT, Net                                                                                                                                                                       |  |                   | 309,892 |   |                |   | 311,617 |  
|                                                                                                                                                                                                         |  |                   |         |   |                |   |         |  
|OTHER NON-CURRENT ASSETS                                                                                                                                                                                 |  |                   | 16,161  |   |                |   | 17,055  |  
|                                                                                                                                                                                                         |  |                   |         |   |                |   |         |  
|TOTAL ASSETS                                                                                                                                                                                             |  | $                 | 399,543 |   |                | $ | 403,824 |  
|                                                                                                                                                                                                         |  |                   |         |   |                |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                     |  |                   |         |   |                |   |         |  
|CURRENT LIABILITIES:                                                                                                                                                                                     |  |                   |         |   |                |   |         |  
|Accounts payable- trade                                                                                                                                                                                  |  | $                 | 46,080  |   |                | $ | 47,172  |  
|Short- term debt                                                                                                                                                                                         |  |                   | 2,168   |   |                |   | 3,003   |  
|Current portion of long-term debt                                                                                                                                                                        |  |                   | 17,604  |   |                |   | 25,222  |  
|Current portion of deferred revenue                                                                                                                                                                      |  |                   |        |   |                |   | 395     |  
|Interest payable                                                                                                                                                                                         |  |                   | 10,453  |   |                |   | 3,301   |  
|Accrued and other liabilities                                                                                                                                                                            |  |                   | 34,867  |   |                |   | 39,514  |  
|                                                                                                                                                                                                         |  |                   |         |   |                |   |         |  
|Total current liabilities                                                                                                                                                                                |  |                   | 111,172 |   |                |   | 118,607 |  
|LONG-TERM DEBT, Net                                                                                                                                                                                      |  |                   | 228,331 |   |                |   | 216,789 |  
|DEFERRED REVENUE, Net                                                                                                                                                                                    |  |                   |         |   |                |   | 7,510   |  
|OTHER LONG-TERM LIABILITIES                                                                                                                                                                              |  |                   | 16,295  |   |                |   | 17,149  |  
|                                                                                                                                                                                                         |  |                   |         |   |                |   |         |  
|Total liabilities                                                                                                                                                                                        |  |                   | 355,798 |   |                |   | 360,055 |  
|                                                                                                                                                                                                         |  |                   |         |   |                |   |         |  
|COMMITMENTS AND CONTINGENCIES (NOTE 12) STOCKHOLDERS EQUITY:                                                                                                                                            |  |                   |         |   |                |   |         |  
|Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares outstanding as of December 31, 2005 and March 31,
2006                                                                          |  |                   |        |   |                |   |        |  
|Common stock, $0.01 par value; 50,000,000 shares authorized; 10,116,100 shares issued and outstanding (including 50,000 restricted shares held
in the 2003 Stock Incentive Plan as of December 31, 2005) |  |                   | 101     |   |                |   | 101     |  
|Additional paid in capital                                                                                                                                                                               |  |                   | 90,653  |   |                |   | 90,819  |  
|Accumulated deficit                                                                                                                                                                                      |  |                   | (40,990 | ) |                |   | (43,276 | )
|Deferred stock-based compensation                                                                                                                                                                        |  |                   | (440    | ) |                |   |        |  
|Accumulated other comprehensive loss                                                                                                                                                                     |  |                   | (5,579  | ) |                |   | (3,875  | )
|                                                                                                                                                                                                         |  |                   |         |   |                |   |         |  
|Total stockholders equity                                                                                                                                                                               |  |                   | 43,745  |   |                |   | 43,769  |  
|                                                                                                                                                                                                         |  |                   |         |   |                |   |         |  
|TOTAL                                                                                                                                                                                                    |  | $                 | 399,543 |   |                | $ | 403,824 |  
|                                                                                                                                                                                                         |  |                   |         |   |                |   |         |  

See notes to condensed consolidated financial statements.



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THREE MONTHS ENDED MARCH 31, 2005 AND 2006

(In thousands of U.S. Dollars, except per share amounts)

(Unaudited)



|                                          |  |           |        |   |      |   |        |  
|----------------------------------------- |  | --------- | ------ | - | ---- | - | ------ | -
|                                          |  | March, 31 |       
|                                          |  | 2005      |        |   | 2006 |  
|NET REVENUES:                             |  |           |        |   |      |   |        |  
|Broadband and satellite                   |  | $         | 41,789 |   |      | $ | 44,674 |  
|Internet                                  |  |           | 6,931  |   |      |   | 8,616  |  
|Value added services                      |  |           | 5,140  |   |      |   | 8,029  |  
|Telephony                                 |  |           | 5,928  |   |      |   | 6,367  |  
|Sales of equipment                        |  |           | 84     |   |      |   | 872    |  
|                                          |  |           |        |   |      |   |        |  
|Total net revenues                        |  |           | 59,872 |   |      |   | 68,558 |  
|                                          |  |           |        |   |      |   |        |  
|COSTS AND EXPENSES:                       |  |           |        |   |      |   |        |  
|Direct costs:                             |  |           |        |   |      |   |        |  
|Contracted services                       |  |           | 5,216  |   |      |   | 5,658  |  
|Other direct costs                        |  |           | 7,459  |   |      |   | 8,642  |  
|Leased capacity                           |  |           | 18,225 |   |      |   | 18,603 |  
|Cost of equipment sold                    |  |           | 106    |   |      |   | 311    |  
|                                          |  |           |        |   |      |   |        |  
|Total direct costs                        |  |           | 31,006 |   |      |   | 33,214 |  
|Salaries and wages                        |  |           | 12,970 |   |      |   | 14,306 |  
|Selling, general and administrative       |  |           | 5,262  |   |      |   | 5,489  |  
|Depreciation and amortization             |  |           | 12,026 |   |      |   | 13,866 |  
|                                          |  |           |        |   |      |   |        |  
|Total costs and expenses                  |  |           | 61,264 |   |      |   | 66,875 |  
|                                          |  |           |        |   |      |   |        |  
|Operating (loss) income                   |  |           | (1,392 | ) |      |   | 1,683  |  
|                                          |  |           |        |   |      |   |        |  
|OTHER INCOME (EXPENSE):                   |  |           |        |   |      |   |        |  
|Interest income                           |  |           | 303    |   |      |   | 234    |  
|Interest expense                          |  |           | (5,484 | ) |      |   | (8,815 | )
|Net (loss) gain on foreign exchange       |  |           | (640   | ) |      |   | 6,516  |  
|Other (expense) income, net               |  |           | (289   | ) |      |   | (866   | )
|                                          |  |           |        |   |      |   |        |  
|Total other expense                       |  |           | (6,110 | ) |      |   | (2,931 | )
|                                          |  |           |        |   |      |   |        |  
|Loss before income taxes                  |  |           | (7,502 | ) |      |   | (1,248 | )
|Provision for foreign income taxes        |  |           | (722   | ) |      |   | (1,038 | )
|                                          |  |           |        |   |      |   |        |  
|NET LOSS                                  |  | $         | (8,224 | ) |      | $ | (2,286 | )
|                                          |  |           |        |   |      |   |        |  
|NET LOSS PER COMMON SHARE:                |  |           |        |   |      |   |        |  
|BASIC AND DILUTED                         |  | $         | (0.82  | ) |      | $ | (0.23  | )
|                                          |  |           |        |   |      |   |        |  
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES: |  |           |        |   |      |   |        |  
|BASIC AND DILUTED                         |  |           | 10,016 |   |      |   | 10,091 |  
|                                          |  |           |        |   |      |   |        |  

See notes to condensed consolidated financial statements.



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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THREE MONTHS ENDED MARCH 31, 2005 AND 2006

(In thousands of U.S. Dollars)

(Unaudited)



|                                        |  |           |        |   |      |   |        |  
|--------------------------------------- |  | --------- | ------ | - | ---- | - | ------ | -
|                                        |  | March, 31 |       
|                                        |  | 2005      |        |   | 2006 |  
|NET LOSS                                |  | $         | (8,224 | ) |      | $ | (2,286 | )
|                                        |  |           |        |   |      |   |        |  
|OTHER COMPREHENSIVE LOSS:               |  |           |        |   |      |   |        |  
|Foreign currency translation adjustment |  |           | 175    |   |      |   | 1,704  |  
|                                        |  |           |        |   |      |   |        |  
|TOTAL                                   |  |           | 175    |   |      |   | 1,704  |  
|                                        |  |           |        |   |      |   |        |  
|COMPREHENSIVE LOSS                      |  | $         | (8,049 | ) |      | $ | (582   | )
|                                        |  |           |        |   |      |   |        |  

See notes to condensed consolidated financial statements.



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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2006

(In thousands of U.S. Dollars, except for share amounts)

(Unaudited)



|                                                |  |              |  |                          |     |                    |   |        |                                  |   |         |                                   |  |   |       |   |  |   |        |   |  |   |        |  
|----------------------------------------------- |  | ------------ |  | ------------------------ | --- | ------------------ | - | ------ | -------------------------------- | - | ------- | --------------------------------- |  | - | ----- | - |  | - | ------ | - |  | - | ------ | -
|                                                |  | Common Stock |  | AdditionalPaid InCapital |     | AccumulatedDeficit |   |        | DeferredStock- BasedCompensation |   |         | AccumulatedOtherComprehensiveLoss |  |   | Total |  
|                                                |  | Shares       |  | Amount                   |     |                    |   |        |                                 
|BALANCE AT DECEMBER 31, 2005                    |  | 10,116,100   |  | $                        | 101 |                    | $ | 90,653 |                                  | $ | (40,990 | )                                 |  | $ | (440  | ) |  | $ | (5,579 | ) |  | $ | 43,745 |  
|Effects of Adoption of new accounting principle |  |              |  |                          |     |                    |   | 166    |                                  |   |         |                                   |  |   |       |   |  |   |        |   |  |   | 166    |  
|Recognition of deferred compensation            |  |              |  |                          |     |                    |   |        |                                  |   |         |                                   |  |   | 440   |   |  |   |        |   |  |   | 440    |  
|Foreign currency translation adjustment         |  |              |  |                          |     |                    |   |        |                                  |   |         |                                   |  |   |       |   |  |   | 1,704  |   |  |   | 1,704  |  
|Net loss for the period                         |  |              |  |                          |     |                    |   |        |                                  |   | (2,286  | )                                 |  |   |       |   |  |   |        |   |  |   | (2,286 | )
|                                                |  |              |  |                          |     |                    |   |        |                                  |   |         |                                   |  |   |       |   |  |   |        |   |  |   |        |  
|BALANCE AT MARCH 31, 2006                       |  | 10,116,100   |  | $                        | 101 |                    | $ | 90,819 |                                  | $ | (43,276 | )                                 |  | $ |      |   |  | $ | (3,875 | ) |  | $ | 43,769 |  
|                                                |  |              |  |                          |     |                    |   |        |                                  |   |         |                                   |  |   |       |   |  |   |        |   |  |   |        |  

See notes to condensed consolidated financial statements.



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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2006

(In thousands of U.S. Dollars)

(Unaudited)



|                                                                                |  |           |         |   |      |   |        |  
|------------------------------------------------------------------------------- |  | --------- | ------- | - | ---- | - | ------ | -
|                                                                                |  | March, 31 |        
|                                                                                |  | 2005      |         |   | 2006 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |           |         |   |      |   |        |  
|Net loss                                                                        |  | $         | (8,224  | ) |      | $ | (2,286 | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |           |         |   |      |   |        |  
|Amortization and depreciation                                                   |  |           | 12,026  |   |      |   | 13,866 |  
|Effects of Adoption of new accounting principle                                 |  |           |         |   |      |   | 166    |  
|Stock-based compensation                                                        |  |           | 440     |   |      |   | 440    |  
|Deferred income tax provision                                                   |  |           | 398     |   |      |   | 546    |  
|Provision for allowance for doubtful accounts                                   |  |           | 693     |   |      |   | 50     |  
|Paid-in-kind interest on Senior Notes                                           |  |           | 3,369   |   |      |   |        |  
|Net loss (gain) on foreign exchange                                             |  |           | 640     |   |      |   | (6,516 | )
|Net loss on disposals of property, plant and equipment                          |  |           | 35      |   |      |   | 410    |  
|Changes in assets and liabilities:                                              |  |           |         |   |      |   |        |  
|Increase in trade accounts receivable                                           |  |           | (5,221  | ) |      |   | (2,427 | )
|Increase in prepaid expenses                                                    |  |           | (1,205  | ) |      |   | (48    | )
|(Increase) decrease in other receivables and other non-current assets           |  |           | (788    | ) |      |   | 123    |  
|Increase (decrease) in accounts payable  trade                                 |  |           | 2,331   |   |      |   | (30    | )
|Increase (decrease) in accrued and other liabilities                            |  |           | 1,983   |   |      |   | (4,798 | )
|(Decrease) increase in other long-term liabilities                              |  |           | (936    | ) |      |   | 8,142  |  
|                                                                                |  |           |         |   |      |   |        |  
|Net cash provided by operating activities                                       |  |           | 5,541   |   |      |   | 7,638  |  
|                                                                                |  |           |         |   |      |   |        |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |           |         |   |      |   |        |  
|Purchases of property, plant and equipment                                      |  |           | (8,306  | ) |      |   | (7,149 | )
|Proceeds from sale of property, plant and equipment                             |  |           | 3       |   |      |   |        |  
|                                                                                |  |           |         |   |      |   |        |  
|Net cash used in investing activities                                           |  |           | (8,303  | ) |      |   | (7,149 | )
|                                                                                |  |           |         |   |      |   |        |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |  |           |         |   |      |   |        |  
|Net (repayments of) proceeds from short-term debt                               |  |           | (1,449  | ) |      |   | 671    |  
|Proceeds from long-term debt                                                    |  |           |         |   |      |   | 3,505  |  
|Repayments of long-term debt                                                    |  |           | (18,145 | ) |      |   | (7,269 | )
|                                                                                |  |           |         |   |      |   |        |  
|Net cash used in financing activities                                           |  |           | (19,594 | ) |      |   | (3,093 | )
|                                                                                |  |           |         |   |      |   |        |  
|EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS                     |  |           | 75      |   |      |   | 16     |  
|                                                                                |  |           |         |   |      |   |        |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                       |  |           | (22,281 | ) |      |   | (2,588 | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD                            |  |           | 63,655  |   |      |   | 24,070 |  
|                                                                                |  |           |         |   |      |   |        |  
|CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                                  |  | $         | 41,374  |   |      | $ | 21,482 |  
|                                                                                |  |           |         |   |      |   |        |  
|SUPPLEMENTAL CASH FLOW INFORMATION:                                             |  |           |         |   |      |   |        |  
|Interest paid                                                                   |  | $         | 1,610   |   |      | $ | 10,616 |  
|                                                                                |  |           |         |   |      |   |        |  
|Foreign income taxes paid                                                       |  | $         | 378     |   |      | $ | 435    |  
|                                                                                |  |           |         |   |      |   |        |  

See notes to condensed consolidated financial statements.



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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(TABLES IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AND SHARE AMOUNTS)

(Unaudited)

1. GENERAL

IMPSAT Fiber Networks, Inc., a Delaware holding company (the Holding Company), and its subsidiaries (collectively the Company)
provide integrated broadband, data, Internet, voice and data center services in Latin America. The Company offers integrated telecommunications solutions, with an emphasis on end-to-end broadband data transmission, for national and multinational
companies, financial institutions, governmental agencies and other business customers.

The Company currently provides telecommunications
services to its customers using its local access and long haul fiber optic and satellite networks. The deployed facilities include 15 metropolitan area networks in the largest cities of the region, long haul networks across Argentina, Brazil, Chile
and Colombia, and leased submarine capacity to link South America to the United States. In addition, the Company has 500,000 gross square feet of premises housing advanced hosting capabilities.

The Holding Companys operating subsidiaries are wholly owned (except for a small number of shares issued to other persons to comply with local
corporate law requirements). A listing of the Holding Companys operating subsidiaries is as follows:



|          |  |                               
|--------- |  | ------------------------------
|Argentina |  | Impsat S.A.                   
|Brazil    |  | Impsat Comunicacoes Ltda.     
|Chile     |  | Impsat Chile S.A.             
|Colombia  |  | Impsat S.A.                   
|Ecuador   |  | Impsatel del Ecuador S.A.     
|Peru      |  | Impsat S.A.                   
|USA       |  | Impsat USA, Inc.              
|Venezuela |  | Telecomunicaciones Impsat S.A.

In addition, the Company owns other subsidiaries, which serve intermediary functions to the
Holding Company and its operating subsidiaries.

2. LIQUIDITY AND GOING CONCERN CONSIDERATIONS

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The Holding Company successfully emerged from bankruptcy on March 25, 2003 with an approved reorganization plan. Prior to emergence, the Company had incurred substantial net
losses and had both working capital and stockholders deficiencies. After emergence, the Company has generated cash flows from operations of $5.5 million and $7.6 million, respectively, for the three months ended March 31, 2005 and 2006
and has incurred net losses of $8.2 million and $2.3 million respectively. As of March 31, 2006, the Company has cash and cash equivalents of $21.5 million, which includes approximately $7.2 million in Venezuela (see Note 3) and a working
capital deficiency of approximately $43.5 million.

A significant portion of the Companys debt is held by affiliates of certain
members of the Holding Companys board of directors. Accordingly, a special committee of the Holding Companys board of directors was formed at the end of 2004 to explore recapitalization alternatives. On July 29, 2005, the Holding
Company, IMPSAT Argentina and IMPSAT Brazil entered into amendments to certain of its senior secured indebtedness, pursuant to which a principal payment of $18.3 million was made and the amortization schedule for such indebtedness modified, along
with other terms. In addition, as discussed in Note 7, IMPSAT Argentina continues to be in default on approximately $7.6 million principal amount of vendor financing indebtedness. Based on its current business plan, the Company will not generate
sufficient internally-generated funds to meet its maturing obligations in the future. If the Company cannot generate sufficient cash flows to meet the Companys cash flow and working capital needs, and to achieve its longer term growth and
operational goals, the Company will require additional financing. There is no assurance that such financing will be available on acceptable terms or at all. These factors, among others, may indicate that the Company will be unable to continue as a
going concern for a reasonable period of time.

The condensed consolidated financial statements do not include any adjustments relating to
the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Companys continuation as a going concern is dependent
upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing or refinancing as may be required, and ultimately to obtain profitable operations.



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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation  The financial statements are presented on a condensed consolidated basis and include the accounts of the Holding Company and its subsidiaries. All significant intercompany
transactions and balances have been eliminated.

Interim Financial Information  The unaudited condensed consolidated financial statements as
of March 31, 2006 and for the three months then ended have been prepared on the same basis as the Companys audited consolidated financial statements as of and for the year ended December 31, 2005. In the opinion of management, the
unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the results for such periods. The operating results for the three months ended March 31,
2006 are not necessarily indicative of the operating results to be expected for the remainder of calendar year 2006 or for any future period.

Use of
Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (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.

Market Risk The Company currently operates in countries throughout Latin America. The
Companys financial performance may be affected by inflation, exchange rates and currency controls, price controls, interest rates, changes in governmental economic policies, taxation and political, economic or other developments in or
affecting the Latin America countries in which the Company operates. The Company has not entered into derivative transactions to hedge against potential foreign exchange or interest rate risks.

Currency Risks During February 2004 and March 2005, the Venezuelan government fixed the bolivars value to the U.S. dollar at 1,920 and 2,150,
respectively. These exchange controls limit the Companys ability to convert local currency into U.S. dollars and transfer funds out of Venezuela. As of March 31, 2006, approximately $7.2 million of the Companys cash and cash
equivalents were held in Venezuela ($7.1 million in local currency, translated into U.S. dollars at the fixed exchange rate imposed by the Venezuelan government).

Cash and Cash Equivalents  Cash and cash equivalents include time deposits or money market funds with original maturities of three months or less at the time of purchase. Cash equivalents and short-term investments are stated
at cost, which approximates fair value.

Revenue Recognition  Revenues from data, value-added telephony, IT solutions and Internet services
are recognized monthly as the services are provided. Equipment sales are recorded upon delivery to, and acceptance by, the customer. In connection with certain of the Companys services, the Company may charge installation fees. Installation
fees are generally less than the direct expenses for installation. Therefore, installation fees are recognized upon (i) the completion of the installation of customer premise equipment and (ii) the invoicing of such fees to the customer.
If the installation charges are greater than the direct expenses, the amounts are deferred and recognized over the estimated life of the customer. For the three months ended March 31, 2005 and 2006, other than for IMPSAT USA as discussed below,
all other installation fees amounted to $1.2 million and $1.2 million, respectively and related direct installation costs amounted to $1.9 million and $2.3 million, respectively. IMPSAT USA has deferred revenues of $7.9 million as of March 31,
2006 relating to a 2006 transaction with one customer in which the installation fees exceeded the related direct installation costs.

In
addition, the Company has entered into, and may enter into in the future, agreements with carriers granting indefeasible rights of use (IRUs) and access to portions of the Companys broadband network capacity and infrastructure.
Pursuant to some of these agreements, the Company may receive fixed advance payments for the IRUs, which would be recognized as revenue ratably over the life of the IRU. Likewise, amounts received in advance would be recorded as deferred revenue.

The Company records its revenues net of deductions for sales taxes. These taxes are assessed by the governmental taxing authorities in a
number of countries in which the Company operates based on a percentage of gross revenues and totaled approximately $3.1 million and $4.2 million for the three months ended March 31, 2005 and 2006, respectively.

No single customer accounted for greater than 10% of total net revenues for the three months ended March 31, 2005 and 2006.

Non-Monetary Transactions  The Company may exchange capacity on its broadband network for capacity from other carriers through the exchange of IRUs. These
transactions are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 153 (SFAS No. 153),Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29which was adopted



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on January 1, 2006. The amendments made by SFAS No. 153 are based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets exchanged. The amendment also eliminates the narrow exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges
of nonmonetary assets that do not have commercial substance. The Company did not have any material non-monetary transactions during the three months ended March 31, 2006.

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:



|                                                 |  |            
|------------------------------------------------ |  | -----------
|Buildings and improvements                       |  | 10-25 years
|Operating communications equipment               |  | 5-10 years 
|Network infrastructure (including rights of way) |  | 10-20 years
|IRU investments                                  |  | 15 years   
|Furniture, fixtures and other equipment          |  | 2-10 years 

Rights of way agreements represent the fees paid and the net present value of fees to be paid per
signed agreements entered into for obtaining rights of way and other permits for the broadband network. These capitalized agreements are being amortized over the terms of the rights of way, which range from 10 to 20 years. In addition, the Company
has acquired IRUs from other entities for its own purposes. Such IRU investments are capitalized and amortized over their estimated useful lives, not to exceed 15 years. The acquired IRUs have a 25-year term. In those cases where the right of use
has been acquired for a period of time greater than 15 years, management believes that, due to anticipated advances in technology, the Companys IRUs are not likely to be productive assets beyond 15 years.

The operating communications equipment owned by the Company is subject to rapid technological obsolescence; therefore, it is reasonably possible that the
equipments estimated useful lives could change in the near future.

Long-Lived Assets Long-lived assets are reviewed on an ongoing
basis for impairment based on a comparison of carrying values to the related undiscounted future cash flows. If the carrying amounts exceed such cash flows, identifying a possible impairment, the asset carrying amounts are adjusted to fair value as
determined by appraisals by independent consultants or internal discounted cash flow models.

Income Taxes  Deferred income taxes result from
temporary differences in the recognition of income and expenses for tax and financial reporting purposes and are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes,which requires the asset and liability method of
computing deferred income taxes. Under the asset and liability method, deferred taxes are adjusted for tax rate changes as they occur.

Foreign Currency
Translation  The Holding Companys subsidiaries, except for IMPSAT Brazil, use the U.S. dollar as the functional currency. The effects of foreign currency transactions are included as net gain or loss on foreign exchange. IMPSAT
Brazil uses the local currency as the functional currency, therefore the effects of translation are included in accumulated other comprehensive loss within stockholders equity.

Stock-Based Compensation Prior to January 1, 2006, the Company accounted for stock option awards granted under the Companys share-based payment plans in accordance with the recognition and
measurement provision of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB 25) and related Interpretations, as permitted by SFAS No. 123, Accounting for Stock-Based
Compensation. Share-based employee compensation expense was not recognized in the Companys condensed consolidated statement of operations prior to January 1, 2006, as all stock option awards granted under the plans had an exercise
price equal to or greater than the market value of the common stock on the date of the grant. Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004), Share-Based Payment, (SFAS 123R)
using the modified-prospective-transition method. Under this transition method, compensation expense recognized during the three months ended March 31, 2006 included compensation expense for all share-based awards granted prior to, but not yet
vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123. In accordance with the modified-prospective-transition method, results for prior periods have not been restated.
As a result of adopting SFAS 123R, the charge to earnings from continuing operations before provision for income taxes and net earnings for the three months ended March 31, 2006 was $166, respectively. The impact of adopting SFAS 123R on both
basic and diluted earnings per share for the three months ended March 31, 2006 was $0.02 per share.

On the Effective Date, in
accordance with the Plan, the Holding Company adopted the 2003 Stock Incentive Plan (the 2003 Plan), which provides for the grant to the Companys officers, key employees, consultants, advisors, directors or affiliates of
(i) incentive stock options within the meaning of Section 422 of the U.S. Internal Revenue Code of 1986, as amended, (ii) stock



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options that are non-qualified for U.S. federal income tax purposes, (iii) restricted stock grants and
(iv) stock appreciation rights (collectively the Awards). The total number of shares of common stock for which Awards may be granted pursuant to the 2003 Plan is 3,087,044, subject to certain adjustments reflecting changes in the
Holding Companys capitalization (provided that no more than 200,000 shares of common stock may be issued pursuant to Awards that are not stock options or stock appreciation rights). The 2003 Plan is administered by the Holding
Companys compensation committee. The compensation committee determines, among other things, which of the Companys officers, employees, consultants, advisors, affiliates and directors will receive Awards under the Plan, the time when
Awards will be granted, and the type of Awards to be granted. Awards granted under the 2003 Plan are on such terms, including the number of shares subject to each Award, the time or times when the Awards will become exercisable, and the price and
duration of the Award, as determined by the compensation committee. The expiration date of the 2003 Plan is March 25, 2013 and no Awards may be granted after said date. The termination of the Plan will not affect any Award outstanding on the
date of termination.

The exercise price of incentive and non-qualified stock options is determined by the compensation committee. In the
case of incentive stock options and other options intended to qualify as performance-based compensation under Section 162(m) of the U.S. Internal Revenue Code (Section 162(m)), the exercise price may not be less than the fair
market value of the common stock on the date of grant. The term of any option may not exceed ten years from the date of grant (or five years in the case of an incentive stock option granted to an employee owning 10% or more of the companys
voting stock).

Payment of the exercise price of a stock option or stock appreciation right must be made by cash or, in the sole discretion
of the compensation committee, tender of shares of the Holding Companys common stock then owned by the option or, subject to certain conditions, the surrender to the Holding Company of an exercisable option to purchase shares of the Holding
Companys common stock under the 2003 Plan. Stock options and stock appreciation rights granted pursuant to the 2003 Plan are generally not transferable, other than by will or the laws of descent and distribution in the event of death.

The Holding Companys compensation committee has the right at any time and from time to time to amend or modify the 2003 Plan,
without the consent of the Holding Companys stockholders (unless otherwise required by law or regulations, including to prevent awards from failing to qualify as performance-based compensation under Section 162(m)) or grantees of Awards.
However, no such action may adversely affect Awards previously granted without the grantees consent.

The following table illustrates
the effect on net earnings and earnings per share for the three months ended March 31, 2005, if the Company had applied the fair market value recognition provisions of SFAS 123, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, to options granted under the Companys share-based payment plans. For purposes of this pro forma disclosure, the value of the stock options is estimated using a Black-Scholes option-pricing model and
amortized to expense over the options vesting periods.



|                                                                                           |  |                |        |  
|------------------------------------------------------------------------------------------ |  | -------------- | ------ | -
|                                                                                           |  | March 31, 2005 |       
|Net loss                                                                                   |  |                |        |  
|As reported                                                                                |  | $              | (8,224 | )
|Add: Stock-based compensation expense, as reported                                         |  |                |       |  
|Deduct: Stock-based employee compensation expense determined under fair-value-based method |  |                | (174   | )
|                                                                                           |  |                |        |  
|Pro forma                                                                                  |  | $              | (8,398 | )
|                                                                                           |  |                |        |  
|Net loss per common share:                                                                 |  |                |        |  
|Basic:                                                                                     |  |                |        |  
|As reported                                                                                |  | $              | (0.82  | )
|                                                                                           |  |                |        |  
|Pro forma                                                                                  |  | $              | (0.84  | )
|                                                                                           |  |                |        |  
|Diluted:                                                                                   |  |                |        |  
|As reported                                                                                |  | $              | (0.82  | )
|                                                                                           |  |                |        |  
|Pro forma                                                                                  |  | $              | (0.84  | )
|                                                                                           |  |                |        |  

The fair value of the options granted in 2003 was estimated using the minimum value method prescribed by SFAS
No. 123, as the Companys new common stock had not traded between the date of emergence and the date of the granting of the options. The assumptions used by the Company were as follows: no dividend yield; no volatility; risk-free interest
rate of 3%; and an expected term of seven years. For purposes of the pro-forma disclosures, the fair value of the options granted in 2005 was estimated using the Black-Scholes option pricing model. The assumptions used by the Company were as
follows: no dividend yield; historical volatility of 59%, respectively, risk-free interest rate of 4.50%, respectively; and an expected term of seven years, respectively.



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A summary of stock option transactions during the three month period ended March 31, 2006 is as
follow:



|                                      |  |                 |  |                                 |      
|------------------------------------- |  | --------------- |  | ------------------------------- | -----
|                                      |  | Number ofOption |  | Weighted Average Exercise Price
|Outstanding at December 31, 2005      |  | 2,113,580       |  | $                               | 14.01
|Granted                               |  |                |  |                                 |     
|Exercised                             |  |                |  |                                 |     
|Cancelled                             |  |                |  |                                 |     
|                                      |  |                 |  |                                 |      
|Outstanding at March 31, 2006         |  | 2,113,580       |  | $                               | 14.01
|                                      |  |                 |  |                                 |      
|Available for grant at March 31, 2006 |  | 856,010         |  |                                 |      
|                                      |  |                 |  |                                 |      

The following table summarizes information concerning outstanding stock options at March 31,
2006:



|                        |  |                             |  |                                            |  |                                 |       |                             |           |                              |   |                         |  |   |        
|----------------------- |  | --------------------------- |  | ------------------------------------------ |  | ------------------------------- | ----- | --------------------------- | --------- | ---------------------------- | - | ----------------------- |  | - | -------
|                        |  |                             |  | Options Outstanding                        |  | Options Exercisable            
|Range of Exercise Price |  | Number ofOptionsOutstanding |  | Weighted Average RemainingContractual Life |  | Weighted Average Exercise Price |       | Number ofOptionsOutstanding |           | WeightedAverageExercisePrice |   | AggregateIntrinsicValue
|$6.17                   |  | 90,000                      |  | 7                                          |  | $                               | 6.17  |                             | 90,000    |                              | $ | 6.17                    |  | $ | 119,700
|$7.05                   |  | 65,092                      |  | 7                                          |  |                                 | 7.05  |                             | 65,092    |                              |   | 7.05                    |  |   | 14,646 
|$12.00                  |  | 262,156                     |  | 9                                          |  |                                 | 12.00 |                             | 262,156   |                              |   | 12.00                   |  |   |        
|$15.00                  |  | 1,696,332                   |  | 6                                          |  |                                 | 15.00 |                             | 1,284,758 |                              |   | 15.00                   |  |   |        
|                        |  |                             |  |                                            |  |                                 |       |                             |           |                              |   |                         |  |   |        
|                        |  | 2,113,580                   |  | 6                                          |  | $                               | 14.01 |                             | 1,702,006 |                              | $ | 13.77                   |  | $ | 134,346
|                        |  |                             |  |                                            |  |                                 |       |                             |           |                              |   |                         |  |   |        

There were no options granted during the three months ended March 31, 2006 and 2005.

At March 31, 2006, there was $166 of unrecognized compensation expense related to unvested share-based awards granted under the
Companys share-based payment plans, of which all relates to stock options. That expense is expected to be recognized over the quarter ending June 30, 2006. As of March 31, 2006 and December 31, 2005 there were 411,574 of
nonvested stock options with a weighted average grant date fair value of $15. There were no nonvested stock options that vested during the three months ended March 31, 2006 and 2005.

Fair Value of Financial Instruments  As of December 31, 2005 and March 31, 2006, the Companys financial instruments include cash and cash
equivalents, receivables, payables and short and long-term debt.

The fair value of cash and cash equivalents, receivables, payables and
short-term debt is equal to their carrying value due to their short term nature. The Companys Series A Notes, the Series B Notes and Senior Secured Notes were valued using available interest rates for the Company.

At December 31, 2005 and March 31, 2006, the fair value of the Companys other financial instruments was as follows:



|                                             |  |            |         |           |       |   |            |   |        
|-------------------------------------------- |  | ---------- | ------- | --------- | ----- | - | ---------- | - | -------
|2005                                         |  | Book Value |         | % of Face |       |   | Fair Value
|Series A 6% Senior Guaranteed Notes due 2011 |  | $          | 67,308  |           | 76.3  | % |            | $ | 51,383 
|Series B 6% Senior Guaranteed Notes due 2011 |  |            | 25,595  |           | 76.3  |   |            |   | 19,539 
|Senior Secured Notes 10% maturing due 2009   |  |            | 5,918   |           | 96.6  |   |            |   | 5,717  
|Senior Secured Notes 12% maturing due 2009   |  |            | 107,300 |           | 100.0 |   |            |   | 107,300
|                                             |  |            |        
|2006                                         |  | Book Value |         | % of Face |       |   | Fair Value
|Series A 6% Senior Guaranteed Notes due 2011 |  | $          | 67,308  |           | 77.9  | % |            | $ | 52,447 
|Series B 6% Senior Guaranteed Notes due 2011 |  |            | 25,595  |           | 77.9  |   |            |   | 19,944 
|Senior Secured Notes 10% maturing due 2009   |  |            | 5,071   |           | 97.0  |   |            |   | 4,919  
|Senior Secured Notes 12% maturing due 2009   |  |            | 104,800 |           | 100.0 |   |            |   | 104,800

Net Loss Per Common Share Basic loss per share is computed based on the average number of common
shares outstanding and diluted loss per share is computed based on the average number of common and potential common shares outstanding using the



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treasury stock method. The calculation of diluted loss per share was the same as the calculation of basic loss per share
for the three months ended March 31, 2005 and 2006, since the inclusion of potential common stock in the computation would be antidilutive.

Antidilutive securities not included in diluted earnings per common share computation are as follows:



|                           |  |            |                  |      |   |                 
|-------------------------- |  | ---------- | ---------------- | ---- | - | ----------------
|                           |  | March, 31,
|                           |  | 2005       |                  | 2006
|Stock Options              |  |            | 2,068            |      |   | 2,114           
|                           |  |            |                  |      |   |                 
|Exercise Price             |  | $          | 6.17 to $ 15.00  |      | $ | 6.17 to $ 15.00 
|                           |  |            |                  |      |   |                 
|Warrants                   |  |            | 3,257            |      |   | 3,257           
|                           |  |            |                  |      |   |                 
|Exercise Price             |  | $          | 15.00            |      | $ | 15.00           
|                           |  |            |                  |      |   |                 
|Series A and B Notes       |  |            | 6,071            |      |   | 6,071           
|                           |  |            |                  |      |   |                 
|Conversion Price           |  | $          | 13.56 to $ 20.78 |      | $ | 13.56 to $ 20.78
|                           |  |            |                  |      |   |                 
|Shares of restricted stock |  |            | 50               |      |   |                
|                           |  |            |                  |      |   |                 

4. TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable, by operating subsidiaries, at December 31, 2005 and March 31, 2006, are summarized as follows:



|                                      |  |                  |         |   |               |   |         |  
|------------------------------------- |  | ---------------- | ------- | - | ------------- | - | ------- | -
|                                      |  | December 31,2005 |         |   | March 31,2006 |  
|IMPSAT Argentina                      |  | $                | 17,577  |   |               | $ | 17,831  |  
|IMPSAT Brazil                         |  |                  | 8,539   |   |               |   | 9,439   |  
|IMPSAT Colombia                       |  |                  | 4,342   |   |               |   | 4,673   |  
|IMPSAT Venezuela                      |  |                  | 7,366   |   |               |   | 7,879   |  
|All other countries                   |  |                  | 8,242   |   |               |   | 9,010   |  
|                                      |  |                  |         |   |               |   |         |  
|Total                                 |  |                  | 46,066  |   |               |   | 48,832  |  
|Less: allowance for doubtful accounts |  |                  | (10,254 | ) |               |   | (10,053 | )
|                                      |  |                  |         |   |               |   |         |  
|Trade accounts receivable, net        |  | $                | 35,812  |   |               | $ | 38,779  |  
|                                      |  |                  |         |   |               |   |         |  

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 is susceptible to changes in the Latin American economies and political climates. Prior to extending credit, the customer financial history is analyzed.



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The activity for the allowance for doubtful accounts for the year ended December 31, 2005 and the
three months ended March 31, 2006 are as follows:



|                                                            |  |                             |        |   |                                  |   |        |  
|----------------------------------------------------------- |  | --------------------------- | ------ | - | -------------------------------- | - | ------ | -
|                                                            |  | Year endedDecember 31, 2005 |        |   | Three monthsended March 31, 2006 |  
|Beginning balance                                           |  | $                           | 12,013 |   |                                  | $ | 10,254 |  
|Provision for (reversal of) allowance for doubtful accounts |  |                             | (1,062 | ) |                                  |   | 50     |  
|Net Write-offs                                              |  |                             | (253   | ) |                                  |   | (195   | )
|Effect of exchange rate change                              |  |                             | (444   | ) |                                  |   | (56    | )
|                                                            |  |                             |        |   |                                  |   |        |  
|Ending balance                                              |  | $                           | 10,254 |   |                                  | $ | 10,053 |  
|                                                            |  |                             |        |   |                                  |   |        |  

5. OTHER RECEIVABLES

Other receivables consist primarily of refunds or credits pending from local governments for taxes other than income, advances to suppliers and other miscellaneous amounts due to the Company and its operating
subsidiaries and are as follows at December 31, 2005 and March 31, 2006:



|                    |  |                  |        |               |   |       
|------------------- |  | ---------------- | ------ | ------------- | - | ------
|                    |  | December 31,2005 |        | March 31,2006
|IMPSAT Argentina    |  | $                | 419    |               | $ | 572   
|IMPSAT Brazil       |  |                  | 2,304  |               |   | 2,692 
|IMPSAT Colombia     |  |                  | 3,103  |               |   | 3,727 
|IMPSAT Venezuela    |  |                  | 3,076  |               |   | 2,332 
|All other countries |  |                  | 1,882  |               |   | 2,681 
|                    |  |                  |        |               |   |       
|Total               |  | $                | 10,784 |               | $ | 12,004
|                    |  |                  |        |               |   |       

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2005 and March 31, 2006 consist of:



|                                                 |  |                  |          |   |               |   |          |  
|------------------------------------------------ |  | ---------------- | -------- | - | ------------- | - | -------- | -
|                                                 |  | December 31,2005 |          |   | March 31,2006 |  
|Land                                             |  | $                | 10,109   |   |               | $ | 10,109   |  
|Building and improvements                        |  |                  | 38,100   |   |               |   | 38,717   |  
|Operating communications equipment               |  |                  | 229,032  |   |               |   | 239,084  |  
|Network infrastructure (including rights of way) |  |                  | 121,378  |   |               |   | 127,170  |  
|IRU investments                                  |  |                  | 22,118   |   |               |   | 23,227   |  
|Furniture, fixtures and other equipment          |  |                  | 17,617   |   |               |   | 18,331   |  
|                                                 |  |                  |          |   |               |   |          |  
|Total                                            |  |                  | 438,354  |   |               |   | 456,638  |  
|Less: accumulated depreciation                   |  |                  | (130,795 | ) |               |   | (147,222 | )
|                                                 |  |                  |          |   |               |   |          |  
|Total                                            |  |                  | 307,559  |   |               |   | 309,416  |  
|Equipment in transit                             |  |                  | 1,507    |   |               |   | 1,328    |  
|Construction in process                          |  |                  | 826      |   |               |   | 873      |  
|                                                 |  |                  |          |   |               |   |          |  
|Property, plant and equipment, net               |  | $                | 309,892  |   |               | $ | 311,617  |  
|                                                 |  |                  |          |   |               |   |          |  

The activity in accumulated depreciation for the year ended December 31, 2005 and the three months ended
March 31, 2006 are as follows:



|                          |  |                            |         |   |                                 |   |         |  
|------------------------- |  | -------------------------- | ------- | - | ------------------------------- | - | ------- | -
|                          |  | Year endedDecember 31,2005 |         |   | Three monthsended March 31,2006 |  
|Beginning balance         |  | $                          | 75,102  |   |                                 | $ | 130,795 |  
|Depreciation expense      |  |                            | 55,324  |   |                                 |   | 13,866  |  
|Exchange rate effects     |  |                            | 2,971   |   |                                 |   | 2,804   |  
|Disposals and retirements |  |                            | (2,602  | ) |                                 |   | (243    | )
|                          |  |                            |         |   |                                 |   |         |  
|Ending balance            |  | $                          | 130,795 |   |                                 | $ | 147,222 |  
|                          |  |                            |         |   |                                 |   |         |  



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##### Table of Contents

7. DEBT

Short-Term Debt-IMPSAT Brazil maintains short-term credit facilities denominated in local currency with local banks. The facilities bear interest at 1.75% to 1.97% per month. As of December 31, 2005 and March 31,
2006, the outstanding balance amounted to $2.2 million and $3.0 million, respectively. The credit facilities mature during July 2007.

Long-Term Debt-The Companys long-term debt at December 31, 2005 and March 31, 2006 is detailed as follows:



|                                                                                                                                        |  |                  |         |   |               |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------- | - | ------- | -
|                                                                                                                                        |  | December 31,2005 |         |   | March 31,2006 |  
|Series A 6% Senior Guaranteed Notes due 2011                                                                                            |  | $                | 67,308  |   |               | $ | 67,308  |  
|Series B 6% Senior Guaranteed Notes due 2011                                                                                            |  |                  | 25,595  |   |               |   | 25,595  |  
|Senior Secured Notes 12%, maturing 2009                                                                                                 |  |                  | 107,300 |   |               |   | 104,800 |  
|Senior Secured Notes 10%, maturing 2009                                                                                                 |  |                  | 5,918   |   |               |   | 5,071   |  
|Senior Notes issued by IMPSAT Colombia due 2008 and 2010 (interest rate 11.98%), collateralized by the assignment of customer
contracts |  |                  | 19,700  |   |               |   | 19,651  |  
|Term notes maturing through 2007; collateralized by buildings and equipment and the assignment of customer contracts; denominated
in:   |  |                  |         |   |               |   |         |  
|U.S. dollars (interest rates 4.40% to 11.11%)                                                                                           |  |                  | 2,161   |   |               |   | 2,196   |  
|Local currency (interest rates 10.41% to 10.87%)                                                                                        |  |                  | 8,035   |   |               |   | 7,924   |  
|Eximbank notes (interest rate 6.75%), maturing semiannually through 2007                                                                |  |                  | 1,853   |   |               |   | 1,389   |  
|Vendor financing (interest rates 7.65% to 8.9%)                                                                                         |  |                  | 8,065   |   |               |   | 8,077   |  
|                                                                                                                                        |  |                  |         |   |               |   |         |  
|Total long-term debt                                                                                                                    |  |                  | 245,935 |   |               |   | 242,011 |  
|Less: current portion including defaulted indebtedness                                                                                  |  |                  | (17,604 | ) |               |   | (25,222 | )
|                                                                                                                                        |  |                  |         |   |               |   |         |  
|Long-term debt, net                                                                                                                     |  | $                | 228,331 |   |               | $ | 216,789 |  
|                                                                                                                                        |  |                  |         |   |               |   |         |  

The Series A Notes, Series B Notes and Senior Secured Notes and some of the other term notes
contain certain covenants requiring the Holding Company and/or certain of its subsidiaries to maintain certain financial ratios, limiting the incurrence of additional indebtedness and capital expenditures, and restricting the ability to pay
dividends. As of March 31, 2006, the Company was in compliance with all of its debt covenants.

IMPSAT Argentina remains in default
under indebtedness owed to a creditor who voted against the Plan. Under the Plan, the claims of this creditor were a contingent obligation arising under a guarantee by the Holding Company of certain primary indebtedness of IMPSAT Argentina.
Notwithstanding the Holding Companys emergence from bankruptcy and the extinguishment of Holding Companys guarantee as a result, an event of default has occurred and is continuing with respect to the related primary underlying
indebtedness of IMPSAT Argentina. As a result of this default, which relates to vendor financing totaling approximately $7.6 million in outstanding principal amount as of December 31, 2005 and March 31, 2006, such indebtedness and accrued
interest thereon is due and payable. IMPSAT Argentina had been in discussions with the entity holding the indebtedness with a view to rescheduling or otherwise restructuring the defaulted debt obligation. The Company understands, however, that this
holder recently transferred the defaulted debt obligation to a entity holding the indebtedness with a view to rescheduling or otherwise restructuring the defaulted debt obligation. The Company is not in discussions with the new holder. If, IMPSAT
Argentina is unable to reschedule or restructure this indebtedness, IMPSAT Argentina could be forced to seek protection or liquidate under the bankruptcy laws of Argentina. There is no assurance that IMPSAT Argentina will reach a definitive
agreement with this holder to reschedule or restructure such obligations.

The Series A and Series B Notes are convertible into
approximately 4,964,000 and 1,107,000 shares of the Companys common stock at a conversion price of $13.56 and $20.78, respectively, as of March 31, 2006.

8. INCOME TAXES

The composition of the provision for income taxes, all of which is for foreign taxes, for the three months ended March 31, 2005 and 2006 is as follows:



|         |  |           |      |   |      |   |        |  
|-------- |  | --------- | ---- | - | ---- | - | ------ | -
|         |  | March 31, |     
|         |  | 2005      |      |   | 2006 |  
|Current  |  | $         | (324 | ) |      | $ | (492   | )
|Deferred |  |           | (398 | ) |      |   | (546   | )
|         |  |           |      |   |      |   |        |  
|Total    |  | $         | (722 | ) |      | $ | (1,038 | )
|         |  |           |      |   |      |   |        |  



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##### Table of Contents

The foreign statutory tax rates range from 15% to 35% depending on the particular country. Deferred taxes
result from temporary differences in revenue recognition, depreciation methods and net operating loss carryforwards.

The Company recorded
a valuation allowance to offset its deferred income tax asset as of March 31, 2006 because management cannot conclude that utilization of the tax benefits resulting from operating losses and the other temporary differences are more likely
than not to be realized, as required by SFAS 109.

The Company has reserved for tax contingencies totaling approximately $7.3 million
and $9.0 million as of December 31, 2005 and March 31, 2006, respectively, attributable primarily to its foreign subsidiaries tax return filings. These contingencies are for tax liabilities and related interest, as well as certain
tax positions taken on foreign tax returns for which the statutes remain open.

The Companys tax filings and reserves for the
contingencies described in the preceding paragraphs are subject to audit, and the respective taxing authorities may contest the information on which these tax filings are based and may make additional assessments beyond that which has already been
provided for.

The Company considers earnings relating to its foreign subsidiaries to be indefinitely reinvested outside of the United
States and, accordingly, no U.S. deferred income taxes have been recorded with respect to such earnings. Should the earnings be remitted as dividends, the Company may be subject to additional U.S. taxes, net of allowable foreign tax credits. The
Company has determined that it is not practicable to estimate the amount of any additional taxes which may be payable on the undistributed earnings.

9.
OPERATING SEGMENT INFORMATION

The Companys operating segment information, by subsidiary, is as follows for the three months ended
March 31, 2005 and 2006.



|                        |  |           |         |        |         |   |          |        |           |        |                    |        |   |              |         |   |       |   |         |  
|----------------------- |  | --------- | ------- | ------ | ------- | - | -------- | ------ | --------- | ------ | ------------------ | ------ | - | ------------ | ------- | - | ----- | - | ------- | -
|2005                    |  | Argentina |         | Brazil |         |   | Colombia |        | Venezuela |        | All othercountries |        |   | Eliminations |         |   | Total |  
|Net Revenues            |  |           |         |        |         |   |          |        |           |        |                    |        |   |              |         |   |       |   |         |  
|Satellite and Broadband |  | $         | 8,183   |        | 6,706   |   |          | 12,034 |           | 6,948  |                    | 12,277 |   |              | (4,359  | ) |       | $ | 41,789  |  
|Internet                |  |           | 1,880   |        | 1,131   |   |          | 1,390  |           | 645    |                    | 3,324  |   |              | (1,439  | ) |       |   | 6,931   |  
|Value added services    |  |           | 3,634   |        | 1,831   |   |          | 721    |           | 542    |                    | 894    |   |              | (2,482  | ) |       |   | 5,140   |  
|Telephony               |  |           | 4,358   |        | 400     |   |          | 66     |           |        |                    | 3,371  |   |              | (2,267  | ) |       |   | 5,928   |  
|Sales of equipment      |  |           | 10      |        |         |   |          | 13     |           | 61     |                    |        |   |              |         |   |       |   | 84      |  
|                        |  |           |         |        |         |   |          |        |           |        |                    |        |   |              |         |   |       |   |         |  
|Total net revenues      |  | $         | 18,065  |        | 10,068  |   |          | 14,224 |           | 8,196  |                    | 19,866 |   |              | (10,547 | ) |       | $ | 59,872  |  
|                        |  |           |         |        |         |   |          |        |           |        |                    |        |   |              |         |   |       |   |         |  
|Operating income (loss) |  | $         | 284     |        | (1,320  | ) |          | 346    |           | 2,297  |                    | (2,999 | ) |              |         |   |       | $ | (1,392  | )
|                        |  |           |         |        |         |   |          |        |           |        |                    |        |   |              |         |   |       |   |         |  
|Total assets            |  | $         | 120,076 |        | 112,274 |   |          | 74,284 |           | 55,432 |                    | 61,664 |   |              |         |   |       | $ | 423,730 |  
|                        |  |           |         |        |         |   |          |        |           |        |                    |        |   |              |         |   |       |   |         |  
|                        |  |           |         |        |         |   |         
|2006                    |  | Argentina |         | Brazil |         |   | Colombia |        | Venezuela |        | All othercountries |        |   | Eliminations |         |   | Total |  
|Net Revenues            |  |           |         |        |         |   |          |        |           |        |                    |        |   |              |         |   |       |   |         |  
|Satellite and Broadband |  | $         | 8,460   |        | 8,912   |   |          | 12,798 |           | 6,517  |                    | 12,580 |   |              | (4,593  | ) |       | $ | 44,674  |  
|Internet                |  |           | 2,207   |        | 1,709   |   |          | 1,715  |           | 755    |                    | 3,825  |   |              | (1,595  | ) |       |   | 8,616   |  
|Value added services    |  |           | 3,611   |        | 3,809   |   |          | 1,706  |           | 678    |                    | 1,220  |   |              | (2,995  | ) |       |   | 8,029   |  
|Telephony               |  |           | 4,313   |        | 606     |   |          | 17     |           |        |                    | 3,038  |   |              | (1,607  | ) |       |   | 6,367   |  
|Sales of equipment      |  |           | 55      |        | 638     |   |          | 177    |           | 2      |                    |        |   |              |         |   |       |   | 872     |  
|                        |  |           |         |        |         |   |          |        |           |        |                    |        |   |              |         |   |       |   |         |  
|Total net revenues      |  | $         | 18,646  |        | 15,674  |   |          | 16,413 |           | 7,952  |                    | 20,663 |   |              | (10,790 | ) |       | $ | 68,558  |  
|                        |  |           |         |        |         |   |          |        |           |        |                    |        |   |              |         |   |       |   |         |  
|Operating income (loss) |  | $         | 705     |        | 431     |   |          | 1,415  |           | 2,366  |                    | (3,234 | ) |              |         |   |       | $ | 1,683   |  
|                        |  |           |         |        |         |   |          |        |           |        |                    |        |   |              |         |   |       |   |         |  
|Total assets            |  | $         | 122,550 |        | 134,804 |   |          | 68,426 |           | 60,974 |                    | 17,070 |   |              |         |   |       | $ | 403,824 |  
|                        |  |           |         |        |         |   |          |        |           |        |                    |        |   |              |         |   |       |   |         |  



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10. STOCKHOLDERS EQUITY

Restricted Stock  During March 2003, the Holding Company granted certain officers 200,000 shares of the Companys new common stock. These shares vest in one-quarter increments on the date of
grant and on each of the successive first three anniversaries of the date of grant (but, in each case, only if the executive is still employed with the Company on such respective date).

In connection with the restricted stock grant above, the Holding Company recorded approximately $1.3 million in stockholders equity as deferred
compensation. The deferred compensation is being amortized to expense over the vesting period. Amortization for 2004 and 2005 was $440 per year.

Warrants  During 2003, the Holding Company issued 3,257,178 eight-year warrants to acquire the Holding Companys stock at $15.00 per share. As of March 31, 2006, all the warrants remain outstanding.

11. MANAGEMENT INCENTIVE PLAN

On
December 28, 2005, the compensation committee of the Board of Directors of the Holding Company approved the adoption of the IMPSAT Fiber Networks, Inc. Management Incentive Plan (the MIP), and the granting of awards thereunder to
executive officers of the Company pursuant to retention agreements. The MIP was adopted as part of the Companys ongoing, periodic review of its compensation and benefits programs and in recognition of the importance to the Company and its
stockholders of avoiding the loss of key management personnel. The MIP is administered by the compensation committee, which may designate any employee of the Company as a participant. There are presently seven participants in the plan, all of whom
are executive officers of the Company.

The MIP provides that participants may receive a cash incentive payment (the Award),
the amount of which will be determined on the earlier of December 31, 2008, or the closing date of a change in control transaction of the Holding Company, and which will be paid within 30 days of December 31, 2008, or, if earlier, on the
closing date of a change in control transaction of the Holding Company.

If the amount of the Award is determined on December 31,
2008, the compensation committee will have the sole and absolute discretion to determine the amount, if any, of any payment made under the MIP, but the total value of all Awards under the MIP may not exceed the product of $1,650,000 and the amount
by which the per-share price of the Holding Companys common stock exceeds $7.00, based on the average closing prices during the thirty-day period ending on such date.

If the amount of the Award is determined on the closing date of a change in control transaction, each participant will receive an Award equal to the
participants allocated percentage of a bonus pool, the value of which will be equal to $1,650,000 multiplied by the amount by which the per-share price of the Holding Companys common stock exceeds $7.00, based on the price per share paid
for the Holding Companys common stock in the transaction. A change in control for purposes of the plan generally consists of either an acquisition of more than 30% of the Holding Companys voting securities (other than by a
holder of 5% or more of the Holding Companys fully-diluted common stock on the effective date of the MIP), which represents a greater percentage than is held in the aggregate by the Holding Companys existing stockholders, or the current
Board members (and their approved successors) ceasing to constitute a majority of the Board or, if applicable, the board of directors of a successor to the Company.

If a participant terminates his or her employment or is terminated by the Company for cause prior to the date the Award vests, the participant will not be entitled to an incentive payment. If a participants
employment with the Company is terminated prior to the date the Award vests by reason of death, disability, or a termination without cause by the Company, the incentive payment will be made to the participant or his or her estate on the applicable
payment date.

The MIP will expire on the earlier of the date of payment of the Awards or January 31, 2009, at which time all benefits
under the MIP will have been paid.

As of December 31, 2005 and March 31, 2006, no amounts have been accrued
under the MIP.

12. COMMITMENTS AND CONTINGENCIES

Commitments  The Company leases satellite capacity with average annual rental commitments of approximately $10.4 million through 2009 under non-cancelable agreements. In addition, the Company has
committed to long-term contracts for the purchase of satellite and terrestrial links from third parties for approximately $14.4 million and $13.8 million through 2015 and 2009, respectively. The Company has commitments to purchase communications and
data center equipment amounting to approximately $6.1 million at March 31, 2006.



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##### Table of Contents

The Holding Company is a guarantor of the Senior Secured Notes issued by its subsidiaries and other
financing agreements entered by certain of its subsidiaries. At March 31, 2006, the aggregate balance outstanding that has been guaranteed by the Holding Company was approximately $109.9 million (see Note 7).

The Company maintains commercial insurance policies which serve to guarantee certain of the Companys performance obligations for services under
some public and private contract bids which total approximately $47.7 million as of March 31, 2006.

Employment
Agreements  The Company entered into employment agreements with two of its senior executives which provide for a three year term (subject to recurrent automatic one year renewals). Under such agreements, the base salary of these
executives amounts to approximately $0.8 million per year. These agreements were to expire on March 25, 2006, but have each been automatically extended for one year pursuant to the terms of the agreements.

IPO Allocations Class Action  On November 1, 2001, a lawsuit (the IPO Class Action) was filed in the United States
District Court for the Southern District of New York against the Holding Company, certain individuals who were then officers and directors of the Company, and the underwriters to the Holding Companys initial public offering (IPO).
This lawsuit alleges on behalf of a proposed class of all shareholders that the Holding Company and its underwriters violated various provisions of the securities laws in connection with the IPO in February 2000. Pursuant to the Plan, the plaintiffs
in the IPO Class Action received in connection with their claims the assignment of any insurance proceeds that the Holding Company receives in connection with the litigation, but otherwise the claims of the plaintiffs against the Holding Company or
any of its other assets, have been discharged as part of the Chapter 11 proceedings.

Pursuant to a court order in August 2001, the IPO Class Action was
consolidated for all pre-trial purposes in In re Initial Public Offering Securities Litigation, 21 MC 92, an intra-district proceeding involving approximately 900 lawsuits relating to the initial public offerings of approximately 310
companies. In July 2002, the Holding Company and the other defendants filed a motion to dismiss, which was denied as to the Holding Company and one individual officer in February 2003. In April 2003, the Holding Company was advised that global
settlement discussions between the plaintiffs and the Holding Companys insurer (on behalf of the Holding Company and the individual defendants) to resolve plaintiffs claims against all 310 companies had reached an advanced stage. Among
other things, the proposed settlement would result in a broad release of claims against the Holding Company, its officers and directors, and other issuers, and their officers and directors without a direct financial contribution by the Holding
Company. Settlement papers seeking preliminary approval of the settlement and certification of the investor class were submitted to the court in June 2004. In February 2005, the court granted preliminary approval for a proposal settlement. Final
approval of the settlement is pending.

Employee Severance Litigation  On December 26, 2003, a lawsuit was filed
in an Argentine court against IMPSAT Argentina by the former chairman of the Companys board of directors, Mr. Enrique Pescarmona. This lawsuit alleged that IMPSAT Argentina failed to pay Mr. Pescarmona severance compensation in the
amount of $2.9 million which the plaintiff believes is required by Argentine labor law in connection with his termination from the Company upon the effectiveness of the Plan. Discovery is currently ongoing. The Company believes that it has
meritorious defenses to the allegations in the complaints and is defending the litigation vigorously.

Other Litigation
 The Company is involved in or subject to various litigation and legal proceedings incidental to the normal conduct of its business, including with respect to regulatory and foreign tax assessment matters. 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.

13. GUARANTOR FINANCIAL INFORMATION

The financial information of IMPSAT Argentina, a guarantor
subsidiary of the Holding Companys Series A 6% Senior Guaranteed Notes due 2011 and Series B 6% Senior Guaranteed Notes due 2011, as of December 31, 2005 and March 31, 2006 and for the three months ended March 31, 2005 and 2006
is shown in a separate column in the accompanying consolidating financial information, as follows:



18



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##### Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2005

(In thousands of U.S. Dollars)



|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|------------------------------------ |  | -------------- | ------- | -------------------------- | - | ------------------------- |  | ------------------------ | ------- |  | ------------ | -------- | - |  | - | -------
|                                     |  | HoldingCompany |         | IMPSATArgentina(Guarantor) |   | Non-GuarantorSubsidiaries |  | IntercompanyEliminations |         |  | Consolidated
|ASSETS                               |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|CURRENT ASSETS:                      |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Cash and cash equivalents            |  | $              | 1,026   |                            | $ | 3,300                     |  | $                        | 19,744  |  |              |          |   |  | $ | 24,070 
|Trade accounts receivable, net       |  |                |         |                            |   | 12,169                    |  |                          | 23,643  |  |              |          |   |  |   | 35,812 
|Other receivables                    |  |                |        |                            |   | 32,722                    |  |                          | 50,896  |  | $            | (72,834  | ) |  |   | 10,784 
|Prepaid expenses                     |  |                | 203     |                            |   | 526                       |  |                          | 2,333   |  |              | (238     | ) |  |   | 2,824  
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total current assets                 |  |                | 1,229   |                            |   | 48,717                    |  |                          | 96,616  |  |              | (73,072  | ) |  |   | 73,490 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|PROPERTY, PLANT AND EQUIPMENT, Net   |  |                |         |                            |   | 68,242                    |  |                          | 241,650 |  |              |          |   |  |   | 309,892
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|NON-CURRENT ASSETS:                  |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Investments                          |  |                | 50,108  |                            |   |                           |  |                          |         |  |              | (50,108  | ) |  |   |        
|Other non-current assets             |  |                | 109,883 |                            |   | 6,951                     |  |                          | 9,206   |  |              | (109,879 | ) |  |   | 16,161 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total non-current assets             |  |                | 159,991 |                            |   | 6,951                     |  |                          | 9,206   |  |              | (159,987 | ) |  |   | 16,161 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|TOTAL                                |  | $              | 161,220 |                            | $ | 123,910                   |  | $                        | 347,472 |  | $            | (233,059 | ) |  | $ | 399,543
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|CURRENT LIABILITIES:                 |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Accounts payable  trade             |  | $              | 22,913  |                            | $ | 23,995                    |  | $                        | 64,088  |  | $            | (64,916  | ) |  | $ | 46,080 
|Short-term debt                      |  |                |         |                            |   |                           |  |                          | 2,168   |  |              |          |   |  |   | 2,168  
|Current portion of long-term debt    |  |                |         |                            |   | 9,308                     |  |                          | 8,296   |  |              |          |   |  |   | 17,604 
|Interest Payable                     |  |                | 1,626   |                            |   | 5,989                     |  |                          | 10,304  |  |              | (7,466   | ) |  |   | 10,453 
|Accrued and other liabilities        |  |                | 33      |                            |   | 9,739                     |  |                          | 34,045  |  |              | (8,950   | ) |  |   | 34,867 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total current liabilities            |  |                | 24,572  |                            |   | 49,031                    |  |                          | 118,901 |  |              | (81,332  | ) |  |   | 111,172
|LONG-TERM DEBT, Net                  |  |                | 92,903  |                            |   | 42,876                    |  |                          | 92,552  |  |              |          |   |  |   | 228,331
|OTHER LONG-TERM LIABILITIES          |  |                |         |                            |   | 18,589                    |  |                          | 99,321  |  |              | (101,615 | ) |  |   | 16,295 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total liabilities                    |  |                | 117,475 |                            |   | 110,496                   |  |                          | 310,774 |  |              | (182,947 | ) |  |   | 355,798
|STOCKHOLDERS EQUITY                 |  |                | 43,745  |                            |   | 13,414                    |  |                          | 36,698  |  |              | (50,112  | ) |  |   | 43,745 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|TOTAL                                |  | $              | 161,220 |                            | $ | 123,910                   |  | $                        | 347,472 |  | $            | (233,059 | ) |  | $ | 399,543
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        



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##### Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2006

(In thousands of U.S. Dollars)



|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|------------------------------------ |  | -------------- | ------- | -------------------------- | - | ------------------------- |  | ------------------------ | ------- |  | ------------ | -------- | - |  | - | -------
|                                     |  | HoldingCompany |         | IMPSATArgentina(Guarantor) |   | Non-GuarantorSubsidiaries |  | IntercompanyEliminations |         |  | Consolidated
|ASSETS                               |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|CURRENT ASSETS:                      |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Cash and cash equivalents            |  | $              | 1,377   |                            | $ | 2,093                     |  | $                        | 18,012  |  |              |          |   |  | $ | 21,482 
|Trade accounts receivable, net       |  |                |         |                            |   | 12,495                    |  |                          | 26,284  |  |              |          |   |  |   | 38,779 
|Other receivables                    |  |                | 7,898   |                            |   | 33,979                    |  |                          | 55,603  |  | $            | (85,476  | ) |  |   | 12,004 
|Prepaid expenses                     |  |                | 81      |                            |   | 522                       |  |                          | 2,521   |  |              | (237     | ) |  |   | 2,887  
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total current assets                 |  |                | 9,356   |                            |   | 49,089                    |  |                          | 102,420 |  |              | (85,713  | ) |  |   | 75,152 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|PROPERTY, PLANT AND EQUIPMENT, Net   |  |                |         |                            |   | 66,249                    |  |                          | 245,368 |  |              |          |   |  |   | 311,617
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|NON-CURRENT ASSETS:                  |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Investments                          |  |                | 53,915  |                            |   |                           |  |                          |         |  |              | (53,915  | ) |  |   |        
|Other non-current assets             |  |                | 110,955 |                            |   | 7,212                     |  |                          | 16,843  |  |              | (117,955 | ) |  |   | 17,055 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total non-current assets             |  |                | 164,870 |                            |   | 7,212                     |  |                          | 16,843  |  |              | (171,870 | ) |  |   | 17,055 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|TOTAL                                |  | $              | 174,226 |                            | $ | 122,550                   |  | $                        | 364,631 |  | $            | (257,583 | ) |  | $ | 403,824
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|CURRENT LIABILITIES:                 |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Accounts payable  trade             |  | $              | 30,256  |                            | $ | 22,110                    |  | $                        | 59,859  |  | $            | (65,053  | ) |  | $ | 47,172 
|Short-term debt                      |  |                |         |                            |   |                           |  |                          | 3,003   |  |              |          |   |  |   | 3,003  
|Current portion of long-term debt    |  |                |         |                            |   | 9,309                     |  |                          | 15,913  |  |              |          |   |  |   | 25,222 
|Current portion of deferred revenue  |  |                |         |                            |   |                           |  |                          | 395     |  |              |          |   |  |   | 395    
|Interest Payable                     |  |                | 257     |                            |   | 2,778                     |  |                          | 7,040   |  |              | (6,774   | ) |  |   | 3,301  
|Accrued and other liabilities        |  |                | 41      |                            |   | 12,820                    |  |                          | 40,358  |  |              | (13,705  | ) |  |   | 39,514 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total current liabilities            |  |                | 30,554  |                            |   | 47,017                    |  |                          | 126,568 |  |              | (85,532  | ) |  |   | 118,607
|LONG-TERM DEBT, Net                  |  |                | 92,903  |                            |   | 42,062                    |  |                          | 81,824  |  |              |          |   |  |   | 216,789
|DEFERRED REVENUES, Net               |  |                |         |                            |   |                           |  |                          | 7,510   |  |              |          |   |  |   | 7,510  
|OTHER LONG-TERM LIABILITIES          |  |                | 7,000   |                            |   | 21,931                    |  |                          | 106,353 |  |              | (118,135 | ) |  |   | 17,149 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total liabilities                    |  |                | 130,457 |                            |   | 111,010                   |  |                          | 322,255 |  |              | (203,667 | ) |  |   | 360,055
|STOCKHOLDERS EQUITY                 |  |                | 43,769  |                            |   | 11,540                    |  |                          | 42,376  |  |              | (53,916  | ) |  |   | 43,769 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|TOTAL                                |  | $              | 174,226 |                            | $ | 122,550                   |  | $                        | 364,631 |  | $            | (257,583 | ) |  | $ | 403,824
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        



20



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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2005

(In thousands of U.S. Dollars)



|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|----------------------------------- |  | --------------- | ------ | - | ---------------------------- | - | ------ | -------------------------- |  | - | ------------------------- | - |  | ------------ | ------- | - |  | - | ------ | -
|                                    |  | Holding Company |        |   | IMPSAT Argentina (Guarantor) |   |        | Non-Guarantor Subsidiaries |  |   | Intercompany Eliminations |   |  | Consolidated |        
|NET REVENUES:                       |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Broadband and satellite             |  |                 |        |   |                              | $ | 8,183  |                            |  | $ | 37,965                    |   |  | $            | (4,359  | ) |  | $ | 41,789 |  
|Internet                            |  |                 |        |   |                              |   | 1,880  |                            |  |   | 6,490                     |   |  |              | (1,439  | ) |  |   | 6,931  |  
|Value added services                |  |                 |        |   |                              |   | 3,634  |                            |  |   | 3,988                     |   |  |              | (2,482  | ) |  |   | 5,140  |  
|Telephony                           |  |                 |        |   |                              |   | 4,358  |                            |  |   | 3,837                     |   |  |              | (2,267  | ) |  |   | 5,928  |  
|Sales of equipment                  |  |                 |        |   |                              |   | 10     |                            |  |   | 74                        |   |  |              |         |   |  |   | 84     |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Total net revenues                  |  |                 |        |   |                              |   | 18,065 |                            |  |   | 52,354                    |   |  |              | (10,547 | ) |  |   | 59,872 |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|COSTS AND EXPENSES:                 |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Direct costs:                       |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Contracted services                 |  |                 |        |   |                              |   | 2,283  |                            |  |   | 4,873                     |   |  |              | (1,940  | ) |  |   | 5,216  |  
|Other direct costs                  |  |                 |        |   |                              |   | 2,384  |                            |  |   | 5,075                     |   |  |              |         |   |  |   | 7,459  |  
|Leased capacity                     |  |                 |        |   |                              |   | 5,870  |                            |  |   | 18,561                    |   |  |              | (6,206  | ) |  |   | 18,225 |  
|Cost of equipment sold              |  |                 |        |   |                              |   | 7      |                            |  |   | 99                        |   |  |              |         |   |  |   | 106    |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Total direct costs                  |  |                 |        |   |                              |   | 10,544 |                            |  |   | 28,608                    |   |  |              | (8,146  | ) |  |   | 31,006 |  
|Salaries and wages                  |  | $               | 440    |   |                              |   | 3,167  |                            |  |   | 9,363                     |   |  |              |         |   |  |   | 12,970 |  
|Selling, general and administrative |  |                 | 2,873  |   |                              |   | 1,593  |                            |  |   | 3,197                     |   |  |              | (2,401  | ) |  |   | 5,262  |  
|Depreciation and amortization       |  |                 |        |   |                              |   | 2,478  |                            |  |   | 9,548                     |   |  |              |         |   |  |   | 12,026 |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Total costs and expenses            |  |                 | 3,313  |   |                              |   | 17,782 |                            |  |   | 50,716                    |   |  |              | (10,547 | ) |  |   | 61,264 |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Operating (loss) income             |  |                 | (3,313 | ) |                              |   | 283    |                            |  |   | 1,638                     |   |  |              |         |   |  |   | (1,392 | )
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|OTHER INCOME (EXPENSES):            |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Interest income                     |  |                 | 1,558  |   |                              |   | 18     |                            |  |   | (1,273                    | ) |  |              |         |   |  |   | 303    |  
|Interest expense                    |  |                 | (1,381 | ) |                              |   | (1,484 | )                          |  |   | (2,619                    | ) |  |              |         |   |  |   | (5,484 | )
|Net gain (loss) on foreign exchange |  |                 | 5      |   |                              |   | (185   | )                          |  |   | (460                      | ) |  |              |         |   |  |   | (640   | )
|Equity in income of affiliates      |  |                 | (4,850 | ) |                              |   |        |                            |  |   | (1,954                    | ) |  |              | 6,804   |   |  |   |        |  
|Other (loss) income net             |  |                 | (243   | ) |                              |   | 30     |                            |  |   | (76                       | ) |  |              |         |   |  |   | (289   | )
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Total other (expenses) income       |  |                 | (4,911 | ) |                              |   | (1,621 | )                          |  |   | (6,382                    | ) |  |              | 6,804   |   |  |   | (6,110 | )
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|(LOSS) INCOME BEFORE INCOME TAXES   |  |                 | (8,224 | ) |                              |   | (1,338 | )                          |  |   | (4,744                    | ) |  |              | 6,804   |   |  |   | (7,502 | )
|PROVISION FOR FOREIGN INCOME TAXES  |  |                 |        |   |                              |   |        |                            |  |   | (722                      | ) |  |              |         |   |  |   | (722   | )
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|NET LOSS                            |  | $               | (8,224 | ) |                              | $ | (1,338 | )                          |  | $ | (5,466                    | ) |  | $            | 6,804   |   |  | $ | (8,224 | )
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  



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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE MONTHS ENDED MARCH 31, 2006

(In thousands of U.S. Dollars)



|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|----------------------------------- |  | --------------- | ------ | - | ---------------------------- | - | ------ | -------------------------- |  | - | ------------------------- | - |  | ------------ | ------- | - |  | - | ------ | -
|                                    |  | Holding Company |        |   | IMPSAT Argentina (Guarantor) |   |        | Non-Guarantor Subsidiaries |  |   | Intercompany Eliminations |   |  | Consolidated |        
|NET REVENUES:                       |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Broadband and satellite             |  |                 |        |   |                              | $ | 8,460  |                            |  | $ | 40,807                    |   |  | $            | (4,593  | ) |  | $ | 44,674 |  
|Internet                            |  |                 |        |   |                              |   | 2,207  |                            |  |   | 8,004                     |   |  |              | (1,595  | ) |  |   | 8,616  |  
|Value added services                |  |                 |        |   |                              |   | 3,611  |                            |  |   | 7,413                     |   |  |              | (2,995  | ) |  |   | 8,029  |  
|Telephony                           |  |                 |        |   |                              |   | 4,313  |                            |  |   | 3,661                     |   |  |              | (1,607  | ) |  |   | 6,367  |  
|Sales of equipment                  |  |                 |        |   |                              |   | 55     |                            |  |   | 817                       |   |  |              |         |   |  |   | 872    |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Total net revenues                  |  |                 |        |   |                              |   | 18,646 |                            |  |   | 60,702                    |   |  |              | (10,790 | ) |  |   | 68,558 |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|COSTS AND EXPENSES:                 |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Direct costs:                       |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Contracted services                 |  |                 |        |   |                              |   | 2,154  |                            |  |   | 6,003                     |   |  |              | (2,499  | ) |  |   | 5,658  |  
|Other direct costs                  |  |                 |        |   |                              |   | 2,334  |                            |  |   | 6,675                     |   |  |              | (367    | ) |  |   | 8,642  |  
|Leased capacity                     |  |                 |        |   |                              |   | 5,417  |                            |  |   | 18,576                    |   |  |              | (5,390  | ) |  |   | 18,603 |  
|Cost of equipment sold              |  |                 |        |   |                              |   | 32     |                            |  |   | 279                       |   |  |              |         |   |  |   | 311    |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Total direct costs                  |  |                 |        |   |                              |   | 9,937  |                            |  |   | 31,533                    |   |  |              | (8,256  | ) |  |   | 33,214 |  
|Salaries and wages                  |  | $               | 606    |   |                              |   | 3,408  |                            |  |   | 10,292                    |   |  |              |         |   |  |   | 14,306 |  
|Selling, general and administrative |  |                 | 2,963  |   |                              |   | 1,539  |                            |  |   | 3,521                     |   |  |              | (2,534  | ) |  |   | 5,489  |  
|Depreciation and amortization       |  |                 |        |   |                              |   | 3,057  |                            |  |   | 10,809                    |   |  |              |         |   |  |   | 13,866 |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Total costs and expenses            |  |                 | 3,569  |   |                              |   | 17,941 |                            |  |   | 56,155                    |   |  |              | (10,790 | ) |  |   | 66,875 |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Operating (loss) income             |  |                 | (3,569 | ) |                              |   | 705    |                            |  |   | 4,547                     |   |  |              |         |   |  |   | 1,683  |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|OTHER INCOME (EXPENSES):            |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Interest income                     |  |                 | 1,260  |   |                              |   | 18     |                            |  |   | (1,044                    | ) |  |              |         |   |  |   | 234    |  
|Interest expense                    |  |                 | (1,620 | ) |                              |   | (2,525 | )                          |  |   | (6,027                    | ) |  |              | 1,357   |   |  |   | (8,815 | )
|Net (loss) gain on foreign exchange |  |                 |        |   |                              |   | (69    | )                          |  |   | 6,585                     |   |  |              |         |   |  |   | 6,516  |  
|Equity in income of affiliates      |  |                 | 2,101  |   |                              |   |        |                            |  |   | 2,240                     |   |  |              | (4,341  | ) |  |   |        |  
|Other (loss) income net             |  |                 | (458   | ) |                              |   | (2     | )                          |  |   | (406                      | ) |  |              |         |   |  |   | (866   | )
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Total other (expenses) income       |  |                 | 1,283  |   |                              |   | (2,578 | )                          |  |   | 1,348                     |   |  |              | (2,984  | ) |  |   | (2,931 | )
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|(LOSS) INCOME BEFORE INCOME TAXES   |  |                 | (2,286 | ) |                              |   | (1,873 | )                          |  |   | 5,895                     |   |  |              | (2,984  | ) |  |   | (1,248 | )
|PROVISION FOR FOREIGN INCOME TAXES  |  |                 |        |   |                              |   |        |                            |  |   | (1,038                    | ) |  |              |         |   |  |   | (1,038 | )
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|NET LOSS                            |  | $               | (2,286 | ) |                              | $ | (1,873 | )                          |  | $ | 4,857                     |   |  | $            | (2,984  | ) |  | $ | (2,286 | )
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  



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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2005

(In thousands of U.S. Dollars)



|                                                            |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |                        |        |   |  |   |         |  
|----------------------------------------------------------- |  | --------------- | ------- | - | ---------------------------- | - | ------ | -------------------------- |  | - | ------------------------- | - |  | ---------------------- | ------ | - |  | - | ------- | -
|                                                            |  | Holding Company |         |   | IMPSAT Argentina (Guarantor) |   |        | Non-Guarantor Subsidiaries |  |   | Intercompany Eliminations |   |  | Condensed consolidated |       
|Cash flows provided by (used in) operating activities       |  | $               | (343    | ) |                              | $ | 5,643  |                            |  | $ | 9,091                     |   |  | $                      | (8,850 | ) |  | $ | 5,541   |  
|Cash flows provided by (used in) investing activities       |  |                 | (14,939 | ) |                              |   | (2,326 | )                          |  |   | 112                       |   |  |                        | 8,850  |   |  |   | (8,303  | )
|Cash flows provided by (used in) financing activities       |  |                 |         |   |                              |   | (6,380 | )                          |  |   | (13,214                   | ) |  |                        |        |   |  |   | (19,594 | )
|Effect of exchange rate change on cash and cash equivalents |  |                 | 175     |   |                              |   |        |                            |  |   | (100                      | ) |  |                        |        |   |  |   | 75      |  
|                                                            |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |                        |        |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents        |  |                 | (15,107 | ) |                              |   | (3,063 | )                          |  |   | (4,111                    | ) |  |                        |       |   |  |   | (22,281 | )
|Cash and cash equivalents at beginning of the period        |  |                 | 39,775  |   |                              |   | 3,835  |                            |  |   | 20,045                    |   |  |                        |        |   |  |   | 63,655  |  
|                                                            |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |                        |        |   |  |   |         |  
|Cash and cash equivalents at end of the period              |  | $               | 24,668  |   |                              | $ | 772    |                            |  | $ | 15,934                    |   |  | $                      |       |   |  | $ | 41,374  |  
|                                                            |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |                        |        |   |  |   |         |  

CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2006



|                                                            |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|----------------------------------------------------------- |  | --------------- | ------ | - | ---------------------------- | - | ------ | -------------------------- |  | - | ------------------------- | - |  | ------------ | ------- | - |  | - | ------ | -
|                                                            |  | Holding Company |        |   | IMPSAT Argentina (Guarantor) |   |        | Non-Guarantor Subsidiaries |  |   | Intercompany Eliminations |   |  | Consolidated |        
|Cash flows provided by (used in) operating activities       |  | $               | (5,142 | ) |                              | $ | (1,966 | )                          |  | $ | 86,334                    |   |  | $            | (71,588 | ) |  | $ | 7,638  |  
|Cash flows provided by (used in) investing activities       |  |                 |        |   |                              |   | (1,083 | )                          |  |   | (6,066                    | ) |  |              |         |   |  |   | (7,149 | )
|Cash flows provided by (used in) financing activities       |  |                 | 3,789  |   |                              |   | 1,842  |                            |  |   | (80,312                   | ) |  |              | 71,588  |   |  |   | (3,093 | )
|Effect of exchange rate change on cash and cash equivalents |  |                 | 1,704  |   |                              |   |        |                            |  |   | (1,688                    | ) |  |              |         |   |  |   | 16     |  
|                                                            |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Net increase (decrease) in cash and cash equivalents        |  |                 | 351    |   |                              |   | (1,207 | )                          |  |   | (1,732                    | ) |  |              |         |   |  |   | (2,588 | )
|Cash and cash equivalents at beginning of the period        |  |                 | 1,026  |   |                              |   | 3,300  |                            |  |   | 19,744                    |   |  |              |         |   |  |   | 24,070 |  
|                                                            |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  
|Cash and cash equivalents at end of the period              |  | $               | 1,377  |   |                              | $ | 2,093  |                            |  | $ | 18,012                    |   |  | $            |        |   |  | $ | 21,482 |  
|                                                            |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |        |  



23



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##### Table of Contents

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a provider of private telecommunications network and Internet services. We offer integrated data, voice, data center and
Internet solutions, with an emphasis on broadband transmission, for national and multinational companies, financial institutions, governmental agencies and other business customers. We have operations in Argentina, Colombia, Brazil, Venezuela,
Ecuador, Chile, Peru and the United States and also provide our services in other countries in Latin America and the Caribbean. We provide telecommunications, data center and Internet services through our networks, which consist of owned fiber optic
and wireless links, teleports, data centers, earth stations and leased fiber optic and satellite links.

In this Report,
company, IMPSAT, we, us and our refer to IMPSAT Fiber Networks, Inc. and its subsidiaries.

The following discussion should be read along with the unaudited condensed consolidated financial statements included in this Form 10-Q, as well as our 2005 Annual Report on Form 10-K filed with the Securities and
Exchange Commission (SEC), which provides a more thorough discussion of our services, industry outlook, risk factors and business trends.

Reorganization

As previously disclosed in our filings with the Securities and Exchange Commission (the
SEC), we filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York on June 11, 2002 (the Bankruptcy Case).
We subsequently filed our Plan of Reorganization in the Bankruptcy Case, which Plan was confirmed in the Bankruptcy Case and became effective on March 25, 2003, at which time we emerged from bankruptcy. Pursuant to the Plan, we substantially
reduced our outstanding debt and annual interest expense and increased our liquidity. At December 31, 2002, prior to the effectiveness of the Plan, our long-term debt, including current maturities and estimated liabilities subject to the
Chapter 11 proceeding, aggregated approximately $1.09 billion. As of March 31, 2003, upon the effectiveness of the Plan, our total indebtedness was reduced to approximately $267.5 million, and our cash, cash equivalents and trading investments
totaled approximately $61.9 million.

Revenues

Our contracts with our customers have in the past typically ranged in duration from six months to five years and have generally been three-year contracts. Under the Argentine pesification decree described
below under Item 3: Quantitative and Qualitative Disclosures about Market Risk  Foreign Currency Risk, if a contract denominated in pesos is entered into after the decrees enactment, payments under that contract are not
entitled to be adjusted by any price or related index. Accordingly, in order to mitigate our inflation risk, our peso-denominated contracts in Argentina are typically for shorter terms ranging from three to six months. The customer generally pays an
installation charge at the beginning of the contract and a monthly fee based on the quantity and type of equipment installed. Except in Argentina and Brazil, the fees stipulated in the majority of our contracts with customers are denominated in U.S.
dollar or U.S dollar equivalents. Services (other than installation fees) are billed on a monthly, predetermined basis, which coincide with the rendering of the services. We report our revenues net of deductions for sales taxes.

We have experienced, and anticipate that we will continue to experience, downward pressure on our prices as we expand our customer base, confront growing
competition for private telecommunications network services, and endure the effects of periodic economic downturns in our countries of operation. When we have renewed and/or expanded our contracts with existing customers, the prices we charge have
generally declined.

Although we believe that our geographic diversification provides some protection against economic downturns in any
particular country, our results of operations and business prospects depend upon the overall financial and economic conditions in Latin America. Most of the countries in which we operate are undergoing, or have experienced in recent years, political
and economic volatility. These conditions have had, and may continue to have, material adverse effects on our business, results of operations and financial condition.

Costs and Expenses

Our costs and expenses principally include:



| |  |  | direct costs,
| | - |  | -------------



| |  |  | salaries and wages,
| | - |  | -------------------



| |  |  | selling, general and administrative expenses, and
| | - |  | -------------------------------------------------



| |  |  | depreciation and amortization.
| | - |  | ------------------------------

Our direct costs include
payments for leased satellite transponder, fiber optic and other terrestrial capacity. Other principal items composing direct costs are contracted services costs and allowance for doubtful accounts. Contracted services costs include costs of
maintenance and installation (and de-installation) services provided by outside contractors. Installation



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and de-installation costs are the costs we incur when we install or remove earth stations, micro-stations and other
equipment from customer premises. Direct costs also include licenses and other fees, node expenses and sales commissions paid to third-party sales representatives and our salaried sales force.

Our selling, general and administrative expenses consist principally of:



| |  |  | publicity and promotion costs,
| | - |  | ------------------------------



| |  |  | fees and other remuneration,
| | - |  | ----------------------------



| |  |  | travel and entertainment,
| | - |  | -------------------------



| |  |  | rent, and
| | - |  | ---------



| |  |  | plant services, insurance and corporate telecommunication and energy expenses.
| | - |  | ------------------------------------------------------------------------------

Currency and Related Risks

Except in Argentina and Brazil, the majority of our contracts with customers provide for
payment in U.S. dollars or for payment in local currency linked to the exchange rate between the local currency and the U.S. dollar at the time of invoicing. Accordingly, inflationary pressures on local economies in the other countries in which we
operate did not have a material effect on our revenues during the first quarter of 2006. Nevertheless, given that the exchange rate is generally set at the date of invoicing and that we in some cases experience substantial delays in collecting
receivables, we are exposed to exchange rate risk, even in countries other than Argentina and Brazil.

Under applicable law, our contracts
with customers in Brazil cannot, and, under certain circumstances, our contracts with customers in Argentina may not, be linked to the exchange rate between the local currency and the U.S. dollar. Accordingly, operations in Argentina and Brazil
increase our exposure to exchange rate risks. Any devaluation of the Argentinepeso or the Brazilian realagainst the U.S. dollar will generally affect our consolidated financial statements by generating foreign exchange gains or
losses on dollar-denominated monetary liabilities and assets and will generally result in a decrease, in U.S. dollar terms, in our revenues, costs and expenses. Because the majority of our debt service payments and a significant portion of our costs
(including capital equipment purchases and payments for certain leased telecommunications capacity) remain denominated and payable in U.S. dollars, our financial condition and results of operations are dependent upon our subsidiaries
(including IMPSAT Argentina and IMPSAT Brazil) ability to generate sufficient local currency (in U.S. dollar terms) to pay their costs and expenses and to satisfy our debt service requirements.

In U.S. dollar terms, our revenues in Argentina and Brazil, which are denominated in local currencies and represent a significant proportion of our
consolidated net revenues, generally increase when the currencies in those countries appreciate against the U.S. dollar, and decrease when those currencies depreciate.

The following table shows U.S. dollar exchange rates for the currencies of Argentina, Colombia and Brazil, our three largest countries of operation measured by revenues, at the dates indicated:



|               |  |                               |  |                |  |               
|-------------- |  | ----------------------------- |  | -------------- |  | --------------
|Currency       |  | March 31, 2004                |  | March 31, 2005 |  | March 31, 2006
|               |  | (exchange rate per U.S.$1.00)
|Argentina peso |  | 2.88                          |  | 2.92           |  | 3.08          
|Colombia peso  |  | 2,678.16                      |  | 2,376.48       |  | 2,289.98      
|Brazil real    |  | 2.94                          |  | 2.67           |  | 2.17          

In addition, as a result of foreign currency exchange and transfer controls established by the
Venezuelan government in February 2003, our contracts with customers in Venezuela are currently being paid in local currency at the fixed exchange rate established by the Venezuelan government between the local currency and the U.S. dollar. As the
exchange control regulations do not permit us to exchange our cash and cash equivalents in local currency into U.S. dollars without specific governmental authorizations, the Venezuelan exchange control regulations have adversely affected our
exchange rate risks for all dollar-denominated liabilities owing by our Venezuelan operating subsidiary and our ability to receive dividends or other distributions from that subsidiary. We cannot predict the duration or other adverse effects that
Venezuelan exchange controls may have on our operating results and financial condition.

Argentina

In early January 2002, the Argentine government abandoned the decade-old fixedpeso-dollar exchange rate and permitted thepeso to float
freely against the U.S. dollar. Since then, thepeso has traded as high as 1.65pesos to the U.S. dollar in early January 2002 and as low as 3.87pesos to the U.S. dollar on June 26, 2002. At March 31, 2005 the
exchange



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rate was 2.92 pesos to the U.S. Dollar, depreciating to 3.08 pesos to the U.S. Dollar on
March 31, 2006. Currently, IMPSAT Argentinas customer contracts and operating cash inflows are predominantly denominated inpesos.

Brazil

At March 31, 2005, thereal traded at a rate of R$2.67 = $1.00, and it appreciated to R$2.17 = $1.00 at
March 31, 2006. A significant depreciation of the real against the U.S. dollar would adversely affect our future results.

Colombia

In March of 2003, the Colombian peso exchange rate peaked at Ps. 2,958 = $1.00, following over ten years of constant
devaluation. Since April 2003, the Colombian peso has appreciated against the U.S. dollar. At March 31, 2005, the peso traded at a rate of Ps. 2,376.48 = $1.00 and appreciated to Ps. 2,289.98 = $1.00 at March 31, 2006,
the highest value since February 2001.

Venezuela

In February 2003, the Venezuelan government imposed foreign exchange and price controls in response to adverse economic conditions resulting from a nation-wide strike that commenced in December 2002, setting a rate of
Bs.1,600 = U.S.$1.00. The exchange controls make it difficult for our customers in that country to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a timely basis and also severely limit our ability to convert local
currency into U.S. dollars and transfer funds out of Venezuela in a timely manner without substantial cost. At December 31, 2004, the exchange rate for the bolivar was set at a rate of Bs.1,920 = $1.00, and on March 30, 2005, the
Venezuelan government devalued the bolivar to a rate of Bs. 2,150 = $1.00, where it remains. We cannot predict the extent to which we may be affected by future changes in exchange rates and exchange controls in Venezuela. Future devaluations
of the Venezuelan bolivar and/or the implementation of more stringent exchange control restrictions in that country could have a material adverse effect on our financial condition and results of operations in Venezuela.

Off-Balance Sheet Arrangements

An off-balance sheet
arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an
obligation under derivative instruments classified as equity, or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company,
or that engages in leasing, hedging or research and development arrangements with the company. We have no arrangements of the types described in any of these four categories that we believe may have a material current or future effect on our
financial condition, liquidity or results of operations.

Critical Accounting Policies

In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial
position in the preparation of its financial statements in conformity with U.S. GAAP. We use our best judgment based on our knowledge of existing facts and circumstances and actions that we may undertake in the future, as well as the advice of
external experts in determining the estimates that affect our consolidated financial statements. Actual results could differ significantly from those estimates under different assumptions and conditions. Our most critical accounting policies are:

Revenue Recognition

We record
revenues from data, value-added, telephony, and Internet services monthly as the services are provided. Equipment sales are recorded upon delivery to and acceptance by the customer. Our revenues from installation fees are less than our direct
expenses for installations. Therefore, installation fees generally are recognized upon (i) the completion of the installation of customer premise equipment, and (ii) the invoicing of such fees to the customer. If the installation charges
are greater than the direct expenses, the amounts are deferred and recognized over the estimated life of the customer.

We have entered
into, or may enter into in the future, agreements with carriers granting indefeasible rights of use (IRUs) and access to portions of our Broadband Network capacity and infrastructure. Pursuant to some of these agreements, we received
fixed advance payments for the IRUs, which would be recognized as revenue over the life of the IRU. Amounts received in advance would be recorded as deferred revenue.



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We record our revenues net of deductions for sales taxes. These taxes are assessed by the governmental
taxing authorities in a number of countries in which we operate based on a percentage of gross revenues and totaled approximately $3.1 million and $4.2 million for the three months ended March 31, 2005 and 2006, respectively.

Non-Monetary Transactions

We may exchange
capacity on our Broadband Network for capacity from other carriers through the exchange of IRUs. We account for these transactions in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 153 (SFAS No. 153),Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, which we adopted on January 1, 2006. The amendments made by SFAS No. 153 are based on
the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The amendment also eliminates the narrow exception for nonmonetary exchanges of similar productive assets and replaces it with a
broader exception for exchanges of nonmonetary assets that do not have commercial substance.

Property, Plant and Equipment

Our business is capital intensive. We record at cost our telecommunications network assets and other improvements that, in managements opinion,
extend the useful lives of the underlying assets, and depreciate such assets and improvements over their estimated useful lives. Our telecommunications network is highly complex and, due to innovation and enhancements, certain components of the
network may lose their utility faster than anticipated. We periodically reassess the economic lives of these components and make adjustments to their expected lives after considering historical experience and capacity requirements, consulting with
the vendors, and assessing new product and market demands and other factors. When these factors indicate that network components may not be useful for as long as anticipated, we depreciate their remaining book values over their residual useful
lives. The timing and deployment of new technologies could affect the estimated remaining useful lives of our telecommunications network assets, which could have a significant impact on our results of operations in the future.

Impairment of Long-Lived Assets

We
periodically review the carrying amounts of our property, plant, and equipment to determine whether current events or circumstances warrant adjustments to the carrying amounts. As part of this review, we analyze the projected undiscounted cash flows
associated with our property, plant, and equipment. Considerable management judgment is required in establishing the assumptions necessary to complete this analysis. Although we believe these estimates to be reasonable, they could vary significantly
from actual results and our estimates could change based on market conditions. Variances in results or estimates could cause changes to the carrying value of our assets including, but not limited to, recording additional impairment charges for some
of these assets in future periods.

Basis for Translation

We maintain our consolidated accounts in U.S. dollars. The accounts of our subsidiaries are maintained in the currencies of the respective countries. The accounts of our subsidiaries are translated from local currency
amounts to U.S. dollars. The method of translation is determined by the functional currency of our subsidiaries. A subsidiarys functional currency is defined as the currency of the primary environment in which a subsidiary operates and is
determined based on managements judgment. When a subsidiarys accounts are not maintained in the functional currency, the financial statements must be remeasured into the functional currency. This involves re-measuring monetary assets and
liabilities using current exchange rates and non-monetary assets and liabilities using historical exchange rates. The adjustments generated by re-measurement are included in our condensed consolidated statements of operations.

When the local currency of a subsidiary is determined to be the functional currency, the statements are translated into U.S. dollars using the current
exchange rate method. The adjustments generated by translation using the current exchange rate method are accumulated in an equity account entitled Accumulated other comprehensive income (loss) within our condensed consolidated balance
sheets.

Tax and Legal Contingencies

We are involved in foreign tax and legal proceedings, claims and litigation arising in the ordinary course of business. We periodically assess our liabilities and contingencies in connection with these matters based upon the latest
information available. For those matters where it is probable that we have incurred a loss and the loss or range of loss can be reasonably estimated, we have recorded reserves in our consolidated financial statements. In other instances, because of
the uncertainties related to both the probable outcome and amount or range of loss, we are unable to make a reasonable estimate of any liability. As additional information becomes available, we adjust our assessment and estimates of such liabilities
accordingly.



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In addition, we may be audited by foreign and state (as it relates to our U.S. operations) tax
authorities. We provide reserves for potential exposures when we consider it probable that a taxing authority may take a sustainable position on a matter contrary to our position. We evaluate these reserves, including interest thereon, on a
quarterly basis to ensure that they have been appropriately adjusted for events that may impact our ultimate payment for such exposures.

Changes in
Policies

Our critical accounting policies, which are those that are most important to the portrayal of our financial condition and
results of operations and require managements most difficult, subjective and complex judgments, often are a result of the need to make estimates about the effect of matters that are inherently uncertain. We have not made any changes in any of
these critical accounting policies during 2006, nor have we made any material changes in any of the critical accounting estimates underlying these accounting policies during 2006.

New Accounting Pronouncement

In December 2004, the FASB issued SFAS No. 123 (Revised 2004)
(SFAS No. 123(R)), Share-Based Payment.SFAS No. 123(R) requires companies to expense the estimated fair value of stock options and similar equity instruments issued to employees. We adopted SFAS No. 123(R) on
January 1, 2006. The effect of adoption was $0.2 million, which is recorded as compensation within salaries and wages in the accompanying condensed consolidated statement of operations for the three months ended March 31, 2006. In
addition, we used the modified prospective method and will utilize the Black-Scholes option pricing model to determine the fair value of our future option grants.

Results of Operations

The following table summarizes our results of operations:



|                                             |  |                                                            |        |   |      |       |    |  |   |        |   |  |       |   
|-------------------------------------------- |  | ---------------------------------------------------------- | ------ | - | ---- | ----- | -- |  | - | ------ | - |  | ----- | --
|                                             |  | Three Months Ended March 31,                               |       
|                                             |  | 2005                                                       |        |   | 2006 |      
|                                             |  | (in thousands and as a percentage ofconsolidated revenues) |       
|Net revenues:                                |  |                                                            |        |   |      |       |    |  |   |        |   |  |       |   
|Net revenues from services:                  |  |                                                            |        |   |      |       |    |  |   |        |   |  |       |   
|Broadband and satellite                      |  | $                                                          | 41,789 |   |      | 69.8  | %  |  | $ | 44,674 |   |  | 65.2  | % 
|Internet                                     |  |                                                            | 6,931  |   |      | 11.6  |    |  |   | 8,616  |   |  | 12.6  |   
|Value added services                         |  |                                                            | 5,140  |   |      | 8.6   |    |  |   | 8,029  |   |  | 11.7  |   
|Telephony                                    |  |                                                            | 5,928  |   |      | 9.9   |    |  |   | 6,367  |   |  | 9.3   |   
|                                             |  |                                                            |        |   |      |       |    |  |   |        |   |  |       |   
|Sales of equipment                           |  |                                                            | 84     |   |      | 0.1   |    |  |   | 872    |   |  | 1.3   |   
|                                             |  |                                                            |        |   |      |       |    |  |   |        |   |  |       |   
|Total net revenues                           |  |                                                            | 59,872 |   |      | 100.0 |    |  |   | 68,558 |   |  | 100.0 |   
|                                             |  |                                                            |        |   |      |       |    |  |   |        |   |  |       |   
|Direct costs:                                |  |                                                            |        |   |      |       |    |  |   |        |   |  |       |   
|Contracted services                          |  |                                                            | 5,216  |   |      | 8.7   |    |  |   | 5,658  |   |  | 8.3   |   
|Other direct costs                           |  |                                                            | 7,459  |   |      | 12.5  |    |  |   | 8,642  |   |  | 12.6  |   
|Leased capacity                              |  |                                                            | 18,225 |   |      | 30.4  |    |  |   | 18,603 |   |  | 27.1  |   
|Cost of equipment sold                       |  |                                                            | 106    |   |      | 0.2   |    |  |   | 311    |   |  | 0.5   |   
|                                             |  |                                                            |        |   |      |       |    |  |   |        |   |  |       |   
|Total direct costs                           |  |                                                            | 31,006 |   |      | 51.8  |    |  |   | 33,214 |   |  | 48.4  |   
|Salaries and wages                           |  |                                                            | 12,970 |   |      | 21.7  |    |  |   | 14,306 |   |  | 20.9  |   
|Selling, general and administrative expenses |  |                                                            | 5,262  |   |      | 8.8   |    |  |   | 5,489  |   |  | 8.0   |   
|Depreciation and amortization                |  |                                                            | 12,026 |   |      | 20.1  |    |  |   | 13,866 |   |  | 20.2  |   
|                                             |  |                                                            |        |   |      |       |    |  |   |        |   |  |       |   
|Total costs and expenses                     |  |                                                            | 61,264 |   |      | 102.3 | %  |  |   | 66,875 |   |  | 97.5  | % 
|                                             |  |                                                            |        |   |      |       |    |  |   |        |   |  |       |   
|Operating (loss) income                      |  |                                                            | (1,392 | ) |      | 2.3   | %  |  |   | 1,683  |   |  | 2.5   | % 
|Interest expense, net                        |  |                                                            | 5,181  |   |      | 8.6   |    |  |   | 8,581  |   |  | 12.5  |   
|Net (loss) gain on foreign exchange          |  |                                                            | (640   | ) |      | (1.1  | )  |  |   | 6,516  |   |  | 9.5   |   
|Other expense, net                           |  |                                                            | (289   | ) |      | (0.5  | )  |  |   | (866   | ) |  | (1.3  | ) 
|Provision for foreign income taxes           |  |                                                            | 722    |   |      | 1.2   |    |  |   | 1,038  |   |  | 1.5   |   
|                                             |  |                                                            |        |   |      |       |    |  |   |        |   |  |       |   
|Net loss                                     |  | $                                                          | (8,224 | ) |      | (13.7 | )% |  | $ | (2,286 | ) |  | (3.3  | )%
|                                             |  |                                                            |        |   |      |       |    |  |   |        |   |  |       |   



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Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005

Revenues.Our total net revenues for the three months ended March 31, 2005 and 2006 equaled $59.9 million and $68.6 million,
respectively. Net revenues are composed of net revenues from services and sales of equipment.

Our net revenues from services for the three
months ended March 31, 2006 totaled $67.7 million, an increase of $7.9 million (or 13.2%), compared to the corresponding period in 2005. Our net revenues from services included net revenues from:



| |  | satellite and broadband data transmission services,
|- |  | ---------------------------------------------------



| |  | internet services, which is composed of our internet backbone access and managed modem services,
|- |  | ------------------------------------------------------------------------------------------------



| |  | value-added services, including hosting, housing and co-location services, and
|- |  | ------------------------------------------------------------------------------



| |  | telephony services, including local, national and international long-distance services.
|- |  | ---------------------------------------------------------------------------------------

The following table shows our revenues from services by business lines for the periods indicated:



|                                 |  |                               |        |      |   |             |  |      |  
|-------------------------------- |  | ----------------------------- | ------ | ---- | - | ----------- |  | ---- | -
|                                 |  | Three Months Ended March 31,  |       
|                                 |  | 2005                          |        | 2006 |   | % change(1) | 
|                                 |  | (dollar amounts in thousands) |       
|Broadband and satellite          |  | $                             | 41,789 |      | $ | 44,674      |  | 6.9  | %
|Internet                         |  |                               | 6,931  |      |   | 8,616       |  | 24.3 |  
|Value added services(2)          |  |                               | 5,140  |      |   | 8,029       |  | 56.2 |  
|Telephony                        |  |                               | 5,928  |      |   | 6,367       |  | 7.4  |  
|                                 |  |                               |        |      |   |             |  |      |  
|Total net revenues from services |  | $                             | 59,788 |      | $ | 67,686      |  | 13.2 | %
|                                 |  |                               |        |      |   |             |  |      |  

---

|(1) | Percentage increase in relevant period of 2006 compared to corresponding period of 2005.
|--- | ----------------------------------------------------------------------------------------

|(2) | Includes our data center services, systems integration and other information technology services.
|--- | -------------------------------------------------------------------------------------------------

The increase in our total net revenues from services in the first quarter of 2006, as compared to the corresponding period in 2005, was due to increases
in revenues from broadband and satellite, internet, value added and telephony services, as further described below:



| |  |  | Revenues from broadband and satellite services increased as a consequence of higher delivery of IP services.
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | We experienced higher internet revenues principally due to higher managed security services and the expansion of internet accesses to corporate customers, primarily in Brazil and
the United States.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our revenues from value added services increased due to new customers and expansion of services to existing customers, primarily in our data center in Brazil.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We experienced increased revenues from telephony services principally due to higher sales to corporate customers in Brazil.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------

All of our product lines revenues benefited from increased customer base and improved macroeconomic conditions throughout Latin America.

Our net revenues discussed above were also impacted positively in U.S. dollar terms by the appreciation of the Brazilianreal against the U.S.
dollar during the first quarter of 2006 as compared to the same quarter in the prior year. In U.S. dollar terms, our revenues in Brazil, which are denominated in local currencies, generally increase when the local currency appreciates against the
U.S. dollar, and decrease when the local currency depreciates.

We had 4,353 customers as of March 31, 2006, compared to 4,224
customers at December 31, 2005 and 3,484 customers at March 31, 2005. In January 2006, IMPSAT Colombia modified the methodology for calculating its number of customers, to count related entities as one customer, consistent with the
practice of the other IMPSAT subsidiaries. The number of customers set forth above reflect this change in methodology.



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The following table shows, by operating subsidiary, our revenues from services and total revenues (in
each case, including intercompany transactions) for the periods indicated:



|                                                  |  |                               |        |      |   |             |  |        |  
|------------------------------------------------- |  | ----------------------------- | ------ | ---- | - | ----------- |  | ------ | -
|                                                  |  | Three Months Ended March 31,  |       
|                                                  |  | 2005                          |        | 2006 |   | % change(1) | 
|                                                  |  | (dollar amounts in thousands) |       
|IMPSAT Argentina                                  |  |                               |        |      |   |             |  |        |  
|Services                                          |  | $                             | 18,055 |      | $ | 18,591      |  | 3.0    | %
|Sale of equipment                                 |  |                               | 10     |      |   | 55          |  | 450.0  |  
|                                                  |  |                               |        |      |   |             |  |        |  
|Total                                             |  |                               | 18,065 |      |   | 18,646      |  | 3.2    |  
|                                                  |  |                               |        |      |   |             |  |        |  
|IMPSAT Colombia                                   |  |                               |        |      |   |             |  |        |  
|Services                                          |  |                               | 14,211 |      |   | 16,236      |  | 14.2   |  
|Sale of equipment                                 |  |                               | 13     |      |   | 177         |  | 1261.5 |  
|                                                  |  |                               |        |      |   |             |  |        |  
|Total                                             |  |                               | 14,224 |      |   | 16,413      |  | 15.4   |  
|                                                  |  |                               |        |      |   |             |  |        |  
|IMPSAT Brazil                                     |  |                               |        |      |   |             |  |        |  
|Services                                          |  |                               | 10,068 |      |   | 15,036      |  | 49.3   |  
|Sale of equipment                                 |  |                               |        |      |   | 638         |  | 100.0  |  
|                                                  |  |                               |        |      |   |             |  |        |  
|Total                                             |  |                               | 10,068 |      |   | 15,674      |  | 55.7   |  
|                                                  |  |                               |        |      |   |             |  |        |  
|IMPSAT Venezuela                                  |  |                               |        |      |   |             |  |        |  
|Services                                          |  |                               | 8,135  |      |   | 7,950       |  | (2.3   | )
|Sale of equipment                                 |  |                               | 61     |      |   | 2           |  | (96.7  | )
|                                                  |  |                               |        |      |   |             |  |        |  
|Total                                             |  |                               | 8,196  |      |   | 7,952       |  | (3.0   | )
|                                                  |  |                               |        |      |   |             |  |        |  
|IMPSAT Ecuador                                    |  |                               |        |      |   |             |  |        |  
|Services                                          |  |                               | 5,030  |      |   | 5,188       |  | 3.1    |  
|IMPSAT Chile                                      |  |                               |        |      |   |             |  |        |  
|Services                                          |  |                               | 2,032  |      |   | 2,312       |  | 13.8   |  
|IMPSAT Peru                                       |  |                               |        |      |   |             |  |        |  
|Services                                          |  |                               | 3,749  |      |   | 4,245       |  | 13.2   |  
|IMPSAT USA                                        |  |                               |        |      |   |             |  |        |  
|Services                                          |  |                               | 6,562  |      |   | 6,660       |  | 1.5    |  
|International Satellite Capacity Holding, Ltd.(2) |  |                               |        |      |   |             |  |        |  
|Services                                          |  |                               | 2,493  |      |   | 2,256       |  | (9.5   | )
|                                                  |  |                               |        |      |   |             |  |        |  
|Total                                             |  |                               | 2,493  |      |   | 2,256       |  | (9.5   | )
|                                                  |  |                               |        |      |   |             |  |        |  

---

|(1) | Percentage increase (decrease) in relevant period in 2006 compared to corresponding period in 2005.
|--- | ---------------------------------------------------------------------------------------------------

|(2) | This subsidiarys principal function is to lease private telecommunications capacity from telecommunications carriers and then sublease this capacity at market rates to our
operating subsidiaries.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our net revenues from services at IMPSAT Argentina for the three months ended March 31, 2006
totaled $18.6 million, an increase of $0.6 million (or 3.2%) compared to the corresponding period in 2005. The increase is mostly related to higher sales of IP services in broadband and satellite as well as increased managed security services in
Internet. Argentina is our largest market in terms of number of customers and revenues. After a four-year period of economic difficulties and contraction that included the default by the Argentine government of its external public debt and the
devaluation of the peso,



30



---

##### Table of Contents

the Argentine economy has grown during 2005 and the first quarter of 2006. Nonetheless, Argentina continues to experience
a lack of access to international capital markets. A renewed decline in political and economic conditions in Argentina, our largest country of operation, could materially affect our financial condition and results of operations.

IMPSAT Colombia recorded revenues from services of $16.4 million during the three months ended March 31, 2006, compared to $14.2 million for
the same period in 2005. The increase is mainly attributed to the expansion of broadband and satellite services provided to existing customers and the revaluation of revenues denominated in Colombian pesos.

IMPSAT Brazils revenues from services for the three months ended March 31, 2006 totaled $15.7 million, an increase of $5.6 million (or 55.7%)
compared to the corresponding period in 2005. IMPSAT Brazils results were positively affected by increased delivery of services to existing and new customers, mostly in broadband and satellite, and value added services, and the appreciation of
the real against the U.S. dollar. In local currency terms, IMPSAT Brazils net revenues for the three months ended March 31, 2006 increased by 25.9%, compared to the corresponding period in 2005. However, any future devaluations of
thereal or contraction of the Brazilian economy would have an adverse effect on IMPSAT Brazils and our companys overall financial condition and results of operations. Presidential elections are scheduled in Brazil for October
2006, and political uncertainty surrounding elections could adversely affect investor sentiment in Brazil, which, in turn, could result in a devaluation of the real.

Revenues from services at IMPSAT Venezuela equaled $8.0 million for the three months ended March 31, 2006, compared to $8.2 million for the same
period in 2005. The decrease is due principally to a decrease in recorded revenues from inter-company contracts. IMPSAT USA recorded total net revenues from services of $6.7 million for the three months ended March 31, 2006, compared to $6.6
million for the corresponding period in 2005. This increase was primarily due to increased delivery of internet services. IMPSAT Ecuador recorded total net revenues of $5.2 million for the three months ended March 31, 2006, compared to $5.0
million for the corresponding period in 2005. The increase is primarily due to the expansion of the customer base and higher services delivered to existing customers in all product lines. IMPSAT Peru recorded total net revenues of $4.2 million for
the three months ended March 31, 2006, compared to $3.7 million for the corresponding period in 2005. The increase was mainly related to higher telephony and broadband and satellite services delivered. IMPSAT Chile recorded total net revenues
of $2.3 million for the three months ended March 31, 2006, compared to $2.0 million for the corresponding period in 2005. The increase was primarily due to higher sales of value added services.

Direct Costs.Our direct costs for the three months ended March 31, 2006 totaled $33.2 million, an increase of $2.2 million (or 7.1%)
compared to the same period in 2005. Direct costs of our subsidiaries are described prior to the elimination of inter-company transactions. The increase in our direct costs is directly attributable to increased sales of services and the effects of
currency revaluation in Columbia and Brazil.

The following table shows, by operating subsidiary, our direct costs for the periods
indicated, and variations between each period:



|                 |  |                 |        |   |          |   |        |          |  |   |       |   |  |       |   
|---------------- |  | --------------- | ------ | - | -------- | - | ------ | -------- |  | - | ----- | - |  | ----- | --
|                 |  | As of March 31, |        |   | $ Change |   |        | % Change | 
|                 |  | 2005            |        |   | 2006     |   |        |         
|                 |  | Direct Costs    |        |   |         
|IMPSAT Argentina |  | $               | 10,544 |   |          | $ | 9,937  |          |  | $ | (607  | ) |  | (5.8  | )%
|IMPSAT Colombia  |  |                 | 7,598  |   |          |   | 8,805  |          |  |   | 1,207 |   |  | 15.9  | % 
|IMPSAT Brazil    |  |                 | 5,199  |   |          |   | 7,401  |          |  |   | 2,202 |   |  | 42.4  | % 
|IMPSAT Venezuela |  |                 | 3,394  |   |          |   | 2,670  |          |  |   | (724  | ) |  | (21.3 | )%
|IMPSAT Ecuador   |  |                 | 2,202  |   |          |   | 2,852  |          |  |   | 650   |   |  | 29.5  | % 
|IMPSAT Chile     |  |                 | 1,233  |   |          |   | 1,331  |          |  |   | 98    |   |  | 7.9   | % 
|IMPSAT Peru      |  |                 | 3,144  |   |          |   | 2,964  |          |  |   | (180  | ) |  | (5.7  | )%
|IMPSAT USA       |  |                 | 4,299  |   |          |   | 4,066  |          |  |   | (233  | ) |  | (5.4  | )%
|Other(1)         |  |                 | (6,607 | ) |          |   | (6,812 | )        |  |   | (205  | ) |  | (3.1  | )%
|                 |  |                 |        |   |          |   |        |          |  |   |       |   |  |       |   
|Total            |  | $               | 31,006 |   |          | $ | 33,214 |          |  | $ | 2,208 |   |  | 7.1   | % 
|                 |  |                 |        |   |          |   |        |          |  |   |       |   |  |       |   

---

|(1) | This includes direct costs of International Satellite Capacity Holding, Ltd and for all
inter-company transactions.
|--- | -------------------------------------------------------------------------------------------------------------------

(1) Contracted Services.Contracted services costs include costs of
maintenance and installation (and de-installation) services provided by outside contractors. During the three months ended March 31, 2006, our contracted services costs totaled $5.7 million, an increase of $0.4 million (or 8.5%) compared to the
same period in 2005. Of this amount, maintenance costs for our telecommunications network infrastructure, including the Broadband Network,



31



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##### Table of Contents

totaled $3.4 million for the three months ended March 31, 2006, compared to $3.3 million for the
same period in 2005. Installation costs totaled $2.3 million for the three months ended March 31, 2006, compared to $1.9 million during the corresponding period in 2005. Our installation costs increased as a consequence of higher new customers,
mostly in Brazil, in the three months ended March 31, 2006, compared to the same period in 2005.

The following table shows, by
operating subsidiary, our costs for contracted services for the periods indicated, and variations between each period:

|                 |  |                     |       |          |   |       |          |   |      |   |  |      |   
|---------------- |  | ------------------- | ----- | -------- | - | ----- | -------- | - | ---- | - |  | ---- | --
|                 |  | As of March 31,     |       | $ Change |   |       | % Change |  
|                 |  | 2005                |       | 2006     |   |      
|                 |  | Contracted Services |       |         
|IMPSAT Argentina |  | $                   | 1,965 |          | $ | 1,778 |          | $ | (187 | ) |  | (9.5 | )%
|IMPSAT Colombia  |  |                     | 1,050 |          |   | 1,178 |          |   | 128  |   |  | 12.2 | % 
|IMPSAT Brazil    |  |                     | 851   |          |   | 1,139 |          |   | 288  |   |  | 33.8 | % 
|IMPSAT Venezuela |  |                     | 301   |          |   | 367   |          |   | 66   |   |  | 21.9 | % 
|IMPSAT Ecuador   |  |                     | 376   |          |   | 392   |          |   | 16   |   |  | 4.3  | % 
|IMPSAT Chile     |  |                     | 191   |          |   | 196   |          |   | 5    |   |  | 2.6  | % 
|IMPSAT Peru      |  |                     | 181   |          |   | 287   |          |   | 106  |   |  | 58.6 | % 
|IMPSAT USA       |  |                     | 111   |          |   | 136   |          |   | 25   |   |  | 22.5 | % 
|Other(1)         |  |                     | 190   |          |   | 185   |          |   | (5   | ) |  | (2.6 | )%
|                 |  |                     |       |          |   |       |          |   |      |   |  |      |   
|Total            |  | $                   | 5,216 |          | $ | 5,658 |          | $ | 442  |   |  | 8.5  | % 
|                 |  |                     |       |          |   |       |          |   |      |   |  |      |   

---

|(1) | This includes contracted services costs of International Satellite Capacity Holding, Ltd and
for all inter-company transactions.
|--- | --------------------------------------------------------------------------------------------------------------------------------

(2) Other Direct Costs.Other direct costs principally include
licenses and other fees, sales commissions paid to internal sales personnel and third-party sales representatives, and our provision for doubtful accounts and expenses related to the maintenance and operations of the telecommunications nodes
utilized to support telecommunication services provided to our customers. We recorded other direct costs of $8.6 million during the three months ended March 31, 2006, an increase of $1.2 million (or 15.9%) compared to the same period in 2005.

Sales commissions paid to our internal sales personnel and third-party sales representatives for the three months ended
March 31, 2006 totaled $2.1 million, compared to $1.8 million for the corresponding period in 2005. The increase is directly related to higher new sales.

We recorded a provision for doubtful accounts of $0.1 million for the three months ended March 31, 2006, compared to a provision for
doubtful accounts of $0.7 million for the same period in 2005. At March 31, 2006, our allowance for doubtful accounts covered approximately 96.5% of our gross trade accounts receivable past due more than six months compared to 116.4% at
March 31, 2005. The average days in quarterly gross trade accounts receivable decreased to 52 days at March 31, 2006 from 55 days at March 31, 2005.

Our expenses related to the maintenance and operations of our telecommunications nodes totaled $2.4 million for the three months ended
March 31, 2006, an increase of $0.6 million (or 31.5%) from the same period in 2005. The increase in such node-related expenses resulted primarily from required increases in node capacity proportionately to the increase in services provided,
higher volumes and prices for energy required for our nodes relative to expansion of our data center and other services, and the appreciation of the Brazilian real and Colombian peso.

The following table shows, by operating subsidiary, other direct costs for the periods indicated, and variations between each period:

|                 |  |                    |       |   |          |   |       |          |  |   |       |   |  |        |   
|---------------- |  | ------------------ | ----- | - | -------- | - | ----- | -------- |  | - | ----- | - |  | ------ | --
|                 |  | As of March 31,    |       |   | $ Change |   |       | % Change | 
|                 |  | 2005               |       |   | 2006     |   |       |         
|                 |  | Other Direct Costs |       |   |         
|IMPSAT Argentina |  | $                  | 2,384 |   |          | $ | 2,334 |          |  | $ | (50   | ) |  | (2.1   | )%
|IMPSAT Colombia  |  |                    | 1,503 |   |          |   | 1,829 |          |  |   | 326   |   |  | 21.7   | % 
|IMPSAT Brazil    |  |                    | 1,662 |   |          |   | 2,626 |          |  |   | 964   |   |  | 58.0   | % 
|IMPSAT Venezuela |  |                    | 764   |   |          |   | 713   |          |  |   | (51   | ) |  | (6.7   | )%
|IMPSAT Ecuador   |  |                    | 397   |   |          |   | 595   |          |  |   | 198   |   |  | 49.9   | % 
|IMPSAT Chile     |  |                    | 172   |   |          |   | 318   |          |  |   | 146   |   |  | 84.9   | % 
|IMPSAT Peru      |  |                    | 417   |   |          |   | 150   |          |  |   | (267  | ) |  | (64.0  | )%
|IMPSAT USA       |  |                    | 167   |   |          |   | 444   |          |  |   | 277   |   |  | 165.9  | % 
|Other(1)         |  |                    | (7    | ) |          |   | (367  | )        |  |   | (360  | ) |  | 5142.9 | % 
|                 |  |                    |       |   |          |   |       |          |  |   |       |   |  |        |   
|Total            |  | $                  | 7,459 |   |          | $ | 8,642 |          |  | $ | 1,183 |   |  | 15.9   | % 
|                 |  |                    |       |   |          |   |       |          |  |   |       |   |  |        |   

---

|(1) | This includes other direct costs of International Satellite Capacity Holding, Ltd and for all
inter-company transactions.
|--- | -------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

(3) Leased Capacity.Our leased capacity costs for the three months ended
March 31, 2006 totaled $18.6 million, an increase of $0.4 million (or 2.1%) from the corresponding period in 2005.

Our
leased satellite capacity costs for the three months ended March 31, 2006 totaled $5.1 million, a decrease of $0.7 million (or 11.9%) compared to the corresponding period in 2005. The overall reduction in our leased satellite capacity costs was
principally due to reductions in satellite capacity and migration of our satellite-based services to terrestrial-based services on our proprietary network or leased terrestrial links. We had approximately 686 MHz of leased satellite capacity at
March 31, 2006 and 693 MHz at March 31, 2005.

Our costs for dedicated leased capacity on third-party fiber optic
networks totaled $7.8 million for the three months ended March 31, 2006, an increase of $1.2 million (or 18.2%) as compared to the same period in 2005. The increase in these costs is attributable in part to growth in services provided and to
our customer base, as well as to the appreciation of the Colombian peso and the Brazilian real. As we expand our services to existing clients and provide services to new clients, we are required to lease additional capacity to provide
increased telecommunications services to clients with facilities outside of the footprint of our Broadband Network in order to provide end-to-end telecommunications services. In addition, as a result of our having reached full capacity on
international underseas cable IRUs that we purchased in prior years, we have been required to lease additional international fiber optic capacity in order to meet the international telecommunications needs of our clients. Our customers are
increasingly expressing a desire for fiber optic telecommunications, which has resulted in an increase in leased fiber optic capacity costs and a decrease in leased satellite capacity costs described above.

The following table shows, by operating subsidiary, our leased capacity costs for the periods indicated, and variations between each period:



|                 |  |                 |        |   |          |   |        |          |  |   |      |   |  |       |   
|---------------- |  | --------------- | ------ | - | -------- | - | ------ | -------- |  | - | ---- | - |  | ----- | --
|                 |  | As of March 31, |        |   | $ Change |   |        | % Change | 
|                 |  | 2005            |        |   | 2006     |   |        |         
|                 |  | Leased Capacity |        |   |         
|IMPSAT Argentina |  | $               | 5,870  |   |          | $ | 5,417  |          |  | $ | (453 | ) |  | (7.7  | )%
|IMPSAT Colombia  |  |                 | 4,805  |   |          |   | 5,277  |          |  |   | 472  |   |  | 9.8   | % 
|IMPSAT Brazil    |  |                 | 2,489  |   |          |   | 3,255  |          |  |   | 766  |   |  | 30.8  | % 
|IMPSAT Venezuela |  |                 | 2,096  |   |          |   | 1,387  |          |  |   | (709 | ) |  | (33.8 | )%
|IMPSAT Ecuador   |  |                 | 1,347  |   |          |   | 1,758  |          |  |   | 411  |   |  | 30.5  | % 
|IMPSAT Chile     |  |                 | 803    |   |          |   | 695    |          |  |   | (108 | ) |  | (13.4 | )%
|IMPSAT Peru      |  |                 | 2,508  |   |          |   | 2,488  |          |  |   | (20  | ) |  | (0.8  | )%
|IMPSAT USA       |  |                 | 3,185  |   |          |   | 2,481  |          |  |   | (704 | ) |  | (22.1 | )%
|Other(1)         |  |                 | (4,878 | ) |          |   | (4,155 | )        |  |   | 723  |   |  | (14.8 | )%
|                 |  |                 |        |   |          |   |        |          |  |   |      |   |  |       |   
|Total            |  | $               | 18,225 |   |          | $ | 18,603 |          |  | $ | 378  |   |  | 2.1   | % 
|                 |  |                 |        |   |          |   |        |          |  |   |      |   |  |       |   

---

|(1) | This includes leased capacity costs of International Satellite Capacity Holding, Ltd and for
all inter-company transactions.
|--- | ----------------------------------------------------------------------------------------------------------------------------

In connection with services we offer under our licenses to provide domestic and
international long distance telephony connections, we incur costs for interconnection and telephony termination (I&T). We incur costs for frequency rights related to regulatory fees for the rights to use certain frequencies in the
countries in which we operate. Our I&T and frequency rights costs totaled $4.0 million during the three months ended March 31, 2006 (which includes $3.3 million of I&T costs) compared to $4.3 million of I&T and
frequency rights costs for the same period in 2005 (which includes $3.5 million of I&T costs), which represents a decrease of $0.4 million (or 8.2%). Interconnection costs decreased in the three months ended March 31, 2006, as compared
to the same period in 2005 due to the reversal in 2006 of certain provisions accounted during the first quarter of 2005. In addition, we launched our calling card service in Peru during the first quarter of 2005.



33



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##### Table of Contents

The following table shows, by operating subsidiary, our I&T and frequency rights costs for the
periods indicated, and variations between each period:



|                 |  |                          |        |   |          |   |        |          |  |   |      |   |  |       |   
|---------------- |  | ------------------------ | ------ | - | -------- | - | ------ | -------- |  | - | ---- | - |  | ----- | --
|                 |  | As of March 31,          |        |   |          |   |        |          | 
|                 |  | 2005                     |        |   | 2006     |   |        |          |  |   |      |  
|                 |  | I&T and frequency rights |        |   | $ Change |   |        | % Change | 
|IMPSAT Argentina |  | $                        | 2,409  |   |          | $ | 2,005  |          |  | $ | (404 | ) |  | (16.8 | )%
|IMPSAT Colombia  |  |                          | 417    |   |          |   | 401    |          |  |   | (16  | ) |  | (3.8  | )%
|IMPSAT Brazil    |  |                          | 298    |   |          |   | 302    |          |  |   | 4    |   |  | 1.3   | % 
|IMPSAT Venezuela |  |                          | 2      |   |          |   | 1      |          |  |   | (1   | ) |  | (50.0 | )%
|IMPSAT Ecuador   |  |                          | 79     |   |          |   | 105    |          |  |   | 26   |   |  | 32.9  | % 
|IMPSAT Chile     |  |                          | 300    |   |          |   | 216    |          |  |   | (84  | ) |  | (28.0 | )%
|IMPSAT Peru      |  |                          | 1,821  |   |          |   | 1,872  |          |  |   | 51   |   |  | 2.8   | % 
|IMPSAT USA       |  |                          | 1,074  |   |          |   | 609    |          |  |   | (465 | ) |  | (43.3 | )%
|Other(1)         |  |                          | (2,082 | ) |          |   | (1,549 | )        |  |   | 533  |   |  | (25.6 | )%
|                 |  |                          |        |   |          |   |        |          |  |   |      |   |  |       |   
|Total            |  | $                        | 4,318  |   |          | $ | 3,962  |          |  | $ | (356 | ) |  | (8.2  | )%
|                 |  |                          |        |   |          |   |        |          |  |   |      |   |  |       |   

---

|(1) | This includes I&T and frequency rights costs of International Satellite Capacity Holding,
Ltd and for all inter-company transactions.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

(4) Cost of Equipment Sold.In the three months ended
March 31, 2006, we incurred costs of equipment sold of $0.3 million, compared to $0.1 million for the same period in 2005. This increase was primarily due to higher sales of equipment during the first quarter of 2006.

Salaries and Wages.Salaries and wages for the three months ended March 31, 2006 totaled $14.3 million, an increase of $1.3
million (or 10.3%) compared to the same period in 2005. The increase is due to currency revaluations in Brazil and Colombia, salary increases related to adjustments for inflation and higher variable compensation, partially offset by savings due to
lower headcount. As part of our continuing effort to ensure more efficient operations, we reduced the aggregate number of our employees from 1,229 at March 31, 2005 to 1,210 at March 31, 2006.

IMPSAT Argentina had 433 employees as of March 31, 2006, compared to 448 employees as of March 31, 2005. IMPSAT Brazil increased its number of
employees to 206 persons at March 31, 2006, compared to 194 persons at March 31, 2005. IMPSAT Colombia decreased its number of employees to 240 persons at March 31, 2006, compared to 245 persons at March 31, 2005. IMPSAT
Venezuela decreased its number of employees to 113 persons at March 31, 2006, compared to 115 persons at March 31, 2005. IMPSAT USA decreased its number of employees to 57 persons at March 31, 2006, compared to 68 persons at
March 31, 2005. IMPSAT Peru decreased its number of employees to 56 persons at March 31, 2006, compared to 59 persons at March 31, 2005. IMPSAT Ecuador increased its number of employees to 73 persons at March 31, 2006, compared to 66
persons at March 31, 2005. IMPSAT Chile decreased its number of employees to 32 persons at March 31, 2006, compared to 34 persons at March 31, 2005.

The following table shows, by operating subsidiary, our salaries and wages expenses for the periods indicated, and variations between each period:



|                 |  |                  |        |      |   |          |  |   |          |   |  |      |   
|---------------- |  | ---------------- | ------ | ---- | - | -------- |  | - | -------- | - |  | ---- | --
|                 |  | As of March 31,  |        |      |   |          |  |  
|                 |  | 2005             |        | 2006 |   | $ Change |  |   | % Change |  
|                 |  | Salaries & Wages |        |     
|IMPSAT Argentina |  | $                | 3,167  |      | $ | 3,408    |  |   | 241      |   |  | 7.6  | % 
|IMPSAT Colombia  |  |                  | 2,269  |      |   | 2,162    |  |   | (107     | ) |  | (4.7 | )%
|IMPSAT Brazil    |  |                  | 2,321  |      |   | 3,009    |  |   | 688      |   |  | 29.6 | % 
|IMPSAT Venezuela |  |                  | 831    |      |   | 865      |  |   | 34       |   |  | 4.1  | % 
|IMPSAT Ecuador   |  |                  | 564    |      |   | 661      |  |   | 97       |   |  | 17.2 | % 
|IMPSAT Chile     |  |                  | 340    |      |   | 351      |  |   | 11       |   |  | 3.2  | % 
|IMPSAT Peru      |  |                  | 573    |      |   | 528      |  |   | (45      | ) |  | (7.9 | )%
|IMPSAT USA       |  |                  | 1,446  |      |   | 1,363    |  |   | (83      | ) |  | (5.7 | )%
|Other(1)         |  |                  | 1,459  |      |   | 1,959    |  |   | 500      |   |  | 34.3 | % 
|                 |  |                  |        |      |   |          |  |   |          |   |  |      |   
|Total            |  | $                | 12,970 |      | $ | 14,306   |  | $ | 1,336    |   |  | 10.3 | % 
|                 |  |                  |        |      |   |          |  |   |          |   |  |      |   

---

|(1) | This includes salaries and wages of International Satellite Capacity Holding, Ltd.
|--- | ----------------------------------------------------------------------------------



34



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##### Table of Contents

Selling, General and Administrative Expenses. Our SG&A expenses consist principally of:



| |  |  | publicity and promotion costs
| | - |  | -----------------------------



| |  |  | professional fees and other remuneration
| | - |  | ----------------------------------------



| |  |  | travel and entertainment
| | - |  | ------------------------



| |  |  | rent
| | - |  | ----



| |  |  | plant services, insurance, and telephone expenses
| | - |  | -------------------------------------------------

We
incurred SG&A expenses of $5.5 million for the three months ended March 31, 2006, representing an increase of $0.2 million (or 4.3%) compared to the same period in 2005. The increases experienced were primarily due to increases in third
party services, office expenses, and advisory fees.

The following table shows, by operating subsidiary, our SG&A expenses for the
periods indicated, and variations between each period:



|                 |  |                                             |       |          |   |       |          |   |      |   |  |       |   
|---------------- |  | ------------------------------------------- | ----- | -------- | - | ----- | -------- | - | ---- | - |  | ----- | --
|                 |  | As of March 31,                             |       |          |   |       |          |  
|                 |  | 2005                                        |       | 2006     |   |       |          |   |      |  
|                 |  | Selling, General andAdministrative Expenses |       | $ Change |   |       | % Change |  
|IMPSAT Argentina |  | $                                           | 1,593 |          | $ | 1,539 |          | $ | (54  | ) |  | (3.4  | )%
|IMPSAT Colombia  |  |                                             | 690   |          |   | 574   |          |   | (116 | ) |  | (16.8 | )%
|IMPSAT Brazil    |  |                                             | 957   |          |   | 1,129 |          |   | 172  |   |  | 18.0  | % 
|IMPSAT Venezuela |  |                                             | 312   |          |   | 498   |          |   | 186  |   |  | 59.6  | % 
|IMPSAT Ecuador   |  |                                             | 275   |          |   | 352   |          |   | 77   |   |  | 28.0  | % 
|IMPSAT Chile     |  |                                             | 169   |          |   | 193   |          |   | 24   |   |  | 14.2  | % 
|IMPSAT Peru      |  |                                             | 276   |          |   | 248   |          |   | (28  | ) |  | (10.1 | )%
|IMPSAT USA       |  |                                             | 514   |          |   | 514   |          |   |     |   |  | 0.0   | % 
|Other(1)         |  |                                             | 476   |          |   | 442   |          |   | (34  | ) |  | (7.1  | )%
|                 |  |                                             |       |          |   |       |          |   |      |   |  |       |   
|Total            |  | $                                           | 5,262 |          | $ | 5,489 |          | $ | 227  |   |  | 4.3   | % 
|                 |  |                                             |       |          |   |       |          |   |      |   |  |       |   

---

|(1) | This includes SG&A expenses of International Satellite Capacity Holding, Ltd and for all
inter-company transactions.
|--- | --------------------------------------------------------------------------------------------------------------------

Depreciation and Amortization.Our depreciation and amortization expenses for the three
months ended March 31, 2006 totaled $13.9 million. This represents an increase of $1.8 million (or 15.3%) compared to our depreciation and amortization for the corresponding period in 2005. The increase in depreciation and amortization expenses
is principally due to an increase in our depreciable fixed asset base as a result of increased capital expenditures. During the first quarter of 2006, we made purchases of property, plant and equipment totaling $7.1 million. Such
additional equipment, which comprises principally customer premises and other central telecommunications equipment, is depreciated over a shorter period of time than other components of our property, plant and equipment and results in higher
depreciation charges in the current periods. In addition, the increase in depreciation and amortization expenses is due to the depreciation of our goods in warehouses during the first quarter of 2006, totaling $0.8 million.

Interest Expense, Net.Our net interest expense for the three months ended March 31, 2006 totaled $8.6 million, consisting of interest
expense of $8.8 million and interest income of $0.2 million. Net interest expense for the three months ended March 31, 2005 totaled $5.2 million. Our net interest expense for the three months ended March 31, 2006 increased by
$3.4 million (or 65.6 %) compared to the net interest expense for the same period of 2005. The increase in our net interest expense is due in part to the increase in the rate of interest on our Senior Secured Notes by reason of the increased
from 6% (Paid-in-kind interest on Senior Notes) per annum to 10% per annum, and the restructuring of $ 107.3 million of such indebtedness in July 2005 increased from 10% per annum to 12% per annum, and to increased withholding
taxes on subsidiary indebtedness repayments. Our indebtedness as of March 31, 2006 totaled $245.0 million, as compared to $248.1 million as of December 31, 2005, as a result of principal payments of $5.3 million, offset by an increase in
the principal amount of our indebtedness of $2.2 million due to new debt obtained by our subsidiaries.



35



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##### Table of Contents

Net Gain (Loss) on Foreign Exchange.We recorded net gain on foreign exchange for the three months
ended March 31, 2006 of $6.5 million, compared to net loss on foreign exchange of $0.6 million for the same period in 2005. These net gains on foreign exchange reflect principally the effect of the appreciation during the three months ended
March 31, 2006 of the Brazilian real on the book value of our monetary assets and liabilities in Brazil.

IMPSAT
Argentina recorded a net loss on foreign exchange for the three months ended March 31, 2006 of $0.1 million, compared to net loss of $0.2 million for the same period in 2005. IMPSAT Brazil recorded a net gain on foreign exchange for the three
months ended March 31, 2006 of $6.5 million, compared to net loss of $0.5 million for the same period in 2005. The net gain on foreign exchange was primarily due to the appreciation of the Brazilian real on the book value
of our monetary assets and liabilities in Brazil.

Other Expenses, Net.We recorded other expense, net, of $0.9
million for the three months ended March 31, 2006, compared to other expense, net, of $0.3 million for the same period of 2005. The change in other income (expenses), net, was due primarily to debt-related extraordinary items incurred during
the three months ended March 31, 2006.

Provision for Foreign Income Taxes.For the three months ended
March 31, 2006, we recorded a provision for foreign income taxes of $1.0 million, compared to a provision of $0.7 million for the same period in 2005. The increase in the provision for foreign income taxes in the three months ended
March 31, 2006, compared to the same period in 2005, was due primarily to increases in deferred tax liabilities in IMPSAT Chile.

Net Loss. For the three months ended March 31, 2006, we recorded a net loss of $2.3 million, compared to net loss of $8.2 million for the same period in 2005, due primarily to a net gain on foreign exchange and an
increase in operating income, as further explained above.

The following table shows, by operating subsidiary, our net income (loss)
for the periods indicated, and variations between each period:



|                 |  |                   |        |   |          |   |        |          |  |   |        |   |  |        |   
|---------------- |  | ----------------- | ------ | - | -------- | - | ------ | -------- |  | - | ------ | - |  | ------ | --
|                 |  | As of March 31,   |        |   |          |   |        |          | 
|                 |  | 2005              |        |   | 2006     |   |        |          |  |   |        |  
|                 |  | Net Income (Loss) |        |   | $ Change |   |        | % Change | 
|IMPSAT Argentina |  | $                 | (1,336 | ) |          | $ | (1,873 | )        |  | $ | (537   | ) |  | 40.2   | % 
|IMPSAT Colombia  |  |                   | (1,336 | ) |          |   | (751   | )        |  |   | 585    |   |  | (43.8  | )%
|IMPSAT Brazil    |  |                   | (3,334 | ) |          |   | 3,742  |          |  |   | 7,076  |   |  | (212.2 | )%
|IMPSAT Venezuela |  |                   | 1,326  |   |          |   | 1,050  |          |  |   | (276   | ) |  | (20.8  | )%
|IMPSAT Ecuador   |  |                   | 1,087  |   |          |   | 313    |          |  |   | (774   | ) |  | (71.2  | )%
|IMPSAT Chile     |  |                   | 256    |   |          |   | 102    |          |  |   | (154   | ) |  | (60.2  | )%
|IMPSAT Peru      |  |                   | (805   | ) |          |   | (38    | )        |  |   | 767    |   |  | (95.3  | )%
|IMPSAT USA       |  |                   | (626   | ) |          |   | 161    |          |  |   | 787    |   |  | (125.7 | )%
|Other(1)         |  |                   | (3,456 | ) |          |   | (4,992 | )        |  |   | (1,536 | ) |  | 44.4   | % 
|                 |  |                   |        |   |          |   |        |          |  |   |        |   |  |        |   
|Total            |  | $                 | (8,224 | ) |          | $ | (2,286 | )        |  | $ | 5,938  |   |  | (72.2  | )%
|                 |  |                   |        |   |          |   |        |          |  |   |        |   |  |        |   

---

|(1) | This includes net income (loss) of International Satellite Capacity Holding, Ltd.
|--- | ---------------------------------------------------------------------------------

Liquidity and Capital Resources

At March 31, 2006, we had total cash and cash equivalents of $21.5 million, as compared to $41.4 million at March 31, 2005 and $24.1 million as of December 31, 2005.

As of March 31, 2006, approximately $7.1 million of our cash and cash equivalents were held in Venezuelan bolivars by IMPSAT Venezuela,
compared to $7.5 million at December 31, 2005 (in each case, based on the official exchange rate at that date of Bs. 2,150 = $1.00). Foreign exchange controls instituted in Venezuela since February 2003 severely limit our ability to repatriate
these amounts and any other earnings from our Venezuelan operations on a timely basis, without substantial cost. More recently, IMPSAT Venezuela has experienced significant delays in obtaining the required approvals from Venezuelas Commission
of Currency Administration (known as CADIVI) for the purchase of U.S. dollars with Venezuelan bolivars in order to make payment of its foreign currency denominated obligations (including inter-company obligations). As a result, we are unable
to predict when these final approvals will be obtained. Future devaluations of the Venezuelanbolivar and/or the implementation of more stringent exchange control restrictions in that country could have a material adverse effect on the
recorded U.S. dollar value or our cash and cash equivalents held by Impsat Venezuela and would result in a loss in future periods in our condensed consolidated statement of operations.



36



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At March 31, 2006, our total indebtedness was $245.0 million (as compared to $265.0 million at
March 31, 2005), of which $3.0 million represented short-term debt, $25.2 million represented current portion of long-term debt and $216.8 million represented long-term debt. Our capital expenditures budget contemplates that we will need
approximately $35.0 million (including amounts spent to date) through the end of 2006 for capital expenditures.

We remain in default under
indebtedness owed to one creditor who voted against the Plan. Under the Plan, the claims of that creditor were contingent obligations arising under guarantees by us of certain primary indebtedness of IMPSAT Argentina. Notwithstanding our emergence
from bankruptcy and the extinguishment of the guarantee as a result, an event of default has occurred and is continuing with respect to the related primary underlying indebtedness of IMPSAT Argentina. As a result of this default, which relates
to vendor financing totaling approximately $7.6 million in outstanding principal amount as of March 31, 2005 and 2006, such indebtedness is due and payable. IMPSAT Argentina had been in discussions with the holder of the indebtedness with a
view to rescheduling or otherwise restructuring the defaulted debt obligation. We understand that this holder recently transferred the defaulted debt obligation to a new holder. IMPSAT Argentina is not in discussions with the new
holder. There is no assurance that IMPSAT Argentina will reach a definitive agreement with this holder to reschedule or restructure such obligations. Under certain circumstances, IMPSAT Argentina could be forced to seek protection or liquidate
under the bankruptcy laws of Argentina.

On July 29, 2005, we entered into amended and restated financing agreements to restructure
$125.6 million of our vendor indebtedness, the Senior Secured Notes, which were issued by IMPSAT Argentina and IMPSAT Brazil pursuant to separate credit agreements that are each guaranteed by us, and which was held by affiliates of certain members
of our board of directors. Prior to the amendments, such indebtedness was required to be paid in eight remaining semi-annual principal installments aggregating $15.7 million between September 2005 and March 2009. Pursuant to such amendments, we made
an initial principal repayment of $18.3 million and modified the terms of the agreements such that the remaining outstanding principal amounts ($38.9 million owed by IMPSAT Argentina and $68.4 million owed by IMPSAT Brazil) will be repaid in the
aggregate amounts of $5 million in 2006, $20 million in 2007, $25 million in 2008 and $57.3 million in 2009. The amended indebtedness bears interest at a rate of 12% per annum, payable semi-annually in arrears, as compared to 10% per annum
for the period prior to the effectiveness of the amendments. The parties also agreed to amendments to the financial covenants in the agreements to reflect current financial and operating conditions. The amended indebtedness is subject to optional
prepayment at a cost of 101% until July 29, 2006 and at par thereafter. IMPSAT Argentina and IMPSAT Brazil (with respect to the credit agreement to which it is a party), on the one hand, and the lenders of the amended indebtedness, on the other
hand, each have an option to further amend the agreements governing such indebtedness to provide that we shall be the primary borrower, and IMPSAT Argentina and IMPSAT Brazil the respective guarantors of the portions of the indebtedness currently
owed by them, subject to certain terms and conditions. The terms and conditions of the amendments were negotiated by a special committee of our board of directors that was formed to explore recapitalization alternatives.

In its audit report on our consolidated financial statements for the year ended December 31, 2005, Deloitte & Touche LLP, our independent
registered public accounting firm, included a paragraph that noted that our current liquidity position, the amount of our debt obligations, and our operating results, raised substantial doubt as to our ability to continue as a going concern. Based
on our current business plan, we will not internally generate sufficient funds to meet our maturing obligations in the future. If we cannot generate sufficient cash flows to meet our cash-flow and working capital needs, and to achieve our longer
term growth and operational goals, we will require additional financing. There is no assurance that such financing will be available on acceptable terms or at all. Our condensed financial statements included in this Quarterly Report on Form 10-Q
have been prepared under the assumption that we will continue as a going concern and do not include any adjustments that might result if we were forced to discontinue operations. For additional information, see Note 2 to our condensed consolidated
financial statements.

As set forth in our condensed consolidated statement of cash flows, our operating activities provided
$7.6 million in net cash flows for the three months ended March 31, 2006, compared to $5.5 million provided by operating activities during the same period of 2005. The increase in cash flow provided by operating activities was
primarily due to smaller net loss in 2006, compared to 2005.

For the three months ended March 31, 2006, our investing activities used
$7.1 million in net cash flows, compared to $8.3 million during the corresponding period in 2005. The decrease in net cash flows used in investing activities was principally due to a decrease in purchases of property, plant and equipment.



37



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##### Table of Contents

During the three months ended March 31, 2006, $3.1 million in net cash flows were used in financing
activities, as compared to $19.6 million during the corresponding period in 2005. The negative cash flow from financing activities in 2005 was principally due to the repayments of long-term indebtedness.

At March 31, 2006, we had leased satellite capacity with average annual rental commitments of approximately $10.4 million through the year 2009
under non-cancelable agreements. We have entered into contracts for the purchase of satellite capacity for approximately $14.4 million through 2015. In addition, at March 31, 2006, we had commitments to purchase telecommunications
equipment amounting to approximately $6.1 million. Furthermore, we have leased from third parties a series of terrestrial links for the provision of data, Internet and telephony services to our clients in the different countries in which we operate.

The following table sets forth due dates of our contractual obligations as of March 31, 2006 (debt repayments denominated in local currencies have
been calculated at the exchange rate at March 31, 2006):



|                                   |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |        |  |   |        
|---------------------------------- |  | -------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | ----- | ------ |  | - | ------ |  | - | -------
|Type of Obligations                |  | 2006           |        | 2007 |   | 2008   |  | 2009 |        | 2010 |   | Thereafter |  | Total
|                                   |  | (in thousands)
|Short-term debt                    |  | $              | 2,510  |      | $ | 439    |  | $    | 54     |      |   |            |  |       |        |  |   |        |  | $ | 3,003  
|                                   |  |                |        |      |   |        | 
|Long-term debt(1)                  |  |                | 12,095 |      |   | 29,199 |  |      | 36,417 |      | $ | 58,096     |  | $     | 9,825  |  | $ | 92,903 |  |   | 238,535
|                                   |  |                |        |      |   |        | 
|Capital lease obligations          |  |                | 1,549  |      |   | 933    |  |      | 809    |      |   | 105        |  |       | 80     |  |   |        |  |   | 3,476  
|                                   |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |        |  |   |        
|Subtotal                           |  |                | 16,154 |      |   | 30,571 |  |      | 37,280 |      |   | 58,201     |  |       | 9,905  |  |   | 92,903 |  |   | 245,014
|Operating leases                   |  |                |       |      |   |       |  |      |       |      |   |           |  |       |       |  |   |       |  |   |       
|Purchase obligations(2)            |  |                | 28,900 |      |   | 15,639 |  |      | 8,744  |      |   | 5,556      |  |       |        |  |   |        |  |   | 58,839 
|                                   |  |                |        |      |   |        | 
|Interest payments                  |  |                | 12,182 |      |   | 20,978 |  |      | 17,275 |      |   | 10,101     |  |       | 6,538  |  |   | 2,787  |  |   | 69,861 
|                                   |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |        |  |   |        
|Total contractual cash obligations |  | $              | 57,236 |      | $ | 67,188 |  | $    | 63,299 |      | $ | 73,858     |  | $     | 16,443 |  | $ | 95,690 |  | $ | 373,714
|                                   |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |        |  |   |        

---

|(1) | 2006 amount includes the defaulted indebtedness of IMPSAT Argentina totaling approximately
$7.6 million in outstanding principal amount.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

|(2) | This includes commitments for satellite capacity and terrestrial links.
|--- | -----------------------------------------------------------------------

Forward Looking Statements

Some of the statements in this report constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. These statements relate to our operations that are based on
our current expectations, estimates and projections. Words such as may, will, could, would, should, anticipate, predict, potential, continue,
expects, intends, plans, projects, believes, estimates, in our view and similar expressions are used to identify these forward-looking statements. These statements
are only predictions and as such are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are based upon assumptions as to future events or our future
financial performance that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecast in these forward-looking statements. As a result, these statements speak only as of the date they were
made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

We intend that all forward-looking statements made will be subject to safe harbor protection of the federal securities laws pursuant to Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934.

Forward-looking statements include but are not limited to:



| |  |  | our expectations and estimates as to maintenance and growth of our Broadband Network, and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | future financial performance, including growth in sales and income.
| | - |  | -------------------------------------------------------------------

Factors that could cause our actual results to differ materially from those expressed in any forward-looking statements we make include those in the Certain Considerations section of this Report, and the
following factors, among others:



| |  |  | the availability and terms of additional capital to fund our continuing efforts,
| | - |  | --------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | adequacy of cash from operations for our future liquidity and working capital needs,
| | - |  | ------------------------------------------------------------------------------------



| |  |  | inaccuracies in our forecasts of customer or market demand,
| | - |  | -----------------------------------------------------------



| |  |  | loss of a customer that provides us with significant revenues,
| | - |  | --------------------------------------------------------------



| |  |  | changes in our highly competitive market,
| | - |  | -----------------------------------------



| |  |  | changes in or developments under laws, regulations and licensing requirements,
| | - |  | ------------------------------------------------------------------------------



| |  |  | changes in telecommunications technology,
| | - |  | -----------------------------------------



| |  |  | currency fluctuations, and
| | - |  | --------------------------



| |  |  | changes in economic conditions in the Latin American countries where we operate.
| | - |  | --------------------------------------------------------------------------------

These factors should not be construed as exhaustive. You should consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of predictions contained in such
forward-looking statements. As noted above, these forward-looking statements speak only as of the date when they are made. We caution you that the factors we have identified above may not be exhaustive. We operate in a continually changing business
environment, and new factors that may affect our forward-looking statements emerge from time to time. We do not undertake any obligation to update forward-looking statements to reflect events, circumstances, changes in expectations, or the
occurrence of unanticipated events after the date of those statements. Moreover, in the future, we, through our senior management, may make forward-looking statements that involve the risk factors and other matters described in this Form 10-Q as
well as other risk factors subsequently identified, including, among others, those identified in our filings with the SEC on Form 10-K and Form 8-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The sections below highlight our
exposure to interest rate and foreign exchange rate risks. The analyses presented below are illustrative and should not be viewed as predictive of our future financial performance. Additionally, we cannot assure you that our actual results in any
particular year will not differ from the amounts indicated below. However, we believe that these results are reasonable based on our financial instrument portfolio at March 31, 2006 and assuming that the hypothetical interest rate and foreign
exchange rate changes used in the analyses occurred during the first quarter of 2006. We do not hold or issue any market risk sensitive instruments for trading purposes.

Interest Rate Risk. Our cash and cash equivalents consist of highly liquid investments with a maturity of less than 30 days. As a result of the short-term nature of these instruments, we do not believe that a
hypothetical 10% change in interest rates would have a material impact on our future earnings and cash flows related to these instruments. A hypothetical 10% change in interest rates would also have an immaterial impact on the fair values of these
instruments.

We are exposed to interest rate risk on our floating rate indebtedness, which affects our cost of financing. At
March 31, 2006, our total floating rate indebtedness aggregated $41.4 million, of which $11.1 million was denominated in U.S. dollars and accrued interest at specified spreads over the London Interbank Offered Rate (LIBOR) and $30.3 million was
denominated in local currencies of our operating subsidiaries and accrued interest at variable rates tied to local interest rates and inflation indices. Our actual interest rate is not quantifiable or predictable because of the variability of future
interest rates and business requirements. We do not believe such risk is material and we do not customarily use derivative instruments to adjust interest rate risk. As of March 31, 2006, a hypothetical 100 basis point increase in the London
Interbank Offered Rate (LIBOR) would affect our annual interest cost related to our floating rate indebtedness by approximately $0.1 million annually. The fair value of financial instruments, which approximate their carrying value, have been
determined using available market information and interest rates as of March 31, 2006.



|                                 |  |                                  |        |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |       |       |  |   |        |   |  |   |         |  |   |        
|-------------------------------- |  | -------------------------------- | ------ | ---------- | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ---------- | - | ----- | ----- |  | - | ------ | - |  | - | ------- |  | - | -------
|                                 |  | Expected Maturities at March 31, |        | Fair Value
|                                 |  | 2006                             |        |            | 2007 |   |        | 2008 |  |   | 2009   |   |  | 2010 |        |   | Thereafter |   |       | Total | 
|Senior Notes (fixed rate)        |  | $                                | 3,345  |            |      | $ | 21,691 |      |  | $ | 26,690 |   |  | $    | 58,145 |   |            |   |       |       |  | $ | 92,903 |   |  | $ | 202,774 |  | $ | 182,110
|Avg. interest rate               |  |                                  | 10.99  | %          |      |   | 11.92  | %    |  |   | 11.87  | % |  |      | 11.97  | % |            |   |       |       |  |   | 6.00   | % |  |   |         |  |   |        
|Term Notes (fixed rate)          |  | $                                | 459    |            |      | $ | 305    |      |  |   | 31     |   |  |      |        |   |            |   |       |       |  |   |        |   |  |   | 795     |  |   | 795    
|Avg. interest rate               |  |                                  | 8.88   | %          |      |   | 9.09   | %    |  |   | 7.57   | % |  |      |        |   |            |   |       |       |  |   |        |   |  |   |         |  |   |        
|Term Notes (variable rate)       |  | $                                | 4,365  |            |      | $ | 8,539  |      |  | $ | 10,503 |   |  | $    | 56     |   |            | $ | 9,905 |       |  |   |        |   |  | $ | 33,368  |  | $ | 33,368 
|Avg. interest rate               |  |                                  | 16.15  | %          |      |   | 9.98   | %    |  |   | 11.93  | % |  |      | 7.72   | % |            |   | 11.95 | %     |  |   |        |   |  |   |         |  |   |        
|Vendor Financing (variable rate) |  | $                                | 7,985  |            |      | $ | 36     |      |  | $ | 56     |   |  |      |        |   |            |   |       |       |  |   |        |   |  | $ | 8,077   |  | $ | 8,077  
|Avg. Interest rate               |  |                                  | 7.73   | %          |      |   | 8.90   | %    |  |   | 8.90   | % |  |      |        |   |            |   |       |       |  |   |        |   |  |   |         |  |   |        
|TOTAL                            |  | $                                | 16,154 |            |      | $ | 30,571 |      |  | $ | 37,280 |   |  | $    | 58,201 |   |            | $ | 9,905 |       |  | $ | 92,903 |   |  | $ | 245,014 |  | $ | 224,350
|                                 |  |                                  |        |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |       |       |  |   |        |   |  |   |         |  |   |        



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Foreign Currency Risk.A substantial portion of our costs, including lease payments for certain
satellite transponder and fiber optic capacity, purchases of capital equipment, and payments of interest and principal on our indebtedness, is payable in U.S. dollars. To date, we have not entered into hedging or swap contracts to address currency
risks because our contracts with our customers, except in Brazil, generally have provided for payment in U.S. dollars or for payment in local currency linked to the exchange rate between the local currency and the U.S. dollar at the time of
invoicing. These contractual provisions are structured to reduce our risk if currency exchange rates fluctuate. However, given that the exchange rate is generally set at the date of invoicing and that in some cases we experience substantial delays
in collecting receivables, we are exposed to some exchange rate risk.

During January 2002, Argentina abandoned the fixed
dollar-to-peso exchange rate and devalued the Argentine peso, and, on February 3, 2002, pursuant to the pesification decree, the Argentine government announced the mandatory conversion of all foreign currency
denominated contractual obligations governed by Argentine law into Argentine pesos at a rate of one Argentine peso to one U.S. dollar. The floating exchange rate at March 31, 2006 was pesos 3.08 = $1.00.
Devaluations of the peso have and will adversely affect IMPSAT Argentinas results of operations and, in turn, our companys consolidated results of operations and financial condition. As of March 31, 2006, a hypothetical 10%
devaluation of the peso would result in foreign exchange losses of approximately $5.1 million on our financial debt. During the remainder of 2006, our consolidated results could be impacted from transaction gains or losses on our
dollar-denominated monetary assets and liabilities. Potential balance sheet exposures include the reduction to our consolidated stockholders equity due to the effects of lower net income on retained earnings.

Pursuant to Brazilian law, our contracts with customers in Brazil cannot be denominated in dollars or linked to the exchange rate between the Brazilian
real and the U.S. dollar. In Brazil, we are permitted to amend the pricing of our services for our long-term telecommunication services contracts with our customers annually based on changes in the consumer price index in Brazil for the prior
year. In Argentina, obligations that were mandatorily converted to pesos under the pesification decree may be adjusted pursuant to an index rate based on variations in the Argentine consumer price index. These aspects of
the laws in Brazil and Argentina do not eliminate completely the currency exchange risk facing our operations in those countries. Changes in the consumer price indices in Brazil and Argentina may lag or be lower than changes in the exchange rate
between the Brazil and Argentine local currencies and the U.S. dollar and therefore may not fully allow us to address the impact of a devaluation of those currencies against the U.S. dollar. Also, contracts entered into after the
pesification decrees enactment that are initially denominated in pesos are not entitled to be adjusted according to any other consumer or other price index. Accordingly, our operations in Brazil and Argentina have
exposed us, and will increase our exposure, to exchange rate risks. At March 31, 2006, the real traded at a rate of R2.17 = $1.00. As of March 31, 2006, a hypothetical 10% devaluation of the real would result in
foreign exchange losses of approximately $6.4 million on our financial debt.

As discussed above, in response to political and economic
turmoil currently affecting Venezuela, the Venezuelan government imposed foreign exchange and price controls during 2003, making it difficult for our customers in Venezuela to obtain the U.S. dollars needed to make payments due to us in U.S. dollars
on a timely basis. These foreign exchange controls could also limit our ability to convert local currency into U.S. dollars and transfer funds out of Venezuela. On February 6, 2003, the Venezuelan government set a single fixed exchange rate for
the bolivar against the U.S. dollar of approximately Bs.1,600 = $1.00 as part of the new currency controls. The Venezuelan government further devalued its currency to Bs. 1,920 = $1.00 in February 2004, and Bs. 2,150 = $1.00 on March 5,
2005. In the majority of cases, we have agreed to receive bolivars at the official rate in payment for our services in lieu of U.S. dollars. As a result, our holdings of bolivars at March 31, 2006 totaled Bs.15.3 billion (or $7.1
million at the official exchange rate at such date). The decline in the U.S. dollar value of our cash and cash equivalents denominated in bolivarsas a result of the devaluation of the bolivar will result in a loss in our consolidated
financial statements.

Net revenues from services from our Argentine operations for the three months ended March 31, 2006 and 2005
represented approximately 27.2% and 30.2% of our total net revenues from services for such periods. Net revenues from services from our Brazilian operations for the three months ended March 31, 2006 and 2005 represented approximately 22.9% and
16.8% of our total net revenues from services for such periods. Our net revenues from services in Venezuela accounted for 11.6% and 13.6% of our total revenues from services for the three months ended March 31, 2006 and 2005, respectively.



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Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Based on an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end
of the period covered by this Quarterly Report on Form 10-Q, performed under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), our
CEO and CFO have concluded that our disclosure controls and procedures are effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms.

(b) Changes in internal
controls.

There were no changes in our internal control over financial reporting that occurred during the first quarter of 2006 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 1A. Risk Factors

There are no material changes from the risk factors as previously disclosed
in our Form 10-K for the year ended December 31, 2005, as filed with the SEC on March 31, 2006.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

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

Not applicable

Item 6. Exhibits

Exhibit Index:



|            |  |                                                                                                                                                                                                                                                                                                                                                                  
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                      
|3.1         |  | Restated Certificate of Incorporation of the Company (filed on March 26, 2003 as Exhibit No. 2.1 to the Companys Amendment No. 1 to Registration Statement on Form 8-A and incorporated
herein by reference).                                                                                                                                                   
|            | 
|3.2         |  | Amended and Restated Bylaws of the Company (filed on March 31, 2006 as Exhibit 3.2 to the Companys 2005 Annual Report on Form 10-K and incorporated herein by
reference).                                                                                                                                                                                       
|            | 
|4.1         |  | Indenture for the Companys 6% Senior Guaranteed Convertible Notes due 2011Series A, dated as of March 25, 2003, among the Company, The Bank of New York, as trustee and IMPSAT
Argentina, as guarantor (including form of Note) (filed on April 15, 2003 as Exhibit 4.1 to the Companys 2002 Annual Report on Form 10-K and incorporated herein by reference).
|            | 
|4.2         |  | Indenture for the Companys 6% Senior Guaranteed Convertible Notes due 2011Series B, dated as of March 25, 2003, among the Company, The Bank of New York, as trustee and IMPSAT
Argentina, as guarantor (including form of Note) (filed on April 15, 2003 as Exhibit 4.2 to the Companys 2002 Annual Report on Form 10-K and incorporated herein by reference).



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.3         |  | Disclosure Statement Under Chapter 11 of the Bankruptcy Code (filed on December 19, 2002 as Exhibit No. 99.2 to the Companys Current Report on Form 8-K, and incorporated herein by
reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|4.4         |  | Plan of Reorganization of the Company Under Chapter 11 of the Bankruptcy Code (filed on December 19, 2002 as Exhibit No. 99.3 to the Companys Current Report on Form 8-K, and incorporated
herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|4.5         |  | Order Confirming the Companys Plan of Reorganization Under Chapter 11 of the Bankruptcy Code dated December 16, 2002 (filed on December 19, 2002 as Exhibit 99.1 to the Companys
Current Report on Form 8-K, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|4.6         |  | Registration Rights Agreement among the Company, IMPSAT Argentina and the security holders party thereto, dated as of March 25, 2003 (filed on April 15, 2003 as Exhibit 4.6 to the Companys
2002 Annual Report on Form 10-K and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|4.7         |  | Specimen Common Stock Certificate (filed on March 26, 2003 as Exhibit No. 2.6 to the Companys Amendment No. 1 to Registration Statement on Form 8-A and incorporated herein by
reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|4.8         |  | Warrant Agreement between the Company and The Bank of New York, as warrant agent, dated as of March 25, 2003 (including form of Warrant) (filed on April 15, 2003 as Exhibit 4.8 to the
Companys 2002 Annual Report on Form 10-K and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                  
|            | 
|9.1         |  | 2003 Stock Incentive Plan (filed on April 15, 2003 as Exhibit 9.1 to the Companys 2002 Annual Report on Form 10-K and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|10.1        |  | Employment Agreement between Ricardo A. Verdaguer and the Company dated as of March 25, 2003 (filed on August 14, 2003 as Exhibit 10.5 to the Companys second quarter 2003 Quarterly Report
on Form 10Q and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            | 
|10.2        |  | Employment Agreement between Hector R. Alonso and the Company dated as of March 25, 2003 (filed on August 14, 2003 as Exhibit 10.6 to the Companys second quarter 2003 Quarterly
Report on Form 10Q and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|10.3        |  | Letter Agreement between Marcelo Girotti and the Company dated March 25, 2003 (filed on August 14, 2003 as Exhibit 10.7 to the Companys second quarter 2003 Quarterly Report on Form 10Q and
incorporated herein by reference). In accordance with Instruction 2 to Item 601 of Regulation S-K, the following agreements were not filed as exhibits because they are substantially identical in all material respects to Exhibit 10.4: Letter
Agreement between Mariano Torre Gomez and the Company dated March 25, 2003; Letter Agreement between Matias Heinrich and the Company dated March 25, 2003; Letter Agreement between Alexander Rivelis and the Company dated March 25,
2003.
|            | 
|10.4        |  | Second Amended and Restated Financing Agreement among IMPSAT Argentina, Morgan Stanley Senior Funding, Inc., and Deutsche Bank Trust Company Americas, as Administrative Agent and Collateral
Agent, dated as of July 29, 2005 (filed on November 14, 2005 as Exhibit 10.4 to the Companys third quarter 2005 Quarterly Report on Form 10-Q and incorporated by reference herein).                                                                                                                                                                                                                                                                                                       
|            | 
|10.5        |  | Second Amended and Restated Financing Agreement among IMPSAT Brazil, Morgan Stanley Senior Funding, Inc., and Deutsche Bank Trust Company Americas, as Administrative Agent and Collateral Agent,
dated as of July 29, 2005 (filed on November 14, 2005 as Exhibit 10.4 to the Companys third quarter 2005 Quarterly Report on Form 10-Q and incorporated by reference herein).                                                                                                                                                                                                                                                                                                          
|            | 
|10.6        |  | IMPSAT Fiber Networks, Inc. Management Incentive Plan (filed on December 29, 2005 as Exhibit 10.1 to the Companys Current Report on Form 8-K, and incorporated herein by
reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|10.7        |  | Form of IMPSAT Fiber Networks, Inc. Management Incentive Plan Retention Agreement (filed on December 29, 2005 as Exhibit 10.2 to the Companys Current Report on Form 8-K, and incorporated
herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|31.1        |  | Certification by the Companys Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            | 
|31.2        |  | Certification by the Companys Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            | 
|32.1        |  | Certification by the Companys Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|32.2        |  | Certification by the Companys Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant
has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Buenos Aires in the Republic of Argentina, in the capacity and on the date indicated.



IMPSAT Fiber Networks, Inc.By:

/s/ Héctor AlonsoHéctor AlonsoChief Financial OfficerDate: May 15, 2006




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