UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2006

¨	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

IMPSAT Fiber Networks, Inc.

(Exact name of registrant as specified in its charter)

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 registrants’ principal executive offices)

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

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


Large accelerated filer ¨		Accelerated filer ¨		Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Securities Exchange Act

Rule 12b-2). YES ¨ NO x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES x NO ¨

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of June 30, 2006, the registrant had outstanding 10,116,100 shares of common stock, $0.01 par value.

IMPSAT FIBER NETWORKS, INC.

Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30, 2006


		Page No.
PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (unaudited)		F-1

	CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2005 AND JUNE 30, 2006	F-1

	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006	F-2

	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006	F-3

	CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2006	F-4

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2006	F-5

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	F-6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		3

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		18

ITEM 4. CONTROLS AND PROCEDURES		19

PART II OTHER INFORMATION		20

ITEM 1. LEGAL PROCEEDINGS		20

ITEM 1A. RISK FACTORS		20

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		20

ITEM 3. DEFAULTS UPON SENIOR SECURITIES		20

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS		20

ITEM 5. OTHER INFORMATION		20

ITEM 6. EXHIBITS		20

SIGNATURES		22

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

Overview

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

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

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

Reorganization

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

Revenues

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

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

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

Costs and Expenses

Our costs and expenses principally include:

•

direct costs,

•

salaries and wages,

•

selling, general and administrative expenses, and

•

depreciation and amortization.

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

Our selling, general and administrative expenses consist principally of:

•

publicity and promotion costs,

•

fees and other remuneration,

•

travel and entertainment,

•

rent, and

•

plant services, insurance and corporate telecommunication and energy expenses.

Currency and Related Risks

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

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

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

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


Currency	June 30, 2004	June 30, 2005	June 30, 2006
	(exchange rate per U.S.$1.00)
Argentina peso	2.95	2.88	3.08
Colombia peso	2,699.58	2,331.81	2,633.12
Brazil real	3.11	2.35	2.16

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 fixed peso-dollar exchange rate and permitted the peso to float freely against the U.S. dollar. Since then, the peso has traded as high as 1.65 pesos to the U.S. dollar in early January 2002 and as low as 3.87 pesos to the U.S. dollar on June 26, 2002. At June 30, 2005 the exchange rate was 2.88 pesos to the U.S. Dollar, depreciating to 3.08 pesos to the U.S. Dollar on June 30, 2006. Currently, IMPSAT Argentina’s customer contracts and operating cash inflows are predominantly denominated in pesos.

Brazil

At June 30, 2005, the real traded at a rate of R$2.35 = $1.00, and it appreciated to R$2.16 = $1.00 at June 30, 2006. A significant depreciation of the real against the U.S. dollar would adversely affect our future results.

Colombia

In March of 2003, the Colombian peso exchange rate peaked at Ps. 2,958 = $1.00, following over ten years of constant devaluation. From April 2003 to March 2006, the Colombian peso appreciated against the U.S. dollar, trading at Ps. 2,290 = $1.00 on March 31, 2006. However, the peso depreciated against the U.S. dollar during the second quarter of 2006, trading at Ps. 2,633 = $1.00 on June 30, 2006.

Venezuela

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

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

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

Revenue Recognition

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

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

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 $6.4 million and $8.6 million for the six months ended June 30, 2005 and 2006, respectively.

Non-Monetary Transactions

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

Property, Plant and Equipment

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

Impairment of Long-Lived Assets

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

Basis for Translation

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

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

Tax and Legal Contingencies

We are involved in foreign tax and legal proceedings, claims and litigation arising in the ordinary course of business. We periodically assess our liabilities and contingencies in connection with these matters based upon the latest information available. For those matters where it is probable that we have incurred a loss and the loss or range of loss can be reasonably estimated, we have recorded reserves in our condensed 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

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

New Accounting Pronouncement

In December 2004, the FASB issued SFAS No. 123 (Revised 2004) (“SFAS No. 123(R)”), Share-Based Payment. SFAS No. 123(R) requires companies to expense the estimated fair value of stock options and similar equity instruments issued to employees. We adopted SFAS No. 123(R) on January 1, 2006. The effect of adoption was $0.3 million, which is recorded as compensation within salaries and wages in the accompanying condensed consolidated statement of operations for the six months ended June 30, 2006. In addition, we used the modified prospective method and will utilize the Black-Scholes option pricing model to determine the fair value of our future option grants.

In June 2006, the FASB issued Interpretation (“FIN”) 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006; therefore, we will be required to adopt FIN 48 in the first quarter of 2007. We are currently evaluating FIN 48 and have not yet determined the impact, if any, the adoption of FIN 48 will have on our consolidated financial position or results of operations.

Results of Operations

The following table summarizes our results of operations:


	Three Months Ended June 30,										Six Months June 30,
	2005					2006					2005					2006
	(in thousands and as a percentage of consolidated revenues)
Net revenues:
Net revenues from services:
Broadband and satellite	$	42,075		68.5	%	$	45,783		65.9	%	$	83,865		69.1	%	$	90,457		65.5	%
Internet		7,396		12.0			8,591		12.4			14,327		11.8			17,207		12.5
Value added services		5,657		9.2			8,178		11.8			10,797		8.9			16,207		11.7
Telephony		6,213		10.1			6,825		9.8			12,140		10.0			13,192		9.6

Total net revenues from services		61,341		99.8			69,377		99.9			121,129		99.8			137,063		99.3
Sales of equipment		117		0.2			61		0.1			201		0.2			934		0.7

Total net revenues		61,458		100.0			69,438		100.0			121,330		100.0			137,997		100.0

Direct costs:
Contracted services		6,071		9.9			5,892		8.5			11,286		9.3			11,550		8.4
Other direct costs		6,483		10.5			8,371		12.1			13,943		11.5			17,013		12.3
Leased capacity		18,960		30.9			18,970		27.3			37,184		30.6			37,574		27.2
Cost of equipment sold		91		0.1			80		0.1			198		0.2			391		0.3

Total direct costs		31,605		51.4			33,313		48.0			62,611		51.6			66,528		48.2
Salaries and wages		12,276		20.0			13,606		19.6			25,246		20.8			27,912		20.2
Selling, general and administrative expenses		5,875		9.6			6,279		9.0			11,137		9.2			11,768		8.5
Depreciation and amortization		14,366		23.4			13,662		19.7			26,391		21.8			27,528		19.9
Interest expense, net		(8,939	)	(14.5	)		(6,971	)	(10.0	)		(14,120	)	(11.6	)		(15,553	)	(11.3	)
Net gain on foreign exchange		11,910		19.4			2,994		4.3			11,270		9.3			9,510		6.9
Other expense, net		(5,062	)	(8.2	)		(1,448	)	(2.1	)		(5,351	)	(4.4	)		(2,313	)	(1.7	)
Provision for foreign income taxes		(2,212	)	(3.6	)		(638	)	(0.9	)		(2,934	)	(2.4	)		(1,676	)	(1.2	)

Net Loss	$	(6,967	)	(11.3	)%	$	(3,485	)	(5.0	)%	$	(15,190	)	(12.5	)%	$	(5,771	)	(4.2	)%

Three and Six Months Ended June 30, 2006 Compared to Three and Six Months Ended June 30, 2005

Revenues. Our total net revenues for the three and six months ended June 30, 2006 equaled $69.4 million and $138.0 million, respectively. This compares to total net revenues of $61.5 million and $121.3 million for the corresponding periods in 2005. Net revenues are composed of net revenues from services and sales of equipment.

Our net revenues from services for the three and six months ended June 30, 2006 totaled $69.4 million and $137.1 million, an increase of $8.0 million (or 13.1%) and $15.9 million (or 13.2%) compared to the corresponding period in 2005. Our net revenues from services included net revenues from:

•	satellite and broadband data transmission services,

•	internet services, which is composed of our internet backbone access and managed modem services,

•	value-added services, including hosting, housing and co-location services, and

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

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2005		2006		% change⁽¹⁾		2005		2006		% change⁽¹⁾
	(dollar amounts in thousands)
Broadband and satellite	$	42,075	$	45,783	8.8	%	$	83,865	$	90,457	7.9	%
Internet		7,396		8,591	16.2			14,327		17,207	20.1
Value added services⁽²⁾		5,657		8,178	44.6			10,797		16,207	50.1
Telephony		6,213		6,825	9.9			12,140		13,192	8.7

Total net revenues from services	$	61,341	$	69,377	13.1	%	$	121,129	$	137,063	13.2	%

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

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

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

•

Revenues from broadband and satellite services increased as a consequence of higher delivery of IP solutions, mostly in Brazil and Ecuador.

•

We experienced higher internet revenues principally due to higher managed security services and the expansion of internet accesses to corporate customers, primarily in Brazil and Argentina.

•

Our revenues from value added services increased due to higher housing, hosting and managed services delivered in our Data Centers, mostly in Brazil and Chile.

•

We experienced increased revenues from telephony services principally due to higher sales to corporate customers in Brazil and Peru.

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

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

We had 4,530 customers as of June 30, 2006, compared to 4,224 customers at December 31, 2005 and 3,912 customers at June 30, 2005. In January 2006, IMPSAT Colombia modified the methodology for calculating its number of customers, to count related entities as one customer, consistent with the practice of the other IMPSAT subsidiaries. The numbers of customers set forth above reflect this change in methodology.

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2005		2006		% change⁽¹⁾		2005		2006		% change⁽¹⁾
	(dollar amounts in thousands)
IMPSAT Argentina
Services	$	18,687	$	18,575	(0.6	)%	$	36,742	$	37,166	1.2	%
Sale of equipment		18		15	(16.7	)		28		69	146.4

Total	$	18,705	$	18,590	(0.6	)	$	36,770	$	37,235	1.3

IMPSAT Colombia
Services	$	13,998	$	16,096	15.0		$	28,210	$	32,333	14.6
Sale of equipment		26		32	23.1			39		209	435.9

Total	$	14,024	$	16,128	15.0		$	28,249	$	32,542	15.2

IMPSAT Brazil
Services	$	11,288	$	16,487	46.1		$	21,356	$	31,524	47.6
Sale of equipment										638	100.0

Total	$	11,288	$	16,487	46.1		$	21,356	$	32,162	50.6

IMPSAT Venezuela
Services	$	8,078	$	8,073	(0.1	)	$	16,212	$	16,023	(1.2	)
Sale of equipment		14		14				75		18	(76.0	)

Total	$	8,092	$	8,087	(0.1	)	$	16,287	$	16,041	(1.5	)

IMPSAT Ecuador
Services	$	4,708	$	5,171	9.8		$	9,738	$	10,359	6.4
Sale of equipment								1			(100.0	)

Total	$	4,708	$	5,171	9.8		$	9,739	$	10,359	6.4

IMPSAT Chile
Services	$	2,121	$	2,384	12.4		$	4,154	$	4,695	13.0

Total	$	2,121	$	2,384	12.4		$	4,154	$	4,695	13.0

IMPSAT Peru
Services	$	3,884	$	4,799	23.6		$	7,632	$	9,044	18.5

Total	$	3,884	$	4,799	23.6		$	7,632	$	9,044	18.5

IMPSAT USA
Services	$	6,762	$	6,317	(6.6	)	$	13,323	$	12,977	(2.6	)
Sale of equipment		58			(100.0	)		58			(100.0	)

Total	$	6,820	$	6,317	(7.4	)	$	13,381	$	12,977	(3.0	)

International Satellite Capacity Holding, Ltd.⁽²⁾
Services	$	2,402	$	2,258	(6.0	)	$	4,895	$	4,514	(7.8	)

Total	$	2,402	$	2,258	(6.0	)	$	4,895	$	4,514	(7.8	)

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

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

Our net revenues from services at IMPSAT Argentina for the three and six months ended June 30, 2006 totaled $18.6 million and $37.2 million, respectively, a decrease of $0.1 million (or 0.6%) and an increase of $0.4 million (or 1.2%) compared to the corresponding periods in 2005. The decrease in the second quarter of 2006 as compared to the second quarter of 2005 is related to decreased installation charges and intercompany traffic, combined with the effect of the local currency devaluation. The increase in the six months ended June 30, 2006 as compared to the same period in 2005 is due to increased sales of managed security services and the expansion of internet access to corporate customers. 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 2005 and the first half of 2006. Nonetheless,

Argentina continues to experience a lack of access to international capital markets. A renewed decline in political and economic conditions in Argentina, our largest country of operation, could materially affect our financial condition and results of operations.

IMPSAT Colombia recorded revenues from services of $16.1 million and $32.3 million during the three and six months ended June 30, 2006, compared to $14.0 million and $28.2 million for the same periods in 2005. The increase in 2006 is due to the expansion of IP and Internet services to existing customers and increased customer base.

IMPSAT Brazil’s revenues from services for the three and six months ended June 30, 2006 totaled $16.5 million and $31.5 million, an increase of $5.2 million (or 46.1%) and $10.2 million (or 47.6%) compared to the corresponding periods in 2005. This increase is mainly attributable to increased delivery of hosting, telephony and internet services. In addition, IMPSAT Brazil’s results were positively affected by the appreciation of the real against the U.S. dollar. In local currency terms, IMPSAT Brazil’s net revenues for the three and six months ended June 30, 2006 increased by 25.9% and 25.3%, respectively, compared to the corresponding periods in 2005. However, any future devaluations of the real or contraction of the Brazilian economy would have an adverse effect on IMPSAT Brazil’s and our company’s overall financial condition and results of operations. Presidential elections are scheduled in Brazil for October 2006, and political uncertainty surrounding elections could adversely affect investor sentiment in Brazil, which, in turn, could result in a devaluation of the real.

Revenues from services at IMPSAT Venezuela equaled $8.1 million and $16.0 million for the three and six months ended June 30, 2006, compared to $8.1 million and $16.2 million for the same periods in 2005. The decrease is due principally to a decrease in recorded revenues from inter-company contracts. IMPSAT USA recorded total net revenues from services of $6.3 million and $13.0 million for the three and six months ended June 30, 2006, compared to $6.8 million and $13.3 million for the corresponding periods in 2005. This decrease was primarily due to lower telephony traffic. IMPSAT Ecuador recorded total net revenues from services of $5.2 million and $10.4 million for the three and six months ended June 30, 2006, compared to $4.7 million and $9.7 million for the corresponding periods in 2005. The increase is primarily due to the expansion of the customer base and higher services delivered to existing customers in all product lines. IMPSAT Peru recorded total net revenues from services of $4.8 million and $9.0 million for the three and six months ended June 30, 2006, compared to $3.9 million and $7.6 million for the corresponding periods in 2005. The increase was mainly related to higher telephony and broadband and satellite services delivered. IMPSAT Chile recorded total net revenues from services of $2.4 million and $4.7 million for the three and six months ended June 30, 2006, compared to $2.1 million and $4.2 million for the corresponding periods in 2005. The increase was primarily due to higher sales of value added services.

Direct Costs. Our direct costs for the three and six months ended June 30, 2006 totaled $33.3 million and $66.5 million, an increase of $1.7 million (or 5.4%) and $3.9 million (or 6.3%) compared to the same periods in 2005. Direct costs of our subsidiaries are described prior to the elimination of inter-company transactions. The increase in our direct costs is directly attributable to increased sales of services and the effects of currency revaluation in Brazil.

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


	Three Months Ended June 30,											Six Months Ended June 30,
	2005			2006								2005			2006
	Direct Costs						$ Change			% Change		Direct Costs						$ Change			% Change
IMPSAT Argentina	$	10,337		$	10,298		$	(39	)	(0.4	)%	$	20,881		$	20,235		$	(646	)	(3.1	)%
IMPSAT Colombia		7,760			8,366			606		7.8			15,358			17,171			1,813		11.8
IMPSAT Brazil		5,528			7,515			1,987		35.9			10,727			14,916			4,189		39.1
IMPSAT Venezuela		4,032			2,889			(1,143	)	(28.3	)		7,425			5,559			(1,866	)	(25.1	)
IMPSAT Ecuador		1,920			2,791			871		45.4			4,122			5,642			1,520		36.9
IMPSAT Chile		1,308			1,250			(58	)	(4.4	)		2,541			2,581			40		1.6
IMPSAT Peru		2,939			3,236			297		10.1			6,083			6,200			117		1.9
IMPSAT USA		4,458			3,764			(694	)	(15.6	)		8,757			7,830			(927	)	(10.6	)
Other⁽¹⁾		(6,677	)		(6,796	)		(119	)	1.8			(13,283	)		(13,606	)		(323	)	2.4

Total	$	31,605		$	33,313		$	1,708		5.4	%	$	62,611		$	66,528		$	3,917		6.3	%

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

(1) Contracted Services. Contracted services costs include costs of maintenance and installation (and de-installation) services provided by outside contractors. During the three and six months ended June 30, 2006, our contracted services costs totaled $5.9 million and $11.6 million, a decrease of $0.2 million (or 2.9%) and an increase of $0.3 million (or 2.3%) compared to the same periods in 2005. Of this amount, maintenance costs for our

telecommunications network infrastructure, including the Broadband Network, totaled $3.4 million and $6.7 million for the three and six months ended June 30, 2006, compared to $3.5 million and $6.7 million for the same periods in 2005. Installation costs totaled $2.5 million and $4.8 million for the three and six months ended June 30, 2006, compared to $2.6 million and $4.5 million during the corresponding periods in 2005. Our installation costs were higher as a consequence of an increase in new customers, mostly in Peru, and the revaluation of the real in Brazil during the six months ended June 30, 2006, compared to the same period in 2005.

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


	Three Months Ended June 30,									Six Months Ended June 30,
	2005		2006							2005		2006
	Contracted Services				$ Change			% Change		Contracted Services				$ Change			% Change
IMPSAT Argentina	$	1,796	$	1,883		87		4.8	%	$	3,761	$	3,661	$	(100	)	(2.7	)
IMPSAT Colombia		1,331		1,113		(218	)	(16.4	)		2,381		2,291		(90	)	(3.8	)
IMPSAT Brazil		1,155		1,255		100		8.7			2,006		2,394		388		19.3
IMPSAT Venezuela		594		476		(118	)	(19.9	)		895		844		(51	)	(5.7	)
IMPSAT Ecuador		455		393		(62	)	(13.6	)		832		784		(48	)	(5.8	)
IMPSAT Chile		242		261		19		7.9			433		457		24		5.5
IMPSAT Peru		186		239		53		28.5			367		526		159		43.3
IMPSAT USA		127		91		(36	)	(28.3	)		238		227		(11	)	(4.6	)
Other⁽¹⁾		185		181		(4	)	(2.2	)		373		366		(7	)	(1.9	)

Total	$	6,071	$	5,892	$	(179	)	(2.9	)%	$	11,286	$	11,550	$	264		2.3	%

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

(2) Other Direct Costs. Other direct costs principally include licenses and other fees, sales commissions paid to internal sales personnel and third-party sales representatives, and our provision for doubtful accounts and expenses related to the maintenance and operations of the telecommunications nodes utilized to support telecommunication services provided to our customers. We recorded other direct costs of $8.4 million and $17.0 million during the three and six months ended June 30, 2006, an increase of $1.9 million (or 29.1%) and $3.1 million (or 22.0%) compared to the same periods in 2005.

Sales commissions paid to our internal sales personnel and third-party sales representatives for the three and six months ended June 30, 2006 totaled $1.6 million and $3.7 million, compared to $1.6 million and $3.4 million for the corresponding periods in 2005. The increase is directly related to higher new sales.

We recorded a provision for doubtful accounts of $0.3 million and $0.3 million for the three and six months ended June 30, 2006, compared to net reversals of provisions for doubtful accounts of $0.5 million and a provision for doubtful accounts of $0.2 million for the same periods in 2005. At June 30, 2006, our allowance for doubtful accounts covered approximately 90.6% of our gross trade accounts receivable past due more than six months compared to 107.6% at June 30, 2005. The average days in quarterly gross trade accounts receivable decreased to 55 days at June 30, 2006 from 59 days at June 30, 2005.

Our expenses related to the maintenance and operations of our telecommunications nodes totaled $2.6 million and $5.0 million for the three and six months ended June 30, 2006, an increase of $0.7 million (or 35.3%) and $1.3 million (or 33.5%) from the same periods in 2005. The increase in such node-related expenses resulted primarily from required increases in node capacity proportionate to the increase in services provided, higher volumes and prices for energy required for our nodes relative to expansion of our data center and other services, and the appreciation of the Brazilian real.

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


	Three Months Ended June 30,											Six Months Ended June 30,
	2005			2006								2005			2006
	Other Direct Costs						$ Change			% Change		Other Direct Costs						$ Change			% Change
IMPSAT Argentina	$	1,866		$	2,276			410		22.0	%	$	4,251		$	4,610		$	359		8.4	%
IMPSAT Colombia		1,346			1,847			501		37.2			2,849			3,676			827		29.0
IMPSAT Brazil		1,370			2,599			1,229		89.7			3,033			5,225			2,192		72.3
IMPSAT Venezuela		1,187			865			(322	)	(27.1	)		1,951			1,577			(374	)	(19.2	)
IMPSAT Ecuador		37			588			551		1489.2			434			1,183			749		172.6
IMPSAT Chile		186			234			48		25.8			358			551			193		53.9
IMPSAT Peru		311			195			(116	)	(37.3	)		727			345			(382	)	(52.5	)
IMPSAT USA		196			139			(57	)	(29.1	)		363			583			220		60.6
Other⁽¹⁾		(16	)		(372	)		(356	)	2225.0			(23	)		(737	)		(714	)	3104.3

Total	$	6,483		$	8,371		$	1,888		29.1	%	$	13,943		$	17,013		$	3,070		22.0	%

⁽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 the three and six months ended June 30, 2006 totaled $19.0 million and $37.6 million, an increase of $0.01 million (or 0.1%) and $0.4 million (or 1.0%) from the corresponding periods in 2005.

Our leased satellite capacity costs for the three and six months ended June 30, 2006 totaled $5.0 million and $10.1 million, a decrease of $0.9 million (or 15.3%) and $1.6 million (or 13.6%) compared to the corresponding periods in 2005. The overall reduction in our leased satellite capacity costs was principally due to reductions in satellite capacity and migration of our satellite-based services to terrestrial-based services on our proprietary network or leased terrestrial links. We had approximately 673 MHz of leased satellite capacity at June 30, 2006 and 705 MHz at June 30, 2005.

Our costs for dedicated leased capacity on third-party fiber optic networks totaled $7.9 million and $15.7 million for the three and six months ended June 30, 2006, an increase of $0.8 million (or 11.4%) and $2.0 million (or 14.7%) as compared to the same periods in 2005. The increase in these costs is attributable in part to growth in services provided and the increase in to our customer base, as well as to the appreciation of the Brazilian real. As we expand our services to existing clients and provide services to new clients, we are required to lease additional capacity to provide increased telecommunications services to clients with facilities outside of the footprint of our Broadband Network in order to provide end-to-end telecommunications services. In addition, as a result of our having reached full capacity on international underseas cable IRUs that we purchased in prior years, we have been required to lease additional international fiber optic capacity in order to meet the international telecommunications needs of our clients. Our customers are increasingly expressing a desire for fiber optic telecommunications, which has resulted in an increase in leased fiber optic capacity costs and a decrease in leased satellite capacity costs described above.

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


	Three Months Ended June 30,											Six Months Ended June 30,
	2005			2006								2005			2006
	Leased Capacity						$ Change			% Change		Leased Capacity						$ Change			% Change
IMPSAT Argentina	$	6,315		$	5,758		$	(557	)	(8.8	)%	$	12,184		$	11,175			(1,009	)	(8.3	)%
IMPSAT Colombia		4,888			5,094			206		4.2			9,693			10,371			678		7.0
IMPSAT Brazil		2,809			3,406			597		21.3			5,297			6,662			1,365		25.8
IMPSAT Venezuela		2,060			1,341			(719	)	(34.9	)		4,156			2,729			(1,427	)	(34.3	)
IMPSAT Ecuador		1,337			1,707			370		27.7			2,684			3,465			781		29.1
IMPSAT Chile		773			634			(139	)	(18.0	)		1,576			1,329			(247	)	(15.7	)
IMPSAT Peru		2,376			2,761			385		16.2			4,885			5,249			364		7.5
IMPSAT USA		3,219			2,370			(849	)	(26.4	)		6,404			4,851			(1,553	)	(24.3	)
Other⁽¹⁾		(4,817	)		(4,101	)		716		(14.9	)		(9,695	)		(8,257	)		1,438		(14.8	)

Total	$	18,960		$	18,970		$	10		0.1	%	$	37,184		$	37,574		$	390		1.0	%

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

In connection with services we offer under our licenses to provide domestic and international long distance telephony connections, we incur costs for interconnection and telephony termination (“I&T”). We incur costs for frequency rights related to regulatory fees for the rights to use certain frequencies in the countries in which we operate. Our I&T and frequency rights costs totaled $4.2 million and $8.1 million during the three and six months ended June 30, 2006 (which includes $3.6 million and $6.9 million of I&T costs) compared to $4.3 million and $8.7 million of I&T and frequency rights costs for the same periods in 2005 (which includes $3.6 million and $7.1 million of I&T costs), which represents a decrease

of $0.2 million (or 3.6%) and $0.5 million (or 5.9%). Interconnection costs decreased in the three and six months ended June 30, 2006, as compared to the same periods in 2005, due to the start-up of our calling card business in Peru during the first quarter of 2005.

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


	Three Months Ended June 30,											Six Months Ended June 30,
	2005			2006								2005			2006
	I&T and frequency rights						$ Change			% Change		I&T and frequency rights						$ Change			% Change
IMPSAT Argentina	$	2,607		$	2,377		$	(230	)	(8.8	)%	$	5,016		$	4,382		$	(634	)	(12.6	)%
IMPSAT Colombia		398			306			(92	)	(23.1	)		815			707			(108	)	(13.3	)
IMPSAT Brazil		248			267			19		7.7			546			569			23		4.2
IMPSAT Venezuela		2			1			(1	)	(50.0	)		4			2			(2	)	(50.0	)
IMPSAT Ecuador		88			98			10		11.4			167			203			36		21.6
IMPSAT Chile		285			129			(156	)	(54.7	)		585			345			(240	)	(41.0	)
IMPSAT Peru		1,761			2,139			378		21.5			3,582			4,011			429		12.0
IMPSAT USA		1,177			320			(857	)	(72.8	)		2,251			929			(1,322	)	(58.7	)
Other⁽¹⁾		(2,224	)		(1,452	)		772		(34.7	)		(4,307	)		(3,001	)		1,306		(30.3	)

Total	$	4,342		$	4,185		$	(157	)	(3.6	)%	$	8,659		$	8,147		$	(512	)	(5.9	)%

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

(4) Cost of Equipment Sold. In the three and six months ended June 30, 2006, we incurred costs of equipment sold of $0.1 million and $0.4 million, compared to $0.1 million and $0.2 million for the same periods in 2005. This increase was primarily due to higher sales of equipment during the first quarter of 2006.

Salaries and Wages. Salaries and wages for the three and six months ended June 30, 2006 totaled $13.6 million and $27.9 million, an increase of $1.3 million (or 10.8%) and $2.7 million (or 10.6%) compared to the same periods in 2005. The increase is due to currency revaluation in Brazil, salary increases related to adjustments for inflation and higher variable compensation, partially offset by savings due to lower headcount. As part of our continuing effort to ensure more efficient operations, we reduced the aggregate number of our employees from 1,253 at June 30, 2005 to 1,220 at June 30, 2006.

IMPSAT Argentina had 444 employees as of June 30, 2006, compared to 453 employees as of June 30, 2005. IMPSAT Brazil increased its number of employees to 208 persons at June 30, 2006, compared to 199 persons at June 30, 2005. IMPSAT Colombia decreased its number of employees to 246 persons at June 30, 2006, compared to 250 persons at June 30, 2005. IMPSAT Venezuela decreased its number of employees to 108 persons at June 30, 2006, compared to 114 persons at June 30, 2005. IMPSAT USA decreased its number of employees to 52 persons at June 30, 2006, compared to 68 persons at June 30, 2005. IMPSAT Peru decreased its number of employees to 58 persons at June 30, 2006, compared to 64 persons at June 30, 2005. IMPSAT Ecuador increased its number of employees to 73 persons at June 30, 2006, compared to 71 persons at June 30, 2005. IMPSAT Chile decreased its number of employees to 31 persons at June 30, 2006, compared to 34 persons at June 30, 2005.

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


	Three Months Ended June 30,									Six Months Ended June 30,
	2005		2006							2005		2006
	Salaries & Wages				$ Change			% Change		Salaries & Wages				$ Change			% Change
IMPSAT Argentina	$	3,143	$	3,220	$	77		2.4	%	$	6,310	$	6,628	$	318		5.0	%
IMPSAT Colombia		2,150		2,174		24		1.1			4,419		4,335		(84	)	(1.9	)
IMPSAT Brazil		2,560		3,215		655		25.6			4,881		6,224		1,343		27.5
IMPSAT Venezuela		781		1,010		229		29.3			1,612		1,876		264		16.4
IMPSAT Ecuador		552		651		99		17.9			1,116		1,312		196		17.6
IMPSAT Chile		333		401		68		20.4			673		752		79		11.7
IMPSAT Peru		576		553		(23	)	(4.0	)		1,149		1,080		(69	)	(6.0	)
IMPSAT USA		1,389		1,232		(157	)	(11.3	)		2,834		2,595		(239	)	(8.4	)
Other⁽¹⁾		792		1,150		358		45.2			2,252		3,110		858		38.1

Total	$	12,276	$	13,606	$	1,330		10.8	%	$	25,246	$	27,912	$	2,666		10.6	%

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

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 $6.3 million and $11.8 million for the three and six months ended June 30, 2006, representing an increase of $0.4 million (or 6.9%) and $0.6 million (or 5.7%) compared to the same periods in 2005. The increases experienced were primarily due to increases in advisory fees.

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


	Three Months Ended June 30,									Six Months Ended June 30,
	2005		2006							2005		2006
	Selling, General and Administrative Expenses				$ Change			% Change		Selling, General and Administrative Expenses				$ Change			% Change
IMPSAT Argentina	$	1,672	$	1,768	$	96		5.7	%	$	3,264	$	3,307	$	43		1.3	%
IMPSAT Colombia		758		680		(78	)	(10.3	)		1,448		1,254		(194	)	(13.4	)
IMPSAT Brazil		1,206		1,347		141		11.7			2,163		2,476		313		14.5
IMPSAT Venezuela		447		511		64		14.3			759		1,009		250		32.9
IMPSAT Ecuador		301		392		91		30.2			577		744		167		28.9
IMPSAT Chile		194		183		(11	)	(5.7	)		363		376		13		3.6
IMPSAT Peru		280		264		(16	)	(5.7	)		555		513		(42	)	(7.6	)
IMPSAT USA		531		601		70		13.2			1,044		1,115		71		6.8
Other⁽¹⁾		486		533		47		9.7			964		974		10		1.0

Total	$	5,875	$	6,279	$	404		6.9	%	$	11,137	$	11,768	$	631		5.7	%

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

Depreciation and Amortization. Our depreciation and amortization expenses for the three and six months ended June 30, 2006 totaled $13.7 million and $27.5 million. This represents a decrease of $0.7 million (or 4.9%), due principally to a decrease in depreciation of goods in our inventory for the three months ended June 30, 2006 and an increase $1.1 million (or 4.3%) for the six months ended June 30, 2006, compared to our depreciation and amortization for the corresponding periods in 2005. The increase in depreciation and amortization expenses is principally due to an increase in our depreciable fixed asset base as a result of increased capital expenditures. During the six months of 2006, we made purchases of property, plant and equipment totaling $16.6 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.

Interest Expense, Net. Our net interest expense for the three months ended June 30, 2006 totaled $7.0 million, consisting of interest expense of $7.2 million and interest income of $0.2 million. Our net interest expense for the six months ended June 30, 2006 totaled $15.6 million, consisting of interest expense of $16.0 million and interest income of $0.4 million. Net interest expense for the three and six months ended June 30, 2005 totaled $8.9 million and $14.1 million, respectively. Our net interest expense for the three and six months ended June 30, 2006 decreased by $2.0 million (or 22.0 %) and increased by $1.4 million (or 10.1%) compared to the net interest expense for the same periods of 2005. The decrease in the second quarter of 2006 is due to lower provisions of withholding taxes. The increase in our net interest expense for the six months ended June 30, 2006 is due in part to the increase in the rate of interest on our Senior Secured Notes which increased

from 6% (Paid-in-kind interest on Senior Notes) per annum to 10% per annum, and the restructuring of $107.3 million of such indebtedness in July 2005 which increased interest rates from 10% per annum to 12% per annum, and to increased withholding taxes on subsidiary indebtedness repayments. Our indebtedness as of June 30, 2006 totaled $241.0 million, as compared to $248.1 million as of December 31, 2005. During the six months ended June 30, 2006 we made principal payments for $7.1 million and obtained $3.4 million of new financing. In addition, foreign exchange effects reduced total indebtedness by $3.4 million.

Net Gains on Foreign Exchange. We recorded net gains on foreign exchange for the three and six months ended June 30, 2006 of $3.0 million and $9.5 million, compared to net gains on foreign exchange of $11.9 million and $11.3 million for the same periods in 2005. These net gains on foreign exchange reflect principally the effect of the appreciation during the three and six months ended June 30, 2006 of the Brazilian real on the book value of our monetary assets and liabilities in Brazil.

IMPSAT Argentina recorded to net losses on foreign exchange for the three and six months ended June 30, 2006 of $0.02 million and $0.1 million, compared to net gain of $0.1 million and net loss of $0.1 million for the same periods in 2005. IMPSAT Brazil recorded to net gains on foreign exchange for the three and six months ended June 30, 2006 of $0.5 million and $6.9 million, compared to net gains of $12.1 million and $11.6 million for the same periods in 2005.

Other Expenses, Net. We recorded other expense, net, of $1.4 million and $2.3 million for the three and six months ended June 30, 2006, compared to other expense, net, of $5.1 million and $5.4 million for the same periods of 2005. The change in other income (expenses), net, was due primarily to expenses related to the restructuring of our vendor indebtness incurred during the three and six months ended June 30, 2005.

Provision for Foreign Income Taxes. For the three and six months ended June 30, 2006, we recorded a provision for foreign income taxes of $0.7 million and $1.7 million, compared to a provision of $2.2 million and $2.9 million for the same periods in 2005. The decrease in the provision for foreign income taxes in the three and six months ended June 30, 2006, compared to the same periods in 2005, was due primarily to a decrease in income taxes for IMPSAT Venezuela.

Net Loss. For the three and six months ended June 30, 2006, we recorded a net loss of $3.5 million and $5.8 million, compared to net loss of $7.0 million and $15.2 million for the same periods in 2005. The decreases are due primarily to other expenses, net and income taxes incurred in 2005 compared to 2006.

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


	Three Months Ended June 30,											Six Months Ended June 30,
	2005			2006								2005			2006
	Net Income (Loss)						$ Change			% Change		Net Income (Loss)						$ Change			% Change
IMPSAT Argentina	$	(2,190	)	$	(1,849	)	$	341		(15.6	)%	$	(3,527	)	$	(3,722	)	$	(195	)	5.5	%
IMPSAT Colombia		(2,254	)		2,295			4,549		(201.8	)		(3,590	)		1,545			5,135		(143.0	)
IMPSAT Brazil		5,476			(1,201	)		(6,677	)	(121.9	)		2,142			2,541			399		18.6
IMPSAT Venezuela		(1,521	)		1,286			2,807		(184.5	)		(195	)		2,336			2,531		(1297.9	)
IMPSAT Ecuador		702			279			(423	)	(60.3	)		1,789			592			(1,197	)	(66.9	)
IMPSAT Chile		40			438			398		995.0			296			540			244		82.4
IMPSAT Peru		(565	)		143			708		(125.3	)		(1,371	)		105			1,476		(107.7	)
IMPSAT USA		(305	)		214			519		(170.2	)		(932	)		374			1,306		(140.1	)
Other⁽¹⁾		(6,350	)		(5,090	)		1,260		(19.8	)		(9,802	)		(10,082	)		(280	)	2.9

Total	$	(6,967	)	$	(3,485	)	$	3,482		(50.0	)%	$	(15,190	)	$	(5,771	)	$	9,419		(62.0	)%

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

Liquidity and Capital Resources

At June 30, 2006, we had total cash and cash equivalents of $23.1 million, as compared to $41.8 million at June 30, 2005 and $24.1 million as of December 31, 2005.

As of June 30, 2006, approximately $5.7 million of our cash and cash equivalents were held in Venezuelan bolivars by IMPSAT Venezuela, compared to $7.5 million at December 31, 2005 (in each case, based on the official exchange rate at that date of Bs. 2,150 = $1.00). Foreign exchange controls instituted in Venezuela since February 2003 severely limit our ability to repatriate these amounts and any other earnings from our Venezuelan operations on a timely basis, without substantial

cost. More recently, IMPSAT Venezuela has experienced significant delays in obtaining the required approvals from Venezuela’s Commission of Currency Administration (known as CADIVI) for the purchase of U.S. dollars with Venezuelan bolivars in order to make payment of its foreign currency denominated obligations (including inter-company obligations). As a result, we are unable to predict when these final approvals will be obtained. Future devaluations of the Venezuelan bolivar and/or the implementation of more stringent exchange control restrictions in that country could have a material adverse effect on the recorded U.S. dollar value or our cash and cash equivalents held by Impsat Venezuela and would result in a loss in future periods in our condensed consolidated statement of operations.

At June 30, 2006, our total indebtedness was $241.0 million (as compared to $265.0 million at June 30, 2005), of which $3.1 million represented short-term debt, $25.0 million represented current portion of long-term debt and $212.8 million represented long-term debt. Our capital expenditures budget contemplates that we will need approximately $38.0 million (including amounts spent to date) through the end of 2006 for capital expenditures.

We remain in default under indebtedness owed to one creditor who voted against the Plan. Under the Plan, the claims of that creditor were contingent obligations arising under guarantees by us of certain primary indebtedness of IMPSAT Argentina. Notwithstanding our emergence from bankruptcy and the extinguishment of the guarantee as a result, an event of default has occurred and is continuing with respect to the related primary underlying indebtedness of IMPSAT Argentina. As a result of this default, which relates to vendor financing totaling approximately $7.6 million in outstanding principal amount as of June 30, 2005 and 2006, such indebtedness is due and payable. IMPSAT Argentina had been in discussions with the holder of the indebtedness with a view to rescheduling or otherwise restructuring the defaulted debt obligation. We understand that this holder recently transferred the defaulted debt obligation to a new holder. IMPSAT Argentina is not in discussions with the new holder. There is no assurance that IMPSAT Argentina will reach a definitive agreement with this holder to reschedule or restructure such obligations. Under certain circumstances, IMPSAT Argentina could be forced to seek protection or liquidate under the bankruptcy laws of Argentina.

On July 29, 2005, we entered into amended and restated financing agreements to restructure $125.6 million of our vendor indebtedness, the Senior Secured Notes, which were issued by IMPSAT Argentina and IMPSAT Brazil pursuant to separate credit agreements that are each guaranteed by us, and which was held by affiliates of certain members of our board of directors. Prior to the amendments, such indebtedness was required to be paid in eight remaining semi-annual principal installments aggregating $15.7 million between September 2005 and March 2009. Pursuant to such amendments, we made an initial principal repayment of $18.3 million and modified the terms of the agreements such that the remaining outstanding principal amounts ($38.9 million owed by IMPSAT Argentina and $68.4 million owed by IMPSAT Brazil) will be repaid in the aggregate amounts of $5.0 million in 2006, $20.0 million in 2007, $25.0 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 was subjected to an optional prepayment at a cost of 101% until July 29, 2006 and at par thereafter. IMPSAT Argentina and IMPSAT Brazil (with respect to the credit agreement to which it is a party), on the one hand, and the lenders of the amended indebtedness, on the other hand, each have an option to further amend the agreements governing such indebtedness to provide that we shall be the primary borrower, and IMPSAT Argentina and IMPSAT Brazil the respective guarantors of the portions of the indebtedness currently owed by them, subject to certain terms and conditions. The terms and conditions of the amendments were negotiated by a special committee of our board of directors that was formed to explore recapitalization alternatives.

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

As set forth in our condensed consolidated statement of cash flows, our operating activities provided $19.8 million in net cash flows for the six months ended June 30, 2006, compared to $12.7 million provided by operating activities during the same period of 2005. The increase in cash flow provided by operating activities was primarily due to smaller net loss in 2006, compared to 2005.

For the six months ended June 30, 2006, our investing activities used $16.6 million in net cash flows, compared to $16.3 million during the corresponding period in 2005. The increase in net cash flows used in investing activities was principally due to an increase in purchases of property, plant and equipment.

During the six months ended June 30, 2006, $3.7 million in net cash flows were used in financing activities, as compared to $20.1 million during the corresponding period in 2005. The negative cash flow from financing activities in 2005 was principally due to the repayments of long-term indebtedness.

At June 30, 2006, we had leased satellite capacity with average annual rental commitments of approximately $8.7 million through the year 2009 under non-cancelable agreements. We have entered into contracts for the purchase of satellite capacity for approximately $14.4 million through 2015. In addition, at June 30, 2006, we had commitments to purchase telecommunications equipment amounting to approximately $7.6 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 totaling $13.0 million through 2009.

The following table sets forth due dates of our contractual obligations as of June 30, 2006 (debt repayments denominated in local currencies have been calculated at the exchange rate at June 30, 2006):


Type of Obligations	2006		2007		2008		2009		2010		Thereafter		Total
Type of Obligations	(in thousands)
Short-term debt	$	2,683		400									$	3,083

Long-term debt⁽¹⁾	$	11,871		28,578		35,235		58,145		8,545		92,903		235,277

Capital lease obligations	$	819		1,021		620		56		78				2,594

Subtotal	$	15,373		29,999		35,855		58,201		8,623		92,903		240,954
Operating leases		—		—		—		—		—		—		—
Purchase obligations⁽²⁾	$	19,521		15,617		9,868		5,586		314				50,906

Interest payments	$	10,987		21,011		17,499		10,485		6,931		3,049	$	69,962

Total contractual cash obligations	$	45,881	$	66,627	$	63,222	$	74,272	$	15,868	$	95,952	$	361,822

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

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

Forward Looking Statements

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

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

Forward-looking statements include but are not limited to:

•

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

•

future financial performance, including growth in sales and income.

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

•

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

•

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

•

inaccuracies in our forecasts of customer or market demand,

•

loss of a customer that provides us with significant revenues,

•

changes in our highly competitive market,

•

changes in or developments under laws, regulations and licensing requirements,

•

changes in telecommunications technology,

•

currency fluctuations, and

•

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The sections below highlight our exposure to interest rate and foreign exchange rate risks. The analyses presented below are illustrative and should not be viewed as predictive of our future financial performance. Additionally, we cannot assure you that our actual results in any particular year will not differ from the amounts indicated below. However, we believe that these results are reasonable based on our financial instrument portfolio at June 30, 2006 and assuming that the hypothetical interest rate and foreign exchange rate changes used in the analyses occurred during the first six months of 2006. We do not hold or issue any market risk sensitive instruments for trading purposes.

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

We are exposed to interest rate risk on our floating rate indebtedness, which affects our cost of financing. At June 30, 2006, our total floating rate indebtedness aggregated $37.5 million, of which $10.8 million was denominated in U.S. dollars and accrued interest at specified spreads over the London Interbank Offered Rate (LIBOR) and $26.7 million was denominated in local currencies of our operating subsidiaries and accrued interest at variable rates tied to local interest rates and inflation indices. Our actual interest rate is not quantifiable or predictable because of the variability of future interest rates and business requirements. We do not believe such risk is material and we do not customarily use derivative instruments to adjust interest rate risk. As of June 30, 2006, a hypothetical 100 basis point increase in the London Interbank Offered Rate (LIBOR) would affect our annual interest cost related to our floating rate indebtedness by approximately $0.1 million annually.The fair value of financial instruments, which approximate their carrying value, have been determined using available market information and interest rates as of June 30, 2006.


	Expected Maturities at June 30,
	2006			2007		2008		2009		2010		Thereafter		Total		Fair Value
Senior Notes (fixed rate)	$	3,345		$	21,690	$	26,690	$	58,146			$	92,903	$	202,774	$	184,331
Avg. interest rate		11.49	%		11.84		11.87		11.97				6.0
Term Notes (fixed rate)	$	240			405		31								676		676
Avg. interest rate		8.88	%		8.70		4.40
Term Notes (variable rate)	$	3,925			7,863		9,096		55	$	8,623				29,562		29,562
Avg. interest rate		16.66	%		9.72		11.75		7.72		11.75
Vendor Financing (variable rate)	$	7,863			41		38								7,942		7,942
Avg. Interest rate		7.70	%		8.90		8.90
TOTAL	$	15,373		$	29,999	$	35,855	$	58,201	$	8,623	$	92,903	$	240,954	$	222,511

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 June 30, 2006 was pesos 3.08 = $1.00. Devaluations of the peso have and will adversely affect IMPSAT Argentina’s results of operations and, in turn, our company’s consolidated results of operations and financial condition. As of June 30, 2006, a hypothetical 10% devaluation of the peso would result in foreign exchange losses of approximately $5.1 million on our financial debt. During the remainder of 2006, our consolidated results could be impacted from transaction gains or losses on our dollar-denominated monetary assets and liabilities. Potential balance sheet exposures include the reduction to our consolidated stockholders’ equity due to the effects of lower net income on retained earnings.

Pursuant to Brazilian law, our contracts with customers in Brazil cannot be denominated in dollars or linked to the exchange rate between the Brazilian real and the U.S. dollar. In Brazil, we are permitted to amend the pricing of our services for our long-term telecommunication services contracts with our customers annually based on changes in the consumer price index in Brazil for the prior year. In Argentina, obligations that were mandatorily converted to pesos under the “pesification” decree may be adjusted pursuant to an index rate based on variations in the Argentine consumer price index. These aspects of the laws in Brazil and Argentina do not eliminate completely the currency exchange risk facing our operations in those countries. Changes in the consumer price indices in Brazil and Argentina may lag or be lower than changes in the exchange rate between the Brazil and Argentine local currencies and the U.S. dollar and therefore may not fully allow us to address the impact of a devaluation of those currencies against the U.S. dollar. Also, contracts entered into after the “pesification” decree’s enactment that are initially denominated in pesos are not entitled to be adjusted according to any other consumer or other price index. Accordingly, our operations in Brazil and Argentina have exposed us, and will increase our exposure, to exchange rate risks. At June 30, 2006, the real traded at a rate of R2.16 = $1.00. As of June 30, 2006, a hypothetical 10% devaluation of the real would result in foreign exchange losses of approximately $6.4 million on our financial debt.

As discussed above, in response to political and economic turmoil currently affecting Venezuela, the Venezuelan government imposed foreign exchange and price controls during 2003, making it difficult for our customers in Venezuela to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a timely basis. These foreign exchange controls could also limit our ability to convert local currency into U.S. dollars and transfer funds out of Venezuela. On February 6, 2003, the Venezuelan government set a single fixed exchange rate for the bolivar against the U.S. dollar of approximately Bs.1,600 = $1.00 as part of the new currency controls. The Venezuelan government further devalued its currency to Bs. 1,920 = $1.00 in February 2004, and Bs. 2,150 = $1.00 on March 5, 2005. In the majority of cases, we have agreed to receive bolivars at the official rate in payment for our services in lieu of U.S. dollars. As a result, our holdings of bolivars at June 30, 2006 totaled Bs.13.0 billion (or $6.0 million at the official exchange rate at such date). The decline in the U.S. dollar value of our cash and cash equivalents denominated in bolivars as a result of the devaluation of the bolivar will result in a loss in our consolidated financial statements.

Net revenues from services from our Argentine operations for the three months ended June 30, 2006 and 2005 represented approximately 26.8% and 30.5% of our total net revenues from services for such periods. Net revenues from services from our Brazilian operations for the three months ended June 30, 2006 and 2005 represented approximately 23.8% and 18.4% of our total net revenues from services for such periods. Our net revenues from services in Venezuela accounted for 11.6% and 13.2% of our total revenues from services for the three months ended June 30, 2006 and 2005, respectively.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

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

(b) Changes in internal controls.

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

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10K for the year ended December 31, 2005, which could materially affect our business, financial condition or future results. The risks described in our Form 10K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security-Holders

Not applicable.

Item 5. Other Information

Not applicable

Item 6. Exhibits

Exhibit Index:


Exhibit No.		Description

3.1		Restated Certificate of Incorporation of the Company (filed on March 26, 2003 as Exhibit No. 2.1 to the Company’s Amendment No. 1 to Registration Statement on Form 8-A and incorporated herein by reference).

3.2		Amended and Restated Bylaws of the Company (filed on March 31, 2006 as Exhibit 3.2 to the Company’s 2005 Annual Report on Form 10-K and incorporated herein by reference).

4.1		Indenture for the Company’s 6% Senior Guaranteed Convertible Notes due 2011—Series A, dated as of March 25, 2003, among the Company, The Bank of New York, as trustee and IMPSAT Argentina, as guarantor (including form of Note) (filed on April 15, 2003 as Exhibit 4.1 to the Company’s 2002 Annual Report on Form 10-K and incorporated herein by reference).

4.2		Indenture for the Company’s 6% Senior Guaranteed Convertible Notes due 2011—Series B, dated as of March 25, 2003, among the Company, The Bank of New York, as trustee and IMPSAT Argentina, as guarantor (including form of Note) (filed on April 15, 2003 as Exhibit 4.2 to the Company’s 2002 Annual Report on Form 10-K and incorporated herein by reference).


Exhibit No.		Description

4.3		Disclosure Statement Under Chapter 11 of the Bankruptcy Code (filed on December 19, 2002 as Exhibit No. 99.2 to the Company’s Current Report on Form 8-K, and incorporated herein by reference).

4.4		Plan of Reorganization of the Company Under Chapter 11 of the Bankruptcy Code (filed on December 19, 2002 as Exhibit No. 99.3 to the Company’s Current Report on Form 8-K, and incorporated herein by reference).

4.5		Order Confirming the Company’s Plan of Reorganization Under Chapter 11 of the Bankruptcy Code dated December 16, 2002 (filed on December 19, 2002 as Exhibit 99.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference).

4.6		Registration Rights Agreement among the Company, IMPSAT Argentina and the security holders party thereto, dated as of March 25, 2003 (filed on April 15, 2003 as Exhibit 4.6 to the Company’s 2002 Annual Report on Form 10-K and incorporated herein by reference).

4.7		Specimen Common Stock Certificate (filed on March 26, 2003 as Exhibit No. 2.6 to the Company’s Amendment No. 1 to Registration Statement on Form 8-A and incorporated herein by reference).

4.8		Warrant Agreement between the Company and The Bank of New York, as warrant agent, dated as of March 25, 2003 (including form of Warrant) (filed on April 15, 2003 as Exhibit 4.8 to the Company’s 2002 Annual Report on Form 10-K and incorporated herein by reference).

9.1		2003 Stock Incentive Plan (filed on April 15, 2003 as Exhibit 9.1 to the Company’s 2002 Annual Report on Form 10-K and incorporated herein by reference).

10.1		Employment Agreement between Ricardo A. Verdaguer and the Company dated as of March 25, 2003 (filed on August 14, 2003 as Exhibit 10.5 to the Company’s second quarter 2003 Quarterly Report on Form 10Q and incorporated herein by reference).

10.2		Employment Agreement between Hector R. Alonso and the Company dated as of March 25, 2003 (filed on August 14, 2003 as Exhibit 10.6 to the Company’s second quarter 2003 Quarterly Report on Form 10Q and incorporated herein by reference).

10.3		Letter Agreement between Marcelo Girotti and the Company dated March 25, 2003 (filed on August 14, 2003 as Exhibit 10.7 to the Company’s second quarter 2003 Quarterly Report on Form 10Q and incorporated herein by reference). In accordance with Instruction 2 to Item 601 of Regulation S-K, the following agreements were not filed as exhibits because they are substantially identical in all material respects to Exhibit 10.4: Letter Agreement between Mariano Torre Gomez and the Company dated March 25, 2003; Letter Agreement between Matias Heinrich and the Company dated March 25, 2003; Letter Agreement between Alexander Rivelis and the Company dated March 25, 2003.

10.4		Second Amended and Restated Financing Agreement among IMPSAT Argentina, Morgan Stanley Senior Funding, Inc., and Deutsche Bank Trust Company Americas, as Administrative Agent and Collateral Agent, dated as of July 29, 2005 (filed on November 14, 2005 as Exhibit 10.4 to the Company’s third quarter 2005 Quarterly Report on Form 10-Q and incorporated by reference herein).

10.5		Second Amended and Restated Financing Agreement among IMPSAT Brazil, Morgan Stanley Senior Funding, Inc., and Deutsche Bank Trust Company Americas, as Administrative Agent and Collateral Agent, dated as of July 29, 2005 (filed on November 14, 2005 as Exhibit 10.4 to the Company’s third quarter 2005 Quarterly Report on Form 10-Q and incorporated by reference herein).

10.6		IMPSAT Fiber Networks, Inc. Management Incentive Plan (filed on December 29, 2005 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference).

10.7		Form of IMPSAT Fiber Networks, Inc. Management Incentive Plan Retention Agreement (filed on December 29, 2005 as Exhibit 10.2 to the Company’s Current Report on Form 8-K, and incorporated herein by reference).

31.1		Certification by the Company’s Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification by the Company’s Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certification by the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.2		Certification by the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

SIGNATURES

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


IMPSAT Fiber Networks, Inc.

By:		/s/ Héctor Alonso
		Héctor Alonso
		Chief Financial Officer

		Date: Aug 14, 2006

PART I -FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2005 AND JUNE 30, 2006

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

( Unaudited )


	December 31, 2005			June 30, 2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	24,070		$	23,053
Trade accounts receivable, net		35,812			41,390
Other receivables		10,784			10,841
Prepaid expenses		2,824			2,727

Total current assets		73,490			78,011

PROPERTY, PLANT AND EQUIPMENT, Net		309,892			307,812

OTHER NON-CURRENT ASSETS		16,161			18,562

TOTAL ASSETS	$	399,543		$	404,385

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable- trade	$	46,080		$	48,800
Short- term debt		2,168			3,083
Current portion of long-term debt		17,604			25,035
Current portion of deferred revenue		—			554
Interest payable		10,453			8,126
Accrued and other liabilities		34,867			41,450

Total current liabilities		111,172			127,048
LONG-TERM DEBT, Net		228,331			212,836
DEFERRED REVENUE, Net		—			7,351
OTHER LONG-TERM LIABILITIES		16,295			17,306

Total liabilities		355,798			364,541

COMMITMENTS AND CONTINGENCIES (NOTE 12)

STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares outstanding as of December 31, 2005 and June 30, 2006		—			—
Common stock, $0.01 par value; 50,000,000 shares authorized; 10,116,100 shares issued and outstanding (including 50,000 restricted shares held in the 2003 Stock Incentive Plan as of December 31, 2005)		101			101
Additional paid in capital		90,653			90,985
Accumulated deficit		(40,990	)		(46,761	)
Deferred stock-based compensation		(440	)		—
Accumulated other comprehensive loss		(5,579	)		(4,481	)

Total stockholders’ equity		43,745			39,844

TOTAL	$	399,543		$	404,385

See notes to condensed consolidated financial statements.

F-1

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006

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

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2006			2005			2006
NET REVENUES:
Broadband and satellite	$	42,075		$	45,783		$	83,865		$	90,457
Internet		7,396			8,591			14,327			17,207
Value added services		5,657			8,178			10,797			16,207
Telephony		6,213			6,825			12,140			13,192
Sales of equipment		117			61			201			934

Total net revenues		61,458			69,438			121,330			137,997

COSTS AND EXPENSES:
Direct costs:
Contracted services		6,071			5,892			11,286			11,550
Other direct costs		6,483			8,371			13,943			17,013
Leased capacity		18,960			18,970			37,184			37,574
Cost of equipment sold		91			80			198			391

Total direct costs		31,605			33,313			62,611			66,528
Salaries and wages		12,276			13,606			25,246			27,912
Selling, general and administrative		5,875			6,279			11,137			11,768
Depreciation and amortization		14,366			13,662			26,391			27,528

Total costs and expenses		64,122			66,860			125,385			133,736

Operating (loss) income		(2,664	)		2,578			(4,055	)		4,261

OTHER INCOME (EXPENSE):
Interest income		299			233			602			467
Interest expense		(9,238	)		(7,204	)		(14,722	)		(16,020	)
Net gain on foreign exchange		11,910			2,994			11,270			9,510
Other expense , net		(5,062	)		(1,448	)		(5,351	)		(2,313	)

Total other (expense) income		(2,091	)		(5,425	)		(8,201	)		(8,356	)

Loss before income taxes		(4,755	)		(2,847	)		(12,256	)		(4,095	)
Provision for foreign income taxes		(2,212	)		(638	)		(2,934	)		(1,676	)

NET LOSS	$	(6,967	)	$	(3,485	)	$	(15,190	)	$	(5,771	)

NET LOSS PER COMMON SHARE:
BASIC AND DILUTED	$	(0.69	)	$	(0.34	)	$	(1.51	)	$	(0.57	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
BASIC AND DILUTED		10,066			10,116			10,041			10,103

See notes to condensed consolidated financial statements.

F-2

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2006

(In thousands of U.S. Dollars)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2006			2005			2006
NET LOSS	$	(6,967	)	$	(3,485	)	$	(15,190	)	$	(5,771	)
OTHER COMPREHENSIVE (LOSS) INCOME-Foreign currency translation adjustment		344			(606	)		519			1,098

COMPREHENSIVE LOSS	$	(6,623	)	$	(4,091	)	$	(14,671	)	$	(4,673	)

See notes to condensed consolidated financial statements.

F-3

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2006

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

(Unaudited)


	Common Stock											Accumulated
	Shares	Amount		Additional Paid In Capital		Accumulated Deficit			Deferred Stock- Based Compensation			Other Comprehensive Loss			Total

BALANCE AT DECEMBER 31, 2005	10,116,100	$	101	$	90,653	$	(40,990	)	$	(440	)	$	(5,579	)	$	43,745
Effects of adoption of new accounting principle					332											332
Recognition of deferred compensation										440						440
Foreign currency translation adjustment													1,098			1,098
Net loss for the period							(5,771	)								(5,771	)

BALANCE AT JUNE 30, 2006	10,116,100	$	101	$	90,985	$	(46,761	)	$	—		$	(4,481	)	$	39,844

See notes to condensed consolidated financial statements.

F-4

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2006

(In thousands of U.S. Dollars)

(Unaudited)


	June, 30
	2005			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(15,190	)	$	(5,771	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		26,391			27,528
Effects of adoption of new accounting principle					332
Stock-based compensation		440			440
Deferred income tax provision		835			730
Provision for allowance for doubtful accounts		206			295
Paid-in-kind interest on Senior Notes		3,369
Net gain on foreign exchange		(11,270	)		(9,510	)
Net loss on disposals of property, plant and equipment		96			400
Changes in assets and liabilities:
Increase in trade accounts receivable		(6,513	)		(5,212	)
(Increase) decrease in prepaid expenses		(1,688	)		110
Decrease (increase) in other receivables and other non-current assets		4,956			(367	)
Increase in accounts payable — trade		5,792			1,550
Increase in accrued and other liabilities		6,472			1,593
(Decrease) increase in other long-term liabilities		(1,155	)		7,711

Net cash provided by operating activities		12,741			19,829

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(16,379	)		(16,612	)
Proceeds from sale of property, plant and equipment		37

Net cash used in investing activities		(16,342	)		(16,612	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments of) proceeds from short-term debt		(1,486	)		676
Proceeds from long-term debt		82			3,489
Repayments of long-term debt		(18,663	)		(7,909	)

Net cash used in financing activities		(20,067	)		(3,744	)

EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS		1,799			(490	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(21,869	)		(1,017	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD		63,655			24,070

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD	$	41,786		$	23,053

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	4,261		$	11,452

Foreign income taxes paid	$	2,606		$	2,052

See notes to condensed consolidated financial statements.

F-5

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

1. GENERAL

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

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

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


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

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

2. LIQUIDITY AND GOING CONCERN CONSIDERATIONS

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Holding Company successfully emerged from bankruptcy on March 25, 2003 with an approved reorganization plan. Prior to emergence, the Company had incurred substantial net losses and had both working capital and stockholders’ deficiencies. After emergence, the Company has generated cash flows from operations of $12.7 million and $19.8 million, respectively, for the six months ended June 30, 2005 and 2006 and has incurred net losses of $15.2 million and $5.8 million respectively. As of June 30, 2006, the Company has cash and cash equivalents of $23.1 million, which includes approximately $6.0 million in Venezuela (see Note 3) and a working capital deficiency of approximately $49.0 million.

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

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

F-6

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Interim Financial Information — The unaudited condensed consolidated financial statements as of June 30, 2006 and for the three and six months then ended have been prepared on the same basis as the Company’s audited consolidated financial statements as of and for the year ended December 31, 2005. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the results for such periods. The operating results for the three and six months ended June 30, 2006 are not necessarily indicative of the operating results to be expected for the remainder of calendar year 2006 or for any future period.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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

Currency Risks —During February 2004 and March 2005, the Venezuelan government fixed the bolivar’s value to the U.S. dollar at 1,920 and 2,150, respectively. These exchange controls limit the Company’s ability to convert local currency into U.S. dollars and transfer funds out of Venezuela. As of June 30, 2006, approximately $6.0 million of the Company’s cash and cash equivalents were held in Venezuela (of which $5.7 million is 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 and six months ended June 30, 2006, other than for one customer of IMPSAT USA as discussed below, all other installation fees amounted to $1.5 million and $2.7 million, compared to $1.5 million and $2.7 million for the same periods in 2005, and related direct installation costs amounted to $2.5 million and $4.8 million, compared to $2.6 million and $4.5 million, respectively. IMPSAT USA has deferred revenues of $7.9 million as of June 30, 2006 relating to a 2006 transaction with one customer in which the installation fees exceeded the related direct installation costs.

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

The Company records its revenues net of deductions for sales taxes. These taxes are assessed by the governmental taxing authorities in a number of countries in which the Company operates based on a percentage of gross revenues and totaled approximately $3.3 million and $6.4 million, and $4.4 million and $8.6 million for the three and six months ended June 30, 2005 and 2006, respectively.

No single customer accounted for greater than 10% of total net revenues for the six months ended June 30, 2005 and 2006.

Non-Monetary Transactions — The Company may exchange capacity on its broadband network for capacity from other carriers through the exchange of IRUs. These transactions are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 153 (“SFAS No. 153”), Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29 which was adopted on January 1, 2006. The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The amendment also eliminates the narrow exception for nonmonetary

F-7

exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. The Company did not have any material non-monetary transactions during the three and six months ended June 30, 2006.

Property, Plant and Equipment — Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the following estimated useful lives:


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

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

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

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

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

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

Stock-Based Compensation — Prior to January 1, 2006, the Company accounted for stock option awards granted under the Company’s share-based payment plans in accordance with the recognition and measurement provision of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (“APB 25”) and related Interpretations, as permitted by SFAS No. 123, Accounting for Stock-Based Compensation. Share-based employee compensation expense was not recognized in the Company’s condensed consolidated statement of operations prior to January 1, 2006, as all stock option awards granted under the plans had an exercise price equal to or greater than the market value of the common stock on the date of the grant. Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004), Share-Based Payment, (“SFAS 123R”) using the modified-prospective-transition method. Under this transition method, compensation expense recognized during the three and six months ended June 30, 2006 included compensation expense for all share-based awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123. In accordance with the modified-prospective-transition method, results for prior periods have not been restated. As a result of adopting SFAS 123R, the charge to operations for the three and six months ended June 30, 2006 was $166 and $332, respectively. The impact of adopting SFAS 123R on both basic and diluted earnings per share for the three and six months ended June 30, 2006 was $0.02 and $0.03, respectively, per share.

In March 2003, 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

F-8

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

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

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

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

The following table illustrates the effect on net earnings and earnings per share for the three and six months ended June 30, 2005, if the Company had applied the fair market value recognition provisions of SFAS 123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, to options granted under the Company’s share-based payment plans. For purposes of this pro forma disclosure, the value of the stock options is estimated using a Black-Scholes option-pricing model and amortized to expense over the options’ vesting periods.


	Three Months Ended June 30, 2005			Six Months Ended June 30, 2005
Net loss
As reported	$	(6,967	)	$	(15,190	)

Add: Stock-based compensation expense, as reported		—			—
Deduct: Stock-based employee compensation expense determined under fair-value-based method		(174	)		(349	)

Pro forma	$	(7,141	)	$	(15,539	)

Net loss per common share:
Basic and Diluted:
As reported	$	(0.69	)	$	(1.51	)

Pro forma	$	(0.71	)	$	(1.55	)

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.

F-9

A summary of stock option transactions during the six months period ended June 30, 2006 is as follow:


	Number of Option	Weighted Average Exercise Price
Outstanding at December 31, 2005	2,113,580	$	14.01
Granted	—		—
Exercised	—		—
Cancelled	—		—

Outstanding at June 30, 2006	2,113,580	$	14.01

Available for grant at June 30, 2006	856,010

The following table summarizes information concerning outstanding stock options at June 30, 2006:


		Options Outstanding			Options Exercisable
Range of Exercise Price	Number of Options Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number of Options Outstanding	Weighted Average Exercise Price		Aggregate Intrinsic Value
$6.17	90,000	7	$	6.17	90,000	$	6.17	$	205,200
$7.05	65,092	7		7.05	65,092		7.05		91,129
$12.00	262,156	9		12.00	262,156		12.00
$15.00	1,696,332	6		15.00	1,696,332		15.00

	2,113,580	6	$	14.01	2,113,580	$	14.01	$	296,329

There were no options granted during the six months ended June 30, 2006 and 2005.

At June 30, 2006, there was no unrecognized compensation expense related to unvested share-based awards granted under the Company’s share-based payment plans, of which all relates to stock options, as all stock options outstanding have vested. As of December 31, 2005 there were 411,574 of nonvested stock options with a weighted average grant date fair value of $15. There were 411,574 stock options that vested during the six months ended June 30, 2006.

Fair Value of Financial Instruments — As of December 31, 2005 and June 30, 2006, the Company’s financial instruments include cash and cash equivalents, receivables, payables and short and long-term debt.

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

At December 31, 2005 and June 30, 2006, the fair value of the Company’s other financial instruments was as follows:


2005	Book Value		% of Face		Fair Value
Series A 6% Senior Guaranteed Notes due 2011	$	67,308	76.3	%	$	51,383
Series B 6% Senior Guaranteed Notes due 2011		25,595	76.3			19,539
Senior Secured Notes 10% maturing due 2009		5,918	96.6			5,717
Senior Secured Notes 12% maturing due 2009		107,300	100.0			107,300

2006	Book Value		% of Face		Fair Value
Series A 6% Senior Guaranteed Notes due 2011	$	67,308	80.2	%	$	53,954
Series B 6% Senior Guaranteed Notes due 2011		25,595	80.2			20,517
Senior Secured Notes 10% maturing due 2009		5,071	99.8			5,060
Senior Secured Notes 12% maturing due 2009		104,800	100.0			104,800

Net Loss Per Common Share — Basic loss per share is computed based on the average number of common shares outstanding and diluted loss per share is computed based on the average number of common and potential common shares outstanding using the treasury stock method. The calculation of diluted loss per share was the same as the calculation of basic loss per share for the three and six months ended June 30, 2005 and 2006, since the inclusion of potential common stock in the computation would be antidilutive.

F-10

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


	June 30,
	2005	2006
Stock Options	2,068	2,114

Exercise Price	$ 6.17 to $ 15.00	$ 6.17 to $ 15.00

Warrants	3,257	3,257

Exercise Price	$15.00	$15.00

Series A and B Notes	6,071	6,071

Conversion Price	$ 13.56 to $ 20.78	$ 13.56 to $ 20.78

Shares of restricted stock	50	—

New Accounting Pronouncement—In June 2006, the Financial Accounting Standards Board issued Interpretation (“FIN”) 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006; therefore, the Company will be required to adopt FIN 48 in the first quarter of 2007. The Company’s management is currently evaluating FIN 48 and has not yet determined the impact, if any, the adoption of FIN 48 will have on the Company’s consolidated financial position or results of operations.

4. TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable, by operating subsidiaries, at December 31, 2005 and June 30, 2006, are summarized as follows:


	December 31, 2005			June 30, 2006
IMPSAT Argentina	$	17,577		$	18,111
IMPSAT Brazil		8,539			10,433
IMPSAT Colombia		4,342			4,483
IMPSAT Venezuela		7,366			8,548
All other countries		8,242			9,616

Total		46,066			51,191
Less: allowance for doubtful accounts		(10,254	)		(9,801	)

Trade accounts receivable, net	$	35,812		$	41,390

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

The activity for the allowance for doubtful accounts for the year ended December 31, 2005 and the six months ended June 30, 2006 are as follows:


	Year ended December 31, 2005			Six months ended June 30, 2006
Beginning balance	$	12,013		$	10,254
Provision for (reversal of) allowance for doubtful accounts		(1,062	)		295
Net Write-offs		(253	)		(456	)
Effect of exchange rate change		(444	)		(292	)

Ending balance	$	10,254		$	9,801

5. OTHER RECEIVABLES

Other receivables consist primarily of refunds or credits pending from local governments for taxes other than income, advances to suppliers and other miscellaneous amounts due to the Company and its operating subsidiaries and are as follows at December 31, 2005 and June 30, 2006:


	December 31, 2005		June 30, 2006
IMPSAT Argentina	$	419	$	655
IMPSAT Brazil		2,304		2,257
IMPSAT Colombia		3,103		1,891
IMPSAT Venezuela		3,076		2,524
All other countries		1,882		3,514

Total	$	10,784	$	10,841

F-11

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2005 and June 30, 2006 consist of:


	December 31, 2005			June 30, 2006
Land	$	10,109		$	10,109
Building and improvements		38,100			39,070
Operating communications equipment		229,032			248,011
Network infrastructure (including rights of way)		121,378			127,676
IRU investments		22,118			23,293
Furniture, fixtures and other equipment		17,617			18,685

Total		438,354			466,844
Less: accumulated depreciation		(130,795	)		(161,220	)

Total		307,559			305,624
Equipment in transit		1,507			1,261
Construction in process		826			927

Property, plant and equipment, net	$	309,892		$	307,812

The activity in accumulated depreciation for the year ended December 31, 2005 and the six months ended June 30, 2006 are as follows:


	Year ended December 31, 2005			Six months ended June 30, 2006
Beginning balance	$	75,102		$	130,795
Depreciation expense		55,324			27,528
Exchange rate effects		2,971			3,024
Disposals and retirements		(2,602	)		(127	)

Ending balance	$	130,795		$	161,220

7. DEBT

Short-Term Debt- IMPSAT Brazil maintains short-term credit facilities denominated in local currency with local banks. The facilities bear interest at 1.75% to 1.97% per month. As of December 31, 2005 and June 30, 2006, the outstanding balance amounted to $2.2 million and $3.1 million, respectively. The credit facilities mature during July 2007.

Long-Term Debt- The Company’s long-term debt at December 31, 2005 and June 30, 2006 is detailed as follows:


	December 31, 2005			June 30, 2006
Series A 6% Senior Guaranteed Notes due 2011	$	67,308		$	67,308
Series B 6% Senior Guaranteed Notes due 2011		25,595			25,595
Senior Secured Notes 12%, maturing 2009		107,300			104,800
Senior Secured Notes 10%, maturing 2009		5,918			5,071
Senior Notes issued by IMPSAT Colombia due 2008 and 2010 (interest rate 11.79%), collateralized by the assignment of customer contracts		19,700			17,090
Term notes maturing through 2007; collateralized by buildings and equipment and the assignment of customer contracts; denominated in:
U.S. dollars (interest rates 4.40% to 11.11%)		2,161			1,877
Local currency (interest rates 10.41% to 10.87%)		8,035			2,228
Eximbank notes (interest rate 6.73%), maturing semiannually through 2007		1,853			5,959
Vendor financing (interest rates 7.65% to 8.9%)		8,065			7,943

Total long-term debt		245,935			237,871
Less: current portion including defaulted indebtedness		(17,604	)		(25,035	)

Long-term debt, net	$	228,331		$	212,836

F-12

The Series A Notes, Series B Notes and Senior Secured Notes and some of the other term notes contain certain covenants requiring the Holding Company and/or certain of its subsidiaries to maintain certain financial ratios, limiting the incurrence of additional indebtedness and capital expenditures, and restricting the ability to pay dividends. As of June 30, 2006, the Company was in compliance with all of its debt covenants.

IMPSAT Argentina remains in default under indebtedness owed to a creditor who voted against the Plan. Under the Plan, the claims of this creditor were a contingent obligation arising under a guarantee by the Holding Company of certain primary indebtedness of IMPSAT Argentina. Notwithstanding the Holding Company’s emergence from bankruptcy and the extinguishment of Holding Company’s guarantee as a result, an event of default has occurred and is continuing with respect to the related primary underlying indebtedness of IMPSAT Argentina. As a result of this default, which relates to vendor financing totaling approximately $7.6 million in outstanding principal amount as of December 31, 2005 and June 30, 2006, such indebtedness and accrued interest thereon is due and payable. IMPSAT Argentina had been in discussions with the entity holding the indebtedness with a view to rescheduling or otherwise restructuring the defaulted debt obligation. The Company understands, however, that this holder recently transferred the defaulted debt obligation to an entity holding the indebtedness with a view to rescheduling or otherwise restructuring the defaulted debt obligation. The Company is not in discussions with the new holder. If, IMPSAT Argentina is unable to reschedule or restructure this indebtedness, IMPSAT Argentina could be forced to seek protection or liquidate under the bankruptcy laws of Argentina. There is no assurance that IMPSAT Argentina will reach a definitive agreement with this holder to reschedule or restructure such obligations.

The Series A and Series B Notes are convertible into approximately 4,963,748 and 1,107,147 shares of the Company’s common stock at a conversion price of $13.56 and $20.78, respectively, as of June 30, 2006.

8. INCOME TAXES

The composition of the provision for income taxes, all of which is for foreign taxes, for the three and six months ended June 30, 2005 and 2006 is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2006			2005			2006
Current	$	(1,775	)	$	(454	)	$	(2,099	)	$	(946	)
Deferred		(437	)		(184	)		(835	)		(730	)

Total	$	(2,212	)	$	(638	)	$	(2,934	)	$	(1,676	)

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

The Company recorded a valuation allowance to offset its deferred income tax asset as of June 30, 2006 because management cannot conclude that utilization of the tax benefits resulting from operating losses and the other temporary differences are “more likely than not” to be realized, as required by SFAS 109.

The Company has reserved for tax, labor and civil contingencies totaling approximately $7.3 million and $11.4 million as of December 31, 2005 and June 30, 2006, respectively, attributable primarily to its foreign subsidiaries’ tax return filings. These contingencies are for tax liabilities and related interest, as well as certain tax positions taken on foreign tax returns for which the statutes remain open.

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

F-13

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

9. OPERATING SEGMENT INFORMATION

The Company’s operating segment information, by subsidiary, is as follows for the three and six months ended June 30, 2005 and 2006.


Three months ended June 30, 2005	Argentina		Brazil			Colombia			Venezuela		All other countries			Eliminations			Total
Net Revenues
Satellite and Broadband	$	8,647	$	7,474		$	11,577		$	6,901	$	11,755		$	(4,279	)	$	42,075
Internet		1,898		1,328			1,407			629		3,528			(1,394	)		7,396
Value added services		3,528		2,159			955			548		956			(2,489	)		5,657
Telephony		4,614		327			59					3,637			(2,424	)		6,213
Sales of equipment		18					26			14		59						117

Total net revenues	$	18,705	$	11,288		$	14,024		$	8,092	$	19,935		$	(10,586	)	$	61,458

Operating income (loss)	$	415	$	(1,960	)	$	(209	)	$	1,366	$	(2,276	)				$	(2,664	)

Total assets	$	122,682	$	124,998		$	72,591		$	57,459	$	55,708					$	433,438


Three months ended June 30, 2006	Argentina		Brazil			Colombia			Venezuela		All other countries			Eliminations			Total
Net Revenues
Satellite and Broadband	$	8,235	$	9,939		$	12,444		$	6,626	$	12,994		$	(4,455	)	$	45,783
Internet		2,245		1,947			1,719			776		3,487			(1,583	)		8,591
Value added services		3,556		3,943			1,916			671		1,324			(3,232	)		8,178
Telephony		4,539		658			17					3,123			(1,512	)		6,825
Sales of equipment		15					32			14								61

Total net revenues	$	18,590	$	16,487		$	16,128		$	8,087	$	20,928		$	(10,782	)	$	69,438

Operating income (loss)	$	563	$	636		$	1,403		$	2,160	$	(2,184	)					2,578

Total assets	$	122,604	$	135,243		$	66,193		$	63,551	$	16,794					$	404,385


Six months ended June 30, 2005	Argentina		Brazil			Colombia			Venezuela		All other countries			Eliminations			Total
Net Revenues
Satellite and Broadband	$	16,831	$	14,180		$	23,611		$	13,848	$	24,032		$	(8,637	)	$	83,865
Internet		3,778		2,459			2,797			1,274		6,851			(2,832	)		14,327
Value added services		7,162		3,990			1,676			1,090		1,851			(4,972	)		10,797
Telephony		8,971		727			126					7,007			(4,691	)		12,140
Sales of equipment		28					39			75		59						201

Total net revenues	$	36,770	$	21,356		$	28,249		$	16,287	$	39,800		$	(21,132	)	$	121,330

Operating income (loss)	$	698	$	(3,280	)	$	136		$	3,666	$	(5,275	)				$	(4,055	)

Total assets	$	122,682	$	124,998		$	72,591		$	57,459	$	55,708					$	433,438


Six months ended June 30, 2006	Argentina		Brazil			Colombia			Venezuela		All other countries			Eliminations			Total
Net Revenues
Satellite and Broadband	$	16,695	$	18,852		$	25,242		$	13,143	$	25,595		$	(9,070	)	$	90,457
Internet		4,452		3,656			3,434			1,531		7,291			(3,157	)		17,207
Value added services		7,167		7,752			3,623			1,349		2,543			(6,227	)		16,207
Telephony		8,852		1,264			34					6,161			(3,119	)		13,192
Sales of equipment		69		638			209			18								934

Total net revenues	$	37,235	$	32,162		$	32,542		$	16,041	$	41,590		$	(21,573	)	$	137,997

Operating income (loss)	$	1,269	$	1,066		$	2,818		$	4,526	$	(5,418	)				$	4,261

Total assets	$	122,604	$	135,243		$	66,193		$	63,551	$	16,794					$	404,385

F-14

10. STOCKHOLDERS’ EQUITY

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

In connection with the restricted stock grant above, the Holding Company recorded approximately $1.3 million in stockholders’ equity as deferred compensation. The deferred compensation is being amortized to expense over the vesting period. Amortization for the six months ended June 2005 and 2006 was $440.

Warrants – During 2003, the Holding Company issued 3,257,178 eight-year warrants to acquire the Holding Company’s stock at $15.00 per share. As of June 30, 2006, all the warrants remain outstanding.

11. MANAGEMENT INCENTIVE PLAN

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

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

If a participant terminates his or her employment or is terminated by the Company for cause prior to the date the CIP 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 CIP 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 CIP or January 31, 2009, at which time all benefits under the MIP will have been paid.

As of December 31, 2005 and June 30, 2006, no amounts have been accrued under the MIP.

F-15

12. COMMITMENTS AND CONTINGENCIES

Commitments — The Company leases satellite capacity with average annual rental commitments of approximately $8.7 million through 2009 under non-cancelable agreements. In addition, the Company has committed to long-term contracts for the purchase of satellite and terrestrial links from third parties for approximately $14.4 million and $13.0 million through 2015 and 2009, respectively. The Company has commitments to purchase communications and data center equipment amounting to approximately $7.6 million at June 30, 2006.

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 June 30, 2006, the aggregate balance outstanding that has been guaranteed by the Holding Company was approximately $109.9 million (see Note 7).

The Company maintains commercial insurance policies which serve to guarantee certain of the Company’s performance obligations for services under some public and private contract bids which total approximately $50.1 million as of June 30, 2006.

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

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

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

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

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

13. GUARANTOR FINANCIAL INFORMATION

The financial information of IMPSAT Argentina, a guarantor subsidiary of the Holding Company’s Series A 6% Senior Guaranteed Notes due 2011 and Series B 6% Senior Guaranteed Notes due 2011, as of December 31, 2005 and June 30, 2006 and for the three and six months ended June 30, 2005 and 2006 is shown in a separate column in the accompanying consolidating financial information, as follows:

F-16

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2005

(In thousands of U.S. Dollars)


	Holding Company		IMPSAT Argentina (Guarantor)		Non-Guarantor Subsidiaries		Intercompany Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,026	$	3,300	$	19,744				$	24,070
Trade accounts receivable, net				12,169		23,643					35,812
Other receivables		—		32,722		50,896	$	(72,834	)		10,784
Prepaid expenses		203		526		2,333		(238	)		2,824

Total current assets		1,229		48,717		96,616		(73,072	)		73,490

PROPERTY, PLANT AND EQUIPMENT, Net				68,242		241,650					309,892

NON-CURRENT ASSETS:
Investments		50,108						(50,108	)
Other non-current assets		109,883		6,951		9,206		(109,879	)		16,161

Total non-current assets		159,991		6,951		9,206		(159,987	)		16,161

TOTAL	$	161,220	$	123,910	$	347,472	$	(233,059	)	$	399,543

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable — trade	$	22,913	$	23,995	$	64,088	$	(64,916	)	$	46,080
Short-term debt						2,168					2,168
Current portion of long-term debt				9,308		8,296					17,604
Interest Payable		1,626		5,989		10,304		(7,466	)		10,453
Accrued and other liabilities		33		9,739		34,045		(8,950	)		34,867

Total current liabilities		24,572		49,031		118,901		(81,332	)		111,172
LONG-TERM DEBT, Net		92,903		42,876		92,552					228,331
OTHER LONG-TERM LIABILITIES				18,589		99,321		(101,615	)		16,295

Total liabilities		117,475		110,496		310,774		(182,947	)		355,798
STOCKHOLDERS’ EQUITY		43,745		13,414		36,698		(50,112	)		43,745

TOTAL	$	161,220	$	123,910	$	347,472	$	(233,059	)	$	399,543

F-17

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2006

(In thousands of U.S. Dollars)


	Holding Company			IMPSAT Argentina (Guarantor)		Non-Guarantor Subsidiaries		Intercompany Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	4,509		$	1,502	$	17,042				$	23,053
Trade accounts receivable, net					12,938		28,452					41,390
Other receivables		8,376			34,843		57,505	$	(89,883	)		10,841
Prepaid expenses					403		2,657		(333	)		2,727

Total current assets		12,885			49,686		105,656		(90,216	)		78,011

PROPERTY, PLANT AND EQUIPMENT, Net		(116	)		64,931		242,997					307,812

NON-CURRENT ASSETS:
Investments		54,076					1,220		(55,296	)
Other non-current assets		109,635			7,987		17,575		(116,635	)		18,562

Total non-current assets		163,711			7,987		18,795		(171,931	)		18,562

TOTAL	$	176,480		$	122,604	$	367,448	$	(262,147	)	$	404,385

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable — trade	$	22,504		$	21,443	$	71,630	$	(66,777	)	$	48,800
Short-term debt							3,083					3,083
Current portion of long-term debt					9,308		15,727					25,035
Current portion of deferred revenue							554					554
Interest Payable		1,790			4,244		8,888		(6,796	)		8,126
Accrued and other liabilities		12,439			14,023		30,429		(15,441	)		41,450

Total current liabilities		36,733			49,018		130,311		(89,014	)		127,048
LONG-TERM DEBT, Net		92,903			42,000		77,933					212,836
DEFERRED REVENUES, Net							7,351					7,351
OTHER LONG-TERM LIABILITIES		7,000			21,894		106,245		(117,833	)		17,306

Total liabilities		136,636			112,912		321,840		(206,847	)		364,541
STOCKHOLDERS’ EQUITY		39,844			9,692		45,608		(55,300	)		39,844

TOTAL	$	176,480		$	122,604	$	367,448	$	(262,147	)	$	404,385

F-18

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2005

(In thousands of U.S. Dollars)


	Holding Company			IMPSAT Argentina (Guarantor)			Non-Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
NET REVENUES:
Broadband and satellite				$	8,647		$	37,707		$	(4,279	)	$	42,075
Internet					1,898			6,892			(1,394	)		7,396
Value added services					3,528			4,618			(2,489	)		5,657
Telephony					4,614			4,023			(2,424	)		6,213
Sales of equipment					18			99						117

Total net revenues					18,705			53,339			(10,586	)		61,458

COSTS AND EXPENSES:
Direct costs:
Contracted services					2,141			5,996			(2,066	)		6,071
Other direct costs					1,866			4,617						6,483
Leased capacity					6,315			18,757			(6,112	)		18,960
Cost of equipment sold					15			82			(6	)		91

Total direct costs					10,337			29,452			(8,184	)		31,605
Salaries and wages					3,143			9,133						12,276
Selling, general and administrative	$	2,877			1,672			3,728			(2,402	)		5,875
Depreciation and amortization					3,138			11,228						14,366

Total costs and expenses		2,877			18,290			53,541			(10,586	)		64,122

Operating (loss) income		(2,877	)		415			(202	)					(2,664	)

OTHER INCOME (EXPENSES):
Interest income		1,389			14			175			(1,279	)		299
Interest expense		(1,412	)		(2,469	)		(6,636	)		1,279			(9,238	)
Net gain on foreign exchange		7			46			11,857						11,910
Equity in income of affiliates		(539	)					3,131			(2,592	)
Other (expense) income net		(3,535	)		(196	)		(1,331	)					(5,062	)

Total other (expenses) income		(4,090	)		(2,605	)		7,196			(2,592	)		(2,091	)

(LOSS) INCOME BEFORE INCOME TAXES		(6,967	)		(2,190	)		6,994			(2,592	)		(4,755	)
PROVISION FOR FOREIGN INCOME TAXES								(2,212	)					(2,212	)

NET (LOSS) INCOME	$	(6,967	)	$	(2,190	)	$	4,782		$	(2,592	)	$	(6,967	)

F-19

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2006

(In thousands of U.S. Dollars)


	Holding Company			IMPSAT Argentina (Guarantor)			Non-Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
NET REVENUES:
Broadband and satellite				$	8,235		$	42,003		$	(4,455	)	$	45,783
Internet					2,245			7,929			(1,583	)		8,591
Value added services					3,556			7,854			(3,232	)		8,178
Telephony					4,539			3,798			(1,512	)		6,825
Sales of equipment					15			46						61

Total net revenues					18,590			61,630			(10,782	)		69,438

COSTS AND EXPENSES:
Direct costs:
Contracted services					2,217			6,212			(2,537	)		5,892
Other direct costs					2,276			6,465			(370	)		8,371
Leased capacity					5,758			18,559			(5,347	)		18,970
Cost of equipment sold					48			32						80

Total direct costs					10,299			31,268			(8,254	)		33,313
Salaries and wages	$	166			3,220			10,220						13,606
Selling, general and administrative		3,056			1,768			3,983			(2,528	)		6,279
Depreciation and amortization					2,740			10,922						13,662

Total costs and expenses		3,222			18,027			56,393			(10,782	)		66,860

Operating (loss) income		(3,222	)		563			5,237						2,578

OTHER INCOME (EXPENSES):
Interest income		1,263			52			480			(1,562	)		233
Interest expense		(1,755	)		(2,468	)		(4,543	)		1,562			(7,204	)
Net (loss) gain on foreign exchange					(15	)		3,009						2,994
Equity in income of affiliates		1,378						(762	)		(616	)
Other (expense) income net		(1,149	)		19			(317	)		(1	)		(1,448	)

Total other (expenses) income		(263	)		(2,412	)		(2,133	)		(617	)		(5,425	)

(LOSS) INCOME BEFORE INCOME TAXES		(3,485	)		(1,849	)		3,104			(617	)		(2,847	)
PROVISION FOR FOREIGN INCOME TAXES								(638	)					(638	)

NET (LOSS) INCOME	$	(3,485	)	$	(1,849	)	$	2,466		$	(617	)	$	(3,485	)

F-20

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2005

(In thousands of U.S. Dollars)


	Holding Company			IMPSAT Argentina (Guarantor)			Non-Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
NET REVENUES:
Broadband and satellite				$	16,831		$	75,671		$	(8,637	)	$	83,865
Internet					3,778			13,381			(2,832	)		14,327
Value added services					7,162			8,607			(4,972	)		10,797
Telephony					8,971			7,860			(4,691	)		12,140
Sales of equipment					28			173						201

Total net revenues					36,770			105,692			(21,132	)		121,330

COSTS AND EXPENSES:
Direct costs:
Contracted services					4,423			10,869			(4,006	)		11,286
Other direct costs					4,251			9,692						13,943
Leased capacity					12,184			37,318			(12,318	)		37,184
Cost of equipment sold					23			181			(6	)		198

Total direct costs					20,881			58,060			(16,330	)		62,611
Salaries and wages	$	440			6,310			18,496						25,246
Selling, general and administrative		5,750			3,264			6,925			(4,802	)		11,137
Depreciation and amortization					5,617			20,774						26,391

Total costs and expenses		6,190			36,072			104,255			(21,132	)		125,385

Operating (loss) income		(6,190	)		698			1,437						(4,055	)

OTHER INCOME (EXPENSES):
Interest income		2,947			32			340			(2,717	)		602
Interest expense		(2,793	)		(3,953	)		(10,693	)		2,717			(14,722	)
Net gain on foreign exchange		12			(139	)		11,397						11,270
Equity in income of affiliates		(5,389	)					1,177			4,212
Other (expense) income net		(3,777	)		(166	)		(1,408	)					(5,351	)

Total other (expenses) income		(9,000	)		(4,226	)		813			4,212			(8,201	)

(LOSS) INCOME BEFORE INCOME TAXES		(15,190	)		(3,528	)		2,250			4,212			(12,256	)
PROVISION FOR FOREIGN INCOME TAXES								(2,934	)					(2,934	)

NET LOSS	$	(15,190	)	$	(3,528	)	$	(684	)		4,212		$	(15,190	)

F-21

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2006

(In thousands of U.S. Dollars)

IMPSAT FIBER NETWORKS INC 10-Q