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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2005

OR

For the transition period from                      to                     

Commission File Number: 000-29085

IMPSAT Fiber Networks, Inc.

(Exact name of registrant as specified in its charter)

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 an accelerated filer (as defined in Securities Exchange Act Rule 12b-2).     YES  ¨    NO  x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of March 31, 2005, the registrant had outstanding 10,116,100 shares of common stock, $0.01 par value.

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IMPSAT FIBER NETWORKS, INC.

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

Overview

Revenues

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

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

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

Costs and Expenses

Our costs and expenses principally include:

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 and sales commissions paid to third-party sales representatives and to our salaried sales force.

Our selling, general and administrative expenses consist principally of:

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Currency Risks

Except in Argentina and Brazil, the majority of our contracts with customers provide for payment in U.S. dollars or for payment in local currency linked to the exchange rate between the local currency and the U.S. dollar at the time of invoicing. Accordingly, inflationary pressures on local economies in the other countries in which we operate did not have a material effect on our revenues during the three months ending March 31, 2005. Nevertheless, given that the exchange rate is generally set at the date of invoicing and that we in some cases experience substantial delays in collecting receivables, we are exposed to exchange rate risk, even in countries other than Argentina and Brazil.

Under applicable law, our contracts with customers in Brazil cannot, and, under certain circumstances, our contracts with customers in Argentina may not, be linked to the exchange rate between the local currency and the U.S. dollar. Accordingly, operations in Argentina and Brazil increase our exposure to exchange rate risks. Any devaluation of the 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 these countries at the dates indicated:

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 of the current controls 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. The peso free market opened on January 11, 2002 and traded at 1.65 pesos to the U.S. dollar and traded as low as 3.87 pesos to the U.S. dollar on June 26, 2002. At March 31, 2004 the exchange rate was 2.88 pesos to the U.S. Dollar, as compared to 2.92 pesos to the U.S. Dollar on March 31, 2005. Currently, a significant proportion of IMPSAT Argentina’s customer contracts and operating cash inflows are denominated in pesos.

Brazil

At March 31, 2004, the real traded at a rate of R$2.94 = $1.00, and it appreciated to R$2.67 = $1.00 at March 31, 2005. The daily average exchange rate for the real during the first quarter of 2005 was R$2.63= $1.00, as compared to R$2.93 = $1.00 during the first quarter of 2004.

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Venezuela

Widespread discontent with the policies of the current Venezuelan government produced a country-wide strike in the beginning of December 2002 that lasted two months and seriously disrupted economic activity in Venezuela and severely curtailed the production and export of oil, the major source of Venezuela’s foreign exchange. In response, on February 5, 2003, the Venezuelan government imposed foreign exchange and price controls, making it difficult for our customers in that country to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a timely basis. These foreign exchange controls also severely limit our ability to convert local currency into U.S. dollars and transfer funds out of Venezuela. At March 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. We cannot predict the extent to which we may be affected by future changes in exchange rates and exchange controls in Venezuela. Future devaluations of the Venezuelan bolivar and/or the implementation of stiffer exchange control restrictions in that country could have a material adverse effect on our financial condition and results of operations in Venezuela.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

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

Revenue Recognition

We record revenues from data, value-added, telephony, and Internet services monthly as the services are provided. Equipment sales are recorded upon delivery to and acceptance by the customer.

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

Non-Monetary Transactions

We may exchange capacity on our Broadband Network for capacity from other carriers through the exchange of IRUs. We account for these transactions as an exchange of similar IRUs at historical carryover basis with no revenue, gain or loss recognized.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 153 (“SFAS No. 153”), Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29. The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The amendment also eliminates the narrow exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. The provisions of SFAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We do not expect the adoption of SFAS 153 to have a material impact on our financial condition or results of operations.

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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 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

These policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often are a result of the need to make estimates about the effect of matters that are inherently uncertain. We have not made any changes in any of these critical accounting policies during the first quarter of 2005, nor have we made any material changes in any of the critical accounting estimates underlying these accounting policies during said period.

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

The valuation model and amortization assumption used by us continue to be available. However, we have not yet completed our assessment of the alternatives. SFAS No. 123(R) will be effective for the Company beginning January 1, 2006. Transition options allow companies to choose whether to adopt prospectively, restate results to the beginning of the year, or to restate prior periods with the amounts that have been included in the footnotes. We have not yet concluded on which transition option we will select. See Note 3 to our condensed consolidated financial statements for the pro forma effect for the each of the periods presented, using our existing valuation and amortization assumptions.

Results of Operations

The following table summarizes our results of operations:

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Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004

Revenues. Our total net revenues for the three months ended March 31, 2005 and 2004 equaled $59.9 million and $55.1 million, respectively. Net revenues were composed of net revenues from services and sales of equipment.

Our net revenues from services for the three months ended March 31, 2005 totaled $59.8 million, an increase of $4.9 million (or 8.9%) compared to the three months ended March 31, 2004. Our net revenues during the three months ended March 31, 2005 included net revenues from:

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

The increase in our total net revenues from services in the first quarter of 2005, as compared to the corresponding period in 2004, is due to increased revenues from services in all of our business lines. Changes in our revenues during the first quarter of 2005 as compared to the first quarter of 2004 related to the following:

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We had 3,596 customers at March 31, 2005, compared to 3,314 customers at December 31, 2004, and 2,910 customers at March 31, 2004. The following table shows the evolution of our customer base for the periods indicated:

During the first quarter of 2005, we gained a net total of 282 customers, an increase of 8.5% compared to December 31, 2004. Compared to March 31, 2004, we experienced a net gain of 686 customers, an increase of 23.6%. As we expand, the average size of customers, including the average revenue per customer, has decreased. In addition, as we increase our customer base and the initial or renewed term of customer contracts conclude, we face competition regarding subsequent renewals. We do not believe that any of our customer losses in the first quarter of 2005 will have a significant aggregate effect on our total net revenues from services.

In addition to net revenues from services, our total net revenues for the first quarter of 2005 included revenues from sales of equipment, which totaled $0.1 million compared to $0.2 million for the first quarter of 2004. Because equipment sales are ancillary to our core business and are generally engaged in by our company only on an opportunistic basis, we are currently unable to predict more than minimal sales of equipment during 2005.

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

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Our net revenues at IMPSAT Argentina totaled $18.1 million, an increase of $3.3 million (or 22.3%) compared to the three months ended March 31, 2004. Argentina is our largest market in terms of number of customers and in revenues. After three years of adverse economic conditions that commenced in 1999, in January 2002 the Argentine Government defaulted on its external debt payments and devalued its currency, exacerbating declining commercial confidence and activity and further inflating exorbitant costs of financing for Argentine companies. Although Argentina’s economy has shown signs of recovery during 2004 and the first three months of 2005, it continues to experience adverse economic conditions and a lack of access to international capital markets. The political and economic conditions in Argentina, our largest country of operation, will continue to materially affect our financial condition and results of operations.

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IMPSAT Brazil’s net revenues from services for the first quarter of 2005 totaled $10.1 million, an increase of $2.7 million (37.1%) compared to the first quarter of 2004. In local currency terms, IMPSAT Brazil’s net revenues for the first quarter of 2005 increased by 26% compared to the corresponding quarter in 2004. IMPSAT Brazil’s results were positively affected by the appreciation of the real against the U.S. dollar. At March 31, 2004, the real traded at a rate of R$2.94 = $1.00 and it appreciated to R$2.67 = $1.00 at March 31, 2005. However, future devaluations of the real and the decline in growth in the Brazilian economy would have an adverse effect on IMPSAT Brazil’s and our company’s overall financial condition and results of operations.

IMPSAT Colombia recorded net revenues of $14.2 million, an increase of $0.6 million (4.5%) compared to the first quarter of 2004. This increase is mainly attributed to the appreciation of the Colombian peso against the U.S. dollar, which resulted in an increase in recorded revenues in U.S. dollars for contracts denominated and payable in Colombian pesos, new customer contracts and expansion of services (particularly data center and internet) provided to existing customers.

Total net revenues at IMPSAT Venezuela equaled $8.2 million for the first quarter of 2005, compared to $8.1 million for the first quarter of 2004. Venezuela has experienced and continues to experience political and economic uncertainty following the attempted military coup staged against that country’s President Hugo Chavez during April 2002 and the labor strikes that commenced in December 2002 and ended two months later. The Venezuelan government imposed foreign exchange and price controls during February 2003, making it difficult for our customers in that country to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a timely basis. These foreign exchange controls also limit our ability to convert local currency into U.S. dollars and transfer funds out of Venezuela and to obtain U.S. dollars required to purchase needed telecommunications equipment and repair parts. The continuation or worsening of this crisis in Venezuela could have a material adverse effect on IMPSAT Venezuela’s results of operations and financial condition.

IMPSAT USA recorded total net revenues of $6.6 million for the first quarter of 2005, compared to $7.3 million for the first quarter of 2004. The difference is primarily a result of a $0.7 million decrease in broadband and satellite services due to downward price renegotiations.

Direct Costs. Our direct costs for the first quarter of 2005 totaled $31.0 million, an increase of $7.0 million (or 29.3%), compared to the first quarter of 2004. Of our total direct costs for the first quarter of 2005, $10.5 million related to the operations of IMPSAT Argentina, compared to $7.2 million at IMPSAT Argentina for the first quarter of 2004. Direct costs for IMPSAT Brazil totaled $5.2 million for the first quarter of 2005, compared to $3.6 million for the first quarter of 2004. Direct costs of our subsidiaries are described prior to the elimination of inter-company transactions.

(1) Contracted Services. Contracted services costs include costs of maintenance and installation (and de-installation) services provided by outside contractors. During the first quarter of 2005, our contracted services costs totaled $5.2 million, an increase of $0.9 million (or 20.5%) compared to the first quarter of 2004. Of this amount, maintenance costs for our telecommunications network infrastructure, including the Broadband Network, totaled $3.3 million for the first quarter of 2005 compared to $3.0 million during the first quarter of 2004. Installation costs totaled $1.9 million for the first quarter of 2005 compared to $1.4 million in the first quarter of 2004. Of our total contracted services costs for the first quarter of 2005, $2.0 million related to the operations of IMPSAT Argentina, compared to $1.6 million at IMPSAT Argentina for the first quarter of 2004. Our maintenance and installation costs increased because we had more infrastructure and more new customers during the first quarter of 2005 compared to the first quarter of 2004.

(2) Other Direct Costs. Other direct costs principally include licenses and other fees; sales commissions paid to our salaried sales personnel and third-party sales representatives; and our provision for doubtful accounts. We recorded other direct costs of $7.5 million, an increase of $3.7 million (or 98.5%) compared to the first quarter of 2004.

Sales commissions paid to third-party sales representatives for the first quarter of 2005 totaled $1.5 million, compared to $1.6 million in the first quarter of 2004.

We recorded a provision for doubtful accounts of $0.7 million for the first quarter of 2005, compared to a net reversal of a provision for doubtful accounts of $1.9 million for the same period during the previous year. The net reversal during the first quarter of 2004 related principally to our settlement of certain disputes with Global Crossing and the payment by Global Crossing in that quarter of $1.4 million, which was applied against outstanding receivables that had been disputed by Global Crossing and

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for which we had reserved 100% of contractual revenues. At March 31, 2005, approximately 23.5% of our gross trade accounts receivable were past due more than six months, compared to 32.8% at the end of the first quarter of 2004. At March 31, 2005, our allowance for doubtful accounts covered approximately 116.4% of our gross trade accounts receivable past due more than six months. The average days outstanding in gross trade accounts receivable decreased from 68 days at March 31, 2004 to 55 days at March 31, 2005. IMPSAT Argentina’s allowance for doubtful accounts at the end of the first quarter of 2005 covered approximately 98.0% of its gross trade accounts receivable past due more than six months.

(3) Leased Capacity. Our leased capacity costs for the first quarter of 2005 totaled $18.2 million, an increase of $2.4 million (or 15.4%) compared to the first quarter of 2004.

Our leased capacity costs for satellite capacity for the first quarter of 2005 totaled $5.8 million, a decrease of $0.1 million (or 2.4%) compared to the first quarter of 2004. In Argentina, our leased satellite capacity costs totaled $1.8 million for the first quarter of 2005, compared to $1.8 million for the first quarter of 2004. Our leased satellite capacity costs for IMPSAT Brazil totaled $0.7 million for the first quarter of 2005, compared to $0.7 million for the first quarter of 2004. We had approximately 693 MHz of leased satellite capacity at the end of the first quarter of 2005, compared to 718 MHz at March 31, 2004.

Our costs for dedicated leased capacity on third-party fiber optic networks totaled $8.1 million for the first quarter of 2005, an increase of $1.2 million (or 17.9%) compared to the first quarter of 2004. These costs were incurred principally in Argentina, Brazil, Colombia and the United States. We will continue to require leased capacity to provide telecommunications services to clients with facilities outside of the footprint of our Broadband Network in order to provide end-to-end telecommunications services.

In connection with our domestic and international long distance telephony services in Argentina, Peru and the United States, we incur costs for interconnection and telephony termination (“I&T”) and frequency rights. Our I&T and frequency rights costs totaled $4.3 million during the first quarter of 2005 (which included $3.5 million of I&T costs). This compares to $3.0 million of I&T and frequency rights costs for the first quarter of 2004 (which included $2.3 million of I&T costs). Our I&T and frequency rights costs in Argentina totaled $2.4 million during the first quarter of 2005 (which included $2.3 million of I&T costs). This compares to $1.3 million of I&T and frequency rights costs for the first quarter of 2004 (which included $1.1 million of I&T costs).

(4) Costs of Equipment Sold. In the first quarter of 2005, we incurred costs of equipment sold of $0.1 million, compared to costs of equipment sold of $0.1 million for the first quarter of 2004.

Salaries and Wages. Salaries and wages for the first quarter of 2005 totaled $13.0 million, an increase of $0.8 million (or 6.3%) compared to the first quarter of 2004. The increase was, in part, related to the appreciation of the Colombian peso and Brazilian real in comparison to the same period in the previous year.

We reduced the aggregate number of our employees from 1,242 at March 31, 2004 to 1,229 at March 31, 2005. IMPSAT Argentina had 298 employees at March 31, 2005, as compared to 297 employees at March 31, 2004. IMPSAT Argentina incurred salaries and wages for the first quarter of 2005 totaling $3.2 million, an increase of $0.3 million (or 9.7%) over the first quarter of 2004. IMPSAT Brazil incurred salaries and wages for the first quarter of 2005 of $2.3 million, an increase of $0.2 million (or 11.1%) compared to the first quarter of 2004. IMPSAT Brazil increased its number of employees to 194 persons at March 31, 2005, compared to 192 persons at March 31, 2004.

Selling, General and Administrative Expenses. We incurred SG&A expenses of $5.3 million for the first quarter of 2005, a decrease of $0.2 million (or 4.4%) compared to the first quarter of 2004. Our SG&A expenses for the first quarter of 2005 declined due principally to decreases in our publicity and promotion costs, utilities and advisory fees, and overall costs control measures undertaken by management. SG&A expenses at IMPSAT Argentina for the first quarter of 2005 totaled $1.6 million, a decrease of $0.2 million (or 8.9%) compared to the first quarter of 2004.

Depreciation and Amortization. Our depreciation and amortization expenses for the three months ended March 31, 2005 totaled $12.0 million, an increase of $1.9 million (or 18.4%) compared to depreciation and amortization for the first quarter of 2004. Depreciation and amortization increased during the first quarter of 2005 as compared to the corresponding period in 2004 primarily due to our increased purchases of capital expenditures during 2004. Depreciation and amortization expenses for IMPSAT Argentina for the first quarter of 2005 totaled $2.5 million, an increase of $0.4 million (or 16.7%) compared to IMPSAT Argentina’s depreciation and amortization expenses for the first quarter of 2004.

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Interest Expense, Net. Our net interest expense for the first quarter of 2005 totaled $5.2 million, an increase of $0.6 million (or 12.1 %) as compared to net interest expense of $4.6 million for first quarter of 2004. Our interest expense increased principally because of “payment in kind” accretion to our Senior Notes and certain indebtedness of our subsidiaries, which, of our total interest expense for the first quarter of 2005, represented $3.4 million. Our total indebtedness as of March 31, 2005 was $265.0 million, as compared to $264.1 million as of March 31, 2004.

Net Loss on Foreign Exchange. We recorded a net loss on foreign exchange for the first quarter of 2005 of $0.6 million, compared to a net loss on foreign exchange of $4.4 million for the three months ended March 31, 2004. IMPSAT Argentina recorded a net loss on foreign exchange for the first quarter of 2005 of $0.2 million compared to a net loss on foreign exchange for the first quarter of 2004 of $0.6 million. IMPSAT Brazil recorded a net loss on foreign exchange for the first quarter of 2005 of $0.5 million, compared to net loss of $1.8 million for the first quarter of 2004.

Net Loss. For the first quarter of 2005, we recorded a net loss of $8.2 million, compared to net loss of $6.5 million for the three months ended March 31, 2004. For the first quarter of 2005, we recorded an operating loss of $1.4 million, compared to operating income of $3.2 million for the first three months of 2004.

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Liquidity and Capital Resources

At March 31, 2005, we had total cash and cash equivalents of $41.4 million, compared to $63.7 million at December 31, 2004.

At March 31, 2005, approximately $4.6 million of our total cash and cash equivalents were held in Venezuelan bolivars by IMPSAT Venezuela (based on the official exchange rate at that date of Bs.2,150.00 = $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. 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 March 31, 2005, our total indebtedness was $265.0 million as compared to $281.1 million at December 31, 2004, of which $1.2 million represented short-term debt, $45.4 million represented current portion of long-term debt and $218.4 million represented long-term debt. Our capital expenditures budget for 2005 contemplates that we will need approximately $32.5 million (including amounts spent to date) for capital expenditures.

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

In the first quarter of 2005, IMPSAT Brazil failed to comply with a financial ratio on its approximately $81.1 million of Senior Secured Notes. Although we obtained a waiver of any non-compliance with this ratio through March 31, 2006 from the lender, we cannot guarantee that the lender will grant any required waivers in the future.

In 2005, we are required to commence repayment of the principal amount of the restructured senior debt owed by our subsidiaries to certain of their vendor financiers who elected to participate in the Plan, and pay in cash the interest on the Senior Notes, that was payable in kind between the Effective Date and March 25, 2005. Our vendor indebtedness, which totalled $132.4 million at March 31, 2005, is payable in nine equal installments, commencing March 25, 2005, through March 25, 2009. We paid the initial principal installment on this indebtedness, totalling $16.5 million, on March 25, 2005.

A significant portion of the indebtedness coming due in 2005 and thereafter is held by affiliates of certain members of our board of directors. Accordingly, a special committee of the Company’s board of directors has been formed to explore recapitalization alternatives. These alternatives may take the form of a repurchase, refinancing or rescheduling of the payment terms of the indebtedness of the Company and/or its operating subsidiaries, a potential capital infusion, or other types of transactions. There can be no assurance, however, that any such transaction will be successfully negotiated or consummated. Our inability to successfully refinance our indebtedness as it comes due would have a material adverse effect on our company, and would raise doubts as to our ability to continue as a going concern for a reasonable time period.

In its audit report in the Company’s consolidated financial statements for the year ended December 31, 2004, Deloitte & Touche LLP, the Company’s independent registered public accounting firm, included a paragraph that noted that the Company’s potential inability to meet certain of its debt covenants, and the amount of its debt obligations coming due in 2005 and thereafter, raised substantial doubt as to our ability to continue as a going concern. The Company’s financial statements included in this Quarterly Report on Form 10-Q have been prepared under the assumption that the Company will continue as a going concern and do not include any adjustments that might result if we were forced to discontinue operations. For additional information, see Note 2 to our condensed financial statements.

As set forth in our condensed consolidated statement of cash flows, our operating activities provided $5.5 million in net cash flows for the first quarter of 2005, compared to $3.7 million provided by operating activities during the first quarter of 2004. The increase in cash flow from operating activities in the first quarter of 2005 was primarily due to our net loss during the first quarter of 2005 and to a decrease in accrued and other liabilities.

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For the first quarter of 2005, our investing activities used $8.3 million in net cash flows, compared to $3.7 million of net cash flows used by investing activities during the corresponding period in 2004. During the first quarter of 2005, we used $19.6 million in net cash flows from financing activities, compared to $1.4 million in net cash flows used in financing activities during the first quarter of 2004, $16.5 million of which were due to the repayment of Senior Debt at its stated maturity as discussed above.

At March 31, 2005, we had leased satellite capacity with average annual rental commitments of approximately $12.3 million through the year 2009 under non-cancelable agreements. We have entered into contracts for the purchase of satellite capacity for approximately $15.0 million through 2015. In addition, at March 31, 2005, we had commitments to purchase telecommunications equipment amounting to approximately $6.5 million. Furthermore, we have leased from third parties a series of terrestrial links for the provision of data, Internet and telephony services to our clients in the different countries in which we operate. We have committed to long-term contracts for the purchase of terrestrial links from third parties in Argentina, Colombia and the United States for approximately $3.1 million per year through 2009. The remainder of the leases are typically under one-year contracts, the early cancellation of which is subject to a fee.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The sections below highlight our exposure to interest rate and foreign exchange rate risks. The analyses presented below are illustrative and should not be viewed as predictive of our future financial performance. Additionally, we cannot assure you that our actual results in any particular year will not differ from the amounts indicated below. However, we believe that these results are reasonable based on our financial instrument portfolio at March 31, 2005 and assuming that the hypothetical interest rate and foreign exchange rate changes used in the analyses occurred during year 2005. We do not hold or issue any market risk sensitive instruments for trading purposes.

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

We are exposed to interest rate risk on our floating rate indebtedness, which affects our cost of financing. At March 31, 2005, our total floating rate indebtedness aggregated $39.2 million, of which $13.5 million was denominated in U.S. dollars and accrued interest at specified spreads over the London Interbank Offered Rate (LIBOR) and $25.7 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 March 31, 2005, a hypothetical 100

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basis point increase in LIBOR would affect our annual interest cost related to our floating rate indebtedness bearing interest based on LIBOR by approximately $0.1 million annually. The fair value of financial instruments, which approximate their carrying value, except in the case of Senior Notes, have been determined using available market information and interest rates as of March 31, 2005.

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 and Argentina, generally have provided for payment in U.S. dollars or for payment in local currency linked to the exchange rate between the local currency and the U.S. dollar at the time of invoicing. These contractual provisions are structured to reduce our risk if currency exchange rates fluctuate. However, given that the exchange rate is generally set at the date of invoicing and that in some cases we experience substantial delays in collecting receivables, we are exposed to some exchange rate risk.

During January 2002, Argentina abandoned the fixed dollar-to-peso exchange rate and devalued the Argentine peso, and, on February 3, 2002, pursuant to the “pesification” decree, the Argentine government announced the mandatory conversion of all foreign currency denominated contractual obligations governed by Argentine law into Argentine pesos at a rate of one Argentine peso to one U.S. dollar. The floating exchange rate at March 31, 2005 was pesos 2.92 = $1.00. Devaluations of the peso have and will adversely affect IMPSAT Argentina’s results of operations and, in turn, our company’s consolidated results of operations and financial condition. During the remainder of 2005, our consolidated results could be impacted from transaction gains or losses on our dollar-denominated monetary assets and liabilities. Potential balance sheet exposures include the reduction to our consolidated stockholders’ equity due to the effects of lower net income on retained earnings.

Pursuant to Brazilian law, our contracts with customers in Brazil cannot be denominated in dollars or linked to the exchange rate between the Brazilian real and the U.S. dollar. In Brazil, we are permitted to amend the pricing of our services for our long-term telecommunication services contracts with our customers annually based on changes in the consumer price index in Brazil for the prior year. In Argentina, obligations that were mandatorily converted to pesos under the “pesification” decree are to be adjusted pursuant to an index rate based on variations in the Argentine consumer price index. These aspects of the laws in Brazil and Argentina do not eliminate completely the currency exchange risk facing our operations in those countries. Changes in the consumer price indices in Brazil and Argentina may lag or be lower than changes in the exchange rate between the Brazil and Argentine local currency and the U.S. dollar and therefore may not fully allow us to address the impact of a devaluation of those currencies against the U.S. dollar. Also, contracts entered into after the “pesification” decree’s enactment that are initially denominated in pesos are not entitled to be adjusted according to any other consumer or other price index. Accordingly, our operations in Brazil and Argentina have exposed us, and will increase our exposure, to exchange rate risks. At March 31, 2005, the real traded at a rate of R2.67 = $1.00.

As discussed above, in response to political and economic turmoil currently affecting Venezuela, the Venezuelan government imposed foreign exchange and price controls during 2003, making it difficult for our customers in Venezuela to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a timely basis. These foreign exchange controls could also limit our ability to convert local currency into U.S. dollars and transfer funds out of Venezuela. 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. Hence, at March 31, 2004, the bolivar traded at a rate of Bs.1,920 = $1.00, and on March 31, 2005, it traded at a rate of Bs. 2,150 = $1.00. In the majority of cases, we have agreed to receive bolivars at the official rate in payment for our services in lieu of

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U.S. dollars. As a result, our holdings of bolivars at March 31, 2005 totaled Bs. 9.9 billion (or $4.6 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 first quarters of 2005 and 2004 represented 30.2% and 26.7% of our total net revenues from services, respectively. Net revenues from services from our Brazilian operations for the first quarters of 2005 and 2004 represented approximately 16.8% and 13.4% of our total net revenues from services respectively. Our net revenues from services in Venezuela accounted for 13.6% and 14.7% of our total revenues from services for the first quarters of 2005 and 2004, respectively.

Item 4. Controls and Procedures

Within the 90-day period prior to the filing of this Report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. No significant changes were made in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 2. Changes in 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.

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Item 6. Exhibits

Exhibit Index:

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SIGNATURES

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

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2004 AND MARCH 31, 2005

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

( Unaudited )

See notes to condensed consolidated financial statements.

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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THREE MONTHS ENDED MARCH 31, 2004 AND 2005

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

(Unaudited)

See notes to condensed consolidated financial statements.

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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THREE MONTHS ENDED MARCH 31, 2004 AND 2005

(In thousands of U.S. Dollars)

(Unaudited)