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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, 2005



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 if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.    YES ̈NO  x



Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     YES ̈NO  x



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 large accredited filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filed and larger accelerated filer in Rule 12b-2 of
the Exchange Act.



|Large | accelerated filer ̈Accelerated
filer ̈Non-accelerated filer  x
|----- | ------------------------------------------------------------



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Act).     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 $42.8 million as of June 30,
2005, 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 31,
2006.



Portions of our Proxy Statement to be delivered to
security-holders in connection with the Annual Meeting to be held on April 28, 2006 are incorporated by reference into Part III of this Report.

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TABLE OF CONTENTS



|              |  |                                                                                                              |  |   
|------------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|PART I        |  | 3                                                                                                           
|ITEM1.        |  | BUSINESS                                                                                                     |  | 3 
|ITEM1A.       |  | RISK FACTORS                                                                                                 |  | 10
|ITEM1B.       |  | UNRESOLVED STAFF COMMENTS                                                                                    |  | 21
|ITEM2.        |  | PROPERTIES                                                                                                   |  | 21
|ITEM3.        |  | LEGAL PROCEEDINGS                                                                                            |  | 22
|ITEM4.        |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS                                                          |  | 23
|              | 
|PART II       |  | 24                                                                                                          
|ITEM5.        |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 24
|ITEM6.        |  | SELECTED FINANCIAL DATA                                                                                      |  | 24
|ITEM7.        |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 26
|ITEM7A.       |  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                                    |  | 53
|ITEM8.        |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  | 55
|ITEM9.        |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |  | 55
|ITEM9A.       |  | CONTROLS AND PROCEDURES                                                                                      |  | 55
|ITEM9B.       |  | OTHER INFORMATION                                                                                            |  | 56
|              | 
|PART III      |  | 56                                                                                                          
|ITEM10.       |  | DIRECTORS AND OFFICERS                                                                                       |  | 56
|ITEM11.       |  | EXECUTIVE COMPENSATION                                                                                       |  | 57
|ITEM12.       |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 57
|ITEM13.       |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                               |  | 58
|ITEM14.       |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                       |  | 58
|              | 
|PART IV       |  | 58                                                                                                          
|ITEM15.       |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                   |  | 58
|SIGNATURES    |  | 59                                                                                                          
|EXHIBIT INDEX |  |                                                                                                             



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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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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, data centers, earth stations and leased fiber optic and satellite links.



We have an extensive pan-Latin American broadband fiber optic network (which
we call our Broadband Network). At December 31, 2005, the Broadband Network comprised 15 metropolitan area fiber optic networks and wireless links, extending over 1,000 route kilometers in some of the largest cities in Latin America,
including Buenos Aires, Bogotá, Caracas, Quito, Guayaquil, Rio de Janeiro and São Paulo. The Broadband Network includes 15 IMPSAT-owned and operated data centers, located in the largest cities in Argentina, Brazil, Colombia, Peru,
Chile, and Venezuela, and long-haul fiber optic backbones in Brazil, Argentina, Chile and Colombia extending over 8,880 route kilometers. Our Broadband Network supports different advanced transmission technologies including Dense Wave Division
Multiplexing, or DWDM, Asynchronous Transfer Mode, or ATM, Multiprotocol Label Switching, or MPLS 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 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 our plan of reorganization, which we refer to as 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 March 25, 2003, which we refer to as the Effective Date. As a result of our Chapter 11 reorganization we reduced our indebtedness by more than $700 million.



Our Organizational Structure



Our organizational structure consists of four operational 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
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The objective of these units is to provide consistent delivery of services to our customers across the Company. These units have served, and are expected
to continue to serve, as the foundation for our success and sustained growth. Our current structure enables us to focus on our customers needs and clearly define accountability within our organization. Furthermore, it assists us in controlling
our expenses and investments and attaining operational efficiency. We believe this structure has played an important role in the Companys achievements, which we expect will continue into 2006.



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 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 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, voice over internet protocol, referred to as 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
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | clients a complete set of data center services ranging from housing and hosting, to more complex managed solutions, including disaster recovery, applications
management, business continuity, 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.



| |  |  | 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.



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The following table shows our companys net revenues breakdown by service for the years ended
December 31, 2003, 2004 and 2005:



|                                 |  |                                                        |         |                                  |   |            |  |      |                                  |  |            |         |  |      |  
|-------------------------------- |  | ------------------------------------------------------ | ------- | -------------------------------- | - | ---------- |  | ---- | -------------------------------- |  | ---------- | ------- |  | ---- | -
|                                 |  | CombinedPredecessor &Successor CompanyDecember 31,2003 |         | SuccessorCompanyDecember 31,2004 |   | %change(1) |  |      | SuccessorCompanyDecember 31,2005 |  | %change(1) |        
|                                 |  | (dollar amounts in thousands)                          |        
|Broadband and satellite          |  | $                                                      | 162,237 |                                  | $ | 161,964    |  | (0.2 | )%                               |  | $          | 172,852 |  | 6.7  | %
|Internet                         |  |                                                        | 24,041  |                                  |   | 26,125     |  | 8.7  |                                  |  |            | 30,591  |  | 17.1 |  
|Value added services(2)          |  |                                                        | 15,338  |                                  |   | 16,674     |  | 8.7  |                                  |  |            | 24,874  |  | 49.2 |  
|Telephony                        |  |                                                        | 17,674  |                                  |   | 21,673     |  | 22.6 |                                  |  |            | 24,967  |  | 15.2 |  
|                                 |  |                                                        |         |                                  |   |            |  |      |                                  |  |            |         |  |      |  
|Total net revenues from services |  | $                                                      | 219,290 |                                  | $ | 226,436    |  | 3.3  | %                                |  | $          | 253,284 |  | 11.9 | %
|                                 |  |                                                        |         |                                  |   |            |  |      |                                  |  |            |         |  |      |  

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|(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; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



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



| |  |  | 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 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 4,336 corporate customers in eight countries at December 31, 2005. Larger entities, which often have significant needs for reliable, cost-



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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 502 at the end of 2005. 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, leading national and multinational corporations and private sector companies, and carriers, including Global Crossing Ltd., Instituto Nacional de Hipodromos,
British Telecom, Petrobras and the Government of the Province of Buenos Aires. Our ten largest customers accounted for approximately 19.7% of our revenues in 2005 and approximately 18.7% in 2004.



Our ten largest customers as of December 31, 2005 were:



| |  |  | subsidiaries of Global Crossing Ltd., a Bermuda-headquartered corporation that offers 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
| | - |  | ---------------------------------------------------------------------------------



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



| |  |  | 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., one of the largest privately-owned bank in Brazil
| | - |  | ------------------------------------------------------------------------



| |  |  | subsidiaries of Telefónica S.A., a leading global telecommunications operator, offering local and long distance, cellular, and Internet and transaction-based voice and data
services
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | subsidiaries of Teléfonos de México S.A. de C.V. (Telmex), the company that owns and operates the largest communications network in Mexico, which offer long distance
and basic telephony services, data and video services, Internet access as well as integrated telecommunications solutions in Mexico and Latin America
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|          |  |                                               |  |      |      |  |       |      |      |   |  |       |  |      |  
|--------- |  | --------------------------------------------- |  | ---- | ---- |  | ----- | ---- | ---- | - |  | ----- |  | ---- | -
|          |  | As of December 31,                            | 
|Country   |  | 2003                                          |  |      | 2004 |  |       | 2005 |     
|          |  | (number of customers and percentage of total) | 
|Argentina |  | 997                                           |  | 35.6 | %    |  | 1,236 |      | 37.3 | % |  | 1,842 |  | 42.5 | %
|Colombia  |  | 723                                           |  | 25.8 |      |  | 788   |      | 23.8 |   |  | 839   |  | 19.4 |  
|Brazil    |  | 390                                           |  | 13.9 |      |  | 451   |      | 13.6 |   |  | 502   |  | 11.6 |  
|Venezuela |  | 172                                           |  | 6.2  |      |  | 200   |      | 6.0  |   |  | 244   |  | 5.6  |  
|Ecuador   |  | 229                                           |  | 8.2  |      |  | 263   |      | 7.9  |   |  | 401   |  | 9.2  |  
|USA       |  | 74                                            |  | 2.6  |      |  | 85    |      | 2.6  |   |  | 100   |  | 2.3  |  
|Chile     |  | 108                                           |  | 3.9  |      |  | 113   |      | 3.4  |   |  | 126   |  | 2.9  |  
|Peru      |  | 106                                           |  | 3.8  |      |  | 178   |      | 5.4  |   |  | 282   |  | 6.5  |  
|          |  |                                               |  |      |      |  |       |      |      |   |  |       |  |      |  
|Total     |  | 2,799                                         |  | 100  | %    |  | 3,314 |      | 100  | % |  | 4,336 |  | 100  | %
|          |  |                                               |  |      |      |  |       |      |      |   |  |       |  |      |  



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



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. 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 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:



| |  |  | public telecommunication operators (PTO(s)) 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 first category are the PTOs, which in the recent past began to extend their focus beyond local and long-distance telephony services, dedicating
resources towards the private telecommunications network systems



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segment of the telecommunications market targeting the type of customer that represents our most important target market. PTOs generally have significant
competitive advantages, including (i) close ties with national regulatory authorities, (ii) control over connections to local telephone lines (iii) the ability to subsidize competitive services with revenues generated from other
services they provide on a monopoly or duopoly basis, and (iv) a reluctance of regulators to adopt policies and grant regulatory approvals that will result in increased competition.



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, the leading telecommunications company in Mexico, 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 the acquisition of the assets of several telecommunications companies in Latin America, including AT&T Latin America, Techtel, Embratel, Chilesat, and Metrored.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 in 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), and Paraguay, with
publicly-announced goals of developing a continent-wide GSM network in South America.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | IBM, EDS and other local system integrators.
| | - |  | --------------------------------------------



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. 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, such as
wireless-based systems dedicated to data distribution services.



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



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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 and the technological, commercial experience,
comprehension of, and experience with, the 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. However, 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.



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, 2005, we employed a total of 1,208 persons, of whom 426 were employed by IMPSAT Argentina, 208 by IMPSAT Brazil, and 237 by IMPSAT
Colombia. Except with respect to our chief executive officer and our chief financial officer, whose employment contracts recently automatically renewed for an additional one-year term, we do not have any long-term employment contracts with any of
our employees, including management. None of our employees are members of any union, however, IMPSAT Brazil is required by law, to negotiate certain labor terms and conditions, such as salaries and wages, with industry-specific unions, and obtain
approval of its employees. We believe that our relations with our employees are good.



|Item 1A. | RISK FACTORS
|-------- | ------------



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 either currently or potentially 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.



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Risks Related to Our Financial Position and Our Securities



Our independent registered public accountants have issued a going
concern opinion raising doubt about our financial viability.



As a result of our current liquidity position, the amount of our debt obligations and our operating results, our independent registered public accounting firm, Deloitte & Touche LLP, issued a going
concern opinion in connection with their audit of our consolidated financial statements for the year ended December 31, 2005. This opinion expressed substantial doubt as to our ability to continue as a going concern. The going concern
opinion could have an adverse impact on our ability to execute our business plan, result in the reluctance on the part of certain potential business partners to do business with us, result in the inability to obtain new business due to potential
customers concern about our ability to deliver services, or adversely affect our ability to raise additional capital.



Based on the principal and/or amortization payments due under our indebtedness beginning in 2007, we may need to raise additional capital to fund
such payments or further 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 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.



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



Additionally, our subsidiaries have financial obligations for an aggregate principal amount of $42.0 million that do not carry any guaranty from our
Corporation. This amount comprises a bond issued by IMPSAT Colombia in local currency with a current book value of $19.7 million, several bank and leasing lines in Colombia for an aggregate of $9.4 million; a defaulted obligation of IMPSAT
Argentina totaling approximately $7.6 million in outstanding principal; and a number of bank lines in Brazil ($2.2 million), Peru ($2.0 million) and Argentina ($0.6 million).



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



We have yet to establish any history of profitable
operations. We recorded net income of $740.5 million in 2003, which net income was attributable to the effect of the financial restructuring that resulted from the consummation of the Plan and related transactions, and net losses of
$14.2 million in 2004 and $36.2 million in 2005. 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, based on our current business plan, we will not internally generate sufficient funds to meet our maturing obligations in the future. We expect that our revenues will not be sufficient to sustain our
operations. We will need to obtain significant additional financing to achieve and sustain profitability, and to fund our operating requirements. There can be no assurance that such additional financing will be available or that the terms of such
additional financing, if available, will be acceptable to us. If additional funding is not available or is available on terms that are not acceptable to us, our ability to fund our operations will be significantly impaired.



We continue 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.



At December 31, 2005, our total consolidated debt was $248.1 million. Because of our substantial indebtedness, we are highly leveraged. This means
that our payments on our borrowings are significant in relation to over revenue and cash flow. This leverage exposes us to significant risk in the event of downturns in our business, in our industry or in the economy generally, because, in the event
of such downturns, our cash flows would decrease, however, our required payments in respect of our indebtedness will not.



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 other financing agreements that we entered into 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 that may be in our interest. For example, in the first half of 2005, IMPSAT Brazil failed to comply with certain financial ratios on its
approximately $90.8 million of Senior Secured Notes. We obtained waivers of the non-compliance from the holder of the notes, and the operating and financial restrictions were modified in the Amendments. There can be no assurance that we will be able
to avoid non-compliance and obtain waivers in the future.



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, a small number of 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 those holders were to act as a group, they would be in a position to control the outcome of actions requiring stockholder approval, including and the approval of
mergers or other business combinations, regardless of the approval of other stockholders. 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 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 or securities convertible into our common stock, common stockholders will not
have the right to elect individuals to our board of directors and, as a result, they will have little or no participation in our business affairs.



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.



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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 under other financing agreements we have entered into 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 our 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. As a result of our fresh-start reporting, on April 1, 2003, the carrying value
of our fixed assets and the related depreciation expense and our interest expense due to changes in our debt structure, among other things, changed considerably from that reflected in our historical consolidated financial statements. 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.



Risks 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 2004 and 2005, approximately 31.6% and 30.8% of our consolidated net revenues were provided by IMPSAT Argentina, and approximately 24.9% and 24.4% 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 2005 Argentinas gross domestic product (GDP) grew by 8.4% and Brazils GDP grew by 2.6%. During 2005, Colombias GDP grew by 4.4% and Venezuelas GDP increased by 9.4%.



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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 2004 and 2005 represented approximately 31.6% and 30.8% 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.



While Argentina appears to be economically recovering, it still faces political and financial instability. Economic growth
has lost some of last years strong rebound. During 2005, Argentinas gross domestic product (GDP) grew by 8.4% and is expected to growth by 7% in 2006. With growing wage pressures and some monetary accommodations on account of
unsterilized foreign exchange interventions, inflation has accelerated, with annual rates rising from 6 percent at December 31, 2004 to above 12 percent at December 31, 2005.



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 2004 by 8.8%, and although the value of Argentinas currency showed volatility compared to the U.S. dollar, it stabilized in 2005. As further indication of the improvement, the gross domestic product continued its upward trend
in 2005, increasing by 8.4%. 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.



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



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(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.



In January 2006 Argentina prepaid its entire outstanding obligations to the
International Monetary Fund, totaling $9.9 billion. This repayment was made with International Reserves and the Central Bank was compensated with 10-year, dollar-denominated, non-transferable notes.



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. 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, and generally
appreciating against the U.S. dollar since early 2003, it recently depreciated. At December 31, 2004, the exchange rate was 2.98 pesosto the U.S. dollar, and at December 31, 2005, the exchange rate was 3.03 pesosto the
U.S. dollar. During the first months of 2006, the exchange rate reached 3.09 pesos to the U.S. dollar as a consequence of Central Bank interventions directed towards an International Reserves level recomposition. The Central Bank intends to
restore itself to prior to IMF payment levels by the end of 2006. As a consequence, the exchange rate is not expected to appreciate in 2006.



A devaluation of the Argentine pesowould 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 55.04% of such contracts) and a large percentage of its operating cash inflows (approximately 44.96% of such cash flows) are now denominated in pesos. However, IMPSAT 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.



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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 2004 and 2005 represented approximately 14.7% and 18.9%, respectively, of our consolidated net revenues for such periods. For 2005, 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, 2004 and 2005, Brazils currency had appreciated against the U.S. dollar by 8.9% and 13.4%, respectively.



At December 31, 2004, the real traded at a rate of
R$2.65 = $1.00. During 2005, the real appreciated further, trading at a rate of R$2.34=$1.00 at December 31, 2005. At March 15, 2006, the real traded at a rate of R$2.12 = $1.00. Brazils GDP
increased by around 5.0% during 2004, its best performance since 1994, but increased by 2.6% in 2005. 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 2005, 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.



Political and economic conditions in Venezuela may have an adverse impact on our operations



After over four years of civil unrest in Venezuela, and removal and
reinstatement of that countrys head of state, President Hugo Chavez, a referendum calling for recall of Mr. Chavez from office was voted on in August



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2004. Over 59% of those voting in the referendum voted to retain President Chavez for the remainder of his term ending in December 2006.



Since the recall referendum, and despite continued civil unrest, the
Venezuelan economy has been able to sustain growth. Preliminary figures issued by the Central Bank reflect that the Venezuelan economy grew by 9.3% in 2005, compared to 2004. The growth appears to be stimulated by the Venezuelan governments
emphasis on servicing specific areas, such as health and education, and nourishing subsidies, and private sector expansion motivated by construction, commerce and financial sectors.



Recent approval of modifications in the laws of the Central Bank of Venezuela, known as Ley del Banco Central de Venezuela,
and the creation of a fund to promote the growth of the nation, known as Fondo de Desarrollo Nacional (FONDEN), have changed the structure and the manner in which the public sector finances are managed. These modifications provide the executive
power with greater access to national resources, with limited supervision by the legislative power. It suggests the government may use certain of its international reserves for investment in social welfare. It is estimated FONDEN will commence with
$6.0 million in funding.



Further, Petróleos de
Venezuela S.A., Venezuelas oil refinery, has announced that it will limit sales of petroleum to amounts sufficient to cover its operational costs, which could lead to reduced reserves of the Central Bank, and loss of the benefit of the income
generated by the oil sectors. This can have adverse consequences that must be considered as we continue our operations in Venezuela.



In addition, the Venezuelan government imposed foreign exchange and price controls, which commenced in February 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 also limit our ability to convert local currency into U.S. dollars and transfer funds out of
Venezuela. The Venezuelan Government, through an agency called CADIVI, controls the flow of currency out of Venezuela. Requests for payments abroad for imports, services, financial debt or capital repatriations must be submitted to CADIVI, which
approves the applications on a case-by-case basis, depending on the circumstances, causing long delays in the payments. In particular, CADIVI has been reluctant and cautious to authorize payments for services such as satellite capacity and software
licensing, which, if this continues, could limit our ability to obtain the supplies required by our operation because of inability to make payment in a timely manner. Moreover, after a number of devaluations, the bolivar is set at a fixed
exchange rate against the U.S. dollars of Bs. 2,150 = $1.00, which was in effect at December 31, 2004 and December 31, 2005.



Continuation or worsening of the 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



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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 2005. Accordingly, our operations in Argentina and Brazil have exposed us, and
will increase our exposure, to exchange rate risks.



Except in
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 2005. 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.



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, 2005, our gross trade accounts receivable were $46.1 million compared to $41.4 million as of
December 31, 2004. We recorded a net reversal of a provision for doubtful accounts of $1.1 million in 2005 compared to a net reversal of a provision of $3.9 million in 2004. At December 31, 2005, our allowance for doubtful accounts covered
approximately 96.4% of our gross trade accounts receivable past due more than six months, compared to 115.0% as of December 31, 2004. 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. 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 (defined in Item 1  Business  General), 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 to remain technologically competitive 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;
| | - |  | ----------------------------------------------------------------------------------



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| |  |  | 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.
| | - |  | --------------------------



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



As mentioned above, in most of our markets, our principal competitor is the
local PTO or an affiliate of the local PTO, who generally has significant competitive advantages. For example, Telecom Argentina and



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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
and further consolidation 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



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required for the conduct of our current operations. We expect that those licenses that are subject to expiration 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.



|Item 1B. | UNRESOLVED STAFF COMMENTS.
|-------- | --------------------------



None.



|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.



From 1995 to 2005, we 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. We constructed our own
metropolitan fiber optic network in Bogotá, Colombia. This network covers only a portion of the area served by our prior network and therefore requires 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



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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 operators. 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
compliment our Broadband Network infrastructure, we operate 15 advanced data center hosting facilities with an aggregate of approximately 500,000 gross square feet, including functional facilities, building shell, space for new modules, and
corresponding office space in each, in major cities in Latin America. These facilities, which are capable of supporting 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, Florida, 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.



Satellite Services.Our satellite transmissions use both C-band (4-6 GHz) and Ku-band (11-14 GHz) frequencies. As of December 31, 2005, we had a total available leased capacity of approximately
709 MHz. Our lease payments for satellite capacity totaled approximately $23.1 million in 2005. 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, 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, which is presently scheduled for April 2006.



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



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from the Company upon the effectiveness of the Plan. Discovery is currently ongoing. The Company believes that it has meritorious defenses to the allegations
in the complaints and is defending the litigation vigorously.



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 2005 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 15,
2006, there were nine holders of record of our common stock, not including beneficial owners in nominee or street name. We have not paid any cash dividends on our common stock in the past two years, and do not anticipate paying any in the
foreseeable future. In addition, the terms of our Senior Notes and other financing agreements we have entered into 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.



|        |  |      |      |     |   |     
|------- |  | ---- | ---- | --- | - | ----
|        |  | 2004
|Quarter |  | High |      | Low
|First   |  | $    | 7.70 |     | $ | 6.25
|Second  |  | $    | 7.62 |     | $ | 6.52
|Third   |  | $    | 6.45 |     | $ | 4.95
|Fourth  |  | $    | 5.80 |     | $ | 4.20
|        | 
|        |  | 2005
|Quarter |  | High |      | Low
|First   |  | $    | 6.50 |     | $ | 5.30
|Second  |  | $    | 6.50 |     | $ | 5.28
|Third   |  | $    | 7.45 |     | $ | 5.80
|Fourth  |  | $    | 7.50 |     | $ | 5.82



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 EndedDecember 31, |          |   | Three MonthsEnded March 31,2003 |   |          | Nine MonthsEnded December 31,2003 |  |   | Year EndedDecember 31, |  
|                                                                    |  | PredecessorCompany2001 |          |   | PredecessorCompany2002          |   |          | PredecessorCompany 2003           |  |   | Successor Company 2003 |   |  | SuccessorCompany2004 |         |   | SuccessorCompany2005 |  
|Statement of operations data:                                       |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Net revenues:                                                       |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Broadband and satellite                                             |  | $                      | 229,991  |   |                                 | $ | 173,265  |                                   |  | $ | 41,382                 |   |  | $                    | 120,855 |   |                      | $ | 161,964 |   |  | $ | 172,852 |  
|Internet                                                            |  |                        | 45,403   |   |                                 |   | 27,243   |                                   |  |   | 5,733                  |   |  |                      | 18,308  |   |                      |   | 26,125  |   |  |   | 30,591  |  
|Value added services                                                |  |                        | 17,186   |   |                                 |   | 14,191   |                                   |  |   | 4,781                  |   |  |                      | 10,557  |   |                      |   | 16,674  |   |  |   | 24,874  |  
|Telephony                                                           |  |                        | 11,762   |   |                                 |   | 14,327   |                                   |  |   | 4,106                  |   |  |                      | 13,568  |   |                      |   | 21,673  |   |  |   | 24,967  |  
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Total net revenues from services                                    |  |                        | 304,342  |   |                                 |   | 229,026  |                                   |  |   | 56,002                 |   |  |                      | 163,288 |   |                      |   | 226,436 |   |  |   | 253,284 |  
|Sales of equipment                                                  |  |                        | 22,148   |   |                                 |   | 1,168    |                                   |  |   | 74                     |   |  |                      | 926     |   |                      |   | 1,279   |   |  |   | 690     |  
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Total net revenues                                                  |  |                        | 326,490  |   |                                 |   | 230,194  |                                   |  |   | 56,076                 |   |  |                      | 164,214 |   |                      |   | 227,715 |   |  |   | 253,974 |  
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Costs and expenses:                                                 |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Direct costs:                                                       |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Contracted services                                                 |  |                        | 40,629   |   |                                 |   | 19,199   |                                   |  |   | 4,125                  |   |  |                      | 13,376  |   |                      |   | 21,285  |   |  |   | 24,379  |  
|Other direct costs                                                  |  |                        | 35,416   |   |                                 |   | 25,935   |                                   |  |   | 4,696                  |   |  |                      | 18,353  |   |                      |   | 20,647  |   |  |   | 28,909  |  
|Leased capacity                                                     |  |                        | 87,057   |   |                                 |   | 74,679   |                                   |  |   | 17,407                 |   |  |                      | 49,516  |   |                      |   | 67,632  |   |  |   | 74,990  |  
|Broadband network cost                                              |  |                        | 3,335    |   |                                 |   |         |                                   |  |   |                       |   |  |                      |        |   |                      |   |        |   |  |   |         |  
|Cost of equipment sold                                              |  |                        | 10,472   |   |                                 |   | 576      |                                   |  |   | 48                     |   |  |                      | 803     |   |                      |   | 963     |   |  |   | 631     |  
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Total direct costs                                                  |  |                        | 176,909  |   |                                 |   | 120,389  |                                   |  |   | 26,276                 |   |  |                      | 82,048  |   |                      |   | 110,527 |   |  |   | 128,909 |  
|Salaries and wages                                                  |  |                        | 82,095   |   |                                 |   | 47,894   |                                   |  |   | 10,727                 |   |  |                      | 35,639  |   |                      |   | 46,339  |   |  |   | 50,597  |  
|Selling, general and administrative                                 |  |                        | 52,964   |   |                                 |   | 28,204   |                                   |  |   | 5,553                  |   |  |                      | 19,824  |   |                      |   | 23,581  |   |  |   | 22,335  |  
|Asset impairment charge                                             |  |                        | 381,888  |   |                                 |   |         |                                   |  |   |                       |   |  |                      |        |   |                      |   |        |   |  |   |         |  
|Gain on extinguishment                                              |  |                        |         |   |                                 |   | (16,367  | )                                 |  |   |                       |   |  |                      | (14,253 | ) |                      |   | (115    | ) |  |   |         |  
|Depreciation and amortization                                       |  |                        | 123,678  |   |                                 |   | 82,766   |                                   |  |   | 19,358                 |   |  |                      | 29,535  |   |                      |   | 44,797  |   |  |   | 55,324  |  
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Total costs and expenses                                            |  |                        | 817,534  |   |                                 |   | 262,886  |                                   |  |   | 61,914                 |   |  |                      | 152,793 |   |                      |   | 225,129 |   |  |   | 257,165 |  
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Operating (loss) income                                             |  |                        | (491,044 | ) |                                 |   | (32,692  | )                                 |  |   | (5,838                 | ) |  |                      | 11,421  |   |                      |   | 2,586   |   |  |   | (3,191  | )
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Other income (expenses):                                            |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Interest income                                                     |  |                        | 10,687   |   |                                 |   | 1,907    |                                   |  |   | 200                    |   |  |                      | 1,068   |   |                      |   | 1,136   |   |  |   | 1,433   |  
|Interest expense(1)                                                 |  |                        | (143,521 | ) |                                 |   | (75,815  | )                                 |  |   | (1,909                 | ) |  |                      | (14,435 | ) |                      |   | (21,106 | ) |  |   | (32,394 | )
|Net (loss) gain on foreign exchange                                 |  |                        | (41,182  | ) |                                 |   | (91,884  | )                                 |  |   | 9,969                  |   |  |                      | 17,566  |   |                      |   | 5,804   |   |  |   | 10,131  |  
|Recognition of other-than-temporary decline in value of investments |  |                        | (20,650  | ) |                                 |   | (794     | )                                 |  |   |                       |   |  |                      |        |   |                      |   |        |   |  |   |         |  
|Reorganization items                                                |  |                        |          |   |                                 |   | (23,297  | )                                 |  |   | 726,127                |   |  |                      |        |   |                      |   |        |   |  |   |         |  
|Legal settlement                                                    |  |                        |          |   |                                 |   | 26,229   |                                   |  |   |                       |   |  |                      |        |   |                      |   |        |   |  |   |         |  
|Other (loss) income, net                                            |  |                        | (2,125   | ) |                                 |   | (5,896   | )                                 |  |   | 2,923                  |   |  |                      | (4,689  | ) |                      |   | 840     |   |  |   | (7,735  | )
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Total other (expenses) income                                       |  |                        | (196,791 | ) |                                 |   | (169,550 | )                                 |  |   | 737,310                |   |  |                      | (490    | ) |                      |   | (13,326 | ) |  |   | (28,565 | )
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|(Loss) income before income taxes                                   |  |                        | (687,835 | ) |                                 |   | (202,242 | )                                 |  |   | 731,472                |   |  |                      | 10,931  |   |                      |   | (10,740 | ) |  |   | (31,756 | )
|Provision for foreign income taxes                                  |  |                        | (27,420  | ) |                                 |   | (2,273   | )                                 |  |   | (406                   | ) |  |                      | (1,454  | ) |                      |   | (3,479  | ) |  |   | (4,492  | )
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Net (loss) income                                                   |  | $                      | (715,255 | ) |                                 | $ | (204,515 | )                                 |  | $ | 731,066                |   |  | $                    | 9,477   |   |                      | $ | (14,219 | ) |  | $ | (36,248 | )
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Net (loss) income per common share: Basic                           |  | $                      | (7.82    | ) |                                 | $ | (2.24    | )                                 |  | $ | 8.00                   |   |  | $                    | 0.96    |   |                      | $ | (1.42   | ) |  | $ | (3.61   | )
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Diluted                                                             |  | $                      | (7.82    | ) |                                 | $ | (2.24    | )                                 |  | $ | 8.00                   |   |  | $                    | 0.72    |   |                      | $ | (1.42   | ) |  | $ | (3.61   | )
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Weighted average number of common shares: Basic                     |  |                        | 91,429   |   |                                 |   | 91,429   |                                   |  |   | 91,429                 |   |  |                      | 9,917   |   |                      |   | 9,994   |   |  |   | 10,054  |  
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Diluted                                                             |  |                        | 91,429   |   |                                 |   | 91,429   |                                   |  |   | 91,429                 |   |  |                      | 16,057  |   |                      |   | 9,994   |   |  |   | 10,054  |  
|                                                                    |  |                        |          |   |                                 |   |          |                                   |  |   |                        |   |  |                      |         |   |                      |   |         |   |  |   |         |  

---

|(1) | Contractual interest expense of $128.0 million for the year ended December 31, 2002 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
|                                                            |  | 2001                |           |                   | 2002 |   |          | 2003 |  | 2004 |         | 2005
|Balance Sheet Data:                                         |  |                     |           |                   |      |   |          |      |  |      |         |      |   |         |  |   |        
|Cash and cash equivalents                                   |  | $                   | 35,606    |                   |      | $ | 32,563   |      |  | $    | 61,498  |      | $ | 63,655  |  | $ | 24,070 
|Trading investments                                         |  |                     | 29,319    |                   |      |   | 23,021   |      |  |      | 2,474   |      |   |        |  |   |       
|Total current assets                                        |  |                     | 165,768   |                   |      |   | 106,016  |      |  |      | 109,064 |      |   | 108,891 |  |   | 73,490 
|Property, plant and equipment, net                          |  |                     | 525,057   |                   |      |   | 403,948  |      |  |      | 315,817 |      |   | 317,310 |  |   | 309,892
|Investments in common stock                                 |  |                     | 3,307     |                   |      |   | 86       |      |  |      | 1,873   |      |   |        |  |   |       
|Total assets                                                |  |                     | 718,574   |                   |      |   | 520,683  |      |  |      | 440,629 |      |   | 443,907 |  |   | 399,543
|Total current liabilities                                   |  |                     | 1,133,635 |                   |      |   | 402,986  |      |  |      | 82,086  |      |   | 115,450 |  |   | 111,172
|Total short-term debt and current portion of long-term debt |  |                     | 967,399   |                   |      |   | 281,680  |      |  |      | 11,851  |      |   | 47,748  |  |   | 19,772 
|Total long-term debt, net                                   |  |                     | 23,189    |                   |      |   | 27,592   |      |  |      | 249,394 |      |   | 233,335 |  |   | 228,331
|Other long-term liabilities                                 |  |                     | 14,973    |                   |      |   | 15,280   |      |  |      | 11,904  |      |   | 16,109  |  |   | 16,295 
|Liabilities subject to compromise                           |  |                     |          |                   |      |   | 727,522  |      |  |      |        |      |   |        |  |   |       
|Stockholders (deficiency) equity                           |  |                     | (552,642  | )                 |      |   | (722,615 | )    |  |      | 97,245  |      |   | 79,013  |  |   | 43,745 



|                                 |  |                        |         |   |                          |   |         |                              |  |   |                         |   |  |      |        |   |      |   |         |   |  |   |         |  
|-------------------------------- |  | ---------------------- | ------- | - | ------------------------ | - | ------- | ---------------------------- |  | - | ----------------------- | - |  | ---- | ------ | - | ---- | - | ------- | - |  | - | ------- | -
|                                 |  | Year EndedDecember 31, |         |   | ThreeMonthsEndedMarch 31 |   |         | Nine MonthsEndedDecember 31, |  |   | Year Ended December 31, |  
|                                 |  | Predecessor Company    |         |   | SuccessorCompany         |   |         | Successor Company            |  |   | SuccessorCompany        |  
|                                 |  | 2001                   |         |   | 2002                     |   |         | 2003                         |  |   | 2003                    |   |  | 2004 |        |   | 2005 |  
|Other Financial Data:            |  |                        |         |   |                          |   |         |                              |  |   |                         |   |  |      |        |   |      |   |         |   |  |   |         |  
|Cash flow provided by (used in): |  |                        |         |   |                          |   |         |                              |  |   |                         |   |  |      |        |   |      |   |         |   |  |   |         |  
|Operating activities             |  | $                      | (35,793 | ) |                          | $ | 27,533  |                              |  | $ | 11,503                  |   |  | $    | 19,219 |   |      | $ | 35,518  |   |  | $ | 32,449  |  
|Investing activities             |  |                        | 21,460  |   |                          |   | (12,776 | )                            |  |   | (6,229                  | ) |  |      | 12,619 |   |      |   | (34,327 | ) |  |   | (34,305 | )
|Financing activities             |  |                        | (5,961  | ) |                          |   | (17,246 | )                            |  |   | (1,857                  | ) |  |      | (6,482 | ) |      |   | 2,737   |   |  |   | (37,611 | )
|Capital expenditures             |  |                        | 204,735 |   |                          |   | 21,652  |                              |  |   | 3,266                   |   |  |      | 18,213 |   |      |   | 39,379  |   |  |   | 34,305  |  



|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 the Plan in the Bankruptcy Case, which Plan
was confirmed in the Bankruptcy Case and became effective on the Effective Date, March 25, 2003, at which time we emerged from bankruptcy. Pursuant to the Plan, we substantially reduced our outstanding debt and annual interest expense and
increased our liquidity. At December 31, 2002, prior to the effectiveness of the Plan, our long-term debt, including current maturities and estimated liabilities subject to the Chapter 11 proceeding, aggregated approximately $1.09 billion. 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.



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. 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.



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Revenues



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



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



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



Costs and Expenses



Our costs and expenses principally include:



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



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



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



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



Our direct costs include payments for leased satellite transponder, fiber optic and other terrestrial capacity. Other principal items composing direct
costs are contracted services costs and allowance for doubtful accounts. Contracted services costs include costs of maintenance and installation (and de-installation) services provided by outside contractors. Installation and de-installation costs
are the costs we incur when we install or remove earth stations, micro-stations and other equipment from customer premises. Direct costs also include licenses and other fees, node expenses and sales commissions paid to third-party sales
representatives and to our salaried sales force.



Our selling,
general and administrative expenses consist principally of:



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



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



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



| |  |  | rent
| | - |  | ----



| |  |  | 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.



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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 2005. 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 31,2003              |  | December 31,2004 |  | December 31,2005
|               |  | (exchange rate per U.S.$1.00)
|Argentina peso |  | 2.95                          |  | 2.95             |  | 3.03            
|Brazil real    |  | 2.89                          |  | 2.65             |  | 2.34            



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 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. At December 31, 2005, the exchange rate was 3.03 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, 2004, thereal traded at a rate of R$2.65 =
$1.00, and it appreciated to R$2.34 = $1.00 at December 31, 2005. The daily average exchange rate for the realduring 2005 was R$2.41= $1.00, as compared to R$2.92 = $1.00 during 2004.



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Venezuela



In February 2003, the Venezuelan government imposed foreign exchange and price controls in response to adverse economic conditions resulting from a
nation-wide strike that commenced in December 2002, setting a rate of Bs.1,600 = U.S.$1.00. The exchange controls make it difficult for our customers in that country to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a
timely basis and also severely limit our ability to convert local currency into U.S. dollars and transfer funds out of Venezuela in a timely manner without substantial cost. At December 31, 2004, the exchange rate for the bolivar was set
at a rate of Bs.1,920 = $1.00, and on March 30, 2005, the Venezuelan government devalued the bolivar to a rate of Bs. 2,150 = $1.00, where it remains to date. 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 year ended December 31, 2003 accordingly include revenues and expenses related to the operations and the sale of our Mexican operations, and the results for the years
ended December 31, 2004 and December 31, 2005 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 conformity with U.S.
GAAP. We use our best judgment based on our knowledge of existing facts and circumstances and actions that we may undertake in the future, as well as the advice of external experts in determining the estimates that affect our consolidated financial
statements. Actual results could differ significantly from those estimates under different assumptions and conditions. Our most critical accounting policies are:



Revenue Recognition



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



We have entered into, or may enter into in the future, agreements with
carriers granting indefeasible rights of use (IRUs) and access to portions of our Broadband Network capacity and infrastructure. Pursuant to some



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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.



We record our
revenues net of deductions for sales taxes. These taxes are assessed by the governmental taxing authorities in a number of countries in which we operate based on a percentage of gross revenues and totaled approximately $2.0 million, $6.7 million,
$10.8 million and $14.1 million for the three months ended March 31, 2003 (Predecessor Company), the nine months ended December 31, 2003 and for the years ended December 31, 2004 and 2005 (Successor Company), respectively.



Non-Monetary Transactions



We may exchange capacity on our Broadband Network for capacity from other
carriers through the exchange of IRUs. We account for these transactions 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
No. 153 during 2006 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 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



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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 2005, nor have we made any material changes in any of the critical accounting estimates underlying these accounting
policies during 2005.



New Accounting Pronouncements



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 No. 123(R), companies must choose among alternative valuation models and amortization
assumptions.



The valuation model and amortization assumption
used by the Company continues to be available. The Company adopted SFAS No. 123(R) on January 1, 2006. The Company expects the impact on its 2006 earnings to be approximately $0.4 million as all remaining non-vested options as of
January 1, 2006, vest during 2006. In



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addition, the Company will use the modified prospective method and will utilize the Black-Scholes option pricing model to determine the fair value of its
option grants. See above for the pro forma effect for each of the periods presented, using the 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, combined results for the year ended December 31, 2003
combine the three-month period ended March 31, 2003 (for the Predecessor Company) with the nine-month period beginning April 1, 2003 and 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.



Results of
Operations



The following table summarizes our results of
operations:



|                                             |  |                                                             |         |   |                   |       |   |                   |   |         |   |  |       |    |  |   |         |   |  |       |   
|-------------------------------------------- |  | ----------------------------------------------------------- | ------- | - | ----------------- | ----- | - | ----------------- | - | ------- | - |  | ----- | -- |  | - | ------- | - |  | ----- | --
|                                             |  | Year Ended December 31,                                     |        
|                                             |  | Combined Results                                            |         |   | Successor Company |       |   | Successor Company |  
|                                             |  | 2003                                                        |         |   | 2004              |       |   | 2005              |  
|                                             |  | (in thousands and as a percentage of consolidated revenues) |        
|Net revenues :                               |  |                                                             |         |   |                   |       |   |                   |   |         |   |  |       |    |  |   |         |   |  |       |   
|Net revenues from services :                 |  |                                                             |         |   |                   |       |   |                   |   |         |   |  |       |    |  |   |         |   |  |       |   
|Broadband and satellite                      |  | $                                                           | 162,237 |   |                   | 73.6  | % |                   | $ | 161,964 |   |  | 71.1  | %  |  | $ | 172,852 |   |  | 68.1  | % 
|Internet                                     |  |                                                             | 24,041  |   |                   | 10.9  |   |                   |   | 26,125  |   |  | 11.5  |    |  |   | 30,591  |   |  | 12.0  |   
|Value added services                         |  |                                                             | 15,338  |   |                   | 7.0   |   |                   |   | 16,674  |   |  | 7.3   |    |  |   | 24,874  |   |  | 9.8   |   
|Telephony                                    |  |                                                             | 17,674  |   |                   | 8.0   |   |                   |   | 21,673  |   |  | 9.5   |    |  |   | 24,967  |   |  | 9.8   |   
|                                             |  |                                                             |         |   |                   |       |   |                   |   |         |   |  |       |    |  |   |         |   |  |       |   
|Total net revenues from services             |  |                                                             | 219,290 |   |                   | 99.5  |   |                   |   | 226,436 |   |  | 99.4  |    |  |   | 253,284 |   |  | 99.7  |   
|Sale of equipment                            |  |                                                             | 1,000   |   |                   | 0.5   |   |                   |   | 1,279   |   |  | 0.6   |    |  |   | 690     |   |  | 0.3   |   
|                                             |  |                                                             |         |   |                   |       |   |                   |   |         |   |  |       |    |  |   |         |   |  |       |   
|Total net revenues                           |  |                                                             | 220,290 |   |                   | 100.0 |   |                   |   | 227,715 |   |  | 100.0 |    |  |   | 253,974 |   |  | 100.0 |   
|                                             |  |                                                             |         |   |                   |       |   |                   |   |         |   |  |       |    |  |   |         |   |  |       |   
|Direct costs :                               |  |                                                             |         |   |                   |       |   |                   |   |         |   |  |       |    |  |   |         |   |  |       |   
|Contracted services                          |  |                                                             | 17,501  |   |                   | 7.9   |   |                   |   | 21,285  |   |  | 9.3   |    |  |   | 24,379  |   |  | 9.6   |   
|Other direct costs                           |  |                                                             | 23,049  |   |                   | 10.5  |   |                   |   | 20,647  |   |  | 9.1   |    |  |   | 28,909  |   |  | 11.4  |   
|Leased capacity                              |  |                                                             | 66,923  |   |                   | 30.4  |   |                   |   | 67,632  |   |  | 29.7  |    |  |   | 74,990  |   |  | 29.5  |   
|Cost of equipment sold                       |  |                                                             | 851     |   |                   | 0.4   |   |                   |   | 963     |   |  | 0.4   |    |  |   | 631     |   |  | 0.2   |   
|                                             |  |                                                             |         |   |                   |       |   |                   |   |         |   |  |       |    |  |   |         |   |  |       |   
|Total direct costs                           |  |                                                             | 108,324 |   |                   | 49.2  |   |                   |   | 110,527 |   |  | 48.5  |    |  |   | 128,909 |   |  | 50.8  |   
|Salaries and wages                           |  |                                                             | 46,366  |   |                   | 21.1  |   |                   |   | 46,339  |   |  | 20.3  |    |  |   | 50,597  |   |  | 19.9  |   
|Selling, general and administrative expenses |  |                                                             | 25,377  |   |                   | 11.5  |   |                   |   | 23,581  |   |  | 10.4  |    |  |   | 22,335  |   |  | 8.8   |   
|Gain on extinguishment                       |  |                                                             | (14,253 | ) |                   | (6.5  | ) |                   |   | (115    | ) |  | (0.1  | )  |  |   |        |   |  |      |   
|Depreciation and amortization                |  |                                                             | 48,893  |   |                   | 22.2  |   |                   |   | 44,797  |   |  | 19.7  |    |  |   | 55,324  |   |  | 21.8  |   
|Interest expense, net                        |  |                                                             | 15,076  |   |                   | 6.8   |   |                   |   | 19,970  |   |  | 8.8   |    |  |   | 30,961  |   |  | 12.1  |   
|Net gain on foreign exchange                 |  |                                                             | 27,535  |   |                   | 12.5  |   |                   |   | 5,804   |   |  | 2.5   |    |  |   | 10,131  |   |  | 4.0   |   
|Reorganization items                         |  |                                                             | 726,127 |   |                   | 329.6 |   |                   |   |        |   |  |      |    |  |   |        |   |  |      |   
|Other (loss) income, net                     |  |                                                             | (1,766  | ) |                   | (0.8  | ) |                   |   | 840     |   |  | 0.4   |    |  |   | (7,735  | ) |  | (3.0  | ) 
|Provision for foreign income taxes           |  |                                                             | (1,860  | ) |                   | (0.8  | ) |                   |   | (3,479  | ) |  | (1.5  | )  |  |   | (4,492  | ) |  | (1.8  | ) 
|                                             |  |                                                             |         |   |                   |       |   |                   |   |         |   |  |       |    |  |   |         |   |  |       |   
|Net income (loss)                            |  | $                                                           | 740,543 |   |                   | 336.2 | % |                   | $ | (14,219 | ) |  | (6.2  | )% |  | $ | (36,248 | ) |  | (14.3 | )%
|                                             |  |                                                             |         |   |                   |       |   |                   |   |         |   |  |       |    |  |   |         |   |  |       |   



32



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##### Table of Contents

2005 Compared to 2004



Revenues.Our total net revenues for 2004 and 2005 equaled $227.7 million and $254.0 million, respectively.
Net revenues were composed of net revenues from services and sales of equipment.



Our net revenues from services for 2005 totaled $253.3 million, an increase of $26.8 million (or 11.9%) compared to 2004. Our net revenues from services during 2005 included net revenues from:



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



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



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



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



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



|                                 |  |                               |         |            |      |    |                               |   |            |  |      |                               |  |   |        
|-------------------------------- |  | ----------------------------- | ------- | ---------- | ---- | -- | ----------------------------- | - | ---------- |  | ---- | ----------------------------- |  | - | -------
|                                 |  | CombinedResults December 31,  |         |            |      |    | SuccessorCompany December 31, |   |            |  |      | SuccessorCompany December 31,
|                                 |  | 2003                          |         | %change(1) |      |    | 2004                          |   | %change(1) |  |      | 2005                         
|                                 |  | (dollar amounts in thousands)
|Broadband and satellite          |  | $                             | 162,237 |            | (0.2 | )% |                               | $ | 161,964    |  | 6.7  | %                             |  | $ | 172,852
|Internet                         |  |                               | 24,041  |            | 8.7  |    |                               |   | 26,125     |  | 17.1 |                               |  |   | 30,591 
|Value added services(2)          |  |                               | 15,338  |            | 8.7  |    |                               |   | 16,674     |  | 49.2 |                               |  |   | 24,874 
|Telephony                        |  |                               | 17,674  |            | 22.6 |    |                               |   | 21,673     |  | 15.2 |                               |  |   | 24,967 
|                                 |  |                               |         |            |      |    |                               |   |            |  |      |                               |  |   |        
|Total net revenues from services |  | $                             | 219,290 |            | 3.3  | %  |                               | $ | 226,436    |  | 11.9 | %                             |  | $ | 253,284
|                                 |  |                               |         |            |      |    |                               |   |            |  |      |                               |  |   |        

---

|(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 2005, as compared to 2004,
was due to increases in revenues from broadband and satellite, Internet, value added and telephony services.



| |  |  | Revenues from broadband and satellite services increased due to higher sales of IP services, primarily in Brazil, Argentina and Ecuador.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We experienced higher Internet revenues principally because of new customers and expansion of services to existing customers, primarily in Brazil, Argentina and Ecuador.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our revenues from value added services increased primarily because of higher sales of housing and hosting services, and managed services, mainly in Brazil and Colombia.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



We
had 4,336 customers at December 31, 2005, compared to 3,314 customers at December 31, 2004. As we expand, the average size of customer, including the average revenues per customer, has decreased. During 2005 we do not believe that we lost
any major customers to our competitors.



33



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##### Table of Contents

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



|                 |  |                    |  |            |  |      |  
|---------------- |  | ------------------ |  | ---------- |  | ---- | -
|                 |  | As ofDecember 31,  |  |            | 
|                 |  | 2004               |  | 2005       |  |      |  
|                 |  | Number ofCustomers |  | %Change(1) | 
|IMPSAT Argentina |  | 1,236              |  | 1,842      |  | 49.0 |  
|IMPSAT Colombia  |  | 788                |  | 839        |  | 6.5  |  
|IMPSAT Brazil    |  | 451                |  | 502        |  | 11.3 |  
|IMPSAT Venezuela |  | 200                |  | 244        |  | 22.0 |  
|IMPSAT Ecuador   |  | 263                |  | 401        |  | 52.5 |  
|IMPSAT Chile     |  | 113                |  | 126        |  | 11.5 |  
|IMPSAT Peru      |  | 178                |  | 282        |  | 58.4 |  
|IMPSAT USA       |  | 85                 |  | 100        |  | 17.6 |  
|                 |  |                    |  |            |  |      |  
|Total            |  | 3,314              |  | 4,336      |  | 30.8 | %
|                 |  |                    |  |            |  |      |  

---

|(1) | Increase (decrease) as of December 31, 2005 compared to as of December 31, 2004.
|--- | --------------------------------------------------------------------------------



During 2005, we gained a net total of 1,022
customers, an increase of 30.8% compared to the prior year, due mainly to an increase in new customers (mostly medium-sized corporations) in Argentina, Ecuador and Peru. In addition to net revenues from services, our total net revenues for 2005
included revenues from sales of equipment. Revenues from equipment sales for 2005 were $0.7 million, as compared to $1.3 million in 2004. 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 2006.



34



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##### Table of Contents

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,
|                                                  |  | CombinedResults         |        | SuccessorCompany |   | SuccessorCompany
|                                                  |  | 2003                    |        | 2004             |   | 2005            
|                                                  |  | (in thousands)         
|IMPSAT Argentina                                  |  |                         |        |                  |   |                  |  |   |       
|Services                                          |  | $                       | 57,990 |                  | $ | 71,291           |  | $ | 78,122
|Sale of equipment                                 |  |                         | 571    |                  |   | 703              |  |   | 42    
|                                                  |  |                         |        |                  |   |                  |  |   |       
|Total                                             |  |                         | 58,561 |                  |   | 71,994           |  |   | 78,164
|                                                  |  |                         |        |                  |   |                  |  |   |       
|IMPSAT Colombia                                   |  |                         |        |                  |   |                  |  |   |       
|Services                                          |  |                         | 54,402 |                  |   | 56,532           |  |   | 61,852
|Sale of equipment                                 |  |                         | 168    |                  |   | 141              |  |   | 128   
|                                                  |  |                         |        |                  |   |                  |  |   |       
|Total                                             |  |                         | 54,570 |                  |   | 56,673           |  |   | 61,980
|                                                  |  |                         |        |                  |   |                  |  |   |       
|IMPSAT Brazil                                     |  |                         |        |                  |   |                  |  |   |       
|Services                                          |  |                         | 30,474 |                  |   | 33,420           |  |   | 48,058
|Sale of equipment                                 |  |                         |       |                  |   | 51               |  |   |      
|                                                  |  |                         |        |                  |   |                  |  |   |       
|Total                                             |  |                         | 30,474 |                  |   | 33,471           |  |   | 48,058
|                                                  |  |                         |        |                  |   |                  |  |   |       
|IMPSAT Venezuela                                  |  |                         |        |                  |   |                  |  |   |       
|Services                                          |  |                         | 34,765 |                  |   | 33,070           |  |   | 30,986
|Sale of equipment                                 |  |                         | 140    |                  |   | 70               |  |   | 90    
|                                                  |  |                         |        |                  |   |                  |  |   |       
|Total                                             |  |                         | 34,905 |                  |   | 33,140           |  |   | 31,076
|                                                  |  |                         |        |                  |   |                  |  |   |       
|IMPSAT Ecuador                                    |  |                         |        |                  |   |                  |  |   |       
|Services                                          |  |                         | 16,279 |                  |   | 17,616           |  |   | 19,891
|Sale of equipment                                 |  |                         | 5      |                  |   | 244              |  |   | 364   
|                                                  |  |                         |        |                  |   |                  |  |   |       
|Total                                             |  |                         | 16,284 |                  |   | 17,860           |  |   | 20,255
|                                                  |  |                         |        |                  |   |                  |  |   |       
|IMPSAT Chile                                      |  |                         |        |                  |   |                  |  |   |       
|Services                                          |  |                         | 7,819  |                  |   | 7,726            |  |   | 8,591 
|Sale of equipment                                 |  |                         |       |                  |   |                 |  |   |      
|                                                  |  |                         |        |                  |   |                  |  |   |       
|Total                                             |  |                         | 7,819  |                  |   | 7,726            |  |   | 8,591 
|                                                  |  |                         |        |                  |   |                  |  |   |       
|IMPSAT Peru                                       |  |                         |        |                  |   |                  |  |   |       
|Services                                          |  |                         | 13,444 |                  |   | 14,642           |  |   | 15,413
|Sale of equipment                                 |  |                         | 25     |                  |   |                 |  |   |      
|                                                  |  |                         |        |                  |   |                  |  |   |       
|Total                                             |  |                         | 13,469 |                  |   | 14,642           |  |   | 15,413
|                                                  |  |                         |        |                  |   |                  |  |   |       
|IMPSAT USA                                        |  |                         |        |                  |   |                  |  |   |       
|Services                                          |  |                         | 30,320 |                  |   | 27,599           |  |   | 26,960
|Sale of equipment                                 |  |                         | 92     |                  |   | 71               |  |   | 66    
|                                                  |  |                         |        |                  |   |                  |  |   |       
|Total                                             |  |                         | 30,412 |                  |   | 27,670           |  |   | 27,026
|                                                  |  |                         |        |                  |   |                  |  |   |       
|International Satellite Capacity Holding, Ltd.(1) |  |                         |        |                  |   |                  |  |   |       
|Services                                          |  |                         | 14,334 |                  |   | 11,100           |  |   | 9,847 
|                                                  |  |                         |        |                  |   |                  |  |   |       
|Total                                             |  |                         | 14,334 |                  |   | 11,100           |  |   | 9,847 
|                                                  |  |                         |        |                  |   |                  |  |   |       
|Other                                             |  |                         |        |                  |   |                  |  |   |       
|Services                                          |  |                         | 924    |                  |   |                 |  |   |      
|Sale of equipment                                 |  |                         |       |                  |   |                 |  |   |      
|                                                  |  |                         |        |                  |   |                  |  |   |       
|Total                                             |  |                         | 924    |                  |   |                 |  |   |      
|                                                  |  |                         |        |                  |   |                  |  |   |       

---

|(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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our net revenues at IMPSAT Argentina increased during 2005. Our total net revenues at IMPSAT Argentina for 2005 totaled $78.2 million, an increase of
$6.2 million (or 8.6%) compared to 2004. The increase is



35



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##### Table of Contents

mostly related to higher telephony services delivered to corporate customers and higher IP services to new and existing customers in broadband and satellite.
Argentina is our largest market in terms of number of customers and revenues. After a four-year period of economic difficulties and contraction that included the default by the Argentine government of its external public debt and the devaluation of
the peso, the Argentine economy has grown during 2004 and 2005. Nonetheless, Argentina continues to experience a lack of access to international capital markets. A renewed decline in political and economic conditions in Argentina, our largest
country of operation, could materially affect our financial condition and results of operations.



IMPSAT Brazils total net revenues for 2005 totaled $48.1 million, an increase of $14.6 million (43.6%) compared to 2004. At
December 31, 2004, the real traded at a rate of R$2.65 = $1.00 and it appreciated to R$2.34 = $1.00 at December 31, 2005. IMPSAT Brazil increased revenues as a result of increased delivery of services to existing
and new customers. All product lines showed an increase in services and revenues. In addition, revenues at IMPSAT Brazil, benefited from the revaluation of the real, and the improvement of Brazils economic conditions. Net revenues increased by
approximately $7.5 million as a consequence of higher services delivered and $7.1 million as a consequence of currency revaluation. The average daily exchange rate for the real during 2005 was R$2.41 = $1.00, as compared to the same
average in 2004 of R$2.92 = $1.00. However, any future devaluations of therealor contraction of the Brazilian economy would have an adverse effect on IMPSAT Brazils and our companys overall financial condition and
results of operations.



IMPSAT Colombia recorded total net
revenues of $62.0 million during 2005, compared to $56.7 million for 2004. 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 broadband and satellite services) provided to existing customers. Revenues at IMPSAT Venezuela equaled $31.1 million for 2005, compared to $33.1 million for 2004. Venezuela has experienced and continues to
experience political and economic uncertainty. 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 $27.0 million for 2005, compared to
$27.7 million for 2004. The decrease is primarily a consequence of lower Internet revenues from broadband and satellite services, offset by increased sales of internet services. IMPSAT Ecuador recorded total net revenues of $20.3 million for 2005,
compared to $17.9 million for 2004. The increase is due primarily to expansion of customer base and services to existing customers, mainly in broadband and satellite capacity, and internet connections. IMPSAT Peru recorded total net revenues of
$15.4 million for 2005, compared to $14.6 million for 2004. The increase was mainly related to higher telephony services. IMPSAT Chile recorded total net revenues of $8.6 million for 2005, compared to $7.7 million for 2004. The increase was
primarily due to higher sales of housing and value added services.



Direct Costs.Our direct costs for 2005 totaled $128.9 million, an increase of $18.4 million (or 16.6%), compared to 2004. Direct costs of our subsidiaries are described prior to the elimination of inter-company
transactions. The increase in our direct costs is directly attributable to increased sales of services and the effects of currency revaluation in Columbia and Brazil, except in IMPSAT Venezuela and IMPSAT USA, where direct costs decreased due to
lower sales of services.



36



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##### Table of Contents

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



|                 |  |                    |         |   |          |   |         |          |  |   |        |   |  |       |   
|---------------- |  | ------------------ | ------- | - | -------- | - | ------- | -------- |  | - | ------ | - |  | ----- | --
|                 |  | As of December 31, |         |   |          |   |         |          | 
|                 |  | 2004               |         |   | 2005     |   |         |          |  |   |        |  
|                 |  | Direct Costs       |         |   | $ Change |   |         | % Change | 
|IMPSAT Argentina |  | $                  | 35,006  |   |          | $ | 41,757  |          |  | $ | 6,751  |   |  | 19.3  | % 
|IMPSAT Colombia  |  |                    | 29,136  |   |          |   | 33,922  |          |  |   | 4,786  |   |  | 16.4  | % 
|IMPSAT Brazil    |  |                    | 17,167  |   |          |   | 24,210  |          |  |   | 7,043  |   |  | 41.0  | % 
|IMPSAT Venezuela |  |                    | 13,922  |   |          |   | 12,414  |          |  |   | (1,508 | ) |  | (10.8 | )%
|IMPSAT Ecuador   |  |                    | 8,270   |   |          |   | 9,849   |          |  |   | 1,579  |   |  | 19.1  | % 
|IMPSAT Chile     |  |                    | 4,226   |   |          |   | 4,672   |          |  |   | 446    |   |  | 10.6  | % 
|IMPSAT Peru      |  |                    | 10,968  |   |          |   | 11,797  |          |  |   | 829    |   |  | 7.6   | % 
|IMPSAT USA       |  |                    | 18,154  |   |          |   | 17,461  |          |  |   | (693   | ) |  | (3.8  | )%
|Other(1)         |  |                    | (26,322 | ) |          |   | (27,173 | )        |  |   | (851   | ) |  | 3.2   | % 
|                 |  |                    |         |   |          |   |         |          |  |   |        |   |  |       |   
|Total            |  | $                  | 110,527 |   |          | $ | 128,909 |          |  | $ | 18,382 |   |  | 16.6  | % 
|                 |  |                    |         |   |          |   |         |          |  |   |        |   |  |       |   

---

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



(1) Contracted
Services.Contracted services costs include costs of maintenance and installation (and de-installation) services provided by outside contractors. During 2005, our contracted services costs totaled $24.4 million, an increase of
$3.1 million (or 14.5%) compared to 2004. Of this amount, maintenance costs for our telecommunications network infrastructure, including the Broadband Network, totaled $14.2 million for 2005 compared to $13.9 million during 2004.
Installation costs totaled $10.2 million for 2005 compared to $7.4 million in 2004. Our installation costs increased because we had more new customers and expanded our network during 2005 compared to 2004. In addition, currency revaluation
in Brazil and Colombia served to increase contracted services costs in 2005.



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



|                 |  |                     |        |          |   |        |          |   |       |   |  |       |   
|---------------- |  | ------------------- | ------ | -------- | - | ------ | -------- | - | ----- | - |  | ----- | --
|                 |  | As of December 31,  |        |          |   |        |          |  
|                 |  | 2004                |        | 2005     |   |        |          |   |       |  
|                 |  | Contracted Services |        | $ Change |   |        | % Change |  
|IMPSAT Argentina |  | $                   | 7,143  |          | $ | 7,679  |          | $ | 536   |   |  | 7.5   | % 
|IMPSAT Colombia  |  |                     | 4,949  |          |   | 5,246  |          |   | 297   |   |  | 6.0   | % 
|IMPSAT Brazil    |  |                     | 2,665  |          |   | 4,599  |          |   | 1,934 |   |  | 72.6  | % 
|IMPSAT Venezuela |  |                     | 1,797  |          |   | 2,013  |          |   | 216   |   |  | 12.0  | % 
|IMPSAT Ecuador   |  |                     | 1,486  |          |   | 1,902  |          |   | 416   |   |  | 28.0  | % 
|IMPSAT Chile     |  |                     | 1,048  |          |   | 992    |          |   | (56   | ) |  | (5.3  | )%
|IMPSAT Peru      |  |                     | 741    |          |   | 773    |          |   | 32    |   |  | 4.3   | % 
|IMPSAT USA       |  |                     | 703    |          |   | 475    |          |   | (228  | ) |  | (32.4 | )%
|Other(1)         |  |                     | 753    |          |   | 700    |          |   | (53   | ) |  | (7.0  | )%
|                 |  |                     |        |          |   |        |          |   |       |   |  |       |   
|Total            |  | $                   | 21,285 |          | $ | 24,379 |          | $ | 3,094 |   |  | 14.5  | % 
|                 |  |                     |        |          |   |        |          |   |       |   |  |       |   

---

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



(2) Other
Direct Costs.Other direct costs principally include licenses and other fees; sales commissions paid to internal sales personnel and third-party sales representatives; and our provision for doubtful accounts. We recorded other direct costs of
$28.9 million, an increase of $8.3 million (or 40.0%) compared to 2004.



37



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##### Table of Contents

Sales commissions paid to third-party sales representatives for 2005 totaled $7.5 million compared
to $7.8 million in 2004, primarily due to increased use of our internal sales force in IMPSAT Brazil instead of third-party sales representatives.



We recorded a net reversal of our provision for doubtful accounts of $1.1 million for 2005, compared to a net reversal of $3.9 million for the
previous year. The net reversal of 2004 related principally to our settlement with Global Crossing 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, 2005, our allowance for doubtful accounts covered approximately 96.4% of our gross trade accounts receivable past due more than six months compared to 115.0% at December 31, 2004. The average days in quarterly
gross trade accounts receivable decreased from 52 days at December 31, 2004 to 50 days at December 31, 2005.



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



|                 |  |                    |        |   |          |   |        |          |  |   |       |   |  |       |   
|---------------- |  | ------------------ | ------ | - | -------- | - | ------ | -------- |  | - | ----- | - |  | ----- | --
|                 |  | As of December 31, |        |   |          |   |        |          | 
|                 |  | 2004               |        |   | 2005     |   |        |          |  |   |       |  
|                 |  | Other Direct Costs |        |   | $ Change |   |        | % Change | 
|IMPSAT Argentina |  | $                  | 5,523  |   |          | $ | 8,648  |          |  | $ | 3,125 |   |  | 56.6  | % 
|IMPSAT Colombia  |  |                    | 4,578  |   |          |   | 6,489  |          |  |   | 1,911 |   |  | 41.7  | % 
|IMPSAT Brazil    |  |                    | 5,528  |   |          |   | 7,384  |          |  |   | 1,856 |   |  | 33.6  | % 
|IMPSAT Venezuela |  |                    | 2,227  |   |          |   | 3,292  |          |  |   | 1,065 |   |  | 47.8  | % 
|IMPSAT Ecuador   |  |                    | 691    |   |          |   | 1,064  |          |  |   | 373   |   |  | 54.0  | % 
|IMPSAT Chile     |  |                    | 226    |   |          |   | 363    |          |  |   | 137   |   |  | 60.6  | % 
|IMPSAT Peru      |  |                    | 816    |   |          |   | 1,128  |          |  |   | 312   |   |  | 38.2  | % 
|IMPSAT USA       |  |                    | 1,099  |   |          |   | 891    |          |  |   | (208  | ) |  | (18.9 | )%
|Other(1)         |  |                    | (41    | ) |          |   | (350   | )        |  |   | (309  | ) |  | 753.7 | % 
|                 |  |                    |        |   |          |   |        |          |  |   |       |   |  |       |   
|Total            |  | $                  | 20,647 |   |          | $ | 28,909 |          |  | $ | 8,262 |   |  | 40.0  | % 
|                 |  |                    |        |   |          |   |        |          |  |   |       |   |  |       |   

---

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



(3) Leased
Capacity.Our leased capacity costs for 2005 totaled $75.0 million, representing 29.5% of our net revenues, as compared to $67.6 million, representing 29.7% of our net revenues, in 2004. The increase in leased capacity costs in 2005 of $7.4
million (or 10.9%) compared to 2004 is attributable to increased revenues and services, except in IMPSAT Venezuela, where leased capacity costs decreased due to reduced inter-company transactions.



Our leased capacity costs for satellite capacity for 2005 totaled
$23.1 million, a decrease of $0.7 million (or 2.9%) compared to 2004. The decrease in our leased satellite capacity costs was principally due to reduction in satellite capacity prices and migration of our satellite-based services to
terrestrial-based services on our proprietary network or leased terrestrial links. We had approximately 709 MHz of leased satellite capacity at December 31, 2005 and 706 MHz at December 31, 2004.



Our costs for dedicated leased capacity on third-party fiber optic networks
totaled $35.4 million for 2005, an increase of $6.3 million (or 21.5%) compared to 2004. These costs were incurred principally in Argentina, Brazil, Colombia and Ecuador. 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. The increase in costs for dedicated leased capacity on third-party fiber optic
networks was principally due to the migration of our customers from satellite-based services to terrestrial-based services and an increase in services requiring fiber optic capacity outside of the footprint of our Broadband Network. In addition,
currency revaluations in Brazil and Colombia contributed to the increases in these costs.



38



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##### Table of Contents

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



|                 |  |                    |         |   |          |   |         |          |  |   |        |   |  |       |   
|---------------- |  | ------------------ | ------- | - | -------- | - | ------- | -------- |  | - | ------ | - |  | ----- | --
|                 |  | As of December 31, |         |   |          |   |         |          | 
|                 |  | 2004               |         |   | 2005     |   |         |          |  |   |        |  
|                 |  | Leased Capacity    |         |   | $ Change |   |         | % Change | 
|IMPSAT Argentina |  | $                  | 20,499  |   |          | $ | 24,060  |          |  | $ | 3,561  |   |  | 17.4  | % 
|IMPSAT Colombia  |  |                    | 18,449  |   |          |   | 21,148  |          |  |   | 2,699  |   |  | 14.6  | % 
|IMPSAT Brazil    |  |                    | 8,084   |   |          |   | 11,407  |          |  |   | 3,323  |   |  | 41.1  | % 
|IMPSAT Venezuela |  |                    | 8,591   |   |          |   | 6,221   |          |  |   | (2,370 | ) |  | (27.6 | )%
|IMPSAT Ecuador   |  |                    | 5,256   |   |          |   | 6,184   |          |  |   | 928    |   |  | 17.7  | % 
|IMPSAT Chile     |  |                    | 2,699   |   |          |   | 2,927   |          |  |   | 228    |   |  | 8.4   | % 
|IMPSAT Peru      |  |                    | 9,240   |   |          |   | 9,692   |          |  |   | 452    |   |  | 4.9   | % 
|IMPSAT USA       |  |                    | 12,346  |   |          |   | 12,431  |          |  |   | 85     |   |  | 0.7   | % 
|Other(1)         |  |                    | (17,532 | ) |          |   | (19,080 | )        |  |   | (1,548 | ) |  | 8.8   | % 
|                 |  |                    |         |   |          |   |         |          |  |   |        |   |  |       |   
|Total            |  | $                  | 67,632  |   |          | $ | 74,990  |          |  | $ | 7,358  |   |  | 10.9  | % 
|                 |  |                    |         |   |          |   |         |          |  |   |        |   |  |       |   

---

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



In connection
with services we offer under our licenses to provide domestic and international long distance telephony connections, we incur costs for interconnection and telephony termination (I&T). We incur costs for frequency rights related to
regulatory fees for the rights to use certain frequencies in the countries in which we operate. Our I&T and frequency rights costs totaled $16.5 million during 2005 (which includes $13.8 million of I&T costs) compared to
$14.7 million of I&T and frequency rights costs for 2004 (which includes $12.1 million of I&T costs), which represents an increase of $1.8 million (or 12.2%). This increase in costs was due primarily to telephony services.



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



|                 |  |                          |        |   |          |   |        |          |  |   |        |   |  |       |   
|---------------- |  | ------------------------ | ------ | - | -------- | - | ------ | -------- |  | - | ------ | - |  | ----- | --
|                 |  | As of December 31,       |        |   |          |   |        |          | 
|                 |  | 2004                     |        |   | 2005     |   |        |          |  |   |        |  
|                 |  | I&T and frequency rights |        |   | $ Change |   |        | % Change | 
|IMPSAT Argentina |  | $                        | 7,263  |   |          | $ | 9,313  |          |  | $ | 2,050  |   |  | 28.2  | % 
|IMPSAT Colombia  |  |                          | 1,217  |   |          |   | 1,519  |          |  |   | 302    |   |  | 24.8  | % 
|IMPSAT Brazil    |  |                          | 519    |   |          |   | 1,177  |          |  |   | 658    |   |  | 126.8 | % 
|IMPSAT Venezuela |  |                          | 83     |   |          |   | 7      |          |  |   | (76    | ) |  | (91.6 | )%
|IMPSAT Ecuador   |  |                          | 266    |   |          |   | 349    |          |  |   | 83     |   |  | 31.2  | % 
|IMPSAT Chile     |  |                          | 973    |   |          |   | 939    |          |  |   | (34    | ) |  | (3.5  | )%
|IMPSAT Peru      |  |                          | 6,306  |   |          |   | 7,148  |          |  |   | 842    |   |  | 13.4  | % 
|IMPSAT USA       |  |                          | 4,202  |   |          |   | 3,886  |          |  |   | (316   | ) |  | (7.5  | )%
|Other(1)         |  |                          | (6,110 | ) |          |   | (7,843 | )        |  |   | (1,733 | ) |  | 28.4  | % 
|                 |  |                          |        |   |          |   |        |          |  |   |        |   |  |       |   
|Total            |  | $                        | 14,719 |   |          | $ | 16,495 |          |  | $ | 1,776  |   |  | 12.1  | % 
|                 |  |                          |        |   |          |   |        |          |  |   |        |   |  |       |   

---

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



(4)
Costs of Equipment Sold.In 2005, we incurred costs of equipment sold of $0.6 million, compared to costs of equipment sold of $1.0 million for 2004, which represents a decrease of $0.3 million or (34.5%). This decrease was primarily
due to lower sales of equipment during 2005.



39



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##### Table of Contents

Salaries and Wages.Salaries and wages for 2005 totaled $50.6 million, compared to $46.3
million in 2004. As part of our continuing effort to ensure more efficient operations, we further reduced the aggregate number of our employees from 1,236 at December 31, 2004 to 1,208 at December 31, 2005. 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 Brazilian real and Colombian peso increases in salaries to compensate for
higher cost of living, and severance payments during 2005 resulted in higher salary expenses in U.S. dollar terms as compared to 2004. Salaries and wages increased by approximately $1.8 million as a consequence of the appreciation of the Brazilian
real and $0.9 million as a consequence of the appreciation of the Colombian peso.



IMPSAT Argentina had 426 employees as of December 31, 2005, compared to 453 employees as of December 31, 2004.



IMPSAT Brazil increased its number of employees to 208 persons at
December 31, 2005, compared to 197 persons at December 31, 2004.



IMPSAT Colombia decreased its number of employees to 237 persons at December 31, 2005, compared to 246 persons at December 31, 2004.



IMPSAT Venezuela decreased its number of employees to 110 persons at December 31, 2005, compared to 116 persons at
December 31, 2004.



IMPSAT USA decreased its number of
employees to 63 persons at December 31, 2005, compared to 69 persons at December 31, 2004.



IMPSAT Peru increased its number of employees to 61 persons at December 31, 2005, compared to 55 persons at December 31, 2004.



IMPSAT Ecuador increased its number of employees to 70 persons at
December 31, 2005, compared to 66 persons at December 31, 2004.



IMPSAT Chile decreased its number of employees to 33 persons at December 31, 2005, compared to 34 persons at December 31, 2004.



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



|                 |  |                    |        |          |   |        |          |   |       |   |  |       |   
|---------------- |  | ------------------ | ------ | -------- | - | ------ | -------- | - | ----- | - |  | ----- | --
|                 |  | As of December 31, |        | $ Change |   |        | % Change |  
|                 |  | 2004               |        | 2005     |   |       
|                 |  | Salaries & Wages   |        |         
|IMPSAT Argentina |  | $                  | 11,675 |          | $ | 12,547 |          | $ | 872   |   |  | 7.5   | % 
|IMPSAT Colombia  |  |                    | 7,128  |          |   | 8,764  |          |   | 1,636 |   |  | 23.0  | % 
|IMPSAT Brazil    |  |                    | 8,634  |          |   | 10,484 |          |   | 1,850 |   |  | 21.4  | % 
|IMPSAT Venezuela |  |                    | 3,195  |          |   | 3,295  |          |   | 100   |   |  | 3.1   | % 
|IMPSAT Ecuador   |  |                    | 2,096  |          |   | 2,481  |          |   | 385   |   |  | 18.4  | % 
|IMPSAT Chile     |  |                    | 1,358  |          |   | 1,443  |          |   | 85    |   |  | 6.3   | % 
|IMPSAT Peru      |  |                    | 1,980  |          |   | 2,198  |          |   | 218   |   |  | 11.0  | % 
|IMPSAT USA       |  |                    | 5,821  |          |   | 5,602  |          |   | (219  | ) |  | (3.8  | )%
|Other(1)         |  |                    | 4,452  |          |   | 3,783  |          |   | (669  | ) |  | (15.0 | )%
|                 |  |                    |        |          |   |        |          |   |       |   |  |       |   
|Total            |  | $                  | 46,339 |          | $ | 50,597 |          | $ | 4,258 |   |  | 9.2   | % 
|                 |  |                    |        |          |   |        |          |   |       |   |  |       |   

---

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



40



---

##### Table of Contents

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



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



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



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



| |  |  | rent
| | - |  | ----



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



We incurred SG&A expenses of $22.3 million for 2005, representing a decrease of $1.2 million (or 5.3%) compared to 2004. Our SG&A
expenses for 2005 declined as a result of cost control measures undertaken by management to reduce advisory fees, travel expenses, advertising and insurance expenses, and a net reversal of taxes provisioned in 2002 at IMPSAT Brazil. In addition, in
2004 IMPSAT Argentina made certain non-recurring municipal tax payments, which were not required in 2005.



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



|                 |  |                                             |        |          |   |        |          |   |        |   |  |       |   
|---------------- |  | ------------------------------------------- | ------ | -------- | - | ------ | -------- | - | ------ | - |  | ----- | --
|                 |  | As of December 31,                          |        | $ Change |   |        | % Change |  
|                 |  | 2004                                        |        | 2005     |   |       
|                 |  | Selling, General andAdministrative Expenses |        |         
|IMPSAT Argentina |  | $                                           | 7,358  |          | $ | 6,452  |          | $ | (906   | ) |  | (12.3 | )%
|IMPSAT Colombia  |  |                                             | 2,815  |          |   | 2,832  |          |   | 17     |   |  | 0.6   | % 
|IMPSAT Brazil    |  |                                             | 4,052  |          |   | 4,227  |          |   | 175    |   |  | 4.3   | % 
|IMPSAT Venezuela |  |                                             | 1,569  |          |   | 2,073  |          |   | 504    |   |  | 32.1  | % 
|IMPSAT Ecuador   |  |                                             | 1,197  |          |   | 1,475  |          |   | 278    |   |  | 23.2  | % 
|IMPSAT Chile     |  |                                             | 1,660  |          |   | 1,341  |          |   | (319   | ) |  | (19.2 | )%
|IMPSAT Peru      |  |                                             | 1,019  |          |   | 1,058  |          |   | 39     |   |  | 3.8   | % 
|IMPSAT USA       |  |                                             | 2,039  |          |   | 1,983  |          |   | (56    | ) |  | (2.7  | )%
|Other(1)         |  |                                             | 1,872  |          |   | 894    |          |   | (978   | ) |  | (52.2 | )%
|                 |  |                                             |        |          |   |        |          |   |        |   |  |       |   
|Total            |  | $                                           | 23,581 |          | $ | 22,335 |          | $ | (1,246 | ) |  | (5.3  | )%
|                 |  |                                             |        |          |   |        |          |   |        |   |  |       |   

---

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



Gain on
Extinguishment. 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. No such transactions occurred in 2005.



Depreciation and Amortization.Our depreciation and amortization expenses for 2005 totaled $55.3 million, an increase of $10.5 million (or
23.5%) compared to depreciation and amortization for 2004. The increase in depreciation and amortization expenses is principally due to an increase in the Companys depreciable fixed asset base as a result of increased capital
expenditures. During 2005, we made purchases of property, plant and equipment totaling $33.9 million. Such additional equipment, which comprises principally customer premises and other central telecommunications equipment, is depreciated
over a shorter period of time than other components of our property, plant and equipment and results in higher depreciation charges in the current periods. In addition, the increase in depreciation and amortization expenses is due to the
depreciation of the Company ́s goods in warehouses during 2005, totalling $4.0 million.



41



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##### Table of Contents

Interest Expense, Net.Our net interest expense for 2005 totaled $31.0 million, consisting of
interest expense of $32.4 million and interest income of $1.4 million. Our net interest expense for 2005 increased by $11.0 million (or 55.0 %) compared to the net interest expense for 2004. The increase in our net interest expense is due in
part to the increase in the rate of interest on subsidiary indebtedness totaling $113.2 million in outstanding principal amount and to increased withholding taxes on such subsidiary indebtedness repayments. Commencing on March 26, 2005,
the effective interest rate on such indebtedness increased from 6% per annum to 10% per annum. In connection with the amendment of $107.3 million in outstanding principal amount of this indebtedness in July 2005, the interest rate on
such indebtedness was further increased to 12% per annum. Our indebtedness as of December 31, 2005 totaled $248.1 million, as compared to $281.1 million as of December 31, 2004, as a result of principal payments of $42.0 million,
offset by an increase in the principal amount of our indebtedness of $4.6 million due to new debt obtained by our subsidiaries. Of our total interest expense for 2005, $3.4 million represents payment in kind accretion to our Senior
Notes and certain indebtedness of our subsidiaries.



Net
Gain on Foreign Exchange.We recorded a total net gain on foreign exchange for 2005 of $10.1 million, compared to net gain of $5.8 million for 2004. 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 2005 of $0.7 million as compared to a net gain on foreign exchange for 2004 of $1.0
million. IMPSAT Brazil recorded a net gain on foreign exchange for 2005 totaling $12.0 million, compared to net gains of $10.6 million for 2004.



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.



Other (Losses) Income, Net. We recorded other losses, net, for 2005 of $7.7 million, as compared to other income,
net, of $0.8 million for 2004. The change in other income (losses), net, from 2004 to 2005 was due primarily to debt restructuring costs incurred in 2005.



Provision for Foreign Income Taxes.For 2005, we recorded a provision for foreign income taxes of $4.5 million, compared to $3.5 million
for 2004. The increase in the provision for foreign income taxes in 2005, compared to 2004, was due primarily to increases in deferred tax liabilities in IMPSAT Colombia, and increases in taxable income in IMPSAT Argentina and IMPSAT Ecuador.



Net Income (Loss).For the year ended December 31,
2005, we recorded a net loss of $36.2 million. This compares to net loss of $14.2 million in 2004, due primarily to increases in depreciation and interest expenses, as further explained above.



42



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##### Table of Contents

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



|                 |  |                    |         |   |          |   |         |          |  |   |         |   |  |        |   
|---------------- |  | ------------------ | ------- | - | -------- | - | ------- | -------- |  | - | ------- | - |  | ------ | --
|                 |  | As of December 31, |         |   | $ Change |   |         | % Change | 
|                 |  | 2004               |         |   | 2005     |   |         |         
|                 |  | Net Income (Loss)  |         |   |         
|IMPSAT Argentina |  | $                  | 2,084   |   |          | $ | (5,568  | )        |  | $ | (7,652  | ) |  | (367.2 | )%
|IMPSAT Colombia  |  |                    | (5,314  | ) |          |   | (6,128  | )        |  |   | (814    | ) |  | 15.3   | % 
|IMPSAT Brazil    |  |                    | (1,911  | ) |          |   | (6,669  | )        |  |   | (4,758  | ) |  | 249.0  | % 
|IMPSAT Venezuela |  |                    | 4,556   |   |          |   | 2,705   |          |  |   | (1,851  | ) |  | (40.6  | )%
|IMPSAT Ecuador   |  |                    | 3,009   |   |          |   | 2,143   |          |  |   | (866    | ) |  | (28.8  | )%
|IMPSAT Chile     |  |                    | (847    | ) |          |   | 212     |          |  |   | 1,059   |   |  | (125.0 | )%
|IMPSAT Peru      |  |                    | (1,103  | ) |          |   | (2,387  | )        |  |   | (1,284  | ) |  | 116.4  | % 
|IMPSAT USA       |  |                    | (1,146  | ) |          |   | (1,043  | )        |  |   | 103     |   |  | (9.0   | )%
|Other(1)         |  |                    | (13,547 | ) |          |   | (19,513 | )        |  |   | (5,966  | ) |  | 44.0   | % 
|                 |  |                    |         |   |          |   |         |          |  |   |         |   |  |        |   
|Total            |  | $                  | (14,219 | ) |          | $ | (36,248 | )        |  | $ | (22,029 | ) |  | 154.9  | % 
|                 |  |                    |         |   |          |   |         |          |  |   |         |   |  |        |   

---

|(1) | This includes net income (loss) of International Satellite Capacity Holding, Ltd and for all
inter-company transactions
|--- | -----------------------------------------------------------------------------------------------------------------------



2004 Compared to 2003



Revenues.The increase in our net revenues from
services for 2004, as compared to 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 in 2004 as compared to 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
addition to net revenues from services, our total net revenues for 2004 included revenues from sales of equipment. Revenues from equipment sales for each of 2004 and 2003 totaled $1.3 million and $1.0 million respectively.



We had 3,314 customers at December 31, 2004, compared to 2,799 customers
at December 31, 2003. During 2004, we gained a net total of 515 customers, an increase of 18.4% compared to the prior year. As we expand, the average size of our customers, including the average revenues per customer, has decreased.



Notwithstanding the economic instability that continued to be present in
Argentina, our net revenues at IMPSAT Argentina increased during 2004.



43



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##### Table of Contents

Although the Brazilian realappreciated during 2004, IMPSAT Brazils results for that period
were adversely affected by the ongoing adverse economic condition in Brazil.



Our net revenues in IMPSAT Venezuela decreased in 2004, as compared to 2003, due to reduced inter-company transactions.



Our net revenues in Colombia were negatively impacted by sustained adverse economic conditions in that country, increased competition, and contract
renegotiations which resulted in price reductions.



At IMPSAT
USA, the decrease in revenues was 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.



In Ecuador, the increase in revenues was due primarily to higher sales of new
services and new customer acquisitions in broadband and satellite, and Internet.



The increase in revenues in IMPSAT Peru was due primarily to higher telephony revenues as a result of a growth in international call terminations.



The decrease in revenues in IMPSAT Chile was due primarily to downward price renegotiations in Internet and value added
services, as a response to higher market competition.



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



|                 |  |                    |         |   |          |   |         |          |  |   |        |   |  |      |   
|---------------- |  | ------------------ | ------- | - | -------- | - | ------- | -------- |  | - | ------ | - |  | ---- | --
|                 |  | As of December 31, |         |   |          |   |         |          | 
|                 |  | 2003               |         |   | 2004     |   |         |          |  |   |        |  
|                 |  | Revenues           |         |   | $ Change |   |         | % Change | 
|IMPSAT Argentina |  | $                  | 58,561  |   |          | $ | 71,994  |          |  | $ | 13,433 |   |  | 22.9 | % 
|IMPSAT Colombia  |  |                    | 54,570  |   |          |   | 56,673  |          |  |   | 2,103  |   |  | 3.9  | % 
|IMPSAT Brazil    |  |                    | 30,474  |   |          |   | 33,471  |          |  |   | 2,997  |   |  | 9.8  | % 
|IMPSAT Venezuela |  |                    | 34,905  |   |          |   | 33,140  |          |  |   | (1,765 | ) |  | (5.1 | )%
|IMPSAT Ecuador   |  |                    | 16,284  |   |          |   | 17,860  |          |  |   | 1,576  |   |  | 9.7  | % 
|IMPSAT Chile     |  |                    | 7,819   |   |          |   | 7,726   |          |  |   | (93    | ) |  | (1.2 | )%
|IMPSAT Peru      |  |                    | 13,469  |   |          |   | 14,642  |          |  |   | 1,173  |   |  | 8.7  | % 
|IMPSAT USA       |  |                    | 30,412  |   |          |   | 27,670  |          |  |   | (2,742 | ) |  | (9.0 | )%
|Other(1)         |  |                    | (26,204 | ) |          |   | (35,461 | )        |  |   | (9,257 | ) |  | 35.3 | % 
|                 |  |                    |         |   |          |   |         |          |  |   |        |   |  |      |   
|Total            |  | $                  | 220,290 |   |          | $ | 227,715 |          |  | $ | 7,425  |   |  | 3.4  | % 
|                 |  |                    |         |   |          |   |         |          |  |   |        |   |  |      |   

---

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



Direct Costs.Our direct costs for 2004 totaled $110.5 million, an increase of $2.2 million (or 2.0%), compared to 2003. Direct costs of our subsidiaries are described prior to the elimination of intercompany transactions. Direct costs increased as
a result of higher sales of services, except in certain cases, such as in IMPSAT Venezuela, where the decrease in direct costs resulted from reduced inter-company transactions, and in IMPSAT Argentina, where the decrease in 2004, compared to 2003,
is due to recovery of a doubtful account in 2004.



44



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##### Table of Contents

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



|                 |  |                    |         |   |          |   |         |          |  |   |        |   |  |       |   
|---------------- |  | ------------------ | ------- | - | -------- | - | ------- | -------- |  | - | ------ | - |  | ----- | --
|                 |  | As of December 31, |         |   |          |   |         |          | 
|                 |  | 2003               |         |   | 2004     |   |         |          |  |   |        |  
|                 |  | Direct Costs       |         |   | $ Change |   |         | % Change | 
|IMPSAT Argentina |  | $                  | 38,900  |   |          | $ | 35,006  |          |  | $ | (3,894 | ) |  | (10.0 | )%
|IMPSAT Colombia  |  |                    | 26,203  |   |          |   | 29,136  |          |  |   | 2,933  |   |  | 11.2  | % 
|IMPSAT Brazil    |  |                    | 15,864  |   |          |   | 17,167  |          |  |   | 1,303  |   |  | 8.2   | % 
|IMPSAT Venezuela |  |                    | 15,009  |   |          |   | 13,922  |          |  |   | (1,087 | ) |  | (7.2  | )%
|IMPSAT Ecuador   |  |                    | 8,720   |   |          |   | 8,270   |          |  |   | (450   | ) |  | (5.2  | )%
|IMPSAT Chile     |  |                    | 4,168   |   |          |   | 4,226   |          |  |   | 58     |   |  | 1.4   | % 
|IMPSAT Peru      |  |                    | 8,998   |   |          |   | 10,968  |          |  |   | 1,970  |   |  | 21.9  | % 
|IMPSAT USA       |  |                    | 19,182  |   |          |   | 18,154  |          |  |   | (1,028 | ) |  | (5.4  | )%
|Other(1)         |  |                    | (28,720 | ) |          |   | (26,322 | )        |  |   | 2,398  |   |  | (8.3  | )%
|                 |  |                    |         |   |          |   |         |          |  |   |        |   |  |       |   
|Total            |  | $                  | 108,324 |   |          | $ | 110,527 |          |  | $ | 2,203  |   |  | 2.0   | % 
|                 |  |                    |         |   |          |   |         |          |  |   |        |   |  |       |   

---

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



(1) Contracted
Services.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. Our installation costs increased because we had more new
customers during 2004 compared to 2003.



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



|                 |  |                     |        |          |   |        |          |   |       |   |  |       |   
|---------------- |  | ------------------- | ------ | -------- | - | ------ | -------- | - | ----- | - |  | ----- | --
|                 |  | As of December 31,  |        |          |   |        |          |  
|                 |  | 2003                |        | 2004     |   |        |          |   |       |  
|                 |  | Contracted Services |        | $ Change |   |        | % Change |  
|IMPSAT Argentina |  | $                   | 5,709  |          | $ | 7,143  |          | $ | 1,434 |   |  | 25.1  | % 
|IMPSAT Colombia  |  |                     | 3,282  |          |   | 4,949  |          |   | 1,667 |   |  | 50.8  | % 
|IMPSAT Brazil    |  |                     | 2,903  |          |   | 2,665  |          |   | (238  | ) |  | (8.2  | )%
|IMPSAT Venezuela |  |                     | 1,508  |          |   | 1,797  |          |   | 289   |   |  | 19.2  | % 
|IMPSAT Ecuador   |  |                     | 1,200  |          |   | 1,486  |          |   | 286   |   |  | 23.8  | % 
|IMPSAT Chile     |  |                     | 798    |          |   | 1,048  |          |   | 250   |   |  | 31.3  | % 
|IMPSAT Peru      |  |                     | 456    |          |   | 741    |          |   | 285   |   |  | 62.5  | % 
|IMPSAT USA       |  |                     | 744    |          |   | 703    |          |   | (41   | ) |  | (5.5  | )%
|Other(1)         |  |                     | 901    |          |   | 753    |          |   | (148  | ) |  | (16.4 | )%
|                 |  |                     |        |          |   |        |          |   |       |   |  |       |   
|Total            |  | $                   | 17,501 |          | $ | 21,285 |          | $ | 3,784 |   |  | 21.6  | % 
|                 |  |                     |        |          |   |        |          |   |       |   |  |       |   

---

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



(2) Other
Direct Costs. 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 $2.9 million for the previous year. At December 31, 2004, our allowance for doubtful
accounts covered approximately 115.0% of our gross trade accounts receivable past due



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##### Table of Contents

more than six months. The average days in quarterly gross trade accounts receivable decreased from 82 days at December 31, 2003 to 52 days at
December 31, 2004.



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



|                 |  |                    |        |      |          |        |   |          |        |   |  |        |   
|---------------- |  | ------------------ | ------ | ---- | -------- | ------ | - | -------- | ------ | - |  | ------ | --
|                 |  | As of December 31, |        |      |          |        |   |          |       
|                 |  | 2003               |        | 2004 |          |        |   |          |        |   | 
|                 |  | Other Direct Costs |        |      | $ Change |        |   | % Change |       
|IMPSAT Argentina |  | $                  | 10,425 |      | $        | 5,523  |   |          | (4,902 | ) |  | (47.0  | )%
|IMPSAT Colombia  |  |                    | 4,514  |      |          | 4,578  |   |          | 64     |   |  | 1.4    | % 
|IMPSAT Brazil    |  |                    | 4,106  |      |          | 5,528  |   |          | 1,422  |   |  | 34.6   | % 
|IMPSAT Venezuela |  |                    | 1,575  |      |          | 2,227  |   |          | 652    |   |  | 41.4   | % 
|IMPSAT Ecuador   |  |                    | 790    |      |          | 691    |   |          | (99    | ) |  | (12.5  | )%
|IMPSAT Chile     |  |                    | 44     |      |          | 226    |   |          | 182    |   |  | 413.6  | % 
|IMPSAT Peru      |  |                    | 610    |      |          | 816    |   |          | 206    |   |  | 33.8   | % 
|IMPSAT USA       |  |                    | 912    |      |          | 1,099  |   |          | 187    |   |  | 20.5   | % 
|Other(1)         |  |                    | 73     |      |          | (41    | ) |          | (114   | ) |  | (156.2 | )%
|                 |  |                    |        |      |          |        |   |          |        |   |  |        |   
|Total            |  | $                  | 23,049 |      | $        | 20,647 |   |          | (2,402 | ) |  | (10.4  | )%
|                 |  |                    |        |      |          |        |   |          |        |   |  |        |   

---

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



(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. 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, and migration of satellite services to terrestrial services. We had approximately 706 MHz of leased satellite capacity
at December 31, 2004 and 735 MHz at December 31, 2003.



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



|                 |  |                    |         |   |          |   |         |          |  |        |   |  |       |   
|---------------- |  | ------------------ | ------- | - | -------- | - | ------- | -------- |  | ------ | - |  | ----- | --
|                 |  | As of December 31, |         |   |          |   |         |          | 
|                 |  | 2003               |         |   | 2004     |   |         |          |  |        |   | 
|                 |  | Leased Capacity    |         |   | $ Change |   |         | % Change | 
|IMPSAT Argentina |  | $                  | 20,982  |   |          | $ | 20,499  |          |  | (483   | ) |  | (2.3  | )%
|IMPSAT Colombia  |  |                    | 16,368  |   |          |   | 18,449  |          |  | 2,081  |   |  | 12.7  | % 
|IMPSAT Brazil    |  |                    | 7,973   |   |          |   | 8,084   |          |  | 111    |   |  | 1.4   | % 
|IMPSAT Venezuela |  |                    | 10,536  |   |          |   | 8,591   |          |  | (1,945 | ) |  | (18.5 | )%
|IMPSAT Ecuador   |  |                    | 5,821   |   |          |   | 5,256   |          |  | (565   | ) |  | (9.7  | )%
|IMPSAT Chile     |  |                    | 2,739   |   |          |   | 2,699   |          |  | (40    | ) |  | (1.5  | )%
|IMPSAT Peru      |  |                    | 7,590   |   |          |   | 9,240   |          |  | 1,650  |   |  | 21.7  | % 
|IMPSAT USA       |  |                    | 12,638  |   |          |   | 12,346  |          |  | (292   | ) |  | (2.3  | )%
|Other(1)         |  |                    | (17,724 | ) |          |   | (17,532 | )        |  | 192    |   |  | (1.1  | )%
|                 |  |                    |         |   |          |   |         |          |  |        |   |  |       |   
|Total            |  | $                  | 66,923  |   |          | $ | 67,632  |          |  | 709    |   |  | 1.1   | % 
|                 |  |                    |         |   |          |   |         |          |  |        |   |  |       |   

---

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



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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.



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).



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



|                 |  |                          |        |   |          |   |        |          |  |   |        |   |  |        |  
|---------------- |  | ------------------------ | ------ | - | -------- | - | ------ | -------- |  | - | ------ | - |  | ------ | -
|                 |  | As of December 31,       |        |   |          |   |        |          | 
|                 |  | 2003                     |        |   | 2004     |   |        |          |  |   |        |  
|                 |  | I&T and Frequency Rights |        |   | $ Change |   |        | % Change | 
|IMPSAT Argentina |  | $                        | 6,046  |   |          | $ | 7,263  |          |  | $ | 1,217  |   |  | 20.1   | %
|IMPSAT Colombia  |  |                          | 1,140  |   |          |   | 1,217  |          |  |   | 77     |   |  | 6.8    | %
|IMPSAT Brazil    |  |                          | 21     |   |          |   | 519    |          |  |   | 498    |   |  | 2371.4 | %
|IMPSAT Venezuela |  |                          | 74     |   |          |   | 83     |          |  |   | 9      |   |  | 12.2   | %
|IMPSAT Ecuador   |  |                          | 1,010  |   |          |   | 266    |          |  |   | (744   | ) |  | -73.7  | %
|IMPSAT Chile     |  |                          | 685    |   |          |   | 973    |          |  |   | 288    |   |  | 42.0   | %
|IMPSAT Peru      |  |                          | 4,615  |   |          |   | 6,306  |          |  |   | 1,691  |   |  | 36.6   | %
|IMPSAT USA       |  |                          | 4,151  |   |          |   | 4,202  |          |  |   | 51     |   |  | 1.2    | %
|Other(1)         |  |                          | (4,669 | ) |          |   | (6,110 | )        |  |   | (1,441 | ) |  | 30.9   | %
|                 |  |                          |        |   |          |   |        |          |  |   |        |   |  |        |  
|Total            |  | $                        | 13,073 |   |          | $ | 14,719 |          |  | $ | 1,646  |   |  | 12.6   | %
|                 |  |                          |        |   |          |   |        |          |  |   |        |   |  |        |  

---

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



(4)
Costs of Equipment Sold.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, a decrease of $0.03 million (or
0.1%) compared to 2003. We reduced the aggregate number of our employees from 1,270 at December 31, 2003 to 1,236 at December 31, 2004.



IMPSAT Argentina had 453 employees as of December 31, 2004, compared to 459 employees as of December 31, 2003.



IMPSAT Brazil decreased its number of employees to 197 persons at
December 31, 2004, compared to 214 persons at December 31, 2003.



IMPSAT Colombia increased its number of employees to 246 persons at December 31, 2004, compared to 237 persons at December 31, 2003.



IMPSAT Venezuela increased its number of employees to 116 persons at December 31, 2004, compared to 114 persons at
December 31, 2003.



IMPSAT USA decreased its number of
employees to 69 persons at December 31, 2004, compared to 80 persons at December 31, 2003.



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IMPSAT Peru increased its number of employees to 55 persons at December 31, 2004, compared to 35
persons at December 31, 2003.



IMPSAT Ecuador increased
its number of employees to 66 persons at December 31, 2004, compared to 65 persons at December 31, 2003.



IMPSAT Chile decreased its number of employees to 34 persons at December 31, 2004, compared to 43 persons at December 31, 2003.



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



|                 |  |                    |        |          |   |        |          |   |        |   |  |       |   
|---------------- |  | ------------------ | ------ | -------- | - | ------ | -------- | - | ------ | - |  | ----- | --
|                 |  | As of December 31, |        |          |   |        |          |  
|                 |  | 2003               |        | 2004     |   |        |          |   |        |  
|                 |  | Salaries & Wages   |        | $ Change |   |        | % Change |  
|IMPSAT Argentina |  | $                  | 12,933 |          | $ | 11,675 |          | $ | (1,258 | ) |  | (9.7  | )%
|IMPSAT Colombia  |  |                    | 6,358  |          |   | 7,128  |          |   | 770    |   |  | 12.1  | % 
|IMPSAT Brazil    |  |                    | 8,737  |          |   | 8,634  |          |   | (103   | ) |  | (1.2  | )%
|IMPSAT Venezuela |  |                    | 2,916  |          |   | 3,195  |          |   | 279    |   |  | 9.6   | % 
|IMPSAT Ecuador   |  |                    | 2,291  |          |   | 2,096  |          |   | (195   | ) |  | (8.5  | )%
|IMPSAT Chile     |  |                    | 1,596  |          |   | 1,358  |          |   | (238   | ) |  | (14.9 | )%
|IMPSAT Peru      |  |                    | 1,319  |          |   | 1,980  |          |   | 661    |   |  | 50.1  | % 
|IMPSAT USA       |  |                    | 6,409  |          |   | 5,821  |          |   | (588   | ) |  | (9.2  | )%
|Other(1)         |  |                    | 3,807  |          |   | 4,452  |          |   | 645    |   |  | 16.9  | % 
|                 |  |                    |        |          |   |        |          |   |        |   |  |       |   
|Total            |  | $                  | 46,366 |          | $ | 46,339 |          | $ | (27    | ) |  | (0.1  | )%
|                 |  |                    |        |          |   |        |          |   |        |   |  |       |   

---

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



Selling, General and Administrative
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 a decrease in our advisory fees, the
effects of the relative currency devaluations of local currencies in Colombia and Venezuela against the U.S. dollar during 2004, and overall cost control measures undertaken by management.



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



|                 |  |                                             |        |          |   |        |          |   |        |   |  |       |  
|---------------- |  | ------------------------------------------- | ------ | -------- | - | ------ | -------- | - | ------ | - |  | ----- | -
|                 |  | As of December 31,                          |        |          |   |        |          |  
|                 |  | 2003                                        |        | 2004     |   |        |          |   |        |  
|                 |  | Selling, General andAdministrative Expenses |        | $ Change |   |        | % Change |  
|IMPSAT Argentina |  | $                                           | 8,128  |          | $ | 7,358  |          | $ | (770   | ) |  | -9.5  | %
|IMPSAT Colombia  |  |                                             | 3,742  |          |   | 2,815  |          |   | (927   | ) |  | -24.8 | %
|IMPSAT Brazil    |  |                                             | 4,172  |          |   | 4,052  |          |   | (120   | ) |  | -2.9  | %
|IMPSAT Venezuela |  |                                             | 2,234  |          |   | 1,569  |          |   | (665   | ) |  | -29.8 | %
|IMPSAT Ecuador   |  |                                             | 1,108  |          |   | 1,197  |          |   | 89     |   |  | 8.0   | %
|IMPSAT Chile     |  |                                             | 1,086  |          |   | 1,660  |          |   | 574    |   |  | 52.9  | %
|IMPSAT Peru      |  |                                             | 771    |          |   | 1,019  |          |   | 248    |   |  | 32.2  | %
|IMPSAT USA       |  |                                             | 2,288  |          |   | 2,039  |          |   | (249   | ) |  | -10.9 | %
|Other(1)         |  |                                             | 1,848  |          |   | 1,872  |          |   | 24     |   |  | 1.3   | %
|                 |  |                                             |        |          |   |        |          |   |        |   |  |       |  
|Total            |  | $                                           | 25,377 |          | $ | 23,581 |          | $ | (1,796 | ) |  | -7.1  | %
|                 |  |                                             |        |          |   |        |          |   |        |   |  |       |  

---

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



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Gain on Extinguishment. 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 $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 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.



Depreciation and amortization expenses for IMPSAT Argentina for 2004 totaled $8.8 million. This represents a decrease of $1.4 million (or 13.3%)
compared to IMPSAT Argentinas depreciation and amortization expenses for 2003.



Interest Expense, Net. Our net interest expense for 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 79.6 %) compared to the net interest expense for 2003. The increase in interest expense is attributed to financial expenses related to 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.



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



Net (Loss) Gain on Foreign Exchange.We recorded a total net gain on foreign exchange for 2004 of $5.8 million, compared to a net gain of $27.5 million for 2003. 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.



IMPSAT Argentina recorded a net loss 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 net gains on foreign exchange for 2004 totaling $10.6 million, compared to net gains of $23.4 million for 2003.



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).



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 2004, we recorded net loss of $14.2 million. This compares to net income of $740.5 million in 2003.



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



|                 |  |                    |         |   |          |   |         |          |  |   |          |   |  |          |  
|---------------- |  | ------------------ | ------- | - | -------- | - | ------- | -------- |  | - | -------- | - |  | -------- | -
|                 |  | As of December 31, |         |   | $ Change |   |         | % Change | 
|                 |  | 2003               |         |   | 2004     |   |         |         
|                 |  | Net Income (Loss)  |         |   |         
|IMPSAT Argentina |  | $                  | 25,955  |   |          | $ | 2,084   |          |  | $ | (23,871  | ) |  | -92.0    | %
|IMPSAT Colombia  |  |                    | (3,671  | ) |          |   | (5,314  | )        |  |   | (1,643   | ) |  | 44.8     | %
|IMPSAT Brazil    |  |                    | 20,907  |   |          |   | (1,911  | )        |  |   | (22,818  | ) |  | -109.1   | %
|IMPSAT Venezuela |  |                    | 3,737   |   |          |   | 4,556   |          |  |   | 819      |   |  | 21.9     | %
|IMPSAT Ecuador   |  |                    | (28     | ) |          |   | 3,009   |          |  |   | 3,037    |   |  | -10846.4 | %
|IMPSAT Chile     |  |                    | 2,085   |   |          |   | (847    | )        |  |   | (2,932   | ) |  | -140.6   | %
|IMPSAT Peru      |  |                    | 3,331   |   |          |   | (1,103  | )        |  |   | (4,434   | ) |  | -133.1   | %
|IMPSAT USA       |  |                    | 773     |   |          |   | (1,146  | )        |  |   | (1,919   | ) |  | -248.3   | %
|Other(1)         |  |                    | 687,454 |   |          |   | (13,547 | )        |  |   | (701,001 | ) |  | -102.0   | %
|                 |  |                    |         |   |          |   |         |          |  |   |          |   |  |          |  
|Total            |  | $                  | 740,543 |   |          | $ | (14,219 | )        |  | $ | (754,762 | ) |  | -101.9   | %
|                 |  |                    |         |   |          |   |         |          |  |   |          |   |  |          |  

---

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



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, 2005, we had total cash and cash equivalents of
$24.1 million, as compared to $63.7 million as of December 31, 2004.



As of December 31, 2005, approximately $7.5 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.2,150
= $1.00). Foreign exchange controls instituted in Venezuela since February 2003 make it difficult to repatriate these and any other earnings from our Venezuelan operations on a timely basis, without substantial cost. 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 the recorded U.S. dollar value of our cash and cash equivalents held by IMPSAT Venezuela and would result in a loss in future periods in our condensed consolidated statement of operations.



At December 31, 2005, our total indebtedness was $248.1 million, as
compared to $281.1 million at December 31, 2004, of which $2.2 million represented short-term debt, $17.6 million represented current portion of long-term debt and $228.3 million represented long-term debt. Our capital expenditures budget
contemplates that we will need approximately $35.0 million (including amounts spent to date) through the end of 2006 for capital expenditures.



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. Notwithstanding our emergence from bankruptcy and the extinguishment of the guarantee as a result, an event of
default has occurred and is continuing with respect to the related primary underlying indebtedness of IMPSAT Argentina. As a result of this default,



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which relates to vendor financing totaling approximately $7.6 million in outstanding principal amount as of December 31, 2004 and 2005, such
indebtedness is due and payable. IMPSAT Argentina had been in discussions with the holder of the indebtedness with a view to rescheduling or otherwise restructuring the defaulted debt obligation. The Company understands that this holder
recently transferred the defaulted debt obligation to a new holder. IMPSAT Argentina is not in discussions with the new holder. There is no assurance that IMPSAT Argentina will reach a definitive agreement with this holder to reschedule or
restructure such obligations. Under those circumstances, IMPSAT Argentina could be forced to seek protection or liquidate under the bankruptcy laws of Argentina.



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



In its audit report on the Companys consolidated financial statements
for the year ended December 31, 2005, Deloitte & Touche LLP, the Companys independent registered public accounting firm, included a paragraph that noted that the Companys current liquidity position, the amount of its debt
obligations, and its operating results, raised substantial doubt as to our ability to continue as a going concern. The Company believes that as a result of the amendments to its subsidiary indebtedness described in the preceding paragraph, which
included modifications in the financial covenants to take account of the current operating condition of the Company, it should be able to satisfy the financial covenants in the future. Based on its current business plan, the Company will not
internally generate sufficient funds to meet its maturing obligations in the future. If the Company cannot generate sufficient cash flows to meet the Companys cash-flow and working capital needs, and to achieve its longer term growth and
operational goals, the Company will require additional financing. There is no assurance that such financing will be available on acceptable terms or at all. The Companys financial statements included in this Annual Report on Form 10-K have
been prepared under the assumption that the Company will continue as a going concern and do not include any adjustments that might result if we were forced to discontinue operations. For additional information, see Note 3 to our consolidated
financial statements.



As set forth in our consolidated
statement of cash flows, our operating activities provided $32.4 million in net cash flows for 2005, compared to $35.5 million provided by operating activities during 2004. The decrease in cash flow provided by operating activities was
primarily due to the increase in accounts receivable, and the decrease in other long-term liabilities.



For 2005, our investing activities used $34.3 million in net cash flows, compared to $34.3 million of net cash flows used for investing
activities during the corresponding period in 2004. The decrease in net cash flows used in investing activities was principally due to a decrease in purchases of property, plant and equipment offset



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by proceeds of $2.5 million and $2.0 million, respectively, from sales of investments. Our capital expenditures in 2005 represented $ 33.9 million of
our net cash flows compared to $39.4 million in 2004. During 2005, $37.6 million in net cash flows were used in financing activities. This compares to $2.7 million in net cash flows provided by financing activities during 2004. The
negative cash flow from financing activities in 2005 was due to the repayments of long-term indebtedness.



At December 31, 2005, we had leased satellite capacity with annual rental commitments of approximately $15.4 million through the year 2009 under
non-cancelable agreements. The Company has entered into contracts for the purchase of satellite capacity for approximately $14.4 million through 2015. In addition, at December 31, 2005, we had commitments to purchase telecommunications
equipment amounting to approximately $5.4 million. Furthermore, we have leased from third parties a series of terrestrial links for the provision of data, Internet and telephony services to our clients in the different countries in which we operate.



The following table sets forth due dates of our contractual
obligations: (debt repayments denominated in local currencies have been calculated at the exchange rate at the year ended December 31, 2005)



|                                   |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |        |  |   |        
|---------------------------------- |  | -------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | ----- | ------ |  | - | ------ |  | - | -------
|Type of Obligations                |  | 2006           |        | 2007 |   | 2008   |  | 2009 |        | 2010 |   | Thereafter |  | Total
|                                   |  | (in thousands)
|Short-term debt                    |  | $              | 2,168  |      |   |        |  |      |        |      |   |            |  |       |        |  |   |        |  | $ | 2,168  
|Long-term debt(1)                  |  | $              | 17,604 |      | $ | 29,235 |  | $    | 36,442 |      | $ | 58,097     |  | $     | 9,851  |  | $ | 92,903 |  | $ | 244,132
|Capital lease obligations          |  |                |        |      |   | 951    |  |      | 681    |      |   | 106        |  |       | 65     |  |   |        |  |   | 1,803  
|Subtotal                           |  |                | 19,772 |      |   | 30,186 |  |      | 37,123 |      |   | 58,203     |  |       | 9,916  |  |   | 92,903 |  |   | 248,103
|Operating leases                   |  |                |       |      |   |       |  |      |       |      |   |           |  |       |       |  |   |       |  |   |       
|Purchase obligations(2)            |  |                | 29,441 |      |   | 15,649 |  |      | 8,736  |      |   | 5,556      |  |       |        |  |   |        |  |   | 59,390 
|Interest payments                  |  |                | 22,689 |      |   | 21,001 |  |      | 17,387 |      |   | 10,161     |  |       | 6,596  |  |   | 2,787  |  |   | 80,621 
|                                   |  |                |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |        |  |   |        
|Total contractual cash obligations |  | $              | 71,902 |      | $ | 66,836 |  | $    | 63,246 |      | $ | 73,920     |  | $     | 16,512 |  | $ | 95,690 |  | $ | 388,114

---

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

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



Forward Looking Statements



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



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



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Forward-looking statements include but are not limited to:



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



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



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



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



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



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



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



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



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



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



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



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



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



|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, 2005 and assuming that the hypothetical interest rate and foreign exchange rate changes used in the analyses occurred during 2005. We do not hold or issue any market risk sensitive
instruments for trading purposes.



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



We are exposed to interest rate risk on our floating rate indebtedness, which
affects our cost of financing. At December 31, 2005, our total floating rate indebtedness aggregated $41.4 million. Our actual interest rate is not



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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, 2005, 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. The fair value of financing instruments, which approximate the carrying value, have been determined using available market information and interest rates as of December 31,
2005.



|                                 |  |                                     |        |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |       |       |  |   |        |   |  |   |         |  |   |        
|-------------------------------- |  | ----------------------------------- | ------ | ---------- | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ---------- | - | ----- | ----- |  | - | ------ | - |  | - | ------- |  | - | -------
|                                 |  | Expected Maturities at December 31, |        | Fair Value
|                                 |  | 2006                                |        |            | 2007 |   |        | 2008 |  |   | 2009   |   |  | 2010 |        |   | Thereafter |   |       | Total | 
|Senior Notes (fixed rate)        |  | $                                   | 6,691  |            |      | $ | 21,690 |      |  | $ | 26,690 |   |  | $    | 58,147 |   |            |   |       |       |  | $ | 92,903 |   |  | $ | 206,121 |  | $ | 183,939
|Avg. interest rate               |  |                                     | 11.49  | %          |      |   | 11.84  | %    |  |   | 11.87  | % |  |      | 11.97  | % |            |   |       |       |  |   | 6.00   | % |  |   |         |  |   |        
|Term Notes (fixed rate)          |  | $                                   | 303    |            |      | $ | 259    |      |  |   |        |   |  |      |        |   |            |   |       |       |  |   |        |   |  | $ | 562     |  | $ | 562    
|Avg. interest rate               |  |                                     | 10.47  | %          |      |   | 10.45  | %    |  |   |        |   |  |      |        |   |            |   |       |       |  |   |        |   |  |   |         |  |   |        
|Term Notes (variable rate)       |  | $                                   | 4,713  |            |      | $ | 8,237  |      |  | $ | 10,433 |   |  | $    | 56     |   |            | $ | 9,916 |       |  |   |        |   |  | $ | 33,355  |  | $ | 33,355 
|Avg. interest rate               |  |                                     | 14.77  | %          |      |   | 9.70   | %    |  |   | 12.58  | % |  |      | 7.72   | % |            |   | 12.63 | %     |  |   |        |   |  |   |         |  |   |        
|Vendor Financing (variable rate) |  | $                                   | 8,065  |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |       |       |  |   |        |   |  | $ | 8,065   |  | $ | 8,065  
|Avg. Interest rate               |  |                                     | 7.73   | %          |      |   |        |      |  |   |        |   |  |      |        |   |            |   |       |       |  |   |        |   |  |   |         |  |   |        
|                                 |  |                                     |        |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |       |       |  |   |        |   |  |   |         |  |   |        
|TOTAL                            |  | $                                   | 19,772 |            |      | $ | 30,186 |      |  | $ | 37,123 |   |  | $    | 58,203 |   |            | $ | 9,916 |       |  | $ | 92,903 |   |  | $ | 248,103 |  | $ | 225,921
|                                 |  |                                     |        |            |      |   |        |      |  |   |        |   |  |      |        |   |            |   |       |       |  |   |        |   |  |   |         |  |   |        



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



During January 2002, Argentina abandoned the fixed dollar-to-peso exchange rate and devalued the Argentine peso, and, on February 3,
2002, pursuant to the pesification decree, the Argentine government announced the mandatory conversion of all foreign currency denominated contractual obligations governed by Argentine law into Argentine pesos at a rate of
one Argentine peso to one U.S. dollar. The floating exchange rate at December 31, 2005 was pesos 3.03 = $1.00. Devaluations of the peso have and will adversely affect IMPSAT Argentinas results of
operations and, in turn, our companys consolidated results of operations and financial condition. As of December 31, 2005, a hypothetical 10% devaluation of the peso would result in foreign exchange losses of approximately $4.7
million on our financial debt. During the remainder of 2006, our consolidated results could be impacted from transaction gains or losses on our dollar-denominated monetary assets and liabilities. Potential balance sheet exposures include the
reduction to our consolidated stockholders equity due to the effects of lower net income on retained earnings.



Pursuant to Brazilian law, our contracts with customers in Brazil cannot be denominated in dollars or linked to the exchange rate between the Brazilian
real and the U.S. dollar. In Brazil, we are permitted to amend the pricing of our services for our long-term telecommunication services contracts with our customers annually based on changes in the consumer price index in Brazil for the prior
year. In Argentina, obligations that were mandatorily converted to pesos under the pesification decree may be adjusted pursuant to an index rate based on variations in the Argentine consumer price index. These aspects of
the laws in Brazil and Argentina do not



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eliminate completely the currency exchange risk facing our operations in those countries. Changes in the consumer price indices in Brazil and Argentina may
lag or be lower than changes in the exchange rate between the Brazil and Argentine local currencies and the U.S. dollar and therefore may not fully allow us to address the impact of a devaluation of those currencies against the U.S. dollar. Also,
contracts entered into after the pesification decrees enactment that are initially denominated in pesos are not entitled to be adjusted according to any other consumer or other price index. Accordingly, our operations
in Brazil and Argentina have exposed us, and will increase our exposure, to exchange rate risks. At December 31, 2005, the real traded at a rate of R2.34 = $1.00. As of December 31, 2005, a hypothetical 10% devaluation of
the real would result in foreign exchange losses of approximately $6.3 million on our financial debt.



As discussed above, in response to political and economic turmoil currently affecting Venezuela, the Venezuelan government imposed foreign exchange and
price controls during 2003, making it difficult for our customers in Venezuela to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a timely basis. These foreign exchange controls could also limit our ability to convert
local currency into U.S. dollars and transfer funds out of Venezuela. 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. At December 31, 2005, the
bolivar continued to trade at a rate of 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 2005 and 2004 represented 30.8% and 31.5% of our total net revenues from services. Net revenues from services from our Brazilian operations for the years 2005 and 2004 represented approximately 19.0% and
14.8% of our total net revenues from services. Our net revenues from services in Venezuela accounted for 12.2% and 14.6% of our net total revenues from services for the years 2005 and 2004, respectively.



|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.



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



(a) Evaluation of disclosure controls and procedures.



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



(b) Changes in internal controls.



There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.





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|Item 9B. | OTHER INFORMATION
|-------- | -----------------



On March 30, 2006, our board of directors amended and restated our bylaws to provide that the Chairman of the board be a non-executive director
selected by a majority of the board of directors. In addition, the amended and restated bylaws provide that, in the absence of a selected chairman of the board, a majority of the board of directors may select a director to act as chairman for a
single meeting. A copy of our amended and restated bylaws is attached hereto as Exhibit 3.2.



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 28, 2006, 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 Officer 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 2006 annual meeting. Under our restated certificate of incorporation, directors 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 Series A 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 (the 7.5%
Threshold) (that is, assuming the conversion of the Series A Notes, the Series B 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 plans 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 Series B Senior Guaranteed Convertible Notes
due 2011 (Series B Notes), which we refer to as the Series B Noteholder, and warrants to purchase common stock issued to Nortel under the Plan (the Warrants), 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 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 (the 4.5% Threshold); and



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(4) three individuals, our Category Four Directors, elected by the initial 2005/2008 Holders
who received our common stock under the Plan (the Initial 2005/2008 Common Stock), which we refer to as the Initial 2005/2008 Common Stockholders, 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 (the 15% Threshold); 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 Category Two Directors, if the 7.5% Threshold is no longer met, or, in the case of Category Three Directors, if the 4.5%
Threshold is no longer met and in the case of Category Four Directors if the 15% Threshold is no longer met). 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.



In addition, by reason of the resignation of Ricardo Verdaguer from our board of directors on October 11, 2005 (see Form 8-K filed by the Company on
October 17, 2005), there is currently a vacancy in our Category One Director position.



|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, 2004 and 2005
| | - |  | --------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Operations for the Three Months Ended March 31, 2003 (Predecessor Company), the Nine Months Ended December 31, 2003 (Successor Company) and for the Years Ended December 31, 2004 and
2005 (Successor Company)
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended March 31, 2003 (Predecessor Company), the Nine Months Ended December 31, 2003 (Successor Company) and for the Years Ended
December 31, 2004 and 2005 (Successor Company)
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Stockholders Equity for the Three Months Ended March 31, 2003 (Predecessor Company), the Nine Months Ended December 31, 2003 (Successor Company) and for the Years Ended
December 31, 2004 and 2005 (Successor Company)
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 (Predecessor Company), the Nine Months Ended December 31, 2003 (Successor Company) and for the Years Ended December 31, 2004 and
2005 (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 Securities and Exchange 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 listed below under Item 15(b) 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.



58



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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, 2006.



IMPSAT FIBER NETWORKS, INC.By:

/S/    RICARDO A.
VERDAGUERRicardo A. VerdaguerPresident and Chief Executive OfficerDate: March 31, 2006




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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 |  | President and Chief Executive Officer of IMPSAT Fiber Networks, Inc. (principal executive officer)                             |  | March 31, 2006
|                            |  |                                                                                                                               
|/S/    WILLIAM CONNORS      |  | Director of IMPSAT Fiber Networks, Inc.                                                                                        |  | March 31, 2006
|                            |  |                                                                                                                               
|/S/    THOMAS DOSTER IV     |  | Director of IMPSAT Fiber Networks, Inc.                                                                                        |  | March 31, 2006
|                            |  |                                                                                                                               
|/S/    ERIC KOZA            |  | Director of IMPSAT Fiber Networks, Inc.                                                                                        |  | March 31, 2006
|                            |  |                                                                                                                               
|/S/    JAMES E. BOLIN       |  | Director of IMPSAT Fiber Networks, Inc.                                                                                        |  | March 31, 2006
|                            |  |                                                                                                                               
|/S/    IGNACIO TRONCOSO     |  | Director of IMPSAT Fiber Networks, Inc.                                                                                        |  | March 31, 2006
|                            |  |                                                                                                                               
|/S/    HÉCTOR ALONSO        |  | Executive Vice President and Chief Financial Officer of IMPSAT Fiber Networks, Inc. (principal financial officer)              |  | March 31, 2006
|                            |  |                                                                                                                               
|/S/    JOSE R. TORRES       |  | Executive Vice PresidentAccounting and Chief Accounting Officer of IMPSAT Fiber Networks, Inc. (principal accounting
officer) |  | March 31, 2006



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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, 2004 and 2005 (Successor Company balance sheets), and the related consolidated statements of operations, comprehensive income (loss), stockholders equity and cash flows for the three months ended March 31, 2003
(Predecessor Company operations), the nine months ended December 31, 2003 (Successor Company operations) and the years ended December 31, 2004 and 2005 (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 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, 2004 and 2005, and the results of its operations and its cash flows for the nine months ended December 31, 2003 and for the years ended December 31, 2004 and 2005, 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, the amount of debt obligations and
its operating results raise substantial doubt about its ability 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 27, 2006



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, 2004 AND 2005

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



|                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                                                                            |  | 2004 |         |   | 2005 |  
|ASSETS                                                                                                                                                                                                                                      |  |      |         |   |     
|CURRENT ASSETS:                                                                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                                   |  | $    | 63,655  |   |      | $ | 24,070  |  
|Trade accounts receivable, net                                                                                                                                                                                                              |  |      | 29,363  |   |      |   | 35,812  |  
|Other receivables                                                                                                                                                                                                                           |  |      | 12,865  |   |      |   | 10,784  |  
|Prepaid expenses                                                                                                                                                                                                                            |  |      | 3,008   |   |      |   | 2,824   |  
|                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total current assets                                                                                                                                                                                                                        |  |      | 108,891 |   |      |   | 73,490  |  
|                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|PROPERTY, PLANT AND EQUIPMENT, Net                                                                                                                                                                                                          |  |      | 317,310 |   |      |   | 309,892 |  
|                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|OTHER NON-CURRENT ASSETS                                                                                                                                                                                                                    |  |      | 17,706  |   |      |   | 16,161  |  
|                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|TOTAL                                                                                                                                                                                                                                       |  | $    | 443,907 |   |      | $ | 399,543 |  
|                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                        |  |      |         |   |      |   |         |  
|CURRENT LIABILITIES:                                                                                                                                                                                                                        |  |      |         |   |      |   |         |  
|Accounts payabletrade                                                                                                                                                                                                                      |  | $    | 36,485  |   |      | $ | 46,080  |  
|Short- term debt                                                                                                                                                                                                                            |  |      | 2,656   |   |      |   | 2,168   |  
|Current portion of long-term debt                                                                                                                                                                                                           |  |      | 45,092  |   |      |   | 17,604  |  
|Interest payable                                                                                                                                                                                                                            |  |      | 2,548   |   |      |   | 10,453  |  
|Accrued and other liabilities                                                                                                                                                                                                               |  |      | 28,669  |   |      |   | 34,867  |  
|                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                                                                                   |  |      | 115,450 |   |      |   | 111,172 |  
|LONG-TERM DEBT, Net                                                                                                                                                                                                                         |  |      | 233,335 |   |      |   | 228,331 |  
|OTHER LONG-TERM LIABILITIES                                                                                                                                                                                                                 |  |      | 16,109  |   |      |   | 16,295  |  
|                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total liabilities                                                                                                                                                                                                                           |  |      | 364,894 |   |      |   | 355,798 |  
|                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|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, 2004 and 2005                                                                                                                       |  |      |        |   |      |   |        |  
|Common stock, $0.01 par value; 50,000,000 shares authorized; 10,116,100 shares issued and outstanding (including 100,000 and 50,000 restricted
shares held in the 2003 Stock Incentive Plan as of December 31, 2004 and 2005, respectively) |  |      | 101     |   |      |   | 101     |  
|Additional paid in capital                                                                                                                                                                                                                  |  |      | 90,542  |   |      |   | 90,653  |  
|Accumulated deficit                                                                                                                                                                                                                         |  |      | (4,742  | ) |      |   | (40,990 | )
|Deferred stock-based compensation                                                                                                                                                                                                           |  |      | (880    | ) |      |   | (440    | )
|Accumulated other comprehensive loss                                                                                                                                                                                                        |  |      | (6,008  | ) |      |   | (5,579  | )
|                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|Total stockholders equity                                                                                                                                                                                                                  |  |      | 79,013  |   |      |   | 43,745  |  
|                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  
|TOTAL                                                                                                                                                                                                                                       |  | $    | 443,907 |   |      | $ | 399,543 |  
|                                                                                                                                                                                                                                            |  |      |         |   |      |   |         |  





See notes to consolidated financial statements.



F-2



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##### 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             |         |   | SuccessorCompany                   |   |         | SuccessorCompany             |  |   | SuccessorCompany           |  
|                                                                                                           |  | Three MonthsEndedMarch 31, 2003 |         |   | Nine MonthsEnded December 31, 2003 |   |         | Year Ended December 31, 2004 |  |   | Year EndedDecember 31,2005 |  
|NET REVENUES:                                                                                              |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|Broadband and satellite                                                                                    |  | $                               | 41,382  |   |                                    | $ | 120,855 |                              |  | $ | 161,964                    |   |  | $ | 172,852 |  
|Internet                                                                                                   |  |                                 | 5,733   |   |                                    |   | 18,308  |                              |  |   | 26,125                     |   |  |   | 30,591  |  
|Value added services                                                                                       |  |                                 | 4,781   |   |                                    |   | 10,557  |                              |  |   | 16,674                     |   |  |   | 24,874  |  
|Telephony                                                                                                  |  |                                 | 4,106   |   |                                    |   | 13,568  |                              |  |   | 21,673                     |   |  |   | 24,967  |  
|Sales of equipment                                                                                         |  |                                 | 74      |   |                                    |   | 926     |                              |  |   | 1,279                      |   |  |   | 690     |  
|                                                                                                           |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|Total net revenues                                                                                         |  |                                 | 56,076  |   |                                    |   | 164,214 |                              |  |   | 227,715                    |   |  |   | 253,974 |  
|                                                                                                           |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|COSTS AND EXPENSES:                                                                                        |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|Direct costs:                                                                                              |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|Contracted services                                                                                        |  |                                 | 4,125   |   |                                    |   | 13,376  |                              |  |   | 21,285                     |   |  |   | 24,379  |  
|Other direct costs                                                                                         |  |                                 | 4,696   |   |                                    |   | 18,353  |                              |  |   | 20,647                     |   |  |   | 28,909  |  
|Leased capacity                                                                                            |  |                                 | 17,407  |   |                                    |   | 49,516  |                              |  |   | 67,632                     |   |  |   | 74,990  |  
|Cost of equipment sold                                                                                     |  |                                 | 48      |   |                                    |   | 803     |                              |  |   | 963                        |   |  |   | 631     |  
|                                                                                                           |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|Total direct costs                                                                                         |  |                                 | 26,276  |   |                                    |   | 82,048  |                              |  |   | 110,527                    |   |  |   | 128,909 |  
|Salaries and wages                                                                                         |  |                                 | 10,727  |   |                                    |   | 35,639  |                              |  |   | 46,339                     |   |  |   | 50,597  |  
|Selling, general and administrative                                                                        |  |                                 | 5,553   |   |                                    |   | 19,824  |                              |  |   | 23,581                     |   |  |   | 22,335  |  
|Gain on extinguishment                                                                                     |  |                                 |         |   |                                    |   | (14,253 | )                            |  |   | (115                       | ) |  |   |         |  
|Depreciation and amortization                                                                              |  |                                 | 19,358  |   |                                    |   | 29,535  |                              |  |   | 44,797                     |   |  |   | 55,324  |  
|                                                                                                           |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|Total costs and expenses                                                                                   |  |                                 | 61,914  |   |                                    |   | 152,793 |                              |  |   | 225,129                    |   |  |   | 257,165 |  
|                                                                                                           |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|Operating (loss) income                                                                                    |  |                                 | (5,838  | ) |                                    |   | 11,421  |                              |  |   | 2,586                      |   |  |   | (3,191  | )
|                                                                                                           |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|OTHER INCOME (EXPENSE):                                                                                    |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|Interest income                                                                                            |  |                                 | 200     |   |                                    |   | 1,068   |                              |  |   | 1,136                      |   |  |   | 1,433   |  
|Interest expense (contractual interest of $21,801 for the three months ended March 31, 2003 (Predecessor)) |  |                                 | (1,909  | ) |                                    |   | (14,435 | )                            |  |   | (21,106                    | ) |  |   | (32,394 | )
|Net gain on foreign exchange                                                                               |  |                                 | 9,969   |   |                                    |   | 17,566  |                              |  |   | 5,804                      |   |  |   | 10,131  |  
|Reorganization items                                                                                       |  |                                 | 726,127 |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|Other income (loss), net                                                                                   |  |                                 | 2,923   |   |                                    |   | (4,689  | )                            |  |   | 840                        |   |  |   | (7,735  | )
|                                                                                                           |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|Total other income (expense)                                                                               |  |                                 | 737,310 |   |                                    |   | (490    | )                            |  |   | (13,326                    | ) |  |   | (28,565 | )
|                                                                                                           |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|Income (loss) before income taxes                                                                          |  |                                 | 731,472 |   |                                    |   | 10,931  |                              |  |   | (10,740                    | ) |  |   | (31,756 | )
|Provision for foreign income taxes                                                                         |  |                                 | (406    | ) |                                    |   | (1,454  | )                            |  |   | (3,479                     | ) |  |   | (4,492  | )
|                                                                                                           |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|NET INCOME (LOSS)                                                                                          |  | $                               | 731,066 |   |                                    | $ | 9,477   |                              |  | $ | (14,219                    | ) |  | $ | (36,248 | )
|                                                                                                           |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|NET INCOME (LOSS) PER COMMON SHARE:                                                                        |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|BASIC                                                                                                      |  | $                               | 8.00    |   |                                    | $ | 0.96    |                              |  | $ | (1.42                      | ) |  | $ | (3.61   | )
|                                                                                                           |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|DILUTED                                                                                                    |  | $                               | 8.00    |   |                                    | $ | 0.72    |                              |  | $ | (1.42                      | ) |  | $ | (3.61   | )
|                                                                                                           |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES:                                                                  |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|BASIC                                                                                                      |  |                                 | 91,429  |   |                                    |   | 9,917   |                              |  |   | 9,994                      |   |  |   | 10,054  |  
|                                                                                                           |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  
|DILUTED                                                                                                    |  |                                 | 91,429  |   |                                    |   | 16,057  |                              |  |   | 9,994                      |   |  |   | 10,054  |  
|                                                                                                           |  |                                 |         |   |                                    |   |         |                              |  |   |                            |   |  |   |         |  



See notes to
consolidated financial statements.



F-3



---

##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands of U.S. Dollars)



|                                                                                             |  |                                |         |   |                                   |   |        |                             |  |   |                            |   |  |   |         |   |  | 
|-------------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | --------------------------------- | - | ------ | --------------------------- |  | - | -------------------------- | - |  | - | ------- | - |  | 
|                                                                                             |  | Predecessor Company            |         |   | SuccessorCompany                  |   |        | SuccessorCompany            |  |   | SuccessorCompany           |  
|                                                                                             |  | Three MonthsEndedMarch 31,2003 |         |   | Nine MonthsEnded December 31,2003 |   |        | Year Ended December 31,2004 |  |   | Year EndedDecember 31,2005 |  
|NET INCOME (LOSS)                                                                            |  | $                              | 731,066 |   |                                   | $ | 9,477  |                             |  | $ | (14,219                    | ) |  | $ | (36,248 | )
|                                                                                             |  |                                |         |   |                                   |   |        |                             |  |   |                            |   |  |   |         |  
|OTHER COMPREHENSIVE (LOSS) INCOME:                                                           |  |                                |         |   |                                   |   |        |                             |  |   |                            |   |  |   |         |  
|Foreign currency translation adjustment                                                      |  |                                | (4,097  | ) |                                   |   | (3,039 | )                           |  |   | (2,969                     | ) |  |   | 429     |  
|Unrealized gain on investments available for sale                                            |  |                                | 55      |   |                                   |   | 1,732  |                             |  |   | 122                        |   |  |   |         |  
|Reclassification adjustment for gains on investments available for sale included in net loss |  |                                |         |   |                                   |   |        |                             |  |   | (1,854                     | ) |  |   |         |  
|                                                                                             |  |                                |         |   |                                   |   |        |                             |  |   |                            |   |  |   |         |  
|TOTAL                                                                                        |  |                                | (4,042  | ) |                                   |   | (1,307 | )                           |  |   | (4,701                     | ) |  |   | 429     |  
|                                                                                             |  |                                |         |   |                                   |   |        |                             |  |   |                            |   |  |   |         |  
|COMPREHENSIVE INCOME (LOSS)                                                                  |  | $                              | 727,024 |   |                                   | $ | 8,170  |                             |  | $ | (18,920                    | ) |  | $ | (35,819 | )
|                                                                                             |  |                                |         |   |                                   |   |        |                             |  |   |                            |   |  |   |         |  





See notes to consolidated financial statements.



F-4



---

##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

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



|                                                                                                  |  |              |   |  |                          |      |   |                        |   |          |                                      |  |   |                                  |   |  |                                            |            |   |       |   |        |   |  |   |         |   |  |   |          |  
|------------------------------------------------------------------------------------------------- |  | ------------ | - |  | ------------------------ | ---- | - | ---------------------- | - | -------- | ------------------------------------ |  | - | -------------------------------- | - |  | ------------------------------------------ | ---------- | - | ----- | - | ------ | - |  | - | ------- | - |  | - | -------- | -
|                                                                                                  |  | Common Stock |   |  | AdditionalPaid InCapital |      |   | CommonStockReservePool |   |          | (AccumulatedDeficit)RetainedEarnings |  |   | DeferredStock- BasedCompensation |   |  | AccumulatedOtherComprehensiveIncome (Loss) |            |   | Total |  
|                                                                                                  |  | Shares       |   |  | Amount                   |      |   |                        |   |          |                                      | 
|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   |  
|Issuance of stock options to stockholder                                                          |  |              |   |  |                          |      |   |                        |   | 111      |                                      |  |   |                                  |   |  |                                            |            |   |       |   |        |   |  |   |         |   |  |   | 111      |  
|Recognition of deferred compensation                                                              |  |              |   |  |                          |      |   |                        |   |          |                                      |  |   |                                  |   |  |                                            |            |   |       |   | 440    |   |  |   |         |   |  |   | 440      |  
|Foreign currency translation adjustment                                                           |  |              |   |  |                          |      |   |                        |   |          |                                      |  |   |                                  |   |  |                                            |            |   |       |   |        |   |  |   | 429     |   |  |   | 429      |  
|Net loss for the year                                                                             |  |              |   |  |                          |      |   |                        |   |          |                                      |  |   |                                  |   |  |                                            | (36,248    | ) |       |   |        |   |  |   |         |   |  |   | (36,248  | )
|                                                                                                  |  |              |   |  |                          |      |   |                        |   |          |                                      |  |   |                                  |   |  |                                            |            |   |       |   |        |   |  |   |         |   |  |   |          |  
|BALANCE AT DECEMBER 31, 2005 (SUCCESSOR COMPANY)                                                  |  | 10,116,100   |   |  | $                        | 101  |   |                        | $ | 90,653   |                                      |  | $ |                                 |   |  | $                                          | (40,990    | ) |       | $ | (440   | ) |  | $ | (5,579  | ) |  | $ | 43,745   |  
|                                                                                                  |  |              |   |  |                          |      |   |                        |   |          |                                      |  |   |                                  |   |  |                                            |            |   |       |   |        |   |  |   |         |   |  |   |          |  



See notes to
consolidated financial statements



F-5



---

##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. Dollars)



|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | --------------------------------- | - | ------- | -------------------------- |  | - | --------------------------- | - |  | - | ------- | -
|                                                                                                    |  | PredecessorCompany             |          |   | SuccessorCompany                  |   |         | SuccessorCompany           |  |   | SuccessorCompany            |  
|                                                                                                    |  | Three MonthsEndedMarch 31,2003 |          |   | Nine MonthsEnded December 31,2003 |   |         | Year EndedDecember 31,2004 |  |   | Year EndedDecember 31, 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                               |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Net income (loss)                                                                                   |  | $                              | 731,066  |   |                                   | $ | 9,477   |                            |  | $ | (14,219                     | ) |  | $ | (36,248 | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:            |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Amortization and depreciation                                                                       |  |                                | 19,358   |   |                                   |   | 29,535  |                            |  |   | 44,797                      |   |  |   | 55,324  |  
|Gain on extinguishment                                                                              |  |                                | (728,203 | ) |                                   |   | (14,253 | )                          |  |   | (115                        | ) |  |   |         |  
|Stock-based compensation                                                                            |  |                                | 440      |   |                                   |   |         |                            |  |   | 440                         |   |  |   | 440     |  
|Issuance of stock options to stockholder                                                            |  |                                |          |   |                                   |   |         |                            |  |   | 149                         |   |  |   | 111     |  
|Deferred income tax provision                                                                       |  |                                | 82       |   |                                   |   |         |                            |  |   | 1,612                       |   |  |   | 2,107   |  
|Provision for (reversal of allowance for) doubtful accounts                                         |  |                                | 515      |   |                                   |   | 2,365   |                            |  |   | (3,916                      | ) |  |   | (1,062  | )
|Paid-in-kind interest on Senior Notes                                                               |  |                                |          |   |                                   |   | 9,986   |                            |  |   | 13,669                      |   |  |   | 3,369   |  
|Gain on sale of assets held for disposal                                                            |  |                                |          |   |                                   |   | (650    | )                          |  |   |                             |   |  |   |         |  
|Net gain on foreign exchange                                                                        |  |                                | (9,969   | ) |                                   |   | (17,566 | )                          |  |   | (5,804                      | ) |  |   | (10,131 | )
|Net gain on sale of investments                                                                     |  |                                |          |   |                                   |   |         |                            |  |   | (1,854                      | ) |  |   |         |  
|Net loss (gain) on disposals of property, plant and equipment                                       |  |                                | 772      |   |                                   |   | 2,214   |                            |  |   | 801                         |   |  |   |         |  
|Changes in assets and liabilities:                                                                  |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|(Increase) decrease in trade accounts receivable                                                    |  |                                | (3,816   | ) |                                   |   | 1,512   |                            |  |   | 6,148                       |   |  |   | (4,616  | )
|(Increase) decrease in prepaid expenses                                                             |  |                                | (943     | ) |                                   |   | 1,465   |                            |  |   | (747                        | ) |  |   | 211     |  
|Decrease (increase) in other non-current assets                                                     |  |                                | 1,214    |   |                                   |   | 8,038   |                            |  |   | (886                        | ) |  |   | 7,567   |  
|(Decrease) increase in accounts payable  trade                                                     |  |                                | (2,709   | ) |                                   |   | (13,273 | )                          |  |   | (1,522                      | ) |  |   | 8,060   |  
|Increase (decrease) in accrued and other liabilities                                                |  |                                | 5,549    |   |                                   |   | 3,180   |                            |  |   | (6,618                      | ) |  |   | 8,137   |  
|Decrease in deferred revenues                                                                       |  |                                | (1,132   | ) |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|(Decrease) increase in other long-term liabilities                                                  |  |                                | (721     | ) |                                   |   | (2,811  | )                          |  |   | 3,583                       |   |  |   | (820    | )
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Net cash provided by operating activities                                                           |  |                                | 11,503   |   |                                   |   | 19,219  |                            |  |   | 35,518                      |   |  |   | 32,449  |  
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                               |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Net (increase) decrease in short-term investments                                                   |  |                                | (3,303   | ) |                                   |   | 23,850  |                            |  |   | 2,474                       |   |  |   |         |  
|Purchases of property, plant and equipment                                                          |  |                                | (3,266   | ) |                                   |   | (18,213 | )                          |  |   | (39,379                     | ) |  |   | (34,305 | )
|Proceeds from sale of property, plant and equipment                                                 |  |                                | 340      |   |                                   |   | 847     |                            |  |   | 583                         |   |  |   |         |  
|Proceeds from sale of assets held for disposal                                                      |  |                                |          |   |                                   |   | 6,135   |                            |  |   |                             |   |  |   |         |  
|Proceeds from the sale of investment                                                                |  |                                |          |   |                                   |   |         |                            |  |   | 1,995                       |   |  |   |         |  
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Net cash (used in) provided by investing activities                                                 |  |                                | (6,229   | ) |                                   |   | 12,619  |                            |  |   | (34,327                     | ) |  |   | (34,305 | )
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                               |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Net borrowings from (repayments of) short-term debt                                                 |  |                                |          |   |                                   |   |         |                            |  |   | 2,656                       |   |  |   | (653    | )
|Proceeds from long-term debt                                                                        |  |                                |          |   |                                   |   |         |                            |  |   | 4,426                       |   |  |   | 2,362   |  
|Repayments of long-term debt                                                                        |  |                                | (1,857   | ) |                                   |   | (6,482  | )                          |  |   | (4,345                      | ) |  |   | (39,320 | )
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Net cash (used in) provided by financing activities                                                 |  |                                | (1,857   | ) |                                   |   | (6,482  | )                          |  |   | 2,737                       |   |  |   | (37,611 | )
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS                                         |  |                                | (415     | ) |                                   |   | 577     |                            |  |   | (1,771                      | ) |  |   | (118    | )
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                |  |                                | 3,002    |   |                                   |   | 25,933  |                            |  |   | 2,157                       |   |  |   | (39,585 | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD                                                |  |                                | 32,563   |   |                                   |   | 35,565  |                            |  |   | 61,498                      |   |  |   | 63,655  |  
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                                                      |  | $                              | 35,565   |   |                                   | $ | 61,498  |                            |  | $ | 63,655                      |   |  | $ | 24,070  |  
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                                 |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Interest paid                                                                                       |  | $                              | 940      |   |                                   | $ | 4,204   |                            |  | $ | 3,530                       |   |  | $ | 13,552  |  
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Foreign income taxes paid                                                                           |  | $                              | 594      |   |                                   | $ | 2,842   |                            |  | $ | 3,865                       |   |  | $ | 3,678   |  
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|CASH PAID DURING THE PERIOD FOR REORGANIZATION ITEMS:                                               |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Professional fees and other reorganization payments                                                 |  | $                              | 1,714    |   |                                   | $ | 5,841   |                            |  |   |                             |   |  |   |         |  
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:                                |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Change in unrealized gain in investment available for sale.                                         |  | $                              | 55       |   |                                   | $ | 1,732   |                            |  | $ | 122                         |   |  |   |         |  
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Issuance of Senior Secured and Series B Notes in settlement of certain vendor financing obligations |  |                                |          |   |                                   | $ | 5,402   |                            |  |   |                             |   |  |   |         |  
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Issuance of common stock upon conversion of Series A Notes                                          |  |                                |          |   |                                   |   |         |                            |  | $ | 99                          |   |  |   |         |  
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Issuance of common stock in settlement of accounts payable                                          |  |                                |          |   |                                   | $ | 1,075   |                            |  |   |                             |   |  |   |         |  
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  
|Common stock of customer received in settlement of trade receivable                                 |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  | $ | 104     |  
|                                                                                                    |  |                                |          |   |                                   |   |         |                            |  |   |                             |   |  |   |         |  



See notes to
consolidated financial statements.



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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 its 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. PETITION FOR RELIEF UNDER CHAPTER 11 AND EMERGENCE



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 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 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).



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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)



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



| |  |  | the Holding Company issued shares of the Holding Companys new common stock (the New Common Stock) to holders of the Companys 13-3/4% Senior Notes due 2005
and 12-3/8% 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 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 and agreements to issue or purchase any equity interest were cancelled on the Effective Date;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | the Holding Company 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 12-1/8% 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Holding Company 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);
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 Holding Company 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
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Holding Company approved stock options for 1,646,332 shares of New Common Stock to senior officers in accordance with the Companys 2003 Stock Incentive Plan.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



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 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.



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 |  
|                                |  |   |         |  



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 emergence, the Company had incurred substantial net losses and had both



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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)



working capital and stockholders deficiencies. After emergence, the Company has generated cash flows from operations of $35.5 million and $32.4
million, respectively, for the years ended December 31, 2004 and 2005 and has incurred net losses of $14.2 million and $36.4 million, respectively. As of December 31, 2005, the Company has cash and cash equivalents of $24.1 million, which
includes approximately $9.6 million in Venezuela (see Note 4) and a working capital deficiency of approximately $37.7 million.



A significant portion of the Companys debt is held by affiliates of certain members of the Holding Companys board of directors. Accordingly, a
special committee of the Holding Companys board of directors was formed at the end of 2004 to explore recapitalization alternatives. On July 29, 2005, as discussed in Note 8, the Holding Company, IMPSAT Argentina and IMPSAT Brazil entered
into amendments to certain of its senior secured indebtedness, pursuant to which a principal payment of $18.3 million was made and the amortization schedule for such indebtedness modified, along with other terms. In addition, as also discussed in
Note 8, IMPSAT Argentina continues to be in default on approximately $7.6 million principal amount of vendor financing indebtedness. Based on its current business plan, the Company will not generate sufficient internally-generated funds to meet its
maturing obligations in the future. If the Company cannot generate sufficient cash flows to meet the Companys cash flow and working capital needs, and to achieve its longer term growth and operational goals, the Company will require additional
financing. There is no assurance that such financing will be available on acceptable terms or at all. These factors, among others, may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.



The 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 the Holding Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated.



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 Risk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. 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. These exchange controls limit the Companys ability to convert local currency into U.S.



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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)



dollars and transfer funds out of Venezuela. As of December 31, 2005, approximately $9.6 million of the Companys cash and cash equivalents were
held in Venezuela ($7.5 million in local currency, translated into U.S. dollars at the fixed exchange rate imposed by the Venezuelan government).



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



Revenue RecognitionRevenues from data, value-added telephony, IT solutions and Internet services are recognized monthly as the services are
provided. Equipment sales are recorded upon delivery to, and acceptance by, the customer. In connection with certain of the Companys services, the Company may charge installation fees. Installation fees are generally less than the direct
expenses for installation. Therefore, installation fees are recognized upon (i) the completion of the installation of customer premise equipment and (ii) the invoicing of such fees to the customer. If the installation charges are greater
than the direct expenses, the amounts are deferred and recognized over the estimated life of the customer. For the three months ended March 31, 2003 (Predecessor Company), nine months ended December 31, 2003 and for the years ended
December 31, 2004 and 2005 (Successor Company), installation fees amounted to $0.8 million, $2.7 million, $4.7 million and $5.8 million, respectively and related direct installation costs amounted to $0.9 million, $4.0 million, $7.4 million and
$10.2 million, respectively. As a result, no amounts of installation fees were deferred during these periods.



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



The Company records its revenues net of deductions for sales taxes. These taxes are assessed by the governmental taxing authorities in a number of
countries in which the Company operates based on a percentage of gross revenues and totaled approximately $2.0 million, $6.7 million, $10.8 million and $14.1 million for the three months ended March 31, 2003 (Predecessor Company), the nine
months ended December 31, 2003 and for the years ended December 31, 2004 and 2005 (Successor Company), respectively.



No single customer accounted for greater than 10% of total net revenues for the three months ended March 31, 2003 (Predecessor Company), the nine
months ended December 31, 2003 or for the years ended December 31, 2004 and 2005 (Successor Company).



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



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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)



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 No. 153 during 2006 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 a period of time greater than 15 years, management believes that, due to anticipated advances in technology, the Companys IRUs are not
likely to be productive assets beyond 15 years.



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



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



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



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



Stock-Based Compensation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



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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)



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.



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, the pro-forma amounts of the Companys
net income (loss) and net income (loss) per common share for the three months ended March 31, 2003, the nine months ended December 31, 2003 and for the years ended December 31, 2004 and 2005 would have been as follows:



|                                                                                           |  |                            |         |   |                               |   |        |                        |  |   |                        |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | -------------------------- | ------- | - | ----------------------------- | - | ------ | ---------------------- |  | - | ---------------------- | - |  | - | ------- | -
|                                                                                           |  | PredecessorCompany         |         |   | SuccessorCompany              |   |        | SuccessorCompany       |  |   | SuccessorCompany       |  
|                                                                                           |  | Three MonthsEndedMarch 31, |         |   | Nine MonthsEnded December 31, |   |        | Year EndedDecember 31, |  |   | Year EndedDecember 31, |  
|                                                                                           |  | 2003                       |         |   | 2003                          |   |        | 2004                   |  |   | 2005                   |  
|Net income (loss)                                                                          |  |                            |         |   |                               |   |        |                        |  |   |                        |   |  |   |         |  
|As reported                                                                                |  | $                          | 731,066 |   |                               | $ | 9,477  |                        |  | $ | (14,219                | ) |  | $ | (36,248 | )
|Add: Stock-based compensation expense, as reported                                         |  |                            |        |   |                               |   |       |                        |  |   |                       |   |  |   |        |  
|Deduct: Stock-based employee compensation expense determined under fair-value-based method |  |                            | (175    | ) |                               |   | (1,028 | )                      |  |   | (1,479                 | ) |  |   | (875    | )
|                                                                                           |  |                            |         |   |                               |   |        |                        |  |   |                        |   |  |   |         |  
|Pro forma                                                                                  |  | $                          | 730,891 |   |                               | $ | 8,449  |                        |  | $ | (15,698                | ) |  | $ | (37,123 | )
|                                                                                           |  |                            |         |   |                               |   |        |                        |  |   |                        |   |  |   |         |  
|Net income (loss) per common share: Basic: As reported                                     |  | $                          | 8.00    |   |                               | $ | 0.96   |                        |  | $ | (1.42                  | ) |  | $ | (3.61   | )
|Pro forma                                                                                  |  | $                          | 7.00    |   |                               | $ | 0.85   |                        |  | $ | (1.57                  | ) |  | $ | (3.69   | )
|Diluted: As reported                                                                       |  | $                          | 8.00    |   |                               | $ | 0.72   |                        |  | $ | (1.42                  | ) |  | $ | (3.61   | )
|Pro forma                                                                                  |  | $                          | 7.00    |   |                               | $ | 0.66   |                        |  | $ | (1.57                  | ) |  | $ | (3.69   | )



For purposes of the
pro forma disclosures, the fair value of the options granted in 2003 was estimated using the minimum value method prescribed by SFAS No. 123, as the Companys new common stock had not traded between the date of emergence and the date of
the granting of the options. The assumptions used by the Company were as follows: no dividend yield; no volatility; risk-free interest rate of 3%; and an expected term of seven years. For purposes of the pro-forma disclosures, the fair value of the
options granted in 2004 and 2005 was estimated using the Black-Scholes option pricing model. The assumptions used by the Company were as follows: no dividend yield; volatility of 39% and 59%, respectively, risk-free interest rate of 3.75% and 4.50%,
respectively; and an expected term of eight and seven years, respectively. 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 or equal to 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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



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 the Company continues to be available. The Company adopted SFAS No. 123(R) on January 1, 2006. The Company expects the impact on its 2006 earnings to
be approximately $349 as all remaining non-vested options as of January 1, 2006, vest during 2006. In addition, the Company will use the modified prospective method and will utilize the Black-Scholes option pricing model to determine the fair
value of its option grants. See above for the pro forma effect for the each of the periods presented, using the existing valuation and amortization assumptions.



Fair Value of Financial InstrumentsAs of December 31, 2004 and 2005, the Companys financial instruments include cash and cash
equivalents, receivables, payables and short and long-term debt.



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



At December 31,
2004 and 2005, the fair value of the Companys other financial instruments was as follows:



|                                             |  |           |         |          |       |   |            |   |        
|-------------------------------------------- |  | --------- | ------- | -------- | ----- | - | ---------- | - | -------
|2004                                         |  | BookValue |         | % ofFace |       |   | Fair Value
|Series A 6% Senior Guaranteed Notes due 2011 |  | $         | 66,376  |          | 63.7  | % |            | $ | 42,282 
|Series B 6% Senior Guaranteed Notes due 2011 |  |           | 25,240  |          | 95.5  |   |            |   | 24,104 
|Senior Secured Notes 10% maturing due 2009   |  |           | 146,877 |          | 80.9  |   |            |   | 118,823
|                                             |  |           |        
|2005                                         |  | BookValue |         | % ofFace |       |   | Fair Value
|Series A 6% Senior Guaranteed Notes due 2011 |  | $         | 67,308  |          | 76.3  | % |            | $ | 51,383 
|Series B 6% Senior Guaranteed Notes due 2011 |  |           | 25,595  |          | 76.3  |   |            |   | 19,539 
|Senior Secured Notes 10% maturing due 2009   |  |           | 5,918   |          | 96.6  |   |            |   | 5,717  
|Senior Secured Notes 12% maturing due 2009   |  |           | 107,300 |          | 100.0 |   |            |   | 107,300



Net Income (Loss)
Per Common ShareBasic income (loss) per share is computed based on the average number of common shares outstanding and diluted income (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 (loss) per share for the three months ended March 31, 2003 and the years ended December 31,
2004 and 2005, since the inclusion of potential common stock in the computation would be antidilutive.



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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 computation of net income per share for the nine months ended December 31, 2003 is a
follows:



|                                                                                                   |  |                                     |       
|-------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------
|                                                                                                   |  | Nine Months Ended December 31, 2003
|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 basicper share calculation            |  |                                     | 9,917 
|                                                                                                   |  |                                     |       
|Basic net income per common share                                                                  |  | $                                   | 0.96  
|                                                                                                   |  |                                     |       
|Weighted average number of common shares outstanding used inbasic 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 indiluted 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 are as follows:



|                           |  |                                    |       |                         |                  |  |                
|-------------------------- |  | ---------------------------------- | ----- | ----------------------- | ---------------- |  | ---------------
|                           |  | Nine Months EndedDecember 31, 2003 |       | Year Ended December 31,
|                           |  |                                    | 2004  |                         | 2005            
|Stock Options              |  |                                    | 1,676 |                         | 2,068            |  | 2,114          
|                           |  |                                    |       |                         |                  |  |                
|Exercise Price             |  | $                                  | 15.00 |                         | $6.17 to $15.00  |  | $6.17 to $15.00
|                           |  |                                    |       |                         |                  |  |                
|Warrants                   |  |                                    | 3,257 |                         | 3,257            |  | 3,257          
|                           |  |                                    |       |                         |                  |  |                
|Exercise Price             |  | $                                  | 15.00 |                         | $15.00           |  | $15.00         
|                           |  |                                    |       |                         |                  |  |                
|Series A and B Notes       |  |                                    |       |                         | 6,028            |  | 6,071          
|                           |  |                                    |       |                         |                  |  |                
|Conversion Price           |  |                                    |       |                         | $13.66 to $20.93 |  | $13.56 to 20.78
|                           |  |                                    |       |                         |                  |  |                
|Shares of restricted stock |  |                                    |       |                         | 100              |  | 50             
|                           |  |                                    |       |                         |                  |  |                



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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 Company Accumulated 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  | )
|Change during the year                                                           |  |                              | 429     |   |                                                |   |       |       |  |   | 429     |  
|                                                                                 |  |                              |         |   |                                                |   |        |       |  |   |         |  
|Balance at December 31, 2005(Successor Company)                                  |  | $                            | (5,579  | ) |                                                | $ |       |       |  | $ | (5,579  | )
|                                                                                 |  |                              |         |   |                                                |   |        |       |  |   |         |  



New Accounting
PronouncementIn May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS No. 154 replaces Accounting Principles Board (APB) Opinion No. 20, Accounting Changes and
SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. APB No. 20 previously required that most voluntary changes in accounting principle be recognized by including in the current periods net income the
cumulative effect of changing to the new accounting principle. In contrast, SFAS No. 154 requires that a voluntary change in accounting principle be applied retrospectively to prior periods financial statements, unless this would be
impracticable. In addition, SFAS No.154 makes a distinction between retrospective application of an accounting principle and the restatement of financial statements to reflect the correction of an error. SFAS No.154 is effective for accounting
changes and correction of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS No. 154 to have a material impact on its consolidated financial statements.



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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)



5. TRADE ACCOUNTS RECEIVABLE



Trade accounts receivable, by operating subsidiary, at December 31, 2004 and 2005 (Successor Company), are summarized
as follows:



|                                      |  |      |         |   |      |   |         |  
|------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                      |  | 2004 |         |   | 2005 |  
|IMPSAT Argentina                      |  | $    | 16,203  |   |      | $ | 17,577  |  
|IMPSAT Brazil                         |  |      | 5,419   |   |      |   | 8,539   |  
|IMPSAT Colombia                       |  |      | 4,270   |   |      |   | 4,342   |  
|IMPSAT Venezuela                      |  |      | 6,506   |   |      |   | 7,366   |  
|All other countries                   |  |      | 8,978   |   |      |   | 8,242   |  
|                                      |  |      |         |   |      |   |         |  
|Total                                 |  |      | 41,376  |   |      |   | 46,066  |  
|Less: allowance for doubtful accounts |  |      | (12,013 | ) |      |   | (10,254 | )
|                                      |  |      |         |   |      |   |         |  
|Trade accounts receivable, net        |  | $    | 29,363  |   |      | $ | 35,812  |  
|                                      |  |      |         |   |      |   |         |  



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 three months ended March 31, 2003 (Predecessor Company), nine months ended December 31, 2003 and for the years ended December 31, 2004 and 2005 (Successor Company)
is as follows:



|                                                            |  |                |        |   |                   |   |        |                   |  |   |                   |   |  |   |        |  
|----------------------------------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------ | ----------------- |  | - | ----------------- | - |  | - | ------ | -
|                                                            |  | March 31, 2003 |        |   | December 31, 2003 |   |        | December 31, 2004 |  |   | December 31, 2005 |  
|Beginning balance                                           |  | $              | 23,384 |   |                   | $ | 21,358 |                   |  | $ | 20,642            |   |  | $ | 12,013 |  
|Provision for (reversal of) allowance for doubtful accounts |  |                | 515    |   |                   |   | 2,365  |                   |  |   | (3,916            | ) |  |   | (1,062 | )
|Net (Write-offs) recoveries                                 |  |                | (1,553 | ) |                   |   | (3,238 | )                 |  |   | (4,704            | ) |  |   | (253   | )
|Effect of exchange rate change                              |  |                | (988   | ) |                   |   | 157    |                   |  |   | (9                | ) |  |   | (444   | )
|                                                            |  |                |        |   |                   |   |        |                   |  |   |                   |   |  |   |        |  
|Ending balance                                              |  | $              | 21,358 |   |                   | $ | 20,642 |                   |  | $ | 12,013            |   |  | $ | 10,254 |  
|                                                            |  |                |        |   |                   |   |        |                   |  |   |                   |   |  |   |        |  



6. 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, 2004 and 2005 (Successor Company):



|                    |  |      |        |      |   |       
|------------------- |  | ---- | ------ | ---- | - | ------
|                    |  | 2004 |        | 2005
|IMPSAT Argentina    |  | $    | 497    |      | $ | 419   
|IMPSAT Brazil       |  |      | 2,358  |      |   | 2,304 
|IMPSAT Colombia     |  |      | 3,475  |      |   | 3,103 
|IMPSAT Venezuela    |  |      | 2,670  |      |   | 3,076 
|All other countries |  |      | 3,865  |      |   | 1,882 
|                    |  |      |        |      |   |       
|Total               |  | $    | 12,865 |      | $ | 10,784
|                    |  |      |        |      |   |       



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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. PROPERTY, PLANT AND EQUIPMENT



Property, plant and equipment at December 31, 2004 and 2005 (Successor Company) consists of:



|                                                 |  |      |         |   |      |   |          |  
|------------------------------------------------ |  | ---- | ------- | - | ---- | - | -------- | -
|                                                 |  | 2004 |         |   | 2005 |  
|Land                                             |  | $    | 10,109  |   |      | $ | 10,109   |  
|Building and improvements                        |  |      | 36,496  |   |      |   | 38,100   |  
|Operating communications equipment               |  |      | 194,449 |   |      |   | 229,032  |  
|Network infrastructure (including rights of way) |  |      | 111,433 |   |      |   | 121,378  |  
|IRU investments                                  |  |      | 20,407  |   |      |   | 22,118   |  
|Furniture, fixtures and other equipment          |  |      | 16,048  |   |      |   | 17,617   |  
|                                                 |  |      |         |   |      |   |          |  
|Total                                            |  |      | 388,942 |   |      |   | 438,354  |  
|Less: accumulated depreciation                   |  |      | (75,102 | ) |      |   | (130,795 | )
|                                                 |  |      |         |   |      |   |          |  
|Total                                            |  |      | 313,840 |   |      |   | 307,559  |  
|Equipment in transit                             |  |      | 3,442   |   |      |   | 1,507    |  
|Construction in process                          |  |      | 28      |   |      |   | 826      |  
|                                                 |  |      |         |   |      |   |          |  
|Property, plant and equipment, net               |  | $    | 317,310 |   |      | $ | 309,892  |  
|                                                 |  |      |         |   |      |   |          |  



The activity in
accumulated depreciation for the three months ended March 31, 2003 (Predecessor Company), the nine months ended December 31, 2003, and for the years ended December 31, 2004 and 2005 (Successor Company) is as follows:



|                                     |  |               |          |   |                  |   |        |                  |  |   |                  |   |  |   |         |  
|------------------------------------ |  | ------------- | -------- | - | ---------------- | - | ------ | ---------------- |  | - | ---------------- | - |  | - | ------- | -
|                                     |  | March 31,2003 |          |   | December 31,2003 |   |        | December 31,2004 |  |   | December 31,2005 |  
|Beginning balance                    |  | $             | 465,142  |   |                  | $ |       |                  |  | $ | 29,389           |   |  | $ | 75,102  |  
|Depreciation expense                 |  |               | 19,358   |   |                  |   | 29,535 |                  |  |   | 44,797           |   |  |   | 55,324  |  
|Exchange rate effects                |  |               | 1,747    |   |                  |   | 226    |                  |  |   | 1,706            |   |  |   | 2,971   |  
|Disposals and retirements            |  |               | (4,845   | ) |                  |   | (372   | )                |  |   | (790             | ) |  |   | (2,602  | )
|Application of fresh-start reporting |  |               | (481,402 | ) |                  |   |        |                  |  |   |                  |   |  |   |         |  
|                                     |  |               |          |   |                  |   |        |                  |  |   |                  |   |  |   |         |  
|Ending balance                       |  | $             |         |   |                  | $ | 29,389 |                  |  | $ | 75,102           |   |  | $ | 130,795 |  
|                                     |  |               |          |   |                  |   |        |                  |  |   |                  |   |  |   |         |  



8. DEBT



Short-Term DebtIMPSAT Brazil maintains short-term credit
facilities denominated in local currency with local banks. The facilities bear interest at 1.77% to 1.95% per month. As of December 31, 2004 and 2005, the outstanding balance amounted to $1.5 million and $2.2 million, respectively. The
credit facilities mature through October 2006. In addition, as of December 31, 2004, IMPSAT Venezuela maintained a $1.2 million short-term credit facility denominated in local currency with a local bank. This facility was repaid during 2005.



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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)



Long-Term DebtThe Companys long-term debt at December 31, 2004 and 2005
(Successor Company) is detailed as follows:



|                                                                                                                                        |  |      |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                                        |  | 2004 |         |   | 2005 |  
|Series A 6% (paid-in-kind through March 25, 2005) Senior Guaranteed Notes due 2011                                                      |  | $    | 66,376  |   |      | $ | 67,308  |  
|Series B 6% (paid-in-kind through March 25, 2005) Senior Guaranteed Notes due 2011                                                      |  |      | 25,240  |   |      |   | 25,595  |  
|Senior Secured Notes 12% (paid-in-kind through March 25, 2005) , maturing 2009                                                          |  |      |         |   |      |   | 107,300 |  
|Senior Secured Notes 10% (paid-in-kind through March 25, 2005) , maturing 2009                                                          |  |      | 146,877 |   |      |   | 5,918   |  
|Senior Notes issued by IMPSAT Colombia due 2008 and 2010 (interest rate 12.66%), collateralized by the assignment of customer
contracts |  |      | 18,830  |   |      |   | 19,700  |  
|Term notes, maturing through 2007; collateralized by buildings and equipment and the assignment of customer contracts; denominated
in:  |  |      |         |   |      |   |         |  
|U.S. dollars (interest rate 8%)                                                                                                         |  |      | 3,191   |   |      |   | 2,161   |  
|Local currency (interest rates 10.41% to 10.87%)                                                                                        |  |      | 6,390   |   |      |   | 8,035   |  
|Eximbank notes (interest rate 3.34%), maturing semiannually through 2007                                                                |  |      | 2,779   |   |      |   | 1,853   |  
|Vendor financing (interest rates 7.65% to 8.9%)                                                                                         |  |      | 8,744   |   |      |   | 8,065   |  
|                                                                                                                                        |  |      |         |   |      |   |         |  
|Total long-term debt                                                                                                                    |  |      | 278,427 |   |      |   | 245,935 |  
|Less: current portion including defaulted indebtedness                                                                                  |  |      | (45,092 | ) |      |   | (17,604 | )
|                                                                                                                                        |  |      |         |   |      |   |         |  
|Long-term debt, net                                                                                                                     |  | $    | 233,335 |   |      | $ | 228,331 |  
|                                                                                                                                        |  |      |         |   |      |   |         |  



The scheduled
maturities of long-term debt at December 31, 2005 are as follows:



|            |  |        |        
|----------- |  | ------ | -------
|Year Ending |  | Amount
|2006        |  | $      | 17,604 
|2007        |  |        | 30,187 
|2008        |  |        | 37,123 
|2009        |  |        | 58,202 
|2010        |  |        | 9,916  
|2011        |  |        | 92,903 
|            |  |        |        
|Total       |  | $      | 245,935
|            |  |        |        



The Series A Notes,
Series B Notes and Senior Secured Notes and some of the other 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, 2005, the Company was in compliance with all of its debt covenants.



On July 29, 2005, the Holding Company, IMPSAT Argentina and IMPSAT Brazil entered into amended and restated financing agreements to restructure
$125.6 million of its Senior Secured Notes, which were issued by IMPSAT Argentina and IMPSAT Brazil pursuant to separate credit agreements that are each guaranteed by the Holding Company, and which was held by affiliates of certain members of the
Holding Companys board of directors. Prior to the amendments, such indebtedness was required to be paid in eight remaining semi-annual principal installments aggregating $15.7 million between September 2005 and March 2009. Pursuant to such
amendments, an initial principal repayment of $18.3 million was made and the terms of the agreements were modified such that the remaining outstanding principal amounts ($38.9 million owed by IMPSAT Argentina and $68.4 million owed by IMPSAT Brazil)
will be repaid in the aggregate amounts of $5 million in 2006, $20 million in 2007, $25 million in 2008 and $57.3 million in 2009. The amended indebtedness bears interest at a rate



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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)



of 12% per annum, payable semi-annually in arrears, as compared to 10% per annum for the period prior to the effectiveness of the amendments. The
parties also agreed to amendments to the financial covenants in the agreements to reflect current financial and operating conditions. The amended indebtedness is subject to optional prepayment at a cost of 101% until July 29, 2006 and at par
thereafter. The borrowers and the lenders under the amended indebtedness each have an option to further amend the agreements governing such indebtedness to provide that the Company shall be the primary borrower, and IMPSAT Argentina and IMPSAT
Brazil the respective guarantors of the portions of the indebtedness currently owed by them, subject to certain terms and conditions. The terms and conditions of the amendments were negotiated by a special committee of the Holding Companys
board of directors that was formed to explore recapitalization alternatives.



In addition, although the Holding Company has emerged from bankruptcy, IMPSAT Argentina remains in default under indebtedness owed to a creditor who voted against the Plan. Under the Plan, the claims of this creditor
were a contingent obligation arising under a guarantee by the Holding Company of certain primary indebtedness of IMPSAT Argentina. Notwithstanding the Holding Companys emergence from bankruptcy and the extinguishment of Holding Companys
guarantee as a result, an event of default has occurred and is continuing with respect to the related primary underlying indebtedness of IMPSAT Argentina. As a result of this default, which relates to vendor financing totaling approximately $7.6
million in outstanding principal amount as of December 31, 2004 and 2005, such indebtedness and accrued interest thereon is due and payable. IMPSAT Argentina had been in discussions with the entity holding the indebtedness with a view to
rescheduling or otherwise restructuring the defaulted debt obligation. The Company understands, however, that this holder recently transferred the defaulted debt obligation to a new holder. The Company is not in discussions with the new holder. If
IMPSAT Argentina is unable to reschedule or restructure this indebtedness, IMPSAT Argentina could be forced to seek protection or liquidate under the bankruptcy laws of Argentina. There is no assurance that IMPSAT Argentina will reach a definitive
agreement with this holder to reschedule or restructure such obligations.



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 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 the 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.



The Series A and Series B Notes
are convertible into approximately 4,964,000 and 1,107,000 shares of the Companys common stock, respectively, at a conversion price of $13.56 and $20.78, respectively, as of December 31, 2005.



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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. INCOME TAXES



The composition of the provision for income taxes, all of which is for foreign taxes, for the three months ended March 31, 2003 (Predecessor
Company), nine months ended December 31, 2003 and for the years ended December 31, 2004 and 2005 (Successor Company) is as follows:



|         |  |                              |      |   |                                |   |        |                         |  |   |                         |   |  |        |  
|-------- |  | ---------------------------- | ---- | - | ------------------------------ | - | ------ | ----------------------- |  | - | ----------------------- | - |  | ------ | -
|         |  | Three Months Ended March 31, |      |   | Nine Months Ended December 31, |   |        | Year Ended December 31, |  |   | Year Ended December 31, |  
|         |  | 2003                         |      |   | 2003                           |   |        | 2004                    |  |   | 2005                    |  
|Current  |  | $                            | (324 | ) |                                | $ | (1,454 | )                       |  | $ | (1,867                  | ) |  | (2,385 | )
|Deferred |  |                              | (82  | ) |                                |   |        |                         |  |   | (1,612                  | ) |  | (2,107 | )
|         |  |                              |      |   |                                |   |        |                         |  |   |                         |   |  |        |  
|Total    |  | $                            | (406 | ) |                                | $ | (1,454 | )                       |  | $ | (3,479                  | ) |  | (4,492 | )
|         |  |                              |      |   |                                |   |        |                         |  |   |                         |   |  |        |  



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 at December 31, 2004 and
2005 (Successor Company):



|                                  |  |      |          |   |      |   |          |  
|--------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                  |  | 2004 |          |   | 2005 |  
|Deferred tax assets:              |  |      |          |   |      |   |          |  
|Net operating loss carryforwards: |  |      |          |   |      |   |          |  
|Domestic                          |  | $    | 8,316    |   |      | $ | 11,395   |  
|Foreign                           |  |      | 114,012  |   |      |   | 129,285  |  
|Property, plant and equipment     |  |      | 31,697   |   |      |   | 31,208   |  
|Allowances                        |  |      | 5,655    |   |      |   | 3,056    |  
|                                  |  |      |          |   |      |   |          |  
|Gross deferred tax assets         |  |      | 159,680  |   |      |   | 174,944  |  
|Less: valuation allowance         |  |      | (159,680 | ) |      |   | (171,543 | )
|                                  |  |      |          |   |      |   |          |  
|Net deferred tax asset            |  |      |         |   |      |   | 3,401    |  
|Deferred tax liabilities:         |  |      |          |   |      |   |          |  
|Property, plant and equipment     |  |      | (1,612   | ) |      |   | (7,120   | )
|                                  |  |      |          |   |      |   |          |  
|Net deferred tax liability        |  | $    | (1,612   | ) |      | $ | (3,719   | )
|                                  |  |      |          |   |      |   |          |  



The Company recorded a
valuation allowance to offset its deferred income tax asset as of December 31, 2004 and 2005 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 No. 109.



The Company has reserved for tax contingencies totaling approximately $6.0 million and $7.3 million as of December 31, 2004 and 2005, respectively, attributable primarily to its foreign subsidiaries tax
return filings. These contingencies are for tax liabilities and related interest, as well as certain tax positions taken on foreign tax returns for which the statutes remain open.



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



The Company considers earnings relating to its foreign subsidiaries to be
indefinitely reinvested outside of the United States and, accordingly, no U.S. deferred income taxes have been recorded with respect to such



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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)



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.



10. OPERATING SEGMENT INFORMATION



The Companys operating segment information, by subsidiary, is as follows:



|                                                       |  |           |         |   |        |   |         |          |  |   |           |   |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|------------------------------------------------------ |  | --------- | ------- | - | ------ | - | ------- | -------- |  | - | --------- | - | ------------------ | - | ------ | ------------ | - | ------- | ----- |  | - | ------- | - |  | - | ------- | -
|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 |  
|                                                       |  |           |         |   |        |   |         |          |  |   |           |   |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|                                                       |  |           |         |   |        |   |        
|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 |  
|                                                       |  |           |         |   |        |   |         |          |  |   |           |   |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  



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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)



|                         |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|------------------------ |  | --------- | ------- | ------ | - | ------- | -------- |  | --------- | ------ | ------------------ | - | ------ | ------------ | - | ------- | ----- |  | - | ------- | - |  | - | ------- | -
|2005 (Successor Company) |  | Argentina |         | Brazil |   |         | Colombia |  | Venezuela |        | All othercountries |   |        | Eliminations |   |         | Total | 
|Net Revenues             |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|Satellite and Broadband  |  | $         | 34,045  |        | $ | 31,197  |          |  | $         | 50,498 |                    | $ | 26,171 |              | $ | 49,192  |       |  | $ | (18,251 | ) |  | $ | 172,852 |  
|Internet                 |  |           | 8,111   |        |   | 5,707   |          |  |           | 5,864  |                    |   | 2,453  |              |   | 13,916  |       |  |   | (5,460  | ) |  |   | 30,591  |  
|Value added services     |  |           | 17,757  |        |   | 9,572   |          |  |           | 5,268  |                    |   | 2,362  |              |   | 4,104   |       |  |   | (14,189 | ) |  |   | 24,874  |  
|Telephony                |  |           | 18,209  |        |   | 1,582   |          |  |           | 222    |                    |   |       |              |   | 13,490  |       |  |   | (8,536  | ) |  |   | 24,967  |  
|Sales of equipment       |  |           | 42      |        |   |        |          |  |           | 128    |                    |   | 90     |              |   | 430     |       |  |   |        |   |  |   | 690     |  
|                         |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|Total net revenues       |  | $         | 78,164  |        | $ | 48,058  |          |  | $         | 61,980 |                    | $ | 31,076 |              | $ | 81,132  |       |  | $ | (46,436 | ) |  | $ | 253,974 |  
|                         |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|Operating income (loss)  |  | $         | 4,376   |        | $ | (4,675  | )        |  | $         | 1,944  |                    | $ | 7,485  |              | $ | (12,321 | )     |  |   |         |   |  | $ | (3,191  | )
|                         |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|Total assets             |  | $         | 123,910 |        | $ | 125,191 |          |  | $         | 71,710 |                    | $ | 57,991 |              | $ | 20,741  |       |  |   |         |   |  | $ | 399,543 |  
|                         |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  



11. 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 Holding Companys capitalization (provided that no more than 200,000 shares of common stock may be issued pursuant to Awards that are not stock options or stock appreciation rights). The 2003 Plan is
administered by the Holding Companys compensation committee. The compensation committee determines, among other things, which of the Companys officers, employees, consultants, advisors, affiliates and directors will receive Awards under
the Plan, the time when Awards will be granted, and the type of Awards to be granted. Awards granted under the 2003 Plan are on such terms, including the number of shares subject to each Award, the time or times when the Awards will become
exercisable, and the price and duration of the Award, as determined by the compensation committee. The expiration date of the 2003 Plan is March 25, 2013 and no Awards may be granted after said date. The termination of the Plan will not affect
any Award outstanding on the date of termination.



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



Payment of the exercise price of a stock option or stock appreciation right must be made by cash or, in the sole discretion of the compensation committee,
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.



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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 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 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
and 2005 was $440 per year.



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 three anniversaries of the date of grant. In addition, on the same date, the Holding Company also granted stock options for 30,000 shares of the Holding Companys common
stock 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 under these grants will expire on May 19, 2011. Based on the resignation from the
board of directors of one director on December 31, 2004, 30,000 of these options were cancelled.



On July 15, 2004, the Holding Company granted stock options for 262,156 shares of the Holding Companys 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 vested based on 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 common stock at an exercise price of $6.17 per share to certain directors of the Holding Company in recognition of such directors service as directors of the Holding Company, which
options were fully vested on the date of grant. Based on the resignation from the board of directors of one director on December 31, 2004, 30,000 of the 90,000 options granted on September 30, 2004 were cancelled.



On September 30, 2004 and November 19, 2004, the Holding Company granted
stock options for 60,000 and 20,000 shares, respectively, of the Holding Companys common stock at exercise prices of $6.17 and $15.00, respectively, per share to an affiliate of certain directors of the Holding Company pursuant to an agreement
of the parties (and not under the 2003 Plan or any other stockholder-approved plan) in recognition of such directors service as directors of the Holding Company, which options were fully vested on the date of grant. The Holding Company
recorded an expense of approximately $149 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. Based on the resignation from
the board of directors of Raul Ramirez on June 8, 2005, 50% of the stock options granted on September 30, 2004 and November 19, 2004 were cancelled.



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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)



On November 17, 2005, the Holding Company granted stock options for 10,000 and 32,546 shares
with exercise prices of $15.00 and $7.05, respectively, to an affiliate of a director of the Holding Company pursuant to an agreement of the parties (and not under the 2003 Plan or any other stockholder-approved plan) in recognition of such
directors service as a director of the Holding Company. In addition, on such date, the Holding Company granted stock options for 10,000 and 32,546 shares with exercise prices of $15.00 and $7.05, respectively, to a director of the Holding
Company under the 2003 Plan in recognition of such directors service as a director of the Holding Company. Both of these stock option grants vested immediately. Unless earlier terminated by reason of the termination of a directors
service, any unexercised stock options under these grants will expire on May 19, 2011, in the case of options granted with an exercise price of $15.00, and September 30, 2012, in the case of options granted with an exercise price of $7.05.
The Company recorded an expense of approximately $111 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, 2005.



A summary of stock option transactions during the nine month period ended
December 31, 2003 and for the years ended December 31, 2004 and 2005 is as follow:



|                                 |  |                 |   |  |                                 |      
|-------------------------------- |  | --------------- | - |  | ------------------------------- | -----
|                                 |  | Number ofOption |   |  | 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
|Exercised                        |  |                |   |  |                                 |     
|Granted                          |  | 85,092          |   |  |                                 | 8.92 
|Cancelled                        |  | (80,000         | ) |  |                                 | 8.38 
|                                 |  |                 |   |  |                                 |      
|Outstanding at December 31, 2005 |  | 2,113,580       |   |  | $                               | 14.01
|                                 |  |                 |   |  |                                 |      



The following table
summarizes information concerning outstanding stock options at December 31, 2005:



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



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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)



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 Holding 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, 2005, all the
warrants remain outstanding.



Common Stock Reserve
PoolOn the Effective Date, in accordance with the Plan, the Holding Company established a common stock reserve pool of 686,000 shares. During the fourth quarter of 2003, the Holding 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.



12. MANAGEMENT INCENTIVE PLAN



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



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



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



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



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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)



members (and their approved successors) ceasing to constitute a majority of the Board or, if applicable, the board of directors of a successor to the
Company.



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



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



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



13. RELATED PARTIES
TRANSACTIONS



As discussed in Notes 3 and 8, on July 29,
2005, we entered into amended and restated financing agreements to restructure $125.6 million of the Senior Secured Notes, which were issued by IMPSAT Argentina and IMPSAT Brazil pursuant to separate credit agreements that are each guaranteed by the
Holding Company. The restructured Senior Secured Notes were, and continue to be, held by Morgan Stanley Senior Funding, Inc. (MSSF) and, through participation, accounts of WRH Partners Global Securities, L.P. and/or certain of its
affiliates (collectively, WR Huff). Each of MSSF and Huff are affiliates of certain members of our board of directors. In addition, affiliates of MSSF hold a significant portion of the Holding Companys common stock and Series B
Notes, and have been granted stock options. WR Huff holds a significant portion of the Series A Notes and Series B Notes. The terms and conditions of the amendments were negotiated by a special committee of the Holding Companys board of
directors that (i) was formed to explore recapitalization alternatives, (ii) retained Lehman Brothers Inc. as its exclusive financial advisor and (iii) received an opinion from Lehman Brothers Inc. that the restructuring transaction was fair to the
Holding Company, IMPSAT Argentina and IMPSAT Brazil.



As
discussed in Note 11, on November 17, 2005, the Holding Company granted stock options for 10,000 shares and 32,456 shares of common stock to Morgan Stanley & Co., an affiliate of certain directors of the Holding Company, in recognition of the
service of an affiliated director on the board of directors of the Holding Company.



During the years ended December 31, 2004 and 2005, the Company purchased telecommunications equipment and services from Nortel Network Limited, an affiliate, totaling $2.2 million and $1.2 million, respectively.



14. COMMITMENTS AND CONTINGENCIES



CommitmentsThe Company leases satellite capacity with
average annual rental commitments of approximately $15.4 million through 2009 under non- cancelable agreements. In addition, the Company has committed to long-term contracts for the purchase of satellite and terrestrial links from third parties for
approximately $14.4 million and $15.0 million through 2015 and 2009, respectively. The Company has commitments to purchase communications and data center equipment amounting to approximately $5.4 million at December 31, 2005.



The Holding Company is a guarantor of the Senior Secured Notes issued by its
subsidiaries and other financing agreements entered by certain of its subsidiaries. At December 31, 2005, the aggregate balance outstanding that has been guaranteed by the Holding Company was approximately $113.2 million (see Note 8).



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 $43.2 million as of December 31, 2005.



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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)



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



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



Pursuant to a court order in August 2001, the IPO Class Action was consolidated for all pre-trial purposes in In re Initial Public Offering Securities Litigation, 21 MC 92, an intra-district proceeding
involving approximately 900 lawsuits relating to the initial public offerings of approximately 310 companies. In July 2002, the Holding Company and the other defendants filed a motion to dismiss, which was denied as to the Holding Company and one
individual officer in February 2003. In April 2003, the Holding Company was advised that global settlement discussions between the plaintiffs and the Holding Companys insurer (on behalf of the Holding Company and the individual
defendants) to resolve plaintiffs claims against all 310 companies had reached an advanced stage. Among other things, the proposed settlement would result in a broad release of claims against the Holding Company, its officers and directors,
and other issuers, and their officers and directors without a direct financial contribution by the Holding Company. Settlement papers seeking preliminary approval of the settlement and certification of the investor class were submitted to the court
in June 2004. In February 2005, the Court granted preliminary approval for a proposed settlement. The settlement is subject to certain final determinations and a fairness hearing, which is presently scheduled for April 2006.



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



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



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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

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



15. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)



Selected financial information for the quarterly periods in 2004 and 2005
(Successor Company) is presented below:



|                                    |  |               |        |   |        |   |         |       |  |   |        |   |  |   |         |  
|----------------------------------- |  | ------------- | ------ | - | ------ | - | ------- | ----- |  | - | ------ | - |  | - | ------- | -
|                                    |  | 2004 Quarters |       
|                                    |  | 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  | ) |        |   | (1.0    | )     |  |   | 0.07   |   |  |   | 0.15    |  
|                                    |  |               |        |   |        |   |         |       |  |   |        |   |  |   |         |  
|Diluted                             |  |               | (0.64  | ) |        |   | (1.0    | )     |  |   | 0.07   |   |  |   | 0.15    |  
|                                    |  |               |        |   |        |   |         |       |  |   |        |   |  |   |         |  
|                                    | 
|                                    |  | 2005 Quarters |       
|                                    |  | First         |        |   | Second |   |         | Third |  |   | Fourth |  
|Total net revenue                   |  | $             | 59,872 |   |        | $ | 61,458  |       |  | $ | 65,408 |   |  | $ | 67,236  |  
|                                    |  |               |        |   |        |   |         |       |  |   |        |   |  |   |         |  
|Operating (loss) income             |  |               | (1,392 | ) |        |   | (2,664  | )     |  |   | 826    |   |  |   | 39      |  
|                                    |  |               |        |   |        |   |         |       |  |   |        |   |  |   |         |  
|Net loss                            |  |               | (8,224 | ) |        |   | (6,967  | )     |  |   | (5,163 | ) |  |   | (15,894 | )
|                                    |  |               |        |   |        |   |         |       |  |   |        |   |  |   |         |  
|Net loss per common share:          |  |               |        |   |        |   |         |       |  |   |        |   |  |   |         |  
|                                    |  |               |        |   |        |   |         |       |  |   |        |   |  |   |         |  
|Basic                               |  |               | (0.82  | ) |        |   | (0.69   | )     |  |   | (0.51  | ) |  |   | (1.59   | )
|                                    |  |               |        |   |        |   |         |       |  |   |        |   |  |   |         |  
|Diluted                             |  |               | (0.82  | ) |        |   | (0.69   | )     |  |   | (0.51  | ) |  |   | (1.59   | )
|                                    |  |               |        |   |        |   |         |       |  |   |        |   |  |   |         |  



The Companys
2005 fourth quarter results were negatively impacted as a result of a net loss on foreign exchange of $5.5 million during the fourth quarter of 2005 as compared to a net gain on foreign exchange of $4.4 million during the third quarter of 2005.



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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)



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 December 31, 2004 and 2005 and for the nine months ended December 31, 2003 and the years ended December 31, 2004 and 2005 (Successor Company) is shown
in a separate column in the accompanying consolidating financial information, as follows:



CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2004

(In thousands of U.S. Dollars)



|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|------------------------------------ |  | -------------- | ------- | -------------------------- | - | ------------------------- |  | ------------------------ | ------- |  | ------------ | -------- | - |  | - | -------
|                                     |  | HoldingCompany |         | IMPSATArgentina(Guarantor) |   | Non-GuarantorSubsidiaries |  | IntercompanyEliminations |         |  | 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 
|Interest payable                     |  |                |         |                            |   | 1,885                     |  |                          | 663     |  |              |          |   |  |   | 2,548  
|Accrued and other liabilities        |  |                | 33      |                            |   | 8,906                     |  |                          | 38,343  |  |              | (18,613  | ) |  |   | 28,669 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|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 BALANCE SHEET

AS OF DECEMBER 31, 2005

(In thousands of U.S. Dollars)



|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|------------------------------------ |  | -------------- | ------- | -------------------------- | - | ------------------------- |  | ------------------------ | ------- |  | ------------ | -------- | - |  | - | -------
|                                     |  | HoldingCompany |         | IMPSATArgentina(Guarantor) |   | Non-GuarantorSubsidiaries |  | IntercompanyEliminations |         |  | Consolidated
|ASSETS                               |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|                                     |  |                |         |                            |  
|CURRENT ASSETS:                      |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Cash and cash equivalents            |  | $              | 1,026   |                            | $ | 3,300                     |  | $                        | 19,744  |  |              |          |   |  | $ | 24,070 
|Trade accounts receivable, net       |  |                |         |                            |   | 12,169                    |  |                          | 23,643  |  |              |          |   |  |   | 35,812 
|Other receivables                    |  |                |        |                            |   | 32,722                    |  |                          | 50,896  |  | $            | (72,834  | ) |  |   | 10,784 
|Prepaid expenses                     |  |                | 203     |                            |   | 526                       |  |                          | 2,333   |  |              | (238     | ) |  |   | 2,824  
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total current assets                 |  |                | 1,229   |                            |   | 48,717                    |  |                          | 96,616  |  |              | (73,072  | ) |  |   | 73,490 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|PROPERTY, PLANT AND EQUIPMENT, Net   |  |                |         |                            |   | 68,242                    |  |                          | 241,650 |  |              |          |   |  |   | 309,892
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|NON-CURRENT ASSETS:                  |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Investments                          |  |                | 50,108  |                            |   |                           |  |                          |         |  |              | (50,108  | ) |  |   |        
|Other non-current assets             |  |                | 109,883 |                            |   | 6,951                     |  |                          | 9,206   |  |              | (109,879 | ) |  |   | 16,161 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total non-current assets             |  |                | 159,991 |                            |   | 6,951                     |  |                          | 9,206   |  |              | (159,987 | ) |  |   | 16,161 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|TOTAL                                |  | $              | 161,220 |                            | $ | 123,910                   |  | $                        | 347,472 |  | $            | (233,059 | ) |  | $ | 399,543
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|                                     |  |                |         |                            |  
|CURRENT LIABILITIES:                 |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Accounts payable  trade             |  | $              | 22,913  |                            | $ | 23,995                    |  | $                        | 64,088  |  | $            | (64,916  | ) |  | $ | 46,080 
|Short-term debt                      |  |                |         |                            |   |                           |  |                          | 2,168   |  |              |          |   |  |   | 2,168  
|Current portion of long-term debt    |  |                |         |                            |   | 9,308                     |  |                          | 8,296   |  |              |          |   |  |   | 17,604 
|Interest payable                     |  |                | 1,626   |                            |   | 5,989                     |  |                          | 2,838   |  |              |          |   |  |   | 10,453 
|Accrued and other liabilities        |  |                | 33      |                            |   | 9,739                     |  |                          | 41,511  |  |              | (16,416  | ) |  |   | 34,867 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total current liabilities            |  |                | 24,572  |                            |   | 49,031                    |  |                          | 118,901 |  |              | (81,332  | ) |  |   | 111,172
|LONG-TERM DEBT, Net                  |  |                | 92,903  |                            |   | 42,876                    |  |                          | 92,552  |  |              |          |   |  |   | 228,331
|OTHER LONG-TERM LIABILITIES          |  |                |         |                            |   | 18,589                    |  |                          | 99,321  |  |              | (101,615 | ) |  |   | 16,295 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total liabilities                    |  |                | 117,475 |                            |   | 110,496                   |  |                          | 310,774 |  |              | (182,947 | ) |  |   | 355,798
|STOCKHOLDERS EQUITY                 |  |                | 43,745  |                            |   | 13,414                    |  |                          | 36,698  |  |              | (50,112  | ) |  |   | 43,745 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|TOTAL                                |  | $              | 161,220 |                            | $ | 123,910                   |  | $                        | 347,472 |  | $            | (233,059 | ) |  | $ | 399,543
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        



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---

##### Table of Contents

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

FOR THE NINE MONTHS ENDED DECEMBER 31, 2003

(In thousands of U.S. Dollars)



|                                    |  |                |        |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|----------------------------------- |  | -------------- | ------ | - | -------------------------- | - | ------ | ------------------------- |  | - | ------------------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                    |  | HoldingCompany |        |   | IMPSATArgentina(Guarantor) |   |        | Non-GuarantorSubsidiaries |  |   | IntercompanyEliminations |   |  | 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              |  |                | (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   |  
|                                    |  |                |        |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  



F-32



---

##### 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 OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2004

(In thousands of U.S. Dollars)



|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|----------------------------------- |  | -------------- | ------- | - | -------------------------- | - | ------ | ------------------------- |  | - | ------------------------ | - |  | --------------------- | ------- | - |  | - | ------- | -
|                                    |  | HoldingCompany |         |   | IMPSATArgentina(Guarantor) |   |        | Non-GuarantorSubsidiaries |  |   | IntercompanyEliminations |   |  | CondensedConsolidated |        
|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 extinguishment              |  |                | (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 (loss) gain 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 income (expense)        |  |                | 896     |   |                            |   | (6,632 | )                         |  |   | (6,536                   | ) |  |                       | (1,054  | ) |  |   | (13,326 | )
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|INCOME (LOSS) 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-33



---

##### 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 OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2005

(In thousands of U.S. Dollars)



|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|----------------------------------- |  | -------------- | ------- | - | -------------------------- | - | ------ | ------------------------- |  | - | ------------------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                    |  | HoldingCompany |         |   | IMPSATArgentina(Guarantor) |   |        | Non-GuarantorSubsidiaries |  |   | IntercompanyEliminations |   |  | Consolidated |        
|NET REVENUES:                       |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Broadband and satellite             |  |                |         |   |                            | $ | 34,045 |                           |  | $ | 157,058                  |   |  | $            | (18,251 | ) |  | $ | 172,852 |  
|Internet                            |  |                |         |   |                            |   | 8,111  |                           |  |   | 27,940                   |   |  |              | (5,460  | ) |  |   | 30,591  |  
|Value added services                |  |                |         |   |                            |   | 17,757 |                           |  |   | 21,306                   |   |  |              | (14,189 | ) |  |   | 24,874  |  
|Telephony                           |  |                |         |   |                            |   | 18,209 |                           |  |   | 15,294                   |   |  |              | (8,536  | ) |  |   | 24,967  |  
|Sales of equipment                  |  |                |         |   |                            |   | 42     |                           |  |   | 648                      |   |  |              |        |   |  |   | 690     |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Total net revenues                  |  |                |         |   |                            |   | 78,164 |                           |  |   | 222,246                  |   |  |              | (46,436 | ) |  |   | 253,974 |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|COSTS AND EXPENSES:                 |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Direct costs:                       |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Contracted services                 |  |                |         |   |                            |   | 9,003  |                           |  |   | 23,911                   |   |  |              | (8,535  | ) |  |   | 24,379  |  
|Other direct costs                  |  |                |         |   |                            |   | 8,648  |                           |  |   | 20,656                   |   |  |              | (395    | ) |  |   | 28,909  |  
|Leased capacity                     |  |                |         |   |                            |   | 24,060 |                           |  |   | 75,023                   |   |  |              | (24,093 | ) |  |   | 74,990  |  
|Cost of equipment sold              |  |                |         |   |                            |   | 46     |                           |  |   | 591                      |   |  |              | (6      | ) |  |   | 631     |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Total direct costs                  |  |                |         |   |                            |   | 41,757 |                           |  |   | 120,181                  |   |  |              | (33,029 | ) |  |   | 128,909 |  
|Salaries and wages                  |  | $              | 440     |   |                            |   | 12,547 |                           |  |   | 37,610                   |   |  |              |         |   |  |   | 50,597  |  
|Selling, general and administrative |  |                | 14,221  |   |                            |   | 6,452  |                           |  |   | 15,069                   |   |  |              | (13,407 | ) |  |   | 22,335  |  
|Depreciation and amortization       |  |                |         |   |                            |   | 13,032 |                           |  |   | 42,292                   |   |  |              |         |   |  |   | 55,324  |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Total costs and expenses            |  |                | 14,661  |   |                            |   | 73,788 |                           |  |   | 215,152                  |   |  |              | (46,436 | ) |  |   | 257,165 |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Operating (loss) income             |  |                | (14,661 | ) |                            |   | 4,376  |                           |  |   | 7,094                    |   |  |              |         |   |  |   | (3,191  | )
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|OTHER INCOME (EXPENSES):            |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Interest income                     |  |                | 5,722   |   |                            |   | 437    |                           |  |   | 824                      |   |  |              | (5,550  | ) |  |   | 1,433   |  
|Interest expense                    |  |                | (6,551  | ) |                            |   | (9,199 | )                         |  |   | (22,194                  | ) |  |              | 5,550   |   |  |   | (32,394 | )
|Net (loss) gain on foreign exchange |  |                | (13     | ) |                            |   | (692   | )                         |  |   | 10,836                   |   |  |              |         |   |  |   | 10,131  |  
|Equity in income of affiliates      |  |                | (16,266 | ) |                            |   |        |                           |  |   | (10,364                  | ) |  |              | 26,630  |   |  |   |         |  
|Other (loss) income net             |  |                | (4,479  | ) |                            |   | 304    |                           |  |   | (3,560                   | ) |  |              |         |   |  |   | (7,735  | )
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Total other (expenses) income       |  |                | (21,587 | ) |                            |   | (9,150 | )                         |  |   | (24,458                  | ) |  |              | 26,630  |   |  |   | (28,565 | )
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|(LOSS) INCOME BEFORE INCOME TAXES   |  |                | (36,248 | ) |                            |   | (4,774 | )                         |  |   | (17,364                  | ) |  |              | 26,630  |   |  |   | (31,756 | )
|PROVISION FOR FOREIGN INCOME TAXES  |  |                |        |   |                            |   | (794   | )                         |  |   | (3,698                   | ) |  |              |         |   |  |   | (4,492  | )
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|NET LOSS                            |  | $              | (36,248 | ) |                            | $ | (5,568 | )                         |  | $ | (21,062                  | ) |  | $            | 26,630  |   |  | $ | (36,248 | )
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  



F-34



---

##### 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

FOR THE NINE MONTHS ENDED DECEMBER 31, 2003

(In thousands of U.S. Dollars)



|                                                            |  |                |        |   |                            |   |        |                           |  |   |                          |   |  |              |        |   |  |   |        |  
|----------------------------------------------------------- |  | -------------- | ------ | - | -------------------------- | - | ------ | ------------------------- |  | - | ------------------------ | - |  | ------------ | ------ | - |  | - | ------ | -
|                                                            |  | HoldingCompany |        |   | IMPSATArgentina(Guarantor) |   |        | Non-GuarantorSubsidiaries |  |   | IntercompanyEliminations |   |  | 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

FOR THE YEAR ENDED DECEMBER 31, 2004

(In thousands of U.S. Dollars)



|                                                            |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |        |   |  |   |         |  
|----------------------------------------------------------- |  | -------------- | ------- | - | -------------------------- | - | ------ | ------------------------- |  | - | ------------------------ | - |  | --------------------- | ------ | - |  | - | ------- | -
|                                                            |  | HoldingCompany |         |   | IMPSATArgentina(Guarantor) |   |        | Non-GuarantorSubsidiaries |  |   | IntercompanyEliminations |   |  | Condensedconsolidated |       
|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 (decrease) in cash and cash equivalents        |  |                | (4,108  | ) |                            |   | 2,403  |                           |  |   | 3,862                    |   |  |                       |        |   |  |   | 2,157   |  
|Cash and cash equivalents at beginning of the year          |  |                | 43,883  |   |                            |   | 1,432  |                           |  |   | 16,183                   |   |  |                       |        |   |  |   | 61,498  |  
|                                                            |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |        |   |  |   |         |  
|Cash and cash equivalents at end of the year                |  | $              | 39,775  |   |                            | $ | 3,835  |                           |  | $ | 20,045                   |   |  |                       |       |   |  | $ | 63,655  |  
|                                                            |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |        |   |  |   |         |  



F-35



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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

FOR THE YEAR ENDED DECEMBER 31, 2005



|                                                            |  |                |         |   |                            |   |         |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|----------------------------------------------------------- |  | -------------- | ------- | - | -------------------------- | - | ------- | ------------------------- |  | - | ------------------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                            |  | HoldingCompany |         |   | IMPSATArgentina(Guarantor) |   |         | Non-GuarantorSubsidiaries |  |   | IntercompanyEliminations |   |  | Consolidated |        
|Cash flows provided by (used in) operating activities       |  | $              | (16,102 | ) |                            | $ | 19,746  |                           |  | $ | 72,515                   |   |  | $            | (44,078 | ) |  | $ | 32,449  |  
|Cash flows provided by (used in) investing activities       |  |                |         |   |                            |   | (7,294  | )                         |  |   | (70,721                  | ) |  |              | 44,078  |   |  |   | (34,305 | )
|Cash flows provided by (used in) financing activities       |  |                | (23,076 | ) |                            |   | (12,987 | )                         |  |   | (1,548                   | ) |  |              |         |   |  |   | (37,611 | )
|Effect of exchange rate change on cash and cash equivalents |  |                | 429     |   |                            |   |         |                           |  |   | (547                     | ) |  |              |         |   |  |   | (118    | )
|                                                            |  |                |         |   |                            |   |         |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents        |  |                | (38,749 | ) |                            |   | (535    | )                         |  |   | (301                     | ) |  |              |         |   |  |   | (39,585 | )
|Cash and cash equivalents at beginning of the year          |  |                | 39,775  |   |                            |   | 3,835   |                           |  |   | 20,045                   |   |  |              |         |   |  |   | 63,655  |  
|                                                            |  |                |         |   |                            |   |         |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Cash and cash equivalents at end of the year                |  | $              | 1,026   |   |                            | $ | 3,300   |                           |  | $ | 19,744                   |   |  | $            |        |   |  | $ | 24,070  |  
|                                                            |  |                |         |   |                            |   |         |                           |  |   |                          |   |  |              |         |   |  |   |         |  



F-36



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##### Table of Contents

Item 15(b)



EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                                                                                                  
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                      
|3.1         |  | Restated Certificate of Incorporation of the Company (filed on March 26, 2003 as Exhibit No. 2.1 to the Companys Amendment No. 1 to Registration Statement on Form 8-A and incorporated
herein by reference).                                                                                                                                                   
|            | 
|3.2         |  | Amended and Restated Bylaws of the Company (filed on March 31, 2006 as Exhibit 3.2 to the Companys 2005 Annual Report on Form 10-K and incorporated herein by
reference).                                                                                                                                                                                       
|            | 
|4.1         |  | Indenture for the Companys 6% Senior Guaranteed Convertible Notes due 2011Series A, dated as of March 25, 2003, among the Company, The Bank of New York, as trustee and IMPSAT
Argentina, as guarantor (including form of Note) (filed on April 15, 2003 as Exhibit 4.1 to the Companys 2002 Annual Report on Form 10-K and incorporated herein by reference).
|            | 
|4.2         |  | Indenture for the Companys 6% Senior Guaranteed Convertible Notes due 2011Series B, dated as of March 25, 2003, among the Company, The Bank of New York, as trustee and IMPSAT
Argentina, as guarantor (including form of Note) (filed on April 15, 2003 as Exhibit 4.2 to the Companys 2002 Annual Report on Form 10-K and incorporated herein by reference).
|            | 
|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        |  | Employment Agreement between Ricardo A. Verdaguer and the Company dated as of March 25, 2003 (filed on August 14, 2003 as Exhibit 10.5 to the Companys second quarter 2003 Quarterly
Report on Form 10Q and incorporated herein by reference).                                                                                                                  
|            | 
|10.2        |  | Employment Agreement between Hector R. Alonso and the Company dated as of March 25, 2003 (filed on August 14, 2003 as Exhibit 10.6 to the Companys second quarter 2003
Quarterly Report on Form 10Q and incorporated herein by reference).                                                                                                                      



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.3        |  | Letter Agreement between Marcelo Girotti and the Company dated March 25, 2003 (filed on August 14, 2003 as Exhibit 10.7 to the Companys second quarter 2003 Quarterly Report on Form 10Q
and incorporated herein by reference). In accordance with Instruction 2 to Item 601 of Regulation S-K, the following agreements were not filed as exhibits because they are substantially identical in all material respects to Exhibit 10.4: Letter
Agreement between Mariano Torre Gomez and the Company dated March 25, 2003; Letter Agreement between Matias Heinrich and the Company dated March 25, 2003; Letter Agreement between Alexander Rivelis and the Company dated March 25,
2003.
|            | 
|10.4        |  | Second Amended and Restated Financing Agreement among IMPSAT Argentina, Morgan Stanley Senior Funding, Inc., and Deutsche Bank Trust Company Americas, as Administrative Agent and Collateral
Agent, dated as of July 29, 2005 (filed on November 14, 2005 as Exhibit 10.4 to the Companys third quarter 2005 Quarterly Report on Form 10-Q and incorporated by reference herein).                                                                                                                                                                                                                                                                                                       
|            | 
|10.5        |  | Second Amended and Restated Financing Agreement among IMPSAT Brazil, Morgan Stanley Senior Funding, Inc., and Deutsche Bank Trust Company Americas, as Administrative Agent and Collateral
Agent, dated as of July 29, 2005 (filed on November 14, 2005 as Exhibit 10.4 to the Companys third quarter 2005 Quarterly Report on Form 10-Q and incorporated by reference herein).                                                                                                                                                                                                                                                                                                          
|            | 
|10.6        |  | IMPSAT Fiber Networks, Inc. Management Incentive Plan (filed on December 29, 2005 as Exhibit 10.1 to the Companys Current Report on Form 8-K, and incorporated herein by
reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|10.7        |  | Form of IMPSAT Fiber Networks, Inc. Management Incentive Plan Retention Agreement (filed on December 29, 2005 as Exhibit 10.2 to the Companys Current Report on Form 8-K, and
incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|21.1        |  | List of subsidiaries of the registrants (incorporated by reference to the BusinessGeneral section of the Companys 2003 Annual Report on Form 10-K and incorporated
herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | 
|31.1        |  | Certification by the Companys Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            | 
|31.2        |  | Certification by the Companys Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            | 
|32.1        |  | Certification by the Companys Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|32.2        |  | Certification by the Companys Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).