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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-K



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2004



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 of 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 registrants principal executive offices)



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



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange On Which Registered
|_________________   |  | __________________                       
|_________________   |  | __________________                       



Securities
registered pursuant to Section 12(g) of the Act: common stock, par value $0.01 per share



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Securities Exchange Act Rule
12b-2).    Yes ̈No  x



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 ̈



The aggregate market value of our common stock held by non-affiliates was approximately $9.9 million as of June 30, 2004,
the last business day of our most recently completed second fiscal quarter (based upon the closing price for the common stock as reported on such date by the Nasdaq Over-The-Counter Bulletin Board).



There were 10,116,100 shares of common stock outstanding on March 24, 2005.



Portions of our Proxy Statement to be delivered to
security-holders in connection with the Annual Meeting to be held on April 29, 2005 are incorporated by reference into Part III of this Report.

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TABLE OF CONTENTS



|                       |  |                                                                                                              |  |   
|---------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|CERTAIN CONSIDERATIONS |  | 4                                                                                                           
|ITEM 1.                |  | BUSINESS                                                                                                     |  | 13
|ITEM 2.                |  | PROPERTIES                                                                                                   |  | 21
|ITEM 3.                |  | LEGAL PROCEEDINGS                                                                                            |  | 22
|ITEM 4.                |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS                                                          |  | 22
|                       | 
|PART II                |  | 23                                                                                                          
|ITEM 5.                |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 23
|ITEM 6.                |  | SELECTED FINANCIAL DATA                                                                                      |  | 23
|ITEM 7.                |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 25
|ITEM 7A.               |  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                                    |  | 45
|ITEM 8.                |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  | 46
|ITEM 9.                |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |  | 46
|ITEM 9A.               |  | CONTROLS AND PROCEDURES                                                                                      |  | 47
|                       | 
|PART III               |  | 47                                                                                                          
|ITEM 10.               |  | DIRECTORS AND OFFICERS                                                                                       |  | 47
|ITEM 11.               |  | EXECUTIVE COMPENSATION                                                                                       |  | 48
|ITEM 12.               |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 48
|ITEM 13.               |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                               |  | 49
|ITEM 14.               |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                       |  | 49
|                       | 
|PART IV                |  | 49                                                                                                          
|ITEM 15.               |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                                             |  | 49
|SIGNATURES             |  | 50                                                                                                          
|EXHIBIT INDEX          |  |                                                                                                             



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Outlook and Uncertainties



Certain information in this Report contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements for purposes of these provisions, including any projections of earnings, revenues or other financial
items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statement of assumptions
underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as may, will, expects, plans, anticipates, estimates,
potential, or continue, or the negative thereof or other comparable terminology. Although IMPSAT Fiber Networks, Inc. believes that the expectations reflected in its forward-looking statements are reasonable, it can give no
assurance that such expectations or any of its forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in these forward-looking statements.



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Our Internet address is www.IMPSAT.com. We make available free of charge, on or through the investor relations section of our web site, annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after
we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (SEC).



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



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CERTAIN CONSIDERATIONS



In addition
to other information in this Report, the following risk factors should be carefully considered in evaluating IMPSAT and its business because such factors currently may have a significant impact on our business, operating results and financial
condition. As a result of the risk factors set forth below and elsewhere in this Report and the risks discussed in IMPSATs other SEC filings, actual results could differ materially from those projected in any forward-looking statements.



Risks Related to Our Financial Position and Our Securities



We will need to refinance a significant portion of our indebtedness



On June 11, 2002, 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 September 4, 2002, we filed our plan of reorganization, which we refer to as the Plan, with the bankruptcy
court. By order dated December 16, 2002, the bankruptcy court confirmed the Plan. In accordance to the terms of the Plan, we formally emerged from bankruptcy on March 25, 2003, which we refer to as the Effective Date.



Beginning in March 2005, we are required to repay in installments the
principal amount of our restructured senior debt owed by our subsidiaries to certain of their vendor financiers who elected to participate in the Plan. In addition, interest on the guaranteed senior notes issued under the Plan, which we refer to as
the Senior Notes, that was payable in kind between the Effective Date and March 28, 2005, is required to be paid in cash commencing in the third quarter of 2005. Our current projections contemplate that we will be required to refinance a portion of
our indebtedness coming due for repayment in the next several years because we will not have sufficient internally-generated funds to do so. Our inability to successfully refinance such indebtedness as it comes due would have a material adverse
effect on our company and would raise doubts as to our ability to continue as a going concern for a reasonable period of time.



A significant portion of the indebtedness coming due in 2005 and thereafter is held by affiliates of certain members of our board of directors.
Accordingly, a special committee of the Companys board of directors has been formed to explore recapitalization alternatives. These alternatives may take the form of a repurchase, refinancing or rescheduling of the payment terms of the
indebtedness of the Company and/or its operating subsidiaries, a potential capital infusion, or other types of transactions. There can be no assurance, however, that any such transaction will be successfully consummated.



We have a history of incurring losses that may make it difficult to
fund our future operations



We recorded net losses of
$154.1 million in 2000, $715.3 million in 2001 and $204.5 million in 2002. In 2003, we recorded net income of $740.5 million, which net income was attributable to the effect of the financial restructuring that resulted from the consummation of the
Plan and related transactions. In 2004, we recorded a net loss of $14.2 million. Increased competition, adverse economic conditions in our countries of operation and other factors have negatively affected our financial condition and business
operations. Our revenues may not be capable of funding our operations and repaying our indebtedness when due. We will need to raise additional financing to achieve and sustain profitability, and to fund our operating requirements.



We continued to be leveraged and our debt service requirements make us
more vulnerable to economic downturns in the markets we service or in the economy in general



Our current indebtedness restricts our ability to obtain additional financing and, because we may be more leveraged than some of our
competitors, may place us at a competitive disadvantage. Also, the indentures and amended financing agreements that we entered into in connection with our emergence from bankruptcy contain covenants that impose operating and financial restrictions
on us. These covenants could adversely affect our ability to finance future operations, potential acquisitions or capital needs or to engage in other business activities



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that may be in our interest. In the fourth quarter of 2004, IMPSAT Brazil failed to comply with certain financial ratios on its approximately $90.8 million
of senior secured vendor financing indebtedness. Although we obtained a waiver of the non-compliance for that quarter from the lender, we cannot guarantee that the lender will grant any required waivers in the future. If we cannot achieve the
financial results necessary to maintain compliance with these covenants, we could be declared in default and be required to sell or liquidate our assets to repay outstanding debt. Our total indebtedness as of December 31, 2004 was $281.1 million.



As a result of the implementation of our plan of
reorganization, we have a significant concentration of holders of our shares of our common stock



As part of the Plan, certain holders of claims received distributions of a significant number of shares of our common stock or of securities convertible
into or exercisable for such common stock. If such holders of significant numbers of shares of the common stock were to act as a group, such holders would be in a position to control the outcome of actions requiring stockholder approval, including
the election of directors. The concentration of ownership could also facilitate or hinder a negotiated change of control of the company and, consequently, affect the value of the common stock.



As a result of the implementation of the Plan, our initial board of directors
were nominated by certain initial holders of our securities. As long as these initial holders continue to hold a certain percentage of our common stock, common stockholders will not have the right to elect individuals to our board of directors.



Further, the possibility that one or more of the holders of
significant numbers of shares of the common stock may determine to sell all or a large portion of their shares of common stock in a short period of time may adversely affect the market price of the common stock.



There is a limited trading market for our common stock



There is currently a limited trading market for our
common stock, which began trading on the Nasdaq OTC Bulletin Board under the symbol IMFN on June 13, 2003. Prior to June 13, 2003, there was no established market for our common stock since the date of our emergence from bankruptcy.
There can be no assurance that an active trading market for our common stock will develop or be sustained.



We are restricted in our ability to pay dividends



We do not anticipate paying any dividends on our common stock in the foreseeable future. In addition, the covenants under the indentures governing our
Senior Notes (and any future financial facility to which we are a party will also likely) limit the ability of our company to pay dividends. Certain institutional investors may only invest in dividend paying securities or may operate under other
restrictions that may prohibit or limit their ability to invest in our common stock.



Our historical financial information is not comparable to our current financial condition and results of operations



As a result of emergence from bankruptcy during March 2003, we have been operating our business with a new capital structure
since April 1, 2003. We were also subject to fresh-start reporting prescribed by accounting principles generally accepted in the United States of America, which we refer to as U.S. GAAP. Accordingly, our financial condition and results of operation
for the periods prior to April 1, 2003 are not comparable to results of operations reflected in our historical financial statements, making it difficult to assess our future prospects based on historical performance.



Risk Related to Our Business



Economic and political conditions in Latin America pose numerous risks
to our operations



Substantially all of our revenues
are derived from operations in Latin America. During 2003 and 2004, approximately 26.6% and 31.6% of our consolidated net revenues were provided by IMPSAT Argentina, and



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approximately 24.8% and 24.9% were provided by IMPSAT Colombia. Our company also has operations in Venezuela, Brazil, the United States, Ecuador, Chile and
Peru. Of these, Argentina, Brazil, Venezuela, Ecuador and Peru, where we have significant operations, have experienced political and economic instability in recent years. Moreover, as events in the Latin American region have demonstrated, negative
economic or political developments in one country in the region can lead to or exacerbate economic or political crises elsewhere in the region. Furthermore, events in recent years in other developing markets have placed pressures on the stability of
the currencies of a number of countries in Latin America, including Argentina, Brazil, Colombia and Venezuela. While certain areas in the Latin American region have experienced economic growth, this recovery remains fragile. Pressures on the local
currencies in the countries in which we operate are likely to have an adverse effect on many of our customers, which, in turn, could adversely affect us. Volatility in regional currencies and capital markets has also had an adverse effect on our
ability and that of our customers to gain access to international capital markets for necessary financing and refinancing. A lack of international capital sources for emerging market borrowers could have a material adverse effect on us and many of
our customers.



Notwithstanding these circumstances, the
economic and political landscapes in Latin America have demonstrated signs of improvement in recent years. According to published reports, during 2004 Argentinas gross domestic product (GDP) grew by 8.8% and Brazils GDP grew by 5.2%.
During 2004, Colombias GDP grew by 3.74% and Venezuelas GDP increased by 17.3%.



While Argentina appears to be economically recovering it still faces political and financial instability



A significant portion of our operations, properties and customers are located in Argentina. Net revenues from our Argentine operations, acting through
IMPSAT Argentina, for each of 2003 and 2004 represented approximately 26.6% and 31.6% of our consolidated net revenues during those years. Accordingly, our financial condition and results of operations depend to a significant extent on macroeconomic
and political conditions prevailing from time to time in Argentina.



The Argentine economy has experienced significant volatility in recent decades, including numerous periods of low or negative growth and high and variable levels of inflation and devaluation. Since the peak of the most recent economic
crisis during the first half of 2002, Argentinas economy has experienced positive growth. The gross domestic product increased during 2003 by 8.4%, and although the value of Argentinas currency showed volatility compared to the U.S.
dollar, it stabilized in 2004. As further indication of the improvement, the gross domestic product continued its upward trend in 2004, increasing by 8.8%. However, there can be no assurance that the Argentine economy will continue to grow at
current rates, or at all, in the future. If Argentinas economic growth slows, stops or contracts, there could result a material adverse effect on IMPSAT Argentinas and our consolidated cash flows, financial condition and results of
operations.



The economic crisis in 2001 and 2002 resulted in
the withdrawal of a significant amount of deposits from the Argentine financial system in a short period of time. This precipitated a liquidity crisis, which prompted the Argentine government to impose exchange controls and transfer restrictions and
to require the conversion of dollar deposits and loans into pesos at asymmetric rates for depositors and financial institutions. Ultimately, many financial institutions became insolvent. As a result, the Argentine Central Bank was forced to
provide substantial financial aid to many banks. Many Argentine financial institutions remain weakened by the effects of the economic crisis and the Argentine governments response to it, and depositors confidence in the financial system
remains fragile. In addition, during this economic crisis, political and economic uncertainty and the Argentine governments emergency economic measures lead to the virtual paralysis of private sector activity. Since that time many companies
have ceased operations or filed some form of bankruptcy or reorganization proceeding. The recovery of the private sector is predicated in part on economic growth and in part on the ability of many private sector companies to restructure their own
defaulted debt obligations with domestic and international creditors and gain access to financing. If the private sector fails to recover fully, Argentinas economic growth could be adversely affected, which would have a material adverse effect
on us and many of our customers.



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In December 2001, Argentinas government declared a freeze on further payments on its
outstanding sovereign debt, among other measures. Since that time, the Argentine government has explored alternatives to refinance that debt. On September 11, 2003, Argentina was able to reach an agreement with the International Monetary Fund (the
IMF) to refinance $31 billion of indebtedness with the IMF, staged over a three-year period. In return, Argentina agreed to implement economic reform and to negotiate with private creditors of over $80 billion of sovereign indebtedness
upon which Argentina had defaulted. Since then, Argentina has at times engaged in lengthy negotiations with the IMF and other multilateral institutions and has faced various suspensions of scheduled disbursements and incurred payment delays. In
August 2004, the IMF announced a delay of its quarterly review of Argentinas compliance with the conditions of the September 2003 stand-by agreement in order to further assess the countrys compliance with required structural reforms and
its progress in the renegotiation of utility contracts and in the debt restructuring process. The Argentine government subsequently announced that it would postpone further negotiations with the IMF through December 31, 2004 (and, consequently,
forego additional IMF disbursements totaling $1.8 billion prior to that date), in order to concentrate on the restructuring of its defaulted debt.



On June 1, 2004, the Argentine government announced a proposal for the restructuring of Argentinas defaulted external indebtedness. On December 9,
2004, President Kirchner signed two decrees officially authorizing a global debt exchange offer to restructure external indebtedness owed to external private creditors. In the months following the launch of the Argentine governments external
debt restructuring proposals, the plan was vigorously rejected by a host of different informal creditor groups, which lobbied with institutional and individual investors and international financial agencies for substantial amendments and sought
support from the IMF, among others, for curtailing further aid to Argentina until desired amendments were made to the Argentine governments proposal. Despite this opposition, in February 2005, a large majority of these creditors agreed to
exchange their defaulted debt for new bonds worth approximately 35 cents on the dollar. As a consequence of its default on its sovereign debt, Argentina presently lacks access to financing from private international capital markets and other private
sources. This lack of access to private financing is expected to continue. Argentina is therefore likely to depend on the IMF and other multilateral lending as its main source of foreign capital in the near- to medium-term. As a consequence, if
Argentina fails to meet the performance criteria under its IMF program or the IMF otherwise decreases its lending to Argentina, Argentinas limited access to foreign capital could be curtailed, which could have a material adverse effect on
Argentinas economic prospects. These circumstances could have a material adverse effect on IMPSAT Argentinas and our consolidated cash flows, financial condition and results of operations.



Although the Argentine peso has appreciated, the continued political
and financial instability could adversely affect its valuation



Following the collapse of Argentinas dollar-peso parity regime and the implementation of a floating exchange rate system in early 2002, the peso has fluctuated significantly. After trading as low as 3.87 pesos to
the U.S. dollar in June 2002, it has generally appreciated against the U.S. dollar since early 2003. At December 31, 2003, the exchange rate was 2.95 pesos to the U.S. dollar, and at December 31, 2004, the exchange rate was 2.98pesos
to the U.S. dollar. A devaluation of the Argentine peso would affect our consolidated financial statements by generating foreign exchange transaction gains or losses on dollar-denominated monetary assets and liabilities of IMPSAT Argentina
and generally would result in a decrease, in U.S. dollar terms, in our revenues, costs and expenses in Argentina.



In February 2002, the Argentine government instituted the pesification decree. Generally, this decree mandates that all monetary
obligations arising from agreements subject to Argentine law denominated in foreign currency and existing as of January 6, 2002 are mandatorily converted into monetary obligations denominated in pesos at an exchange rate of one U.S. dollar to
one peso. Contracts denominated in pesos before the decree continued to be denominated in pesos, unaffected by the decree. Currently, a significant number of IMPSAT Argentinas customer contracts (approximately 56.4% of
such contracts) and a large percentage of its operating cash inflows (approximately 43.6% of such cash flows) are now denominated in pesos. However, IMPSAT



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Argentinas debt service payments and a significant portion of its costs (including capital equipment purchases and payments for certain leased
satellite and terrestrial capacity) remain denominated and payable in U.S. dollars. Accordingly, our financial condition and results of operations in Argentina are dependent upon IMPSAT Argentinas ability to generate sufficient pesos
(in U.S. dollar terms) to pay its costs, expenses and to satisfy its debt service requirements. New developments which result in devaluation of the peso against the U.S. dollar could have a material adverse effect on our consolidated cash
flows, financial condition, and results of operations.



Uncertainties exist surrounding the ultimate resolution of Argentinas economic and political instability, and actual results could differ from those estimates and assumptions utilized. The Argentine economic and political situation
continues to evolve and the Argentine government may enact future regulations or policies that, when finalized and adopted, may adversely and materially impact, among other items: (i) the realized revenues we receive for services offered in
Argentina; (ii) the timing of repatriations of any dividends or other cash flows from IMPSAT Argentina to our holding company in the United States; (iii) our asset valuations; and (iv) our peso-denominated monetary assets and liabilities.



Brazilian economic and political conditions may have a
direct impact on our operations



Brazil, as the
largest country and economy in Latin America, represents a significant existing and potential market for us. Our company, acting through IMPSAT Brazil, has expanded its operations in Brazil since that subsidiarys inception in 1998. Revenues
from services from our Brazilian operations for 2003 and 2004 represented approximately 13.8% and 14.7%, respectively, of our consolidated net revenues for such periods. For 2004, our operations in Brazil represented the third largest source of
revenues among the eight countries in which we operate. Accordingly, our operations in Brazil subject our financial condition and results of operations to various additional economic and political risks.



Our business, financial condition and result of operations in Brazil may be
adversely affected by changes in policy involving factors outside of our control, such as monetary and fiscal policies, currency fluctuations, energy shortages, and, other political, social and economic developments in or affecting Brazil.



In early 1999, the Brazilian government allowed the
real to float freely, resulting in a 38% devaluation against the U.S. dollar from January 14, 1999 through December 31, 2000. From 2000 through 2002, Brazils currency experienced further significant devaluations against the U.S. dollar.
These had a negative effect on our real-denominated revenues. In addition, currency devaluations can also create inflationary pressures. Inflation itself, as well as some governmental measures to combat inflation, had significant negative
effects on the Brazilian economy in the past. However, at December 31, 2003 and 2004, Brazils currency had appreciated against the U.S. dollar by 18.1% and 8.3%, respectively.



At December 31, 2003, the real traded at a rate of R$3.53 = $1.00. During 2004, the real appreciated further,
trading at a rate of R$2.65=$1.00 at December 31, 2004. At March 15, 2005, the real traded at a rate of R$2.76 = $1.00. Brazils GDP contracted by around 0.2% during 2003, but increased by 5.2% in 2004, its best performance since 1994.
Despite appreciation of the real against the U.S. dollar during 2004, the stabilization of inflation, and expansion in the economy, growth slowed in the fourth quarter of 2004, raising cautions about the economic rebounds
sustainability. Failure to successfully implement necessary economic reforms and measures to preserve social and political stability and achieve economic growth in Brazil could prompt adverse responses from the international capital markets and
investor community and halt or reverse any economic recovery in that country. The political and economic volatility in Brazil have had, and can be expected to continue to have, a material adverse effect on IMPSAT Brazils and our overall
financial condition and results of operations.



Recent
civil and political unrest in Venezuela may have an adverse impact on our operations



In April 2002, a general strike and violent civil unrest in Venezuela directed against the policies of that countrys head of state, President Hugo Chavez, forced Mr. Chavez from office. Less than two days later,
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support from tens of thousands of pro-Chavez demonstrators led to Mr. Chavezs reinstatement. In December 2002, opposition groups again launched a
nationwide labor strike. The strike, which lasted for two months, brought the Venezuelan economy to an almost standstill and severely curtailed the production and export of oil, the major source of Venezuelas foreign exchange. In August 2004,
opponents of Mr. Chavez conducted a recall referendum in accordance with the Venezuelan constitution regarding whether Mr. Chavez should be allowed to complete his remaining term in office, or be recalled. Over 59% of those voting in the referendum
voted to retain President Chavez for the remainder of his term ending 2006.



Venezuelas political instability in 2003 caused many private businesses throughout the country to close temporarily and disrupted Venezuelas petroleum industry, which provides the government with more than
half its revenue. Gross domestic product was adversely affected in 2003, with a decrease of 7.7%. In response, the Venezuelan government imposed foreign exchange and price controls beginning in February 2003, which make 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 also limit our ability to convert local currency into U.S. dollars and transfer funds out of
Venezuela. At December 31, 2002, the bolivar traded at a rate of Bs.1,392 = $1.00. 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. On February 9, 2004, the bolivar was further devalued by the government to Bs.1,920 = $1.00, which remained at December 31, 2004. On March 3, 2005, the Venezuelan government again devalued its
currency by 10.7%, to Bs. 2,150 = $1.00. A devaluation of the bolivar results in a loss in U.S. dollar terms on our monetary assets denominated in bolivars. Continuation or worsening of these volatile political and economic conditions
in Venezuela could materially and adversely impact our future business, operations, financial condition and results of operations.



We are vulnerable to currency fluctuations, devaluations and restrictions that may increase our losses and cause fluctuations in our operating
results



A significant portion of
our costs, including lease payments for certain satellite and fiber optic capacity, purchases of capital equipment, and payments of interest and principal on our indebtedness is payable in U.S. dollars. Our results of operations and financial
conditions are therefore vulnerable to currency devaluations. Following the pesification decree, our contracts that were governed by Argentine law, denominated in foreign currency and existing as of January 6, 2002 were
mandatorily converted into monetary obligations denominated in pesos at an exchange rate of one U.S. dollar to one peso, subject to adjustment pursuant to the Argentine CER consumer price index. In Brazil, our customer contracts with
Brazilian counterparties cannot be denominated in U.S. dollars or linked to the exchange rate between the Brazilian real and the U.S. dollar, although we are permitted to amend the pricing of our services for our long-term telecommunications
service contracts with our customers annually based on changes in the consumer price index in Brazil for the prior year. The inflation adjustment provisions in these laws do not eliminate completely the currency exchange risk facing our operations
in Argentina and Brazil. For example, contracts entered into between Argentine parties after the pesification decrees enactment that are initially denominated in pesos may not thereafter be adjusted according to the
CER or any other consumer price index. Also, changes in the consumer price indices in Argentina and Brazil may lag or be lower than changes in the exchange rate between the Argentine and Brazil local currency 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. Our operations in Argentina and Brazil represented a significant portion of our consolidated net revenues in 2004. Accordingly, our operations in
Argentina and Brazil have exposed us, and will increase our exposure, to exchange rate risks.



Except in Argentina and Brazil, the contracts of the Company and its subsidiaries with customers generally 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 net revenues during 2004. However, 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, our operations in those other countries are also exposed to exchange rate risk.



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Substantial or continued devaluations in local currencies relative to the U.S. dollar could have a
material adverse effect on the ability of our customers to absorb the costs of a devaluation. This could result in our customers seeking to renegotiate their contracts with us or, failing satisfactory renegotiation, defaulting on or canceling their
contracts. Our competitors and potential future competitors, including the monopoly public telephony operators, which we refer to as PTOs, and large, multinational telecommunications companies, may be less exposed to currency risk or may be better
able to hedge their currency risk and could thereby gain a relative competitive advantage in the event of a currency devaluation. In addition, Latin American economies have experienced shortages in foreign currency reserves and restrictions on the
ability to expatriate local earnings and convert local currencies into U.S. dollars. Currency devaluations in one country may have adverse effects in another country.



Our earnings will deteriorate if we cannot collect on our customer accounts



As of December 31, 2004, our gross trade accounts receivable were $41.4
million compared to $51.6 million as of December 31, 2003. We recorded a net reversal of a provision for doubtful accounts of $3.9 million in 2004 compared to a provision of $2.9 million in 2003. At December 31, 2004, our allowance for doubtful
accounts covered approximately 115% of our gross trade accounts receivable past due more than six months, compared to 106.3% as of December 31, 2003. As our business increases with small and medium customers and in relation to any economic
contractions in our principal countries of operation, we may experience an increase in uncollectable accounts receivable. For example, we anticipate that we could experience an increase in our uncollectable accounts receivables in Venezuela because
of the political and financial instability in that country, and the resultant adverse impact on the creditworthiness and solvency of our customers there (see Economic and political conditions in Latin America pose numerous risks to our
operations). Difficulties in collecting amounts due from our customers could have a material adverse effect on our business, results of operations and financial condition.



We face numerous risks that could adversely affect our Broadband Network



Operating the Broadband Network may have a negative impact on our results
of operations



Our operation of the Broadband Network,
which may include the expansion into new services for our business customers, could involve any one or more of the following:



| |  |  | regulatory risks, including obtaining the appropriate licenses;
| | - |  | ---------------------------------------------------------------



| |  |  | capital expenditures; and
| | - |  | -------------------------



| |  |  | competition from large, well-financed international telecommunications carriers.
| | - |  | --------------------------------------------------------------------------------



Our ability to obtain new capital that we might require in the future may be negatively affected by many factors beyond
our control



Our future capital requirements will depend
upon many factors, including:



| |  |  | the cost, timing and extent of upgrading or maintaining our networks and services;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | our enhancement and development of services, directly or through our subsidiaries;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | our ability to react to developments in the industry, including regulatory changes;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the need to enter into market segments with higher volumes but lower margins;
| | - |  | -----------------------------------------------------------------------------



| |  |  | the status of competing services; and
| | - |  | -------------------------------------



| |  |  | our results of operations.
| | - |  | --------------------------



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Further development of the Broadband Network will require additional resources that we may not
have



We may need to adapt the Broadband Network to
respond to:



| |  |  | requests by our customers for coverage of our Broadband Network beyond its existing footprint;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | changes in our customers service requirements; and
| | - |  | ---------------------------------------------------



| |  |  | technological advances by our competitors.
| | - |  | ------------------------------------------



We may require additional financial, operational and managerial resources to expand or adapt the Broadband Network to accommodate new services and
technologies. If we are unable to expand or adapt the Broadband Network to respond to these developments on a timely basis, and at a commercially reasonable cost, our business may be materially adversely affected.



Our failure to acquire, integrate and operate new technologies could
harm our competitive position



The telecommunications
industry is characterized by rapid and significant technological advancements and the introduction of new products and services. We do not possess significant intellectual property rights with respect to the technologies we use and are dependent on
third parties for the development of and access to new technology. In addition, we generally own the customer premises equipment used to provide our services and we own the fiber optic networks, including switching equipment, that constitute the
Broadband Network. Therefore, technological changes that render our equipment and the Broadband Network out of date, less efficient or more expensive to operate than newer equipment could require us to incur substantial increases in capital
expenditures to upgrade or replace such equipment.



We cannot
predict the effect of technological changes, such as changes relating to emerging wireline and wireless transmission technologies and the use of the Internet for traditional voice, data or other broadband services, on our business. In addition, it
is impossible for us to predict with any certainty which emergent technology relevant to our business will prove to be the most economic, efficient or capable of attracting new customers. A reduction in the demand for data transmission services or a
failure by us to obtain and adapt to new technology in our markets could have a material adverse effect on our ability to compete successfully.



We face significant competition in Latin America



The telecommunications industry in Latin America is highly competitive and is generally characterized by low barriers to entry. We expect that
competition in the industry will maintain its intensity. We compete on the basis of our experience, quality, customer service, range of services offered and price.



We have experienced pricing pressure for some of our services, and we expect to continue to face pricing pressure. We may
further experience declining operating profit margins as the PTOs in the countries in which we operate become more competitive and place greater emphasis on data telecommunications.



PTOs have competitive advantages in the marketplace



In most of our markets, our principal competitor is the local PTO or an
affiliate of the local PTO. The PTOs generally have significant competitive advantages. These advantages generally include:



| |  |  | close ties with national regulatory authorities
| | - |  | -----------------------------------------------



| |  |  | control over connections to local telephone lines
| | - |  | -------------------------------------------------



| |  |  | ability to subsidize competitive services with revenues generated from services they provide on a monopoly or duopoly basis
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | reluctance of regulators to adopt policies and grant regulatory approvals that will result in increased competition
| | - |  | -------------------------------------------------------------------------------------------------------------------



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For example, Telecom Argentina and Telefonica are the PTOs in Argentina. In Brazil, our principal
competitors are Embratel (Telmex), Brasil Telecom, Telefonica, and Telemar.



In the future, the PTOs may devote substantially more resources to the sale, marketing and provision of services that compete with us, which could have a material adverse effect on our business, results of operations
and financial condition.



International
telecommunications carriers have greater resources than we do



We also compete with operators of satellite data transmission networks and terrestrial telecommunications links and face actual or potential competition from large international telecommunications carriers and from other industry
participants. International telecommunications carriers, whose principal focus has traditionally been long distance telephony services, may increasingly focus on the private telecommunications network systems segment of the telecommunications market
as deregulation continues. Many of these potential competitors have substantially greater financial and other resources than we do. In addition, consolidation of telecommunications companies and the formation of strategic alliances within the
telecommunications industry could give rise to significant new competitors.



Our competitors could take advantage of new or competing technologies to our detriment



Although we believe we have the flexibility to act quickly to take advantage of any significant technological development, new competing technologies may
negatively affect our business. For example, technologies such as digital subscriber line, or DSL, significantly enhances the speed of traditional copper lines. DSL or other technologies enable our PTO competitors to offer high-speed services
without undergoing the expense of replacing their existing copper networks. Widespread use of DSL in our markets could materially improve the last mile advantage held by our competitors. Our telecommunications network services also may
face competition from entities that use new or emerging voice and data transmission services or technologies that currently are not widely available in Latin America. Furthermore, competing technologies may gain market and commercial acceptance. We
are limited by our existing cash resources and our anticipated constraints on availability of financing from making any significant capital expenditures to acquire any new technologies. If these developing or new technologies are successful, they
may provide significant long-term competition that could have a material adverse effect on our business, results of operations and financial condition.



Downturn in the telecommunications industry could negatively affect our operations



Regional economic difficulties, which occurred during the last several
years, have had a materially negative impact on the telecommunications market in Latin America. The rate at which the industry improves is critical to our ability to improve overall financial performance. The financial difficulties experienced by
other participants in the telecommunications industry resulted in some of our competitors purchasing the assets of these troubled companies. This consolidation, in some cases, has resulted in multiple smaller competitors being absorbed into
relatively few large entities (with significantly greater financial and other resources than we have, including greater access to financing), thereby increasing the operating profit margin pressures that we face. In particular, Spains
Telefonica S.A. and Telmex (Telefonos de Mexico S.A. de C.V.) have significantly expanded their presence and acquisitions in recent years in the Latin American region. As a result of this industry consolidation, potential customers and suppliers may
prefer to do business with competitors that have greater financial and other resources.



We face regulatory risks and uncertainty with respect to local laws and regulations



Our business is dependent upon the procurement and maintenance of licenses to provide various telecommunications network services in the countries in
which we operate. We believe that we have all licenses required for the conduct of our current operations. We expect that those licenses that are subject to expiration



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will be renewed in due course upon our application to the appropriate authorities. Due to the political and economic risks associated with the countries in
which we operate, we cannot assure you that we will be able to maintain our licenses or that they will be renewed upon their expiration. The loss, or substantial limitation upon the terms, of our licenses could have a material adverse effect on our
results of operations. We cannot assure you that we will succeed in obtaining all requisite regulatory approvals to operate in those countries in which we may desire to do business.



Local laws and regulations differ significantly among the jurisdictions in which we operate and in which we may operate in
the future. The interpretation and enforcement of these laws and regulations vary and are often based on the informal views of the local ministries which, in some cases, might be subject to influence by the PTOs. The conditions governing our service
offerings may be altered by future legislation or regulation. In some of our principal existing and target markets, laws and regulations prohibit or limit our provision of certain telecommunications services.



We may need to improve the footprint of our metropolitan area networks



We operate 15 metropolitan area networks in
Argentina, Colombia, Brazil, Venezuela, Ecuador and Peru (see Item 2PropertiesMetropolitan Area Networks). In those countries, the coverage footprints of our metropolitan area networks are generally smaller than those of the
dominant PTO or incumbent carriers. Accordingly, in order to maintain or improve our competitive position in those markets, we might be required to incur capital expenditures to expand the footprints of our metropolitan area networks in future
periods. There can be no assurance that we will have the capital resources necessary to make an investment in any such expansion of our metropolitan area networks.



PART I



|Item 1. | BUSINESS
|------- | --------



General



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, earth stations and leased fiber optic and satellite links. We own and operate 15 metropolitan area
networks in some of the largest cities in Latin America, including Buenos Aires, Bogotá, Caracas, Quito, Guayaquil, Rio de Janeiro and São Paulo.



In the fourth quarter of 2000, we completed the construction of an extensive pan-Latin American broadband fiber optic network (which we call our
Broadband Network) connecting major cities across Argentina and Brazil, and the commencement of commercial operation of the full Broadband Network in those locations. At December 31, 2004, the Broadband Network comprised 15 metropolitan area fiber
optic networks and wireless links, extending over 1,000 route kilometers, 15 IMPSAT-owned and operated data centers, in the largest cities in Argentina, Brazil, Colombia and Peru, and long-haul fiber optic backbones in Brazil, Argentina, Chile and
Colombia extending over 8,880 route kilometers. Our Broadband Network uses advanced transmission technologies, including dense wave division multiplexing, or DWDM, asynchronous transfer mode, or ATM, and Internet protocol, or IP.



IMPSAT Corporation was organized in 1994 as a Delaware holding company to
combine the IMPSAT businesses in Argentina, Colombia and Venezuela. Our operations started in Argentina in 1990 under the name



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IMPSAT S.A. (IMPSAT Argentina). We began operations outside of Argentina with the establishment of IMPSAT S.A. (IMPSAT Colombia) in 1991 and the
establishment of Telecomunicaciones Impsat S.A. (IMPSAT Venezuela) in 1992. New operating subsidiaries were created in Ecuador (Impsatel del Ecuador S.A., which we call IMPSAT Ecuador), in the United States (IMPSAT USA, Inc.) in 1995 and in Brazil
(Impsat Comunicacoes Ltda., which we call IMPSAT Brazil) in 1998. In January 2000, we changed our companys name from IMPSAT Corporation to IMPSAT Fiber Networks, Inc. During 2001, we commenced operations in Chile (Impsat Chile S.A., or IMPSAT
Chile) and Peru (Impsat S.A., or IMPSAT Peru).



On June 11,
2002, we filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code with the bankruptcy court. On September 4, 2002, we filed the Plan with the bankruptcy court. During our bankruptcy proceedings, we operated our
business and managed our assets in the ordinary course as a debtor-in-possession. By order dated December 16, 2002, the bankruptcy court confirmed the Plan. In accordance with the terms of the Plan, we formally emerged from bankruptcy on the
Effective Date, March 25, 2003. As a result of our Chapter 11 reorganization we reduced our principal and accrued interest by over $700 million.



Our Organizational Structure



In 2003, in conjunction with our financial reorganization, we implemented a new organizational structure in an effort to enhance the Companys
operating efficiency and strengthen our position in the new global competitive landscape.



Our former organizational structure, which divided the Companys operations into geographic regions, created unintended impediments to our ability to offer our customers integrated solutions to their
telecommunications requirements and posed a challenge to the development of new products to capitalize on the benefits of our pan-Latin American regional Broadband Network. As a result, we adapted our new structure to consist of four organizational
units:



| |  |  | Sales & Services, which is responsible for sales and ensuring customer satisfaction with Impsat services;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Products & Marketing, which manages our comprehensive portfolio of products, product upgrades, new product development and launches;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Network Operations, which administrates our telecommunications infrastructure and searches for the most efficient technologies available in the market; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Corporate Services, which provides support to our Sales and Services, Product and Marketing and Network Operations through its five subdivisions: Administration and Audit, Finance
and Treasury, Human Resources, Planning and Control, and Process and Information Technology.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These four units have a mandate to provide consistent delivery of services to our customers across the Company and are expected to serve as the foundation
for our success and sustained growth. Our new structure is intended to enable us to focus on our customers needs and clearly define accountability within our organization. Furthermore, it will assist us in gaining control over our expenses and
investments and improving our operational efficiency. We believe that these changes to our operating structure played an important role in 2003 and 2004 in the Companys achievement of operating and earnings margins which we expect will
continue into 2005.



Our Services



Our comprehensive telecommunications solutions consist of any combination of
our service offerings, including the enhanced and additional services that we are able to offer using our Broadband Network. We currently classify these service offerings into the following four categories: broadband and satellite data transmission
services; value-added services; internet services; and telephony services.



Data Transmission Services.We offer our customers a broad range of end-to-end network service combinations for their point-to-point and point-to-multipoint telecommunications needs, ranging from simple
connections to customized private network solutions. We offer our network services over our proprietary and



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leased networks, which are comprised of metropolitan area fiber optic rings and wireless networks, fiber optic and satellite links.



| |  |  | Connection Services.Our customers can purchase clear channels, frame relay services, ATM services, IP multiple protocol label switching (IP MPLS) services and IP digital
connection services to support their specific transmission requirements. Clear channels are typically purchased by customers that constantly transmit large amounts of voice, data and video traffic. Frame relay, IP MPLS and ATM services are typically
purchased by customers requiring reliable and rapid transmission of variable amounts of voice, data and video traffic. However, more and more companies are selecting IP Services to meet their transmission requirements. We typically offer our clear
channel connection services from 2 million bits per second, or Mbps, to 155 Mbps of capacity. Our frame relay and IP MPLS services are typically offered from 128 Kbps to 2 Mbps and we intend to offer our ATM services from 2 Mbps to 155 Mbps. In
addition, we offer digital connections using Internet protocol (LAN Switching  local area network switching) with interfaces of 10 Mbps to 100 Mbps as one of our options for local data network solutions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Private Network Services.For customers that require significant bandwidth and reliable data transmission between a number of sites, we offer customized private networks that
combine fiber optic, fixed wireless and satellite technology. We also provide them with a variety of other integrated services including outsourcing network management services, VoIP and video conferencing, monitoring, trouble shooting reports,
quality control and value-added services. Our consultative sales process ensures that each private network is designed to meet the evolving specific business and systems requirements of each customer. We also offer services such as video
conferencing and remote learning as part of our private network services.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Value-Added Services. We offer value-added services, including secure web and applications hosting services, through our advanced data center facilities. We also offer information technology solutions and data
center services designed to facilitate our customers e-business and e-commerce needs and optimize our customers business processes.



| |  |  | Data Center Services.We have established 15 data center facilities that offer hosting services by integrating our broadband services with advanced value-added solutions in
the region. We offer our clients a complete set of data center services ranging from housing and hosting, to more complex managed solutions, including disaster recovery, applications management and security services, in order to manage mission
critical applications. We also offer co-location services to carriers, including the rental of secure space, equipment provisioning and operation, maintenance services and interconnections in meet-me-room facilities.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Information Technology Solutions.As part of our end-to-end solutions, we also offer a variety of information technology services, including the design, installation and
integration of intranets, extranets and virtual private data networks, through which our customers can conduct business in a secure environment as well as integrate these new systems with their legacy telecommunications systems. In addition, we
offer an outsourcing solution for customers that do not have the technical personnel or choose not to operate, manage and maintain their telecommunications systems and networks.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Internet Services.We have offered Internet access services to
corporate and ISP customers since 1996. Our Broadband Network links our Latin American Internet backbone, which is managed as a single autonomous system, to the U.S. Internet through our U.S.-based point of presence using our fiber optic links in
addition to our leased satellite links. With the objective of positioning ourselves as the Latin America Internet Backbone, we have deployed a series of data centers within the region utilizing top-tier Internet service providers such as Cable &
Wireless (currently Savvis) and Qwest, and also take advantage of the data centers deployed within the region.



| |  |  | Corporate Internet Services.As part of providing our customers with a total telecommunications solution, we currently offer our corporate customers Internet access services
including line provisioning, managed security services, videoconferencing, media streaming services, IP MPLS services, equipment provisioning and installation, primary and secondary domain registration and maintenance and technical support.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15



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| |  |  | Wholesale Internet Services.We provide a complete Internet service for ISPs, including managed line provisioning for domestic and international backbone connections between
points of presence, access to our co-location sites and server services (e-mail and hosting services), managed security services, managed modem and roaming services, as well as the use of our network operation and help desk services.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Telephony Services.We provide switched
telephony services as permitted by the licenses granted in the countries where we operate. In Argentina and Peru we offer basic local and long distance services as well as a complete portfolio of added value services, including toll-free numbers,
calling cards, VoIP services, public telephony and wholesale long distance services to carriers. In Brazil, we have a restrictive license, which enables us to provide only basic local telephony in the Sao Paulo area, as well as domestic
long-distance within Brazil. In Chile and the United States, where we are limited to wholesale international long-distance, we are interconnected with major international carriers. The switching platform that supports the telephony operations
includes both traditional circuit and new packet switching technologies.



The following table shows our companys net revenues breakdown by service for the years ended December 31, 2002, 2003 and 2004:



|                                 |  |                                       |         |                                                            |   |            |  |       |                                    |  |             |         |  |      |   
|-------------------------------- |  | ------------------------------------- | ------- | ---------------------------------------------------------- | - | ---------- |  | ----- | ---------------------------------- |  | ----------- | ------- |  | ---- | --
|                                 |  | Predecessor Company December, 31 2002 |         | Combined Predecessor & Successor Company December, 31 2003 |   | %change(1) |  |       | SuccessorCompany December 31, 2004 |  | % change(1) |        
|                                 |  |                                       |         |                                                           
|                                 |  | (dollar amounts in thousands)         |        
|Broadband and satellite          |  | $                                     | 173,265 |                                                            | $ | 162,237    |  | (6.4  | )%                                 |  | $           | 161,964 |  | (0.2 | )%
|Internet                         |  |                                       | 27,243  |                                                            |   | 24,041     |  | (11.8 | )                                  |  |             | 26,125  |  | 8.7  |   
|Value added services(2)          |  |                                       | 14,191  |                                                            |   | 15,338     |  | 8.1   |                                    |  |             | 16,674  |  | 8.7  |   
|Telephony                        |  |                                       | 14,327  |                                                            |   | 17,674     |  | 23.4  |                                    |  |             | 21,673  |  | 22.6 |   
|                                 |  |                                       |         |                                                            |   |            |  |       |                                    |  |             |         |  |      |   
|Total net revenues from services |  | $                                     | 229,026 |                                                            | $ | 219,290    |  | (4.3  | )%                                 |  | $           | 226,436 |  | 3.3  | % 
|                                 |  |                                       |         |                                                            |   |            |  |       |                                    |  |             |         |  |      |   

---

|(1) | Increase (decrease) compared to previous year.
|--- | ----------------------------------------------

|(2) | Value added services includes revenues from our data center services, systems
integration and other information technology solutions services.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------



The Broadband Network



Our Broadband Network,
comprised of both fiber and satellite, enables us to provide high capacity, high speed telecommunications services across Latin America. Our Broadband Network comprises:



| |  |  | fiber optic local rings and wireless access points within major cities in Latin America, including Buenos Aires, Bogotá, Caracas, Quito, São Paulo and Rio de Janeiro
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | long-haul, high capacity fiber optic backbones linking major cities in Latin America
| | - |  | ------------------------------------------------------------------------------------



| |  |  | capacity on undersea cable systems to provide connections between and among major Latin American countries, as well as global telecommunications connections and Internet access
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | data center facilities in major cities in Latin America
| | - |  | -------------------------------------------------------



We believe that our Broadband Network enables us to:



| |  |  | cost-effectively offer more bandwidth-intensive services, including intranet and extranet services
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | reduce our costs for leased satellite capacity and leased telecommunications links as a percentage of our net revenues
| | - |  | ----------------------------------------------------------------------------------------------------------------------



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| |  |  | create a high capacity, pan-Latin American Internet backbone
| | - |  | ------------------------------------------------------------



| |  |  | offer Latin American companies more efficient access to the U.S. Internet backbone
| | - |  | ----------------------------------------------------------------------------------



| |  |  | continue to provide consistent, high quality service by keeping our customer traffic on our network
| | - |  | ---------------------------------------------------------------------------------------------------



Our Broadband Network is a fully integrated terrestrial fiber optic network connecting Santiago, Chile; Buenos Aires,
Argentina; and São Paulo and Rio de Janeiro, Brazil with points in between, combined with satellite capabilities which allow us to connect to all other locations in Latin America, the Caribbean and the United States.



Customers



Overview.We have grown rapidly since the commencement of our operations in 1990. Our customer base has increased
from 125 corporate customers in two countries at December 31, 1992 to 3,314 corporate customers in eight countries at December 31, 2004. Larger entities, which often have significant needs for reliable, cost-effective data transmissions and other
telecommunications services, were the first to use our customized telecommunications services. As a result, a significant portion of our revenues has been derived from our largest customers. A significant number of our customers, including a number
of our largest customers, are in Argentina and Colombia, which, having commenced in 1990 and 1992, respectively, are the locations of our longest-standing operations. Our customer base in Brazil has grown from 48 at the end of 1998 to 451 at the end
of 2004. As our business further matures and as we extend the operation of the Broadband Network, we expect that the average size of our customers will decline.



Our customers consist of financial institutions, major governmental agencies, and leading national and multinational corporations and private sector
companies, including Global Crossing Ltd., Instituto Nacional de Hipodromos, British Telecom, and the Government of the Province of Buenos Aires. Our ten largest customers accounted for approximately 18.7% of our revenues in 2004 and approximately
19.0% in 2003.



Our ten largest customers as of December 31,
2004 were:



| |  |  | subsidiaries of Global Crossing Ltd., a Bermuda-headquartered corporation that offers carriers carrier and wholesale telecommunications services over worldwide terrestrial and
submarine fiber optic networks
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Instituto Nacional de Hipodromos, a Venezuelan horse racing track
| | - |  | -----------------------------------------------------------------



| |  |  | British Telecom, one of Europes leading providers of telecommunications services
| | - |  | ---------------------------------------------------------------------------------



| |  |  | Government of the Province of Buenos Aires, the local government of the province of Buenos Aires
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | Corporacion Nacional de Ahorro y Vivienda, or Conavi, one of Colombias largest financial institutions
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | HSBC Bank Brasil S.A., the third-largest privately-owned bank in Brazil
| | - |  | -----------------------------------------------------------------------



| |  |  | AT&T, one of the global leaders in local, long distance, Internet and transaction-based voice and data services
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | Petrobras, Brazils largest industrial corporation, a global integrated energy company that explores, produces, refines, markets and transports petroleum and its by-products
worldwide, with operations in 11 other countries
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Confederaçaõ Nacional da Industria, Brazils national association of private industrial companies
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | Citicorp Global Technology, Inc.
| | - |  | --------------------------------



17



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The following table shows our customer concentration by country as of the dates indicated.



|          |  |                                               |  |      |      |  |       |      |      |   |  |       |  |      |  
|--------- |  | --------------------------------------------- |  | ---- | ---- |  | ----- | ---- | ---- | - |  | ----- |  | ---- | -
|          |  | As of December 31,                            | 
|Country   |  | 2002                                          |  |      | 2003 |  |       | 2004 |     
|          |  | (number of customers and percentage of total) | 
|Argentina |  | 953                                           |  | 36.0 | %    |  | 997   |      | 35.6 | % |  | 1,236 |  | 37.3 | %
|Colombia  |  | 678                                           |  | 25.6 |      |  | 723   |      | 25.8 |   |  | 788   |  | 23.8 |  
|Brazil    |  | 366                                           |  | 13.8 |      |  | 390   |      | 13.9 |   |  | 451   |  | 13.6 |  
|Venezuela |  | 215                                           |  | 8.1  |      |  | 172   |      | 6.2  |   |  | 200   |  | 6.0  |  
|Ecuador   |  | 216                                           |  | 8.2  |      |  | 229   |      | 8.2  |   |  | 263   |  | 7.9  |  
|USA       |  | 67                                            |  | 2.5  |      |  | 74    |      | 2.6  |   |  | 85    |  | 2.6  |  
|Chile     |  | 60                                            |  | 2.3  |      |  | 108   |      | 3.9  |   |  | 113   |  | 3.4  |  
|Peru      |  | 70                                            |  | 2.6  |      |  | 106   |      | 3.8  |   |  | 178   |  | 5.4  |  
|Mexico    |  | 24                                            |  | 0.9  |      |  |      |      |     |   |  |      |  |     |  
|          |  |                                               |  |      |      |  |       |      |      |   |  |       |  |      |  
|Total     |  | 2,649                                         |  | 100  | %    |  | 2,799 |      | 100  | % |  | 3,314 |  | 100  | %
|          |  |                                               |  |      |      |  |       |      |      |   |  |       |  |      |  



Customer Contracts.Our contracts with our customers have in the past typically ranged in duration from six months to five years and contracts with our private telecommunications network customers have generally been three-year contracts.



Except in Argentina and Brazil, our contracts generally provide for payment
in U.S. dollars or for payment in local currency linked to the exchange rate at the time of invoicing between the local currency and the U.S. dollar. The revenues of our customers are generally denominated in local currencies. Although our customers
include some of the largest and most financially sound companies and financial institutions in their markets, devaluation of local currencies relative to the U.S. dollar and foreign exchange controls restricting the exchange or convertibility of
such currencies could have a material adverse effect on the ability of our customers to pay us for our services. Currency devaluations and foreign exchange controls could also result in our customers seeking to renegotiate their contracts with us
or, alternatively, defaulting on their contracts.



Sales, Marketing and
Customer Services



We view our relationship with our
customers as a long-term partnership in which customer satisfaction is of paramount importance. For this reason, we apply an integrated approach to our sales, marketing and customer service functions. We emphasize the highest quality in our sales,
marketing and customer services and an enduring commitment to providing fast and flexible responses to customer demands. In order to efficiently meet these challenges, we adapt and tailor our customer service function to match the scale and
complexity of the solutions we provide.



Customers who require
or are better-suited to standardized or bundled solutions are serviced by dedicated sales teams with shared centralized support, along with available assistance from our 24 hours a day, 365 days a year call centers. Customers that utilize complex,
customized solutions composed of a variety of different services are assigned to designated multi-task customer service teams that develop and maintain long-term, cooperative relationships with these customers. These relationships provide us with an
in-depth understanding of the customers evolving telecommunications service requirements and levels of service satisfaction. The customer service team oversees all phases of initial customer contact, service planning, installation and ongoing
service. After we establish initial contact with a potential customer, the customer service team conducts a thorough evaluation of the customers telecommunications needs. As a result of this team-oriented approach, we believe that we have
achieved high levels of customer satisfaction while being able to identify new revenue generating opportunities, customer telecommunications solution enhancements and product or service improvements previously overlooked or not adequately addressed
by the client.



To market our new and enhanced services, such
as telephony and data centers, we have developed several sales and marketing teams, each focusing on a particular type of service. In addition to salaried sales and



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marketing personnel, we often use the services of third-party sales representatives to assist in generating sales and managing the contract process between
us and our potential customers. We typically pay these third parties a commission and royalties equal to a percentage of the revenues we collect from any contract with those customers obtained as a result of the efforts of the third-party sales
representative.



Competition



We compete on the basis of our experience, network quality, customer
service, range of services offered and price. Our competitors fall into three broad categories:



| |  |  | PTOs in each country where we operate
| | - |  | -------------------------------------



| |  |  | other companies that operate competing satellite and terrestrial data transmission businesses, including newer entrants from more developed telecommunications markets outside of
Latin America
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | large international telecommunications carriers
| | - |  | -----------------------------------------------



In the past, the PTOs and international telecommunications carriers have focused on local and long-distance telephony services. More recently, however,
they have focused a degree of attention and resources towards the private telecommunications network systems segment of the telecommunications market, and can be expected to increasingly do so in the future. Several of these entities have
significantly greater financial and other resources than we do, including greater access to financing. These competitors may also be able to subsidize their private telecommunications network businesses with revenues from their other business lines.



With the first group of competitors, our further expansion
into the telecommunications services market, along with continued deregulation of the telecommunications industry in Latin America, has brought us into more direct competition with the PTOs. Many of the PTOs in the countries where we operate have
established and marketed large customer or grand user business teams in an attempt to provide dedicated services to the type of customer that represents our most important target market.



We believe that by maintaining our position as a reliable, high quality
provider of telecommunications services, while strengthening the quality of our network and the breadth of service offerings through our Broadband Network, we will be able to maintain our current customers and successfully attract new customers.



In the second category, our competitors include data
transmission providers. We believe that we are able to compete successfully in data transmission services because we offer a broad array of services, provide high quality, custom-designed services that are tailored to meet the specific needs of each
customer and have a greater geographical footprint for our Broadband Network than our current competitors among these providers.



In the third category, major telecommunications carriers, including PTOs, have entered, or indicated their intention to enter, the Latin American
telecommunications market as deregulation in Latin America and elsewhere opens new market opportunities. Increasing competition may significantly affect our pricing policies. In particular, PTOs, including Telmex in Mexico and Telefonica in Spain
have expanded their regional presence through acquisitions of smaller competitors in specific countries. We cannot assure you that any future competition arising from major telecommunications carriers will not adversely affect our financial
condition or results of operations.



Our principal competitors
include:



| |  |  | Telmex, which is the leading telecommunications company in Mexico (with a publicly reported 17.2 million telephone lines in service, 3.3 million line equivalents for data
transmission, 1.7 million Internet accounts and a 75 thousand-kilometer fiber optic digital network), and which offers long distance and basic telephony services, data and video services, Internet access as well as integrated telecommunications
solutions for corporate customers in Mexico, and, reinforced by its purchase of the assets of AT&T Latin America in the first quarter of 2004, data, Internet, local and long distance, web hosting, and managed services through its affiliates in
Argentina, Brazil, Colombia, Chile and Peru.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Spains Telefonica S.A., which provides through its affiliates fixed line and cellular telecommunications services, data transmission services and audiovisual content and media
services in Spain, Latin America and other regions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Telecom Italia SpA, a global telecommunications provider, which operates through affiliates in Latin America principally the field of mobile telephony (but also fixed-network,
Internet, data transmission, telex and telegraphy) services in Argentina (through its ownership stake in Telecom Argentina held through Nortel Inversora), Bolivia, Brazil (through its wholly-owned TIM Brasil Group), Paraguay, Peru (through
wholly-owned TIM Peru) and Venezuela (through wholly-owned Corporacion Digitel) with publicly-announced goals of developing a continent-wide GSM network in South America.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Portugal Telecom, SGPS, S.A., which, through its subsidiaries, provides wireline services, including fixed lines, data and business solutions and internet-related services; cellular
telecommunications services in Portugal and Brazil.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other principal competitors include CTI, Chilesat, and Brasil Telecom.
| | - |  | ----------------------------------------------------------------------



We cannot assure you that competing technologies will not become available that will negatively affect our position. For example, technologies such as DSL
can significantly enhance the speed of traditional copper lines. These technologies enable our PTO competitors to offer customers high-speed services without undergoing the expense of replacing their existing twisted-pair copper networks. This, in
turn, could negate our last mile advantage. Our private telecommunications services could also face future competition from entities using or proposing to use new or emerging voice and data transmission services or technologies that are not widely
available in Latin America.



Rates are not regulated in our
countries of operation, and the prices for our services are strongly influenced by market forces. We believe that increasing competition will result in increased pricing pressures. We have faced and expect to continue to face declining prices and
may experience margin pressure as the PTOs in the countries where we have operations modernize their facilities, adapt to a competitive marketplace and place greater emphasis on data telecommunications and as other companies enter the Latin American
telecommunications market. These price and margin declines have also accelerated, and will likely continue to do so, as new competitors enter our markets.



The principal barriers to entry for prospective providers of private telecommunications network services such as ours are the development of the requisite
understanding of customer needs, technological and commercial operating experience, knowledge of and background in working with complex regulatory environments in Latin America and the Caribbean, infrastructure to provide quality services to meet
those needs and working capital.



Regulation



Domestic Service.We are subject to regulation by the national
telecommunications authorities of the countries where we operate, and our operations require us to procure permits and licenses from these authorities. While we believe that we have received all required authorizations from regulatory authorities
for us to offer our services in the countries in which we operate, the conditions governing our service offerings may be altered by future legislation or regulation that could affect our business and operations.



Cross-Border Service.We provide integrated data, voice and video
transmission between and among forty Latin American and Caribbean countries and the United States. International private line services are traditionally provided by local carriers in each country acting as correspondents and establishing dedicated
telecommunications links between their facilities. Due to our pan-Latin American presence, we are often able to offer our service using our own facilities and personnel at both ends of the private line circuit. As a result of this end-to-end
control, we maintain customer service and quality assurance at both ends of a link and realize better margins than when we use a correspondent carrier.



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In countries where we do not maintain customer premises equipment or where we are not authorized to
operate in that fashion, our service uses our facilities in the originating country to connect with a correspondent local carrier in the destination country or vice-versa. To date, we have signed correspondent agreements with carriers in several
Latin American and Caribbean countries.



Employees



As of December 31, 2004, we employed a total of 1,236 persons, of whom 302
were employed by IMPSAT Argentina, 197 by IMPSAT Brazil, and 246 by IMPSAT Colombia. Except with respect to our chief executive officer and our chief financial officer, we do not have any long-term employment contracts with any of our employees,
including management, and none of our employees are members of any union. We believe that our relations with our employees are good.



|Item 2. | PROPERTIES
|------- | ----------



Metropolitan Area Networks. We operate 15 metropolitan area networks, composed of a combination of fiber optic and microwave links, covering a
total of 1,000 route kilometers. Our first metropolitan area network was established in Buenos Aires, Argentina in 1990. In addition, we currently provide services over our metropolitan area networks in Córdoba, Mendoza and Rosario,
Argentina; Bogotá, Medellín and Cali, Colombia; Rio de Janeiro, Curitiba, São Paulo and Belo Horizonte, Brazil; Caracas, Venezuela; Quito and Guayaquil, Ecuador; and Lima, Peru.



Since 1995, we have managed and operated a fiber optic network covering 352
route kilometers in Bogotá, Colombia, pursuant to a joint venture with Empresa de Telecomunicaciones de Santafe de Bogotá, the Colombian PTO that provides local telephone service in the Bogotá region. This joint venture expires
in 2005, and we do not expect that it will be renewed. We have commenced the construction of our own metropolitan fiber optic network in Bogotá, Columbia. This network will cover only a portion of the area served by our prior network and
therefore will require us to lease links from third parties in areas that are not covered by our new dedicated network.



Fiber Optic Long-Haul Capacity. The long-haul segment of our Broadband Network, which comprises a seamless long-haul, high capacity fiber optic
backbone extending over 8,880 route kilometers, stretches from Santiago, Chile to Buenos Aires, Argentina, passing through Mendoza, Córdoba and Rosario; in Brazil, it covers Curitiba, Belo Horizonte, Rio de Janeiro and São Paulo. It
also includes a fiber optic connection between Paraná, Argentina and Curitiba, Brazil, which is currently unlit. We also own and operate a long haul fiber optic network connecting the cities of Cali, Medellín and Bogotá in
Colombia. To link the Broadband Network to other parts of Latin America and the world, we have purchased IRU capacity on Global Crossing Ltd.s undersea digital fiber optic cable systems (and associated terrestrial capacity) between the United
States and Latin America, including Global Crossings South American network, as well as leased capacity from other undersea fiber optic cable operations. This capacity enables our company to transmit telecommunications traffic seamlessly from
the United States to major countries in South America using the latest fiber optic technology.



Data Centers.To complement our Broadband Network infrastructure, we operate 15 advanced data center hosting facilities with an aggregate of
approximately 500,000 gross square feet in major cities in Latin America. These state-of-the-art facilities, which are capable of supporting the most advanced application hosting services, are located in Buenos Aires, Mendoza, Córdoba and
Rosario, Argentina; São Paulo, Rio de Janeiro and Curitiba, Brazil; Santiago, Chile; Fort Lauderdale, United States; Bogotá, Colombia; Caracas, Venezuela; Quito, Ecuador; and Lima, Peru.



Teleports. We own and operate teleports in Buenos Aires, Argentina;
São Paulo, Brazil; Bogotá, Colombia; Caracas, Venezuela; Quito, Ecuador; Lima, Peru; and Fort Lauderdale, Florida, United States. We also own and operate regional teleports in Mendoza, Córdoba, Rosario, Argentina;
Medellín, Cali Colombia; Guayaquil, Ecuador; and Rio de Janeiro and Curitiba, Brazil, as well as operate over 150 other small network nodes.



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Satellite Services.Our satellite transmissions use both C-band (4-6 GHz) and Ku-band (11-14 GHz)
frequencies. As of December 31, 2004, we had a total available leased capacity of approximately 700 MHz. Our lease payments for satellite capacity totaled approximately $23.7 million in 2004. We will contract for additional leased satellite capacity
if business requires. A portion of our satellite capacity is leased by our wholly-owned subsidiary, International Satellite Capacity Holding, Ltd. 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. We believe that this method of centralizing our leasing of telecommunications capacity provides us with better terms. We are currently in the
process of upgrading the technologies used to provide satellite services. We believe this will allow us in the mid term to optimize our satellite capacity, although it might require additional investment.



|Item 3. | LEGAL PROCEEDINGS
|------- | -----------------



Chapter 11 Reorganization. As more fully described in Item 1Business and Item 7Managements Discussion and
Analysis of Financial Condition and Results of Operations we sought protection under Chapter 11 of the United States Bankruptcy Code on June 11, 2002. We developed a plan that was confirmed by the bankruptcy court on December 16, 2002. On
March 25, 2003, the Plan became effective and we emerged from the proceedings under Chapter 11 of the United States Bankruptcy Code pursuant to the terms of the Plan.



IPO Allocations Class Action.On November 1, 2001, a lawsuit, referred to as the IPO Class Action, was filed in the
United States District Court for the Southern District of New York (the Court) against our company, certain individuals who were then officers and directors of our company, and the underwriters to our initial public offering. This
lawsuit alleged on behalf of a proposed class of all shareholders that our company and its underwriters violated various provisions of the securities laws in connection with an initial public offering 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 we receive in connection with the litigation, but otherwise the claims of the plaintiffs against us or any of our other assets
have been discharged as part of the Plan. In February 2005, further to plaintiffs motion, the Court granted preliminary approval for a proposed settlement of the IPO Class Action. The settlement is subject to certain final determinations and a
fairness hearing.



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. The Company believes that it has meritorious
defenses to the allegations in the complaints and is defending the litigation vigorously.



We are also involved in or subject to various litigation and legal proceedings incidental to the normal conduct of our business, including with respect to regulatory and foreign tax assessment matters.



|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
|------- | ---------------------------------------------------



There were no matters submitted by the Company during the fourth quarter of 2004 to a vote of security holders, through the solicitation of proxies or
otherwise.



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PART II



|Item 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ------------------------------------------------------------------------------------------------------------



In accordance with the Plan, all pre-existing equity interests of IMPSAT
Fiber Networks, Inc. were cancelled on the Effective Date. Our common stock, issued pursuant to the Plan, began to trade on the Nasdaq Over-The-Counter Bulletin Board June 30, 2003 under the new symbol IMFN. As of March 24, 2005 there
were approximately eight holders of record of our common stock, not including beneficial owners in nominee or street name. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, the terms of our
Senior Notes restrict our ability to pay dividends on our common stock.



The following tables show the high and low sales price of the common stock for quarters during the last two fiscal years, as reported on the Nasdaq Over-The-Counter Bulletin Board.



|        |  |      |       |     |   |     
|------- |  | ---- | ----- | --- | - | ----
|        |  | 2003
|Quarter |  | High |       | Low
|First   |  |      |      |     |   |    
|Second  |  |      |      |     |   |    
|Third   |  | $    | 10.73 |     | $ | 1.44
|Fourth  |  | $    | 8.50  |     | $ | 6.50
|        | 
|        |  | 2004
|Quarter |  | High |       | Low
|First   |  | $    | 7.70  |     | $ | 6.25
|Second  |  | $    | 7.62  |     | $ | 6.52
|Third   |  | $    | 6.45  |     | $ | 4.95
|Fourth  |  | $    | 5.80  |     | $ | 4.20



The information
required concerning compensation plans under which equity securities of our company are authorized for issuance is referenced in Item 12 of this Report.



|Item 6. | SELECTED FINANCIAL DATA
|------- | -----------------------



The following selected financial data are for our company on a consolidated basis in accordance with U.S. GAAP. The following financial data have been
derived from our companys audited consolidated financial statements for the respective years. The selected financial data set forth below should be read in conjunction with Managements Discussion and Analysis of Financial Condition
and Results of Operations and our financial statements and notes included at the back of this Report.



Upon our emergence from bankruptcy on the Effective Date, we have adopted fresh start reporting as required by the American Institute of Certified Public
Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code, which we refer to as SOP 90-7. As a result of the implementation of SOP 90-7 fresh start reporting, the consolidated
financial statements of our company from and after its emergence from bankruptcy, which we refer to as the Successor Company, will not be comparable to the consolidated financial statements of our company in prior periods, which we refer to as the
Predecessor Company.



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|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|------------------------------------------------------------------- |  | ----------------------- | -------- | - | ------------------------------- | - | -------- | --------------------------------- |  | - | ----------------------- | - |  | ---------------------- | ------- | - | -------------------- | - | ------- | - |  | - | ------- | -
|                                                                    |  | Year Ended December 31, |          |   | Three MonthsEnded March 31,2003 |   |          | Nine MonthsEnded December 31,2003 |  |   | Year EndedDecember 31,  |  
|                                                                    |  | PredecessorCompany 2000 |          |   | PredecessorCompany 2001         |   |          | PredecessorCompany 2002           |  |   | PredecessorCompany 2003 |   |  | Successor Company 2003 |         |   | SuccessorCompany2004 |  
|Statement of operations data:                                       |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Net revenues:                                                       |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Broadband and satellite                                             |  | $                       | 211,406  |   |                                 | $ | 229,991  |                                   |  | $ | 173,265                 |   |  | $                      | 41,382  |   |                      | $ | 120,855 |   |  | $ | 161,964 |  
|Internet                                                            |  |                         | 35,996   |   |                                 |   | 45,403   |                                   |  |   | 27,243                  |   |  |                        | 5,733   |   |                      |   | 18,308  |   |  |   | 26,125  |  
|Value added services                                                |  |                         | 3,747    |   |                                 |   | 17,186   |                                   |  |   | 14,191                  |   |  |                        | 4,781   |   |                      |   | 10,557  |   |  |   | 16,674  |  
|Telephony                                                           |  |                         | 235      |   |                                 |   | 11,762   |                                   |  |   | 14,327                  |   |  |                        | 4,106   |   |                      |   | 13,568  |   |  |   | 21,673  |  
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Total net revenues from services                                    |  |                         | 251,384  |   |                                 |   | 304,342  |                                   |  |   | 229,026                 |   |  |                        | 56,002  |   |                      |   | 163,288 |   |  |   | 226,436 |  
|Sales of equipment                                                  |  |                         | 70,759   |   |                                 |   | 22,148   |                                   |  |   | 1,168                   |   |  |                        | 74      |   |                      |   | 926     |   |  |   | 1,279   |  
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Total net revenues                                                  |  |                         | 322,143  |   |                                 |   | 326,490  |                                   |  |   | 230,194                 |   |  |                        | 56,076  |   |                      |   | 164,214 |   |  |   | 227,715 |  
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Costs and expenses:                                                 |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Direct costs:                                                       |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Contracted services                                                 |  |                         | 29,573   |   |                                 |   | 40,629   |                                   |  |   | 19,199                  |   |  |                        | 4,125   |   |                      |   | 13,376  |   |  |   | 21,285  |  
|Other direct costs                                                  |  |                         | 21,349   |   |                                 |   | 35,416   |                                   |  |   | 25,935                  |   |  |                        | 4,696   |   |                      |   | 18,353  |   |  |   | 20,647  |  
|Leased capacity                                                     |  |                         | 74,188   |   |                                 |   | 87,057   |                                   |  |   | 74,679                  |   |  |                        | 17,407  |   |                      |   | 49,516  |   |  |   | 67,632  |  
|Broadband network cost                                              |  |                         | 34,729   |   |                                 |   | 3,335    |                                   |  |   |                        |   |  |                        |        |   |                      |   |        |   |  |   |        |  
|Cost of equipment sold                                              |  |                         | 12,308   |   |                                 |   | 10,472   |                                   |  |   | 576                     |   |  |                        | 48      |   |                      |   | 803     |   |  |   | 963     |  
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Total direct costs                                                  |  |                         | 172,147  |   |                                 |   | 176,909  |                                   |  |   | 120,389                 |   |  |                        | 26,276  |   |                      |   | 82,048  |   |  |   | 110,527 |  
|Salaries and wages                                                  |  |                         | 68,922   |   |                                 |   | 82,095   |                                   |  |   | 47,894                  |   |  |                        | 10,727  |   |                      |   | 35,639  |   |  |   | 46,339  |  
|Selling, general and administrative                                 |  |                         | 58,471   |   |                                 |   | 52,964   |                                   |  |   | 28,204                  |   |  |                        | 5,553   |   |                      |   | 19,824  |   |  |   | 23,581  |  
|Asset impairment charge                                             |  |                         |         |   |                                 |   | 381,888  |                                   |  |   |                        |   |  |                        |        |   |                      |   |        |   |  |   |        |  
|Gain on extinguishment of debt                                      |  |                         |         |   |                                 |   |         |                                   |  |   | (16,367                 | ) |  |                        |        |   |                      |   | (14,253 | ) |  |   | (115    | )
|Depreciation and amortization                                       |  |                         | 84,488   |   |                                 |   | 123,678  |                                   |  |   | 82,766                  |   |  |                        | 19,358  |   |                      |   | 29,535  |   |  |   | 44,797  |  
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Total costs and expenses                                            |  |                         | 384,028  |   |                                 |   | 817,534  |                                   |  |   | 262,886                 |   |  |                        | 61,914  |   |                      |   | 152,793 |   |  |   | 225,129 |  
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Operating (loss) income                                             |  |                         | (61,885  | ) |                                 |   | (491,044 | )                                 |  |   | (32,692                 | ) |  |                        | (5,838  | ) |                      |   | 11,421  |   |  |   | 2,586   |  
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Other income (expenses):                                            |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Interest income                                                     |  |                         | 27,394   |   |                                 |   | 10,687   |                                   |  |   | 1,907                   |   |  |                        | 200     |   |                      |   | 1,068   |   |  |   | 1,136   |  
|Interest expense(1)                                                 |  |                         | (112,894 | ) |                                 |   | (143,521 | )                                 |  |   | (75,815                 | ) |  |                        | (1,909  | ) |                      |   | (14,435 | ) |  |   | (21,106 | )
|Net (loss) gain on foreign exchange                                 |  |                         | (10,614  | ) |                                 |   | (41,182  | )                                 |  |   | (91,884                 | ) |  |                        | 9,969   |   |                      |   | 17,566  |   |  |   | 5,804   |  
|Recognition of other-than-temporary decline in value of investments |  |                         |         |   |                                 |   | (20,650  | )                                 |  |   | (794                    | ) |  |                        |        |   |                      |   |        |   |  |   |        |  
|Reorganization items                                                |  |                         |          |   |                                 |   |          |                                   |  |   | (23,297                 | ) |  |                        | 726,127 |   |                      |   |        |   |  |   |        |  
|Legal settlement                                                    |  |                         |          |   |                                 |   |          |                                   |  |   | 26,229                  |   |  |                        |        |   |                      |   |        |   |  |   |        |  
|Other income (loss), net                                            |  |                         | 704      |   |                                 |   | (2,125   | )                                 |  |   | (5,896                  | ) |  |                        | 2,923   |   |                      |   | (4,689  | ) |  |   | 840     |  
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Total other (expenses) income                                       |  |                         | (95,410  | ) |                                 |   | (196,791 | )                                 |  |   | (169,550                | ) |  |                        | 737,310 |   |                      |   | (490    | ) |  |   | (13,326 | )
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|(Loss) income before income taxes                                   |  |                         | (157,295 | ) |                                 |   | (687,835 | )                                 |  |   | (202,242                | ) |  |                        | 731,742 |   |                      |   | 10,931  |   |  |   | (10,740 | )
|Benefit from (provision for) foreign income taxes                   |  |                         | 4,547    |   |                                 |   | (27,420  | )                                 |  |   | (2,273                  | ) |  |                        | (406    | ) |                      |   | (1,454  | ) |  |   | (3,479  | )
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|(Loss) income before dividends on redeemable preferred stock        |  |                         | (152,748 | ) |                                 |   | (715,255 | )                                 |  |   | (204,515                | ) |  | $                      | 731,066 |   |                      | $ | 9,477   |   |  |   | (14,219 | )
|Dividends on redeemable preferred stock                             |  |                         | (1,393   | ) |                                 |   |         |                                   |  |   |                        |   |  |                        |        |   |                      |   |        |   |  |   |        |  
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Net (loss) income                                                   |  | $                       | (154,141 | ) |                                 | $ | (715,255 | )                                 |  | $ | (204,515                | ) |  | $                      | 731,066 |   |                      | $ | 9,477   |   |  | $ | (14,219 | )
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Net (loss) income per common share: Basic                           |  | $                       | (1.74    | ) |                                 | $ | (7.82    | )                                 |  | $ | (2.24                   | ) |  | $                      | 8.00    |   |                      | $ | 0.96    |   |  | $ | (1.42   | )
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Diluted                                                             |  | $                       | (1.74    | ) |                                 | $ | (7.82    | )                                 |  | $ | (2.24                   | ) |  | $                      | 8.00    |   |                      | $ | 0.72    |   |  | $ | (1.42   | )
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Weighted average number of common shares: Basic                     |  |                         | 88,534   |   |                                 |   | 91,429   |                                   |  |   | 91,429                  |   |  |                        | 91,429  |   |                      |   | 9,917   |   |  |   | 9,994   |  
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  
|Diluted                                                             |  |                         | 88,534   |   |                                 |   | 91,429   |                                   |  |   | 91,429                  |   |  |                        | 91,429  |   |                      |   | 16,057  |   |  |   | 9,994   |  
|                                                                    |  |                         |          |   |                                 |   |          |                                   |  |   |                         |   |  |                        |         |   |                      |   |         |   |  |   |         |  

---

|(1) | Contractual interest expense of $128.0 million for the year ended December 31, 2003 and $21.8 million for the three months ended March 31, 2003 (Predecessor Company).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|                                                           |  |                     |           |      |                   |           |      |  |   |          |   |      |   |         |  |   |        
|---------------------------------------------------------- |  | ------------------- | --------- | ---- | ----------------- | --------- | ---- |  | - | -------- | - | ---- | - | ------- |  | - | -------
|                                                           |  | As of December 31, 
|                                                           |  | Predecessor Company |           |      | Successor Company
|                                                           |  | 2000                |           | 2001 |                   |           | 2002 |  |   | 2003     |   | 2004
|Balance Sheet Data:                                        |  |                     |           |      |                   |           |      |  |   |          |   |      |   |         |  |   |        
|Cash and cash equivalents                                  |  | $                   | 67,737    |      | $                 | 35,606    |      |  | $ | 32,563   |   |      | $ | 61,498  |  | $ | 63,655 
|Trading investments                                        |  |                     | 240,892   |      |                   | 29,319    |      |  |   | 23,021   |   |      |   | 2,474   |  |   |       
|Total current assets                                       |  |                     | 458,873   |      |                   | 165,768   |      |  |   | 106,016  |   |      |   | 109,064 |  |   | 108,891
|Property, plant and equipment, net                         |  |                     | 745,895   |      |                   | 525,057   |      |  |   | 403,948  |   |      |   | 315,817 |  |   | 317,310
|Investments in common stock                                |  |                     | 15,091    |      |                   | 3,307     |      |  |   | 86       |   |      |   | 1,873   |  |   |       
|Total assets                                               |  |                     | 1,374,750 |      |                   | 718,574   |      |  |   | 520,683  |   |      |   | 440,629 |  |   | 443,907
|Total current liabilities                                  |  |                     | 220,305   |      |                   | 1,133,635 |      |  |   | 402,986  |   |      |   | 82,086  |  |   | 115,450
|Total short-term debt and currentportion of long-term debt |  |                     | 52,980    |      |                   | 967,399   |      |  |   | 281,680  |   |      |   | 11,851  |  |   | 47,748 
|Total long-term debt, net                                  |  |                     | 915,263   |      |                   | 23,189    |      |  |   | 27,592   |   |      |   | 249,394 |  |   | 233,335
|Other long-term liabilities                                |  |                     | 28,307    |      |                   | 14,973    |      |  |   | 15,280   |   |      |   | 11,904  |  |   | 16,109 
|Liabilities subject to compromise                          |  |                     |          |      |                   |          |      |  |   | 727,522  |   |      |   |        |  |   |       
|Stockholders (deficiency) equity                          |  |                     | 158,585   |      |                   | (552,642  | )    |  |   | (722,615 | ) |      |   | 97,245  |  |   | 79,013 



|                                 |  |                         |          |   |                                                     |   |         |                                                      |  |   |                                             |   |  |   |        |   |  |   |        |   |  |   |         |  
|-------------------------------- |  | ----------------------- | -------- | - | --------------------------------------------------- | - | ------- | ---------------------------------------------------- |  | - | ------------------------------------------- | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                 |  | Year Ended December 31, |          |   | Three MonthsEnded March 31, PredecessorCompany 2003 |   |         | Nine MonthsEnded December 31, Successor Company 2003 |  |   | Year EndedDecember 31, SuccessorCompany2004 |  
|                                 |  | Predecessor Company     |          |   |                                                     |  
|                                 |  | 2000                    |          |   | 2001                                                |   |         | 2002                                                 |  |   |                                             |  
|Other Financial Data:            |  |                         |          |   |                                                     |   |         |                                                      |  |   |                                             |   |  |   |        |   |  |   |        |   |  |   |         |  
|Cash flow provided by (used in): |  |                         |          |   |                                                     |   |         |                                                      |  |   |                                             |   |  |   |        |   |  |   |        |   |  |   |         |  
|Operating activities             |  | $                       | (87      | ) |                                                     | $ | (35,793 | )                                                    |  | $ | 27,533                                      |   |  | $ | 11,503 |   |  | $ | 19,219 |   |  | $ | 35,518  |  
|Investing activities             |  |                         | (511,481 | ) |                                                     |   | 21,460  |                                                      |  |   | (12,776                                     | ) |  |   | (6,229 | ) |  |   | 12,619 |   |  |   | (34,327 | )
|Financing activities             |  |                         | 485,965  |   |                                                     |   | (5,961  | )                                                    |  |   | (17,246                                     | ) |  |   | (1,857 | ) |  |   | (6,482 | ) |  |   | 2,737   |  
|Capital expenditures             |  |                         | 447,471  |   |                                                     |   | 204,735 |                                                      |  |   | 21,652                                      |   |  |   | 3,266  |   |  |   | 18,213 |   |  |   | 39,379  |  



|Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



Overview



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 a plan of reorganization (the Plan)
in the Bankruptcy Case, which Plan was confirmed in the Bankruptcy Case and became effective on March 25, 2003 (the Effective Date), 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. Also at December 31, 2002, our total indebtedness (including unpaid accrued interest through the petition date related to the Plan) aggregated $1.04 billion and our cash, cash equivalents and trading investments totaled
$55.6 million. 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.



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Upon our emergence from bankruptcy on March 25, 2003, we adopted fresh start reporting as
required by SOP 90-7. Under SOP 90-7 fresh start reporting, a new reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date fresh start reporting
is applied. Among other things, this required us to allocate the reorganization value of our reorganized company to its specific tangible and identifiable assets and liabilities. The effect of the reorganization and the implementation of SOP 90-7
fresh start reporting on our consolidated financial statements is discussed in detail in Note 2 to our consolidated financial statements included elsewhere in this Report. As a result of the implementation of SOP 90-7 fresh start reporting, the
consolidated financial statements of our company from and after its emergence from bankruptcy are not comparable to the consolidated financial statements in prior periods.



Revenues



Our contracts with our customers have in the past typically ranged in duration from six months to five years and contracts with our private
telecommunications network customers have generally been three-year contracts. Under the Argentine pesification decree described below under Currency Risks, if a contract denominated inpesos 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, ourpeso-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 may have material adverse effects on our business, results of operation and financial condition.



Costs and Expenses



Our costs and expenses principally include:



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



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



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



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



Our direct costs include payments for leased satellite transponder, fiber optic and other terrestrial capacity. Our pan-Latin American Broadband Network,
which we began to commercialize in the fourth quarter of 2000, has enabled us to decrease our payments for leased satellite capacity as a percentage of revenue as we have shifted transmission from leased satellite facilities to our Broadband Network
after the satellite contracts expire. 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 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 and sales commissions paid to third-party sales representatives and to our salaried sales force.



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Our selling, general and administrative expenses consist principally of:



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



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



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



| |  |  | rent
| | - |  | ----



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



Currency 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
2004. 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 these countries at the dates indicated:



|               |  |                               |  |                  |  |                 
|-------------- |  | ----------------------------- |  | ---------------- |  | ----------------
|Currency       |  | December 31,2002              |  | December 31,2003 |  | December 31,2004
|               |  | (exchange rate per U.S.$1.00)
|Argentina peso |  | 3.40                          |  | 2.95             |  | 2.95            
|Brazil real    |  | 3.53                          |  | 2.89             |  | 2.65            



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. Thepeso free market opened on January 11, 2002



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and traded at 1.65pesos to the U.S. dollar and traded as low as 3.87pesos to the U.S. dollar on June 26, 2002. At both December 31, 2003 and
2004, the exchange rate was 2.95 pesos to the U.S. Dollar. Currently, IMPSAT Argentinas customer contracts and operating cash inflows are now predominantly denominated inpesos.



Brazil



At December 31, 2003, thereal traded at a rate of R$2.89 = $1.00, and it appreciated to R$2.65 = $1.00 at December
31, 2004. The daily average exchange rate for the realduring 2004 was R$2.92= $1.00, as compared to R$3.06 = $1.00 during 2003.



Venezuela



Widespread discontent with the policies of the current Venezuelan government produced a country-wide strike in the beginning of December 2002 that lasted
two months and seriously disrupted economic activity in Venezuela and severely curtailed the production and export of oil, the major source of Venezuelas foreign exchange. In response, on February 5, 2003, the Venezuelan government imposed
foreign exchange and price controls, making 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. These foreign exchange controls also severely limit our
ability to convert local currency into U.S. dollars and transfer funds out of Venezuela. At December 31, 2002, thebolivar traded at a rate of Bs.1,392 = $1.00. On February 6, 2003, the Venezuelan government set a single fixed exchange rate
for thebolivar against the U.S. dollar of approximately Bs.1,600 = $1.00 as part of the new currency controls. They further devalued the bolivar to Bs.1,920 = $1.00 on February 9, 2004. As such, on December 31, 2003, the
bolivar traded at a rate of Bs.1,600 = $1.00, and on December 31, 2004, the bolivar traded at a rate of Bs.1,920 = $1.00. On March 3, 2005, the Venezuelan government again devalued its currency by 10.7%, to Bs. 2,150 = $1.00. A
devaluation of the bolivar results in a loss in U.S. dollar terms on our monetary assets denominated in bolivars. The effects of the most recent devaluation will be recorded in our consolidated financial statements for the first
quarter of 2005. 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.



Termination of Mexican Operations



During the first quarter of 2003, we determined to close our operations in Mexico, which we initially established in 1994. We entered into agreements with
various parties to sell our real estate and other real and personal property, including our permits and licenses and our contracts with customers. These transactions closed during 2003. Our results for the years ended December 31, 2003 and December
31, 2002, accordingly, include revenues and expenses related to the operations and, for 2003, the sale of our Mexican operations, and the results for the year ended December 31, 2004 do not include such revenues or expenses.



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, the company makes 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



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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.



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.



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 as an exchange of similar IRUs at historical carryover basis with no revenue, gain or loss recognized.



In December 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 153 (SFAS No. 153) ,Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29. 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 provisions of SFAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We do not expect the
adoption of SFAS 153 to have a material impact on our financial condition or results of operations.



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



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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 remeasuring 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 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
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.



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



These 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 2004, nor have we made any material changes in any of the critical accounting estimates underlying these accounting policies during 2004.



New Accounting Pronouncements



In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of APB
No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. During
October 2003, the FASB deferred the effective date of FIN 46 until the end of the first interim or annual period ending after December 15, 2003. In addition the FASB issued a revised interpretation of FIN 46 (FIN 46-R) in December 2003.
The adoption of FIN 46-R during 2004 did not have a material effect on the Companys financial condition or results of operations.



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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. Currently, companies are required to calculate the estimated fair value of these
share-based payments and can elect to either include the estimated cost in earnings or disclose the pro forma effect in the footnotes to their financial statements. We have chosen to disclose the pro forma effect. The fair value concepts were not
changed significantly in SFAS No. 123(R); however, in adopting SFAS No. 123(R), companies must choose among alternative valuation models and amortization assumptions.



The valuation model and amortization assumption used by us continues to be available. We have not yet completed our
assessment of the alternatives. SFAS No. 123(R) will be effective for the Company beginning with the quarter ending September 30, 2005. Transition options allow companies to choose whether to adopt prospectively, restate results to the beginning of
the year, or to restate prior periods with the amounts that have been included in the footnotes. We have not yet concluded on which transition option we will select. See Note 4 to our consolidated financial statements for the pro forma effect for
the each of the periods presented, using our existing valuation and amortization assumptions.



Period Comparisons



As
discussed above, under SOP 90-7 fresh starting reporting, our consolidated financial statements after the Effective Date are those of a new reporting entity (the Successor Company) and certain costs are not comparable to those of our company during
pre-Effective Date periods (the Predecessor Company). For purposes of this discussion, where the year ended December 31, 2004 is compared to the year ended December 31, 2003, where the results are presented as combined, the latter combines the
three-month period ended March 31, 2003 (for the Predecessor Company) with the nine-month period beginning April 1, 2003 ending December 31, 2003 (for the Successor Company). Differences between periods due to fresh start accounting adjustments are
explained when necessary. The lack of comparability in the accompanying consolidated financial statements is most apparent in our capital costs (interest expense and depreciation and amortization), as well as long-term indebtedness and
reorganization items.



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Results of Operations



The following table summarizes our results of operations:



|                                                                    |  |                                                             |          |   |                  |       |    |                   |   |         |   |  |       |   |  |   |         |   |  |       |   
|------------------------------------------------------------------- |  | ----------------------------------------------------------- | -------- | - | ---------------- | ----- | -- | ----------------- | - | ------- | - |  | ----- | - |  | - | ------- | - |  | ----- | --
|                                                                    |  | Year Ended December 31,                                     |         
|                                                                    |  | PredecessorCompany                                          |          |   | Combined Results |       |    | Successor Company |  
|                                                                    |  | 2002                                                        |          |   | 2003             |       |    | 2004              |  
|                                                                    |  | (in thousands and as a percentage of consolidated revenues) |         
|Net revenues :                                                      |  |                                                             |          |   |                  |       |    |                   |   |         |   |  |       |   |  |   |         |   |  |       |   
|Net revenues from services :                                        |  |                                                             |          |   |                  |       |    |                   |   |         |   |  |       |   |  |   |         |   |  |       |   
|Broadband and satellite                                             |  | $                                                           | 173,265  |   |                  | 75.3  | %  |                   | $ | 162,237 |   |  | 73.6  | % |  | $ | 161,964 |   |  | 71.1  | % 
|Internet                                                            |  |                                                             | 27,243   |   |                  | 11.8  |    |                   |   | 24,041  |   |  | 10.9  |   |  |   | 26,125  |   |  | 11.5  |   
|Value added services                                                |  |                                                             | 14,191   |   |                  | 6.2   |    |                   |   | 15,338  |   |  | 7.0   |   |  |   | 16,674  |   |  | 7.3   |   
|Telephony                                                           |  |                                                             | 14,327   |   |                  | 6.2   |    |                   |   | 17,674  |   |  | 8.0   |   |  |   | 21,673  |   |  | 9.5   |   
|                                                                    |  |                                                             |          |   |                  |       |    |                   |   |         |   |  |       |   |  |   |         |   |  |       |   
|Total net revenues from services                                    |  |                                                             | 229,026  |   |                  | 99.5  |    |                   |   | 219,290 |   |  | 99.5  |   |  |   | 226,436 |   |  | 99.4  |   
|Sale of equipment                                                   |  |                                                             | 1,168    |   |                  | 0.5   |    |                   |   | 1,000   |   |  | 0.5   |   |  |   | 1,279   |   |  | 0.6   |   
|                                                                    |  |                                                             |          |   |                  |       |    |                   |   |         |   |  |       |   |  |   |         |   |  |       |   
|Total net revenues                                                  |  |                                                             | 230,194  |   |                  | 100.0 |    |                   |   | 220,290 |   |  | 100.0 |   |  |   | 227,715 |   |  | 100.0 |   
|                                                                    |  |                                                             |          |   |                  |       |    |                   |   |         |   |  |       |   |  |   |         |   |  |       |   
|Direct costs :                                                      |  |                                                             |          |   |                  |       |    |                   |   |         |   |  |       |   |  |   |         |   |  |       |   
|Contracted services                                                 |  |                                                             | 19,199   |   |                  | 8.3   |    |                   |   | 17,501  |   |  | 7.9   |   |  |   | 21,285  |   |  | 9.3   |   
|Other direct costs                                                  |  |                                                             | 25,935   |   |                  | 11.3  |    |                   |   | 23,049  |   |  | 10.5  |   |  |   | 20,647  |   |  | 9.1   |   
|Leased capacity                                                     |  |                                                             | 74,679   |   |                  | 32.4  |    |                   |   | 66,923  |   |  | 30.4  |   |  |   | 67,632  |   |  | 29.7  |   
|Cost of equipment sold                                              |  |                                                             | 576      |   |                  | 0.3   |    |                   |   | 851     |   |  | 0.4   |   |  |   | 963     |   |  | 0.4   |   
|                                                                    |  |                                                             |          |   |                  |       |    |                   |   |         |   |  |       |   |  |   |         |   |  |       |   
|Total direct costs                                                  |  |                                                             | 120,389  |   |                  | 52.3  |    |                   |   | 108,324 |   |  | 49.2  |   |  |   | 110,527 |   |  | 48.5  |   
|Salaries and wages                                                  |  |                                                             | 47,894   |   |                  | 20.8  |    |                   |   | 46,366  |   |  | 21.1  |   |  |   | 46,339  |   |  | 20.3  |   
|Selling, general and administrative expenses                        |  |                                                             | 28,204   |   |                  | 12.3  |    |                   |   | 25,377  |   |  | 11.5  |   |  |   | 23,581  |   |  | 10.4  |   
|Gain on extinguishment of debt                                      |  |                                                             | (16,367  | ) |                  | (7.1  | )  |                   |   | (14,253 | ) |  | (6.5  | ) |  |   | (115    | ) |  | (0.1  | ) 
|Depreciation and amortization                                       |  |                                                             | 82,766   |   |                  | 36.0  |    |                   |   | 48,893  |   |  | 22.2  |   |  |   | 44,797  |   |  | 19.7  |   
|Interest expense, net(1)                                            |  |                                                             | 73,908   |   |                  | 32.1  |    |                   |   | 15,076  |   |  | 6.8   |   |  |   | 19,970  |   |  | 8.8   |   
|Net (loss) gain on foreign exchange                                 |  |                                                             | (91,884  | ) |                  | (39.9 | )  |                   |   | 27,535  |   |  | 12.5  |   |  |   | 5,804   |   |  | 2.5   |   
|Recognition of other-than-temporary decline in value of investments |  |                                                             | 794      |   |                  | 0.3   |    |                   |   |        |   |  |      |   |  |   |        |   |  |      |   
|Reorganization items                                                |  |                                                             | 23,297   |   |                  | 10.1  |    |                   |   | 726,127 |   |  | 329.6 |   |  |   |        |   |  |      |   
|Legal settlement                                                    |  |                                                             | (26,229  | ) |                  | (11.4 | )  |                   |   |        |   |  |      |   |  |   |        |   |  |      |   
|Other (loss) income, net                                            |  |                                                             | (5,896   | ) |                  | (2.6  | )  |                   |   | (1,766  | ) |  | (0.8  | ) |  |   | 840     |   |  | 0.4   |   
|Provision for foreign income taxes                                  |  |                                                             | (2,273   | ) |                  | 1.0   |    |                   |   | (1,860  | ) |  | (0.8  | ) |  |   | (3,479  | ) |  | (1.5  | ) 
|Net (loss) income                                                   |  | $                                                           | (204,515 | ) |                  | (88.8 | )% |                   | $ | 740,543 |   |  | 336.2 | % |  |   | (14,219 | ) |  | (6.2  | )%

---

|(1) | Contractual interest expense was $128.0 million for the year ended December 31, 2002 and $21.8 million for the three months ended March 31, 2003 (Predecessor
Company).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



2004 Compared to 2003



Revenues.Our total net revenues for 2003 and 2004
equaled $220.3 million and $227.7 million, respectively. Net revenues were composed of net revenues from services and sales of equipment.



Our net revenues from services for 2004 totaled $226.4 million, an increase of $7.1 million (or 3.3%) compared to 2003. Our net revenues from services
during 2004 included net revenues from:



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



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



| |  |  | data center, including hosting, housing and collocation, services and other value added services, and
| | - |  | -----------------------------------------------------------------------------------------------------



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



32



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



|                                 |  |                                      |         |             |       |    |                                   |   |             |  |      |                                    |  |   |        
|-------------------------------- |  | ------------------------------------ | ------- | ----------- | ----- | -- | --------------------------------- | - | ----------- |  | ---- | ---------------------------------- |  | - | -------
|                                 |  | PredecessorCompany December 31, 2002 |         | % change(1) |       |    | CombinedResults December 31, 2003 |   | % change(1) |  |      | SuccessorCompany December 31, 2004
|                                 |  |                                      |         |             |      
|                                 |  | (dollar amounts in thousands)       
|Broadband and satellite          |  | $                                    | 173,265 |             | (6.4  | )% |                                   | $ | 162,237     |  | (0.2 | )%                                 |  | $ | 161,964
|Internet                         |  |                                      | 27,243  |             | (11.8 | )  |                                   |   | 24,041      |  | 8.7  |                                    |  |   | 26,125 
|Value added services(2)          |  |                                      | 14,191  |             | 8.1   |    |                                   |   | 15,338      |  | 8.7  |                                    |  |   | 16,674 
|Telephony                        |  |                                      | 14,327  |             | 23.4  |    |                                   |   | 17,674      |  | 22.6 |                                    |  |   | 21,673 
|                                 |  |                                      |         |             |       |    |                                   |   |             |  |      |                                    |  |   |        
|Total net revenues from services |  | $                                    | 229,026 |             | (4.3  | )  |                                   | $ | 219,290     |  | 3.3  |                                    |  | $ | 226,436
|                                 |  |                                      |         |             |       |    |                                   |   |             |  |      |                                    |  |   |        

---

|(1) | Increase (decrease) compared to previous year.
|--- | ----------------------------------------------

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



The increase in our net revenues from services in the year ended December 31,
2004, as compared to the year ended December 31, 2003, was due to increases in revenues from Internet, value added and telephony services.



| |  |  | Our revenues from broadband and satellite services remained at approximately the same level as in 2003, as increases in revenues from broadband and satellite services as a result of
expansion of services and new customers were offset by price decreases in contractual renewals with existing customers.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We experienced higher Internet revenues principally because of new customers and expansion of services to existing customers, offset partially by pricing pressure resulting from
competition.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our revenues from value added services increased in 2004 compared to 2003, principally because of revenues from new customers.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our telephony services revenues increased during the year ended December 31, 2004 as compared to the year ended December 31, 2003 due to (i) our increased delivery during 2004 of
switched voice services to corporate customers in Argentina and international call terminations to end-user customers in Peru, partially offset by a decline in traffic volume and services in the United States; and (ii) the commencement of telephony
services in Brazil to our corporate customers, which we started in December 2003.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We had 3,314 customers at December 31, 2004, compared to 2,799 customers at December 31, 2003. As we expand, the average size of customer, including the
average revenues per customer, has decreased. During 2004, we do not believe that we lost any major customers to our competitors. The following table shows the evolution of our customer base as of the dates indicated:



The following table shows the evolution of our customer base for the periods
indicated:



|                 |  |                     |  |                      |  |     
|---------------- |  | ------------------- |  | -------------------- |  | ----
|                 |  | As of December 31,  |  | % Change(1)         
|                 |  | CombinedResults2003 |  | SuccessorCompany2004 | 
|                 |  | Number of Customers | 
|IMPSAT Argentina |  | 997                 |  | 1,236                |  | 24.0
|IMPSAT Colombia  |  | 723                 |  | 788                  |  | 9.0 
|IMPSAT Brazil    |  | 390                 |  | 451                  |  | 15.6
|IMPSAT Venezuela |  | 172                 |  | 200                  |  | 16.3
|IMPSAT Ecuador   |  | 229                 |  | 263                  |  | 14.8
|IMPSAT Chile     |  | 108                 |  | 113                  |  | 4.6 
|IMPSAT Peru      |  | 106                 |  | 178                  |  | 67.9
|IMPSAT USA       |  | 74                  |  | 85                   |  | 14.9
|                 |  |                     |  |                      |  |     
|Total            |  | 2,799               |  | 3,314                |  | 18.4
|                 |  |                     |  |                      |  |     

---

|(1) | Increase (decrease) as of December 31, 2004 compared to as of December 31, 2003.
|--- | --------------------------------------------------------------------------------



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During 2004, we gained a net total of 515 customers, an increase of 18.4% compared to the prior year, due
mainly to an increase in new customers (mostly medium-sized corporations) in Argentina, Brazil and Peru. In addition to net revenues from services, our total net revenues for 2004 included revenues from sales of equipment. Revenues from equipment
sales for 2004 were $1.3 million, as compared to $1.0 million in 2003. Because equipment sales are ancillary to our core business and are generally engaged in by our company only on an opportunistic basis, we are currently unable to predict more
than minimal sales of equipment during 2005. The following table shows by operating subsidiary our revenues from services and total revenues (in each case, including inter-company transactions) for the periods indicated:



|                                                  |  |                         |        |                                |   |                  |  |   |       
|------------------------------------------------- |  | ----------------------- | ------ | ------------------------------ | - | ---------------- |  | - | ------
|                                                  |  | Year Ended December 31,
|                                                  |  | PredecessorCompany      |        | Predecessor & SuccessorCompany |   | SuccessorCompany
|                                                  |  | 2002                    |        | 2003                           |   | 2004            
|                                                  |  | (in thousands)         
|IMPSAT Argentina                                  |  |                         |        |                                |   |                  |  |   |       
|Services                                          |  | $                       | 56,008 |                                | $ | 57,990           |  | $ | 71,291
|Sale of equipment                                 |  |                         | 538    |                                |   | 571              |  |   | 703   
|                                                  |  |                         |        |                                |   |                  |  |   |       
|Total                                             |  |                         | 56,546 |                                |   | 58,561           |  |   | 71,994
|                                                  |  |                         |        |                                |   |                  |  |   |       
|IMPSAT Colombia                                   |  |                         |        |                                |   |                  |  |   |       
|Services                                          |  |                         | 58,300 |                                |   | 54,402           |  |   | 56,532
|Sale of equipment                                 |  |                         | 14     |                                |   | 168              |  |   | 141   
|                                                  |  |                         |        |                                |   |                  |  |   |       
|Total                                             |  |                         | 58,314 |                                |   | 54,570           |  |   | 56,673
|                                                  |  |                         |        |                                |   |                  |  |   |       
|IMPSAT Brazil                                     |  |                         |        |                                |   |                  |  |   |       
|Services                                          |  |                         | 35,804 |                                |   | 30,474           |  |   | 33,420
|Sale of equipment                                 |  |                         | 9      |                                |   |                 |  |   | 51    
|                                                  |  |                         |        |                                |   |                  |  |   |       
|Total                                             |  |                         | 35,813 |                                |   | 30,474           |  |   | 33,471
|                                                  |  |                         |        |                                |   |                  |  |   |       
|IMPSAT Venezuela                                  |  |                         |        |                                |   |                  |  |   |       
|Services                                          |  |                         | 31,285 |                                |   | 34,765           |  |   | 33,070
|Sale of equipment                                 |  |                         | 349    |                                |   | 140              |  |   | 70    
|                                                  |  |                         |        |                                |   |                  |  |   |       
|Total                                             |  |                         | 31,634 |                                |   | 34,905           |  |   | 33,140
|                                                  |  |                         |        |                                |   |                  |  |   |       
|IMPSAT Ecuador                                    |  |                         |        |                                |   |                  |  |   |       
|Services                                          |  |                         | 16,633 |                                |   | 16,279           |  |   | 17,616
|Sale of equipment                                 |  |                         | 87     |                                |   | 5                |  |   | 244   
|                                                  |  |                         |        |                                |   |                  |  |   |       
|Total                                             |  |                         | 16,720 |                                |   | 16,284           |  |   | 17,860
|                                                  |  |                         |        |                                |   |                  |  |   |       
|IMPSAT Chile                                      |  |                         |        |                                |   |                  |  |   |       
|Services                                          |  |                         | 9,494  |                                |   | 7,819            |  |   | 7,726 
|Sale of equipment                                 |  |                         |       |                                |   |                 |  |   |      
|                                                  |  |                         |        |                                |   |                  |  |   |       
|Total                                             |  |                         | 9,494  |                                |   | 7,819            |  |   | 7,726 
|                                                  |  |                         |        |                                |   |                  |  |   |       
|IMPSAT Peru                                       |  |                         |        |                                |   |                  |  |   |       
|Services                                          |  |                         | 11,015 |                                |   | 13,444           |  |   | 14,642
|Sale of equipment                                 |  |                         | 152    |                                |   | 25               |  |   |      
|                                                  |  |                         |        |                                |   |                  |  |   |       
|Total                                             |  |                         | 11,167 |                                |   | 13,469           |  |   | 14,642
|                                                  |  |                         |        |                                |   |                  |  |   |       
|IMPSAT USA                                        |  |                         |        |                                |   |                  |  |   |       
|Services                                          |  |                         | 33,315 |                                |   | 30,320           |  |   | 27,599
|Sale of equipment                                 |  |                         | 14     |                                |   | 92               |  |   | 71    
|                                                  |  |                         |        |                                |   |                  |  |   |       
|Total                                             |  |                         | 33,329 |                                |   | 30,412           |  |   | 27,670
|                                                  |  |                         |        |                                |   |                  |  |   |       
|International Satellite Capacity Holding, Ltd.(1) |  |                         |        |                                |   |                  |  |   |       
|Services                                          |  |                         | 16,616 |                                |   | 14,334           |  |   | 11,100
|                                                  |  |                         |        |                                |   |                  |  |   |       
|Total                                             |  |                         | 16,616 |                                |   | 14,334           |  |   | 11,100
|                                                  |  |                         |        |                                |   |                  |  |   |       
|Other                                             |  |                         |        |                                |   |                  |  |   |       
|Services                                          |  |                         | 3,599  |                                |   | 924              |  |   |      
|Sale of equipment                                 |  |                         | 5      |                                |   |                 |  |   |      
|                                                  |  |                         |        |                                |   |                  |  |   |       
|Total                                             |  |                         | 3,604  |                                |   | 924              |  |   |      
|                                                  |  |                         |        |                                |   |                  |  |   |       



34



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---

|(1) | 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Argentina
is our largest market in terms of number of customers and in revenues. After three years of adverse economic conditions that commenced in 1999, in January 2002 the Argentine Government defaulted on its external debt payments and devalued its
currency, exacerbating declining commercial confidence and activity and further inflating exorbitant costs of financing for Argentine companies. The economic downturn in Argentina adversely affected many of our customers in that country and caused a
number of them to terminate their contracts with us, fail to renew their contracts, reduce the amount of services contracted, or delay their payment of amounts owed to us for services provided. Although Argentinas economy has shown signs of
recovery during 2004, it continues to experience adverse economic conditions and a lack of access to international capital markets. We are unable to predict whether the conditions affecting the Argentine economy will subside or if future economic
developments in Argentina will improve in any significant respect, and it is possible that the Argentine economic and political environment could deteriorate. The political and economic conditions in Argentina, our largest country of operation, will
continue to materially affect our financial condition and results of operations.



Notwithstanding the economic instability that continues to be present in Argentina, our net revenues at IMPSAT Argentina increased during 2004. Our total net revenues at IMPSAT Argentina for the year ended December
31, 2004 totaled $72.0 million, an increase of $13.4 million (or 22.9%) compared to the year ended December 31, 2003. Although we anticipate continued incremental growth in our revenues in Argentina in 2005, any devaluation of the Argentine
peso could adversely affect our results in that country.



IMPSAT Brazils total net revenues for 2004 totaled $33.5 million, an increase of $3.0 million (9.8%) compared to 2003. At December 31, 2003, the real traded at a rate of R$2.89 = $1.00 and it appreciated to R$2.65 = $1.00 at
December 31, 2004. IMPSAT Brazils operations in 2004 were positively affected by the improvement of Brazils economic conditions. The average daily exchange rate for the real during 2004 was R$2.92 = $1.00, as compared to the same
average in 2003 of R$3.06 = $1.00. However, future devaluations of therealand a decline in growth in the Brazilian economy would adversely affect IMPSAT Brazils and our companys overall financial condition and results of
operations.



IMPSAT Colombia recorded total net revenues of
$56.7 million during 2004, compared to $54.6 million for 2003. This increase is mainly attributed to the revaluation of revenues denominated in Colombian pesos, new customer contracts and expansion of services (particularly data center and
internet) provided to existing customers.



Total net revenues
at IMPSAT Venezuela equaled $33.1 million for 2004, compared to $34.9 million for 2003. Venezuela has experienced and continues to experience political and economic uncertainty following the attempted military coup staged against that countrys
President Hugo Chavez during the first weeks of April 2002 and the labor strikes that commenced in December 2002 and ended two months later. In response to this political and economic turmoil affecting Venezuela, the Venezuelan government imposed
foreign exchange and price controls during February 2003, making 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. These foreign exchange controls also
limit our ability to convert local currency into U.S. dollars and transfer funds out of Venezuela and to obtain U.S. dollars required to purchase needed telecommunications equipment and repair parts. The continuation or worsening of this crisis in
Venezuela could have a material adverse effect on IMPSAT Venezuelas results of operations and financial condition.



IMPSAT USA recorded total net revenues of $27.7 million for 2004, compared to $30.4 million for 2003. The difference is primarily a consequence of early
termination charges collected during 2003, totaling approximately $1.5 million, and a decrease of $0.9 million in revenues from telephony services.



35



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##### Table of Contents

Direct Costs.Our direct costs for 2004 totaled $110.5 million, an increase of $2.2 million (or
2.0%), compared to 2003. Of our total direct costs for 2004, $35.0 million related to the operations of IMPSAT Argentina, compared to $38.9 million at IMPSAT Argentina for 2003. Direct costs for IMPSAT Brazil totaled $17.2 million for 2004, compared
to $15.9 million for 2003. Direct costs of our subsidiaries are described prior to the elimination of inter-company transactions.



(1) Contracted Services.Contracted services costs include costs of maintenance and installation (and de-installation) services
provided by outside contractors. During 2004, our contracted services costs totaled $21.3 million, an increase of $3.8 million (or 21.6%) compared to 2003. Of this amount, maintenance costs for our telecommunications network infrastructure,
including the Broadband Network, totaled $13.9 million for 2004 compared to $12.6 million during 2003. Installation costs totaled $7.4 million for 2004 compared to $4.9 million in 2003. Of our total contracted services costs for 2004, $7.1 million
related to the operations of IMPSAT Argentina, compared to $5.7 million at IMPSAT Argentina for 2003. Our installation costs increased because we had more new customers during 2004 compared to 2003.



(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. We recorded other direct costs of $20.6 million, a decrease of $2.4
million (or 10.4%) compared to 2003.



Sales
commissions paid to third-party sales representatives for 2004 totaled $7.8 million compared to $5.7 million in 2003.



We recorded a net reversal of a provision for doubtful accounts of $3.9 million for 2004, compared to a provision of $2.8 million for the
previous year. The net reversal related principally to our settlement with Global Crossing, announced in the first quarter of 2004, concerning certain disputes that we had with that company. We recorded a net reveral of $1.7 million in connection
with the Global Crossing settlement. At December 31, 2004, our allowance for doubtful accounts covered approximately 115% of our gross trade accounts receivable past due more than six months compared to 106.3% at December 31, 2003. The average days
in quarterly gross trade accounts receivable decreased from 82 days at December 31, 2003 to 52 days at December 31, 2004. IMPSAT Argentinas allowance for doubtful accounts at December 31, 2004 covered approximately 102.6% of its gross trade
accounts receivable past due more than six months compared to 100.7% at December 31, 2003. Our net provision for doubtful accounts was lower in 2004 than in 2003 because of an improvement in our agings.



(3) Leased Capacity.Our leased capacity costs for
2004 totaled $67.6 million, representing 29.7% of our net revenues, as compared to $66.9 million, representing 30.4% of our net revenues, in 2003. The increase in leased capacity costs in 2004 of $0.7 million (or 1.1%) compared to 2003 is
attributable to increased revenues and services.



Our leased capacity costs for satellite capacity for 2004 totaled $23.8 million, a decrease of $3.5 million (or 12.9%) compared to 2003. In Argentina, our leased satellite capacity costs totaled $7.3 million for 2004, compared to $7.3
million for 2003. Our leased satellite capacity costs for IMPSAT Brazil totaled $2.8 million for 2004, compared to $3.1 million for 2003. The reduction in our leased satellite capacity costs was principally due to our favorable renegotiation of, and
settlement of disputes relating to, certain of our satellite capacity agreements. We had approximately 706 MHz of leased satellite capacity at December 31, 2004 and 735 MHz at December 31, 2003.



Our costs for dedicated leased capacity on third-party fiber
optic networks totaled $29.2 million for 2004, an increase of $2.6 million (or 9.8%) compared to 2003. These costs were incurred principally in Argentina, Brazil, Colombia and the United States. We will continue to require leased capacity to provide
telecommunications services to clients with facilities outside of the footprint of our Broadband Network in order to provide end-to-end telecommunications services.



In connection with services we offer under our license in Argentina to provide domestic and international
long distance telephony connections, we incur costs for interconnection and telephony



36



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##### Table of Contents

termination (I&T) and frequency rights. Our I&T and frequency rights costs totaled $14.7 million during 2004 (which includes $12.1
million of I&T costs). This compares to $13.1 million of I&T and frequency rights costs for 2003 (which includes $9.7 million of I&T costs).



Our I&T and frequency rights costs in Argentina totaled $7.3 million during 2004 (which includes $7.0 million of I&T costs). This
compares to $6.1 million of I&T and frequency rights costs for 2003 (which included $5.8 million of I&T costs). The increase is due primarily to increases in I&T costs proportionate to increased revenues from telephony services, and
start-up costs related to the launch of telephony services in Brazil, partially offset by a decrease of $0.7 million in frequency rights costs in Ecuador.



(4) Costs of Equipment Sold and Broadband Network Development.In 2004, we incurred costs of equipment sold of $1.0 million,
compared to costs of equipment sold of $0.9 million for 2003.



Salaries and Wages.Salaries and wages for 2004 totaled $46.3 million, compared to $46.4 million in 2003. As part of our continuing effort to ensure more efficient operations, we further reduced the aggregate number of our employees
from 1,270 at December 31, 2003 to 1,236 at December 31, 2004. Management expects to continue to monitor the size of its total workforce and to make appropriate adjustments as required by financial and competitive circumstances. The appreciation of
the Argentine peso, Brazilian real, and Colombian peso during 2004 resulted in higher salary expenses in U.S. dollar terms as compared to 2003, offset mainly by lower salary expense due to reduced headcount.



IMPSAT Argentina incurred salaries and wages for 2004 totaling $6.8 million,
a decrease of $0.2 million (or 3.4%) over 2003. IMPSAT Argentina had 302 employees as of December 31, 2004 as compared to 299 employees as of December 31, 2003.



IMPSAT Brazil incurred salaries and wages for 2004 of $8.6 million, a decrease of $0.1 million (or 1.2%) compared to 2003. IMPSAT Brazil decreased its
number of employees to 197 persons at December 31, 2004, compared to 214 persons at December 31, 2003.



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 $23.6 million for 2004, representing a decrease of $1.8 million (or 7.1%) compared to 2003. Our SG&A expenses for
2004 declined due principally to decreases in our publicity, promotion costs, utilities and advisory fees, and overall cost control measures undertaken by management. SG&A expenses at IMPSAT Argentina for 2004 totaled $7.4 million, a decrease of
$0.8 million (or 9.5%) compared to 2003.



Gain on
Extinguishment of Debt. We recorded a gain of $0.1 million during 2004 as a result of the conversion of $0.2 million of our Series A Convertible Notes into 16,100 shares of our common stock by one noteholder, based upon the fair value of the
common stock at the date of conversion and the carrying value of the notes so converted. In 2003, we recorded a gain on extinguishment of debt of $14.3 million, which was attributable to our settlement in full of certain of our operating subsidiary
vendor financing obligations that were not initially resolved as part of the Plan.



Depreciation and Amortization.Our depreciation and amortization expenses for year ended December 31, 2004 totaled $44.8 million, a decrease of $4.1 million (or 8.4%) compared to depreciation and amortization
for 2003. Depreciation decreased in 2004 due to the reduction in the companys depreciable fixed asset base in connection with the reorganization of the Company under the Plan in 2003 and the application of fresh-start accounting.



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Interest Expense, Net.Our net interest expense for the year ended December 31, 2004 totaled $20.0
million, consisting of interest expense of $21.1 million and interest income of $1.1 million. Our net interest expense for 2004 increased by $4.9 million (or 32.5 %) compared to the net interest expense for 2003. The increase in interest expense is
attributed to financial expenses related with taxes on banking transactions, and payment in kind accretion to our Senior Notes over a 12-month period in 2004, as compared to the payment in kind accretion to our Senior Notes
over a 9-month period (from March 25, 2003 through December 31, 2003) in 2003. Of our total interest expense for the year ended December 31, 2004, $13.7 million represents payment in kind accretion to our Senior Notes and certain
indebtedness of our subsidiaries.



Our total indebtedness as of
December 31, 2004 was $281.1 million, as compared to $261.2 million as of December 31, 2003.



Net Gain on Foreign Exchange.We recorded a total net gain on foreign exchange for 2004 of $5.8 million, compared to net gain of $27.5 million for 2003 (Predecessor Company and Successor Company). 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, offset by net losses on foreign exchange in Venezuela.



IMPSAT Argentina recorded a net gain on foreign exchange for 2004 of $1.0
million as compared to a net gain on foreign exchange for 2003 of $1.9 million. IMPSAT Brazil recorded a net gain on foreign exchange for 2004 totaling $10.6 million, compared to net gains of $23.4 million for 2003.



During February 2004, the Venezuelan government further devalued the
bolivar and fixed the bolivars value to the U.S. dollar at Bs. 1,920.00 = $1.00. On March 3, 2005, the Venezuelan government again devalued its currency by 10.7%, to Bs. 2,150 = $1.00. The Company estimates it will realize
foreign exchange losses of $112,000 as a result, which will be reflected in the results of operations for the first quarter of 2005.



Reorganization Items. We recorded reorganization items for the three months (Predecessor Company) ended March 31, 2003 of $726.1 million. These
items included a gain on extinguishment of indebtedness pursuant to the Plan of $728.2 million, reduced by $2.1 million in reorganization expenses (principally professional fees incurred during the first quarter 2003 in connection with the
negotiation and formation of our Plan and Chapter 11 filing). We recorded no reorganization items for 2004.



Other Income (Losses), Net. We recorded other income, net, for 2004 of $0.8 million, as compared to other losses, net, of $1.8 million for 2003.



Provision for Foreign Income Taxes.For 2004, we
recorded a provision for foreign income taxes of $3.5 million, compared to a provision for foreign income taxes of $1.9 million for 2003.



Net Income (Loss).For the year ended December 31, 2004, we recorded a net loss of $14.2 million. This compares to net income of $740.5 million in
2003 (Predecessor and Successor Company). Our net income for 2003 was principally due to the effects of the gain on extinguishment of indebtedness pursuant to the Plan (as discussed above under Reorganization Items), and our gain
on the extinguishment of debt (as discussed above under Gain on Extinguishment of Debt). For 2004 we recorded operating income of $2.6 million, compared to operating income of $5.6 million during 2003 (Predecessor Company and
Successor Company).



2003 Compared to 2002



Revenues.Our total net revenues for 2002 and 2003 equaled $230.2
million and $220.3 million, respectively. Net revenues were composed of net revenues from services and sales of equipment. Our net revenues from services for 2003 totaled $219.3 million, a decrease of $9.7 million (or 4.3%) compared to 2002.



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Our lower total net revenues from services for 2003, as compared to 2002, were due to lower revenues from
broadband and satellite and Internet services, which were only partially offset by increases in our revenues from telephony and value added services. Changes in our revenues during 2003 as compared to 2002 related to the following:



| |  |  | In connection with our application of fresh start accounting after the Effective Date, as of April 1, 2003, we no longer recognized as revenue any amounts of deferred revenue that
were previously claimed on our balance sheet. Of our total recorded revenues from services for 2002 and the first quarter of 2003, of $229.0 million and $56.0 million, respectively, $5.0 million and $1.1 million were represented by the recognition
of deferred revenue; due to the fresh start accounting adjustment, no amount of deferred revenue was recorded after March 31, 2003.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In addition to the effect of fresh start accounting on the recognition of deferred revenues described above, the decrease in our revenues from broadband and satellite services
during 2003 in comparison to 2002 was due to lower satellite-based services volume and pricing pressures.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We experienced lower Internet revenues principally because of (i) pricing pressure (due to competition and adverse economic conditions) and (ii) technical difficulties that
interrupted our delivery of Internet services in Brazil during 2002 and resulted in customer losses during 2003.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our revenues from value added services increased in U.S. dollar terms principally because of the appreciation of the Argentine peso during the 2003 compared to 2002.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our telephony services revenues increased during 2003 as compared to 2002 due to (i) our increased delivery during 2003 of switched voice services to corporate customers in
Argentina, increased traffic at higher rates, and international call terminations to end-user customers in Peru and (ii) the relative appreciation of the Argentine peso during 2003 as compared with 2002.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our net revenues discussed above were also impacted (in U.S. dollar terms) by
the volatile exchange rates of the Argentine peso and the Brazilian real to the U.S. dollar during 2003. The exchange rate for the Argentine peso as of December 31, 2003 was 2.95 pesos = $1.00, as compared to 3.40
pesos =$1.00 for the corresponding period in 2002. As of December 31, 2003, the exchange rate for the Brazilian real was R$2.89 = $1.00, as compared to R$3.53 = $1.00 for the corresponding period in 2002.



We had 2,799 customers at December 31, 2003, compared to 2,649 customers at
December 31, 2002. During 2003, we gained a net total of 150 customers, an increase of 5.7% compared to the prior year.



In addition to net revenues from services, our total net revenues for 2003 included revenues from sales of equipment. Revenues from equipment sales for
each of 2003 and 2002 totaled $0.1 million.



Although the
Argentine economy grew during 2003 as compared to 2002, IMPSAT Argentinas financial condition and results of operations were negatively impacted by the political and social uncertainty and economic weakness that continued to affect Argentina.
The economic downturn in Argentina adversely affected many of our customers in that country and caused a number of them to terminate their contracts with us, fail to renew their contracts, reduce the amount of services contracted, or delay their
payment of amounts owed to us for services provided. Notwithstanding these economic factors (and largely due to the average appreciation of the Argentine peso during 2003 compared to 2002, as discussed above), our net revenues at IMPSAT
Argentina increased during 2003. Our total net revenues at IMPSAT Argentina as of December 31, 2003 totaled $58.6 million, an increase of $2.0 million (or 3.6%) compared to 2002.



IMPSAT Brazils total net revenues from services for 2003 totaled $30.5 million, a decrease of $5.3 million (14.9%)
compared to 2002. Although the Brazilian realappreciated during 2003, IMPSAT Brazils results for that period were adversely affected by the ongoing adverse economic conditions in Brazil and the relative devaluation of the Brazilian
real compared to the average exchange rate during 2002.



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IMPSAT Colombia recorded total net revenues of $54.6 million during 2003, compared to $58.3 million for
2002. Our net revenues in Colombia were negatively impacted by sustained adverse economic conditions in that country and increased competition.



Revenues at IMPSAT Venezuela equaled $34.9 million for 2003, compared to $31.6 million for 2002.



Direct Costs.Our direct costs for 2003 totaled $108.3 million, a
decrease of $12.1 million (or 10.0%), compared to 2002. Of our total direct costs for 2003, $38.9 million related to the operations of IMPSAT Argentina, compared to $42.8 million at IMPSAT Argentina for 2002. Direct costs for IMPSAT Brazil totaled
$15.9 million for 2003, compared to $21.9 million for 2002. Direct costs of our subsidiaries are described prior to the elimination of intercompany transactions.



(1) Contracted Services.During 2003, our contracted services costs totaled $17.5 million, a decrease
of $1.7 million (or 8.8%) compared to 2002. Of this amount, maintenance costs for our telecommunications network infrastructure, including the Broadband Network, totaled $12.6 million for 2003 compared to $14.4 million during 2002. Installation
costs totaled $4.9 million for 2003 compared to $4.8 million in 2002. Of our total contracted services costs for 2003, $5.7 million related to the operations of IMPSAT Argentina, compared to $5.9 million at IMPSAT Argentina for 2002.



(2) Other Direct Costs. We recorded other direct
costs of $23.0 million, a decrease of $2.9 million (or 11.1%) compared to 2002. Sales commissions paid to third-party sales representatives for 2003 totaled $5.7 million compared to $5.2 million in 2002. We recorded a provision for doubtful accounts
of $2.9 million for 2003, compared to a provision of $13.1 million for the previous year. At December 31, 2003, our allowance for doubtful accounts covered approximately 106.3% of our gross trade accounts receivable past due more than six months.
The average days in quarterly gross trade accounts receivable decreased from 83 days at December 31, 2002 to 82 days at December 31, 2003. IMPSAT Argentinas allowance for doubtful accounts at year-end 2003 covered approximately 100.7% of its
gross trade accounts receivable past due more than six months. Our net provision for doubtful accounts was lower in 2003 than in 2002 because of an improvement in our agings.



(3) Leased Capacity.Our leased capacity costs for 2003 totaled $66.9 million, which represented a
decrease of $7.8 million (or 10.4%) compared to 2002. This decrease reflected an overall reduction in costs for interconnection and telephony termination costs (which are components of our leased capacity costs), as described below.



Our leased capacity costs for satellite capacity for 2003
totaled $27.3 million, a decrease of $4.8 million (or 15.0%) compared to 2002. In Argentina, our leased satellite capacity costs totaled $7.3 million for 2003, compared to $8.1 million for 2002. Our leased satellite capacity costs for IMPSAT Brazil
totaled $3.1 million for 2003, compared to $4.1 million for 2002. The reduction in our leased satellite capacity costs was principally due to our favorable renegotiation of, and settlement of disputes relating to, certain of our satellite capacity
agreements. We had approximately 735 MHz of leased satellite capacity at December 31, 2003 and 873 MHz at December 31, 2002.



Our costs for dedicated leased capacity on third-party fiber optic networks totaled $26.6 million for 2003, an increase of $0.9 million
(or 3.4%) compared to 2002. These costs were incurred principally in Argentina, Brazil, Colombia and the United States.



Our I&T and frequency rights costs totaled $13.1 million during 2003 (which includes $9.7 million of I&T costs). This compares to
$14.9 million of I&T and frequency rights costs for 2002 (which includes $11.7 million of I&T costs). Our I&T and frequency rights costs in Argentina totaled $6.1 million during 2003 (which includes $5.8 million of I&T costs). This
compares to $7.7 million of I&T and frequency rights costs for 2002 (which included $7.0 million of I&T costs).



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(4) Costs of Equipment Sold.In 2003, we incurred costs of equipment sold of $0.9
million, compared to costs of equipment sold of $0.6 million for 2002.



Salaries and Wages.Salaries and wages for 2003 totaled $46.4 million, a decrease of $1.5 million (or 3.2%) compared to 2002. As a result of the adverse economic conditions experienced in Argentina, Brazil and elsewhere in Latin
America and our efforts to align our corporate organization to our business projections over the near and medium term, we reduced the aggregate number of our employees from 1,271 at December 31, 2002 to 1,270 at December 31, 2003. The decrease in
these costs was also due, in part, to the effect on such costs of the year over year relative currency devaluations experienced during 2003 in certain of our countries of operation.



IMPSAT Argentina incurred salaries and wages for 2003 totaling $7.0 million, an increase of $1.2 million (or 20.7%) over
2002. The increase was, in part, related to payments of bonuses to certain of our executive officers during 2003 pursuant to the terms of the Plan and their employment contracts with us. We did not pay any bonuses for 2002. This increase was also
partly due to the appreciation of the pesoin the third and fourth quarters of 2003, which increased the U.S. dollar value of our salaries and wages expenses incurred in Argentina during 2003. IMPSAT Argentina had 299 employees as of December
31, 2003 as compared to 317 employees as of December 31, 2002.



IMPSAT Brazil incurred salaries and wages for 2003 of $8.7 million, a decrease of $2.4 million (or 21.8%) compared to 2002. IMPSAT Brazil decreased its number of employees to 214 persons at December 31, 2003, compared to 225 persons at
December 31, 2002.



Selling, General and Administrative
Expenses. We incurred SG&A expenses of $25.4 million for 2003, representing a decrease of $2.8 million (or 10.0%) compared to 2002. Our SG&A expenses for 2003 declined due principally to a decrease in our publicity and promotion costs,
the effects of the relative currency devaluations of local currencies in Colombia and Venezuela against the U.S. dollar during 2003, and overall cost control measures undertaken by management. SG&A expenses at IMPSAT Argentina for 2003 totaled
$3.5 million, a decrease of $0.8 million (or 18.6%) compared to 2002.



Gain on Extinguishment of Debt. We recorded a gain of $14.3 million during 2003, which was attributable to our settlement in full of certain of our operating subsidiary vendor financing obligations that were not resolved as part of
the Plan. We recorded a net gain on extinguishment of debt of $16.4 million in 2002, as a result of a settlement regarding certain vendor financing obligations of IMPSAT Argentina.



Depreciation and Amortization.Our depreciation and amortization expenses for the three months (Predecessor Company)
ended March 31, 2003 and nine months (Successor Company) ended December 31, 2003 totaled $19.4 million and $29.5 million. Our depreciation and amortization expenses for 2003 (Predecessor Company and Successor Company) totaled $48.9 million, a
decrease of $33.9 million (or 40.9%) compared to depreciation and amortization for 2002.



Depreciation and amortization expenses for IMPSAT Argentina for 2003 totaled $10.2 million. This represents a decrease of $14.7 million (or 59.0%) compared to IMPSAT Argentinas depreciation and amortization
expenses for 2002. The decrease in depreciation and amortization was primarily due to the reduction of the dollar value of our depreciable fixed asset base in connection with our Chapter 11 reorganization and the application of fresh start
accounting.



Interest Expense, Net.Our net interest
expense for the three months (Predecessor Company) ended March 31, 2003 totaled $1.7 million, consisting of interest expense of $1.9 million and interest income of $0.2 million. Our net interest expense for the nine months ended December 31, 2003
(Successor Company) was $13.4 million, consisting of interest expense of $14.4 million and interest income of $1.1 million. Our net interest expense for 2003 (Predecessor Company and Successor Company) totaled $15.1 million, consisting of interest
expense of



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$16.3 million and interest income of $1.3 million. Our net interest expense for 2003 decreased by $58.8 million (or 79.6 %) compared to the net interest
expense for 2002. Our interest expense decreased principally because of reductions in outstanding indebtedness and contractual interest following the filing of the Plan and the restructuring of our indebtedness (particularly our former 121/8% Senior Guaranteed Notes due 2003, 133/4% Senior Notes due 2005, and 123/8%
Senior Notes due 2008) pursuant to the Plan. Of our total interest expense for the nine months ended December 31, 2003, $10.0 million represented payment in kind accretion to our Senior Notes and certain indebtedness of our subsidiaries.



Our total indebtedness as of December 31,
2003 (as Successor Company) was $261.2 million, as compared to $1.04 billion (including unpaid accrued interest through the petition date related to the Plan) as of December 31, 2003 (as Predecessor Company).



Net (Loss) Gain on Foreign Exchange.We recorded a net gain on foreign
exchange for the three months (Predecessor Company) ended March 31, 2003 of $10.0 million and a net gain on foreign exchange for the nine months (Successor Company) ended December 31, 2003 of $17.6 million. We recorded a total net gain on foreign
exchange for 2003 (Predecessor Company and Successor Company) of $27.5 million, compared to a net loss of $91.9 million for 2002. The net gain on foreign exchange was primarily due to the appreciation of the Argentine peso and the Brazilian
real on the book value of our monetary assets and liabilities in Argentina and Brazil.



IMPSAT Argentina recorded a net gain on foreign exchange for 2003 of $1.9 million as compared to a net loss on foreign exchange for 2002 of $13.9 million. IMPSAT Brazil recorded net gains on foreign exchange for 2003
totaling $23.4 million, compared to net losses of $79.5 million for 2002.



Reorganization Items. We recorded reorganization items for the three months (Predecessor Company) ended March 31, 2003 of $726.1 million. These items included a gain on extinguishment of indebtedness pursuant
to the Plan of $728.2 million, reduced by $2.1 million in reorganization expenses (principally professional fees incurred during the first quarter 2003 in connection with the negotiation and formation of our Plan and Chapter 11 filing). We recorded
reorganization items for 2002 (Predecessor Company) of $23.3 million in connection with our Plan and Chapter 11 filing.



Other Losses, Net. We recorded other losses, net, for 2003 of $1.8 million, as compared to other losses, net, of $5.9 million for 2002.



Provision for Foreign Income Taxes.For 2003, we recorded a
provision for foreign income taxes of $1.9 million, compared to a provision for foreign income taxes of $2.3 million for 2002.



Net Income (Loss).For the three months (Predecessor Company) ended March 31, 2003 we recorded net income of $731.1 million, and for the nine
months (Successor Company) ended December 31, 2003 we recorded net income of $9.5 million. For 2003 (Predecessor Company and Successor Company), we recorded net income of $740.5 million. This compares to a net loss of $204.5 million in 2002
(Predecessor Company). Our net income for 2003 was principally due to the effects of the gain on extinguishment of indebtedness pursuant to the Plan (as discussed above under Reorganization Items), and our gain on the
extinguishment of debt (as discussed above under Gain on Extinguishment of Debt). For 2003 (Predecessor Company and Successor Company), we recorded operating income of $5.6 million compared to operating losses of $32.7 million
during 2002 (Predecessor Company).



Liquidity and Capital Resources



At December 31, 2004, we had total cash, cash equivalents
and trading investments of $63.7 million (as compared to $64.0 million as of December 31, 2003).



As of December 31, 2004, approximately $3.6 million of our cash and cash equivalents were held in Venezuelan bolivars by IMPSAT Venezuela (based on
the official exchange rate at that date of Bs.1,920 = $1.00). Foreign exchange controls instituted in Venezuela since February 2003 severely limit our ability to



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repatriate these amounts and any other earnings from our Venezuelan operations. 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 stiffer exchange control restrictions in that country could have a material adverse effect on our financial
condition and results of operations in Venezuela. See Quantitative and Qualitative Disclosures About Market Risk  Foreign Currency Risk.



At December 31, 2004, our total indebtedness was $281.1 million (as compared to $261.2 million at December 31, 2003), of which $2.7 million represented
short-term debt, $45.1 million represented current portion of long-term debt and $233.3 million represented long-term debt. Our capital expenditures budget contemplates that we will need approximately $32.5 million (including amounts spent to date)
through the end of 2005 for capital expenditures.



Although we have emerged from bankruptcy, 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. This default, which relates to indebtedness totaling approximately $7.6 million in outstanding principal amount, gives the creditor the right to accelerate such indebtedness and seek immediate
repayment of all outstanding amounts and accrued interest thereon. There is no assurance that we will be successful in reaching a definitive agreement with this creditor to reschedule or restructure such obligations. Under those circumstances,
IMPSAT Argentina could be forced to seek protection or liquidate under the bankruptcy laws of Argentina.



In the fourth quarter of 2004, IMPSAT Brazil failed to comply with certain financial ratios on its approximately $90.8 million of senior secured vendor
financing indebtedness. Although we obtained a waiver of the non-compliance for that quarter from the lender, we cannot guarantee that the lender will grant any required waivers in the future.



In 2005, we are required to commence repayment of the principal amount of the
restructured senior debt owed by our subsidiaries to certain of their vendor financiers who elected to participate in the Plan, and pay in cash the interest on the Senior Notes, which was payable in kind between the Effective Date and March 28,
2005. A significant portion of the indebtedness coming due in 2005 and thereafter is held by affiliates of certain members of our board of directors. Accordingly, a special committee of the Companys board of directors has been formed to
explore recapitalization alternatives. These alternatives may take the form of a repurchase, refinancing or rescheduling of the payment terms of the indebtedness of the Company and/or its operating subsidiaries, a potential capital infusion, or
other types of transactions. There can be no assurance, however, that any such transaction will be successfully negotiated or consummated. Our inability to successfully refinance our indebtedness as it comes due would have a material adverse effect
on our company and would raise doubts as to our ability to continue as a going concern for a reasonable period of time.



As set forth in our consolidated statement of cash flows, our operating activities provided $35.5 million in net cash flows for 2004, compared to $30.7
million provided by operating activities during 2003. The increase in cash flow provided by operating activities was primarily due to improvement on accounts receivable collection.



For 2004, our investing activities used $34.3 million in net cash flows, compared to $6.4 million of net cash flows provided
by investing activities during the corresponding period in 2003. The increase in net cash flows used in investing activities was principally due to purchases of property, plant and equipment needed for the maintenance and expansion of our business.
Our capital expenditures in 2004 represented $ 39.4 million of our net cash flows compared to $21.5 million in 2003. During 2004, $2.7 million in net cash flows were provided from financing activities. This compares to $8.3 million in net cash flows
used in financing activities during 2003. The positive cash flow from financing activities in 2004 was due to short- and medium-term financing obtained in excess of the repayment of current lines at maturity.



At December 31, 2004, we had leased satellite capacity with annual rental
commitments of approximately $12.4 million through the year 2009 under non-cancelable agreements. The company has entered into contracts for the purchase of satellite capacity for approximately $15.0 million through 2015. In addition, at December
31,



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2004, we had commitments to purchase telecommunications equipment amounting to approximately $6.5 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. We have committed to long term contracts for the purchase of terrestrial links from third parties
in Argentina, Colombia, and the United States for approximately $4.0 million per year through 2009. The remainder of the leases are typically under one-year contracts, the early cancellation of which is subject to a fee.



The following table sets forth due dates of our contractual obligations:



|                                   |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|---------------------------------- |  | -------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | ----- | ------ |  | - | ------- |  | - | -------
|Type of Obligations                |  | 2005           |        | 2006 |   | 2007   |  | 2008 |        | 2009 |   | Thereafter |  | Total
|                                   |  | (in thousands)
|Short-term debt                    |  | $              | 2,656  |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  | $ | 2,656  
|Long-term debt                     |  | $              | 45,092 |      | $ | 37,198 |  | $    | 36,701 |      | $ | 42,050     |  | $     | 16,350 |  | $ | 101,036 |  | $ | 278,427
|Capital lease obligations          |  |                |       |      |   | 86     |  |      | 86     |      |   | 86         |  |       | 70     |  |   |         |  |   | 328    
|Operating leases(1)                |  |                | 26,280 |      |   | 20,815 |  |      | 14,795 |      |   | 11,602     |  |       | 8,442  |  |   | 1,871   |  |   | 83,805 
|Purchase obligations               |  |                | 6,493  |      |   |       |  |      |       |      |   |           |  |       |       |  |   |        |  |   | 6,493  
|                                   |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|Total contractual cash obligations |  | $              | 80,521 |      |   | 58,099 |  |      | 51,582 |      |   | 53,738     |  |       | 24,862 |  |   | 102,907 |  |   | 371,709
|                                   |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        

---

|(1) | This includes commitments for satellite capacity and terrestrial links.
|--- | -----------------------------------------------------------------------



Forward Looking Statements



Forward Looking Statements. Some of the statements in this Managements Discussion and Analysis of Financial Condition and Results of
Operations are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking statements. 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:



| |  |  | factors affecting our performance and financial conditions
| | - |  | ----------------------------------------------------------



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



| |  |  | 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
| | - |  | -------------------------------------------------------------



| |  |  | highly competitive market conditions
| | - |  | ------------------------------------



| |  |  | 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. We will not update or revise any forward-looking statements.



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|Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 December 31, 2004 and assuming that the hypothetical interest rate and foreign exchange rate changes used in the analyses occurred during year 2004. We do not hold or issue any market risk sensitive
instruments for trading purposes.



Interest Rate Risk.Our cash, cash equivalents and trading investments consist of highly liquid investments with a maturity of less than 360 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 December 31, 2004, our total floating rate indebtedness aggregated $41.0 million. 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 December 31, 2004, a hypothetical 100 basis point increase in the London Interbank Offered Rate (LIBOR)
would adversely affect our annual interest cost related to our floating rate indebtedness by approximately $0.4 million annually.



|                                 |  |                                     |        |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |        |   |  |   |         |  |   |        
|-------------------------------- |  | ----------------------------------- | ------ | ---------- | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ---------- | - | ------ | ----- |  | - | ------ | - |  | - | ------- |  | - | -------
|                                 |  | Expected Maturities at December 31, |        | Fair Value
|                                 |  | 2005                                |        |            | 2006 |   |        | 2007 |  |   | 2008   |   |  | 2009 |        |   | Thereafter |   |        | Total | 
|Senior Notes (fixed rate)        |  | $                                   | 32,628 |            |      | $ | 32,632 |      |  | $ | 32,632 |   |  | $    | 32,632 |   |            | $ | 16,348 |       |  | $ | 91,621 |   |  | $ | 238,493 |  | $ | 185,209
|                                 |  |                                     |        |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |        |   |  |   |         |  |   |        
|Avg. interest rate               |  |                                     | 8.46   | %          |      |   | 8.22   | %    |  |   | 7.88   | % |  |      | 7.39   | % |            |   | 6.61   | %     |  |   | 6.00   | % |  |   |         |  |   |        
|                                 |  |                                     |        |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |        |   |  |   |         |  |   |        
|Term Notes (fixed rate)          |  | $                                   | 309    |            |      | $ | 147    |      |  | $ | 152    |   |  |      |       |   |            |   |       |       |  |   |       |   |  | $ | 608     |  | $ | 608    
|                                 |  |                                     |        |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |        |   |  |   |         |  |   |        
|Avg. interest rate               |  |                                     | 12.83  | %          |      |   | 13.30  | %    |  |   | 13.30  | % |  |      |       |   |            |   |       |       |  |   |       |   |  |   |         |  |   |        
|                                 |  |                                     |        |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |        |   |  |   |         |  |   |        
|Term Notes (variable rate)       |  | $                                   | 6,570  |            |      | $ | 3,916  |      |  | $ | 3,917  |   |  | $    | 9,418  |   |            | $ | 2      |       |  | $ | 9,415  |   |  | $ | 33,238  |  | $ | 33,238 
|                                 |  |                                     |        |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |        |   |  |   |         |  |   |        
|Avg. interest rate               |  |                                     | 12.78  | %          |      |   | 12.60  | %    |  |   | 13.23  | % |  |      | 14.11  | % |            |   | 14.11  | %     |  |   | 14.11  | % |  |   |         |  |   |        
|                                 |  |                                     |        |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |        |   |  |   |         |  |   |        
|Vendor Financing (variable rate) |  | $                                   | 8,241  |            |      | $ | 503    |      |  |   |       |   |  |      |       |   |            |   |       |       |  |   |       |   |  | $ | 8,744   |  | $ | 8,744  
|                                 |  |                                     |        |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |        |   |  |   |         |  |   |        
|Avg. Interest rate               |  |                                     | 7.76   | %          |      |   | 8.90   | %    |  |   |       |   |  |      |       |   |            |   |       |       |  |   |       |   |  |   |         |  |   |        
|                                 |  |                                     |        |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |        |   |  |   |         |  |   |        

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



45



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at December 31, 2004 was pesos 2.95 = $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. During the remainder of 2005, 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 are to 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 currency 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 December 31, 2004, the real traded at a rate of R2.65 = $1.00.



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. At December 31, 2003, the bolivar traded at a rate of Bs.1,600 = $1.00, and on December 31, 2004, it traded at a rate of Bs. 1,920 = $1.00. 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. In February 2004, the Venezuelan government further devalued its currency
to Bs. 1,920 = $1.00. In a number of cases, we have agreed to receive bolivar at the official rate in payment for our services in lieu of U.S. dollars. As a result, our holdings of bolivars at December 31, 2004 totaled Bs. 7.0 billion
(or $ 3.6 million at the official exchange rate at such date). On March 5, 2005, the Venezuelan government again devalued its currency to Bs. 2,150 = $1.00. 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 2004 and 2003 represented 31.5% and 26.4% of our total net revenues from services. Net
revenues from services from our Brazilian operations for the years 2004 and 2003 represented approximately 14.8% and 13.9% of our total net revenues from services. Our net revenues from services in Venezuela accounted for 14.6% and 15.8% of our net
total revenues from services for the years 2004 and 2003.



|Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------



Information required by this Item is included herein beginning on page F-1.



|Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------



None.



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|Item 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------



An evaluation was performed under the supervision and with the participation of the management of IMPSAT Fiber Networks, Inc. (IMPSAT),
including its Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of IMPSATs disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934)
as of December 31, 2004. Based upon that evaluation, the CEO and CFO concluded that these disclosure controls and procedures were effective as of December 31, 2004. There were no changes in IMPSATs internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, its internal control over financial
reporting.



PART III



|Item 10. | DIRECTORS AND OFFICERS
|-------- | ----------------------



General information with respect to directors and officers may be found under the captions Election of Directors and Further
Information in our proxy statement for the companys annual meeting to be held on April 29, 2005, which we refer to as the Proxy Statement. Such information is incorporated herein by reference.



The information in the Proxy Statement set forth under the caption
Further Information  Section 16(a) Beneficial Ownership Reporting Compliance is also incorporated herein by reference.



We have adopted a Statement of Business Ethics for Directors, Officers and Employees, which we refer to as the Code of Ethics, that applies to
our directors, officers and employees (including our Chief Executive Officer, Chief Financial Officer and principal accounting officer). The Code of Ethics is publicly available on our website at www.impsat.com. If we make any substantive
amendments to the Code of Ethics or grant any waivers from a provision of the Code of Ethics to our Chief Executive Officer, Chief Financial Office and principal accounting officer, we will disclose the nature of such amendment or waiver on that
website.



Composition of Our Board of Directors



In connection with the reorganization, our board of directors was
reconstituted and is composed of seven directors. The term of our directors will expire on the date of our 2005 annual meeting. Therefore, in accordance with our certificate of incorporation, the directors will consist of the following four
categories:



(1) our Chief Executive Officer, as our
Category One Director



(2) two individuals, our
Category Two Directors, elected by the initial holders of our 6% Senior Guaranteed Convertible Notes due 2011 (Series A Notes) issued under the Plan, which we refer to as the Initial Series A Noteholders, for so long as the
sum of (x) the aggregate number of shares of our common stock issuable upon conversion of Series A Notes issued to and held by the Initial Series A Noteholders or any of their respective affiliates, and (y) the aggregate number of shares of our
common stock issued to and held by the Initial Series A Noteholders or such affiliates upon conversion of the Series A Notes continues to represent in the aggregate 7.5% or more of common stock on a fully diluted basis (that is, assuming
the conversion of all the Senior Notes and all the warrants issued under the Plan, but excluding for purposes of this calculation shares of common stock issued or issuable pursuant to 2003 Stock Incentive Plan or subsequent stock plan adopted by our
board of directors, or any modification, renewal or extension thereof);



(3) one individual, our Category Three Director, elected by Nortel as an initial holder of our Senior Guaranteed Convertible Notes due 2011 (Series B), which we refer to as Series B Notes, and warrants to purchase
common stock issued to Nortel under the Plan, for so long as the sum of (x) the aggregate number of shares of our common stock issuable upon conversion of Series B Notes and warrants issued to and held by



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Nortel or any of its affiliates, and (y) the aggregate number of shares of our common stock issued to and held by Nortel or its affiliate upon conversion of
those Series B Notes and warrants, continues to represent in the aggregate 4.5% or more of common stock on a fully diluted basis; and



(4) three individuals, our Category Four Directors, elected by the initial 2005/2008 Holders who received our common stock under the Plan,
which we refer to as the Initial 2005/2008 Common Stock, for so long as the holders of the Initial 2005/2008 Common Stock or any of their respective affiliates continue to beneficially own Initial 2005/2008 Common Stock equal, in the aggregate, to
15% or more of common stock on a fully diluted basis; provided that, for so long as the Initial Series A Noteholders have the right to elect the Category Two Directors, no more than two of the Category Four Directors may be persons who are
affiliates of Morgan Stanley & Co. Incorporated.



These
rights of certain holders of securities to elect directors to these categories will terminate upon the occurrence of the events described in the preceding paragraphs (for example, in the case of the Category Four Directors, when the holders of the
Initial 2005/2008 Common Stock or any of their respective affiliates cease to beneficially own Initial 2005/2008 Common Stock equal to 15% or more of our common stock on a fully diluted basis). Under our certificate of incorporation, upon our
determination that one of these events has occurred, each director occupying the affected category before the event will cease to be a director and the resulting vacancy will be filled:



| |  |  | by the affirmative vote of a majority of the remaining directors, and the new director will hold office until the next annual stockholders meeting, or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if the number of members remaining on the whole board of directors after that vacancy is less than four, by individuals nominated and elected by the holders of our common stock in
accordance with our certificate of incorporation and our amended and restated bylaws, at a special meeting called for that purpose.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The number of directors cannot be increased without the unanimous votes of all directors then in office and may not be less than seven or more than
fourteen.



Nominations to our board of directors will be made
as provided in our certificate of incorporation, which was filed as Exhibit No. 2.1 to our Amendment No. 1 to Registration Statement on Form 8-A filed with the SEC on March 26, 2003. Subject to the rights of certain parties, a director may be
removed with or without cause in accordance with the procedures set forth in our restated certificate of incorporation.



There is no provision in our certificate of incorporation for cumulative voting with respect to the election of our directors.



There is currently a vacancy in our Category Three Director position because
the individual designated by Nortel upon the effectiveness of the Plan has resigned and Nortel has not exercised its right to replace its designee.



|Item 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------



The information in the Proxy Statement set forth under the captions Election of DirectorsDirector Compensation, Further
InformationExecutive Compensation, Compensation Committee Interlocks and Insider Participation, and  Performance Graph is hereby incorporated herein by reference.



|Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------



The information in the Proxy Statement set forth under the captions Security Ownership of Management and Certain
Beneficial Owners and Further Information  Equity Compensation Plans is hereby incorporated herein by reference.



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|Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------



The information set forth under the caption Certain Relationships and Related Transactions of the Proxy Statement is incorporated
herein by reference.



|Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------



Information concerning principal accountant fees and services appears in the Proxy Statement under the heading Ratification of Independent Auditors
 Independent Auditor Fees and Other Matters and is incorporated herein by reference.



PART IV



|Item 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
|-------- | ----------------------------------------------------------------



(a)(1) List of Financial Statements



Consolidated Financial Statements of IMPSAT Fiber Networks, Inc. and Subsidiaries



| |  |  | Consolidated Balance Sheets (Successor Company) as of December 31, 2003 and 2004 and
| | - |  | ------------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Operations for the Year Ended December 31, 2002 (Predecessor Company), the Three Months Ended March 31, 2003 (Predecessor Company), the Nine Months Ended
December 31, 2003 (Successor Company) and for the Year Ended December 31, 2004 (Successor Company)
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Comprehensive (Loss) Income for the Year Ended December 31, 2002 (Predecessor Company), the Three Months Ended March 31, 2003 (Predecessor Company), the
Nine Months Ended December 31, 2003 (Successor Company) and for the Year Ended December 31, 2004 (Successor Company)
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Stockholders Equity (Deficiency) for the Year Ended December 31, 2002 (Predecessor Company), the Three Months Ended March 31, 2003 (Predecessor
Company), the Nine Months Ended December 31, 2003 (Successor Company) and for the Year Ended December 31, 2004 (Successor Company)
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Cash Flows for the Year Ended December 31, 2002 (Predecessor Company), the Three Months Ended March 31, 2003 (Predecessor Company), the Nine Months Ended
December 31, 2003 (Successor Company) and for the Year Ended December 31, 2004 (Successor Company)
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Notes to the consolidated financial statements
| | - |  | ----------------------------------------------



(a)(2) List of Schedules.



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



(a)(3)
Exhibits



The exhibits listed in the accompanying
Exhibit Index and required by Item 601 of Regulation S-K (numbered in accordance with Item 601 of Regulation S-K) are filed or incorporated by reference as part of this Report.



(b) Reports on Form 8-K.



We filed a report on Form 8-K on November 24, 2004 announcing our results of operations for the fiscal quarter ending September 30, 2004.



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SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) 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, on March 31, 2005.



IMPSAT FIBER NETWORKS, INC.By:

/s/    RICARDO A. VERDAGUERRicardo A. Verdaguer,President and Chief Executive OfficerDate: March 31, 2005




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POWER OF ATTORNEY



KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below (each, a Signatory)
constitutes and appoints Héctor Alonso and José R. Torres (each, an Agent, and collectively, Agents) or either of them, his true and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution, for and in his name, place and stead, in any and all capacities, to sign this Report of Form 10-K (this Report) and any and all amendments thereto and to file the same, with all exhibits thereto, and all other documents
in connection therewith, with the SEC. Each Signatory further grants to the Agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary, in the judgment of such Agent, to be done in
connection with any such signing and filing, as full to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all that said Agents, or any of them, or their or his other substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.



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



|                            |  |                                                                                                                                           |  |               
|--------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                   |  | Title                                                                                                                                     |  | Date          
|/s/    RICARDO A. VERDAGUER |  | Chairman of the Board of Directors and President and Chief Executive Officer of IMPSAT Fiber Networks, Inc.
(principal executive officer) |  | March 31, 2005
|                            |  |                                                                                                                                          
|/s/    WILLIAM CONNORS      |  | Director of IMPSAT Fiber Networks, Inc.                                                                                                   |  | March 31, 2005
|                            |  |                                                                                                                                          
|/s/    THOMAS DOSTER IV     |  | Director of IMPSAT Fiber Networks, Inc.                                                                                                   |  | March 31, 2005
|                            |  |                                                                                                                                          
|/s/    ERIC KOZA            |  | Director of IMPSAT Fiber Networks, Inc.                                                                                                   |  | March 31, 2005
|                            |  |                                                                                                                                          
|/s/    RAUL RAMIREZ         |  | Director of IMPSAT Fiber Networks, Inc.                                                                                                   |  | March 31, 2005
|                            |  |                                                                                                                                          
|/s/    IGNACIO TRONCOSO     |  | Director of IMPSAT Fiber Networks, Inc.                                                                                                   |  | March 31, 2005
|                            |  |                                                                                                                                          
|/s/    HÉCTOR ALONSO        |  | Executive Vice President and Chief Financial Officer of IMPSAT Fiber Networks, Inc. (principal financial
officer)                         |  | March 31, 2005
|                            |  |                                                                                                                                          
|/s/    JOSE R. TORRES       |  | Executive Vice PresidentAccounting and Chief Accounting Officer of IMPSAT Fiber Networks, Inc. (principal accounting
officer)            |  | March 31, 2005



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of

IMPSAT Fiber Networks, Inc.:



We have audited the accompanying consolidated balance sheets of IMPSAT Fiber Networks, Inc. and its subsidiaries (the Company) as of December
31, 2003 and 2004 (Successor Company balance sheets), and the related consolidated statements of operations, comprehensive (loss) income, stockholders (deficiency) equity and cash flows for the year ended December 31, 2002 (Predecessor Company
operations), three months ended March 31, 2003 (Predecessor Company operations), the nine months ended December 31, 2003 (Successor Company operations) and the year ended December 31, 2004 (Successor Company operations). These financial statements
are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



As discussed in Note 2 to the consolidated financial statements, on December
16, 2002, the Bankruptcy Court entered an order confirming the Companys plan of reorganization which became effective after the close of business on March 25, 2003. Accordingly, the accompanying consolidated financial statements have been
prepared in conformity with AICPA Statement of Position 90-7, Financial Reporting for Entities in Reorganization Under the Bankruptcy Code, for the Successor Company as a new entity with assets, liabilities, and a capital structure having
carrying values not comparable with prior periods as described in Note 2.



In our opinion, the Predecessor Company financial statements referred to above present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 2002 and for
the three months ended March 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Successor Company financial statements present fairly, in all material respects, the
financial position of the Company at December 31, 2003 and 2004, and the results of its operations and its cash flows for the nine months ended December 31, 2003 and for the year ended December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America.



The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Companys current liquidity position and the amount of debt
obligations coming due in 2005 and thereafter raise substantial doubt about its ability to meet its debt covenants and to continue as a going concern. Managements plans concerning these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.



DELOITTE & TOUCHE LLP

Certified Public Accountants



Miami, Florida

March 28, 2005



F-1



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##### Table of Contents

PART I

FINANCIAL INFORMATION



IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS (SUCCESSOR COMPANY)

AS OF DECEMBER 31, 2003 AND 2004

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



|                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                                                                                            |  | 2003 |         |   | 2004 |  
|ASSETS                                                                                                                                                                                                                                                      | 
|CURRENT ASSETS:                                                                                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                                                   |  | $    | 61,498  |   |      | $ | 63,655  |  
|Trading investments                                                                                                                                                                                                                                         |  |      | 2,474   |   |      |   |        |  
|Trade accounts receivable, net                                                                                                                                                                                                                              |  |      | 31,213  |   |      |   | 29,363  |  
|Other receivables                                                                                                                                                                                                                                           |  |      | 11,630  |   |      |   | 12,865  |  
|Prepaid expenses                                                                                                                                                                                                                                            |  |      | 2,249   |   |      |   | 3,008   |  
|                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total current assets                                                                                                                                                                                                                                        |  |      | 109,064 |   |      |   | 108,891 |  
|                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|PROPERTY, PLANT AND EQUIPMENT, Net                                                                                                                                                                                                                          |  |      | 315,817 |   |      |   | 317,310 |  
|                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|NON-CURRENT ASSETS:                                                                                                                                                                                                                                         |  |      |         |   |      |   |         |  
|Investments in common stock                                                                                                                                                                                                                                 |  |      | 1,873   |   |      |   |        |  
|Other non-current assets                                                                                                                                                                                                                                    |  |      | 13,875  |   |      |   | 17,706  |  
|                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total non-current assets                                                                                                                                                                                                                                    |  |      | 15,748  |   |      |   | 17,706  |  
|                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|TOTAL                                                                                                                                                                                                                                                       |  | $    | 440,629 |   |      | $ | 443,907 |  
|                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                        | 
|                                                                                                                                                                                                                                                            |  |     
|CURRENT LIABILITIES:                                                                                                                                                                                                                                        |  |      |         |   |      |   |         |  
|Accounts payable  trade                                                                                                                                                                                                                                    |  | $    | 37,095  |   |      | $ | 36,485  |  
|Short term debt                                                                                                                                                                                                                                             |  |      |         |   |      |   | 2,656   |  
|Current portion of long-term debt                                                                                                                                                                                                                           |  |      | 11,851  |   |      |   | 45,092  |  
|Accrued and other liabilities                                                                                                                                                                                                                               |  |      | 33,140  |   |      |   | 31,217  |  
|                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                                                                                                   |  |      | 82,086  |   |      |   | 115,450 |  
|LONG-TERM DEBT, Net                                                                                                                                                                                                                                         |  |      | 249,394 |   |      |   | 233,335 |  
|OTHER LONG-TERM LIABILITIES                                                                                                                                                                                                                                 |  |      | 11,904  |   |      |   | 16,109  |  
|                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total liabilities                                                                                                                                                                                                                                           |  |      | 343,384 |   |      |   | 364,894 |  
|                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|COMMITMENTS AND CONTINGENCIES (NOTE 14)                                                                                                                                                                                                                     |  |      |         |   |      |   |         |  
|STOCKHOLDERS EQUITY:                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  
|Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares outstanding as of December 31, 2003 and 2004                                                                                                                                       |  |      |        |   |      |   |        |  
|Common stock, $0.01 par value; 50,000,000 shares authorized, 10,100,000 and 10,116,100 shares issued and outstanding (including 150,000 and
100,000 restricted shares held in the 2003 Stock Incentive Plan as of December 31, 2003 and 2004, respectively) |  |      | 101     |   |      |   | 101     |  
|Additional paid in capital                                                                                                                                                                                                                                  |  |      | 90,294  |   |      |   | 90,542  |  
|Retained earnings (accumulated deficit)                                                                                                                                                                                                                     |  |      | 9,477   |   |      |   | (4,742  | )
|Deferred stock-based compensation                                                                                                                                                                                                                           |  |      | (1,320  | ) |      |   | (880    | )
|Accumulated other comprehensive loss                                                                                                                                                                                                                        |  |      | (1,307  | ) |      |   | (6,008  | )
|                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total stockholders equity                                                                                                                                                                                                                                  |  |      | 97,245  |   |      |   | 79,013  |  
|                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|TOTAL                                                                                                                                                                                                                                                       |  | $    | 440,629 |   |      | $ | 443,907 |  
|                                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  



See notes to
consolidated financial statements.



F-2



---

##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS

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



|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | --------------------------------- | - | ------- | ----------------------------------- |  | - | ---------------------------- | - |  | - | ------- | -
|                                                                                                                                |  | Predecessor Company         |          |   | Predecessor Company               |   |         | Successor Company                   |  |   | Successor Company            |  
|                                                                                                                                |  | Year Ended December 31,2002 |          |   | Three Months Ended March 31, 2003 |   |         | Nine Months Ended December 31, 2003 |  |   | Year Ended December 31, 2004 |  
|NET REVENUES:                                                                                                                   |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|Broadband and satellite                                                                                                         |  | $                           | 173,265  |   |                                   | $ | 41,382  |                                     |  | $ | 120,855                      |   |  | $ | 161,964 |  
|Internet                                                                                                                        |  |                             | 27,243   |   |                                   |   | 5,733   |                                     |  |   | 18,308                       |   |  |   | 26,125  |  
|Value added services                                                                                                            |  |                             | 14,191   |   |                                   |   | 4,781   |                                     |  |   | 10,557                       |   |  |   | 16,674  |  
|Telephony                                                                                                                       |  |                             | 14,327   |   |                                   |   | 4,106   |                                     |  |   | 13,568                       |   |  |   | 21,673  |  
|Sales of equipment                                                                                                              |  |                             | 1,168    |   |                                   |   | 74      |                                     |  |   | 926                          |   |  |   | 1,279   |  
|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|Total net revenues                                                                                                              |  |                             | 230,194  |   |                                   |   | 56,076  |                                     |  |   | 164,214                      |   |  |   | 227,715 |  
|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|COSTS AND EXPENSES:                                                                                                             |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|Direct costs:                                                                                                                   |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|Contracted services                                                                                                             |  |                             | 19,199   |   |                                   |   | 4,125   |                                     |  |   | 13,376                       |   |  |   | 21,285  |  
|Other direct costs                                                                                                              |  |                             | 25,935   |   |                                   |   | 4,696   |                                     |  |   | 18,353                       |   |  |   | 20,647  |  
|Leased capacity                                                                                                                 |  |                             | 74,679   |   |                                   |   | 17,407  |                                     |  |   | 49,516                       |   |  |   | 67,632  |  
|Cost of equipment sold                                                                                                          |  |                             | 576      |   |                                   |   | 48      |                                     |  |   | 803                          |   |  |   | 963     |  
|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|Total direct costs                                                                                                              |  |                             | 120,389  |   |                                   |   | 26,276  |                                     |  |   | 82,048                       |   |  |   | 110,527 |  
|Salaries and wages                                                                                                              |  |                             | 47,894   |   |                                   |   | 10,727  |                                     |  |   | 35,639                       |   |  |   | 46,339  |  
|Selling, general and administrative                                                                                             |  |                             | 28,204   |   |                                   |   | 5,553   |                                     |  |   | 19,824                       |   |  |   | 23,581  |  
|Gain on extinguishment of debt                                                                                                  |  |                             | (16,367  | ) |                                   |   |         |                                     |  |   | (14,253                      | ) |  |   | (115    | )
|Depreciation and amortization                                                                                                   |  |                             | 82,766   |   |                                   |   | 19,358  |                                     |  |   | 29,535                       |   |  |   | 44,797  |  
|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|Total costs and expenses                                                                                                        |  |                             | 262,886  |   |                                   |   | 61,914  |                                     |  |   | 152,793                      |   |  |   | 225,129 |  
|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|Operating (loss) income                                                                                                         |  |                             | (32,692  | ) |                                   |   | (5,838  | )                                   |  |   | 11,421                       |   |  |   | 2,586   |  
|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|OTHER INCOME (EXPENSE):                                                                                                         |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|Interest income                                                                                                                 |  |                             | 1,907    |   |                                   |   | 200     |                                     |  |   | 1,068                        |   |  |   | 1,136   |  
|Interest expense (contractual interest of $128,023 in 2002 and $21,801 for the three months ended March 31, 2003
(Predecessor)) |  |                             | (75,815  | ) |                                   |   | (1,909  | )                                   |  |   | (14,435                      | ) |  |   | (21,106 | )
|Net (loss) gain on foreign exchange                                                                                             |  |                             | (91,884  | ) |                                   |   | 9,969   |                                     |  |   | 17,566                       |   |  |   | 5,804   |  
|Recognition of other-than-temporary decline in value of investments                                                             |  |                             | (794     | ) |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|Reorganization items                                                                                                            |  |                             | (23,297  | ) |                                   |   | 726,127 |                                     |  |   |                              |   |  |   |         |  
|Legal settlement                                                                                                                |  |                             | 26,229   |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|Other (loss) income, net                                                                                                        |  |                             | (5,896   | ) |                                   |   | 2,923   |                                     |  |   | (4,689                       | ) |  |   | 840     |  
|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|Total other (expense) income                                                                                                    |  |                             | (169,550 | ) |                                   |   | 737,310 |                                     |  |   | (490                         | ) |  |   | (13,326 | )
|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|(Loss) income before income taxes                                                                                               |  |                             | (202,242 | ) |                                   |   | 731,472 |                                     |  |   | 10,931                       |   |  |   | (10,740 | )
|Provision for foreign income taxes                                                                                              |  |                             | (2,273   | ) |                                   |   | (406    | )                                   |  |   | (1,454                       | ) |  |   | (3,479  | )
|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|NET (LOSS) INCOME                                                                                                               |  | $                           | (204,515 | ) |                                   | $ | 731,066 |                                     |  | $ | 9,477                        |   |  | $ | (14,219 | )
|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|NET (LOSS) INCOME PER COMMON SHARE:                                                                                             |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|BASIC                                                                                                                           |  | $                           | (2.24    | ) |                                   | $ | 8.00    |                                     |  | $ | 0.96                         |   |  | $ | (1.42   | )
|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|DILUTED                                                                                                                         |  | $                           | (2.24    | ) |                                   | $ | 8.00    |                                     |  | $ | 0.72                         |   |  | $ | (1.42   | )
|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES:                                                                                       |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|BASIC                                                                                                                           |  |                             | 91,429   |   |                                   |   | 91,429  |                                     |  |   | 9,917                        |   |  |   | 9,994   |  
|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  
|DILUTED                                                                                                                         |  |                             | 91,429   |   |                                   |   | 91,429  |                                     |  |   | 16,057                       |   |  |   | 9,994   |  
|                                                                                                                                |  |                             |          |   |                                   |   |         |                                     |  |   |                              |   |  |   |         |  



See notes to
consolidated financial statements.



F-3



---

##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands of U.S. Dollars)



|                                                                   |  |                            |          |   |                                 |   |         |                                  |  |   |                            |   |  |   |         |  
|------------------------------------------------------------------ |  | -------------------------- | -------- | - | ------------------------------- | - | ------- | -------------------------------- |  | - | -------------------------- | - |  | - | ------- | -
|                                                                   |  | PredecessorCompany         |          |   | Predecessor Company             |   |         | SuccessorCompany                 |  |   | SuccessorCompany           |  
|                                                                   |  | Year EndedDecember 31,2002 |          |   | Three MonthsEnded March 31,2003 |   |         | Nine MonthsEndedDecember 31,2003 |  |   | Year EndedDecember 31,2004 |  
|NET (LOSS) INCOME                                                  |  | $                          | (204,515 | ) |                                 | $ | 731,066 |                                  |  | $ | 9,477                      |   |  | $ | (14,219 | )
|                                                                   |  |                            |          |   |                                 |   |         |                                  |  |   |                            |   |  |   |         |  
|OTHER COMPREHENSIVE INCOME (LOSS):                                 |  |                            |          |   |                                 |   |         |                                  |  |   |                            |   |  |   |         |  
|Foreign currency translation adjustment                            |  |                            | 33,656   |   |                                 |   | (4,097  | )                                |  |   | (3,039                     | ) |  |   | (2,969  | )
|Unrealized (loss) gain on investments available for sale           |  |                            | (475     | ) |                                 |   | 55      |                                  |  |   | 1,732                      |   |  |   | 122     |  
|Recognition of other-than-temporary decline in value of investment |  |                            | 794      |   |                                 |   |         |                                  |  |   |                            |   |  |   | (1,854  | )
|                                                                   |  |                            |          |   |                                 |   |         |                                  |  |   |                            |   |  |   |         |  
|TOTAL                                                              |  |                            | 33,975   |   |                                 |   | (4,042  | )                                |  |   | (1,307                     | ) |  |   | (4,701  | )
|                                                                   |  |                            |          |   |                                 |   |         |                                  |  |   |                            |   |  |   |         |  
|COMPREHENSIVE (LOSS) INCOME                                        |  | $                          | (170,540 | ) |                                 | $ | 727,024 |                                  |  | $ | 8,170                      |   |  | $ | (18,920 | )
|                                                                   |  |                            |          |   |                                 |   |         |                                  |  |   |                            |   |  |   |         |  





See notes to consolidated financial statements.



F-4



---

##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS (DEFICIENCY) EQUITY

(In thousands of U.S. Dollars)



|                                                                                                  |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   |         |   |  |   |          |  
|------------------------------------------------------------------------------------------------- |  | ------------ | - |  | -------------------------- | ---- | - | ------------------------- | - | -------- | --------------------------------------- |  | - | --------------------------------- | - |  | -------------------------------------------- | ---------- | - | ----- | - | ------ | - |  | - | ------- | - |  | - | -------- | -
|                                                                                                  |  | Common Stock |   |  | Additional Paid In Capital |      |   | Common Stock Reserve Pool |   |          | (Accumulated Deficit) Retained Earnings |  |   | Deferred Stock-Based Compensation |   |  | Accumulated Other ComprehensiveIncome (Loss) |            |   | Total |  
|                                                                                                  |  | Shares       |   |  | Amount                     |      |   |                           |   |          |                                         | 
|BALANCE AT DECEMBER 31, 2001 (PREDECESSOR COMPANY)                                                |  | 91,428,570   |   |  | $                          | 914  |   |                           | $ | 537,924  |                                         |  |   |                                   |   |  | $                                            | (1,072,330 | ) |       | $ | (5,438 | ) |  | $ | (13,712 | ) |  | $ | (552,642 | )
|Amortization of amount paid in excess of carrying value of net assets acquired from related party |  |              |   |  |                            |      |   |                           |   | 567      |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   |         |   |  |   | 567      |  
|Change in unrealized loss on investment available for sale                                        |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   | (475    | ) |  |   | (475     | )
|Recognition of other-than-temporary decline in value of investment                                |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   | 794     |   |  |   | 794      |  
|Foreign currency translation adjustment                                                           |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   | 33,656  |   |  |   | 33,656   |  
|Adjustment for stock options not vested                                                           |  |              |   |  |                            |      |   |                           |   | (908     | )                                       |  |   |                                   |   |  |                                              |            |   |       |   | 908    |   |  |   |         |   |  |   |          |  
|Net loss for the year                                                                             |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              | (204,515   | ) |       |   |        |   |  |   |         |   |  |   | (204,515 | )
|                                                                                                  |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   |         |   |  |   |          |  
|BALANCE AT DECEMBER 31, 2002 (PREDECESSOR COMPANY)                                                |  | 91,428,570   |   |  |                            | 914  |   |                           |   | 537,583  |                                         |  |   |                                   |   |  |                                              | (1,276,845 | ) |       |   | (4,530 | ) |  |   | 20,263  |   |  |   | (722,615 | )
|Amortization of amount paid in excess of carrying value of net assets acquired from related party |  |              |   |  |                            |      |   |                           |   | 142      |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   |         |   |  |   | 142      |  
|Change in unrealized loss on investment available for sale                                        |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   | 55      |   |  |   | 55       |  
|Foreign currency translation adjustment                                                           |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   | (4,097  | ) |  |   | (4,097   | )
|Net income for the period                                                                         |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              | 731,066    |   |       |   |        |   |  |   |         |   |  |   | 731,066  |  
|                                                                                                  |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   |         |   |  |   |          |  
|BALANCE AT MARCH 31, 2003 (PREDECESSOR COMPANY)                                                   |  | 91,428,570   |   |  |                            | 914  |   |                           |   | 537,725  |                                         |  |   |                                   |   |  |                                              | (545,779   | ) |       |   | (4,530 | ) |  |   | 16,221  |   |  |   | 4,551    |  
|Elimination of Predecessor Company stockholders equity                                           |  | (91,428,570  | ) |  |                            | (914 | ) |                           |   | (537,725 | )                                       |  |   |                                   |   |  |                                              | 545,779    |   |       |   | 4,530  |   |  |   | (16,221 | ) |  |   | (4,551   | )
|Issuance of Successor Company common stock                                                        |  | 10,000,000   |   |  |                            | 100  |   |                           |   | 95,257   |                                         |  | $ | (6,037                            | ) |  |                                              |            |   |       |   | (1,320 | ) |  |   |         |   |  |   | 88,000   |  
|                                                                                                  |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   |         |   |  |   |          |  
|BALANCE AT MARCH 31, 2003 (SUCCESSOR COMPANY)                                                     |  | 10,000,000   |   |  |                            | 100  |   |                           |   | 95,257   |                                         |  |   | (6,037                            | ) |  |                                              |           |   |       |   | (1,320 | ) |  |   |        |   |  |   | 88,000   |  
|Issuance of common stock                                                                          |  | 100,000      |   |  |                            | 1    |   |                           |   | 1,074    |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   |         |   |  |   | 1,075    |  
|Unrealized gain on investment available for sale                                                  |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   | 1,732   |   |  |   | 1,732    |  
|Foreign currency translation adjustment                                                           |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   | (3,039  | ) |  |   | (3,039   | )
|Release of Common Stock Reserve Pool                                                              |  |              |   |  |                            |      |   |                           |   | (6,037   | )                                       |  |   | 6,037                             |   |  |                                              |            |   |       |   |        |   |  |   |         |   |  |   |          |  
|Net income for the period                                                                         |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              | 9,477      |   |       |   |        |   |  |   |         |   |  |   | 9,477    |  
|                                                                                                  |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   |         |   |  |   |          |  
|BALANCE AT DECEMBER 31, 2003 (SUCCESSOR COMPANY)                                                  |  | 10,100,000   |   |  |                            | 101  |   |                           |   | 90,294   |                                         |  |   |                                  |   |  |                                              | 9,477      |   |       |   | (1,320 | ) |  |   | (1,307  | ) |  |   | 97,245   |  
|Issuance of common stock                                                                          |  | 16,100       |   |  |                            |      |   |                           |   | 99       |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   |         |   |  |   | 99       |  
|Issuance of stock options to stockholder                                                          |  |              |   |  |                            |      |   |                           |   | 149      |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   |         |   |  |   | 149      |  
|Recognition of deferred compensation                                                              |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   | 440    |   |  |   |         |   |  |   | 440      |  
|Unrealized loss on investment available for sale                                                  |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   | (1,732  | ) |  |   | (1,732   | )
|Foreign currency translation adjustment                                                           |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   | (2,969  | ) |  |   | (2,969   | )
|Net loss for the year                                                                             |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              | (14,219    | ) |       |   |        |   |  |   |         |   |  |   | (14,219  | )
|                                                                                                  |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   |         |   |  |   |          |  
|BALANCE AT DECEMBER 31, 2004 (SUCCESSOR COMPANY)                                                  |  | 10,116,100   |   |  | $                          | 101  |   |                           | $ | 90,542   |                                         |  | $ |                                  |   |  | $                                            | (4,742     | ) |       | $ | (880   | ) |  | $ | (6,008  | ) |  | $ | 79,013   |  
|                                                                                                  |  |              |   |  |                            |      |   |                           |   |          |                                         |  |   |                                   |   |  |                                              |            |   |       |   |        |   |  |   |         |   |  |   |          |  



See notes to
consolidated financial statements



F-5



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. Dollars)



|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | --------------------------------- | - | -------- | ----------------------------------- |  | - | -------------------------- | - |  | - | ------- | -
|                                                                                         |  | Predecessor Company          |          |   | Predecessor Company               |   |          | Successor Company                   |  |   | Successor Company          |  
|                                                                                         |  | Year Ended December 31, 2002 |          |   | Three Months Ended March 31, 2003 |   |          | Nine Months Ended December 31, 2003 |  |   | Year EndedDecember 31,2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Net (loss) income                                                                        |  | $                            | (204,515 | ) |                                   | $ | 731,066  |                                     |  | $ | 9,477                      |   |  | $ | (14,219 | )
|Adjustments to reconcile net (loss) income to net cash provided by operating activities: |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Amortization and depreciation                                                            |  |                              | 82,766   |   |                                   |   | 19,358   |                                     |  |   | 29,535                     |   |  |   | 44,797  |  
|Gain on extinguishment of debt                                                           |  |                              | (16,367  | ) |                                   |   | (728,203 | )                                   |  |   | (14,253                    | ) |  |   | (115    | )
|Stock-based compensation                                                                 |  |                              |          |   |                                   |   | 440      |                                     |  |   |                            |   |  |   | 440     |  
|Issuance of stock options to stockholder                                                 |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   | 149     |  
|Deferred income tax provision                                                            |  |                              | 319      |   |                                   |   | 82       |                                     |  |   |                            |   |  |   | 1,612   |  
|Provision for (reversal of allowance for) doubtful accounts                              |  |                              | 13,053   |   |                                   |   | 515      |                                     |  |   | 2,365                      |   |  |   | (3,916  | )
|Paid-in-kind interest on Senior Notes                                                    |  |                              |          |   |                                   |   |          |                                     |  |   | 9,986                      |   |  |   | 13,669  |  
|Recognition of other than-temporary decline in value of investment                      |  |                              | 794      |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Gain on sale of assets held for disposal                                                 |  |                              |          |   |                                   |   |          |                                     |  |   | (650                       | ) |  |   |         |  
|Net loss (gain) on foreign exchange                                                      |  |                              | 91,884   |   |                                   |   | (9,969   | )                                   |  |   | (17,566                    | ) |  |   | (5,804  | )
|Net loss (gain) on sale of investments                                                   |  |                              | 1,368    |   |                                   |   |          |                                     |  |   |                            |   |  |   | (1,854  | )
|Net loss on disposals of property, plant and equipment                                   |  |                              | 1,141    |   |                                   |   | 772      |                                     |  |   | 2,214                      |   |  |   | 801     |  
|Changes in assets and liabilities:                                                       |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Decrease (increase) in trade accounts receivable                                         |  |                              | 10,350   |   |                                   |   | (3,816   | )                                   |  |   | 1,512                      |   |  |   | 6,148   |  
|Decrease (increase) in prepaid expenses                                                  |  |                              | 523      |   |                                   |   | (943     | )                                   |  |   | 1,465                      |   |  |   | (747    | )
|Decrease (increase) in other receivables and other non-current assets                    |  |                              | 19,817   |   |                                   |   | 1,214    |                                     |  |   | 8,038                      |   |  |   | (886    | )
|Decrease in accounts payable  trade                                                     |  |                              | (6,100   | ) |                                   |   | (2,709   | )                                   |  |   | (13,273                    | ) |  |   | (1,522  | )
|Increase (decrease) in accrued and other liabilities                                     |  |                              | 28,517   |   |                                   |   | 5,549    |                                     |  |   | 3,180                      |   |  |   | (6,618  | )
|Decrease in deferred revenues                                                            |  |                              | (7,744   | ) |                                   |   | (1,132   | )                                   |  |   |                            |   |  |   |         |  
|Increase (decrease) in other long-term liabilities                                       |  |                              | 11,727   |   |                                   |   | (721     | )                                   |  |   | (2,811                     | ) |  |   | 3,583   |  
|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Net cash provided by operating activities                                                |  |                              | 27,533   |   |                                   |   | 11,503   |                                     |  |   | 19,219                     |   |  |   | 35,518  |  
|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Net decrease (increase) in trading investments                                           |  |                              | 6,298    |   |                                   |   | (3,303   | )                                   |  |   | 23,850                     |   |  |   | 2,474   |  
|Purchases of property, plant and equipment                                               |  |                              | (21,652  | ) |                                   |   | (3,266   | )                                   |  |   | (18,213                    | ) |  |   | (39,379 | )
|Proceeds from sale of property, plant and equipment                                      |  |                              | 1,198    |   |                                   |   | 340      |                                     |  |   | 847                        |   |  |   | 583     |  
|Proceeds from sale of assets held for disposal                                           |  |                              |          |   |                                   |   |          |                                     |  |   | 6,135                      |   |  |   |         |  
|Proceeds from the sale of investment                                                     |  |                              | 1,380    |   |                                   |   |          |                                     |  |   |                            |   |  |   | 1,995   |  
|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Net cash (used in) provided by investing activities                                      |  |                              | (12,776  | ) |                                   |   | (6,229   | )                                   |  |   | 12,619                     |   |  |   | (34,327 | )
|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Net (repayments of) borrowings from short-term debt                                      |  |                              | (8,323   | ) |                                   |   |          |                                     |  |   |                            |   |  |   | 2,656   |  
|Proceeds from long-term debt                                                             |  |                              | 1,609    |   |                                   |   |          |                                     |  |   |                            |   |  |   | 4,426   |  
|Repayments of long-term debt                                                             |  |                              | (10,532  | ) |                                   |   | (1,857   | )                                   |  |   | (6,482                     | ) |  |   | (4,345  | )
|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Net cash (used in) provided by financing activities                                      |  |                              | (17,246  | ) |                                   |   | (1,857   | )                                   |  |   | (6,482                     | ) |  |   | 2,737   |  
|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS                              |  |                              | (554     | ) |                                   |   | (415     | )                                   |  |   | 577                        |   |  |   | (1,771  | )
|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                     |  |                              | (3,043   | ) |                                   |   | 3,002    |                                     |  |   | 25,933                     |   |  |   | 2,157   |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD                                     |  |                              | 35,606   |   |                                   |   | 32,563   |                                     |  |   | 35,565                     |   |  |   | 61,498  |  
|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                                           |  | $                            | 32,563   |   |                                   | $ | 35,565   |                                     |  | $ | 61,498                     |   |  | $ | 63,655  |  
|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                      |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Interest paid                                                                            |  | $                            | 5,774    |   |                                   | $ | 940      |                                     |  | $ | 4,204                      |   |  | $ | 3,530   |  
|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Foreign income taxes paid                                                                |  | $                            | 2,328    |   |                                   | $ | 594      |                                     |  | $ | 2,842                      |   |  | $ | 3,865   |  
|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|CASH PAID DURING THE PERIOD FOR REORGANIZATION ITEMS:                                    |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Professional fees and other reorganization payments                                      |  | $                            | 6,767    |   |                                   | $ | 1,714    |                                     |  | $ | 5,841                      |   |  |   |         |  
|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:                     |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Change in unrealized gain in investment available for sale.                              |  | $                            | (475     | ) |                                   | $ | 55       |                                     |  | $ | 1,732                      |   |  | $ | 122     |  
|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Issuance of Series B Notes in settlement of certain vendor financing obligations         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  
|Issuance of common stock upon conversion of Series A Notes                               |  |                              |          |   |                                   |   |          |                                     |  | $ | 1,075                      |   |  | $ | 99      |  
|                                                                                         |  |                              |          |   |                                   |   |          |                                     |  |   |                            |   |  |   |         |  



See notes to
consolidated financial statements.



F-6



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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



1. GENERAL



IMPSAT Fiber Networks, Inc., a Delaware holding company (the Holding Company), and subsidiaries (collectively the Company or the
Successor Company) is a provider of 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. FINANCIAL RESTRUCTURING, PETITION FOR RELIEF UNDER CHAPTER 11 AND EMERGENCE



On March 11, 2002, the Holding Company concluded negotiations with an ad hoc committee representing certain creditors under
the Holding Companys Broadband Network Vendor Financing Agreements, and certain holders of its (a) $125.0 million 121/8% Senior Guaranteed Notes due 2003, (b) $300.0 million 133/4% Senior Notes due 2005 and (c)
$225.0 million 123/8% Senior Notes due 2008 (collectively, the Senior Notes) regarding a non-binding
term sheet (the Restructuring Term Sheet) relating to the terms of a proposed restructuring of these long-term obligations, as part of a comprehensive financial restructuring of the Company.



In connection with the Restructuring Term Sheet, on June 11, 2002 (the
Petition Date), the Holding Company filed a voluntary petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court).
Under Chapter 11, certain claims against the Holding Company in existence prior to the filing of the petition for relief under the federal bankruptcy laws were stayed while the Holding Company continued business operations as Debtor-in-Possession.



On September 4, 2002, the Holding Company filed a Disclosure
Statement (the Disclosure Statement) and a Plan of Reorganization (the Plan) with the Bankruptcy Court. The Plan reflected the terms of the pre- arranged



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



plan of reorganization that a majority of the holders of the indebtedness under the Companys Vendor Financing Agreements and the holders of the Senior
Notes agreed to support. The Disclosure Statement summarized the Plan and contained information concerning, among other matters, the history, business, results of operations, management, properties, liabilities and the assets available for
distribution under the Plan as well as the anticipated organization and operation of a reorganized Holding Company. The Disclosure Statement also described certain effects of Plan confirmation, certain risk factors associated with the Plan, the
manner in which distributions would be made to the Holding Companys creditors under the Plan for all amounts that were owed to such parties on the Petition Date and the confirmation process and voting procedures that holders of claims in
impaired classes must follow for their votes to be counted.



The Plan received the affirmative vote of the Holding Companys creditors in accordance with the Bankruptcy Code in December 2002 and was confirmed by order of the Bankruptcy Court on December 16, 2002. In accordance with the Plan, the
Holding Company emerged from bankruptcy on March 25, 2003 (the Effective Date). Pursuant to the Plan, on the Effective Date, all of the shares of the Companys old common stock, options granted under the Companys stock option
plans and all other equity interests were cancelled, retired and eliminated with no consideration paid thereon. The Company also adopted a new 2003 Stock Incentive Plan and terminated all the previous stock options plans.



Although the Holding Company has emerged from bankruptcy, the Company 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 Companys emergence from bankruptcy and the extinguishment of 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 indebtedness totaling approximately $7.6 million in outstanding principal amount as of December 31, 2004, such indebtedness and accrued interest thereon is due and payable. The Company
had been in negotiation discussions at the level of IMPSAT Argentina with this creditor with a view to rescheduling or otherwise restructuring the defaulted debt obligation. There is no assurance, however, that the Company will reach a definitive
agreement with this creditor to reschedule or restructure such obligations.



Following is a summary of the significant transactions consummated on March 25, 2003 under the Plan:



| |  |  | issued shares of the Holding Companys new common stock (the New Common Stock) to holders of the Companys 133/4% Senior Notes due 2005 and 123/8% Senior Notes due 2008 (the 2005/2008 Holders) in full satisfaction of their claims thereunder, including the outstanding principal and all accrued and unpaid
interest. The 2005/2008 Holders received their ratable portion of 9.8 million shares of New Common Stock, less an allocation of a ratable number of such shares of New Common Stock to the holders of certain other claims of unsecured creditors of the
Holding Company. Under the Plan, the dollar value of such other unsecured claims was determined after the Effective Date based on factors at the level of the Holding Companys operating subsidiaries. Accordingly, the Plan required the Company
to establish on the Effective Date a reserve (the Common Stock Reserve Pool) consisting of an estimated portion of such 9.8 million shares of New Common Stock sufficient to enable the Company to make any distributions after the Effective
Date on account of such other unsecured claims. To this end, based on the estimated maximum value of the post-Effective Date contingencies and other unsecured claims, the Company and the creditors committee under the Plan determined that the Common
Stock Reserve Pool should be composed of 686,000 shares of New Common Stock. The 2005/2008 Holders initially received on the Effective Date 9.1 million shares of New Common Stock, net of the Common Stock Reserve Pool. Pursuant to the Plan, any
settlements or distributions from the Common Stock
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



| | Reserve Pool with the holders of other unsecured claims were to be made in accordance with the disputed claims resolution process contained therein.
Following the resolution of these claims, the Plan provided that the Company would distribute any shares of New Common Stock remaining in the Common Stock Reserve Pool ratably among the 2005/2008 Holders in accordance with the terms of the Plan. In
accordance with such disputed claims resolution procedure, in December 2003, the Holding Company issued 11,564 shares of New Common Stock to holders of allowed unsecured claims and the remainder of the Common Stock Reserve Pool to the 2005/ 2008
Holders. Holders of the Companys pre-Chapter 11 common stock (the Old Common Stock) and holders of any other equity interest received no distribution under the Plan. All Old Common Stock and all other equity interests were
cancelled on the Effective Date;
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | filed with the Delaware Secretary of State a Restated Certificate of Incorporation (Certificate of Incorporation);
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | amended and restated the Companys Bylaws (Bylaws);
| | - |  | -----------------------------------------------------



| |  |  | cancelled all Old Common Stock, and all other existing securities and agreements to issue or purchase any equity interest;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | issued $67.5 million in aggregate principal amount of Series A 6% Senior Guaranteed Notes due 2011 (the Series A Notes) (initially convertible, in the aggregate, into
22.8% of the New Common Stock on a fully diluted basis) to holders of the Holding Companys former 121/8%
Senior Guaranteed Notes due 2003 (the 2003 Noteholders), in full satisfaction of the claims of the 2003 Noteholders, including the outstanding principal and all accrued and unpaid interest thereon;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | issued to (i) holders of debt under the Companys pre-Effective Date Broadband Network vendor financing agreements (the Original Vendor Financing Agreements) and
(ii) other creditors of the Companys operating subsidiaries holding guarantees by the Holding Company of such indebtedness who voted to accept the Plan, a combination of new senior indebtedness totaling $144.0 million, $23.9 million in the
aggregate of new Series B 6% Senior Guaranteed Notes due 2011 (the Series B Notes) (initially convertible in the aggregate into 5.3% of the New Common Stock on a fully diluted basis), and eight-year warrants to acquire 15.3% in the
aggregate of the New Common Stock (on a fully diluted basis);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | issued 200,000 shares of restricted New Common Stock to certain officers of the Company in accordance with the Companys 2003 Stock Incentive Plan; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | approved stock options for 1,646,332 shares of New Common Stock to senior officers.
| | - |  | -----------------------------------------------------------------------------------



Under the Holding Companys Certificate of Incorporation, the authorized capital stock as of the Effective Date
consists of (i) 50,000,000 shares of the New Common Stock, with a par value of $0.01 per share and (ii) 5,000,000 shares of Preferred Stock, with a par value of $0.01 per share (the Preferred Stock). No Preferred Stock has been issued.
Pursuant to the Certificate of Incorporation, Preferred Stock may be issued in one or more series as determined from time to time by the Companys Board of Directors (the Board) without further approval of the Holding Companys
stockholders. Upon issuance of any series of Preferred Stock, the Board will fix the voting powers, designations, preferences, and relative, participating, optional, redemption, conversion, exchange or other special rights, qualifications,
limitations or restrictions of such Preferred Stock, to the extent permitted by law. Pursuant to the Certificate of Incorporation, the Holding Company may not create, designate, authorize or cause to be issued any class or series of nonvoting stock
to the extent prohibited by Section 1123 of the United States Bankruptcy Code.



F-9



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



As a result of these transactions, as of March 31, 2003, the Holding Company had 10,000,000 shares of
New Common Stock issued and outstanding (including 686,000 shares held in the Common Stock Reserve Pool pending the resolution of disputed claims and 150,000 shares of unvested restricted stock issued under the 2003 Stock Incentive Plan).



Because the Holding Company emerged from bankruptcy on March
25, 2003 (referred to as the Successor Company as of and subsequent to March 31, 2003), for financial reporting purposes the Company used an effective date of March 31, 2003 and applied fresh-start accounting to the consolidated balance
sheet as of that date in accordance with the American Institute of Certified Public Accountants Statement of Position (SOP) 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. In accordance
with SOP 90-7, the Company adopted fresh-start accounting because (i) the holders of the existing voting shares immediately before filing and confirmation of the Plan received less than 50% of the voting shares of the emerging company and (ii) the
Companys reorganization value, which served as the basis for the Plan approved by the Bankruptcy Court, was less than the Companys post-petition liabilities and allowed claims, as shown below:



|                                                      |  |   |          |  
|----------------------------------------------------- |  | - | -------- | -
|Post-petition current liabilities                     |  | $ | 8,070    |  
|Liabilities deferred under the Chapter 11 proceedings |  |   | 727,522  |  
|                                                      |  |   |          |  
|Total post-petition liabilities and allowed claims    |  |   | 735,592  |  
|Reorganization value                                  |  |   | (557,000 | )
|                                                      |  |   |          |  
|Excess of liabilities over reorganization value       |  | $ | 178,592  |  
|                                                      |  |   |          |  



Under fresh-start
accounting, a new reporting entity is considered to be created and the Company adjusts the recorded amounts of assets and liabilities to reflect their estimated fair values at the date fresh-start accounting is applied. Accordingly, the estimated
reorganization value of the Company of $557.0 million represents the total fair value that the Company allocated to the assets of the Company. In conformity with Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, the Holding Company has used purchase accounting to account for the assets and liabilities as of the fresh-start date.



The Companys financial advisors assisted the Company in determining its estimated reorganization value of $557.0 million and its reorganization
equity value of the Company of approximately $88.0 million. The financial advisors used two methodologies to derive the total estimated reorganization value: (a) the application of comparable company multiples to the Companys historical and
projected financial results; and (b) a calculation of the present value of the Companys free cash flows under the Companys revised business plan using financial projections through 2010, including an assumption for a terminal value,
discounted at the Companys estimated post-restructuring weighted-average cost of capital. In estimating the total reorganization value, the Companys advisors considered the Companys market share and position, competition and
general economic considerations, projected revenue growth, potential profitability, working capital requirements and other relevant factors.



As a result of the Companys reorganization and application of fresh-start accounting, during the three months ended March 31, 2003, the Predecessor
Company recognized a gain of approximately $728.2 million on the extinguishment of the Predecessor Companys Senior Notes, Broadband Vendor Financing agreements and other trade accounts payable.



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



Reorganization items during the three-month period ended March 31, 2003 (Predecessor Company) are
comprised of the following:



|                                |  |   |         |  
|------------------------------- |  | - | ------- | -
|Professional fees               |  | $ | (1,636  | )
|Gain on extinguishments of debt |  |   | 728,203 |  
|Stock-based compensation        |  |   | (440    | )
|                                |  |   |         |  
|Total                           |  | $ | 726,127 |  
|                                |  |   |         |  



Reorganization items
during 2002 consisted solely of professional fees.



3. LIQUIDITY AND GOING
CONCERN CONSIDERATIONS



The accompanying 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. As discussed in Note 2, the Holding Company successfully emerged
from bankruptcy on March 25, 2003 with an approved reorganization plan. Prior to June 11, 2002 (the Petition Date), the Company had incurred substantial net losses and had both working capital and stockholders deficiencies. Emerging from
bankruptcy gives the Company a chance to become successful in its future operations. The primary benefit of the bankruptcy was to relieve the Company of the obligations of the Senior Notes and Broadband Network Vendor Financing Agreements along with
the related interest expense. As a result, the Company has generated positive operating income of $11.4 million and $3.0 million and cash flows from operations of $19.2 million and $35.5 million, respectively, for the years ended December 31, 2003
and 2004. As of December 31, 2004, the Company has cash and cash equivalents of $63.7 million, which includes approximately $3.6 million in Venezuela (see Note 4). Based on its current business plan, however, the Company believes that it will be
required to refinance a portion of its outstanding debt coming due in the next several years because the Company will not have sufficient internally-generated funds to do so.



A significant portion of the Companys debt coming due in 2005 and thereafter is held by affiliates of certain members
of the Companys board of directors. Accordingly, a special committee of the Companys board of directors has been formed to explore recapitalization alternatives. These alternatives may take the form of a repurchase, refinancing or
rescheduling of the payment terms of the indebtedness of the Company and/or its operating subsidiaries, a potential capital infusion, or other types of transactions. There can be no assurance, that any such transaction will be successfully
negotiated or consummated. In addition, as discussed in Note 9, the Company was not in compliance with certain of its debt covenants as of December 31, 2004. 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 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.



4. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES



Basis of
PresentationThe financial statements are presented on a consolidated basis and include the accounts of IMPSAT Fiber Networks, Inc. and its subsidiaries. All significant intercompany transactions and balances have been eliminated.



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



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The Argentine peso has been volatile since
January 2002, when it traded at 1.65 pesos to the U.S. dollar. At December 31, 2003 and 2004, the Argentine peso traded at 2.95 pesos to the U.S. dollar. The devaluation of the Argentine peso will generally affect the
Companys consolidated financial statements by generating foreign exchange gains or losses on peso-denominated monetary liabilities and assets of IMPSAT Argentina and will generally result in a decrease, in U.S. dollar terms, in the
Companys revenues, costs and expenses in Argentina.



Numerous uncertainties exist surrounding the ultimate resolution of Argentinas economic and political instability and actual results could differ from those estimates and assumptions utilized. The Argentine economic and political
situation continues to evolve and the Argentine government may enact future regulations or policies that, when finalized and adopted, may adversely and materially impact, among other items, (i) the realized revenues the Company receives for services
offered in Argentina; (ii) the timing of repatriations of any dividends or other cash flows from IMPSAT Argentina to the Company in the United States; (iii) the Companys asset valuations; and (iv) the Companys peso-denominated
monetary assets and liabilities.



The Companys results in
Brazil also are adversely affected by devaluations of the Brazilian realagainst the U.S. dollar. At December 31, 2003 and 2004, the realtraded at R$2.89 and R$2.65 to the U.S. dollar, respectively. Devaluations of the realagainst the U.S. dollar have had a negative effect on the Companys real-denominated revenues. Economic difficulties in Brazil, including further currency devaluations, could have a material adverse effect on IMPSAT Brazils and
the Companys overall financial condition and results of operations.



In 2002, the Venezuelan government removed controls over the trading range of the bolivar, allowing the exchange rate to be determined by market conditions. As a result, during 2002, the bolivar decreased in
value in relation to the U.S. dollar by approximately 85%. During February 2003, the Venezuelan government imposed exchange rate controls, fixing the bolivars value to the U.S. dollar at 1,600 bolivars to the U.S. dollar. These exchange
rate controls make it difficult for the Companys customers in Venezuela to obtain the U.S. dollars needed to make payments due to the Company in U.S. dollars on a timely basis. These exchange controls also limit the Companys ability to
convert local currency into U.S. dollars and transfer funds out of Venezuela. During February 2004 and March 2005, the Venezuelan government further devalued the bolivar and fixed the bolivars value to the U.S. dollar at 1,920
and 2,150, respectively. As of December 31, 2004, approximately $3.6 million of the Companys cash and cash equivalents were held in Venezuela (translated into U.S. dollars at the fixed exchange rate imposed by the Venezuelan government).
Pursuant to the discussions by the AICPA International Practices Task Force, the Company has used the official government exchange rate of 1,920 bolivars to the U.S. dollar to remeasure the financial statements of IMPSAT Venezuela.



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



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 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. Amounts received in advance would be recorded as deferred revenue.



No single customer accounted for greater than 10% of total net revenues for the year ended December 31, 2002, the three month ended March 31, 2003, the
nine months ended December 31, 2003 and the year ended December 31, 2004.



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
Accounting Principles Board Opinion No. 29, Accounting for Nonmonetary Transactions, where an exchange of similar IRUs is recorded at a historical carryover basis with no revenue or any gain or loss being recorded.



In December 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 153 (SFAS No. 153),Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29. 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 provisions of SFAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not
expect the adoption of SFAS 153 to have a material impact on its financial condition or results of operations.



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 periods 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.



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



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.



InvestmentsInvestments covered under the scope of SFAS No. 115, Accounting for Certain Investments in Debt
and Equity Securities,as of December 31, 2003 were classified by the Company as either trading for short term investments or available for sale for long term investments and were carried at fair value. Unrealized gains
and losses for trading investments are included in the Companys results of operations. Unrealized gains or losses for available for sale investments are included in accumulated other comprehensive loss within stockholders equity
(deficiency). All other investments are carried at cost.



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 Companys subsidiaries
except for IMPSAT Brazil, generally 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,
and as such the effects of translation are included in accumulated other comprehensive loss in stockholders equity.



Stock-Based CompensationSFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not require, companies to record
compensation cost for stock-based employee and non-employee director compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation to employees and non-employee directors using the intrinsic value
method as prescribed by Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost for stock options issued to employees and non-employee
directors is measured as the excess, if any, of the fair value of the Companys stock at the date of grant over the amount an employee or non-employee director must pay for the stock. The Company also provides the required disclosures of SFAS
No. 123.



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



The Company has adopted the disclosure-only provisions of SFAS No. 123. Had compensation costs been
recognized based on the fair value at the date of grant for options awarded under the previous stock option plans (see Note 12) and the 2003 Plan, the pro-forma amounts of the Companys net (loss) income and net (loss) income per common share
for the year ended December 31, 2002, the three months ended March 31, 2003, the nine months ended December 31, 2003 and the year ended December 31, 2004 would have been as follows:



|                                                                                           |  |                            |          |   |                                 |   |         |                                   |  |   |                            |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | -------------------------- | -------- | - | ------------------------------- | - | ------- | --------------------------------- |  | - | -------------------------- | - |  | - | ------- | -
|                                                                                           |  | Predecessor Company        |          |   | PredecessorCompany              |   |         | SuccessorCompany                  |  |   | PredecessorCompany         |  
|                                                                                           |  | Year EndedDecember 31,2002 |          |   | Three MonthsEnded March 31,2003 |   |         | Nine MonthsEnded December 31,2003 |  |   | Year EndedDecember 31,2004 |  
|Net (loss) income                                                                          |  |                            |          |   |                                 |   |         |                                   |  |   |                            |   |  |   |         |  
|As reported                                                                                |  | $                          | (204,515 | ) |                                 | $ | 731,066 |                                   |  | $ | 9,477                      |   |  | $ | (14,219 | )
|Add: Stock-based compensation expense, as reported                                         |  |                            |         |   |                                 |   |        |                                   |  |   |                           |   |  |   |        |  
|Deduct: Stock-based employee compensation expense determined under fair-value-based method |  |                            | (1,754   | ) |                                 |   | (175    | )                                 |  |   | (1,028                     | ) |  |   | (1,479  | )
|                                                                                           |  |                            |          |   |                                 |   |         |                                   |  |   |                            |   |  |   |         |  
|Pro forma                                                                                  |  | $                          | (206,269 | ) |                                 | $ | 730,891 |                                   |  | $ | 8,449                      |   |  | $ | (15,698 | )
|                                                                                           |  |                            |          |   |                                 |   |         |                                   |  |   |                            |   |  |   |         |  
|Net (loss) income per common share:                                                        |  |                            |          |   |                                 |   |         |                                   |  |   |                            |   |  |   |         |  
|Basic:                                                                                     |  |                            |          |   |                                 |   |         |                                   |  |   |                            |   |  |   |         |  
|As reported                                                                                |  | $                          | (2.24    | ) |                                 | $ | 8.00    |                                   |  | $ | 0.96                       |   |  | $ | (1.42   | )
|Pro forma                                                                                  |  | $                          | (2.26    | ) |                                 | $ | 7.00    |                                   |  | $ | 0.85                       |   |  | $ | (1.57   | )
|                                                                                           |  |                            |          |  
|Diluted:                                                                                   |  |                            |          |   |                                 |   |         |                                   |  |   |                            |   |  |   |         |  
|As reported                                                                                |  | $                          | (2.24    | ) |                                 | $ | 8.00    |                                   |  | $ | 0.72                       |   |  | $ | (1.42   | )
|Pro forma                                                                                  |  | $                          | (2.26    | ) |                                 | $ | 7.00    |                                   |  | $ | 0.66                       |   |  | $ | (1.57   | )



For purposes of the
pro forma disclosures, the fair value of the options granted in 2003 (see Note 12) 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 2004 (see Note 12) was estimated using the Black-Scholes option pricing model. The assumptions used by the Company were as follows: no dividend yield; volatility of 39%; risk-free interest rate of 3.75%; and an expected
term of 8 years. No stock options were granted in 2002 and during the three months ended March 31, 2003. No stock-based compensation to employees from stock options is reflected in the accompanying consolidated statements of operations because all
the options granted had an exercise price greater than the market value of the underlying common stock on the date of grant.



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. Currently, companies are required to calculate the estimated fair value of these share-based payments and can elect to either include
the estimated cost in earnings or disclose the pro forma effect in the footnotes to their financial statements. As discussed above, the Company has chosen to disclose the pro forma effect. The fair value concepts were not changed significantly in
SFAS No. 123(R); however, in adopting SFAS N0. 123(R), companies must choose among alternative valuation models and amortization assumptions.



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



The valuation model and amortization assumption used by the Company continues to be available, but it
has not yet completed its assessment of the alternatives. SFAS No. 123(R) will be effective for the Company beginning with the quarter ending September 30, 2005. Transition options allow companies to choose whether to adopt prospectively, restate
results to the beginning of the year, or to restate prior periods with the amounts that have been included in the footnotes. The Company has not yet concluded on which transition option it will select. See above for the pro forma effect for the each
of the periods presented, using our existing valuation and amortization assumptions.



Fair Value of Financial InstrumentsAs of December 31, 2003 and 2004, the Companys financial instruments include receivables, payables and long-term debt. The Companys Series A, Series B and
Senior Secured Notes were valued using available market information and interest rates. The fair value of receivables and payables is equal to their carrying value due to their short term.



At December 31, 2003 and 2004, the fair value of the Companys financial
instruments was as follows:



|                                   |  |      |         |      |   |        
|---------------------------------- |  | ---- | ------- | ---- | - | -------
|                                   |  | 2003 |         | 2004
|Series A 6% Senior Guaranted Notes |  | $    | 62,773  |      | $ | 42,282 
|Series B 6% Senior Guaranted Notes |  |      | 23,792  |      |   | 24,104 
|Senior Secured Notes               |  |      | 138,447 |      |   | 118,823



The fair values of all
other financial instruments, which approximate their carrying value, have been estimated by management using available market information and interest rates as of December 31, 2003 and 2004.



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



Net (Loss) Income Per Common ShareBasic earnings (loss) per share is computed based on
the average number of common shares outstanding and diluted earnings (loss) per share is computed based on the average number of common and potential common shares outstanding using the treasury stock method. The calculation of diluted income (loss)
per share was the same as the calculation of basic income per share for the year ended December 31, 2002, for the three months ended March 31, 2003 and for the year ended December 31, 2004, since the inclusion of potential common stock in the
computation would be antidilutive. The computation of net income (loss) per share, for the nine months ended December 31, 2003 is as follows:



|                                                                                                    |  |                                  |        |                             |   |                
|--------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | --------------------------- | - | ---------------
|                                                                                                    |  | Nine MonthsEndedDecember 31,2003 |        | Year EndedDecember 31, 2004
|Net income                                                                                          |  | $                                | 9,477  |                             |   |                
|Add back: interest on Series A and B Notes as if converted                                          |  |                                  | 2,145  |                             |   |                
|                                                                                                    |  |                                  |        |                             |   |                
|Adjusted Net Income                                                                                 |  | $                                | 11,622 |                             |   |                
|                                                                                                    |  |                                  |        |                             |   |                
|Weighted average number of common shares outstanding used in basic per share calculation            |  |                                  | 9,917  |                             |   |                
|                                                                                                    |  |                                  |        |                             |   |                
|Basic net income per common share                                                                   |  | $                                | 0.96   |                             |   |                
|                                                                                                    |  |                                  |        |                             |   |                
|Weighted average number of common shares outstanding used in basic earnings per share calculation   |  |                                  | 9,917  |                             |   |                
|Effect of dilutive securities:                                                                      |  |                                  |        |                             |   |                
|Series A and B Notes (convertible)                                                                  |  |                                  | 5,990  |                             |   |                
|Shares of restricted stock                                                                          |  |                                  | 150    |                             |   |                
|                                                                                                    |  |                                  |        |                             |   |                
|Weighted average number of common shares outstanding used in diluted earnings per share calculation |  |                                  | 16,057 |                             |   |                
|                                                                                                    |  |                                  |        |                             |   |                
|Diluted net income per common share                                                                 |  | $                                | 0.72   |                             |   |                
|                                                                                                    |  |                                  |        |                             |   |                
|Antidilutive securities not included in diluted earnings per common share computation:              |  |                                  |        |                             |   |                
|                                                                                                    |  |                                 
|Stock Options                                                                                       |  |                                  | 1,676  |                             |   | 2,068          
|                                                                                                    |  |                                  |        |                             |   |                
|Exercise Price                                                                                      |  | $                                | 15.00  |                             | $ | 6.17 to $15.00 
|                                                                                                    |  |                                  |        |                             |   |                
|Warrants                                                                                            |  |                                  | 3,257  |                             |   | 3,257          
|                                                                                                    |  |                                  |        |                             |   |                
|Exercise Price                                                                                      |  | $                                | 15.00  |                             | $ | 15.00          
|                                                                                                    |  |                                  |        |                             |   |                
|Series A and B Notes                                                                                |  |                                  |        |                             |   | 6,028          
|                                                                                                    |  |                                  |        |                             |   |                
|Conversion Price                                                                                    |  |                                  |        |                             | $ | 13.66 to $20.93
|                                                                                                    |  |                                  |        |                             |   |                
|Shares of restricted stock                                                                          |  |                                  |        |                             |   | 100            
|                                                                                                    |  |                                  |        |                             |   |                



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



Accumulated Other Comprehensive LossAccumulated other comprehensive loss is as follows:



|                                                                                |  |                              |         |   |                                                |   |        |       |  |   |         |  
|------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---------------------------------------------- | - | ------ | ----- |  | - | ------- | -
|                                                                                |  | FOREIGN CURRENCY TRANSLATION |         |   | UNREALIZED GAINON INVESTMENTSAVAILABLE FORSALE |   |        | TOTAL | 
|Balance at December 31, 2002(Predecessor Company)                               |  | $                            | 20,263  |   |                                                | $ |       |       |  | $ | 20,263  |  
|Change during the year                                                          |  |                              | (4,097  | ) |                                                |   | 55     |       |  |   | (4,042  | )
|                                                                                |  |                              |         |   |                                                |   |        |       |  |   |         |  
|Balance at March 31, 2003(Predecessor Company)                                  |  |                              | 16,166  |   |                                                |   | 55     |       |  |   | 16,221  |  
|Elimination of Predecessor CompanyAccumulated Other Comprehensive Income (Loss) |  |                              | (16,166 | ) |                                                |   | (55    | )     |  |   | (16,221 | )
|                                                                                |  |                              |         |   |                                                |   |        |       |  |   |         |  
|Balance at March 31, 2003(Successor Company)                                    |  |                              |        |   |                                                |   |       |       |  |   |        |  
|Change during the period                                                        |  |                              | (3,039  | ) |                                                |   | 1,732  |       |  |   | (1,307  | )
|                                                                                |  |                              |         |   |                                                |   |        |       |  |   |         |  
|Balance at December 31, 2003(Successor Company)                                 |  |                              | (3,039  | ) |                                                |   | 1,732  |       |  |   | (1,307  | )
|Changes during the year                                                         |  |                              | (2,969  | ) |                                                |   | (1,732 | )     |  |   | (4,701  | )
|                                                                                |  |                              |         |   |                                                |   |        |       |  |   |         |  
|Balance at December 31, 2004(Successor Company)                                 |  | $                            | (6,008  | ) |                                                | $ |       |       |  | $ | (6,008  | )
|                                                                                |  |                              |         |   |                                                |   |        |       |  |   |         |  



New Accounting
PronouncementIn January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of APB No. 51. FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. During October 2003, the FASB deferred the effective date of FIN 46 until the end of
the first interim or annual period ending after December 15, 2003. In addition the FASB issued a revised interpretation of FIN 46 (FIN 46-R) in December 2003. The adoption of FIN 46-R during 2004 did not have a material effect on the
Companys financial condition or results of operations.



ReclassificationsCertain amounts in the 2002 and 2003 consolidated financial statements have been reclassified to conform to the 2004 presentation.



5. INVESTMENTS



The Companys investments at December 31, 2003 (Successor Company) consist of the following:



|                                   |  |   |      
|---------------------------------- |  | - | -----
|Trading investments, at fair value |  | $ | 2,474
|Investments in common stock        |  | $ | 1,873



Trading investments
consisted of approximately $2.5 million in short term bonds issued by the Venezuelan government. During the year ended December 31, 2004, the Company converted its trading investments into cash.



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



The Companys investments in common stock included an ownership interest of less than 5% in the
outstanding common stock of Claxson Interactive Group Inc. (Claxson), an integrated media company with operations in Latin America. The Company sold its investment in Claxon during the year ended December 31, 2004 for approximately $2.0
million and recorded a gain on sale of approximately $1.9 million. This gain is recorded in other income (loss), net in the accompanying consolidated statement of operations.



6. TRADE ACCOUNTS RECEIVABLE



Trade accounts receivable, by operating subsidiaries, at December 31, 2003 and 2004, are summarized as follows:



|                                      |  |                   |         |   |                   |   |         |  
|------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                      |  | Successor Company |        
|                                      |  | December 31, 2003 |         |   | December 31, 2004 |  
|IMPSAT Argentina                      |  | $                 | 25,465  |   |                   | $ | 16,203  |  
|IMPSAT Brazil                         |  |                   | 5,804   |   |                   |   | 5,419   |  
|IMPSAT Colombia                       |  |                   | 3,680   |   |                   |   | 4,270   |  
|IMPSAT Venezuela                      |  |                   | 6,692   |   |                   |   | 6,506   |  
|All other countries                   |  |                   | 10,214  |   |                   |   | 8,978   |  
|                                      |  |                   |         |   |                   |   |         |  
|Total                                 |  |                   | 51,855  |   |                   |   | 41,376  |  
|Less: allowance for doubtful accounts |  |                   | (20,642 | ) |                   |   | (12,013 | )
|                                      |  |                   |         |   |                   |   |         |  
|Trade accounts receivable, net        |  | $                 | 31,213  |   |                   | $ | 29,363  |  
|                                      |  |                   |         |   |                   |   |         |  



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.



The activity for the allowance for doubtful accounts for the year ended December 31, 2002, the three months ended March 31, 2003, the nine months ended December 31, 2003 and the year ended December 31, 2004 is as follows:



|                                                            |  |                    |        |   |                    |   |        |                   |  |   |                   |   |  |   |        |  
|----------------------------------------------------------- |  | ------------------ | ------ | - | ------------------ | - | ------ | ----------------- |  | - | ----------------- | - |  | - | ------ | -
|                                                            |  | PredecessorCompany |        |   | PredecessorCompany |   |        | SuccessorCompany  |  |   | SuccessorCompany  |  
|                                                            |  | December 31,2002   |        |   | March 31, 2003     |   |        | December 31, 2003 |  |   | December 31, 2004 |  
|Beginning balance                                           |  | $                  | 23,782 |   |                    | $ | 23,384 |                   |  | $ | 21,358            |   |  | $ | 20,642 |  
|Provision for (reversal of allowance for) doubtful accounts |  |                    | 13,053 |   |                    |   | 515    |                   |  |   | 2,365             |   |  |   | (3,916 | )
|Write-offs                                                  |  |                    | (4,741 | ) |                    |   | (1,553 | )                 |  |   | (3,238            | ) |  |   | (4,704 | )
|Effect of exchange rate change                              |  |                    | (8,710 | ) |                    |   | (988   | )                 |  |   | 157               |   |  |   | (9     | )
|                                                            |  |                    |        |   |                    |   |        |                   |  |   |                   |   |  |   |        |  
|Ending balance                                              |  | $                  | 23,384 |   |                    | $ | 21,358 |                   |  | $ | 20,642            |   |  | $ | 12,013 |  
|                                                            |  |                    |        |   |                    |   |        |                   |  |   |                   |   |  |   |        |  



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



7. 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, 2003 and, 2004:



|                    |  |                   |        |                   |   |       
|------------------- |  | ----------------- | ------ | ----------------- | - | ------
|                    |  | Successor Company
|                    |  | December 31, 2003 |        | December 31, 2004
|IMPSAT Argentina    |  | $                 | 577    |                   | $ | 497   
|IMPSAT Brazil       |  |                   | 2,633  |                   |   | 2,358 
|IMPSAT Colombia     |  |                   | 3,522  |                   |   | 3,475 
|IMPSAT Venezuela    |  |                   | 2,794  |                   |   | 2,670 
|All other countries |  |                   | 2,104  |                   |   | 3,865 
|                    |  |                   |        |                   |   |       
|Total               |  | $                 | 11,630 |                   | $ | 12,865
|                    |  |                   |        |                   |   |       



8. PROPERTY, PLANT AND EQUIPMENT



Property, plant and equipment at December 31, 2003 and
2004 consist of:



|                                                 |  |                   |         |   |                   |   |         |  
|------------------------------------------------ |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                 |  | Successor Company |        
|                                                 |  | December 31, 2003 |         |   | December 31, 2004 |  
|Land                                             |  | $                 | 10,109  |   |                   | $ | 10,109  |  
|Building and improvements                        |  |                   | 33,921  |   |                   |   | 36,496  |  
|Operating communications equipment               |  |                   | 160,804 |   |                   |   | 194,449 |  
|Network infrastructure (including rights of way) |  |                   | 103,828 |   |                   |   | 111,433 |  
|IRU investments                                  |  |                   | 19,381  |   |                   |   | 20,407  |  
|Furniture, fixtures and other equipment          |  |                   | 13,765  |   |                   |   | 16,048  |  
|                                                 |  |                   |         |   |                   |   |         |  
|Total                                            |  |                   | 341,808 |   |                   |   | 388,942 |  
|Less: accumulated depreciation                   |  |                   | (29,389 | ) |                   |   | (75,102 | )
|                                                 |  |                   |         |   |                   |   |         |  
|Total                                            |  |                   | 312,419 |   |                   |   | 313,840 |  
|Equipment in transit                             |  |                   | 2,484   |   |                   |   | 3,442   |  
|Construction in process                          |  |                   | 914     |   |                   |   | 28      |  
|                                                 |  |                   |         |   |                   |   |         |  
|Property, plant and equipment, net               |  | $                 | 315,817 |   |                   | $ | 317,310 |  
|                                                 |  |                   |         |   |                   |   |         |  



The activity in
accumulated depreciation for the year ended December 31, 2002, the three months ended March 31, 2003, the nine months ended December 31, 2003 and the year ended December 31, 2004 is as follows:



|                                     |  |                    |         |   |                    |   |          |                  |  |   |                  |   |  |   |        |  
|------------------------------------ |  | ------------------ | ------- | - | ------------------ | - | -------- | ---------------- |  | - | ---------------- | - |  | - | ------ | -
|                                     |  | PredecessorCompany |         |   | PredecessorCompany |   |          | SuccessorCompany |  |   | SuccessorCompany |  
|                                     |  | December 31,2002   |         |   | March 31,2003      |   |          | December 31,2003 |  |   | December 31,2004 |  
|Beginning balance                    |  | $                  | 415,718 |   |                    | $ | 465,142  |                  |  | $ |                 |   |  | $ | 29,389 |  
|Depreciation expense                 |  |                    | 82,199  |   |                    |   | 19,216   |                  |  |   | 29,535           |   |  |   | 44,797 |  
|Exchange rate effects                |  |                    | (15,817 | ) |                    |   | 1,889    |                  |  |   | 226              |   |  |   | 1,706  |  
|Disposals and retirements            |  |                    | (16,958 | ) |                    |   | (4,845   | )                |  |   | (372             | ) |  |   | (790   | )
|Application of fresh-start reporting |  |                    |         |   |                    |   | (481,402 | )                |  |   |                  |   |  |   |        |  
|                                     |  |                    |         |   |                    |   |          |                  |  |   |                  |   |  |   |        |  
|Ending balance                       |  | $                  | 465,142 |   |                    | $ |         |                  |  | $ | 29,389           |   |  | $ | 75,102 |  
|                                     |  |                    |         |   |                    |   |          |                  |  |   |                  |   |  |   |        |  



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



9. DEBT



Short-Term DebtDuring 2004, IMPSAT Brasil entered into $1.7 million of new short-term credit facilities denominated in local currency
with local banks. The facilities bear interest at 1.77% to 1.98% per month and, as of December 31, 2004, the outstanding balance amounted to $1.5 million. The outstanding amounts was partially repaid on January and February 2005 and the credit
facilities remain open with a maturity date of March 31, 2005. In addition, during 2004, IMPSAT Venezuela entered into a new $1.2 million short-term credit facility denominated in local currency with a local bank. The facility bears interest at 16%
and as of December 31, 2004, the outstanding balance amounted to $1.2 million. The outstanding amount is due in March 2005.



Long-Term DebtThe Companys long-term debt at December 31, 2003 and 2004 is detailed as follows:



|                                                                                                                                        |  |                   |         |   |                   |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                        |  | Successor Company |        
|                                                                                                                                        |  | December 31, 2003 |         |   | December 31, 2004 |  
|Series A 6% Senior Guaranteed Notes due 2011                                                                                            |  | $                 | 62,773  |   |                   | $ | 66,376  |  
|Series B 6% Senior Guaranteed Notes due 2011                                                                                            |  |                   | 23,792  |   |                   |   | 25,240  |  
|Senior Secured Notes 10%, maturing 2009                                                                                                 |  |                   | 138,447 |   |                   |   | 146,877 |  
|Senior Notes issued by IMPSAT Colombia due 2008 and 2010 (interest rate 14.11%), collateralized by the assignment of customer
contracts |  |                   | 16,197  |   |                   |   | 18,830  |  
|Term notes, maturing through 2007; collateralized by buildings and equipment, the assignment of customer contracts; denominated
in:     |  |                   |         |   |                   |   |         |  
|U.S. dollars (interest rates 7% to 11.68%)                                                                                              |  |                   | 1,278   |   |                   |   | 3,191   |  
|Local currency (interest rates 8.9% to 13.3%)                                                                                           |  |                   | 6,839   |   |                   |   | 6,390   |  
|Eximbank notes (interest rate 3.93%), maturing semiannually through 2007                                                                |  |                   | 3,770   |   |                   |   | 2,779   |  
|Vendor financing (interest rates 3.47% to 11%)                                                                                          |  |                   | 8,149   |   |                   |   | 8,744   |  
|                                                                                                                                        |  |                   |         |   |                   |   |         |  
|Total long-term debt                                                                                                                    |  |                   | 261,245 |   |                   |   | 278,427 |  
|Less: current portion including defaulted indebtedness                                                                                  |  |                   | (11,851 | ) |                   |   | (45,092 | )
|                                                                                                                                        |  |                   |         |   |                   |   |         |  
|Long-term debt, net                                                                                                                     |  | $                 | 249,394 |   |                   | $ | 233,335 |  
|                                                                                                                                        |  |                   |         |   |                   |   |         |  



The scheduled
maturities of long-term debt at December 31, 2004 are as follows:



|                    |  |        |        
|------------------- |  | ------ | -------
|Year Ending         |  | Amount
|2005                |  | $      | 45,092 
|2006                |  |        | 37,198 
|2007                |  |        | 36,701 
|2008                |  |        | 42,050 
|2009 and thereafter |  |        | 117,386
|                    |  |        |        
|Total               |  | $      | 278,427
|                    |  |        |        



The Series A, Series B
and Senior Secured Notes and some of the term notes contain certain covenants requiring the Company to maintain certain financial ratios, limiting the incurrence of additional indebtedness and capital expenditures, and restricting the ability to pay
dividends. As of December 31, 2004, IMPSAT Brasil was not in compliance with certain financial ratios on its approximately $90.8 million of Senior Secured Notes. The Company has obtained a waiver from the holder of the notes of this covenant for the
applicable period. As discussed in Note 2, the Company is in default on approximately $7.6 million of vendor financing obligations with one vendor.



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



The Series A and Series B Notes are convertible into the Companys stock at a conversion price
of $13.66 and $20.93, respectively, as of December 31, 2004. The conversion price is reduced with the passage of time. As of December 31, 2004, the Series A and Series B Notes were convertible into approximately 4,929,000 and 1,099,000 shares of
common stock, respectively.



During the nine months ended
December 31, 2003, the Company issued a combination of new senior secured indebtedness totaling $3.7 million and Series B Notes totaling $1.7 million in full settlement of certain vendor financing obligations totaling $10.3 million of IMPSAT
Argentina. The Company recorded a $5.5 million gain on extinguishment of debt as a result of the above transaction. In addition, the Company extinguished certain of its Eximbank notes, and certain of its vendor financing and accounts payable-trade
obligations prior to their maturity for cash and recorded a gain on extinguishment of approximately $8.8 million.



During the third quarter of 2004, some holders of Holding Companys Series A Notes converted approximately $0.2 million of notes at face value into
16,100 shares of common stock. The Company recorded $0.1 million gain on extinguishment of debt as a result of this conversion based upon the fair value of the common stock at the date of conversion and the notes carrying value.



10. INCOME TAXES



The composition of the provision for income taxes, all of which is for foreign taxes, for the year ended December 31, 2002
(Predecessor Company), the three months ended March 31, 2003 (Predecessor Company), the nine months ended December 31, 2003 (Successor Company) and the year ended December 31, 2004 (Successor Company) is as follows:



|         |  |                            |        |   |                                 |   |      |                                  |  |   |                            |   |  |   |        |  
|-------- |  | -------------------------- | ------ | - | ------------------------------- | - | ---- | -------------------------------- |  | - | -------------------------- | - |  | - | ------ | -
|         |  | PredecessorCompany         |        |   | PredecessorCompany              |   |      | SuccessorCompany                 |  |   | SuccessorCompany           |  
|         |  | Year EndedDecember 31,2002 |        |   | Three MonthsEnded March 31,2003 |   |      | Nine MonthsEndedDecember 31,2003 |  |   | Year EndedDecember 31,2004 |  
|Current  |  | $                          | (1,954 | ) |                                 | $ | (324 | )                                |  | $ | (1,454                     | ) |  | $ | (1,867 | )
|Deferred |  |                            | (319   | ) |                                 |   | (82  | )                                |  |   |                            |   |  |   | (1,612 | )
|         |  |                            |        |   |                                 |   |      |                                  |  |   |                            |   |  |   |        |  
|Total    |  | $                          | (2,273 | ) |                                 | $ | (406 | )                                |  | $ | (1,454                     | ) |  | $ | (3,479 | )
|         |  |                            |        |   |                                 |   |      |                                  |  |   |                            |   |  |   |        |  



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, and are as follows:



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



|                                  |  |                   |          |   |                   |   |          |  
|--------------------------------- |  | ----------------- | -------- | - | ----------------- | - | -------- | -
|                                  |  | SuccessorCompany  |          |   | SuccessorCompany  |  
|                                  |  | December 31, 2003 |          |   | December 31, 2004 |  
|Deferred tax assets:              |  |                   |          |   |                   |   |          |  
|Net operating loss carryforwards: |  |                   |          |   |                   |   |          |  
|Domestic                          |  | $                 | 91,612   |   |                   | $ | 8,316    |  
|Foreign                           |  |                   | 100,093  |   |                   |   | 114,012  |  
|Property, plant and equipment     |  |                   | 8,044    |   |                   |   | 31,697   |  
|Services to carriers              |  |                   | 6,557    |   |                   |   |         |  
|Allowances                        |  |                   |         |   |                   |   | 5,655    |  
|Other                             |  |                   | 291      |   |                   |   |         |  
|                                  |  |                   |          |   |                   |   |          |  
|Gross deferred tax assets         |  |                   | 206,597  |   |                   |   | 159,680  |  
|Less: valuation allowance         |  |                   | (206,597 | ) |                   |   | (159,680 | )
|                                  |  |                   |          |   |                   |   |          |  
|Net deferred tax asset            |  |                   |         |   |                   |   |         |  
|                                  |  |                   |          |   |                   |   |          |  
|Deferred tax liabilities:         |  |                   |          |   |                   |   |          |  
|Property, plant and equipment     |  |                   |         |   |                   |   | (1,612   | )
|                                  |  |                   |          |   |                   |   |          |  
|Net deferred tax liabilities      |  | $                 |         |   |                   | $ | (1,612   | )
|                                  |  |                   |          |   |                   |   |          |  



Net Operating
Losses Carryforward (NOLs)For U.S. income tax purposes, the income recognized upon the cancellation of debt upon emergence from bankruptcy was excluded from the Companys taxable income. The Company was required to reduce its tax
attributes to compensate for the exclusion of debt cancellation income. The attribute reduction occurred as of January 1, 2004. In general, the amount of the reduction is one dollar for each dollar excluded from gross income (the reduction to
credits is 331/3cents for each dollar excluded). Attribute reduction is generally applied in the following
order:



| |  |  | Net operating losses and net operating loss carryovers
| | - |  | ------------------------------------------------------



| |  |  | General business credits
| | - |  | ------------------------



| |  |  | Minimum tax credits
| | - |  | -------------------



| |  |  | Capital losses and capital loss carryovers
| | - |  | ------------------------------------------



| |  |  | Basis of property (depreciable and non-depreciable)
| | - |  | ---------------------------------------------------



| |  |  | Passive activity loss carryovers
| | - |  | --------------------------------



| |  |  | Foreign tax credit carryovers
| | - |  | -----------------------------



In addition, the Companys ability to utilize its remaining NOLs will be limited as a result of the change in ownership resulting from the bankruptcy
restructuring.



The Company recorded a valuation allowance to
offset its deferred income tax asset as of December 31, 2004 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 $3.9 million and $6.0 million as of December 31, 2003 and 2004, 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.



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



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 be 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.



11. OPERATING SEGMENT INFORMATION



The Companys operating segment information, by subsidiary, is as
follows for the year ended December 31, 2002, the three months ended March 31, 2003, for the nine months ended December 31, 2003 and for the year ended December 31, 2004:



|                         |  |           |         |   |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|------------------------ |  | --------- | ------- | - | ------ | - | ------- | -------- |  | --------- | ------ | ------------------ | - | ------ | ------------ | - | ------- | ----- |  | - | ------- | - |  | - | ------- | -
|2002 Predecessor Company |  | Argentina |         |   | Brazil |   |         | Colombia |  | Venezuela |        | All othercountries |   |        | Eliminations |   |         | Total | 
|Net Revenues             |  |           |         |   |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|Satellite and Broadband  |  | $         | 35,051  |   |        | $ | 28,559  |          |  | $         | 52,975 |                    | $ | 27,376 |              | $ | 52,367  |       |  | $ | (23,063 | ) |  | $ | 173,265 |  
|Internet                 |  |           | 6,588   |   |        |   | 4,022   |          |  |           | 4,508  |                    |   | 2,495  |              |   | 12,871  |       |  |   | (3,241  | ) |  |   | 27,243  |  
|Value added services     |  |           | 4,918   |   |        |   | 3,223   |          |  |           | 817    |                    |   | 1,414  |              |   | 15,292  |       |  |   | (11,473 | ) |  |   | 14,191  |  
|Telephony                |  |           | 9,451   |   |        |   |         |          |  |           |        |                    |   |        |              |   | 10,142  |       |  |   | (5,266  | ) |  |   | 14,327  |  
|Sales of equipment       |  |           | 538     |   |        |   | 9       |          |  |           | 14     |                    |   | 349    |              |   | 258     |       |  |   |         |   |  |   | 1,168   |  
|                         |  |           |         |   |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|Total net revenues       |  | $         | 56,546  |   |        | $ | 35,813  |          |  | $         | 58,314 |                    | $ | 31,634 |              | $ | 90,930  |       |  | $ | (43,043 | ) |  | $ | 230,194 |  
|                         |  |           |         |   |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|Operating (loss) income  |  | $         | (12,233 | ) |        | $ | (19,865 | )        |  | $         | 1,485  |                    | $ | 3,198  |              | $ | (5,277  | )     |  |   |         |   |  | $ | (32,692 | )
|                         |  |           |         |   |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|Total assets             |  | $         | 167,802 |   |        | $ | 115,387 |          |  | $         | 85,573 |                    | $ | 47,254 |              | $ | 104,667 |       |  |   |         |   |  | $ | 520,683 |  
|                         |  |           |         |   |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  



|                                                       |  |           |         |   |        |   |         |          |  |   |           |   |                    |   |              |  |   |        |  |   |         |   |  |   |         |  
|------------------------------------------------------ |  | --------- | ------- | - | ------ | - | ------- | -------- |  | - | --------- | - | ------------------ | - | ------------ |  | - | ------ |  | - | ------- | - |  | - | ------- | -
|                                                       |  |           |         |   |        |   |        
|January 1, 2003 to March 31, 2003(Predecessor Company) |  | Argentina |         |   | Brazil |   |         | Colombia |  |   | Venezuela |   | All othercountries |   | Eliminations |  |   | Total  | 
|Net Revenues                                           |  |           |         |   |        |   |         |          |  |   |           |   |                    |   |              |  |   |        |  |   |         |   |  |   |         |  
|Satellite and Broadband                                |  | $         | 9,196   |   |        | $ | 5,504   |          |  | $ | 12,068    |   |                    | $ | 7,510        |  | $ | 14,432 |  | $ | (7,328  | ) |  | $ | 41,382  |  
|Internet                                               |  |           | 1,585   |   |        |   | 838     |          |  |   | 1,147     |   |                    |   | 910          |  |   | 2,810  |  |   | (1,557  | ) |  |   | 5,733   |  
|Value added services                                   |  |           | 1,157   |   |        |   | 956     |          |  |   | 225       |   |                    |   | 518          |  |   | 2,541  |  |   | (616    | ) |  |   | 4,781   |  
|Telephony                                              |  |           | 2,701   |   |        |   |         |          |  |   | 117       |   |                    |   |              |  |   | 2,439  |  |   | (1,151  | ) |  |   | 4,106   |  
|Sales of equipment                                     |  |           | 41      |   |        |   |         |          |  |   |           |   |                    |   | 29           |  |   | 4      |  |   |         |   |  |   | 74      |  
|                                                       |  |           |         |   |        |   |         |          |  |   |           |   |                    |   |              |  |   |        |  |   |         |   |  |   |         |  
|Total net revenues                                     |  | $         | 14,680  |   |        | $ | 7,298   |          |  | $ | 13,557    |   |                    | $ | 8,967        |  | $ | 22,226 |  | $ | (10,652 | ) |  | $ | 56,076  |  
|                                                       |  |           |         |   |        |   |         |          |  |   |           |   |                    |   |              |  |   |        |  |   |         |   |  |   |         |  
|Operating (loss) income                                |  | $         | (3,004  | ) |        | $ | (2,761  | )        |  | $ | (2,729    | ) |                    | $ | 2,459        |  | $ | 197    |  |   |         |   |  | $ | (5,838  | )
|                                                       |  |           |         |   |        |   |         |          |  |   |           |   |                    |   |              |  |   |        |  |   |         |   |  |   |         |  
|Total assets                                           |  | $         | 124,570 |   |        | $ | 100,023 |          |  | $ | 79,925    |   |                    | $ | 45,524       |  | $ | 97,687 |  |   |         |   |  | $ | 447,729 |  
|                                                       |  |           |         |   |        |   |         |          |  |   |           |   |                    |   |              |  |   |        |  |   |         |   |  |   |         |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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





|                                                      |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|----------------------------------------------------- |  | --------- | ------- | ------ | - | ------- | -------- |  | --------- | ------ | ------------------ | - | ------ | ------------ | - | ------- | ----- |  | - | ------- | - |  | - | -------
|April 1, 2003 to December 31, 2003(Successor Company) |  | Argentina |         | Brazil |   |         | Colombia |  | Venezuela |        | All othercountries |   |        | Eliminations |   |         | Total
|Net Revenues                                          |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|Satellite and Broadband                               |  | $         | 25,202  |        | $ | 18,028  |          |  | $         | 35,832 |                    | $ | 22,798 |              | $ | 38,325  |       |  | $ | (19,330 | ) |  | $ | 120,855
|Internet                                              |  |           | 5,173   |        |   | 2,646   |          |  |           | 3,599  |                    |   | 2,097  |              |   | 10,376  |       |  |   | (5,583  | ) |  |   | 18,308 
|Value added services                                  |  |           | 3,967   |        |   | 2,488   |          |  |           | 1,123  |                    |   | 932    |              |   | 3,308   |       |  |   | (1,261  | ) |  |   | 10,557 
|Telephony                                             |  |           | 9,009   |        |   | 14      |          |  |           | 291    |                    |   |        |              |   | 8,890   |       |  |   | (4,636  | ) |  |   | 13,568 
|Sales of equipment                                    |  |           | 530     |        |   |         |          |  |           | 168    |                    |   | 111    |              |   | 117     |       |  |   |         |   |  |   | 926    
|                                                      |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|Total net revenues                                    |  | $         | 43,881  |        | $ | 23,176  |          |  | $         | 41,013 |                    | $ | 25,938 |              | $ | 61,016  |       |  | $ | (30,810 | ) |  | $ | 164,214
|                                                      |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|Operating income (loss)                               |  | $         | 1,134   |        | $ | (6,549  | )        |  | $         | 5,629  |                    | $ | 6,824  |              | $ | 4,383   |       |  |   |         |   |  | $ | 11,421 
|                                                      |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|Total assets                                          |  | $         | 114,031 |        | $ | 107,376 |          |  | $         | 76,961 |                    | $ | 54,495 |              | $ | 87,766  |       |  |   |         |   |  | $ | 440,629
|                                                      |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|                                                      |  |           |         |        |   |         |         
|2004 Successor Company                                |  | Argentina |         | Brazil |   |         | Colombia |  | Venezuela |        | All othercountries |   |        | Eliminations |   |         | Total
|Net Revenues                                          |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|Satellite and Broadband                               |  | $         | 31,967  |        | $ | 23,948  |          |  | $         | 47,984 |                    | $ | 28,929 |              | $ | 50,136  |       |  | $ | (21,000 | ) |  | $ | 161,964
|Internet                                              |  |           | 7,011   |        |   | 3,900   |          |  |           | 6,027  |                    |   | 2,467  |              |   | 12,435  |       |  |   | (5,715  | ) |  |   | 26,125 
|Value added services                                  |  |           | 18,080  |        |   | 4,901   |          |  |           | 2,318  |                    |   | 1,674  |              |   | 2,984   |       |  |   | (13,283 | ) |  |   | 16,674 
|Telephony                                             |  |           | 14,233  |        |   | 671     |          |  |           | 203    |                    |   |        |              |   | 13,129  |       |  |   | (6,563  | ) |  |   | 21,673 
|Sales of equipment                                    |  |           | 703     |        |   | 51      |          |  |           | 141    |                    |   | 70     |              |   | 314     |       |  |   |         |   |  |   | 1,279  
|                                                      |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|Total net revenues                                    |  | $         | 71,994  |        | $ | 33,471  |          |  | $         | 56,673 |                    | $ | 33,140 |              | $ | 78,998  |       |  | $ | (46,561 | ) |  | $ | 227,715
|                                                      |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|Operating income (loss)                               |  | $         | 9,127   |        | $ | (6,569  | )        |  | $         | 4,163  |                    | $ | 9,245  |              | $ | (13,380 | )     |  |   |         |   |  | $ | 2,586  
|                                                      |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|Total assets                                          |  | $         | 118,961 |        | $ | 113,938 |          |  | $         | 75,053 |                    | $ | 53,969 |              | $ | 81,986  |       |  |   |         |   |  | $ | 443,907
|                                                      |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        



12. STOCKHOLDERS EQUITY



2003 Stock Incentive Plan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 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 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 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 shall not affect any Award outstanding on the date of termination.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



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, by promissory note, tender of shares of the Holding Companys common stock then owned by the optionee 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.



Restricted StockOn the Effective Date, in accordance with the Plan, the Holding Company granted certain officers 200,000 shares of the Holding 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 was $440,000.



Stock OptionsOn May 19, 2003, the Holding Company granted
stock options for 1,646,332 shares of the Holding Companys New Common Stock, at an exercise price of $15.00 per share to certain key employees. These options vest in one-quarter increments on the date of grant and on each of the successive
first three anniversaries of the date of grant. In addition, on such date, the Holding Company also granted stock options for 30,000 shares to certain directors of the Holding Company at an exercise price of $15.00 per share. These stock options
vested immediately. Any unexercised stock options will expire on May 19, 2011.



On July 15, 2004, the Holding Company granted stock options for 262,156 shares of the Holding Companys New Common Stock at an exercise price of $12.00 per share to certain key employees, 174,771 of which were
fully vested on the date of grant and the remaining 87,385 of which will vest subject to the achievement of certain fiscal 2004 performance goals.



Additionally, on September 30, 2004, the Holding Company granted stock options for 90,000 shares of the Holding Companys New Common Stock at an
exercise price of $6.17 per share to certain directors of the Holding Company, which options were fully vested on the date of grant.



On September 30, 2004 and November 14, 2004, the Holding Company granted stock options for 60,000 and 20,000 shares, respectively of the Companys
New Common Stock at an exercise price of $6.17 and $15.00, respectively, per share to an affiliate of a director of the Company, which options were fully vested on the date of



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



grant. The Company recorded an expense of approximately $149 thousand as a result of this issuance, which is included within selling, general and
administrative in the accompanying statement of operations for the year ended December 31, 2004.



A summary of stock option transactions during the nine month period ended December 31, 2003 and the year ended December 31, 2004 is as follow:



|                                 |  |                  |  |                                 |      
|-------------------------------- |  | ---------------- |  | ------------------------------- | -----
|                                 |  | Number of Option |  | Weighted Average Exercise Price
|Granted during May 2003          |  | 1,676,332        |  | $                               | 15.00
|Exercised                        |  |                 |  |                                 |     
|Cancelled                        |  |                 |  |                                 |     
|                                 |  |                  |  |                                 |      
|Outstanding at December 31, 2003 |  | 1,676,332        |  | $                               | 15.00
|Granted                          |  | 432,156          |  |                                 | 10.12
|Exercised                        |  |                 |  |                                 |     
|Cancelled                        |  |                 |  |                                 |     
|                                 |  |                  |  |                                 |      
|Outstanding at December 31, 2004 |  | 2,108,488        |  | $                               | 14.00
|                                 |  |                  |  |                                 |      



The following table
summarizes information concerning outstanding stock options at December 31, 2004:



|                        |  |                             |  |                                            |  |                                 |       |                             |           |                                 |   |      
|----------------------- |  | --------------------------- |  | ------------------------------------------ |  | ------------------------------- | ----- | --------------------------- | --------- | ------------------------------- | - | -----
|                        |  |                             |  | Options Outstanding                        |  | Options Exercisable            
|Range of Exercise Price |  | Number ofOptionsOutstanding |  | Weighted Average RemainingContractual Life |  | Weighted Average Exercise Price |       | Number ofOptionsOutstanding |           | Weighted Average Exercise Price
|$  6.17                 |  | 150,000                     |  | 8                                          |  | $                               | 6.17  |                             | 150,000   |                                 | $ | 6.17 
|$12.00                  |  | 262,156                     |  | 10                                         |  | $                               | 12.00 |                             | 174,771   |                                 | $ | 12.00
|$15.00                  |  | 1,696,332                   |  | 7                                          |  | $                               | 15.00 |                             | 863,172   |                                 | $ | 15.00
|                        |  |                             |  |                                            |  |                                 |       |                             |           |                                 |   |      
|                        |  | 2,108,488                   |  | 7                                          |  | $                               | 14.00 |                             | 1,187,943 |                                 | $ | 13.45
|                        |  |                             |  |                                            |  |                                 |       |                             |           |                                 |   |      



Common
StockOn July 18, 2003, pursuant to a subscription agreement as of that date, the Company issued 100,000 shares of its common stock to Houlihan Lokey Howard & Zukin Capital (Houlihan Lokey). In consideration of this
issuance, Houlihan Lokey agreed not to collect a $1.5 million fee otherwise payable to them for services provided during the Companys Chapter 11 reorganization. The shares were recorded at the fair value of the stock at the date of the
issuance ($10.75). The difference between the amounts due to Houlihan Lokey and the fair value of the common stock issued was recorded as a gain.



WarrantsOn the Effective Date, in accordance with the Plan, the Holding Company issued 3,257,178 eight-year warrants to acquire the
Holding Companys stock at $15.00 per share. As of December 31, 2004, all the warrants remain outstanding.



Common Stock Reserve PoolOn the Effective Date, in accordance with the Plan, the Company established a common stock reserve pool of
686,000 shares. During the forth quarter of 2003, the Company released all the shares in the Common Stock Reserve Pool to holders of certain allowed general unsecured claims under the Plan and to the 2005/2008 Holders upon the conclusion of the
claims resolution procedures set forth in the Plan.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



13. RELATED PARTY TRANSACTIONS



The Company provides telecommunications network services to affiliates of stockholders of the Predecessor Company. During
the year ended December 31, 2002 and the three months ended March 31, 2003, such services totaled approximately $10.4 million and $2.3 million, respectively. These entities ceased to be affiliated with the Company after the Effective Date. In
addition, the Company also entered into transactions with such affiliates, which primarily included financial borrowings, insurance, and employee benefits services. During the year ended December 31, 2002 and the three months ended March 31, 2003,
such transactions totaled approximately $3.3 million and $0.5 million respectively.



During the year ended December 31, 2002 and for the three months ended March 31, 2003, the Company made approximately $1.4 million and $0.4 million, respectively, in payments to British Telecommunications plc
(BT) for satellite capacity. BT ceased to be affiliated with the Company after the Effective Date. In addition, investment banking fees amounting to $1.0 million were paid to affiliates during 2002. These affiliates are current
stockholders of the Company.



During 2002, the Company paid
approximately $2.0 million in fees to affiliates, who were among the Companys creditors, for structuring and negotiation of the terms of the Plan.



The Company is currently indebted under certain financings to current affiliates, which are included in Note 9. Amounts outstanding totaled approximately
$171.9 million and $198.7 million at December 31, 2003 and 2004, respectively.



During the years ended December 31, 2003 and 2004, the Company purchased telecommunications equipment and services from an affiliate totaling $1.0 million and $2.2 million, respectively.



14. COMMITMENTS AND CONTINGENCIES



CommitmentsThe Company leases satellite capacity with
average annual rental commitments of approximately $12.4 million through the year 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 $15.0 million and $20.0 million through 2015 and 2009, respectively. The Company has commitments to purchase communications and data center equipment amounting to approximately $6.5 million at December 31, 2004.



The Company is a guarantor of the Senior Secured Notes issued by its
subsidiaries under the Plan and other financing agreements entered by certain of its subsidiaries. At December 31, 2004, the aggregate balances outstanding were approximately $146.9 million (see Note 9).



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 $33.2 million as of December 31, 2004.



Employment AgreementsUpon emergence, the Company entered into employment agreements with certain of its
senior executives with 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.



360networksDuring June 2001, the Company
terminated a series of contracts which the Company had signed in the first quarter of 2001 with subsidiaries of 360americas networks (Bermuda) ltd., a subsidiary of 360networks, Inc., and certain other subsidiaries of 360networks, Inc. (collectively
360networks), to construct and provide IRU dark fiber, capacity services and conduit to 360networks over the Companys Broadband Network in Argentina and Brazil, including the Companys new Argentina-Brazil link, as a result of
the breach



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



by 360americas of its payment obligations under those contracts. Between March and May 2001, the Company made segments of the IRU dark fiber and capacity
services available to 360networks for acceptance, but 360networks failed to make certain payments as required by the Companys contract with them. 360networks also failed to make certain payments for collocation space in the Companys
telehouses in Sao Paulo and Rio de Janeiro, Brazil and Buenos Aires, Argentina, and the Company terminated those contracts as well. The Company has also terminated a contract with 360networks for collocation space in Caracas, Venezuela, also as a
result of a payment default by 360networks.



The Companys
IRU dark fiber, capacity services and construction contracts with 360networks contemplated total payments of approximately $98.8 million in advance upon delivery of the IRU dark fiber, capacity services and conduit construction to 360networks and
additional recurring payments, totaling approximately $45.0 million over the term of the contracts, for maintenance services. As of the termination of the contracts, 360networks had paid a total of $25.8 million and was in default on additional
payments totaling $32.0 million. In addition, 360networks was in default on payments to collocation services totaling $0.8 million. The Company commenced arbitration and litigation proceedings against 360networks for damages under the terminated
contracts for the provision of IRU dark fiber and capacity services, as contemplated by the relevant agreements. During November 2002, the Company reached an agreement (the Settlement Agreement) with 360networks pursuant to which the
Company agreed to dismiss its arbitration and litigation proceedings against 360networks in return for the Companys retention of funds that 360networks had advanced the Company in the amount of $22.6 in relation to the contracts described
above between the Company and 360networks. These funds had been recorded as deferred revenues by the Company. In addition, the Company received from 360networks, assets with a fair value of approximately $1.6 million during 2002. In connection with
the Settlement Agreement, the Company recorded a gain in the amount of $26.2 million during 2002. The gain was calculated as follows:



|                              |  |   |       
|----------------------------- |  | - | ------
|Reversal of deferred revenues |  | $ | 22,557
|Recovery of VAT taxes         |  |   | 2,078 
|Fair Value of Assets Acquired |  |   | 1,594 
|                              |  |   |       
|Legal Settlement              |  | $ | 26,229
|                              |  |   |       



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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



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. The settlement is subject to certain final determinations and a fairness
hearing.



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. The Company believes that it has meritorious
defenses to the allegations in the complaints and is defending the litigation vigorously.



US Municipal TaxesPursuant to a certain state provision in the US, charges for telecommunications services that originate or terminate in and are charged to a service address in such state are
subject to a discretionary municipal tax. Charges for long distance service ending or originating out of such state are exempt. The Company believes that substantially all the transactions of IMPSAT USA are excluded from the scope of the tax. To
date, the state has not notified IMPSAT USA of any tax due under any municipalitys discretionary municipal tax or any state tax on telecommunications services. Accordingly, the Company is unable to determine if it is liable for any municipal
taxes under such state provisions.



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.



15. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)



Selected financial information for the quarterly periods in 2003 and 2004 is presented below:



|                                    |  |                       |         |   |                     |   |         |       |  |   |        |   |  |   |        |  
|----------------------------------- |  | --------------------- | ------- | - | ------------------- | - | ------- | ----- |  | - | ------ | - |  | - | ------ | -
|                                    |  | 2003 Quarters         |        
|                                    |  | (Predecessor Company) |         |   | (Successor Company) |  
|                                    |  | First                 |         |   | Second              |   |         | Third |  |   | Fourth |  
|Total net revenue                   |  | $                     | 56,076  |   |                     | $ | 56,374  |       |  | $ | 56,439 |   |  | $ | 51,401 |  
|Operating (loss) income             |  |                       | (5,838  | ) |                     |   | 7,169   |       |  |   | 6,233  |   |  |   | (1,981 | )
|Net income (loss)                   |  |                       | 731,066 |   |                     |   | 22,246  |       |  |   | (3,042 | ) |  |   | (9,727 | )
|Net income (loss) per common share: |  |                       |         |   |                     |   |         |       |  |   |        |   |  |   |        |  
|Basic                               |  |                       | 8.00    |   |                     |   | 2.26    |       |  |   | (0.31  | ) |  |   | (0.99  | )
|Diluted                             |  |                       | 8.00    |   |                     |   | 1.62    |       |  |   | (0.31  | ) |  |   | (0.59  | )
|                                    | 
|                                    |  | 2004 Quarters         |        
|                                    |  | (Successor Company)   |        
|                                    |  | First                 |         |   | Second              |   |         | Third |  |   | Fourth |  
|Total net revenue                   |  | $                     | 55,060  |   |                     | $ | 55,546  |       |  | $ | 57,590 |   |  | $ | 59,519 |  
|Operating income (loss)             |  |                       | 3,215   |   |                     |   | 401     |       |  |   | (273   | ) |  |   | (757   | )
|Net (loss) income                   |  |                       | (6,472  | ) |                     |   | (10,013 | )     |  |   | 675    |   |  |   | 1,591  |  
|Net (loss) income per common share: |  |                       |         |   |                     |   |         |       |  |   |        |   |  |   |        |  
|Basic                               |  |                       | (0.64   | ) |                     |   | (1.00   | )     |  |   | 0.07   |   |  |   | 0.15   |  
|Diluted                             |  |                       | (0.64   | ) |                     |   | (1.00   | )     |  |   | 0.07   |   |  |   | 0.15   |  



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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



The Companys 2003 first quarter net income was positively impacted as a result of the gain on
extinguishment of debt as discussed in Note 2. The Companys 2003 second quarter results were positively impacted as a result of the gain on extinguishment of debt as discussed in Note 8 and the appreciation of the Brazilian real which
generated a significant gain on foreign exchange.



16. 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 and for the nine months ended December 31, 2003 and as of and for the year ended
December 31, 2004 is shown in a separate column in the accompanying consolidating financial information, as follows:



CONSOLIDATING BALANCE SHEET (SUCCESSOR COMPANY)

AS OF DECEMBER 31, 2003

(In thousands of U.S. Dollars)



|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|------------------------------------ |  | --------------- | ------- | ---------------------------- | - | -------------------------- |  | ------------------------- | ------- |  | ------------ | -------- | - |  | - | -------
|                                     |  | Holding Company |         | IMPSAT Argentina (Guarantor) |   | Non-Guarantor Subsidiaries |  | Intercompany Eliminations |         |  | Consolidated
|ASSETS                               |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|                                     |  |                 |         |                              |  
|CURRENT ASSETS:                      |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|Cash and cash equivalents            |  | $               | 43,883  |                              | $ | 1,432                      |  | $                         | 16,183  |  | $            |          |   |  | $ | 61,498 
|Trading investments                  |  |                 |         |                              |   |                            |  |                           | 2,474   |  |              |          |   |  |   | 2,474  
|Trade accounts receivable, net       |  |                 |         |                              |   | 14,087                     |  |                           | 17,126  |  |              |          |   |  |   | 31,213 
|Other receivables                    |  |                 | 96,610  |                              |   | 17,654                     |  |                           | 48,414  |  |              | (151,048 | ) |  |   | 11,630 
|Prepaid expenses                     |  |                 | 193     |                              |   | 432                        |  |                           | 1,935   |  |              | (311     | ) |  |   | 2,249  
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|Total current assets                 |  |                 | 140,686 |                              |   | 33,605                     |  |                           | 86,132  |  |              | (151,359 | ) |  |   | 109,064
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|PROPERTY, PLANT AND EQUIPMENT, Net   |  |                 |         |                              |   | 74,848                     |  |                           | 240,969 |  |              |          |   |  |   | 315,817
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|NON-CURRENT ASSETS:                  |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|Investments in common stock          |  |                 | 47,225  |                              |   |                            |  |                           |         |  |              | (45,352  | ) |  |   | 1,873  
|Other non-current assets             |  |                 |         |                              |   | 5,578                      |  |                           | 8,297   |  |              |          |   |  |   | 13,875 
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|Total non-current assets             |  |                 | 47,225  |                              |   | 5,578                      |  |                           | 8,297   |  |              | (45,352  | ) |  |   | 15,748 
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|TOTAL                                |  | $               | 187,911 |                              | $ | 114,031                    |  | $                         | 335,398 |  | $            | (196,711 | ) |  | $ | 440,629
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|                                     |  |                 |         |                              |  
|CURRENT LIABILITIES:                 |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|Accounts payable  trade             |  | $               | 4,048   |                              | $ | 22,344                     |  | $                         | 63,343  |  | $            | (52,640  | ) |  | $ | 37,095 
|Current portion of long-term debt    |  |                 |         |                              |   | 7,712                      |  |                           | 4,139   |  |              |          |   |  |   | 11,851 
|Accrued and other liabilities        |  |                 | 53      |                              |   | 11,151                     |  |                           | 33,185  |  |              | (11,249  | ) |  |   | 33,140 
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|Total current liabilities            |  |                 | 4,101   |                              |   | 41,207                     |  |                           | 100,667 |  |              | (63,889  | ) |  |   | 82,086 
|LONG-TERM DEBT, Net                  |  |                 | 86,565  |                              |   | 52,896                     |  |                           | 109,933 |  |              |          |   |  |   | 249,394
|OTHER LONG-TERM LIABILITIES          |  |                 |         |                              |   | 7,480                      |  |                           | 92,438  |  |              | (88,014  | ) |  |   | 11,904 
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|Total liabilities                    |  |                 | 90,666  |                              |   | 101,583                    |  |                           | 303,038 |  |              | (151,903 | ) |  |   | 343,384
|STOCKHOLDERS EQUITY                 |  |                 | 97,245  |                              |   | 12,448                     |  |                           | 32,360  |  |              | (44,808  | ) |  |   | 97,245 
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|TOTAL                                |  | $               | 187,911 |                              | $ | 114,031                    |  | $                         | 335,398 |  | $            | (196,711 | ) |  | $ | 440,629
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        



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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



CONSOLIDATING BALANCE SHEET (SUCCESSOR COMPANY)

AS OF DECEMBER 31, 2004

(In
thousands of U.S. Dollars)



|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|------------------------------------ |  | --------------- | ------- | ---------------------------- | - | -------------------------- |  | ------------------------- | ------- |  | ------------ | -------- | - |  | - | -------
|                                     |  | Holding Company |         | IMPSAT Argentina (Guarantor) |   | Non-Guarantor Subsidiaries |  | Intercompany Eliminations |         |  | Consolidated
|ASSETS                               |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|CURRENT ASSETS:                      |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|Cash and cash equivalents            |  | $               | 39,775  |                              | $ | 3,835                      |  | $                         | 20,045  |  | $            |          |   |  | $ | 63,655 
|Trade accounts receivable, net       |  |                 |         |                              |   | 9,783                      |  |                           | 19,580  |  |              |          |   |  |   | 29,363 
|Other receivables                    |  |                 | 85,608  |                              |   | 22,867                     |  |                           | 44,084  |  |              | (139,694 | ) |  |   | 12,865 
|Prepaid expenses                     |  |                 | 172     |                              |   | 904                        |  |                           | 2,908   |  |              | (976     | ) |  |   | 3,008  
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|Total current assets                 |  |                 | 125,555 |                              |   | 37,389                     |  |                           | 86,617  |  |              | (140,670 | ) |  |   | 108,891
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|PROPERTY, PLANT AND EQUIPMENT, Net   |  |                 |         |                              |   | 73,904                     |  |                           | 243,406 |  |              |          |   |  |   | 317,310
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|NON-CURRENT ASSETS:                  |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|Investments                          |  |                 | 57,169  |                              |   |                            |  |                           |         |  |              | (57,169  | ) |  |   |        
|Other non-current assets             |  |                 | 4       |                              |   | 7,668                      |  |                           | 10,034  |  |              |          |   |  |   | 17,706 
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|Total non-current assets             |  |                 | 57,173  |                              |   | 7,668                      |  |                           | 10,034  |  |              | (57,169  | ) |  |   | 17,706 
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|TOTAL                                |  | $               | 182,728 |                              | $ | 118,961                    |  | $                         | 340,057 |  | $            | (197,839 | ) |  | $ | 443,907
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|CURRENT LIABILITIES:                 |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|Accounts payable  trade             |  | $               | 12,066  |                              | $ | 20,547                     |  | $                         | 54,720  |  | $            | (50,848  | ) |  | $ | 36,485 
|Short term debt                      |  |                 |         |                              |   |                            |  |                           | 2,656   |  |              |          |   |  |   | 2,656  
|Current portion of long-term debt    |  |                 |         |                              |   | 20,202                     |  |                           | 24,890  |  |              |          |   |  |   | 45,092 
|Accrued and other liabilities        |  |                 | 33      |                              |   | 10,791                     |  |                           | 39,006  |  |              | (18,613  | ) |  |   | 31,217 
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|Total current liabilities            |  |                 | 12,099  |                              |   | 51,540                     |  |                           | 121,272 |  |              | (69,461  | ) |  |   | 115,450
|LONG-TERM DEBT, Net                  |  |                 | 91,616  |                              |   | 43.901                     |  |                           | 97,818  |  |              |          |   |  |   | 233,335
|OTHER LONG-TERM LIABILITIES          |  |                 |         |                              |   | 4,539                      |  |                           | 82,774  |  |              | (71,204  | ) |  |   | 16,109 
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|Total liabilities                    |  |                 | 103,715 |                              |   | 99,980                     |  |                           | 301,864 |  |              | (140,665 | ) |  |   | 364,894
|STOCKHOLDERS EQUITY                 |  |                 | 79,013  |                              |   | 18,981                     |  |                           | 38,193  |  |              | (57,174  | ) |  |   | 79,013 
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        
|TOTAL                                |  | $               | 182,728 |                              | $ | 118,961                    |  | $                         | 340,057 |  | $            | (197,839 | ) |  | $ | 443,907
|                                     |  |                 |         |                              |   |                            |  |                           |         |  |              |          |   |  |   |        



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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



CONSOLIDATING STATEMENT OF OPERATIONS (SUCCESSOR COMPANY)

FOR THE NINE MONTHS ENDED DECEMBER 31, 2003

(In thousands of U.S. Dollars)



|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|----------------------------------- |  | --------------- | ------ | - | ---------------------------- | - | ------ | -------------------------- |  | - | ------------------------- | - |  | ------------ | ------- | - |  | - | ------- | -
|                                    |  | Holding Company |        |   | IMPSAT Argentina (Guarantor) |   |        | Non-Guarantor Subsidiaries |  |   | Intercompany Eliminations |   |  | Consolidated |        
|NET REVENUES:                       |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Broadband and satellite             |  |                 |        |   |                              | $ | 25,202 |                            |  | $ | 114,983                   |   |  | $            | (19,330 | ) |  | $ | 120,855 |  
|Internet                            |  |                 |        |   |                              |   | 5,173  |                            |  |   | 18,718                    |   |  |              | (5,583  | ) |  |   | 18,308  |  
|Value added services                |  |                 |        |   |                              |   | 3,967  |                            |  |   | 7,851                     |   |  |              | (1,261  | ) |  |   | 10,557  |  
|Telephony                           |  |                 |        |   |                              |   | 9,009  |                            |  |   | 9,195                     |   |  |              | (4,636  | ) |  |   | 13,568  |  
|Sales of equipment                  |  |                 |        |   |                              |   | 530    |                            |  |   | 396                       |   |  |              |         |   |  |   | 926     |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Total net revenues                  |  |                 |        |   |                              |   | 43,881 |                            |  |   | 151,143                   |   |  |              | (30,810 | ) |  |   | 164,214 |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|COSTS AND EXPENSES:                 |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Direct costs:                       |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Contracted services                 |  |                 |        |   |                              |   | 4,336  |                            |  |   | 9,135                     |   |  |              | (95     | ) |  |   | 13,376  |  
|Other direct costs                  |  |                 |        |   |                              |   | 8,578  |                            |  |   | 9,775                     |   |  |              |         |   |  |   | 18,353  |  
|Leased capacity                     |  |                 |        |   |                              |   | 16,031 |                            |  |   | 62,967                    |   |  |              | (29,482 | ) |  |   | 49,516  |  
|Cost of equipment sold              |  |                 |        |   |                              |   | 449    |                            |  |   | 354                       |   |  |              |         |   |  |   | 803     |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Total direct costs                  |  |                 |        |   |                              |   | 29,394 |                            |  |   | 82,231                    |   |  |              | (29,577 | ) |  |   | 82,048  |  
|Salaries and wages                  |  |                 |        |   |                              |   | 10,377 |                            |  |   | 25,262                    |   |  |              |         |   |  |   | 35,639  |  
|Selling, general and administrative |  | $               | 2,789  |   |                              |   | 6,328  |                            |  |   | 11,940                    |   |  |              | (1,233  | ) |  |   | 19,824  |  
|Gain on extinguishment of debt      |  |                 | (4,538 | ) |                              |   | (9,715 | )                          |  |   |                           |   |  |              |         |   |  |   | (14,253 | )
|Depreciation and amortization       |  |                 |        |   |                              |   | 6,363  |                            |  |   | 23,172                    |   |  |              |         |   |  |   | 29,535  |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Total costs and expenses            |  |                 | (1,749 | ) |                              |   | 42,747 |                            |  |   | 142,605                   |   |  |              | (30,810 | ) |  |   | 152,793 |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Operating income                    |  |                 | 1,749  |   |                              |   | 1,134  |                            |  |   | 8,538                     |   |  |              |         |   |  |   | 11,421  |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|OTHER INCOME (EXPENSES):            |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Interest income                     |  |                 | (1,250 | ) |                              |   | 235    |                            |  |   | (1,398                    | ) |  |              | 3,481   |   |  |   | 1,068   |  
|Interest expense                    |  |                 | (1,564 | ) |                              |   | (4,030 | )                          |  |   | (5,360                    | ) |  |              | (3,481  | ) |  |   | (14,435 | )
|Net gain on foreign exchange        |  |                 | 8      |   |                              |   | 1,266  |                            |  |   | 16,292                    |   |  |              |         |   |  |   | 17,566  |  
|Equity in income of affiliates      |  |                 | 12,867 |   |                              |   |        |                            |  |   |                           |   |  |              | (12,867 | ) |  |   |         |  
|Other (loss), net                   |  |                 | (1,776 | ) |                              |   | (402   | )                          |  |   | (2,581                    | ) |  |              | 70      |   |  |   | (4,689  | )
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Total other (expenses) income       |  |                 | 8,285  |   |                              |   | (2,931 | )                          |  |   | 6,953                     |   |  |              | (12,797 | ) |  |   | (490    | )
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|INCOME BEFORE INCOME TAXES          |  |                 | 10,034 |   |                              |   | (1,797 | )                          |  |   | 15,491                    |   |  |              | (12,797 | ) |  |   | 10,931  |  
|PROVISION FOR FOREIGN INCOME TAXES  |  |                 | (557   | ) |                              |   | (277   | )                          |  |   | (620                      | ) |  |              |         |   |  |   | (1,454  | )
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|NET INCOME                          |  | $               | 9,477  |   |                              | $ | (2,074 | )                          |  | $ | 14,871                    |   |  | $            | (12,797 | ) |  | $ | 9,477   |  
|                                    |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  



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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



CONSOLIDATING STATEMENT OF OPERATIONS (SUCCESSOR COMPANY)

FOR THE YEAR ENDED DECEMBER 31, 2004

(In thousands of U.S. Dollars)



|                                     |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|------------------------------------ |  | --------------- | ------- | - | ---------------------------- | - | ------ | -------------------------- |  | - | ------------------------- | - |  | ------------ | ------- | - |  | - | ------- | -
|                                     |  | Holding Company |         |   | IMPSAT Argentina (Guarantor) |   |        | Non-Guarantor Subsidiaries |  |   | Intercompany Eliminations |   |  | Consolidated |        
|NET REVENUES:                        |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Broadband and satellite              |  |                 |         |   |                              | $ | 31,967 |                            |  | $ | 150.997                   |   |  | $            | (21,000 | ) |  | $ | 161,964 |  
|Internet                             |  |                 |         |   |                              |   | 7,011  |                            |  |   | 24,829                    |   |  |              | (5,715  | ) |  |   | 26,125  |  
|Value added services                 |  |                 |         |   |                              |   | 18,080 |                            |  |   | 11,877                    |   |  |              | (13,283 | ) |  |   | 16,674  |  
|Telephony                            |  |                 |         |   |                              |   | 14,233 |                            |  |   | 14,003                    |   |  |              | (6,563  | ) |  |   | 21,673  |  
|Sales of equipment                   |  |                 |         |   |                              |   | 703    |                            |  |   | 576                       |   |  |              |         |   |  |   | 1,279   |  
|                                     |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Total net revenues                   |  |                 |         |   |                              |   | 71,994 |                            |  |   | 202,282                   |   |  |              | (46,561 | ) |  |   | 227,715 |  
|                                     |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|COSTS AND EXPENSES:                  |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Direct costs:                        |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Contracted services                  |  |                 |         |   |                              |   | 8,491  |                            |  |   | 22,383                    |   |  |              | (9,589  | ) |  |   | 21,285  |  
|Other direct costs                   |  |                 |         |   |                              |   | 5,522  |                            |  |   | 15,125                    |   |  |              |         |   |  |   | 20,647  |  
|Leased capacity                      |  |                 |         |   |                              |   | 20,499 |                            |  |   | 71,069                    |   |  |              | (23,936 | ) |  |   | 67,632  |  
|Cost of equipment sold               |  |                 |         |   |                              |   | 495    |                            |  |   | 515                       |   |  |              | (47     | ) |  |   | 963     |  
|                                     |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Total direct costs                   |  |                 |         |   |                              |   | 35,007 |                            |  |   | 109,092                   |   |  |              | (33,572 | ) |  |   | 110,527 |  
|Salaries and wages                   |  | $               | 440     |   |                              |   | 11,675 |                            |  |   | 34,224                    |   |  |              |         |   |  |   | 46,339  |  
|Selling, general and administrative  |  |                 | 14,790  |   |                              |   | 7,358  |                            |  |   | 14,422                    |   |  |              | (12,989 | ) |  |   | 23,581  |  
|Gain on early extinguishment of debt |  |                 | (115    | ) |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   | (115    | )
|Depreciation and amortization        |  |                 |         |   |                              |   | 8,827  |                            |  |   | 35,970                    |   |  |              |         |   |  |   | 44,797  |  
|                                     |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Total costs and expenses             |  |                 | 15,115  |   |                              |   | 62,867 |                            |  |   | 193,708                   |   |  |              | (46,561 | ) |  |   | 225,129 |  
|                                     |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Operating (loss) income              |  |                 | (15,115 | ) |                              |   | 9,127  |                            |  |   | 8,574                     |   |  |              |         |   |  |   | 2,586   |  
|                                     |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|OTHER INCOME (EXPENSE):              |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Interest income                      |  |                 | 5,373   |   |                              |   | 84     |                            |  |   | (9,298                    | ) |  |              | 4,977   |   |  |   | 1,136   |  
|Interest expense                     |  |                 | (5,396  | ) |                              |   | (5,564 | )                          |  |   | (5,169                    | ) |  |              | (4,977  | ) |  |   | (21,106 | )
|Net gain (loss) on foreign exchange  |  |                 |         |   |                              |   | (1,002 | )                          |  |   | 6,806                     |   |  |              |         |   |  |   | 5,804   |  
|Equity in income of affiliates       |  |                 | (1,297  | ) |                              |   |        |                            |  |   | 2,351                     |   |  |              | (1,054  | ) |  |   |         |  
|Other income (loss), net             |  |                 | 2,216   |   |                              |   | (150   | )                          |  |   | (1,226                    | ) |  |              |         |   |  |   | 840     |  
|                                     |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Total other (expense) income         |  |                 | 896     |   |                              |   | (6,632 | )                          |  |   | (6,536                    | ) |  |              | (1,054  | ) |  |   | (13,326 | )
|                                     |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|(LOSS) INCOME BEFORE INCOME TAXES    |  |                 | (14,219 | ) |                              |   | 2,495  |                            |  |   | 2,038                     |   |  |              | (1,054  | ) |  |   | (10,740 | )
|PROVISION FOR FOREIGN INCOME TAXES   |  |                 |         |   |                              |   | (413   | )                          |  |   | (3,066                    | ) |  |              |         |   |  |   | (3,479  | )
|                                     |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|NET (LOSS) INCOME                    |  | $               | (14,219 | ) |                              | $ | 2,082  |                            |  | $ | (1,028                    | ) |  | $            | (1,054  | ) |  | $ | (14,219 | )
|                                     |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |         |   |  |   |         |  



F-34



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



CONSOLIDATING STATEMENT OF CASH FLOWS (SUCCESSOR COMPANY)

FOR THE NINE MONTHS ENDED DECEMBER 31, 2003

(In thousands of U.S. Dollars)



|                                                            |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |        |   |  |   |        |  
|----------------------------------------------------------- |  | --------------- | ------ | - | ---------------------------- | - | ------ | -------------------------- |  | - | ------------------------- | - |  | ------------ | ------ | - |  | - | ------ | -
|                                                            |  | Holding Company |        |   | IMPSAT Argentina (Guarantor) |   |        | Non-Guarantor Subsidiaries |  |   | Intercompany Eliminations |   |  | Consolidated |       
|Cash flows (used in) provided by operating activities       |  | $               | 3,333  |   |                              | $ | (439   | )                          |  | $ | 11,127                    |   |  | $            | 5,198  |   |  | $ | 19,219 |  
|Cash flows provided by (used in) investing activities       |  |                 | 32,132 |   |                              |   | (4,183 | )                          |  |   | (15,330                   | ) |  |              |       |   |  |   | 12,619 |  
|Cash flows (used in) financing activities                   |  |                 | 6,397  |   |                              |   | (2,013 | )                          |  |   | (5,668                    | ) |  |              | (5,198 | ) |  |   | (6,482 | )
|Effect of exchange rate change on cash and cash equivalents |  |                 | (3,039 | ) |                              |   |       |                            |  |   | 3,616                     |   |  |              |       |   |  |   | 577    |  
|                                                            |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |        |   |  |   |        |  
|Net increase in cash and cash equivalents                   |  |                 | 38,823 |   |                              |   | (6,635 | )                          |  |   | (6,255                    | ) |  |              |       |   |  |   | 25,933 |  
|Cash and cash equivalents at beginning of the period        |  |                 | 5,059  |   |                              |   | 8,067  |                            |  |   | 22,439                    |   |  |              |       |   |  |   | 35,565 |  
|                                                            |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |        |   |  |   |        |  
|Cash and cash equivalents at end of the period              |  | $               | 43,882 |   |                              | $ | 1,432  |                            |  | $ | 16,184                    |   |  | $            |       |   |  | $ | 61,498 |  
|                                                            |  |                 |        |   |                              |   |        |                            |  |   |                           |   |  |              |        |   |  |   |        |  



CONSOLIDATING
STATEMENT OF CASH FLOWS (SUCCESSOR COMPANY)

FOR THE YEAR ENDED DECEMBER 31, 2004

(In thousands of U.S. Dollars)



|                                                            |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |        |   |  |   |         |  
|----------------------------------------------------------- |  | --------------- | ------- | - | ---------------------------- | - | ------ | -------------------------- |  | - | ------------------------- | - |  | ------------ | ------ | - |  | - | ------- | -
|                                                            |  | Holding Company |         |   | IMPSAT Argentina (Guarantor) |   |        | Non-Guarantor Subsidiaries |  |   | Intercompany Eliminations |   |  | Consolidated |       
|Cash flows provided by (used in) operating activities       |  | $               | (12,174 | ) |                              | $ | 8,892  |                            |  | $ | 32,558                    |   |  | $            | 6,242  |   |  | $ | 35,518  |  
|Cash flows provided by (used in) investing activities       |  |                 | 11,035  |   |                              |   | (7,794 | )                          |  |   | (31,326                   | ) |  |              | (6,242 | ) |  |   | (34,327 | )
|Cash flows provided by (used in) financing activities       |  |                 |         |   |                              |   | 1,305  |                            |  |   | 1,432                     |   |  |              |        |   |  |   | 2,737   |  
|Effect of exchange rate change on cash and cash equivalents |  |                 | (2,969  | ) |                              |   |        |                            |  |   | 1,198                     |   |  |              |        |   |  |   | (1,771  | )
|                                                            |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |        |   |  |   |         |  
|Net increase in cash and cash equivalents                   |  |                 | (4,108  | ) |                              |   | 2,403  |                            |  |   | 3,862                     |   |  |              |        |   |  |   | 2,157   |  
|Cash and cash equivalents at beginning of the period        |  |                 | 43,883  |   |                              |   | 1,432  |                            |  |   | 16,183                    |   |  |              |        |   |  |   | 61,498  |  
|                                                            |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |        |   |  |   |         |  
|Cash and cash equivalents at end of the period              |  | $               | 39,775  |   |                              | $ | 3,835  |                            |  | $ | 20,045                    |   |  | $            |        |   |  | $ | 63,655  |  
|                                                            |  |                 |         |   |                              |   |        |                            |  |   |                           |   |  |              |        |   |  |   |         |  



F-35



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##### Table of Contents

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         |  | Restated Bylaws of the Company (filed on March 26, 2003 as Exhibit No. 2.2 to the Companys Amendment No. 1 to Registration Statement on Form 8-A 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).                                                                                                                                                                                                                                                                                       
|            | 
|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 securityholders 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        |  | Amended and Restated Financing Agreement among IMPSAT Argentina, Nortel Networks Limited, and Deutsche Bank Trust Company Americas and the Lenders party thereto, dated as of March 25, 2003
(filed on April 15, 2003 as Exhibit 10.4 to the Companys 2002 Annual Report on Form 10-K and incorporated herein by reference). In accordance with Instruction 2 to Item 601 of Regulation S-K, the following agreement was not filed as exhibits
because they are substantially identical in all material respects to Exhibit 10.4: Amended and Restated Financing Agreement between IMPSAT Brazil and Nortel Networks Limited, dated as of March 25, 2003.
|            | 
|10.2        |  | 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 third quarter 2003 Quarterly
Report on Form 10-Q and incorporated herein by reference).*                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|10.3        |  | 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 third quarter 2003 Quarterly Report on
Form 10-Q and incorporated herein by reference).*                                                                                                                                                                                                                                                                                                                                                                                                              



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.4        |  | 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 third quarter 2003 Quarterly Report on Form 10-Q
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 10.7: 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.*
|            | 
|21.1        |  | List of subsidiaries of the registrants (incorporated by reference to the Business  General section of the Companys 2002 Annual Report on Form 10-K and incorporated
herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            | 
|31.1        |  | Certification by the Companys Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|31.2        |  | Certification by the Companys Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|32.1        |  | Certification by the Companys Chief Executive Officer 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 Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

---

|* | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------