##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003


Commission File No. 333-8880

Satélites Mexicanos, S.A. de
C.V.

Blvd. M. Avila Camacho No. 40, 23rd
floor

Col. Lomas de Chapultepec


11000 Mexico, D.F.


Mexico


(52) 55-5201-0800


Jurisdiction of incorporation:
Mexico

Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act:


10.125% Series B Senior Notes due
2004


The number of outstanding shares of capital
stock as of December 31, 2003 was:

2,550 Class I Series A
Shares


2,598,450 Class II Series A
Shares


2,450 Class I Series B
Shares


2,496,550 Class II Series B
Shares


4,900,000 Class II Series N
Shares


606,730 Class I Series C
Shares


The
registrant 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 and has been subject to such
filing requirements for the past 90 days.

The
registrant has elected to follow Financial Statement
Item 18.









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TABLE OF CONTENTS



|                                                                    |  |  |  |  |  |  |  | 
|------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                                             
|Item 3. Key Information                                            
|Item 4. Information on the Company                                 
|Item 5. Operating and Financial Review and Prospects               
|Item 6. Directors, Senior Management and Employees                 
|Item 7. Major Shareholders and Related Party Transactions          
|Item 8. Financial Information                                      
|Item 9. Markets                                                    
|Item 10. Additional Information                                    
|Item 11. Quantitative and Qualitative Disclosures About Market Risk
|PART II                                                            
|Item 13. Defaults, Dividend Arrearages and Delinquencies           
|Item 14. Material Modifications to the Rights of Security Holders  
|Item 15. Controls and Procedures                                   
|Item 16. Audit Committee Financial Expert                          
|Item 16 A) Disclosure of Audit Committee Financial Expert          
|Item 16 B) Code of Ethics                                          
|Item 16 C) Principle Accountant Fees and Services                  
|PART III                                                           
|Item 18. Financial Statements                                      
|Item 19. Exhibits                                                  
|CERTIFICATION                                                      
|CERTIFICATION                                                      
|CERTIFICATION                                                      
|CERTIFICATION                                                      



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TABLE OF CONTENTS

|         |  |                                                                |  |      |     | 
|-------- |  | -------------------------------------------------------------- |  | ---- | --- | 
|         |  |                                                                |  | Page
|         |  |                                                                |  |     
|PART I  
|Item 3.  |  | Key Information                                                |  |      | 1   | 
|Item 4.  |  | Information on the Company                                     |  |      | 13  | 
|Item 5.  |  | Operating and Financial Review and Prospects                   |  |      | 36  | 
|Item 6.  |  | Directors, Senior Management and Employees                     |  |      | 51  | 
|Item 7.  |  | Major Shareholders and Related Party Transactions              |  |      | 54  | 
|Item 8.  |  | Financial Information                                          |  |      | 57  | 
|Item 9.  |  | Markets                                                        |  |      | 57  | 
|Item 10. |  | Additional Information                                         |  |      | 58  | 
|Item 11. |  | Quantitative and Qualitative Disclosures About
    Market Risk |  |      | 61  | 
|PART II 
|Item 13. |  | Defaults, Dividend Arrearages and Delinquencies                |  |      | 62  | 
|Item 14. |  | Material Modifications to the Rights of Security
    Holders   |  |      | 62  | 
|Item 15. |  | Controls and Procedures                                        |  |      | 62  | 
|Item 16. |  | A) Disclosure of Audit Committee Financial
    Expert          |  |      | 62  | 
|         |  | B) Code of Ethics                                              |  |      | 62  | 
|         |  | C) Principle Accountant Fees and Services                      |  |      | 63  | 
|PART III
|Item 18. |  | Financial Statements                                           |  |      | F-1 | 
|Item 19. |  | Exhibits                                                       |  |      |     | 

All other items have been omitted because they
are not applicable or are not required.





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PART I









|        |                
|------- | ---------------
|Item 3. | Key Information

SELECTED FINANCIAL DATA

The following table presents selected financial
information for Satélites Mexicanos, S.A. de C.V.
(we, us or the Company or
Satmex) for the five years in the period ended
December 31, 2003. The information was derived from our
audited financial statements. The audited financial statements
were prepared in accordance with accounting principles generally
accepted in the United States. The following information should
be read in conjunction with, and is qualified in its entirety by
reference to, Operating and Financial Review and
Prospects and to our financial statements, and the related
notes thereto, included elsewhere herein.

|                                           |                                                                 |                                      |   |       |   |      |   |         |   |      |   |         |   |  |   |         |   |  |   |         |  
|------------------------------------------ | --------------------------------------------------------------- | ------------------------------------ | - | ----- | - | ---- | - | ------- | - | ---- | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                           |                                                                 |                                     
|                                           |                                                                 | Years Ended December 31,            
|                                           |                                                                 |                                     
|                                           |                                                                 | 2003                                 |   | 2002  |   | 2001 |   | 2000    |   | 1999
|                                           |                                                                 |                                      |   |       |   |      |   |         |   |     
|                                           |                                                                 |                                     
|                                           |                                                                 | (Amount in millions of U.S. dollars)
|Statement of Operations Data:              |                                                                 |                                      |   |       |   |      |   |         |   |      |   |         |   |  |   |         |   |  |   |        
|                                           | Revenue(1)                                                      |                                      | $ | 78.8  |   |      | $ | 85.0    |   |      | $ | 128.0   |   |  | $ | 136.4   |   |  | $ | 135.5   |  
|                                           | Operating income (loss)(1)                                      |                                      |   | (7.6  | ) |      |   | (1.4    | ) |      |   | 35.1    |   |  |   | 34.3    |   |  |   | 25.0    |  
|                                           | Income (loss) before income taxes and
    extraordinary loss(1) |                                      |   | (43.5 | ) |      |   | (28.8   | ) |      |   | (4.3    | ) |  |   | 72.2    |   |  |   | (41.0   | )
|                                           | Deferred income tax benefit (expense)(1)                        |                                      |   | (35.7 | ) |      |   | 8.8     |   |      |   | 1.1     |   |  |   | (17.0   | ) |  |   | (5.7    | )
|                                           | Net income (loss)(1)                                            |                                      |   | (79.2 | ) |      |   | (19.9   | ) |      |   | (3.1    | ) |  |   | 55.2    |   |  |   | (46.7   | )
|                                           | Net income (loss) applicable to common
    stockholders(1)      |                                      |   | (80.7 | ) |      |   | (21.4   | ) |      |   | (4.6    | ) |  |   | 53.7    |   |  |   | (47.8   | )
|Other Data:                                |                                                                 |                                      |   |       |   |      |   |         |   |      |   |         |   |  |   |         |   |  |   |        
|                                           | Depreciation and amortization                                   |                                      | $ | 48.4  |   |      | $ | 47.4    |   |      | $ | 47.3    |   |  | $ | 56.7    |   |  | $ | 61.3    |  
|                                           | Capital expenditures                                            |                                      |   | 37.9  |   |      |   | 123.2   |   |      |   | 95.7    |   |  |   | 6.7     |   |  |   | 6.3     |  
|Balance Sheet Data (at end of
    period): |                                                                 |                                      |   |       |   |      |   |         |   |      |   |         |   |  |   |         |   |  |   |        
|                                           | Total assets                                                    |                                      | $ | 973.7 |   |      | $ | 1,004.8 |   |      | $ | 1,089.3 |   |  | $ | 1,123.6 |   |  | $ | 1,041.7 |  
|                                           | Current maturities of long term debt                            |                                      |   | 523.6 |   |      |   | 1.0     |   |      |   | 1.0     |   |  |   | 1.0     |   |  |   | 1.0     |  
|                                           | Long-term debt                                                  |                                      |   |      |   |      |   | 523.4   |   |      |   | 542.4   |   |  |   | 571.0   |   |  |   | 587.0   |  
|                                           | Stockholders equity(1)                                         |                                      |   | 289.5 |   |      |   | 368.7   |   |      |   | 388.6   |   |  |   | 391.7   |   |  |   | 336.5   |  



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In August 2000, our Solidaridad 1 satellite
    ceased operating and was considered irretrievably lost. The loss
    was caused by the failure of the back-up control processor on
    board the satellite. Solidaridad 1 was insured for
    $250 million. At the date of the loss, Solidaridad 1
    had a net book value of approximately $109.6 million. After
    deducting prepaid insurance of $1.6 million, the unpaid
    insurance premiums of $12.5 million and on- going
    monitoring costs and the excess of the estimated cost over
    revenue for the then committed transponder capacity to be
    provided to customers of $23.2 million, the net gain on the
    in-orbit failure of Solidaridad 1 was approximately
    $103.1 million. In 2001, we reduced the liability for the
    cost over revenue for the committed transponder capacity to be
    provided to customers by $7.3 million. In 2002, we received
    $3.3 million from the satellite manufacturer under the
    Solidaridad 1 performance guarantee and we reduced the
    liability for the cost over revenue for the committed
    transponder capacity to be provided to customers by
    $5.1 million. In 2003, Satmex canceled a portion of the
    reserve for monitoring costs by $3.3 million. These
    transactions were recorded as additional gain on the in-orbit
    failure of Solidaridad 1 in the applicable periods.

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EXCHANGE RATES

The following table presents the period-end,
average, low and high Noon Buying Rate for the purchase and sale
of dollars, each expressed in pesos per dollar. The exchange
rate translations presented should not be construed as
representations that the peso amounts actually represent such
dollar amounts or could be converted into dollars at the rate
indicated.

|                        |  |            |       |                  |       |     |       |      |       |  |       |  |  |  |       |  |  | 
|----------------------- |  | ---------- | ----- | ---------------- | ----- | --- | ----- | ---- | ----- |  | ----- |  |  |  | ----- |  |  | 
|                        |  |            |       |                 
|                        |  |            |       | Exchange Rate(1)
|                        |  |           
|Year Ended December 31, |  |           
|                        |  | Period End |       | Average(2)       |       | Low |       | High
|                        |  |            |       |                  |       |     |       |      |       | 
|1999                    |  |            | 9.48  |                  |       |     | 9.56  |      |       |  | 9.24  |  |  |  | 10.60 | 
|2000                    |  |            | 9.62  |                  |       |     | 9.47  |      |       |  | 9.18  |  |  |  | 10.09 | 
|2001                    |  |            | 9.14  |                  |       |     | 9.34  |      |       |  | 8.95  |  |  |  | 9.97  | 
|2002                    |  |            | 10.31 |                  |       |     | 9.66  |      |       |  | 9.00  |  |  |  | 10.36 | 
|2003                    |  |            | 11.24 |                  |       |     | 10.79 |      |       |  | 10.11 |  |  |  | 11.40 | 
|2004                    |  |  January  |       |                  | 10.80 |     |       |      | 11.24 | 
|                        |  | February   |       |                  | 10.89 |     |       |      | 11.19 | 
|                        |  | March      |       |                  | 10.91 |     |       |      | 11.24 | 
|                        |  | April      |       |                  | 11.12 |     |       |      | 11.47 | 
|                        |  | May        |       |                  | 11.39 |     |       |      | 11.68 | 
|                        |  | June       |       |                  | 11.32 |     |       |      | 11.49 | 



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|    |                                                      
|--- | -----------------------------------------------------
|(1) | Source: Federal Reserve Bank and Banco de
    México.
|   
|(2) | Average of month-end rates.                          

CERTAIN FACTORS THAT MAY AFFECT FUTURE
RESULTS

This annual report on Form 20-F contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. In addition, from time to time, we or our
representatives have made or may make forward-looking
statements, orally or in writing. They can be identified by the
use of forward-looking words such as believes,
expects, plans, may,
will, should, or anticipate
or their negatives or other variations of these words or other
comparable words, or by discussion of strategy that involves
risks and uncertainties. These forward-looking statements may be
included in, but are not limited to, various filings made by us
with the Securities and Exchange Commission, press releases or
oral statements made by or with the approval of one of our
authorized executive officers. Forward-looking statements are
only predictions. Actual events or results could differ
materially from those projected or suggested in any
forward-looking statement as a result of a wide variety of
factors and conditions, including, but not limited to, the
factors summarized below. We undertake no obligation to update
any forward-looking statement.

Factors Relating to Satmex



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are currently in default under the
    indentures governing our 10.125% senior notes due 2004 and our
    floating rate notes due 2004 and are currently negotiating the
    restructuring of our current debt. If these efforts are not
    successful, we do not expect to be able to pay the amounts due
    on those notes, either at their stated maturity or as a result
    of any acceleration; as a result, we may commence a court
    supervised restructuring.

On June 30, 2004, our outstanding senior
secured floating rate notes due June 2004 (the Floating
Rate Notes) came due and we did not make the required
principal payment of $203.4 million. We have continued to
pay monthly interest on the Floating Rate Notes. Also, we did
not make the August 1, 2003 and February 1, 2004,
interest payments on our 10.125% senior notes due November
2004 (the Fixed Rate Notes). The amount of each
interest payment due was $16.2 million for a total of
$32.4 million. We did not make the

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interest payments on the Fixed Rate Notes due to
cash shortfalls from our operating activities. Certain other
covenant defaults have occurred under both indentures.


The occurrence of the events of default under the
Fixed Rate Notes gives the holders of those notes the right to
accelerate our principal repayment obligations on those notes.
As of the date of this annual report, we have not received
notice of the acceleration of principal repayment as provided
for in the indentures for the Fixed Rate Notes.

We have been actively exploring with our
financial advisors the restructuring of our debt obligations.
This restructuring may be part of a court supervised
restructuring that would be commenced by us.

We have been negotiating with an ad hoc committee
of the holders of the Fixed Rate Notes regarding a possible
restructuring of the Fixed Rate Notes, but have not, as of the
date of this annual report, reached any agreement with the ad
hoc committee or any other holder of Fixed Rate Notes regarding
the restructuring of the Fixed Rate Notes. On May 4, 2004,
the ad hoc committee informed us that certain members held more
than 51% of the outstanding principal amount of the Fixed Rate
Notes.

We are also negotiating to restructure the
Floating Rate Notes with an ad hoc committee of holders of the
Floating Rate Notes. As of the date of this annual report, we
have not reached any agreement with the ad hoc committee or any
other holder of Floating Rate Notes regarding the restructuring
of the Floating Rate Notes. On April 28, 2004, the ad hoc
committee informed us that its members held more than 62% of the
outstanding principal amount of the Floating Rate Notes.

As part of our restructuring, we are working with
our advisors to arrange financing for the remaining amounts
necessary to launch our new satellite, Satmex 6. In order to
arrange this financing, we may commence a court supervised
restructuring. The launch of Satmex 6 is critical to our
ability to increase cash flows and improve our financial
position.

If we are not successful in our efforts to
negotiate the terms of a consensual restructuring of the Fixed
Rate Notes and the Floating Rate Notes we may commence a
voluntary bankruptcy case in the United States under
Chapter 11 of the U.S. Bankruptcy Code or a voluntary
reorganization proceeding (Concurso Mercantil) in
Mexico, under Mexican bankruptcy law (Ley de Concursos
Mercantiles) (the LCR).



| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | If Servicios defaults in the payment of
    certain debt owed to the Mexican government, the Mexican
    government would gain control of us.

On September 30, 2003, our parent company,
Servicios Corporativos Satelitales, S.A. de C.V.
(Servicios), defaulted, as a result of its failure
to maintain a minimum coverage ratio, on its approximately
$125.1 million debt obligation to the Mexican government,
which was incurred in connection with the acquisition of us and
which accrues deferred interest at the rate of 6.03% per
annum, compounds daily and matures in December 2004 (the
Menoscabo). If Servicios were to default in the
payment of the Menoscabo, the Mexican government has the right
to initiate foreclosure proceedings, which would lead to the
transfer of the holdings of Loral Space &
Communications Ltd. (together with its subsidiaries,
Loral) and Principia, S.A. de C.V.
(Principia) in Firmamento Mexicano, S. de R.L.
de C.V. (Firmamento) to a third party purchaser. The
Mexican government may participate as an interested purchaser of
those holdings and, if awarded the sale, it would gain direct
control of Firmamento and indirect control of us. If the Mexican
government gains control of us, we cannot make any assurances
that it would assume any of our debt, including the existing
notes. Also, in that scenario, we would be controlled and
managed by the Mexican government.



| |                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Mexican reorganization laws may not be as
    favorable to creditors as U.S. bankruptcy laws. If we are
    declared subject to reorganization under Mexican law, holders
    may find it difficult to collect payment on our Fixed Rate Notes
    and our Floating Rate Notes.

We cannot assure holders of the Fixed Rate Notes
that they would be able to collect payment on the Fixed Rate
Notes in dollars, or at all, if we became subject to a Mexican
liquidation (quiebra). We cannot assure

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holders of the Floating Rate Notes that they
would be able to collect all the payments owed on the Floating
Rate Notes in dollars, if we became subject to a Mexican
liquidation (quiebra).


Concurso Mercantil is based on the LCR enacted in
May 2000, which provides for two different and separate
proceedings: conciliation and liquidation (quiebra). The
conciliation phase lasts up to 185 days, absent protracted
litigation. This initial term is subject to extension for two
90-day periods, subject to certain conditions. The objective of
the conciliation phase is to reach a restructuring agreement
between the debtor and its creditors. An agreement among a
debtor and its creditors would have the effect of ending the
concurso mercantil; the LCR provides for specific creditor
voting rules and any dissenting creditors are bound by the
agreement. If the debtor does not reach an agreement with its
creditors within the mandatory period of time, the debtor is put
into liquidation (quiebra) during which phase the
debtors assets are liquidated. Both proceedings are likely
to take significantly more time and be significantly less
predictable than a reorganization case under U.S. laws. If
we were to be declared subject to reorganization under the LCR,
holders of our Fixed Rate Notes and Floating Rate Notes would
have to file a claim in Spanish against our estate in Federal
District Court in Mexico City. In a reorganization proceeding
under the LCR, upon the commencement of the conciliation phase,
all payment of principal and interest to the holders of the
Fixed Rate Notes or the Floating Rate Notes is suspended by the
court until the termination of such proceedings.

Furthermore, the outstanding amounts under our
Fixed Rate Notes would cease to accrue interest in accordance
with the terms of the indenture and would be converted into
Mexican currency at the exchange rate published by Mexicos
central bank (Banco de México), and the resulting
amount would be converted into inflation-indexed units or UDIS
as published by Banco de México. The outstanding amounts
under our Floating Rate Notes would remain in U.S. dollars
and would accrue interest as stipulated by the LCR. It is
unclear whether holders of the Fixed Rate Notes or the Floating
Rate Notes would be subject to greater risks under the LCR than
under the U.S. bankruptcy code.

This summary contains a description of certain
consequences of a reorganization proceeding under the LCR and it
does not purport to be a comprehensive description. This
discussion does not constitute, and should not be considered
legal advice to our creditors, including the holders of Floating
Rate Notes or Fixed Rate Notes. Holders of Floating Rate Notes
or Fixed Rate Notes should consult their own advisers as to the
Mexican consequences of the purchase, ownership and disposition
of Floating Rate Notes or Fixed Rate Notes.



| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our restructuring efforts are not
    successful, our inability to generate sufficient cash flows
    could severely affect our ability to continue as a going
    concern.

Our consolidated financial statements have been
prepared assuming that we will continue as a going concern.
However, our independent auditors have stated in their most
recent report that, due to the defaults and possible
acceleration of our debt, there is a substantial doubt about our
ability to continue as a going concern. Our consolidated
financial statements do not include any adjustment that might
result from the outcome of that uncertainty. If we are unable to
restructure our debt, we might be unable to continue operations
under current ownership.



| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our restructuring efforts are not
    successful, we face a substantial risk of Mexican
    reorganization-related proceedings or a U.S. bankruptcy
    case.

Since we have defaulted on the Fixed Rate Notes
and the Floating Rate Notes, some or all of our creditors may
attempt to take legal action against us, including instituting a
Concurso Mercantil in Mexico or filing an involuntary bankruptcy
petition against us in the United States under the
U.S. Bankruptcy Code. Further, we may choose to institute a
voluntary reorganization case under the U.S. Bankruptcy
Code or the LCR. If any such case was to be instituted, we could
not predict the duration or the result thereof or the ability of
holders of the Fixed Rate Notes or Floating Rate Notes to
influence the outcome of such case. We are not aware of any
regulated company of our size that has completed a restructuring
under the new Mexican reorganization law since the current law
was enacted in May of 2000. A reorganization is likely to result
in significant changes to our Fixed Rate Notes and Floating Rate
Notes, which could include, among others,

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capitalization and/or rescheduling of all or part
of those obligations. If we are declared subject to
reorganization under Mexican law, holders may find it difficult
to collect payment on our Fixed Rate Notes and our Floating Rate
Notes. We believe that any such adverse effects would be
exacerbated if the reorganization were protracted.




| |                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The restructuring of our Fixed Rate Notes
    and our Floating Rate Notes may involve a voluntary
    reorganization case with prenegotiated terms. Should the case
    become protracted, this may affect our ability to manage our
    business.

The restructuring of the Fixed Rate Notes and the
Floating Rate Notes may be undertaken pursuant to a voluntary
reorganization process in Mexico or the filing of a voluntary
Chapter 11 petition in the United States under the
U.S. Bankruptcy Code. We expect that a voluntary
reorganization would include prenegotiated restructuring terms.
If the proceeding becomes adversarial and/or protracted, our
ability to operate or manage our business, to retain employees,
to renew contracts or create new client relationships, to
continue to collect payments for our services or to obtain
market-based funding or financing could be materially adversely
affected.



| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have incurred significant indebtedness,
    including secured indebtedness, to acquire and launch our
    satellites that may limit our cash flow for capital expenditures
    and other expenses.

The level of our indebtedness has had and may
continue to have important consequences. For example, it has:



| |   |                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | limited cash flow available for capital
    expenditures, acquisitions, working capital and other general
    corporate purposes because a substantial portion of our cash
    flow from operations must be dedicated to servicing our debt;
|
| |  | increased our vulnerability to general adverse
    economic and industry conditions;                                                                                                                                                        
|
| |  | limited our flexibility in planning for, or
    reacting to, competitive and other changes in our business and
    the industries in which we operate;                                                                                      
|
| |  | placed us at a relative disadvantage to our
    competitors that have less debt and greater operating and
    financing flexibility than we do; and                                                                                         
|
| |  | limited, through covenants in our indebtedness,
    our ability to borrow additional funds.                                                                                                                                                 

We cannot assure you that the restrictions
contained in agreements governing our indebtedness will not
impair our ability to finance our future operations or capital
needs or engage in other business activities.



| |                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to meet our revised
    planned schedule for launching or commencing operations of
    Satmex 6. Further extensive delays in the launch or commencement
    of operations of Satmex 6 could affect our ability to
    generate revenue in the short term.

We originally planned to launch Satmex 6 in
the first quarter of 2003. However, as a result of our current
inability to pay remaining launch-related costs of up to
$50 million, we do not expect to be able to launch
Satmex 6 before late 2004. We may experience additional
delays that may result in our further postponing the launch of
Satmex 6. Satellite launches may be delayed for several
reasons, including delays in the availability of launch vehicles
or the periodic unavailability of optimum launch dates. In
addition, if we are unable to reach agreement with our debt
holders on our financial restructuring the launch of Satmex 6
will be delayed further.

As part of our restructuring, we are actively
exploring with our financial advisors how to finance the
remaining funds required to launch Satmex 6. In order to
arrange this financing, we may commence a court supervised
restructuring. The launch of Satmex 6 is critical to our
ability to increase cash flows and improve our financial
position.

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Any significant delay in the commencement of
service of Satmex 6 would delay the revenue anticipated to
be generated by the satellite. It could also cause us to lose
some customers that have indicated interest in Satmex 6.



| |                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may experience a launch failure or other
    satellite damage or destruction during launch, which could
    result in a total or partial loss of Satmex 6.
    Satmex 6 could also fail to achieve its designated orbital
    location after launch.

If we are successful in funding the launch of
Satmex 6, we may experience launch failure with respect to
Satmex 6 that could result in the partial or total loss of the
satellite. Satellite manufacture and launch involve complex
processes and technology, and we rely on contractors for both
the manufacture and the launch of our satellites. Even if
launched into orbit, a satellite may fail to enter into its
designated orbital location or we may use more fuel than planned
to place a satellite into its orbital location and, as a result,
reduce the orbital maneuver life of the satellite.

In December 2002, Arianespace, the French company
that will be launching Satmex 6, experienced a failure of
its Ariane 5 ECA rocket minutes after blast off. The rocket
crashed into the Atlantic Ocean and all satellites on board were
irretrievably lost. Satmex 6 will not be launched on the
Ariane 5 ECA rocket, but is expected to be launched on the
Ariane 5G+ rocket, which is a modified version of the
Ariane 5G. The Ariane 5G has performed more reliably than the
Ariane 5 ECA in the past. However, we cannot assure you
that there will not be a failure of the launch vehicle upon the
launch of Satmex 6. While a loss of Satmex 6 from a
launch failure would generate insurance proceeds for us, our
ability to increase our revenues and cash flows in the short to
medium term would be materially adversely affected.



| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Even if our restructuring of the Floating
    Rate Notes and Fixed Rate Notes is successful, our ability to
    find additional financing in the future may be
    limited.

In the future, we may require additional
financing in order to service our indebtedness, fund our
operations and/or invest in the growth of our business. We may
not have sufficient resources or have access to financing on
terms acceptable to us, if at all. Our ability to satisfy our
obligations will depend upon our future performance, which will
be subject to prevailing economic conditions in Mexico, the
state of the global telecommunications industry and financial,
business, regulatory and other factors. Many of these factors
are beyond our control.



| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our financial condition, prospects and the
    secondary trading prices of the Floating Rate Notes and Fixed
    Rate Notes may be materially and adversely affected by ratings
    downgrades.

On September 5, 2003, Moodys Investors
Services lowered its ratings of our senior unsecured
indebtedness from Ca to C, as a result
of the payment default on the Fixed Rate Notes. Ca
is the second lowest rating category out of 21 and describes
obligations that Moodys believes are speculative in a high
degree and that are often in default or have other marked
shortcomings. C is the lowest rating category and
describes obligations that are typically in default, with little
prospect for recovery of principal or interest.

On August 6, 2003, Standard &
Poors lowered our long term foreign issuer credit rating
from CCC+ to D, as a result of the
payment default on the Fixed Rate Notes. A CCC+
rating describes an obligation that Standard &
Poors believes is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on
the obligation. In the event of adverse business, financial, or
economic conditions, Standard & Poors believes
that a CCC rated obligor is not likely to have the
capacity to meet its financial commitment on the obligation. A
D rating is assigned when Standard &
Poors believes that the default will be a general default
and that the obligor will fail to pay all or substantially all
of its obligations as they come due. As a consequence of having
a D rating, for a period longer than six months,
Standard & Poors will no longer rate us.

As a result of our credit defaults and these
negative credit ratings and downgrades, we cannot rely on
sources of short-term financing, which could otherwise allow us
to finance our operations. The secondary trading prices of the
Floating Rate Notes and Fixed Rate Notes may be materially and
adversely affected by

6



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##### Table of Contents



downgrading and potential loss of
Standard & Poors rating. Furthermore, the
negative publicity surrounding these recent downgrades has
generated concern among certain of our existing customers.


The defaults and the possibility of acceleration
of our debt and the lack of access to additional financing raise
substantial doubt about our ability to continue as a going
concern unless we are able to restructure our debt and finance
the launch of our new Satmex 6 satellite. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.



| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Technological advances may require us to
    make significant expenditures to maintain and improve the
    competitiveness of our service offerings for which our ability
    to compete is limited by our lack of funds.

The satellite industry is subject to continuous,
rapid and significant changes in technology and introduction of
new products and services. We cannot predict the effect of
technological changes on our business. New services and
technological advances may offer additional opportunities for
other service providers to compete with us on the basis of cost,
quality or functionality. Responding to such changes may require
us to devote substantial capital to the development, procurement
or implementation of new technologies, and may depend upon the
final cost of technology and our ability to obtain additional
financing. We currently do not have sufficient funds and even if
we are able to restructure successfully the Fixed Rate Notes and
the Floating Rate Notes, we may not have sufficient funds or it
may not be practical or cost-effective for us to replace or
upgrade our technologies in response to competitors
actions. We cannot assure you as to the nature and extent of the
impact on us of technological change.



| |                                                          
| | ---------------------------------------------------------
| | Our in-orbit satellites remain vulnerable
    to failure.

Random failure of satellite components may result
in damage to or loss of a satellite before the end of its
expected useful life. Satellites are carefully built and tested
and have certain redundant systems in case of failure. However,
in-orbit failure may result from various causes including:



| |   |                                                   
| | - | --------------------------------------------------
| |  | component failure;                                
|
| |  | loss of power or fuel;                            
|
| |  | inability to control positioning of the satellite;
|
| |  | solar and other astronomical events; and          
|
| |  | space debris.                                     

Repair of satellites in space is not feasible.
Many factors affect the useful lives of satellites. These
factors include:



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | station-keeping fuel consumption to maintain a
    satellites position in orbit;
|
| |  | the quality of manufacture;                                                      
|
| |  | gradual degradation of solar panels or other
    components; and                 
|
| |  | the durability of components.                                                    

On August 29, 2000, our Solidaridad 1
satellite ceased operating and was considered irretrievably
lost. The loss was caused by the failure of the back-up control
processor on board the satellite. Solidaridad 1, which was
built by Boeing Space Systems (formerly Hughes Space and
Communications), and commenced service in January 1994,
experienced a failure of its primary control processor in April
1999, and the satellite had been operating on its back-up
processor since that time.

At December 31, 2003, our Solidaridad 2 and
Satmex 5 satellites had remaining estimated useful lives of 5.4
and 10 years, respectively. Solidaridad 2 was manufactured
by Boeing Space Systems (formerly Hughes Space and
Communications), and is similar in design to Solidaridad 1 and
to other satellites built by the same manufacturer that have
experienced in-orbit component failures, including failures of
on-board satellite control processors, even though Solidaridad 2
has not experienced any such failures.

7



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Satmex 5 was launched in 1998 with a primary and
a secondary Xenon Ion Propulsion System (XIPS), each
designed to perform station-keeping activities that maintain the
satellites position in orbit during its design life. To
provide further back-up, Satmex 5 has an independent chemical
propulsion system that provides station-keeping operations to
maintain its position in orbit. Should both the primary and
secondary XIPS fail, we currently estimate that the back-up
chemical propulsion system of Satmex 5 would provide up to
3.9 years of station-keeping capability to maintain its
position in orbit.

During standard station-keeping procedures to
maintain the satellites position in orbit on
November 17, 2003, the secondary XIPS, which was then the
system in operation, failed to operate satisfactorily. The
primary XIPS was started on December 1, 2003 as an
alternate to the secondary XIPS, and it initially failed to
operate satisfactorily. Our engineers and the manufacturer,
Boeing Satellite Systems, working together, returned the primary
XIPS to an acceptable level of operation.

In connection with the events surrounding Satmex
5s XIPS, we sent our insurers notices of occurrence on
November 24, 2003, December 3, 2003 and
December 10, 2003. These notices are conditions to the
filing of any formal proof of loss under the terms of the
expired Satmex 5 insurance policy. On June 7, 2004, the
180 day claim period to file a proof of loss expired and,
based on a review of technical and operational considerations
regarding Satmex 5 and the terms of in-orbit insurance coverage
for the satellite, we concluded that the conditions necessary to
establish a partial claim did not exist.

In February 2004, we and the satellite
manufacturer agreed on returning to use the secondary XIPS as
the operating propulsion system and it is performing outside of
its operating margins. The primary XIPS remains available as a
back-up system. We cannot assure you that the secondary XIPS
will continue to perform its station-keeping operations or if
the primary XIPS will work as a back-up. If both of these
systems were to fail, we estimate that we would lose operation
of Satmex 5 within 3.9 years and our business would be
materially and adversely harmed.



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to obtain acceptable
    insurance coverage for our satellites at commercially reasonable
    rates, if at all.

While we have obtained in-orbit insurance for
Solidaridad 2 and Satmex 5, a satellite failure may result
in a decrease in our profits, which loss would not be insured.
We cannot guarantee that we will be able to renew the insurance
at the end of these periods, or that if renewal is available, it
would be on terms acceptable to us.

The original insurance policy covering Satmex 5
expired on December 5, 2003. We renewed our in-orbit
insurance for the Satmex 5 satellite and such insurance was
bound for $100 million. The new policy excludes coverage
for the XIPS and any related systems. Because XIPS on other
satellites have also experienced anomalies, this exclusion has
become a typical feature in insurance policies for satellites
with this same propulsion system. Except as otherwise provided
above, the new policy is effective as of December 5, 2003
for a one-year period and is based on prevailing market terms
and conditions.

In November 2003 we renewed the in-orbit
insurance for Solidaridad 2 for a one-year period on
substantially similar terms to the previous one-year policy. The
current policy for Solidaridad 2 is bound for $50 million
and does not insure against an in-orbit failure due to the loss
of the satellites control processors, the same component
that caused the loss of Solidaridad 1 and other Boeing 601
satellites. Further, the current policy requires that 90% of the
satellites capacity must be impaired before a total loss
can be declared.

Any uninsured loss would have a material adverse
effect on our results of operations and financial condition.



| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A small number of customers account for a
    large portion of our revenues, and the loss of one or more of
    these significant customers would adversely affect our
    revenues.

A large portion of revenues are derived from a
small number of customers. Thirty two of our customers account
for approximately 80% of our current revenue base, and our top
10 customers represented approximately 54% of our revenues
during 2003. Our largest customer is Hughes Network Systems, a
wholly owned subsidiary of The DIRECTV Group Inc., a company
formerly known as Hughes Electronics

8



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Corporation. Revenue from Hughes Network Systems
represented 23%, 15% and 10%, of our service revenue for the
years ended December 31, 2003, 2002 and 2001, respectively.
We expect that Hughes Network Systems will continue to expand
its capacity requirements and represent a greater portion of our
service revenue in 2004. Revenue from the Mexican government
represented 7%, 8% and 8% of service revenue for the years ended
December 31, 2003, 2002 and 2001, respectively. Early in
2004, one of our top ten customers, Verestar, Inc.
(Verestar) filed for relief under Chapter 11 of
the U.S. Bankruptcy Code and rejected their satellite
service contract with us; therefore no longer using our service.
Verestar represented approximately 8% of our 2003 revenue. If
other significant customers cancel their contracts with us or
fail to renew their contracts, it would adversely affect our
revenues while only marginally lowering our expenses.




| |                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Between 2000 and 2004, many of our
    customers in the telecommunications industry suffered from
    financial difficulties, which resulted in the significant
    cancellations and non-renewals of our contracts with our
    customers. There may be future downturns in the
    telecommunications industry that result in similar terminations
    and non-renewals.

As of December 31, 2003, customers
representing approximately 67% of our revenues were in the
telecommunications industry. The telecommunications industry has
been suffering economically in recent years, and has generally
seen a decrease in that industrys ability to fund its own
growth and development. As a result, during 2002, 2003 and early
2004, we experienced significant terminations and were unable to
renew contracts with certain customers upon expiration. As of
December 31, 2003, approximately 24% of our revenues were
derived from customers in the telecommunications industry under
contracts with a remaining term greater than 5 years. If
these contracts are cancelled prior to their expiration, our
revenues would decline and we would be adversely affected.



| |                                                    
| | ---------------------------------------------------
| | We operate in a highly competitive
    environment.

The Mexican government has liberalized its
regulatory environment to allow non-Mexican satellite companies
to provide satellite services in Mexico. On August 10,
2001, the Mexican government granted licenses to provide
satellite service in Mexico to PanAmSat Corporation
(PanAmSat), SES GLOBAL S.A. (SES
Global), Grupo Televisa, S.A. (Televisa) and
Enlaces Integra, S. de R.L. de C.V. (Enlaces
Integra). PanAmSat registered 11 satellites and SES Global
registered seven satellites to provide satellite service in
Mexico. On June 16, 2003, the Mexican government granted
licenses to New Skies Satellites N.V. (New Skies) to
provide satellite services in Mexico using three satellites.
While we continue to be the leading provider of domestic fixed
satellite services in Mexico, our Mexican market share has been
reduced by these new competitors. Future additional reduction in
market share may have a corresponding adverse effect on our
revenue. For the year ended December 31, 2003,
approximately 44% of our revenues were from satellite services
provided in Mexico.

We also face competition from companies in our
markets in the United States and Latin America. PanAmSat has a
fleet of 25 satellites, including 14 that serve the Latin
American market. Intelsat, Ltd. (Intelsat), a former
international consortium, has 29 satellites, including 11 that
cover Latin America. New Skies has a fleet of six satellites
including three that serve Latin America. In November 2000,
Telesat Canada (Telesat) successfully launched the
Anik F1 satellite, which serves all of the Americas. Further, in
2001, SES ASTRA merged with GE Americom, now SES AMERICOM, to
form SES Global. SES Global has a fleet of 39 satellites, of
which 19 serve Latin America. We cannot assure you that we will
be able to compete successfully with our competitors. Moreover,
as our competitors launch new satellites with coverage over the
regions that we serve, price reductions may result. This in turn
could hurt our revenue and impact our ability to service our
debt obligations.

Further, we face competition from land-based
telecommunications services. For example, in the past we have
experienced a number of contract cancellations or nonrenewals by
customers that switched to fiber optic service providers. These
fiber optic service providers can generally provide services at
a lower cost for point-to-point applications.

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| |                                                                     
| | --------------------------------------------------------------------
| | There are conflicting interests between us
    and our shareholders.

One of our shareholders, Loral, owns and has
interests in other companies that are in businesses similar to
ours, which could give rise to a conflict of interest. In
particular, Loral Skynet do Brasil owns a satellite, the
footprints of which we expect to overlap with Satmex 6. If
Skynet do Brasil does not collaborate with us or vice versa,
Skynet do Brasil might compete directly with us for customers.



| |                                                                        
| | -----------------------------------------------------------------------
| | Disagreements between Loral and Principia
    could result in deadlock.

Because of the membership agreement existing
between Loral and Principia, if they are unable to reach an
agreement in certain matters, including the restructuring of our
Fixed Rate Notes and Floating Rate Notes, the voluntary filing
for a bankruptcy case or the issuance of any new debt, which is
currently necessary to launch Satmex 6, it could lead to a
deadlock, which would hurt us. To resolve this deadlock, Loral
or Principia may seek to sell its interests or, alternatively,
buy the interests of the other. This could in turn result in a
change of control. Additionally, certain of our debt holders
would be entitled to require us to buy back their debt,
including in some cases at a purchase price equal to 101% of the
principal amount.



| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | You probably will not be able to effect
    service of process in the United States upon our officers or our
    Mexican directors.

We are a Mexican company and most of our
directors and all of our officers reside in Mexico, and nearly
all of our assets are located outside the U.S. As a result,
you probably will not be able to effect service of process on
our Mexican directors or our officers in the United States, and
you will probably need to effect service of process on them in
Mexico. Additionally, it may be difficult to enforce any actions
against us, our Mexican directors or our officers outside of
Mexico. The ability to enforce liabilities based solely on
U.S. federal securities laws against such persons is
questionable in Mexico, whether in original actions or in
actions to enforce judgments of U.S. courts.

Factors Relating to Regulatory
Environment



| |                                                                         
| | ------------------------------------------------------------------------
| | Our business is regulated, causing
    uncertainty and additional costs.

Our business is regulated by the Mexican
authorities. The services we provide outside of Mexico and into
other countries in Latin America and the United States subject
us to regulations in those countries. For example, we need to
obtain landing rights in the countries where we seek to operate.
Regulatory authorities in the various jurisdictions in which we
operate can modify, withdraw or impose charges or conditions
upon the licenses that we need, and so increase our cost of
doing business. For example, the orbital concessions granted to
us by the Mexican government require that we reserve
approximately 7% of our satellite capacity for use by the
Mexican government free of charge. Moreover, our concessions are
subject to government regulations, which may make modifications
to or impose limitations on our operations. If the Mexican
government determines that we are a dominant carrier in our
segment, it could impose informational, service and pricing
requirements on us, which would hurt our results of operations
and financial condition.

The regulatory process also requires that we
negotiate with third parties operating or intending to operate
satellites at or near orbital locations where we place our
satellites so that the frequencies of the satellites do not
interfere with each other. Because we cannot guarantee the
results of negotiations with third parties, frequency
coordination is an additional source of uncertainty. For
example, we recently completed a coordination agreement for our
Satmex 6 satellite through the Mexican government with the
government of Canada. Relocation of our satellite Solidaridad 2
may be necessary to maximize the benefits of this new
coordination agreement. In the future, there can be no assurance
that negotiations of new coordination agreements between the
governments of Mexico and other governments and the affected
satellite operators will be successful. The inability to
conclude a satisfactory agreement may negatively impact our
ability to provide expanded services in the United States and
could adversely affect our business.

10



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| |                                                                           
| | --------------------------------------------------------------------------
| | Our government concessions may be revoked
    under certain circumstances.

The Mexican government has granted to us four
concessions, three relating to our use of the orbital slots
occupied by our satellites (the Orbital Concessions)
and the fourth relating to our use of the satellite control
centers and the related land and buildings on which they are
located (the Property Concession). The orbital
concessions have an initial twenty-year term, expiring in
October 2017, and are renewable after that time, subject to
certain conditions, for an additional twenty-year term. The
property concession has a forty-year term. However, these
concessions are subject to termination prior to the expiration
of their terms upon the occurrence of certain events, including
our liquidation (quiebra).

The Orbital Concessions will terminate if:



| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the term of any such Orbital Concession expires;                                                                                                                                                              
|
| |  | we resign our rights under any such Orbital
    Concession;                                                                                                                                                   
|
| |  | the Mexican government through the
    Secretaría de Comunicaciones y Transportes(the
    Ministry of Communications and Transportation or the
    SCT), expropriates any of the Orbital
    Concessions; or
|
| |  | we are liquidated or become subject to
    liquidation (quiebra).                                                                                                                                             

Our assets and rights under the Orbital
Concessions may also be temporarily seized by the SCT, as
described below.

The Communications Law provides that the SCT may
revoke any of the Orbital Concessions upon the occurrence of
certain events, including:



| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | unjustified interruption of the services that may
    be provided under the Orbital Concessions;                                                                                              
|
| |  | our undertaking any action or refraining from
    taking any action that affects the rights of other licensees or
    concessionaires;                                                        
|
| |  | failure by us to satisfy the terms or conditions
    set forth in the Orbital Concessions, such terms include the
    obligation to provide quality service as well as service
    continuity;
|
| |  | unjustified failure by us to interconnect other
    concessionaires or licensees that have the right to provide
    telecommunications services;                                              
|
| |  | change of our nationality; and                                                                                                                                                                
|
| |  | assignment or transfer of rights granted under
    the Orbital Concessions in contravention of the terms of the
    Communications Law.                                                       

In the cases of the fourth, fifth and sixth
bullet points above, the SCT may immediately revoke any of the
Orbital Concessions. In the cases of the first, second and third
bullet points above, the SCT may only revoke any of the Orbital
Concessions if it has imposed sanctions on us for the relevant
breach on at least three separate occasions. In the event any of
the Orbital Concessions is revoked by the SCT, no compensation
shall be paid to us.

The SCT also has the right to terminate any of
the Orbital Concessions pursuant to a procedure known as
rescate(Rescate). As of the date of any such
Rescate, assets used in connection with the use of the Orbital
Concessions would be subject to the ownership and operation by
the Mexican government.

The SCT may also temporarily seize the Orbital
Concessions in the event of natural disaster, war, substantial
breach of the public peace and order, or imminent danger to
national security, internal peace or the Mexican economy. In the
past, the Mexican government has used this power to ensure
continued service during labor disputes. Mexican law requires
that the Mexican government pay compensation to us if it effects
a temporary seizure (Requisa), except in the case of
a temporary seizure due to war. In respect of Requisa, the basis
for any compensation to a concessionaire is specified by decree
by the Mexican government and is subject to judicial review in
the event of dispute. (Refer to Concession Termination in
Item 4 for greater detail).

11



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| |                                                                                       
| | --------------------------------------------------------------------------------------
| | We are subject to different corporate
    disclosure requirements than U.S. companies.

Investors may not be able to obtain as much
publicly available information about foreign issuers of
securities traded in the United States as is regularly published
by or about U.S. issuers of publicly traded securities.
Therefore, potential investors may not be able to as easily
ascertain the risks of our company as they would if we were a
U.S. company.

Factors Relating to Mexico



| |                                                          
| | ---------------------------------------------------------
| | Downturns in the Mexican economy adversely
    affect us.

For the year ended December 31, 2003,
approximately 44% of our service revenue was from billings to
Mexican customers. As a result, our operations, results and
financial condition are dependent upon the level of economic
activity in Mexico. Adverse economic conditions in Mexico, such
as those experienced beginning in December 1994 or economic
developments in or affecting Mexico, could generally hurt the
Mexican economy, thereby adversely affecting our revenues, while
simultaneously increasing our nominal peso-denominated costs and
expenses. In the year 2003, the Mexican gross domestic product
grew only at a rate of 1.3% and, as a result, consumer
purchasing was lower than previously forecast, reducing income
to our customers and adversely affecting our revenues.



| |                                                                      
| | ---------------------------------------------------------------------
| | Currency devaluations may impair our
    ability to service our debt.

Changes in the value of the peso relative to the
dollar could adversely affect our financial condition and
results of operations. We bill our customers in dollars, but
certain customers may pay us in pesos at the prevailing exchange
rate on the date of payment. At the same time, all of our debt
obligations are denominated and paid in dollars.

The value of the peso sharply declined in the
1990s compared to the dollar. The devaluation of the peso in the
1990s increased the peso equivalent of Mexican companies
obligations under dollar-denominated borrowings and adversely
affected companies operations and financial position.
Future devaluations of the peso relative to the U.S. dollar
could adversely affect some of our customers ability to
pay U.S. dollar-denominated obligations.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Exchange controls may impair our ability to
    obtain dollars to make dollar-denominated
    payments.

The Mexican economy has suffered current account
balance of payment deficits and shortages in foreign exchange
reserves in the past. The Mexican government may restrict the
ability of Mexican or foreign persons or entities to convert
pesos into dollars or other currencies. The Mexican government
has instituted restrictive exchange control policies in the
past. The imposition of such a policy in the future may impair
our ability to obtain imported goods and to meet our obligations
requiring payments in foreign currency, including our Fixed Rate
Notes and our Floating Rate Notes.



| |                                                              
| | -------------------------------------------------------------
| | Political developments in Mexico may
    adversely affect us.

The Mexican government has exercised, and
continues to exercise, significant influence over the Mexican
economy. Mexican governmental action concerning the economy and
state-owned enterprises could have a significant impact on us,
Mexican private sector entities in general, and on market
conditions, prices and returns on Mexican securities, including
our financial obligations.

Although the government of Mexico has pursued
policies of economic liberalization and deregulation in the past
decade, a significant change in those policies may hurt business
and economic conditions in Mexico in general and our business in
particular. For example, in past years Mexico has experienced
considerable political, social and economic instability, which
resulted in economic recessions and significant volatility in
exchange rates, reduced availability of credit, high inflation
and high interest rates. Since 1995, the government has
implemented a series of economic reform measures designed, among
other things, to stabilize the peso and reduce inflation.
Although the peso/ U.S. dollar exchange rate has since
remained relatively

12



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##### Table of Contents



stable and inflation has recently been reduced,
such stability may not continue. We do not have and do not
intend to obtain political risk insurance.




| |                                                       
| | ------------------------------------------------------
| | Payment of judgments against us would be in
    pesos.

In the event that proceedings are brought against
us and result in a judgment against us in Mexico, we would not
be required to discharge those obligations in a currency other
than Mexican currency. Under the Ley Monetaria de los Estados
Unidos Mexicanos, an obligation in a currency other than
Mexican currency, which is payable in Mexico, may be satisfied
in Mexican currency at the rate of exchange in effect on the
date on which payment is made. Such rate is currently determined
and published by the Banco de México every business
and banking day. Although we are contractually required to make
payments of all amounts owed under our Fixed Rate Notes and our
Floating Rate Notes in U.S. dollars, we are legally
entitled to pay in pesos if payment on those obligations is
sought in Mexico (through the enforcement of a non-Mexican
judgment or otherwise). In the event that we make payment in
pesos, holders may experience a U.S. dollar shortfall when
converting the pesos to U.S. dollars.



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Mexican law and regulations may impair
    creditors ability to enforce certain rights in
    Mexico.

Under Mexican law, our creditors have their
rights limited in the following ways:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any obligation to pay interest on interest is
    currently not enforceable under Mexican law;                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | the Floating Rate Notes and the Fixed Rate Notes
    do not constitute negotiable instruments under Mexican law and,
    therefore, if you initiate an action against us in a Mexican
    court, that court may not grant an immediate attachment or lien
    on our property;                                                                                                                                                                                                                                                                         
|
| |  | service of process by mail does not constitute
    effective service under Mexican law, and if a final judgment
    based on service of process by mail was made outside of Mexico,
    it would not be enforceable in Mexico;                                                                                                                                                                                                                                                                                                                         
|
| |  | any judgments as a result of enforcement
    proceedings in Mexico would be payable in Pesos;                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | enforcement of a claim against us may be subject
    to the specific conditions, requirements and restrictions set
    forth in the Federal Telecommunications Law, the Communications
    Law and the LCR in the latter case with respect to the
    provisions contained in Title Eight, Chapter I
    Special Procedures (De los concursos
    especiales), Bankruptcy of companies that render
    public services subject to a concession (De los
    concursos mercantiles de comerciantes que prestan servicios
    públicos concesionados);
|
| |  | pursuant to the laws of Mexico, labor claims,
    claims of tax authorities for unpaid taxes will have priority
    over claims of other creditors; and                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | payment of obligations under the Floating Rate
    Notes or the Fixed Rate Notes would depend on the outcome of a
    reorganization proceeding, which is likely to be very lengthy.                                                                                                                                                                                                                                                                                                                                                                   









|        |                           
|------- | --------------------------
|Item 4. | Information on the Company

General Description

Our current legal and commercial name is
Satélites Mexicanos, S.A. de C.V. We were incorporated in
Mexico in 1997 as a Sociedad Anónima de Capital Variable.
Our principal executive offices are located at Blvd. Manuel
Ávila Camacho No. 40, 23rd floor, Colonia Lomas
de Chapultepec, 11000, México, DF, México. Our
telephone number is (52) 55-5201-0800. Our authorized
representative in the United States is Puglisi &
Associates, located at 850 Library Avenue, Suite 204,
Newark, Delaware 19715, USA, telephone number (302) 738-6680 and
fax number (302) 738-7210.

We operate in a highly regulated market and the
principal legislation under which we operate is the Federal
Telecommunications Law of Mexico, Ley Federal de
Telecomunicaciones(the Communications Law).

13



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Mexico began its involvement in the satellite
industry in 1968 when it became an Intelsat signatory and
broadcast the Olympics via satellite from Mexico City. From that
time until October 15, 1997, we were operated by the
Mexican government as part of the operations of
Telecomunicaciones de México, an agency of the
Mexican government.

On November 17, 1997, Loral and Principia,
through Firmamento and Servicios, a wholly-owned subsidiary of
Firmamento, acquired 75% of our issued and outstanding stock
from the government of Mexico for an amount in pesos equivalent
to approximately $647 million. The remaining 25% of our
capital stock was retained at that time by the Mexican
government. Loral owns 65% of Firmamento and Principia owns 35%.
Loral holds 49% and Principia holds 51% of Firmamentos
voting interests. As of December 31, 2003, Servicios holds
70.71% of our outstanding capital stock, Loral holds 4.46%,
Principia holds 1.26% and the Mexican government holds 23.57%.

When we were privatized, the Mexican government
granted us four concessions. Three orbital concessions which
allow us to operate our satellites in Mexicos orbital
positions 109.2° W.L., 113.0° W.L. and 116.8°
W.L. (the Orbital Concessions). The fourth
concession allows us to base our ground station equipment within
the telecommunications facility that belongs to the Mexican
government (the Property Concession). Among the
assets we acquired from the Mexican government upon our
privatization were two satellites in commercial operation,
Solidaridad 1 and Solidaridad 2, which were launched in
1993 and 1994, respectively, and Morelos II, which had been
launched in 1985 and was not available for commercial use. A new
satellite, later named Satmex 5, was in construction.
Satmex 5, which was launched in December 1998, had higher
power levels and a broader footprint than Solidaridad 1 or
Solidaridad 2. Using Satmex 5, we were able to offer
satellite service in most of the Americas, excluding the eastern
portion of Brazil.

In August 2000, our Solidaridad 1 satellite
ceased operations and was considered irretrievably lost. The
loss was caused by the failure of the back-up control processor
on board the satellite. The satellite was insured and we
received an insurance payment of $235.3 million, which was
used to service debt and to invest in the manufacture, launch
and insurance of a new satellite, Satmex 6. Satmex 6
is designed to provide broader coverage and higher power levels
than any satellite in our fleet.

We currently own and operate two satellites,
Solidaridad 2 and Satmex 5, in geostationary orbit at
113.0 degrees W.L. and 116.8 degrees W.L.,
respectively, and expect to launch a third satellite,
Satmex 6, not before late 2004. In total, we have 96 36-MHz
transponder-equivalents operating in the C-and Ku-bands with an
aggregate footprint covering substantially all of the
continental United States, the Caribbean and all of Latin
America, other than certain regions in Brazil.

In October 2003, the Satmex 6 satellite was
completed and delivered to its launch site in Kourou, French
Guiana. It is currently being maintained in protective storage
at the launch site. In order to launch the Satmex 6
satellite, we must make the payment of the launch insurance
premium and other launch related payments estimated to be up to
$50 million.

We are currently the leading provider of fixed
satellite services in Mexico and following the launch of Satmex
6 intend to expand our services to become one of the leading
providers of fixed satellite services throughout Latin America.
We provide transponder capacity to customers for distribution of
network and cable television programming, direct-to-home
television service, on-site transmission of live news reports,
sporting events and other video feeds. We also provide satellite
transmission capacity to telecommunications service providers
for public telephone networks in Mexico and elsewhere and to
corporate customers for their private business networks with
data, voice and video applications. We are also marketing the
use of satellite transmission capacity for new applications,
such as Internet via satellite.

We have landing rights to provide broadcasting
and telecommunications transmission capacity in Mexico, the
United States, Canada and 40 other nations and territories in
Latin America. Our broadcasting customers include Televisa, TV
Azteca, S.A. de C.V. (TVAzteca) and Productora y
Comercializadora de Televisión, S.A. de C.V.
(PCTV) and our telecommunications services customers
include Teléfonos de México, S.A. de C.V.
(Telmex), Petróleos Mexicanos
(Pemex) and Elektra del Milenio, S.A. de C.V.
(Elektra).

14



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Our data and Internet customers include Hughes
Network Systems (HNS), a subsidiary of The DIRECTV
Group Inc., previously Hughes Electronics Corporation.


Our Satellites

We own and operate two geostationary
communications satellites, Solidaridad 2 and Satmex 5.
Satmex 6, the high-powered replacement of
Solidaridad 1, is not expected to be launched before late
2004.

The currently operating Satmex satellites have a
total capacity of 3,456 MHz (96 36MHz transponder
equivalents), consisting of 1,728 MHz of C-band (48 36MHz
transponder equivalents) and 1,728 MHz of Ku-band (48 36MHz
transponder equivalents) capacity. Upon the replacement of
Solidaridad 1 with Satmex 6, the Satmex system is expected
to have total capacity of 5,616 MHz (156 36MHz transponder
equivalents), consisting of 3,024MHz of C-band (84 36MHz
transponder equivalents) and 2,592 MHz of Ku-band capacity
(72 36MHz transponder equivalents).

The footprints of our satellites are designed to
encompass the region extending from Argentina to the northern
United States.

Satmex 5

Satmex 5 was launched in December 1998 and
occupies the 116.8° W.L. orbital position. Satmex 5, a
BS 601 HP, has 24 36MHz C-band and 24 36MHz Ku-band
transponders. As of December 31, 2003, the satellite had an
estimated operational life of 10 years and is currently
operating in a satisfactory condition.

Satmex 5 has approximately ten times the power
(as measured in total watts) of the satellite it replaced and
has a footprint extending from substantially all of the 48
contiguous United States to Argentina. Major Latin American
countries that are covered by the Satmex 5 footprint include
Mexico, Argentina, Venezuela, Chile and Colombia. Major
U.S. cities include Los Angeles, Miami, New York, Houston,
Dallas, Chicago, San Francisco and Washington, D.C.

Satmex 5 was launched with a primary and a
secondary XIPS, each designed to perform station-keeping
activities that maintain the satellites position in orbit
during its design life. To provide further back-up, Satmex 5 has
an independent chemical propulsion system that provides
station-keeping operations to maintain its position in orbit.
Should both the primary and secondary XIPS fail, we currently
estimate that the back-up chemical propulsion system of Satmex 5
would provide up to 3.9 years of station-keeping capability
to maintain its position in orbit.

During standard station-keeping procedures to
maintain the satellites position in orbit on
November 17, 2003, the secondary XIPS, which was then the
system in operation, failed to operate satisfactorily. The
primary XIPS was started on December 1, 2003 as an
alternate to the secondary XIPS, and it initially failed to
operate satisfactorily. Our engineers and the manufacturer,
Boeing Satellite Systems, working together, returned the primary
XIPS to an acceptable level of operation.

In connection with the events surrounding Satmex
5s XIPS, we sent our insurers notices of occurrence on
November 24, 2003, December 3, 2003 and
December 10, 2003. These notices are conditions to the
filing of any formal proof of loss under the terms of the
expired Satmex 5 insurance policy. On June 7, 2004, the
180 day claim period to file a proof of loss expired and,
based on a review of technical and operational considerations
regarding Satmex 5 and the terms of in-orbit insurance coverage
for the satellite, we concluded that the conditions necessary to
establish a partial claim did not exist.

In February 2004, we returned to using the
secondary XIPS as the operating propulsion system and it is
performing outside of its operating margins. The primary XIPS
remains available as a back-up system. We cannot assure you that
the secondary XIPS will continue to perform station-keeping
operations or if the primary XIPS will work as a back-up. If
both of these systems were to fail, we would lose operation of
Satmex 5 within 3.9 years and our business would be
materially and adversely harmed.

15



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##### Table of Contents



Solidaridad 2

Solidaridad 2 was launched on October 7,
1994 and occupies the 113.0° W.L. orbital position. As of
December 31, 2003, the satellite had an estimated
operational life of 5.4 years and is currently operating in
a satisfactory condition. A BS 601 model, the satellite has 12
36MHz transponders and 6 72MHz transponders in C-band (24 36MHz
transponder equivalents) and 16 54MHz transponders in Ku-band
(24 36MHz transponder equivalents). Upon the successful
placement in orbit of Satmex 6, we expect to migrate
Solidaridad 2 to another orbital position.

Major Latin American countries covered by the
Solidaridad 2 footprint include Mexico, Argentina, Venezuela,
Chile, Colombia, Guatemala, Belize and Cuba. Major
U.S. cities covered include Los Angeles, San Antonio,
Houston, Dallas and San Francisco. In addition, major
U.S. cities that can be covered by Solidaridad 2 spot beams
include Miami and New York.

Satmex 6

Satmex 6, the replacement satellite of
Solidaridad 1, was manufactured by SS/ L and is not
expected to be launched before late 2004 into
113.0° W.L. Satmex 6, a FS 1300 X model, has a
total of 60 36MHz transponders, 36 in C-band and 24 in Ku-band.
Upon initiating operations, Satmex 6s operating life is
expected to be 15 years.

Satmex 6 is designed to provide broader coverage
and higher power levels than any other satellite in our fleet.
It will be roughly 300% more powerful than Solidaridad 1 and
roughly 50% more powerful than Satmex 5. It will have
hemispherical coverage in both C- and Ku-bands. From Canada to
Argentina, Satmex 6 will cover all the 48 contiguous United
States and Hawaii, the Caribbean, all of Latin America and most
of Brazil.

In October 2003, the Satmex 6 satellite was
completed and delivered to its launch site in Kourou, French
Guiana. It is currently being maintained in protective storage
at the launch site. Satmex 6 is expected to be launched on
the Ariane 5G+ rocket, which is a modified version of the
Ariane 5G. The Ariane 5G has performed more reliably
than the Ariane 5 ECA in the past. Satmex 6 could be
launched on an Ariane 5 ECA in the event that at least 2
successful consecutive launches have occurred. In order to
launch the Satmex 6 satellite, we must make the payment of
the launch insurance premium and other launch related payments
estimated to be up to $50 million.

Capital Investments

Substantially all of our capital expenditures are
denominated in U.S. dollars. Capital expenditures were
$37.9 million for 2003, as compared to $123.2 million
for 2002 and $95.7 million for 2001. Expenditures in 2003,
2002 and 2001 for the construction of Satmex 6 were
$36.3 million, $119.8 million and $91.9 million,
of which $6.6 million, $108.0 million and
$83.8 million were funded through the use of restricted and
segregated cash, respectively. We expect capital expenditures
for 2004 to be approximately $61.5 million assuming a 2004
launch of Satmex 6. A cash payment of up to $50 million,
most of which is capital expenditure, must be paid prior to or
at launch of Satmex 6. Following the launch of Satmex 6, we
expect a sharp drop in capital expenditures. As of June 30,
2004, our capital expenditure has been $608,000 for the first
six months of 2004.

Canada Coordination

In May of 2000, the governments of Mexico and
Canada signed a coordination agreement specifying the
operational parameters for Mexican and Canadian satellites in
the C- and Ku- radio frequency bands in the geostationary orbit
between the 107.3° W.L. and 118.7° W.L. orbital
positions. The purpose of the coordination agreement was to
establish a reference standard for acceptable adjacent satellite
radio frequency spectrum interference and to ensure the
efficient operation of satellite networks licensed by Mexico and
Canada. As a result, satellites licensed by either nation are
able to serve both their domestic markets and at the same time
provide competitive services to the markets of Mexico, the
United States and South and Central America on a
non-interference basis. In September of 2003, we and the
Government of Mexico

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favorably concluded coordination discussions with
the government of Canada relating to the contemplated radio
frequency characteristics of Satmex 6. Arrangements, which are
subject to notification by the ITU, include an exchange of
orbital positions. As part of these coordination discussions,
the governments of Mexico and Canada also agreed to a new
coordination agreement to reduce potential instances of
satellite signal interference and ensure that existing and
future satellite networks licensed by either nation have
sufficient room to expand their respective services to the
markets of Mexico, the United States and South and Central
America.


Landing Rights

We have secured landing rights to provide a
variety of satellite-based communications services in 43
countries in the Western Hemisphere, including the United
States. We are in the process of updating our landing rights
agreements to include Satmex 6.

Satellite Control Centers and Property
Concession

Once a satellite is placed in its orbital
location, specialized earth stations monitor its ability to
function, control and positioning through the end of its
in-orbit lifetime. Under the terms of our concessions, we
currently operate our satellites through two satellite control
centers. The first is located at Iztapalapa, Federal District,
Mexico and the second is located at Hermosillo, Sonora, Mexico.
These centers, aggregating 31,500 square meters, are
designed to monitor user frequencies and to ensure that the
satellites are operating within established parameters and are
correctly positioned to generate the anticipated footprint.

The primary control center is composed of a
building that houses:



| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | the telemetry, tracking and control (TT&C)
    systems;                                                   
|
| |  | an equipment maintenance area;                                                                            
|
| |  | a communications signal monitoring area;                                                                  
|
| |  | a dynamic simulator, which allows for the
    simulation of spacecraft dynamics and control maneuvers; and
|
| |  | antennae for the control, monitoring and in-orbit
    testing of satellites.                              

The primary control center forms part of a
building complex that also houses equipment owned and used for
the Mexican governments teleport and mobile service
systems. While we are the only occupant of the building that
houses the satellite control center, we are required to share
the sites water facilities with the rest of the complex.

In order to control and operate Satmex 6, we
have installed new state-of-the-art technology hardware and
software in both control centers. As of December 31, 2003,
that investment was approximately $3.8 million dollars.

We own the equipment within the control centers
and the Mexican government owns the land and buildings that
house these centers. The Property Concession granted to us by
the Mexican government allows us to use the land and buildings.
Under the terms of the concessions, we pay to the government an
annual fee of 7.5% of the value of the property on which our
satellite control centers are located. The value of the property
was originally determined in the Property Concession and the
amount has been increased annually consistent with changes in
the Consumer Price Index (Indice Nacional de Precios al
Consumidor). Pursuant to our current regulations, a new
appraisal of the value of the property must be performed every
five years. The appraisal is performed by the Ministry of
Internal Control (Secretaría de la Función
Pública), which is an entity of the Mexican government,
or an entity of such ministry. The appraisal must consider the
value of the property as it was originally delivered to us,
without taking into account any improvements to the property
after such delivery. For the years ended December 31, 2003,
2002 and 2001, the rent expense under this agreement was
$407,000, $321,000 and $317,000, respectively.

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Properties

We do not own any real property. As part of the
Property Concession, we were granted the right to use the
buildings and areas in which the satellite control centers are
located, together with certain other related properties. We
lease office space under a non-cancelable operating lease
expiring in May 2005. The monthly rent, including maintenance,
is approximately $106,000. Rent and maintenance expense under
this lease was $1.3 million, $1.4 million, and
$1.4 million for the years ended December 31, 2003,
2002 and 2001, respectively. We believe our facilities are
adequate for our present needs.

Insurance

Upon launch of Satmex 5 in 1998, we purchased a
five-year policy providing for $250 million of insurance
for Satmex 5. This insurance policy expired on December 5,
2003. We renewed our in-orbit insurance for the Satmex 5
satellite for $100 million in coverage for a one-year term.
The new policy excludes coverage for the XIPS and any related
systems. Because XIPS on other satellites have also experienced
anomalies, this exclusion has become a typical feature in
insurance policies for satellites with this same propulsion
system. The insurance coverage on Satmex 5 provides that if 75%
or more of satellite capability is lost, then a constructive
total loss is deemed to have occurred, and the full amount of
insurance would become due and payable. In the event of a
constructive or total satellite loss, the insurance policy
provides for a payment to us of up to the insured amount, less
any unpaid premiums. Except as otherwise provided above, the new
policy is effective as of December 5, 2003 for a one-year
period and is based on prevailing market terms and conditions.
An uninsured loss of Satmex 5 would have a material adverse
effect on our financial condition and results of operations.

We currently have insurance for Solidaridad 2
under terms reflecting current market conditions. In November
2003 we renewed the in-orbit insurance for Solidaridad 2 for a
one-year period on substantially similar terms to the previous
one-year policy. The total insurance coverage for Solidaridad 2
is $50 million until November 2004. The current policy for
Solidaridad 2 does not insure against an in-orbit failure due to
the loss of the satellites spacecraft control processors
(SCP), the same component that caused the loss of
Solidaridad 1 and other Boeing 601 satellites. Currently, the
primary SCP on Solidaridad 2 is operating normally, and we
expect that the secondary SCP would allow for uninterrupted
service from the satellite in the event of a primary SCP
failure. However, a failure of the primary and secondary SCPs
would result in a complete and uninsured loss of Solidaridad
2.The insurance coverage on Solidaridad 2 provides that if 90%
or more of satellite capability is lost, then a constructive
total loss is deemed to have occurred, and the full amount of
insurance would become due and payable. In the event of a
constructive or total satellite loss, the insurance policy
provides for a payment to us of up to the insured amount, less
any unpaid premiums.

Furthermore, the insurance policies on Satmex 5
and Solidaridad 2 include customary exclusions such as:



| |   |                                                            
| | - | -----------------------------------------------------------
| |  | military or similar actions;                               
|
| |  | anti-satellite devices;                                    
|
| |  | governmental actions;                                      
|
| |  | nuclear reaction or radiation contamination;               
|
| |  | willful or intentional acts of us or our
    contractors;  
|
| |  | loss of income, indirect and consequential
    damages; and
|
| |  | third-party claims against us.                             

We are in the process of obtaining launch
insurance for Satmex 6. Prior to launch, we intend to insure
Satmex 6 for an estimated $235 million against failure
during launch and/or its first year in orbit. Documentation is
currently being negotiated and we anticipate no exclusions other
than as customary.

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##### Table of Contents



The control centers are covered by insurance
policies against risk to the buildings and their contents,
including the antennae and equipment. To date, no significant
claim has been made against the insurance policies covering the
control centers or the insurance policies covering Solidaridad 2
and Satmex 5.

Business Strategy

The primary focus of management has been to
complete our financial restructuring and launch Satmex 6. We are
actively exploring with our financial advisors alternative means
of restructuring our debt obligations and financing the
remaining amount required to launch our new satellite,
Satmex 6, which is critical to increase our cash flows and
improve our financial position. The sources of financing in
support of the launch of Satmex 6 may require that it be
provided to us as part of a court supervised restructuring that
would be commenced by us.

We have been negotiating with an ad hoc committee
of the holders of the Fixed Rate Notes regarding a possible
restructuring of the Fixed Rate Notes, but have not, as of the
date of this annual report, reached any agreement with the ad
hoc committee or any other holder of Fixed Rate Notes regarding
the restructuring of the Fixed Rate Notes. As of May 4,
2004, the ad hoc committee held more than 51% of the outstanding
principal amount of the Fixed Rate Notes.

We are also negotiating to restructure the
Floating Rate Notes with an ad hoc committee of holders of the
Floating Rate Notes. As of the date of this annual report, we
have not reached any agreement with the ad hoc committee or any
other holder of Floating Rate Notes regarding the restructuring
of the Floating Rate Notes. As of April 28, 2004, the ad
hoc committee held more than 62% of the outstanding principal
amount of the Floating Rate Notes.

If we are not successful in our efforts to
negotiate the terms of a consensual restructuring of the Fixed
Rate Notes and the Floating Rate Notes, we may commence a US
Chapter 11 case or a Mexican Concurso Mercantil.

The focus of our business strategy is to increase
our customer base throughout our coverage area and to increase
the number of services provided to each customer by:



| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | enhancing our regional presence;                                                                                         
|
| |  | strengthening our position in sectors that
    benefit from fixed satellite services advantages;                         
|
| |  | growing with our current customer base and
    offering value-added solutions;                                           
|
| |  | downstream integration of value added services
    and program distribution; and                                         
|
| |  | further developing our presence in the video
    (cable and satellite-TV) industry across the U.S. and Latin
    America.



| |                              
| | -----------------------------
| | Enhance Our Regional Presence

Due to our extensive coverage, technical
characteristics designed for our target markets and
culturally-attuned customer support, we are one of the leading
regional satellite operators in the Americas. Our fleet has a
footprint that reaches the majority of North and South America
and has superior design coverage over our domestic market,
Mexico. However, the failure of our satellite Solidaridad 1 on
August 29, 2000 reduced our sellable capacity
significantly. We are working to launch a new satellite,
Satmex 6, to replace Solidaridad 1 and increase our
capacity.

Satmex 6 is a key element of our growth strategy
as it was designed to provide satellite services across the
Americas. Its footprint will allow us to improve our presence in
North America as well as in key segments of Latin America. The
design of Satmex 6 creates an opportunity for our customers to
expand their businesses by providing high performance levels in
markets where telecommunications infrastructure is limited. Most
of Latin America qualifies as a target market because fiber
optic cables only reach major cities and the coastlines. We
expect that both Satmex 5 and Satmex 6 can generate incremental
growth from these markets.

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Our contracts are long term, which creates a base
to ensure revenues for the coming years. We continue to seek
long term contracts and have recently extended the contracts of
our most important customers in Mexico, at attractive rates,
despite intense competition. As a result of our long term
contracts and the continuing need for satellite service, our
business is not seasonal.

In order to provide full regional services, we
have expanded our landing rights throughout the Americas.
Landing rights are licenses that allow us to operate in a
country. We currently have landing rights to operate in 43
countries in the Western Hemisphere. We expect that the current
liberalization of regulations in certain countries and islands
of the region will allow us to expand our landing rights and
negotiate more favorable terms for the existing ones. (Refer
to Regulation for more information on our concessions and
landing rights).



| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | Strengthen Our Position in Sectors That
    Benefit from Fixed Satellite Services Advantages

As part of our strategy, we are strengthening our
position in areas where satellite service is the best solution
to serve our customer needs. These are typically video
distribution, broadband applications and other point to
multi-point services. We do not expect to grow in voice
transmission services, where terrestrial infrastructure has an
economic advantage, except for rural telephony, which is only
available via satellite in areas where terrestrial
infrastructure is not available.

Broadband satellite networks are especially
attractive in regions where terrestrial infrastructure is
inadequate or non-existent. These markets include developing
countries as well as rural and underserved areas of developed
countries. Our fleet is designed to provide these services
throughout the Americas.

Applications of broadband service involve point
to multipoint solutions such as Internet direct-to-home,
corporate very small aperture terminal (VSAT)
networks, and solutions for government objectives, among others.
To increase our participation in the broadband market, we are
exploring strategic alliances, joint-ventures and revenue
sharing initiatives with technology providers, teleports and
resellers in order to offer turn-key solutions to our customers.

Distance learning is an attractive opportunity as
it provides an interactive data, audio and video uplink to and
from the remote distance learning site and the central location.
This is attractive in many areas of Mexico and Latin America
that do not have access to universities or other facilities with
communication infrastructure.

Video distribution is a natural application for
satellite capacity as it is point to multi-point. While
satellite direct-to-home television systems are common, cable
operators also use satellites to downlink their signals. In
recent years, digital compression technology has reduced the
need for satellite capacity by compressing signals to operate
within a smaller bandwidth. However, other developments have
offset this impact. Services such as High Definition Television
(HDTV) require more bandwidth than regular television. By
offering local channels (local-to-local), subscription
television (cable and satellite direct-to-home) will generate
greater demand for satellite services. Rising demand for
national and foreign channels also has begun to stimulate demand
for satellite capacity.



| |                                                                        
| | -----------------------------------------------------------------------
| | Grow with Our Current Customer Base and
    Offer Value-Added Solutions

We intend to increase capacity utilization levels
with both current and new customers by promoting mutual business
growth and by reacting to emerging market trends that may
enhance our customers businesses. We regularly develop
tailor-made marketing solutions that match our current available
capacity characteristics with our customers needs. In this
process, we have begun to offer bundled services that include
satellite capacity, equipment and maintenance for video, data
and broadband customers such as state-owned TV stations,
corporate users and telecommunication service carriers.

To maintain the satisfaction of our current
customers, we have implemented a customer retention strategy
based on customer support and commercial flexibility. This
customer-oriented strategy strengthens our relationship with
current customers, reduces cancellation risk and promotes the
expansion of their business on our satellites.

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Services

The satellite capacity we provide is not
differentiated by the use to which it is dedicated. The price of
our satellite transmission capacity is the same regardless of
the service it provides and our customers often use our
satellite capacity for various telecommunications services. We
define below several of the uses of our satellite transmission
capacity.

We provide satellite transmission capacity which
can be used by broadcasting customers for network and cable
television programming, direct-to-home television service and
transmission of live news reports, sporting events and other
video feeds from the scene of the event. In addition, we provide
satellite transmission capacity to telecommunications service
customers that can be used for public telephone networks in
Mexico and elsewhere and corporate customers for their private
business networks with data, voice and corporate video
applications. We also provide satellite connectivity to the
Internet backbone for Internet Service Providers. We offer our
customers part-time service, varied power and footprint service,
grades of service protection and value-added services.



| |                                       
| | --------------------------------------
| | Broadcasting Transmission
    Services

Satellite capacity is utilized for broadcasting
transmission services by various national and international
networks for point-to-point and point-to-multi-point
distribution of television programs, video signals and other
services, including distance learning, business television,
special events and live reports. Customers include private and
state-owned broadcasting networks, cable television programmers
and direct-to-home operators.

Broadcasting customers use satellite capacity to
transmit coverage of live scheduled special events, such as the
World Cup, to programmers on an ad hoc basis. We also provide
broadcasting transmission services to relay live news coverage,
short duration video feeds and syndicated programming for
broadcasters on a scheduled or ad hoc basis.

Broadcasting customers also use satellite
capacity for backhaul operations, such as
transporting programming from a broadcasters foreign news
bureau to a broadcast center for simultaneous or later
transmission. Our service in this area is focused on the
transportation of program material and syndicated programming
for broadcasters on a scheduled basis.



| |                                             
| | --------------------------------------------
| | Telecommunications Transmission
    Services

We provide satellite capacity for domestic and
international telecommunications transmission services to public
and private telecommunications networks. These networks belong
to companies across the spectrum in financial, industrial and
commercial operations, as well as government and education,
transportation and tourism, and media companies. Companies may
lease channels, circuits or fractions of a transponder, allowing
these transponders to be shared among several users.

We provide satellite capacity to carriers that
use the capacity as part of their communications network on a
national or international basis. Our services include the
provision of satellite capacity to carriers that provide public
and private networks for data, voice and corporate video
communications. Network users utilize satellites rather than
ground-based transmission media because satellite systems
provide customers cost savings for large, geographically
dispersed networks, greater independence from telephone
companies, predictability of costs over a long period,
flexibility in changing or adding remote locations to a network,
integrated network management and control of all remote
locations and increased network availability and lower
transmission error rates.

Many businesses and organizations currently use
satellite communications networks for certain of their
communications needs. For example, retail chains use satellite
business communications networks for rapid credit card
authorization and inventory control. Banks use satellite
networks to connect automatic teller machines to processing
computers. News agencies use satellite networks to distribute
information continuously to numerous locations, and paging
operators use satellite networks to distribute paging
information from a central switch to multiple remote
transmitters for retransmission to pagers.

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We provide satellite capacity to domestic and
regional communications centers in Latin America. The provision
of satellite capacity to carriers involves relatively low
marketing and operating costs and promotes the use of satellite
networks for business communications in Latin America. The
Mexican government currently represents one of the largest users
of communications facilities in Mexico.

We offer transponder capacity for end-to-end
satellite services for two types of private business
communications networks: international digital services networks
and VSAT networks. International digital services networks
consist of rooftop antennas and are used by customers that have
relatively steady flows of information to and/or from all of the
points in the network. Because of their large transmission
requirements, international digital services networks require
dedicated, permanent communications links to each point. Very
small aperture terminals networks differ from international
digital services networks in that very small aperture terminals
networks consist of very small rooftop antennas and are utilized
by customers that need to send short bursts of data over the
network for relatively short periods of time. Through the use of
very small aperture terminals technology and sophisticated
software, these networks can be served with a relatively small
amount of satellite capacity.



| |                           
| | --------------------------
| | Internet Service Providers

We provide satellite capacity to deliver
high-speed satellite-based Internet connectivity, offering a
variety of configurations, throughout most of North America and
Latin America. Our fleet provides an efficient means by which
ISPs, service integrators, infrastructure enablers,
universities, governments and other corporations may utilize
Internet-related applications. The benefits of satellite
transmission include avoiding the congestion typically
associated with land-based networks, faster network deployment
and configuration, high data throughput, ubiquitous coverage,
low cost and highly reliable service. We believe that these
benefits, together with Latin Americas lack of
infrastructure, geographic dispersion and low population density
indicate that demand for Internet connectivity via satellite, in
both the consumer and corporate markets, will have strong growth
in the future.



| |                                                                 
| | ----------------------------------------------------------------
| | Digital Distribution Platform for
    Latin-American Programming

We have initiated a new business unit called
Alterna TV, previously known as Satmex Maximo, in order to
expand our position in the broadcast segment of the Latin
American video industry. Alterna TV brings together Latin
American programmers who have not developed
U.S. distribution for their programming with cable and
satellite TV-operators in the U.S. who need to offer a more
comprehensive and authentic product to their growing Hispanic
audiences.

We have secured exclusive distribution rights in
the U.S. for Spanish-language programming with ten
carefully selected Latin American channels. Because this
programming originates in Latin America, it is more authentic
and thus desirable to Hispanics emigrating from the region and
currently living in the U.S. Alterna TV offers these Latin
American programmers the sales and marketing activities
necessary to promote their channels throughout the U.S. to
cable and satellite TV companies as well as the technical
platform necessary to distribute the signals across the
U.S. Thus, we provide the commercial and technical means to
distribute this programming cost-effectively in the U.S.

We transmit the programming via satellite from
the regional programmer to our teleport partner, Crawford
Communications, Inc. (Crawford Communications) which
provides signal origination services including signal
multiplexing, conditional access, signal quality monitoring
according with industry standards. These operators can choose to
receive any of these channels (cherry picking).
DirecTV began broadcasting two Alterna TV channels in April,
2004 as part of its Hispanic package.

Via Alterna TV, we provide programmers from
across Latin America with a fully integrated solution to
distribute their programming in the U.S., which allows them to
take advantage of the growing opportunities in the
U.S. Hispanic market with both cable and satellite
operators. Alterna TVs choice of channels is geared to
satisfy the preference for regionally-developed,
Spanish-language programming among Hispanic audiences living in
the U.S. Cable and satellite TV-operators can easily
incorporate this regional programming into their current
programming offering.

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(FLOW CHART)



| |                
| | ---------------
| | Enlaces Integra

In 2000, Principia and Loral founded Enlaces
Integra, a telecommunications service integrator that provides
tailor made solutions of high speed data communications to
private and public networks, value-added service providers and
audio/video service providers. In January 2000, Enlaces Integra
was granted a concession to install, operate and exploit a
public telecommunications network. Additionally, Enlaces Integra
received a value-added license that allows it to develop
Broadband Internet access and a wide range of multimedia
services. On August 10, 2001, Enlaces Integra was granted a
concession to provide fixed satellite services in Mexico through
satellite operators other than Satmex.

Enlaces Integra leases transponder capacity from
us. In 2003 and 2002, service revenue from this lease was
$223,000 and $421,000, respectively. Further, Enlaces Integra
uses services provided from affiliated companies to perform its
activities. Also, we agreed to loan Enlaces Integra up to
$5 million of which $3.4 million was outstanding as of
December 31, 2001. In June 2002, we purchased approximately
$718,000 of equipment from Enlaces Integra and in July 2002, we
purchased $1.6 million of equipment and paid
$2.9 million as an advance payment on one of the
concessions held by Enlaces Integra. Enlaces Integra used the
proceeds from the sale to repay its outstanding loan from us. At
December 31, 2003, there were no borrowings outstanding
under the loan agreement. We leased equipment back to Enlaces
Integra for rental payments of $995,000 and $230,000 during 2003
and 2002, respectively.

We have a close working relationship with Enlaces
Integra and have an agreement to acquire its concession upon
receipt of approval by the SCT.

Customers

We have a broad customer base that includes
private and state-owned broadcasting networks, cable television
programmers, direct-to-home operators, and public and private
telecommunications networks belonging to financial, industrial
and commercial, government, transportation and tourism,
educational and press-related companies. A large portion of our
revenues are derived from a small number of customers.
Approximately 32 of our customers account for approximately 80%
of our current revenue base, and our top 10 customers
represented approximately 54% of our revenues during 2003. Our
largest customer is Hughes Network Systems, a wholly owned
subsidiary of The DIRECTV Group Inc., previously Hughes
Electronics Corporation. Revenue from Hughes Network Systems
represented 23%, 15% and 10% of service revenue for the years
ended December 31, 2003, 2002 and 2001, respectively. We
expect that Hughes Network Systems will continue to expand its
capacity requirements and represent a greater portion of our
service revenue in 2004. Revenue from the Mexican government
represented 7%, 8% and 8% of service revenue for the years ended
December 31, 2003, 2002 and 2001, respectively. Early in
2004, one of our top ten customers, Verestar, Inc.
(Verestar) filed for relief under Chapter 11 of
the U.S. Bankruptcy Code and rejected their satellite
service contract with us; therefore, no longer using our
services. Verestar represented approximately 8% of our 2003
revenue. If other significant customers cancel their contracts
with us or fail to renew their contracts, it would adversely
affect our revenues while only marginally lowering our expenses.

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During 2002 and 2003, we experienced significant
terminations and were unable to renew contracts with certain
customers upon expiration. Some terminations occurred in the
first quarter of 2004, but we do not expect terminations and
non-renewals to be significant throughout the remainder of 2004.
Cancellation or non-renewal of service contracts of our large
customers would have an adverse effect of our results of
operations.

Approximately 44%, 49% and 55% of our service
revenue for the years ended December 31, 2003, 2002 and
2001, respectively, were generated from customers in Mexico.

|              |       |                |        |        |  |      |        |        |  |   |        |         | 
|------------- | ----- | -------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------- | 
|              |       | 2003           |        | 2002   |  | 2001
|              |       |                |        |        |  |     
|              |       |               
|              |       | (In thousands)
|Mexico        |       | $              | 33,449 |        |  | $    | 41,630 |        |  | $ | 69,826 |        
|United States |       |                | 40,740 |        |  |      | 37,619 |        |  |   | 50,992 |        
|Other         |       |                | 4,634  |        |  |      | 5,762  |        |  |   | 7,226  |        
|              |       |                |        |        |  |      |        |        |  |   |        |        
|              | Total |                | $      | 78,823 |  |      | $      | 85,011 |  |   | $      | 128,044 | 
|              |       |                |        |        |  |      |        |        |  |   |        |        

Sales and Marketing



| |            
| | -----------
| | Sales Force

Our sales force is divided by geographic markets.
The majority of our sales force is fluent in at least two of
Spanish, English and Portuguese, enabling them to communicate
comfortably with individuals in domestic and foreign companies.
We have been increasing our sales force in order to execute our
Satmex 6 pre-sales and sales campaign.



| |                    
| | -------------------
| | International Sales

Our satellites have broad international
footprints and landing rights. Markets in the Western Hemisphere
as a whole are similar for the major broadcasting and
telecommunications transmission segments. We have expanded our
sales outside of Mexico through our direct sales force and our
network of agents, distributors and value-added resellers in the
Latin American region.



| |        
| | -------
| | Pricing

Our existing prices are comparable to those of
other satellite operators, such as Intelsat, SES Global, New
Skies and PanAmSat.

Prior to our privatization in 1997, a rigid
pricing structure had been required by Mexican law and impeded
the customization of service. Under the Federal
Telecommunications Law passed in 1995, we are allowed to
establish rates and terms and conditions for services. Prices
must be filed with the Mexican Federal Telecommunications
Commission (COFETEL) prior to their taking effect, but
price changes do not require prior governmental approval.
However, regulators may specify maximum prices, minimum service
quality and certain informational requirements for a dominant
service provider. We are not deemed to be a dominant service
provider at this point in time.



| |          
| | ---------
| | Contracts

The terms of our current contracts with customers
range from one year to end-of-life of the satellite on which
capacity is provided. Substantially all of our customers
contracts are non-cancelable or carry a substantial cancellation
penalty.

Almost all of our customers have lease contracts
that are denominated in U.S. dollars and require payment
during each month for which satellite services are provided. Any
late payment is generally subject to an interest charge. Our
domestic customers may pay the Mexican peso equivalent of the
U.S. dollar lease amount calculated on the basis of the
spot exchange rate at the time of payment. We set our prices to
customers in U.S. dollars and operate in a manner intended
to minimize the effect of fluctuations in exchange

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rates. Nonetheless, fluctuations of the exchange
rate and other developments related to currencies could
adversely affect our customers demand for our services and
their ability to pay for them.


Competition

Technological advances in satellite systems and
deregulation in the worldwide satellite market have led to the
globalization of the satellite industry and an increasingly
competitive framework both for domestic and international
services. We face competition from other satellite companies as
well as telecommunications companies that offer competing
services via satellites or terrestrial facilities, many of which
are in a stronger financial position than we are.

We compete with PanAmSat, Intelsat, SES Global,
and New Skies in providing international satellite services in
Latin America. PanAmSat has a fleet of twenty five satellites,
including fourteen that provide some coverage of Latin American
markets. Intelsat, a former inter-governmental organization,
provides satellite services around the world with a fleet of
twenty nine satellites, including eleven that provide some
coverage of Latin American markets. Currently, New Skies
Satellites has a fleet of six satellites including three that
serve Latin America. In November 2000, Telesat successfully
launched the Anik F1 satellite, which serves all of the
Americas. Further, in 2001, SES Astra merged with GE Americom to
form SES Global. SES Global has a fleet of thirty nine
satellites, of which nineteen serve parts of Latin America. We
cannot assure you that we will be able to compete successfully
with our competitors.

The U.S. Open-Market Reorganization for the
Betterment of International Telecommunications Act
(ORBIT) requires that Intelsat conduct an initial
public offering (IPO) of securities no later than
July 30, 2005. A further extension of the IPO requirement
to December 30, 2005 is possible at the discretion of the
U.S. Federal Communications Commission (the
FCC). In late May 2004, Intelsat announced its
decision to withdraw a planned IPO and instead explore strategic
transaction alternatives. Consummation of a strategic transation
or an IPO could allow Intelsat to raise capital to expand
satellite coverage.

Several new satellites compete in our current and
proposed coverage areas and others are in the manufacture or
planning stages. These new satellites (other than replacement
satellites not significantly larger than the ones they replace)
have increased the capacity available for the provision of
services that compete with our services. After a satellite has
been successfully delivered in orbit, the variable cost of
transmitting additional data via the satellite is minimal.
Accordingly, due to a slower growth in demand, this new capacity
has resulted in price reductions. Further price reductions in
transponder leases would have a material adverse effect on our
revenue and our ability to service our indebtedness.

As land-based telecommunications services expand,
demand for our services may be reduced. For example, in the past
we have experienced a number of contract cancellations or
non-renewals by customers who switched to fiber optic service
providers. These fiber optic service providers can generally
provide services at a lower cost and further build-out of this
infrastructure could hurt our revenue.



| |                
| | ---------------
| | Domestic Market

We are the main provider of fixed satellite
services in Mexico, which for the year ended December 31,
2003, accounted for approximately 44% of our total revenues.
Mexican laws currently allow competition in providing domestic
fixed satellite services by any duly licensed Mexican satellite
operator and by foreign licensed satellite operators in the
provision of international fixed satellite services,
direct-to-home fixed satellite services and broadcast satellite
services.

The Mexican government has liberalized its
regulatory environment to allow non-Mexican satellite companies
to provide satellite services in Mexico. On August 10,
2001, the Mexican government granted licenses to provide
satellite service in Mexico to Mexican affiliates of PanAmSat
and SES Global, as well as Televisa and Enlaces Integra (an
affiliate of Satmex). PanAmSat registered eleven satellites and
SES Global registered seven satellites to provide satellite
service in Mexico. On June 16, 2003, New Skies was granted
with a license to provide services with 3 satellites. While we
have historically been the leading provider of

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domestic fixed satellite services in Mexico, our
Mexican market share may be reduced in the future by these new
competitors. This would in turn have a corresponding adverse
effect on our revenue.


Our competition for the provision of satellite
capacity for transmissions into Mexico, whether originating in
Mexico or abroad, also comes from telecommunications companies
with fiber optic networks. Fiber optic lines have expanded
significantly in recent years, and lend themselves to inter-city
high volume transmissions, particularly point to point services.
They are limited, however, in their ability to compete with
satellites to link a high number of low volume points scattered
across a wide or remote area. For television and radio services,
the costs associated with reaching subscribers is much higher
with fiber optic networks than it is with satellite
transmissions.

Our satellites were designed and built to cover
the Mexican domestic market and therefore have broad footprints
and high power levels for coverage of Mexico. We believe that
our orbital slots have superior positioning in relation to the
majority of our competitors that have access to the Mexican
market. In addition, the Fixed Satellite Services Protocol
between the United States and Mexico permits us to currently
land international signals in the U.S. market and provide
domestic services in the United States upon obtaining all
necessary licenses and authorizations from the FCC.

We believe that we have several advantages over
foreign and international satellites with regard to power,
capacity, price and ability to offer superior customer service,
which should allow us to maintain our leadership position in
domestic services.



| |                                       
| | --------------------------------------
| | Central and South American
    Markets

We face competition in Central and South America
from several satellite operators. These include PanAmSat,
Intelsat, SES Americom, New Skies, Grupo Hispasat, S.A.
(Hispasat), Star One (Star One), owned
by Empresa Brasileira de Telecomunicações S.A.
(Embratel) and SES Global, and Nahuelsat, S.A.
(Nahuelsat). Partly in response to the development
of satellite services in the United States, the greater capacity
of new satellites and the development of the region, satellite
operators have begun expanding into the Central and South
American markets. The FCC has approved the provision of non-US
service of companies such as PanAmSat and SES Global from
orbital positions originally intended solely for the United
States.

These satellite operators have concentrated on
distributing television programming to cable systems as well as
direct to home. Latin America will probably continue to rely on
satellite communications more extensively than other regions
because most of the regions countries have low population
densities and low telecommunications equipment densities, heavy
forest cover, mountainous terrain and desert areas.

With the upcoming launch of Satmex 6, we
believe that we will improve our presence in the Latin American
market.



| |            
| | -----------
| | U.S. Market

The U.S. commercial satellite market is
currently dominated by three major competitors: Intelsat using
the satellites it acquired from Loral Skynet, PanAmSat and SES
Global, through its SES Americom division. Currently, the
majority of the capacity on U.S. satellites is used for
broadcasting transmission services, another significant portion
is used for telecommunications transmission services, and the
remaining capacity is currently available or used for part-time
services. This relatively low percentage for telecommunications
transmission services can partially be explained by the high
demand for multi-channel pay television, which reaches more than
90% of all U.S. homes, and by the fiber optic telephony
network and the widespread use of wireless systems.

The Fixed Satellite Services Protocol between the
United States and Mexico allows Mexican satellites to offer
international and domestic services in the United States,
subject to obtaining all necessary FCC regulatory approvals, and
allows U.S. satellites to offer international fixed
satellite services, direct-to-home fixed satellite services and
broadcast satellite services and certain domestic fixed
satellite services. Satellites licensed by the United States
were authorized to provide domestic fixed satellite services in
Mexico beginning

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in January 1999. Satellites licensed by Mexico
were authorized to provide domestic fixed satellite services in
the United States beginning on January 1, 1998. This allows
our customers to target the Hispanic population in the United
States. We believe that this protocol and the expected launch of
Satmex 6, not before late 2004, will improve our presence
in North America. The footprint of Satmex 6 was designed, in
part, to provide satellite services in the U.S. market.


REGULATION

Regulatory Framework

The Federal Telecommunications Law of Mexico (the
Communications Law), which provides the overall
legal framework for the regulation of satellite services in
Mexico, became generally effective on June 7, 1995. Under
the Telecommunications Law, a provider of satellite services,
such as us, must operate under a concession granted by the
Secretaría de Comunicaciones y Transportes(the
Ministry of Communications and Transportation or the
SCT), pursuant to an auction process. Such a
concession may only be granted to a Mexican corporation and may
not be transferred or assigned without the approval of the SCT.
Foreign investors are permitted by law to hold up to 49% of the
stock of such a corporation.

In addition, our operations are mainly subject to
the Ley General de Bienes Nacionales(the General Law on
National Assets), which regulates all assets that fall within
the public domain and the terms for the Rescate of our
concessions, the Ley General del Equilibrio Ecológico y
Protección al Ambiente(the General Law on Ecology and
Protection of the Environment or the Environment
Law) and other environmental laws, the Ley Federal de
Competencia Económica(the Federal Economic Competition
Law), the Ley de Vías Generales de Comunicación(the Law of General Means of Communication) and other
international treaties, laws, rules, regulations and decrees.

Under the Telecommunications Law, the SCT is,
among other things, responsible for issuing concessions and
permits related to telecommunications and for formulating
policies in the telecommunications area and otherwise taking all
other actions on behalf of the Mexican government in connection
with telecommunications. The Mexican Federal Telecommunications
Commission (COFETEL) is the telecommunications authority
responsible for most day-to-day regulation of satellite
communications in Mexico. The Mexican Telecommunications
Commissions duties include, among other things:



| |   |                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | issuing administrative regulations relating to
    telecommunications;                                                                                                                                                   
|
| |  | recommending amendments to existing laws and
    rules;                                                                                                                                                                  
|
| |  | making recommendations to the SCT on applications
    for the grant, modification, renewal, transfer and revocation of
    concessions and permits;                                                                      
|
| |  | administering the radio frequency spectrum;                                                                                                                                                                              
|
| |  | promoting and overseeing interconnection of
    equipment and public telecommunications networks;                                                                                                                        
|
| |  | registering tariffs for telecommunications
    services and establishing specific obligations relating to
    tariffs, quality of service and provision of information by
    carriers with substantial market power; and
|
| |  | ensuring that carriers comply with the
    obligations set forth in concessions and permits.                                                                                                                             

Satellite control centers must be established
within Mexico for satellites authorized to use Mexican orbital
slots. The Communications Law allows satellites licensed to
Mexican orbital positions to serve other countries subject to
the terms and conditions of treaties with Mexico and subject to
the laws of the foreign country. The SCT may grant concessions
at any time to foreign satellite systems to serve Mexico subject
to applicable treaties and Mexican law. On August 10, 2001,
the Mexican government granted licenses to provide satellite
service in Mexico to PanAmSat, SES Global, Televisa and Enlaces
Integra. PanAmSat registered 11 satellites and SES Global
registered seven satellites to provide satellite service in
Mexico. On June 16, 2003, New Skies was granted the same
type of concession.

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The rules promulgated pursuant to the
Communications Law require licensees of satellites intending to
provide telecommunications services through one or more
transmitting earth stations of their own to obtain a separate
license to construct and operate a public telecommunications
network. Where the satellite operator intends to provide
services other than public telecommunications services through
its own earth stations, it must obtain a permit from the SCT.
Where a satellite operator intends to provide services other
than the lease of capacity by obtaining a separate license or
permit, it may provide such services only through an affiliate
or subsidiary.

The Concessions

The Mexican government has awarded us the
following concessions:



| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the right to occupy each of three orbital
    positions (one concession per orbital slot) and exploit their
    respective C-and Ku-band frequencies and
|
| |  | the right to use the buildings and areas in which
    the control centers are located (the Property
    Concession).                                  

The Orbital Concessions may be granted as
collateral to any party other than a foreign government or state.

The Orbital Concessions include the right to
exploit the 113.0 degrees W.L., 116.8 degrees W.L. and 109.2
degrees W.L. orbital slots. As part of the Orbital Concessions,
we may establish rates and terms for transponder leasing, which
must be registered in order to become effective. However, if the
SCT determines that we have substantial power in the Mexican
market, the Mexican Telecommunications Commission may determine
tariffs and specify conditions relating to service quality and
information requirements. Additionally, we are prohibited from
establishing cross subsidies and using discriminatory practices.

As part of the three Orbital Concessions, we are
required to allocate 181 MHz C-band and 181 MHz Ku-band capacity
to the Mexican government, free of charge, for national security
and certain public purposes. In addition, we were required to
operate two L-band transponders, one on each of the Solidaridad
satellites, which were owned by the Mexican government. After
the failure of Solidaridad 1, the capacity provided to the
Government was 130 MHz C-band and 105 MHz Ku-band and one L-band
transponder on Solidaridad 2. Upon the commencement of
commercial service of Satmex 6, we will be able to allocate the
required C-band and Ku-band capacity to the Mexican government.
However, Satmex 6 will not have any L-band transponders.

Under the Orbital Concessions, we are required
to, among others:



| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | carry out research and development in Mexico,                                                           
|
| |  | maintain the control centers within Mexico and
    preferentially staff them with Mexican nationals, and
|
| |  | maintain satellite service continuously and
    efficiently.                                            

As security for the performance by us of our
obligations under each Orbital Concession, we were required to
post and must maintain during the term thereof, a surety bond in
the amount of 10 million pesos payable to the Federal
Treasury of Mexico with respect to each Orbital Concession. This
amount is adjusted each year to reflect the inflation rate in
Mexico. At December 31, 2003, the adjusted amount was
approximately $1.5 million per Orbital Concession. Under
the terms of the surety bond, we have paid to the surety bond
issurer a premium of $23,000 per Orbital Concession. We have
pledged and deposited $2.7 million as collateral to these surety
bonds. The collateral will be returned to us upon the completion
of our financial restructuring. The surety has agreed to pay to
the Federal Treasury of Mexico, in the event we breach the terms
of the Orbital Concessions, a sum of $4.5 million in total.

The Orbital Concessions were published in the
Official Gazette on December 30, 1997.

The Orbital Concessions have twenty-year terms
expiring on October 22, 2017 and may, subject to certain
conditions, be extended for an additional twenty-year term,
without the payment of any additional consideration to the
Mexican government.

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Except in limited circumstances, we must notify
the SCT prior to issuing and selling any of the shares that
represent 10% or more of our outstanding capital stock, and must
identify the potential purchaser. Within 30 days of receipt
of such notification the SCT may object to the sale. We may only
proceed with the proposed sale if no objection is raised by the
SCT.

The Property Concession includes two plots of
land, and buildings and fixtures built thereon. The Property
Concession includes the right to use only the property for the
purposes of exploiting the orbital slots and frequency
assignments. Additionally, we may not rent or otherwise sublease
the property without the prior permission of the SCT. Under the
Property Concession, we are required to:



| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | pay an annual fee in an amount equal to 7.5% of
    the assessed property value and
|
| |  | maintain the premises in good condition.                                           

The value of the property was originally
determined in the Property Concession and it has suffered annual
increments consistent with changes in the Consumer Price Index
(Indice Nacional de Precios al Consumidor). Pursuant to
our current regulations, a new appraisal of the value of the
property must be performed every five years. The appraisal is
performed by the Ministry of Internal Control
(Secretaría de la Función Pública), which
is an entity of the Mexican government, or an entity of such
ministry. The appraisal must consider the value of the property
as it was originally delivered to us, without taking into
account any works performed on the property after such delivery.

The duration of the Property Concession is
40 years or for the length of the Orbital Concessions. The
Property Concession duration may be extended at the discretion
of the SCT.

Concession Termination

The Orbital Concessions will terminate if:



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | the term of any such Orbital Concession expires;                                        
|
| |  | we resign our rights under any such Orbital
    Concession;                             
|
| |  | the Mexican government through the SCT,
    expropriates any of the Orbital Concessions;
|
| |  | we are liquidated or become subject to a Mexican
    liquidation (quiebra); or          
|
| |  | the SCT revokes any of the Orbital Concessions.                                         

Our assets and rights under the Orbital
Concessions may also be temporarily seized by the SCT, as
described below.

The Communications Law provides that the SCT may
revoke any of the Orbital Concessions upon the occurrence of
certain events, including:



| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | failure by us to exercise our rights under any of
    the Orbital Concessions for a period greater than 180 days
    from the date the Orbital Concessions were granted;
|
| |  | unjustified interruption of the services that may
    be provided under the Orbital Concessions;                                                                        
|
| |  | our undertaking any action or refraining from
    taking any action that affects the rights of other licensees or
    concessionaires;                                  
|
| |  | failure by us to satisfy the terms or conditions
    set forth in the Orbital Concessions;                                                                              
|
| |  | unjustified failure by us to interconnect other
    concessionaires or licensees that have the right to provide
    telecommunications services;                        
|
| |  | change of our nationality, and                                                                                                                                          
|
| |  | assignment or transfer of rights granted under
    the Orbital Concessions in contravention of the terms of the
    Communications Law.                                 

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In the cases of the first, fifth, sixth and
seventh bullet points above, the SCT may immediately revoke any
of the Orbital Concessions. In the cases of the second, third
and fourth bullet points above, the SCT may only revoke any of
the Orbital Concessions if it has imposed sanctions on us for
the relevant breach on at least three separate occasions. In the
event any of the Orbital Concessions is revoked by the SCT, no
compensation shall be paid to us.

The SCT also has the right to terminate any of
the Orbital Concessions and the Property Concession pursuant to
Rescate. As of the date of any such Rescate procedure, assets
used in connection with the exploitation of the Orbital
Concessions and the Property Concession would be subject to the
ownership and management of the Mexican government.

The SCT may also temporarily seize the Orbital
Concessions in the event of natural disaster, war, substantial
breach of the public peace and order, or imminent danger to
national security, internal peace or the Mexican economy. In the
past, the Mexican government has used this power to ensure
continued service during labor disputes. Mexican law requires
that the Mexican government pay compensation to us if it effects
a Requisa, except in the case of a temporary seizure due to war.
In respect of a Requisa, the basis for any compensation to a
concessionaire is specified by decree of the Mexican government
and is subject to judicial review in the event of dispute. With
respect to a Requisa, the Communications Law provides that the
Mexican government will indemnify the affected concessionaire in
an amount equal to damages and losses reflecting their real
value; in the event of a dispute regarding such matters, losses
shall be determined by appraisers mutually appointed by the
parties and damages shall be determined on the basis of the
average net income generated by the concessionaire in the year
prior to the Requisa.

The Property Concession will terminate if:



| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | the Property Concession term expires;                                                             
|
| |  | we resign our rights to the Property Concession;                                                  
|
| |  | the Orbital Concessions are terminated;                                                           
|
| |  | the purpose for which the Property Concession is
    granted no longer exists;                    
|
| |  | the Mexican government expropriates the Property
    Concession for reasons of public interest; or
|
| |  | the Property Concession is revoked.                                                               

The Mexican government may revoke the Property
Concession for various reasons, including without limitation,
the following:



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | failure to use the Property Concession for the
    purpose for which it was granted;                                      
|
| |  | failure to comply with the terms of the Property
    Concession;                                                          
|
| |  | activities, without prior permission of the SCT,
    which interfere with satellite operations; and                       
|
| |  | under terms and conditions generally applicable
    to property concessions of this type under applicable Mexican
    law.

At the end of the concession term, the orbital
positions and control center land and buildings will revert to
the state. Under the Telecommunications Law, upon termination of
the Orbital Concessions the Mexican government has a preemptive
right to acquire our facilities, equipment and other assets used
by us to provide services under our concessions. Alternatively,
the Mexican government may elect to lease these assets for up to
five years at fair market rates as determined by expert
appraisers appointed by the SCT and ourselves. In the event of a
discrepancy between appraisals, a third expert appraiser must be
jointly appointed by the Mexican government and us. If we do not
appoint an expert appraiser, or if such appraiser fails to
determine a price, the determination of the appraiser appointed
by the Mexican government will be conclusive.

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Treaties and International Accords



| |                                                               
| | --------------------------------------------------------------
| | Reciprocity Agreement Between the United
    States and Mexico

In April 1996, Mexico and the United States (the
Parties) signed an agreement (the Reciprocity
Agreement) concerning the transmission and reception of
signals from satellites for the provision of satellite services
to users in Mexico and the United States. The main aspects of
this agreement are:



| |   |                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Mexican satellites are permitted to provide
    satellite service to, from and within the United States (in
    conformance with applicable U.S. law),                                                                                                                                
|
| |  | U.S. satellites are permitted to provide
    satellite service to, from and within Mexico (in conformance
    with applicable Mexican law),                                                                                                                                           
|
| |  | the conditions for the transmission and reception
    of satellite signals will be as agreed to in protocols to the
    agreement,                                                                                                                                                    
|
| |  | the entities operating commercial satellites and
    earth stations may be structured with either public or private
    participation (in conformity with both Mexican and U.S. law),                                                                                                 
|
| |  | neither Mexico nor the United States shall
    require a satellite licensed by the other government to obtain
    an additional license for the operation of the satellite in
    order to provide the satellite services described in the
    protocols to the Reciprocity Agreement,
|
| |  | licenses for earth stations and satellite
    services must comply with national laws and regulations,                                                                                                                                                                                
|
| |  | applicable foreign ownership restrictions on
    satellite service providers and earth station licenses continue
    to apply and                                                                                                                                                     
|
| |  | both Mexico and the United States retain the
    right to take actions that either government considers necessary
    for the protection of our essential security interests.                                                                                                         

The Reciprocity Agreement may be amended by
agreement of the Parties. Additional protocols or protocol
amendments may be concluded by written agreement of the Parties.
The Reciprocity Agreement may be terminated by mutual agreement
of the Parties, or by either Party by written notice of
termination to the other Party through diplomatic channels. Such
notice of termination will enter into effect six months after
receipt of the notice.



| |                        
| | -----------------------
| | Direct-to-Home Protocol

In November 1996, Mexico and the United States
signed a protocol (the DTH Protocol) to the
Reciprocity Agreement concerning the transmission and reception
of signals from satellites for the provision of direct-to-home
satellite services. Direct-to-home satellite services are
defined to include direct-to-home fixed satellite service and
broadcasting satellite service, which include one-way, encrypted
video or video/audio radiocommunication signals transmitted by
satellite for direct reception by subscribers who pay a periodic
fee, distribution of video/audio to cable television head-ends
and multipoint distribution service (MDS) or
wireless cable facilities. The DTH Protocol addressed only a
limited number of radiocommunication frequencies. The United
States and Mexico have each agreed to permit satellites licensed
by the other government to provide direct-to-home fixed
satellite services and broadcasting satellite services to, from,
and within the other countrys territory. Entities seeking
to transmit or receive direct-to-home fixed satellite services
or broadcasting satellite services signals via a satellite
licensed by the other administration (e.g., through an earth
station in the non-licensing jurisdiction) must still comply
with the non-licensing jurisdictions other applicable laws
(e.g., the earth station licensing process). Both Mexico and the
United States reserve the right to refuse to accept signals
originating from third countries. In addition, both countries
agree to permit direct-to-home fixed satellite service and
broadcasting satellite service signals to be delivered directly
to subscribers without requiring that they be retransmitted over
an intermediary satellite system. Mexico and the United States
agree not to impose significant restrictions on the amount or
origin of advertising and program content. The DTH Protocol does
not apply to the transmission of any audio-only

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direct-to-home fixed satellite service and
broadcasting satellite service signals that do not contain
solely music. Service to cable television head-ends is permitted
under the DTH Protocol as of November 8, 1997.


The DTH Protocol may be amended by written
agreement of the Parties. The DTH Protocol may be terminated by
agreement of the Parties, or by either Party by written notice
of termination to the other Party. Such notice of termination
shall enter into effect six months after receipt of the notice.
The DTH Protocol will remain in force until it is terminated in
such manner or replaced by a new protocol. Upon termination of
the DTH Protocol, a Party may, at its discretion, terminate any
license that has been issued pursuant to the DTH Protocol. In
addition to the general provisions for termination, the DTH
Protocol may be terminated upon sixty days written notice
if a Party determines that the other Party has failed to conform
to the principles of the DTH Protocol.



| |                                      
| | -------------------------------------
| | Fixed Satellite Services
    Protocol

In October 1997, Mexico and the United States
signed another protocol (the FSS Protocol) to the
Reciprocity Agreement, with respect to the transmission and
reception of signals from satellites for the provision of
international and domestic fixed satellite services. The
definition of fixed satellite services includes, but is not
limited to, signals carrying video or video/audio distributed to
cable television head-end and multipoint distribution service
(restricted microwave television service) facilities and
excludes the direct-to-home fixed satellite services and
broadcasting satellite services governed by the DTH Protocol.
Like the DTH Protocol, the FSS Protocol addresses only a limited
number of radiocommunication frequencies. Subject to the terms
of the FSS Protocol, the United States and Mexico have agreed to
permit satellites licensed by the other to provide domestic and
international fixed satellite services to, from, and within the
other countrys territory. Satellites licensed by either
Mexico or the United States may be authorized to provide
international service beginning October 16, 1997.
Satellites licensed by the United States were authorized to
provide domestic fixed satellite services in Mexico beginning in
January 1999. Satellites licensed by Mexico were authorized to
provide domestic fixed satellite services in the United States
beginning on January 1, 1998. The FSS Protocol also states
that a satellite licensed by either Mexico or the United States
to provide direct-to-home fixed satellite services or
broadcasting satellite services shall be permitted to provide
video or video-audio distribution to cable television head-end
and multipoint distribution service (restricted microwave
television services) facilities beginning November 8, 1997.
Entities seeking to transmit or receive fixed satellite service
signals via a satellite licensed by the other Party (e.g.,
through an earth station in the non-licensing jurisdiction) must
still comply with the non-licensing jurisdictions other
applicable laws (e.g., the earth station licensing process).
Unlike the DTH Protocol, the FSS Protocol permits communications
to or from third countries. However, similar to the DTH
Protocol, under the FSS Protocol, both countries agree to permit
fixed satellite service signals to be delivered directly to
fixed-earth stations without requiring that they be
retransmitted over an intermediary satellite system.

The FSS Protocol may be amended by written
agreement of the Parties. The FSS Protocol may be terminated by
agreement of the Parties, or by either Party by written notice
of termination to the other Party. Such notice of termination
shall enter into effect six months after receipt of the notice.
Upon termination of the FSS Protocol, a Party may, at its
discretion, terminate any license that has been issued pursuant
to the FSS Protocol. The FSS Protocol will remain in force until
it is terminated in such manner or replaced by a new protocol.



| |                                                    
| | ---------------------------------------------------
| | Reciprocity Agreement Between Canada and
    Mexico

In April 1999, Mexico and Canada signed an
agreement similar to the agreement between Mexico and the United
States. In January, 2001, the FSS Protocol between Canada and
Mexico was signed.



| |                    
| | -------------------
| | Argentine Agreement

In November of 1997, the governments of Mexico
and the Argentine Republic entered into a bilateral agreement to
afford reciprocal treatment for satellite service providers
licensed under the laws of each party. The agreement provides
that satellite service providers licensed in Mexico may transmit
certain direct-to-

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home fixed satellite services, broadcasting
satellite services and other fixed satellite service signals to
satellite customers in Argentina, and vice versa. The agreement,
using the radiocommunication rules of the International
Telecommunication Union (the ITU) as a base, sets
forth the terms and conditions for the technical coordination of
each partys satellite systems. The parties further agreed
to cooperate in assuring compliance with each partys
applicable laws and regulations. Mexican satellite providers
operating in Argentina would remain subject to applicable
Argentine law, and vice versa. The parties agreed to apply their
respective laws in a transparent and non-discriminatory fashion.
An agreement was entered into in June 2000, and the mutual
exchange of diplomatic notes has taken place. The direct-to-home
fixed satellite services agreement between Mexico and the
Argentine Republic was signed on July, 2002.




| |                  
| | -----------------
| | ANDESAT Agreement

On October 24, 1997, Mexico and Member
Countries of the Andean Community of Nations (the Andean
Community) entered into a five-year agreement regarding
coordination between the Mexican satellite system and the
Simón Bolívar Andean satellite system, which was
amended on March 1, 1999 (the ANDESAT
Agreement).

Under the ANDESAT Agreement, we agreed to provide
the Andean Community satellite capacity until January 2003 at
certain preferred rates. The Andean Community had the right to
use, at no charge, one and one quarter transponders. Under the
ANDESAT Agreement, we agreed to pay to the Andesat Community an
annual fee of $850,000, in four quarterly payments,
correspondent to the downlink signals in the Andean region. On
October 17, 2001, we reduced the capacity provision not
charged to one transponder and agreed to pay $212,500 as a
settlement payment for the ANDESAT Agreement obligations.

In January 2003, the ANDESAT Agreement expired
and we now operate directly in Bolivia, Ecuador and Peru. We are
in the process of negotiating direct operating rights in
Colombia and Venezuela.



| |                                               
| | ----------------------------------------------
| | The General Agreement on Trade in
    Services

Under the auspices of the World Trade
Organization (the WTO), the Negotiating Group for
Basic Telecommunications concluded negotiations that resulted in
receipt of commitments from 69 governments. The commitments
cover basic telecommunications services including telephony,
packet and circuit data transmission, fax, private leased,
circuit, cellular telephony, individual localization telex and
telegraph services. These services can be offered through a
variety of available medium, such as cable, wireless, radio or
satellite. The agreement itself imposes an obligation to afford
most-favored-nation treatment to all other members unless an
exemption is filed. Mexico did not file an exemption.

Mexico has adopted the regulatory reference paper
which established parameters relating to competition,
interconnection, universal service, public availability,
criteria for awarding licenses, autonomy of the regulatory
entity and assignment and exploitation of available resources.
Mexico has established the following service parameters:



| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | telex and telegraph services are not included;                                                                                                                                      
|
| |  | cross-border traffic must be routed through a
    company licensed by the SCT;                                                                                                      
|
| |  | license fees are imposed;                                                                                                                                                           
|
| |  | licenses will only be awarded to Mexican
    companies, in which foreign participation is limited to 49%,
    except in cellular, where foreign participation may be higher;
    and
|
| |  | there is no limit to foreign investment in
    companies that offer services to third parties.                                                                                      

Government and Supra-Governmental
Regulation



| |                                                                               
| | ------------------------------------------------------------------------------
| | FCC Regulation of Satellite Services and
    Foreign Ownership of FCC Licenses

The U.S. satellite and telecommunications
industries are highly regulated. In addition to the
international accords and protocols discussed above, the FCC
regulates satellite providers operating in the U.S. as well as

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the provision of satellite services, generally.
The FCC currently regulates access to the U.S. market by
non-U.S. licensed satellite systems.


In the Second Domestic International Satellite
Consolidation rulemaking (DISCO II), the FCC adopted
a framework under which it will consider requests for the use of
non-U.S. licensed satellites to provide services in the U.S. The
FCC will examine all requests to determine whether grant of
authority is consistent with the public interest, convenience
and necessity. In doing so, the FCC will consider factors such
as the effect on competition in the U.S. market, spectrum
availability, eligibility requirements (such as foreign
ownership, legal, technical and financial qualifications),
operating requirements and national security, law enforcement,
foreign policy and trade concerns, as appropriate. Depending on
the nature of the services offered in the United States, these
foreign-licensed satellites may be subject to a variety of
regulatory requirements. Petitions to reconsider certain aspects
of the DISCO II order have been filed with the FCC.

In determining the effect on competition, the
order in DISCO II establishes a presumption that competition
will be promoted, and, therefore, that no effective competitive
opportunities (ECO) test is required, in evaluating
whether to permit satellites licensed by WTO member countries to
provide services covered by the U.S. schedule of commitments
under the World Trade Organization Agreement on Basic
Telecommunications (the WTO Basic Telecom
Agreement). Except that if Comsat Corporation seeks to
provide domestic services, it will be required to make an
appropriate waiver of immunity from suit and demonstrate that
the service will enhance competition in the U.S. market. For
requests to serve the U.S. market by satellite operators from
non-WTO member countries, the FCC will examine the effective
competitive opportunities in the foreign markets for U.S.
satellite operators to determine if the non-U.S. satellite
satisfies the competition component of the public interest
analysis.

The FCC will also apply the ECO tests to requests
to serve the U.S. market with services not covered by the WTO
Agreement such as direct-to-home fixed satellite services,
direct broadcast satellite services, and digital audio radio
services. The U.S. schedule of commitments under the WTO Basic
Telecom Agreement excludes direct-to-home fixed satellite
services, direct broadcast satellite service and digital audio
radio service, and the U.S. has taken a most-favored-nation and
national treatment exception for these services. Thus, for those
services the FCC will continue to apply the ECO test to entities
including WTO member countries seeking to provide these
services. The FCC, however, has created an exception to this
general rule where the U.S. has entered into bilateral
agreements with the other country regarding specific services,
as the U.S. has done with Mexico. The FCC will review earth
station applications to access a satellite licensed in a country
with which the U.S. has a bilateral agreement based on a
presumption that entry will promote competition. The application
will be subject to other public interest requirements and must
comply with FCC technical and service rules.

Once operational, a non-U.S. licensed satellite
system serving the U.S. will be subject to the same ongoing
requirements that apply to U.S.-licensed satellites. For
instance, the FCC rules prohibit an international satellite
provider from entering into exclusionary arrangements with other
countries for satellite capacity for a particular service. The
DISCO II process provides that in order for non-U.S. satellite
operators to bring before the FCC their requests to serve the
U.S. they may



| |   |                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | participate in a U.S. space station processing
    round, or                                                                                                                                                                                  
|
| |  | have a U.S. earth station operator apply for
    authority to communicate with the non-U.S. satellite or                                                                                                                                      
|
| |  | apply to be listed on the Permitted Space
    Station List of non-U.S. licensed satellites that any
    U.S.-authorized earth station with an ALSAT
    designation may communicate with, subject to any condition the
    FCC may impose.

The FCC does not require space stations licensed
by another country or administration to obtain separate and
duplicative U.S. space station licenses, but the FCC does
require compliance with the same technical requirements it
imposes on U.S. satellites.

The FCC also places certain restrictions on the
ownership by non-U.S. citizens and corporations of FCC licenses.
The Communications Act of 1934, as amended (the
Communications Act), provides that certain

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radio licenses, including earth station licenses,
cannot be granted to or held by any foreign government or the
representative thereof. In addition, under Section 310(b)
of the Communications Act, a non-U.S. citizen or a corporation
organized under the laws of any foreign government may not hold
or vote more than 20% of the equity of a common carrier,
broadcast or aeronautical licensee directly. However, under
Section 310(b)(4), the FCC does permit non-U.S. citizens or
foreign corporations to own or vote 25% of the equity of a U.S.
corporation which, in turn, owns all or part of the equity of a
common carrier, broadcast or aeronautical licensee (i.e., a
holding company) unless such ownership would be contrary to the
public interest. The FCC has the discretion to permit such
persons and corporations to exceed the 25% benchmark applicable
to such indirect ownership interests.


The FCC had applied an ECO test as part of its
public interest analysis for allowing non-U.S. citizens or
foreign corporations to exceed the 25% benchmark under
Section 310(b)(4) for indirect interest in common carrier,
broadcast and aeronautical radio licensees. Recently the FCC
eliminated the ECO test for common carrier, broadcast and
aeronautical licensees or applications with indirect foreign
ownership from WTO member countries. Instead, the FCC adopted a
rebuttable presumption that applications by investors from WTO
member countries to exceed the 25% foreign ownership benchmark
under Section 310(b)(4) will promote competition. The FCC
will, however, consider other public interest factors such as
national security, law enforcement, foreign policy and trade
concerns, if raised by the Executive Branch of the U.S.
government. Licensees must seek FCC approval before they accept
indirect foreign ownership that would put them over the 25%
benchmark. The FCC may deny applications that pose a very high
risk to competition that cannot be addressed by conditions that
it may impose on the license. Petitions to reconsider certain
aspects of the FCC order adopting the regime described above
have been filed with the FCC.

On December 14, 1999, we requested that the
FCC include our satellites in the United States Permitted Space
Station List. This request was approved by the FCC on
October 30, 2000, and our satellites, Solidaridad 2
and Satmex 5, are now on the list. We are currently in the
process of requesting the necessary license for the Satmex 6
satellite, which we expect to be completed by the end of this
year.



| |                                                      
| | -----------------------------------------------------
| | Role of the International Telecommunication
    Union

Registration of orbital slots and international
frequency coordination is accomplished under the aegis of the
ITU, an international body in which most of the nations of the
world are represented as member states. Representation at the
ITU for coordination purposes is limited to national
governmental agencies; private companies are not entitled to
participate in their own right in coordination activities.

All ITU filings are made through ITU member
states. Therefore, companies must work within the constraints
set by the administration representing their interests and
factors such as national interests and foreign relations
concerns often affect positions that an administration is
willing to take on behalf of commercial entities.

Nations are required by treaty to give notice of
their proposed use of satellite orbital slots and frequencies
with the Radiocommunication Bureau (Bureau) of the
ITU. After notification by the Bureau of the orbital slot
request, other nations are afforded the opportunity to apprise
the Bureau of any conflicts with their present or planned
satellite systems. When a conflict or potential conflict is
noted, nations are obligated to negotiate in an effort to
coordinate the proposed uses and resolve any interference
concerns. The ITU, however, has no power to resolve disputes
formally.

The process is ultimately subject to enforcement
by national regulatory authorities acting pursuant to
international treaty obligations. The ITU has limited power to
enforce or police its rules; it relies on the goodwill and
cooperation of the individual members.

ITU rules grant coordination priority with
respect to most frequency assignments at most orbital locations
on a first to file, first in right basis, even
though a filing entails no enforceable commitment to manufacture
or launch a satellite within any particular period of time. When
coordination consultations have been successfully completed, the
Bureau is notified of that fact by the sponsoring
administration. Subsequently, the satellite registrations are
listed in the Bureaus Master International Frequency
Register (MIFR), which

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contains, for instance, the assigned frequency,
the date of its registration, and technical details. Once this
information is registered, the assignment is entitled to
international recognition and protection against harmful
interference for the life of the satellite while it is in
operation.


The SCT and other Mexican governmental agencies
are responsible for filing and coordinating requests by Mexican
companies to coordinate orbital slots and frequency assignments
with the Bureau and for resolving interference concerns. Use of
the orbital slots remains subject to the continuing oversight of
the SCT and to a variety of regulations generally applicable to
all satellite and radio licensees, including the international
radio regulations.



| |                         
| | ------------------------
| | Status of Our Satellites

The Mexican government notified the ITU on
October 4, 1994 that coordination for Solidaridad 1 had
been completed and notified the ITU on April 25, 1995 that
coordination for Solidaridad 2 had been completed. On October
19th, 2000, ITU added to Space Master Register Solidaridad 1 and
Solidaridad 2 frequencies.

The Satmex 5 request for coordination was
published by the ITU on June 24, 1997. We have favorably
concluded coordination discussions with the government of Canada
regarding Satmex 5 and are able to provide service in Canada. On
April 21st, 2004, ITU accepted Satmex 5 satellite in
Notification Process, a previous status to be added into Space
Master Register.

In May of 2000, the governments of Mexico and
Canada signed a coordination agreement specifying the
operational parameters for Mexican and Canadian satellites in
the C- and Ku- radio frequency bands in the geostationary orbit
between the 107.3 degrees W.L. and 118.7 degrees W.L. orbital
positions. The purpose of the coordination agreement was to
establish a reference standard for acceptable adjacent satellite
radio frequency spectrum interference and to ensure the
efficient operation of satellite networks licensed by Mexico and
Canada. As a result, satellites licensed by either nation are
able to serve both their domestic markets and at the same time
provide competitive services to the markets of Mexico, the
United States and South and Central America on a
non-interference basis.

On September of 2003, we and the Government of
Mexico favorably concluded coordination discussions with the
government of Canada relating to the contemplated radio
frequency characteristics of Satmex 6. Arrangements, which are
subject to notification by the ITU, include an exchange of
orbital positions. As part of these coordination discussions,
the governments of Mexico and Canada also agreed to a new
coordination agreement to reduce potential instances of
satellite signal interference and ensure that existing and
future satellite networks licensed by either nation have
sufficient room to expand their respective services to the
markets of Mexico, the United States and South and Central
America. On the same month, September 2003, technical
operational parameters of the new agreement were updated on ITU
request for coordination file. ITU has not published it yet.
Coordination process with other Administrations is still in
progress.









|        |                                                 
|------- | ------------------------------------------------
|Item 5. | Operating and Financial Review and
    Prospects

Except for the historical information
contained herein, the matters discussed in the following
Operating and Financial Review and Prospects of the Company are
not historical facts, but are forward-looking
statements, as that term is defined in the Private
Securities Litigation Reform Act of 1995. In addition, we or our
representatives have made and may continue to make
forward-looking statements, orally or in writing, in other
contexts, such as in reports filed with the SEC, press releases
or statements made with the approval of an authorized executive
officer of ours. These forward-looking statements can be
identified by the use of forward-looking terminology such as
believes, expects, plans,
may, will, would,
could, should, anticipates,
estimates, project, intend,
or outlook or the negative of these words or other
variations of these words or other comparable words, or by
discussion of strategy that involves risks and uncertainties.
These forward-looking statements are only predictions, and
actual events or results may differ materially as a result of a
wide variety of factors and conditions, many of which are beyond
our control. Some of these factors and conditions include:
partial or total failure of our in-orbit satellites; our
reliance on certain customers; the concentration of our
operations in Mexico; competition in our industry; and our high
level of indebtedness and

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weak financial position. In addition, we
operate in an industry sector where securities values may be
volatile and may be influenced by economic and other factors
beyond our control. We undertake no obligation to update any
forward-looking statement.


Overview

We hold concessions from the government of Mexico
to operate satellites in three orbital positions. We own and
operate two geostationary communications satellites, Solidaridad
2 and Satmex 5, in two of those positions. We plan to launch a
third satellite, Satmex 6, not before late 2004. We operate in
the fixed satellite services segment and are the leading
provider of such services in Mexico and are expanding our
services to become a leading provider of such services
throughout the Americas. We are also marketing the use of
satellite transmission capacity for new broadband applications,
such as connectivity to the Internet backbone via satellite. We
have landing rights to provide broadcasting and
telecommunications transmission capacity in Mexico, the United
States, Canada and 40 other nations and territories in the Latin
American region.

On November 17, 1997, Loral and Principia
acquired 75% of our issued and outstanding stock from the
government of Mexico for an amount in pesos equivalent to
approximately $647 million through Firmamento. The
remaining 25% of our common stock was retained by the Mexican
government. Loral currently owns 65% of Firmamento and Principia
currently owns 35%. Loral currently holds 49% and Principia
currently holds 51% of Firmamentos voting interests.

On March 30, 1999, we issued 606,730 shares
of preferred stock to Loral and Principia for a total purchase
price of approximately $31.9 million. The preferred stock
has limited voting rights and pays a cumulative dividend in our
common stock. The preferred stock can be exchanged at our option
into our common stock, at a ratio of one share of preferred
stock for 2.0008 shares of common stock if the exchange occurs
before February 2, 2005, and at a ratio of one share of
preferred stock for 4.0016 shares of common stock on and after
February 2, 2005. As of December 31, 2003, Servicios
Corporativos Satelitales, S.A. de C.V., a wholly owned
subsidiary of Firmamento, holds 70.71% of our outstanding
capital stock, Loral holds 4.46%, Principia holds 1.26% and the
Mexican government holds 23.57%.

Financial Restructuring

On June 30, 2004, our outstanding Floating
Rate Notes came due and we did not make the required principal
payment of $203.4 million. Also, we did not make the
August 1, 2003 and February 1, 2004, interest payments
on our Fixed Rate Notes. The amount of each interest payment due
was $16.2 million for a total of $32.4 million. We did
not make the interest payments due to cash shortfalls from our
operating activities. Certain other covenant defaults have
occurred under both indentures.

In addition, our parent company, Servicios,
defaulted on its debt obligation to the Mexican government on
September 30, 2003, as a result of its failure to maintain
a minimum coverage ratio. If Servicios were to default in the
payment of the Menoscabo, the Mexican government has the right
to initiate foreclosure proceedings, which would lead to the
transfer of the holdings of Loral and Principia in Firmamento to
a third party purchaser. The Mexican government may participate
as an interested purchaser of those holdings and, if awarded the
sale, it would gain direct control of Firmamento and indirect
control of us. If the Mexican government gains control of us, we
cannot make any assurances that it would assume any of our debt,
including the existing notes. Also, in that scenario, we would
be controlled and managed by the Mexican government.

We have been actively exploring with financial
advisors the restructuring of these debt obligations. This
restructuring may be part of a court supervised restructuring
that would be commenced by us.

We have been negotiating with an ad hoc committee
of the holders of the Fixed Rate Notes regarding a possible
restructuring of the Fixed Rate Notes, but have not, as of the
date of this annual report, reached any agreement with the ad
hoc committee or any other holder of Fixed Rate Notes regarding
the restructuring of the Fixed Rate Notes. As of May 4,
2004, the ad hoc committee informed us that certain members held
more than 51% of the outstanding principal amount of the Fixed
Rate Notes.

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We are also negotiating to restructure the
Floating Rate Notes with an ad hoc committee of holders of the
Floating Rate Notes. As of the date of this annual report, we
have not reached any agreement with the ad hoc committee or any
other holder of Floating Rate Notes regarding the restructuring
of the Floating Rate Notes. As of April 28, 2004, the ad
hoc committee informed us that certain members held more than
62% of the outstanding principal amount of the Floating Rate
Notes.

As part of our restructuring, we are working with
our advisors to arrange financing for the remaining amounts
necessary to launch Satmex 6. In order to arrange this
financing, we may commence a court supervised restructuring. The
launch of Satmex 6 is critical to our ability to increase cash
flows and improve our financial position.

If we are not successful in efforts to negotiate
the terms of a consensual restructuring of the Fixed Rate Notes
and the Floating Rate Notes, we may commence a voluntary
bankruptcy case in the U.S. under Chapter 11 of the U.S.
Bankruptcy Code or, alternatively, a voluntary Concurso
Mercantil in Mexico.

Recent Trends in the Satellite
Industry

Early in 2001, the telecommunications sector
began to suffer a sharp downturn. Supply increased as a result
of a build-out of fiber optics capacity around the world. At the
same time, demand was reduced via compression technology that
allows more efficient utilization of telecommunications
capacity. Also in 2001, the Internet sector, one of the primary
growth drivers for satellite services, also suffered a downturn
from which it has not yet recovered. The worldwide business
climate began to slow down and Latin America, because of its
more volatile economies, has suffered to a greater extent.

This industry downturn affected both satellite
operators and their customer base. As of 1999, voice customers
began to switch to fiber optic cable, where available. Using new
technology, some existing customers have been able to compress
data to a greater extent, requiring less satellite capacity to
send their signals. With the decline of the Internet sector,
many businesses that were users of satellite capacity failed and
the pick-up of broadband/data services has been slower than
expected. In summary, many anticipated projects have been
postponed, some customers have been forced to cancel their
satellite service contracts, and the development of new business
has been slower than expected. From December 2002 to December
2003, our backlog decreased by $73 million, from
$325 million to $252 million.

At the same time, satellites themselves have been
increasing in size, capacity, power levels and the surface of
the earth to which their signals can reach. The use of
compressed data has increased capacity of satellites to offer
more data. The result has been lower utilization rates across
the fixed satellite services industry.

During this period, in part because Latin America
is recognized as a market with long-term growth potential,
competition has increased in our market. On August 10,
2001, the Mexican government granted licenses to provide
satellite service in Mexico to Mexican affiliates of PanAmSat
and SES Global, as well as Televisa and Enlaces Integra (an
affiliate of Satmex). PanAmSat registered 11 satellites and
SES Global registered seven satellites to provide satellite
service in Mexico. Given the lower marginal cost to provide
satellite service once a satellite is in place, prices of fixed
satellite services have fallen over the last two years.

Due, however, to lower pricing as well as early
economic recovery, we are beginning to see new demand for fixed
satellite services. Technological advances, such as high
definition television, are stimulating demand for satellite
service because this high definition television requires more
bandwidth than regular television. In addition, the requirement
that subscription television (cable and satellite direct to
home) offer local channels (local-into-local) will entail
significantly greater demand for satellite services. Rising
demand for national and foreign channels has also begun to
stimulate demand for satellite capacity.

Satellite Operations

In August 2000, our Solidaridad 1 satellite
ceased operating and was considered irretrievably lost. The loss
was caused by the failure of the back-up control processor on
board the satellite. Solidaridad 1, which was built by
Hughes Space and Communications and commenced service in January
1994, experienced a failure of

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its primary control processor in April 1999, and
the satellite had been operating on its back-up processor since
that time. Solidaridad 1 was insured for $250 million. At
the date of the loss, Solidaridad 1 had a net book value of
approximately $109.6 million. After deducting prepaid
insurance of $1.6 million, the unpaid insurance premiums of
$12.5 million and on-going monitoring costs and the excess
of the estimated cost over revenue for the currently committed
transponder capacity to be provided to customers of
$23.2 million, the net gain on the in-orbit failure of
Solidaridad 1 was approximately $103.1 million. In January
2001, we received insurance proceeds of approximately
$235.3 million, net of the unpaid insurance premiums and
related value added tax. We used the net insurance proceeds
towards the manufacture, launch and insurance of a replacement
satellite and have contracted with SS/L to build the replacement
satellite, known as Satmex 6. We also used a portion of the
net insurance proceeds for debt service. Satmex 6 is currently
scheduled to be launched in late 2004, and is designed to
provide broader coverage and higher power levels than any other
satellite currently in our fleet. In 2001, we reduced the
liability for the cost over revenue for the committed
transponder capacity to be provided to customers by
$7.3 million. In 2002, we received $3.3 million from
the satellite manufacturer under the Solidaridad 1 performance
guarantee and we reduced the liability for the cost over revenue
for the committed transponder capacity to be provided to
customers by $5.1 million. In 2003, we canceled reserve for
monitoring for $3.3 million. These transactions were
recorded as additional gain on the in-orbit failure of
Solidaridad 1 in the applicable periods.


At December 31, 2003, our Solidaridad 2
and Satmex 5 satellites had remaining estimated useful
lives of 5.4 and 10 years, respectively. Solidaridad 2
was manufactured by Boeing Space Systems (formerly Hughes Space
and Communications), and is similar in design to
Solidaridad 1 and to other satellites built by the same
manufacturer that have experienced in-orbit component failures,
including failures of on-board satellite control processors,
even though Solidaridad 2 has not experienced any such failures.

Satmex 5 was launched in 1998 with a primary and
a secondary XIPS, each designed to perform station-keeping
activities that maintain the satellites position in orbit
during its design life. To provide further back-up,
Satmex 5 has an independent chemical propulsion system that
provides station-keeping operations to maintain its position in
orbit. Should both the primary and secondary XIPS fail, we
currently estimate that the back-up chemical propulsion system
of Satmex 5 would provide up to 3.9 years of
station-keeping capability to maintain its position in orbit.

During standard station-keeping procedures to
maintain the satellites position in orbit on
November 17, 2003, the secondary XIPS, which was then the
system in operation, failed to operate satisfactorily. The
primary XIPS was started on December 1, 2003 as an
alternate to the secondary XIPS, and it initially failed to
operate satisfactorily. Our engineers and the manufacturer,
Boeing Satellite Systems, working together, returned the primary
XIPS to an acceptable level of operation.

In connection with the events surrounding
Satmex 5s XIPS, we sent our insurers notices of
occurrence on November 24, 2003, December 3, 2003 and
December 10, 2003. These notices are conditions to the
filing of any formal proof of loss under the terms of the
expired Satmex 5 insurance policy. On June 7, 2004, the
180 day claim period to file a proof of loss expired and,
based on a review of technical and operational considerations
regarding Satmex 5 and the terms of in-orbit insurance
coverage for the satellite, we concluded that the conditions
necessary to establish a partial claim did not exist.

In February 2004, Satmex and the satellite
manufacturer agreed on returning to use the secondary XIPS as
the operating propulsion system and it is performing outside of
its operating margins. The primary XIPS remains available as a
back-up system. We cannot assure you that the secondary XIPS
will continue to perform its station-keeping operations or if
the primary XIPS will work as a back-up. If both of these
systems were to fail, we would lose operation of Satmex 5 within
3.9 years and our business would be materially and
adversely harmed.

At December 31, 2003, our Solidaridad 2
was operating normally and had a remaining estimated useful life
of 5.4 years.

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| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | Results of Operations for the Year Ended
    December 31, 2003 Compared to December  31,
    2002



| |        
| | -------
| | Revenue

Service revenue for 2003 was $78.8 million,
as compared to $85.0 million for 2002. The decrease is due
to lower utilization of Solidaridad 2 and Satmex 5 caused by net
contract cancellations of $2.7 million and net non-renewals
of $3.5 million.



| |                   
| | ------------------
| | Operating Expenses

Operating expenses decreased to
$86.4 million in 2003, from $86.5 million in 2002, as
described below.

Satellite
operations.Satellite operations
costs, which consist primarily of satellite insurance and the
personnel costs related to the operation of the satellites, were
$13.1 million for 2003, as compared to $17.1 million
in 2002. The decrease is primarily due to a lower cost for
replacement capacity on other satellites for customers
previously on Solidaridad 1, representing $3.4 million.

Selling and administrative
expenses.Selling and administrative
expenses, which consist primarily of salaries, operating
expenses, professional fees, which includes certain legal fees,
auditing, and business relationships, and bad debt provision,
were $23.8 million in 2003 as compared to
$20.8 million in 2002. The increase is primarily due to an
increase of $1.9 million of various professional fees and
an increase of $1.1 million of provision for uncollectible
accounts receivable.

License and management
fees.Loral and Principia are
responsible for the management of our operations. Loral and
Principia receive a management fee, based on a sliding scale, up
to a maximum of 3.75% of our quarterly gross revenue, as
defined. For the year ended December 31, 2003 and 2002, no
management fees were earned. Loral has licensed certain
intellectual property to us for an annual fee of 1.5% of our
gross revenue. For 2003 and 2002, the fee was $1.1 million
and $1.2 million, respectively, of which $15,000 and
$65,000, respectively, was offset against accrued expenses. The
license fee decreased in 2003 due to our lower revenue.

Depreciation and
amortization.Depreciation expense was
$35.5 million in 2003 and $34.5 million in 2002.
Amortization expense relating to the concessions was
$12.9 million in each year.



| |               
| | --------------
| | Operating Loss

Operating loss was $7.6 million in 2003 and
$1.4 million in 2002. Satellite transmission has no
variable cost associated with the service. Thus any reduction in
revenue is translated into an increase in operating loss. In
2003, our satellite operating expenses were not directly
affected by the reduction in revenue. Our revenue decreased by
$6.2 million and this reduction is directly responsible for
the $6.2 million increase in our operating loss.



| |                
| | ---------------
| | Interest Income

Interest income for 2003 was $0.3 million as
compared to $2.0 million for 2002. The decrease is
primarily due to our usage of all the restricted and segregated
cash available for investment.



| |              
| | -------------
| | Interest Cost

Total interest cost, including $18.6 million
of capitalized interest related to the construction of
Satmex 6 and $9.5 million of legal and advisory fees
related to the restructuring, was $58.3 million in 2003
compared to $52.0 million, including $14.2 million of
capitalized interest related to the construction of
Satmex 6, for 2002. Net of the legal and advisory fees
related to the restructuring, our interest cost decreased in
2003 as a result of reduced debt outstanding and lower
prevailing interest rates. The average balance outstanding on
our Floating Rate Notes was $204.0 million in 2003 compared
to $222.7 million in 2002 while the balance on our Fixed
Rate Notes was $320 million in both years. The weighted
average interest rate applied to our Floating Rate Notes was
5.7% in 2003 compared to 6.3% in 2002.

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| |                          
| | -------------------------
| | Net Foreign Exchange Gain

We recorded a net foreign exchange gain of
$264,000 in 2003 as compared to a foreign exchange gain of
$93,000 in 2002. Foreign exchange gains and losses are
calculated based on outstanding balances of Mexican Peso
denominated assets and liabilities relative to the prevailing
US dollar/ Mexican Peso exchange rate. We do not engage in
currency hedging operations.



| |                                    
| | -----------------------------------
| | Deferred Income Tax Expense/Benefit

On January 1, 2002, the Mexican government
enacted a new income tax law that reduces the 35% statutory
income tax rate by 1% per year beginning January 1,
2003 through January 1, 2005. We recorded a deferred income
tax benefit of $1.8 million in the first quarter of 2002
for the effect of this change on deferred tax assets and
liabilities.

For the year ended December 31, 2003, we
recorded a deferred income tax expense of $35.8 million on
a loss before income taxes of $43.4 million, while for 2002
we recorded a benefit of $8.8 million on a loss of
$28.8 million, yielding an effective rate of 30.7%. The
change from 2002 to 2003 relates primarily to an additional
provision recorded in 2003 to increase the valuation allowance,
and the tax effect of inflation and currency remeasurement.

Net operating losses may be carried forward for
10 years and any asset tax paid is available as a credit
against the income tax liability for a ten-year period. At
December 31, 2003 we had tax loss carryforwards of
approximately $332 million, which expire from 2008 to 2013.
During 2003 we used tax credits available against the asset tax.
These credits expired as of December 31st 2003.
Without these credits, we would have incurred an asset tax
liability of approximately $691,000 in 2003.



| |                                     
| | ------------------------------------
| | Preferred Stock Dividend Requirement

Our preferred stock pays dividends in our common
stock. Our preferred stock dividend of $1.5 million in 2003
and 2002 is based on the value assigned to the
606,730 shares of preferred stock issued in March 1999.



| |                                               
| | ----------------------------------------------
| | Net Loss Applicable to Common
    Stockholders

The net loss applicable to common stockholders
loss was $80.7 million in 2003 and $21.4 million in
2002. The greater loss was primarily due to deferred tax
expense, higher net interest expense, and a decrease in revenues.



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Results of Operations for the Year Ended
    December 31, 2002 Compared to December 31,
    2001



| |        
| | -------
| | Revenue

Service revenue for 2002 was $85.0 million,
as compared to $128.0 million for 2001. The decrease is due
to lower utilization of Solidaridad 2 and Satmex 5
caused by contract cancellations of $13.7 million and
non-renewals of $29.3 million. As previously disclosed, the
transponder lease for our then-largest customer, Innova, ended
on March 31, 2002. Innova represented approximately
$1.5 million and $25 million of revenue for years
ended December 31, 2002 and 2001, respectively.



| |                   
| | ------------------
| | Operating Expenses

Operating expenses decreased to
$86.5 million in 2002, from $92.9 million in 2001, as
described below.

Satellite
operations.Satellite operations costs
were $17.1 million for 2002, as compared to
$19.8 million in 2001. The decrease is primarily due to a
lower cost for replacement capacity on other satellites for
customers previously on Solidaridad 1, representing
$2.4 million.

Selling and administrative
expenses.Selling and administrative
expenses in 2002 were $20.8 million as compared to
$22.6 million in 2001. The decrease is primarily due to
personnel reductions, which reduced expenses by
$1.4 million.

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License and management
fees.Loral and Principia are
responsible for the management of our operations. Loral and
Principia receive a management fee, based on a sliding scale, up
to a maximum of 3.75% of our quarterly gross revenue. For the
year ended December 31, 2002, no management fee was earned.
For the year ended December 31, 2001, the management fee
was $2.3 million, of which $767,000 was offset against
accrued expenses. Loral has licensed certain intellectual
property to us for an annual fee of 1.5% of our gross revenue.
For 2002 and 2001, the fee was $1.2 million and
$1.8 million, respectively, of which $65,000 and $106,000,
respectively, was offset against accrued expenses. The license
fee decreased due to our lower revenue.

Depreciation and
amortization.Depreciation expense was
$34.5 million in 2002 and $34.4 million in 2001.
Amortization expense relating to the concessions was
$12.9 million in each year.



| |                        
| | -----------------------
| | Operating (loss) income

Operating loss was $1.4 million in 2002
compared to operating income of $35.1 million in 2001.
Satellite transmission has no variable cost associated with the
service. Thus any reduction in revenue is translated into a
reduction in operating profit or an increase in operating loss.
In 2002, our revenue decreased by $43 million, offset by a
reduction of only $6.4 million in operating expenses. The
decline in operating income was a result of lower revenue not
entirely offset by a reduction of operating expenses.



| |                
| | ---------------
| | Interest Income

Interest income for 2002 was $2.0 million as
compared to $9.3 million for 2001. The decrease is
primarily due to lower levels of restricted and segregated cash
available for investment, representing $7.1 million, as
well as lower interest rates.



| |              
| | -------------
| | Interest Cost

Total interest cost, including $14.2 million
of capitalized interest related to the construction of
Satmex 6, was $52.0 million in 2002 as compared to
$59.4 million, including $3.5 million of capitalized
interest related to the construction of Satmex 6, for 2001.
Our interest cost decreased in 2002 as a result of reduced debt
and lower prevailing interest rates. The average balance
outstanding on our Floating Rate Notes was $222.7 million
in 2002 compared to $236.6 million in 2001 and the balance
on our Fixed Rate Notes was $320 million in both years. The
weighted average interest rate applied to our Floating Rate
Notes was 6.3% in 2002 compared to 8.9% in 2001.



| |                          
| | -------------------------
| | Net Foreign Exchange Gain

We recorded a net foreign exchange gain of
$93,000 in 2002 as compared to a foreign exchange gain of
$28,000 in 2001. Foreign exchange gains and losses are
calculated based on outstanding balances of Mexican Peso
denominated assets and liabilities relative to the prevailing US
dollar/ Mexican Peso exchange rate. We do not engage in currency
hedging operations.



| |                            
| | ---------------------------
| | Deferred Income Tax Benefit

On January 1, 2002, the Mexican government
enacted a new income tax law that reduces the 35% statutory
income tax rate by 1% per year beginning January 1,
2003 through January 1, 2005. We recorded a deferred income
tax benefit of $1.8 million in the first quarter of 2002
for the effect of this change on deferred tax assets and
liabilities.

For the year ended December 31, 2002, we
recorded a deferred income tax benefit of $8.8 million on a
loss before income taxes of $28.8 million, yielding an
effective rate of 30.7%, while for 2001 we recorded a benefit of
$1.1 million on a loss of $4.3 million, yielding an
effective rate of 27%. The change from 2001 to 2002 relates
primarily to the increased benefits recorded in 2002 for the
Mexican income tax effect of inflation and currency
remeasurement, the reduction to the statutory income tax rate,
and the additional provision recorded in 2002 to increase the
valuation allowance.

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Net operating losses may be carried forward for
10 years and any asset tax paid is available as a credit
against the income tax liability for a ten-year period. At
December 31, 2002 we had tax loss carryforwards of
approximately $278 million, which expire from 2008 to 2012,
and tax credits available against the asset tax of approximately
$38 million, which expire in 2003. Without these credits,
we would have incurred an asset tax liability of approximately
$3.1 million in 2002.



| |                                     
| | ------------------------------------
| | Preferred Stock Dividend Requirement

Our preferred stock pays dividends in our common
stock. Our preferred stock dividend requirement of
$1.5 million in 2002 and 2001 is based on the value
assigned to the 606,730 shares of preferred stock issued in
March 1999.



| |                                               
| | ----------------------------------------------
| | Net Loss Applicable to Common
    Stockholders

The net loss applicable to common stockholders
loss was $21.4 million in 2002 and $4.6 million in
2001. The greater loss was primarily due to the reduction in
operating income from 2001 offset by lower net interest expense
and a greater deferred tax benefit.

Inflation and Foreign Exchange
Fluctuations

During 2003, 2002 and 2001, the annual rates of
inflation in Mexico, as measured by changes in the National
Consumer Price Index (Índice Nacional de Precios al
Consumidor) as provided by the Banco de México,
were 3.9%, 5.7% and 4.4%, respectively. Our major expenditures,
including capital expenses and satellite insurance, are not
affected by high levels of inflation, because they are
denominated in dollars. Our customer contracts are also
denominated in dollars. However, high inflation rates would
affect peso denominated expenses such as payroll and rent and
could result in an increase in uncollectible accounts receivable
and customer lease cancellations. To the extent that the
pesos devaluation against the U.S. dollar is less
than the inflation rate in Mexico, we will be adversely affected
by the effect of inflation in Mexico with respect to our peso
denominated expenses. We do not use foreign currency hedges.

Capital Expenditures

Substantially all of our capital expenditures are
denominated in U.S. dollars. Capital expenditures were
$37.9 million for 2003, as compared to $123.2 million
for 2002 and $95.7 million in 2001. Expenditures in 2003,
2002 and 2001 for the construction of Satmex 6 were
$36.3 million, $119.8 million and $91.9 million,
of which $6.6 million, $108.0 million and
$83.8 million were funded through the use of restricted and
segregated cash, respectively. We expect capital expenditures
for 2004 to be approximately $68.0 million for the
completion of Satmex 6. Following the launch of
Satmex 6, we expect a sharp drop in capital expenditures.

Liquidity and Capital Resources

At December 31, 2003, we had total debt of
$523.6 million.

On June 30, 2004, our outstanding Floating
Rate Notes came due and we did not make the required principal
payment of $203.4 million. Also, we did not make the
August 1, 2003 and February 1, 2004, interest payments
on our Fixed Rate Notes. The amount of each interest payment due
was $16.2 million for a total of $32.4 million. We did
not make the interest payments due to cash shortfalls from our
operating activities. Certain other covenant defaults have
occurred under both indentures. In addition, our parent company,
Servicios, defaulted on its debt obligation to the Mexican
government on September 30, 2003, as a result of its
failure to maintain a minimum coverage ratio. If Servicios were
to default in the payment of the Menoscabo, the Mexican
government has the right to initiate foreclosure proceedings,
which would lead to the transfer of the holdings of Loral and
Principia in Firmamento to a third party purchaser. The Mexican
government may participate as an interested purchaser of those
holdings and, if awarded the sale, it would gain direct control
of Firmamento and indirect control of us. If the Mexican
government gains control of us, we cannot make any assurances
that it would assume any of our debt, including the existing
notes. Also, in that scenario, we would become an entity of the
Mexican government and would be subject to the rules and
regulations applicable to

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state owned entities, which are generally more
restrictive. The occurrence of the events of default under the
Fixed Rate Notes gives the holders of those notes the right to
accelerate our principal repayment obligations on those notes.
As of the date of this annual report, we have not received
notice of the acceleration of principal repayment as provided
for in the indentures for the Fixed Rate Notes.


We have been actively exploring with our
financial advisors the restructuring our debt obligations. This
restructuring may be part of a court supervised restructuring
that would be commenced by us.

We have been negotiating with an ad hoc committee
of the holders of the Fixed Rate Notes regarding a possible
restructuring of the Fixed Rate Notes, but have not, as of the
date of this annual report, reached any agreement with the ad
hoc committee or any other holder of Fixed Rate Notes regarding
the restructuring of the Fixed Rate Notes. As of May 4,
2004, the ad hoc committee informed us that certain members held
more than 51% of the outstanding principal amount of the Fixed
Rate Notes.

We are also negotiating to restructure the
Floating Rate Notes with an ad hoc committee of holders of the
Floating Rate Notes. As of the date of this annual report, we
have not reached any agreement with the ad hoc committee or any
other holder of Floating Rate Notes regarding the restructuring
of the Floating Rate Notes. As of April 28, 2004, the ad
hoc committee informed us that certain members held more than
62% of the outstanding principal amount of the Floating Rate
Notes.

Our primary source of liquidity for working
capital purposes is cash flow from operations. As of
December 31, 2003, we had $11.2 million in available
cash and cash equivalents. Funds from the satellite and debt
escrow accounts had been fully used and, as of December 31,
2003, no remaining balances existed. We believe that available
cash will not be sufficient to fund the launch of the
Satmex 6 satellite in the next twelve months unless we
obtain new financing. Further, if we do not complete our
financial restructuring, we do not expect cash flows to be
sufficient to make the overdue interest and principal payments
on our Fixed Rate Notes and our Floating Rate Notes. We do not
expect our shareholders to contribute any more equity to us.

As part of our restructuring, we are working with
our financial advisors to arrange financing for the remaining
amount necessary to launch Satmex 6. In order to arrange
this financing, we may commence a court supervised
restructuring. The launch of Satmex 6 is critical to our
ability to increase cash flows and improve our financial
position.

If we are not successful in our efforts to
negotiate the terms of a consensual restructuring of the Fixed
Rate Notes and the Floating Rate Notes, we may commence a
voluntary bankruptcy case in the U.S. under Chapter 11
of the U.S. Bankruptcy Code or, alternatively, a voluntary
Concurso Mercantil in Mexico.



| |                       
| | ----------------------
| | Cash Used and Provided

Net cash provided by operating activities for the
year ended December 31, 2003 of $19.0 million
consisted primarily of $1.8 million of funds generated by
earnings before non-cash items, interest income on the
restricted and segregated cash and the use of restricted and
segregated cash for interest payments and decreases in prepaid
insurance of $1.4 million and amounts due from related
parties, net of $1.3 million; partially offset by an
increase in interest payable of $16.2 million, an increase
in accounts payable and accrued expenses of $1.8 million
and an increase in deferred financing costs and other assets of
$3.6 million.

Cash used in investing activities for 2003 was
$31.3 million. Capital expenditures for 2003 were
$37.9 million, which included $36.3 million for the
construction of Satmex 6, and of which $6.6 million
was funded through the use of the restricted and segregated cash
account. Substantially all capital expenditures are denominated
in U.S. dollars.

Cash used in financing activities for the year
ended December 31, 2003 was $0.1 million and reflects
the repayment of $0.1 million of our floating rate notes.

Our cash balance as of June 30, 2004, was
$20.2 million compared to $11.2 million on
December 31, 2003.

44



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Our treasury objectives include optimizing
available resources with efficiency, economy and transparency;
making all payments rapidly in a secure and controlled
environment; managing US Dollar and Mexican Peso balances
optimally; and using information tools to increase efficiency of
the area. Our treasury prepares a short term cash flow forecast
in order to manage cash efficiently. All payments require
authorization according to a predetermined matrix. We recognize
that discretion and responsibility are essential to realize
these objectives.



| |                                                             
| | ------------------------------------------------------------
| | Contractual Obligations and Other
    Commercial Commitments

The following tables aggregate our contractual
obligations and other commercial commitments as of
December 31, 2003 (in thousands).

|                                      |  |       |         |                        |  |             |         |             |  |         |       |  |  |   |       |  |  |   |        | 
|------------------------------------- |  | ----- | ------- | ---------------------- |  | ----------- | ------- | ----------- |  | ------- | ----- |  |  | - | ----- |  |  | - | ------ | 
|                                      |  |       |         |                       
|                                      |  |       |         | Payments Due by Period
|                                      |  |       |         |                       
|                                      |  |       |         | Less Than              |  |             |         | After      
|Contractual Obligations:              |  | Total |         | 1 Year                 |  | 1 - 3 Years |         | 4 - 5 Years |  | 5 Years
|                                      |  |       |         |                        |  |             |         |             |  |        
|Debt                                  |  | $     | 523,550 |                        |  | $           | 523,550 |             |  | $       |      |  |  | $ |      |  |  | $ |       | 
|Operating leases(1)                   |  |       | 1,610   |                        |  |             | 1,133   |             |  |         | 477   |  |  |   |      |  |  |   |       | 
|Unconditional purchase obligations(2) |  |       | 40,742  |                        |  |             | 8,800   |             |  |         | 250   |  |  |   | 500   |  |  |   | 31,192 | 
|Other long-term obligations(3)        |  |       | 5,194   |                        |  |             | 371     |             |  |         | 1,113 |  |  |   | 742   |  |  |   | 2,968  | 
|                                      |  |       |         |                        |  |             |         |             |  |         |       |  |  |   |       |  |  |   |        | 
|Total contractual cash obligations    |  | $     | 571,095 |                        |  | $           | 533,854 |             |  | $       | 1,840 |  |  | $ | 1,242 |  |  | $ | 34,160 | 
|                                      |  |       |         |                        |  |             |         |             |  |         |       |  |  |   |       |  |  |   |        | 

|                              |  |           |     |                                            |  |             |    |             |  |         |    |  |  |   |    |  |  |  |   | 
|----------------------------- |  | --------- | --- | ------------------------------------------ |  | ----------- | -- | ----------- |  | ------- | -- |  |  | - | -- |  |  |  | - | 
|                              |  |           |     |                                           
|                              |  |           |     | Amount of Commitment Expiration Per Period
|                              |  | Total     |     |                                           
|                              |  | Amounts   |     | Less Than                                  |  |             |    | After      
|Other Commercial Commitments: |  | Committed |     | 1 Year                                     |  | 1 - 3 Years |    | 4 - 5 Years |  | 5 Years
|                              |  |           |     |                                            |  |             |    |             |  |        
|Monitoring service            |  | $         | 57  |                                            |  | $           | 57 |             |  |         |   |  |  |   |   |  |  |  |  | 
|Copy machine                  |  | $         | 131 |                                            |  | $           | 28 |             |  | $       | 90 |  |  | $ | 13 |  |  |  |  | 



---



|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents future minimum payments under
    non-cancelable operating leases with initial or remaining terms
    of one year or more.
|   
|(2) | Represents the commitments for the construction
    and launch of Satmex 6.                                                          
|   
|(3) | Represents payments to the Mexican government
    under the Property Concession.                                                     



| |                       
| | ----------------------
| | Contingent Obligations

As of December 31, 2003, we had a contingent
obligation in the amount of $4.5 million representing three
surety bonds issued as a condition to maintain compliance with
the concessions. We have deposited with the surety bond issuer
$2.7 million as collateral to these surety bonds. The
collateral will be returned to us upon the completion of our
financial restructuring.



| |                     
| | --------------------
| | The Fixed Rate Notes

On February 2, 1998, we issued the Fixed
Rate Notes in an aggregate principal amount of
$320 million, all of which was outstanding on
December 31, 2003. The interest rate on the Fixed Rate
Notes is 10.125%. We are required to make interest payments on
the Fixed Rate Notes semi-annually in cash in arrears on each
February 1 and August 1 until maturity. The Fixed Rate
Notes mature on November 1, 2004 and are unsecured,
unsubordinated obligations, rank pari passu in right of
payment with all of our existing and future unsubordinated
obligations, and are senior in right of payment to all of our
future subordinated indebtedness.

The Fixed Rate Notes indenture contains certain
covenants that impose among others certain limitations and
restrictions on our ability to incur additional indebtedness,
pay dividends or make other distributions, make certain loans
and investments, apply the proceeds of asset sales (and use the
proceeds thereof), create liens, enter into certain transactions
with affiliates, merge, consolidate or transfer substantially
all of our assets and make investments in unrestricted
subsidiaries. The events of default under the Fixed Rate Notes
indenture includes various events of default customary for
similar issues of notes, including among others the

45



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failure to pay principal and interest when due,
cross acceleration and certain events of bankruptcy, insolvency
and reorganization.


We did not make the August 1, 2003 and
February 1, 2004, interest payments on our Fixed Rate
Notes. The amount of each interest payment due was
$16.2 million for a total of $32.4 million. We did not
make the interest payments due to cash shortfalls from our
operating activities. Certain other covenant defaults have
occurred under the Fixed Rate Note indenture. The occurrence of
the events of default under the Fixed Rate Notes gives the
holders of those notes the right to accelerate our principal
repayment obligations on those notes. As of the date of this
annual report, we have not received notice of the acceleration
of principal repayment as provided for in the indentures for the
Fixed Rate Notes.

Given these recent developments, we are actively
exploring with our financial advisors the restructuring our debt
obligations. This restructuring may be part of a court
supervised restructuring commenced by us.

We have been negotiating with an ad hoc committee
of the holders of the Fixed Rate Notes regarding a possible
restructuring of the Fixed Rate Notes, but have not, as of the
date of this annual report, reached any agreement with the ad
hoc committee or any other holder of Fixed Rate Notes regarding
the restructuring of the Fixed Rate Notes. As of May 4,
2004, the ad hoc committee held more than 51% of the outstanding
principal amount of the Fixed Rate Notes.

If we are not successful in our efforts to
negotiate the terms of a consensual restructuring of the Fixed
Rate Notes and the Floating Rate Notes we may commence a US
Chapter 11 case or a Mexican Concurso Mercantil.



| |                        
| | -----------------------
| | The Floating Rate Notes

On March 2, 1998, we issued our Floating
Rate Notes in the amount of $325 million. The Floating Rate
Notes rank senior in right of payment to all of our subordinated
debt and pari passuin right of payment to all of our
senior indebtedness, including the Fixed Rate Notes. They are
secured by a lien on substantially all of our assets and will be
effectively senior to our unsecured indebtedness to the extent
of the value of the collateral securing the Floating Rate Notes.
The Floating Rate Notes bear interest at rates based either on
LIBOR or the base rate specified in the Fixed Rate Notes
indenture, at our option, and are redeemable at our option. In
addition, the Floating Rate Notes are guaranteed by Firmamento
and Servicios.

In addition to containing similar covenants as
the Fixed Rate Notes, the Floating Rate Notes contain covenants
that require maintenance of certain quarterly financial and
operating ratio levels and impose limits on our spending for
capital expenditures.

We are required to make quarterly redemption
payments on the Floating Rate Notes of $250,000 or as adjusted
proportionately to the extent that any redemptions are made,
through March 31, 2004, plus additional prepayments from
excess cash flow, as defined in the Floating Rate Note
indenture, with the balance due on June 29, 2004.

On June 30, 2004, the Floating Rate Notes
came due and we did not make the required principal payment of
$203.4 million. Certain other covenant defaults have
occurred under the indentures governing the Floating Rate Notes.
We have continued to pay interest on the Floating Rate Notes.

Given these recent developments, we are actively
exploring with our financial advisors the restructuring our debt
obligations. This restructuring may be part of a court
supervised restructuring that would be commenced by us.

We are also negotiating to restructure the
Floating Rate Notes with an ad hoc committee of holders of the
Floating Rate Notes. As of the date of this annual report, we
have not reached any agreement with the ad hoc committee or any
other holder of Floating Rate Notes regarding the restructuring
of the Floating Rate Notes. As of April 28, 2004, the ad
hoc committee held more than 62% of the outstanding principal
amount of the Floating Rate Notes.

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If we are not successful in our efforts to
negotiate the terms of a consensual restructuring of the Fixed
Rate Notes and the Floating Rate Notes, we may commence a
US Chapter 11 case or a Mexican Concurso Mercantil.



| |                  
| | -----------------
| | Our Credit Rating

On September 5, 2003, Moodys Investors
Services lowered its ratings of the Companys senior
unsecured indebtedness from Ca to C, as
a result of the payment default on the Fixed Rate Notes.
Ca is the second lowest rating category out of 21
and describes obligations that Moodys believes are
speculative in a high degree and that are often in default or
have other marked shortcomings. C is the lowest
rating category and describes obligations that are typically in
default, with little prospect for recovery of principal or
interest.

On August 6, 2003, Standard &
Poors lowered our long term foreign issuer credit rating
from CCC+ to D, as a result of the
payment default on the Fixed Rate Notes. A CCC+
rating describes an obligation that Standard &
Poors believes is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on
the obligation. In the event of adverse business, financial, or
economic conditions, Standard & Poors believes
that a CCC rated obligor is not likely to have the
capacity to meet its financial commitment on the obligation. A
D rating is assigned when Standard &
Poors believes that the default will be a general default
and that the obligor will fail to pay all or substantially all
of its obligations as they come due. As a consequence of having
a D rating, for a period longer than six months,
Standard & Poors will no longer rate us.

As a result of our credit defaults and these
negative credit ratings and downgrades, we cannot rely on
sources of short-term financing, which could otherwise allow us
to finance our operations. The secondary trading prices of the
Floating Rate Notes and Fixed Rate Notes may be materially and
adversely affected by downgrading and potential loss of
Standard & Poors rating. Furthermore, the
negative publicity surrounding these recent downgrades has
generated concern among certain of our existing customers.

The defaults and the possibility of acceleration
of our debt and the lack of access to additional financing raise
substantial doubt about our ability to continue as a going
concern unless we are able to restructure our debt and finance
the launch of our new Satmex 6 satellite. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty. We have been addressing these
matters as described in the Financial Restructuring section of
Item 5.

Presentation of Financial
Information

Our financial statements are published in
U.S. dollars and prepared in conformity with
U.S. generally accepted accounting principles, which we
refer to as U.S. GAAP. We maintain our legal
books and records in Mexican pesos. Our functional currency is
the U.S. dollar. Monetary assets and liabilities
denominated in pesos are translated into U.S. dollars using
current exchange rates. The effect of changes in exchange rates
is recorded in the results of operations. Non-monetary assets
and liabilities originally denominated in pesos are translated
into U.S. dollars using the historical exchange rate at the
date of the transaction. Capital stock is translated at
historical exchange rates. Sums presented in this prospectus may
not add due to rounding.

Other Matters



| |                
| | ---------------
| | Insurance Costs

Under the Floating Rate Note indenture, as well
as under the Fixed Rate Note indenture, we have agreed that we
will maintain in-orbit insurance for Solidaridad 2 and
Satmex 5 in an amount equal to the replacement value of
such satellites plus $25 million in each case.

Upon launch of Satmex 5 in 1998, we
purchased a five-year policy providing for $250 million of
insurance for Satmex 5. This insurance policy expired on
December 5, 2003. We renewed our in-orbit insurance for the
Satmex 5 satellite for $100 million in coverage for a
one-year term. The new policy excludes coverage for the XIPS and
any related systems. Because XIPS on other satellites have also
experienced anomalies, this exclusion has become a typical
feature in insurance policies for satellites with this same
propulsion system.

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The insurance coverage on Satmex 5 provides that
if 75% or more of satellite capability is lost, then a
constructive total loss is deemed to have occurred, and the full
amount of insurance would become due and payable. In the event
of a constructive or total satellite loss, the insurance policy
provides for a payment to us of up to the insured amount, less
any unpaid premiums. Except as otherwise provided above, the new
policy is effective as of December 5, 2003 for a one-year
period and is based on prevailing market terms and conditions.
An uninsured loss of Satmex 5 would have a material adverse
effect on our financial condition and results of operations.


We currently have insurance for Solidaridad 2
under terms reflecting current market conditions. In November
2003 we renewed the in-orbit insurance for Solidaridad 2
for a one-year period on substantially similar terms to the
previous one-year policy. The total insurance coverage for
Solidaridad 2 is $50 million until November 2004. The
current policy for Solidaridad 2 does not insure against an
in-orbit failure due to the loss of the satellites
spacecraft control processors (SCP), the same
component that caused the loss of Solidaridad 1 and other Boeing
601 satellites. Currently, the primary SCP on Solidaridad 2 is
operating normally, and we expect that the secondary SCP would
allow for uninterrupted service from the satellite in the event
of a primary SCP failure. However, a failure of the primary and
secondary SCPs would result in a complete and uninsured loss of
Solidaridad 2. The insurance coverage on Solidaridad 2
provides that if 90% or more of satellite capability is lost,
then a constructive total loss is deemed to have occurred, and
the full amount of insurance would become due and payable. In
the event of a constructive or total satellite loss, the
insurance policy provides for a payment to us of up to the
insured amount, less any unpaid premiums.

Furthermore, the insurance policies on
Satmex 5 and Solidaridad 2 include customary
exclusions such as:



| |   |                                                            
| | - | -----------------------------------------------------------
| |  | military or similar actions;                               
|
| |  | anti-satellite devices;                                    
|
| |  | governmental actions;                                      
|
| |  | nuclear reaction or radiation contamination;               
|
| |  | willful or intentional acts of us or our
    contractors;  
|
| |  | loss of income, indirect and consequential
    damages; and
|
| |  | third-party claims against us.                             

We are in the process of obtaining launch
insurance for Satmex 6. Prior to launch, we intend to
insure Satmex 6 for an estimated $235 million against
failure during launch and/or its first year in orbit.
Documentation is currently being negotiated and we anticipate no
exclusions other than as customary.

The control centers are covered by insurance
policies against risk to the buildings and their contents,
including the antennae and equipment. To date, no significant
claim has been made against the insurance policies covering the
control centers or the insurance policies covering
Solidaridad 2 and Satmex 5.

We, like others in the satellite industry, are
faced with significantly higher premiums for launch and in-orbit
insurance and significantly shorter coverage periods than those
that have been available in the past, which is due in part to
the events of September 11, 2001, and in part to recent
losses in the satellite industry, including that of Solidaridad
1. This development in the insurance industry will increase our
cost of doing business. We intend to pass on such increased cost
to our customers. We cannot assure you, however, that we will be
able to do so. Insurance market conditions have historically
been cyclical in nature. While we anticipate that these
conditions will improve in the future, we cannot assure you that
they will.

Critical Accounting Policies

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual
results could differ from these estimates. Accounting policies
that are critical to understand in our financial statements and
that require significant judgment by management include the
estimated useful

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lives of our satellites, the valuation of
long-lived assets, the valuation allowance related to deferred
income tax assets, and the allowance for doubtful accounts.




| |                                   
| | ----------------------------------
| | The Useful Lives of
    Satellites

Satellites are stated at historical cost.
Depreciation expense is calculated using the straight-line
method over the estimated useful lives of the satellites.

The estimated useful lives of our satellites as
of December 31, 2003, were:

|              |  |  |             | 
|------------- |  |  | ----------- | 
|Solidaridad 2 |  |  | 14.5  years | 
|Satmex 5      |  |  | 15 years    | 

Solidaridad 2 and Satmex 5 are being depreciated
over their estimated useful lives commencing on their in-orbit
service dates of November 11, 1994 and January 22,
1999, respectively. The estimated useful lives of the satellites
were determined by engineering analyses performed at the
in-orbit service dates.

Costs incurred in connection with the
construction and successful deployment of our satellites and
related equipment are capitalized. Such costs include direct
contract costs, allocated indirect costs, launch costs, launch
insurance, construction period interest and the estimated value
of satellite incentive payments. Capitalized interest related to
the construction of Satmex 6 was $18.6 million,
$14.2 million and $3.5 million for the years ended
December 31, 2003, 2002 and 2001, respectively. All
capitalized satellite costs are amortized over the estimated
useful life of the related satellite. The estimated useful life
of the satellites was determined by engineering analyses
performed at the satellites in-service date. Satellite
lives are reevaluated periodically. Gains or losses from
unsuccessful launches and in-orbit failures of our satellites,
net of insurance proceeds, are recorded in the period a loss
occurs.



| |                                       
| | --------------------------------------
| | The Valuation of Long-Lived
    Assets

The carrying value of our long-lived assets is
reviewed for impairment whenever events or changes in
circumstances indicate that an asset may not be recoverable.
Assets are determined to be impaired when the estimated
undiscounted cash flows expected to result from the use of the
asset are less than the carrying value of the asset. We measure
impairment as the difference between the carrying value and the
fair value of the asset. We develop our analysis of undiscounted
cash from estimates and assumptions based upon the best evidence
available including, but not limited to, our current pricing
structure, internal operating budgets and the expected
utilization of our broadband capacity.



| |                                                
| | -----------------------------------------------
| | The Valuation of Deferred Income Tax
    Assets

We recognize deferred income tax assets and
liabilities for the future consequences of temporary differences
between the financial statement carrying amounts of assets and
liabilities and their respective income tax bases, measured
using enacted rates. The effects of changes in the statutory
rates are accounted for in the period that includes the
enactment date. Deferred income tax assets are also recognized
for the estimated future effects of tax loss carryforwards and
asset tax credit carryforwards. Deferred income tax assets are
reduced by a valuation allowance, based upon the weight of
available evidence, for any tax benefits where it is more likely
than not (a likelihood of more than 50%) the tax benefits will
not be realized. We base our analysis on projected taxable
income which is developed on a basis consistent with out
internal operating budgets and projections.



| |                                        
| | ---------------------------------------
| | The Allowance for Doubtful
    Accounts

We evaluate our allowance for doubtful
receivables on a regular basis. Such analysis involves a review
of the payment and credit history of specific accounts. Where we
determine an allowance is required, such allowance is created in
the period which we believe that collection of the account has
become doubtful. After an allowance is applied, the reversal of
such allowance only occurs in the period of payment or in the
period

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where a change in circumstance has occured which
provides strong evidence to support the collectability of the
receivable.


Accounting Pronouncements

On January 1, 2003, we adopted
SFAS No. 143, Accounting for Asset Retirement
Obligations,which addressed the financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs. The adoption of SFAS No. 143 on January 1,
2003 did not have a material effect on our financial position,
results of operations or cash flows.

In April 2002, the Financial Accounting Standards
Board (FASB) issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical
Corrections. SFAS No. 145 rescinds
SFAS No. 4, Reporting Gains and Losses from
Extinguishments of Debt, and an amendment of that
Statement, SFAS No. 64, Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements,whereby gains and losses from extinguishments of debt are no
longer classified as extraordinary items within the income
statement unless considered unusual and infrequent.
SFAS No. 145 also rescinds SFAS No. 44,
Accounting for Intangible Assets of Motor
Carriers. SFAS No. 145 amends
SFAS No. 13, Accounting for Leases,
to eliminate an inconsistency between the required accounting
for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are
similar to sale leaseback transactions. SFAS No. 145
also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe
their applicability under changed conditions. The provision of
SFAS No. 145 related to the rescission of
SFAS No. 4 was applied by us beginning January 1,
2003. The provisions of SFAS No. 145 related to
SFAS No. 13 were effective for transactions occurring
after May 15, 2002. The adoption of SFAS No. 145
did not have a material impact on our results of operations,
financial position or cash flows.

In June 2002, the Financial Accounting Standards
Board, or FASB, issued SFAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities
(SFAS 146). SFAS 146 requires companies to
recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an
exit or disposal plan. Examples of costs covered by this
standard include lease termination costs and certain employee
severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal
activity. Previous accounting guidance was provided by EITF
Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring). SFAS 146 replaces EITF Issue
No. 94-3. The adoption of SFAS 146 on January 1,
2003 did not have a material effect on Satmexs financial
position, results of operations or cash flows.

In November 2002, FASB issued FASB Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. This interpretation elaborates on
the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The disclosure requirements
of this interpretation are effective for interim and annual
periods after December 15, 2002. The initial recognition
and initial measurement requirements of this interpretation are
effective prospectively for guarantees issued or modified after
December 31, 2002. The interpretations expanded
disclosures had no impact on our financial position or result of
operations. The adoption of the recognition and initial
measurement requirements of this interpretation on
January 1, 2003 did not have a material effect on our
financial position, results of operations or cash flows.

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities(FIN 46).
FIN 46 clarified the application of Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity
investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46
was effective immediately for all variable interests held by us
in a variable interest entity created after January 31,
2003. For a variable interest

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held by us in a variable interest entity created
before February 1, 2003, we will be required to apply the
provisions of FIN 46 as of December 31, 2004. We do
not currently have any variable interests in a variable interest
entity.


In April 2003, the FASB issued
SFAS No. 149, Amendments of
Statement 133 on Derivative Instruments and Hedging
Activities, which amends and clarifies financial
accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts and
for hedging activities under SFAS No. 133
Accounting for Derivative Instruments and Hedging
Activities.

The changes in SFAS No. 149 improve
financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly.
SFAS No. 149 was effective for contracts entered into
or modified after June 30, 2003, except as stated below,
and for hedging relationships designated after or modified after
June 30, 2003. All provisions of this statement, except as
stated below, should be applied prospectively. The provisions of
SFAS No. 149 that relate to SFAS No. 133
implementation issues that have been effective for fiscal
quarters that began prior to June 15, 2003, continue to be
applied in accordance with their respective effective dates. The
adoption of SFAS No. 149 did not have any material
effect on our financial position, results of operations or cash
flows.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity. SFAS No. 150 establishes
standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities
and equity. SFAS No. 150 requires that certain
financial instruments be classified as liabilities that were
previously considered equity. The provisions of
SFAS No. 150 are effective for financial instruments
entered into or modified after May 31, 2003, and for
pre-existing instruments, were effective at the beginning of the
first interim period beginning after June 15, 2003. The
adoption of SFAS No. 150 did not have a material
effect on our financial position, results of operations or cash
flows.









|        |                                               
|------- | ----------------------------------------------
|Item 6. | Directors, Senior Management and
    Employees

Directors and Senior Management

|                         |  |                                      |  |     |    |                   |  |  |                     | 
|------------------------ |  | ------------------------------------ |  | --- | -- | ----------------- |  |  | ------------------- | 
|Name                     |  | Position                             |  | Age |    | Period of Service
|                         |  |                                      |  |     |    |                  
|Sergio Autrey Maza(1)    |  | Chairman of the Board and Director   |  |     | 52 |                   |  |  | Since November 1997 | 
|Bernard L. Schwartz(1)   |  | Director                             |  |     | 78 |                   |  |  | Since November 1997 | 
|Carlos Autrey Maza       |  | Director                             |  |     | 58 |                   |  |  | Since October 1999  | 
|Eric J. Zahler(1)        |  | Director                             |  |     | 53 |                   |  |  | Since November 1997 | 
|Lauro González Moreno(1) |  | Chief Executive Officer and Director |  |     | 42 |                   |  |  | Since November 1997 | 
|Cynthia Pelini           |  | Executive Vice President and Chief   |  |     | 49 |                   |  |  | Since April 1998    | 
|                         |  | Financial Officer                    |  |     |    |                   |  |  |                     | 
|Juan Manuel Pinedo       |  | Executive Vice President and Chief   |  |     | 39 |                   |  |  | Since April 1998    | 
|                         |  | Marketing Officer                    |  |     |    |                   |  |  |                     | 
|José Manuel Wiechers     |  | Executive Vice President of Value    |  |     | 39 |                   |  |  | Since March 1999    | 
|                         |  | Added Services                       |  |     |    |                   |  |  |                     | 



---



|    |                                   
|--- | ----------------------------------
|(1) | Member of the Executive Committee.

Management of our business is vested in the Board
of Directors. Our bylaws provide for the Board of Directors to
consist of an odd number of directors. Directors are elected by
a majority of the holders of the common shares, provided that
holders of N shares have the right to appoint a director and any
holder or group of holders of at least 25% of the total shares
of the Company is entitled to name one director. Directors and
alternate directors are elected or ratified at each annual
ordinary general meeting of shareholders and each serves until a
successor is elected and takes office.

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Loral and Principia have agreed that our Board of
Directors will consist of a majority of Directors appointed by
Principia and the rest by Loral and that for so long as
Principia designates the majority of the directors of the Board
of Directors, it shall nominate the chairman of the Board of
Directors and Loral shall have the right to nominate the
secretary of the Board of Directors.

Our bylaws provide that the members of the Board
of Directors are appointed for terms of one year and may be
reelected. Pursuant to Mexican law, members of the Board of
Directors continue in their positions after the expiration of
their terms if new members are not appointed. According to our
by-laws, common shareholders may appoint an odd number of
members of the Board of Directors, Series N shareholders
may appoint one director and holders of 25% or more of the
outstanding shares, may also appoint one director. We have no
contracts that provide for benefits to any director upon
termination of service.

Our Board of Directors is chaired by
Mr. Sergio Autrey Maza and currently consists of five
directors appointed by Principia and Loral. Sergio Autrey Maza
and Carlos Autrey Maza are brothers.

Our Chief Executive Officer (CEO) is
a minority shareholder of Principia and thus an indirect
participant in our equity. There is no other arrangement with
our employees or senior management regarding equity ownership or
options in us.

Mr. González is the CEO. The CEO
reports to the Board of Directors. His duties include day to day
management of the company, strategic planning and relationship
development. The CEO can be removed by the Board of Directors.

Sergio Autrey has been the Chairman of the Board
and a director of Satmex since November 1997 and is the Chairman
of the Board of Principia and Globalstar de México, a
satellite telephony service provider owned by Principia and
Loral. He is also a member of the board of Parábola, and
Grupo Editorial Notimusa, Mexican publishing companies; and Beta
San Miguel, a sugar production company.

Mr. Schwartz has been a director of Satmex
since November 1997. Mr. Schwartz is Chairman of the Board
and CEO of Loral.

Carlos Autrey has been a director of Satmex since
October 1999 and is a member of the board of Globalstar de
México and Principia.

Mr. Zahler has been a director of Satmex
since November 1997. Mr. Zahler is the President and Chief
Operating Officer of Loral.

Lauro González has been a director and the
CEO of Satmex since November 1997. Mr. González is
also the CEO of Enlaces Integra. Mr. González was an
engagement manager at McKinsey & Company in Mexico and
Brazil until 1990.

Cynthia Pelini has been the Chief Financial
Officer of Satmex since April 1998 and Executive Vice President
of Finance and Administration since December 2000. Prior to
that, she was Vice President of Investor Relations at Grupo
Iusacell, a Mexican cellular communications company, from 1996
to 1998. Ms. Pelini was Director of Banking Relations for
Grupo Televisa from 1995 to 1996, Director of Financial
Planning, Capital Markets and Investor Relations for Grupo Dina,
a Mexican transportation manufacturer, from 1992 to 1995, and
Corporate Treasurer of Corporación Industrial SanLuis from
1989 to 1992. From 1976 through 1989, she worked in
international banking assignments for both The Chase Manhattan
Bank and Bankers Trust Company.

Juan Manuel Pinedo has been the Executive Vice
President and Chief Marketing Officer of Satmex since December
2000. Mr. Pinedo joined Satmex in April 1998 and was the
Executive Director of Business Development until January 1999,
when he was named Executive Director of Sales and Marketing.
From 1992 to 1998, Mr. Pinedo was a senior consultant and
engagement manager for McKinsey & Company. From 1987 to
1992, Mr. Pinedo was an engagement manager for Andersen
Consulting.

José Manuel Wiechers has been the Executive
Vice President of Value Added Services since June 2000.
Mr. Wiechers joined Satmex in March 1999 and was the
Executive Director of Corporate Development and New Businesses
until May 2000. From 1992 to 1999, Mr. Wiechers was a
senior engagement manager for

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McKinsey & Company. From 1986 to 1991,
Mr. Wiechers was an engineer director for Calefacción
y Ventilación, S.A. de C.V.


Compensation

For the year ended December 31, 2003, the
aggregate compensation, including bonuses, of management paid or
accrued in that year for services in all capacities was
approximately $5.7 million. As in previous years, during
2003, we did not make any payments to members of the Board for
attendance at Board or Executive Committee meetings and we did
not provide any pension, retirement or similar benefits for
directors or executive officers.

Currently, management has earned under existing
long-term compensation plans $1.3 million to be paid over
the next two years; one condition for its payment is continued
employment. No long-term incentives were awarded in 2003.

All employees are eligible for bonuses based on
performance. The bonus plan provides for us to pay bonuses based
on achievement of financial targets established for the year.
During the year ended December 31, 2003, we have
provisioned bonuses for $1.5 million, representing
approximately 75% of bonus provision for 2003, that could be
paid upon launch of Satmex 6 or the fourth quarter of 2004.
Sales commissions for 2003 were paid quarterly.

In November, 2003, to acknowledge and recognize
certain of our senior executives prior performance and to
motivate their continued hard work and performance, our Board of
Directors granted our senior executives compensation and health
benefits in the event that they are terminated without cause, if
they resign for certain reasons, under certain conditions of a
change of control of us or upon their death or incapacity. If
any of these events occur, we will pay the relevant senior
executive between 1.5 and 2 times his or her prior
years salary, including bonus.

As of the date of this annual report, senior
management, comprising our six highest-ranking executives, has
not received salary increases since early 2001.

Employees

As of December 31, 2003, we had
approximately 192 employees hired through our service companies,
including the new Alterna TV team formed in the third quarter of
2003. Of the 192 employees, 48 are members of the Television and
Radio labor union. The collective agreement provides for, among
other things: union exclusivity, annual salary revision, a
maximum workweek of 40 hours, company maintained medical
and life insurance, severance payment including retirement of
14 days pay for each year worked in addition to
statutory severance benefits under Mexican labor laws, a
statutory annual bonus equivalent to one months pay, and a
review of the collective contract every two years. Our employee
relationships are subject to the Federal Labor Laws (Ley
Federal del Trabajo). We believe our relationship with the
unionized employees is satisfactory. One of our executives
receives his primary compensation through a Mexican company.
Vita Brevis, S.C., which he controls. This is the sole
contractual arrangement between Vita Brevis, S.C. and us.

Share Ownership

As of December 31, 2003, the share ownership
of Satmex is as follows:

|                       |  |        |            |            |  |  |        | 
|---------------------- |  | ------ | ---------- | ---------- |  |  | ------ | 
|                       |  | Shares |            | Percentage
|                       |  |        |            |           
|Servicios Corporativos |  |        | 7,500,000  |            |  |  | 70.71  | 
|Mexican government     |  |        | 2,500,000  |            |  |  | 23.57  | 
|Loral                  |  |        | 473,449    |            |  |  | 4.46   | 
|Principia              |  |        | 133,281    |            |  |  | 1.26   | 
|                       |  |        |            |            |  |  |        | 
|                       |  |        | 10,606,730 |            |  |  | 100.00 | 
|                       |  |        |            |            |  |  |        | 

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|        |                                                      
|------- | -----------------------------------------------------
|Item 7. | Major Shareholders and Related Party
    Transactions

Major Shareholders

Prior to October 15, 1997, we were not
operated as a stand-alone satellite capacity provider, but were
operated by the Mexican government as part of the operations of
Telecomunicaciones de Mexico, an agency of the Mexican
government. In 1997, Loral and Principia formed a joint venture,
Firmamento, to effect the acquisition of Satmex from the Mexican
government. Firmamento is owned 65% by Loral and 35% by
Principia. Principia, however, holds 51% of Firmamentos
voting interests, while Loral holds the other 49%. On
November 17, 1997, an indirect subsidiary of Firmamento
entered into a Stock Purchase Agreement with the Mexican
government to acquire 75% of our outstanding capital stock from
the Mexican government for a purchase price of approximately
$646.8 million. On November 17, 1997, the acquisition
subsidiary paid approximately $194.0 million of the
purchase price and on December 29, 1997 paid the balance,
plus interest. On December 29, 1997, the acquisition
subsidiary was merged into Satmex.

In consideration of the debt incurred by us in
connection with the acquisition, Servicios, a wholly owned
subsidiary of Firmamento, agreed to pay to the Mexican
government approximately $125.1 million under the
Menoscabo. The Menoscabo accrues deferred interest at the rate
of 6.03% per annum, compounds annually and matures in
December 2004. Payment of the Menoscabo is currently secured by
Lorals and Principias interests in Firmamento. If
Servicios were to default in the payment of the Menoscabo, the
Mexican government has the right to initiate foreclosure
proceedings, which would lead to the transfer of the holdings of
Loral and Principia in Firmamento to a third party purchaser.
The Mexican government may participate as an interested
purchaser of those holdings and, if awarded the sale, it would
gain direct control of Firmamento and indirect control of us. If
the Mexican government gains control of us, we cannot make any
assurances that it would assume any of our debt, including the
existing notes. Also, in that scenario, we would be controlled
and managed by the Mexican government.

As of December 31, 2003, Servicios held
70.71% of our outstanding capital stock, Loral holds 4.46%,
Principia holds 1.26% and the Mexican government holds 23.57%.

The Mexican government holds its 23.57% interest
in us through Class N shares. The Class N shares have
limited voting rights and may vote only with respect to the
following matters: extension of our term, merger, conversion or
anticipated dissolution, amendment to our corporate purpose,
change to our nationality or cancellation of our registration in
the Securities Section of the National Registry of Securities
and Intermediaries or in any Mexican or foreign stock exchange
or in a special meeting of Class N shareholders regarding
matters that would prejudice their rights.

Loral has the right to appoint a Chief Operating
Officer of the company who would be responsible for our day to
day management and operations, subject to approval from
Principia, which approval cannot be unreasonably withheld. All
other executive officers have been and will be appointed by the
mutual consent of Loral and Principia.

We benefit from the strategic, marketing and
operational capabilities of our two corporate sponsors, Loral
and Principia. Affiliates of the Sponsors have entered into a
management services agreement with us to provide us with
marketing and strategic planning services.

We also benefit from Principias extensive
experience in the Mexican telecommunications industry and its
working relationship with many of our existing and potential
customers.



| |                                      
| | -------------------------------------
| | Loral Space & Communications
    Ltd.

Loral Space & Communications Ltd.,
together with its subsidiaries, is a leading satellite
communications company. It owns and operates a fleet of
telecommunications satellites, manages a global network that
integrates its satellites with terrestrial facilities and has
the rights to numerous well-positioned orbital slots. Managed by
Loral Skynet, the fleet provides satellite capacity and
platforms broadcast, data network, Internet access, IP and
systems integration needs. SS/ L is a leading designer and
manufacturer of satellites and satellite systems for commercial
and government applications including satellite services,
television broadcast-

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ing, direct-to-home (DTH) television services,
broadband communications, military communications, wireless
telephony, digital satellite radio, weather monitoring and air
traffic management.


On July 15, 2003, Loral and certain of its
subsidiaries filed voluntary petitions for relief under
chapter 11 of title 11 of the United States Code (the
Bankruptcy Code) in the United States Bankruptcy
Court for the Southern District of New York (the
Bankruptcy Court) (Lead Case No. 03-41710
(RDD), Case Nos. 03-41709 (RDD) through 03-41728
(RDD), collectively, the Chapter 11 Cases). The
Loral Chapter 11 debtors include, among others, Loral
Space & Communications Corporation, Loral SpaceCom
Corporation (Loral SpaceCom), Loral Satellite, Inc.
(Loral Satellite), SS/L and Loral Orion, Inc.
(Loral Orion). Loral continues to manage its
properties and operate its businesses as debtors in
possession under the jurisdiction of the Bankruptcy Court
and in accordance with the provisions of the Bankruptcy Code.



| |               
| | --------------
| | Sale of Assets

On March 17, 2004, Loral Space &
Communications Corporation, Loral SpaceCom Corporation and Loral
Satellite, Inc. (collectively, the Sellers)
consummated the sale (the Sale) of the Sellers
North American fleet of satellites and related assets to certain
affiliates of Intelsat, Ltd. and Intelsat (Bermuda), Ltd.
(collectively, Intelsat or the
Purchasers). At closing, the Company received
approximately $1.011 billion, consisting of approximately
$961 million for the North American satellites and related
assets, after adjustments, and $50 million for an advance
on a new satellite to be built for Intelsat by SS/L. The
Companys obligations with respect to the $50 million
advance are secured by the Telstar 14/ Estrela do Sul-1
satellite and related assets, including insurance proceeds
relating to the satellite. The Company used a significant
portion of the funds received to repay all $967 million of
its outstanding secured bank debt. In addition, after closing,
the Sellers received from the Purchasers approximately
$16 million to reimburse a deposit made by the Sellers for
the launch of Telstar 8, and the Sellers expect to receive
an additional $4 million as a purchase price adjustment
resulting from resolution of a regulatory issue relating to the
purchased assets. The Sale was completed after the Bankruptcy
Court approved, on March 16, 2004, the final amendment to
the asset purchase agreement, dated July 15, 2003, between
the Sellers and the Purchasers.

The North American satellites and related assets
have been accounted for as a discontinued operation, resulting
in the reclassification of the Companys historical
condensed consolidated statements of operations and statements
of cash flows to reflect these operations as discontinued
operations separately from continuing operations (see
Note 4).



| |                                                      
| | -----------------------------------------------------
| | Loral is Organized into Two Operating
    Businesses:

Satellite Services.Satellite services, managed by Loral Skynet, a division of
Loral, generates its revenues and cash from leasing satellite
capacity and platforms to customers for video and direct to home
(DTH) broadcasting, high-speed data distribution,
Internet access, communications and networking services.

Satellite
Manufacturing.Satellite
manufacturing, conducted by Lorals subsidiary SS/L,
generates its revenues and cash from designing and manufacturing
satellites, space systems and space system components for
commercial and government applications including satellite
services, DTH broadcasting, broadband data distribution,
wireless telephony, digital radio, military communications,
weather monitoring and air traffic management.



| |                        
| | -----------------------
| | Principia, S.A. de C.V.

Principia is a Mexican telecommunications company
which comprises the business interests of some members of the
Autrey family, including the Chairman of our Board, Sergio
Autrey, Banamex, S.A. and Lauro González, our CEO.

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Related Party Transactions

Pursuant to a management services agreement among
us, Loral and Principia, we have agreed to pay a quarterly
management fee based on our quarterly gross revenue, as defined,
as follows: with respect to revenue of less than
$25 million, no management fee will be payable; with
respect to revenue in excess of $25 million but less than
$32 million, 10% of all revenue in excess of
$25 million but less than $32 million; and with
respect to revenue equal to or in excess of $32 million,
15% of all revenue in excess of $32 million; provided that
the management fee will in no event exceed 3.75% of our
cumulative gross revenue. The management fee represents
compensation paid to Loral and Principia for management services
rendered to us. For the year ended December 31, 2003 and
2002, Principia and Loral waived the management fee. For the
year ended December 31, 2001, the management fee was
$2.3 million.

Loral has licensed certain intellectual property
to us for an annual fee of 1.5% of our gross revenue, as defined
in the license agreement. For the year ended December 31,
1999, Loral and Satmex reduced the license fee to 1.2%. In 2003,
2002 and 2001, we recorded a license fee expense of
$1.1 million, $1.2 million and $1.8 million,
respectively.

In connection with our privatization, we are
required to provide 181 MHz C-band and 181 MHz Ku-band
capacity to the Mexican government for national security and
certain public purposes at no charge. After the
Solidaridad 1 failure the capacity provided to the
government is 130 MHz C-band and 105 MHz Ku-band. We
also operate one L-band transponder on the Solidaridad 2
satellite which is owned by the Mexican government. Under the
property concession granted by the Mexican government to us, we
pay to the government an annual fee of 7.5% of the value of the
property on which our satellite control centers are located. The
value of the property was originally determined in the Property
Concession and it has suffered annual increments consistent with
changes in the Consumer Price Index (Indice Nacional de
Precios al Consumidor). Pursuant to our current regulations,
a new appraisal of the value of the property must be performed
every five years. The appraisal is performed by the Ministry of
Internal Control (Secretaría de la Función
Pública), which is an entity of the Mexican government,
or an entity of such ministry. The appraisal must consider the
value of the property as it was originally delivered to us,
without taking into account any works performed on the property
after such delivery.

On March 30, 1999, we issued
606,730 shares of preferred stock to Loral and Principia
for a total purchase price of approximately $31.9 million.
The preferred stock has limited voting rights and pays a
cumulative dividend in our common stock. The preferred stock can
be exchanged at our option into our common stock, at an exchange
ratio of 1 share of preferred stock for 2.0008 shares
of common stock, if the exchange occurs before February 2,
2005, and at an exchange ratio of 1 share of preferred
stock for 4.0016 shares of common stock on and after
February 2, 2005.

In 1999, Loral Skynet entered into an end-of-life
lease with us for three Ku-band transponders on Satmex 5.
For the year ended December 31, 1999, we accounted for this
transaction as a sales-type lease and, accordingly, recorded
revenue of $25.5 million and an operating expense of
$14.2 million for the cost of the transponders. Loral
Skynet pays us $5,000 per transponder per quarter for
tracking, telemetry and command services for the life of this
agreement. Loral and Principia have agreed to exclude these
transactions from the calculation of the management fee and the
license fee.

In 1999, Firmamento formed three wholly owned
subsidiaries; Satmex Corporativo, S. de R.L. de C.V., Satmex
Administración, S. de R.L. de C.V. and Satmex Servicios
Técnicos, S. de R.L. de C.V. In June 1999, we transferred
our management personnel to Satmex Corporativo and our
administrative personnel to Satmex Administración. In
November 1999, we transferred our union personnel to Satmex
Servicios Técnicos. None of these three corporations have
any material assets. We pay these companies their costs plus a
fee of up to 5% of the gross payroll and benefits, excluding
payroll taxes. For the years ended December 31, 2003, 2002
and 2001 this fee was ($138,000), $524,000 and $794,000,
respectively.

Service revenue from related parties, primarily
the Mexican government, amounted to $9.6 million,
$10.2 million and $14.7 million for the years ended
December 31, 2003, 2002 and 2001, respectively. We lease

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transponder capacity to Loral affiliates. Service
revenue in 2003 and 2002 was $2.7 million and
$2.6 million, respectively.


Loral Skynet billed us $1.0 million and
$4.2 million for providing capacity on Loral Skynet
satellites in 2003 and 2002, respectively. Loral Skynet billed
us $395,000 and $547,000 for sales commissions in 2003 and 2002,
respectively.

We provide satellite capacity to Loral and
certain of its affiliates under various service contracts. On
July 15, 2003, Loral and certain of its subsidiaries filed
voluntary petitions for reorganization under chapter 11 of
title 11 of the United States Code in the United States
Bankruptcy Court for the Southern District of New York. Loral
currently owes us $2.3 million for services rendered under
these contracts, of which $1.3 million was due
pre-petition. In 2003, we applied $0.9 million of provision
for uncollectible accounts toward the pre-filing amount, leaving
a balance of $1.4 million. No assurance can be made that we
will be able to collect these amounts. We continue to provide
satellite capacity to Loral under these contracts.

We have contracted with SS/L to build
Satmex 6, the replacement satellite for Solidaridad 1. As a
result of schedule delays, we and SS/L agreed that Satmex 6
would be delivered in 2003. Under the original contract, we
earned certain liquidated damages as a result of the delay. We
concluded the negotiation with Loral and SS/L of an amendment to
the contract, which, among other things, waives the liquidated
damages in exchange for a like amount of other benefits that
include additional work required on the satellite, a reduction
in future orbital incentive payments due to SS/L and certain
other financial benefits to us.

In 2000, Principia and Loral founded Enlaces
Integra S. de R.L. de C.V., with 51% and 49% ownership,
respectively. Enlaces Integra is a telecommunications service
integrator that provides tailor made solutions of high speed
data communications to private and public networks, value-added
service providers and audio/video service providers. In January
2000, Enlaces Integra was granted a concession to install,
operate and exploit a public telecommunications network. Enlaces
Integras value-added license allows it to develop
Broadband Internet access and a wide range of multimedia
services. On August 10, 2001, Enlaces Integra was granted a
concession to provide fixed satellite services in Mexico through
satellite operators other than us.

We have a close working relationship with Enlaces
Integra and have an agreement to acquire its concession upon
receipt of approval by the SCT.

Enlaces Integra receives transponder capacity
from us. In 2003 and 2002, service revenue to us was $223,000
and $421,000, respectively. Also, we agreed to loan Enlaces
Integra up to $5 million of which $3.4 million was
outstanding as of December 31, 2001. The loan to Enlaces
Integra matures January 4, 2006 and accrues interest at a
rate equal to our weighted average interest cost plus 1%. The
maximum available borrowing is $5 million, including
accrued interest. Further, Enlaces Integra uses services
provided from affiliated companies to perform its activities. In
June 2002, we purchased approximately $718,000 of equipment from
Enlaces Integra and in July 2002, we purchased $1.6 million
of equipment and paid $2.9 million as an advance payment on
one of the concessions held by Enlaces Integra. Enlaces Integra
used the proceeds from the sale to repay its outstanding loan
from us. We leased equipment back to Enlaces Integra for rental
payments of $995,000 and $230,000 during 2003 and 2002,
respectively. At December 31, 2003, there were no
borrowings outstanding under the loan agreement.









|        |                      
|------- | ---------------------
|Item 8. | Financial Information

See Item 18  Financial
Statements for a list of all financial statements filed as
part of this Form 20-F.









|        |        
|------- | -------
|Item 9. | Markets

Our capital stock is not publicly traded. Our
10.125% Series B Senior Notes are not listed on any
securities exchange.

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|         |                       
|-------- | ----------------------
|Item 10. | Additional Information

Documents concerning us referred to in this 20-F
may be inspected at our corporate offices at Blvd. Manuel
Ávila Camacho 40, 23rd floor, Col. Lomas de
Chapultepec, 11000, Mexico DF, Mexico.

Articles of Incorporation

We hereby incorporate by reference the
description of our Articles of Incorporation set forth in our
Registration Statement on form F-4 dated November 9, 1998,
File No. 333-08880.

Material Contracts

See Item 4  Information on
the Company, Item 5  Operating and
Financial Review and Prospects and
Item 7  Major Shareholders and Related
Party Transactions for a description of our material
contracts.

Exchange Controls

The Mexican economy has in the past experienced
balance of payment deficits and shortages in foreign exchange
reserves. While the Mexican government does not currently
restrict the ability of Mexican or foreign persons or entities
to convert pesos to foreign currencies generally, and
U.S. dollars in particular, it has done so in the past and
no assurance can be given that the Mexican government will not
institute a restrictive exchange control policy in the future.
In addition, while all of our customer contracts are dollar
denominated, we require our Mexican customers who choose to pay
us in pesos to deliver an amount of pesos equal to the current
exchange rate for the purchase of dollars prevailing on the date
of payment. If we were unable to exchange such pesos into
dollars or were unable to obtain sufficient dollars, we would
have difficulty meeting our U.S. dollar payment
obligations. The effect of any such exchange control measures
adopted by the Mexican government on the Mexican economy cannot
be accurately predicted.

TAXATION

The following summary contains a description of
the principal Mexican and U.S. federal income tax
consequences of the purchase, ownership and disposition of the
Fixed Rate Notes and the Floating Rate Notes. This summary is
based on the tax laws in force as of January 1, 2003 and
does not describe any tax consequences arising under the laws of
any state, locality or taxing jurisdiction other than Mexico and
the United States.

A Convention for the Avoidance of Double Taxation
and a Protocol thereto (the Tax Treaty) between the
United States and Mexico entered into force on January 1,
1994 and has been amended by an additional protocol that entered
into force on July, 2003. Provisions of the Tax Treaty that may
affect the taxation of certain U.S. holders of fixed rate
notes are summarized below. The United States and Mexico have
also entered into an agreement that covers the exchange of
information with respect to tax matters.

Mexico has also entered into several treaties for
the avoidance of double taxation with various countries which
are in effect. The tax effects of such treaties, or of any other
tax treaty to which Mexico may be a party in the future, are not
discussed below.

Mexican Taxation

This summary of certain Mexican tax
considerations deals only with holders of Fixed Rate Notes that
are not residents of Mexico for Mexican tax purposes and that do
not conduct a trade or business through a permanent
establishment in Mexico (a Foreign Holder). For
purposes of Mexican Taxation, tax residency is a highly
technical definition which involves several factual situations.
Generally, an individual is a resident of Mexico if he or she
has established his or her home in Mexico, and a corporation is
considered a resident if it is incorporated under the laws of
Mexico or it has its center of interests in Mexico. However, any
determination of residence should be made considering the
particular situation of each person or legal entity.

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| |                                       
| | --------------------------------------
| | Taxation of Interest and
    Principal

Under the Mexican Income Tax Law, payments of
interest made by the Company in respect of the Fixed Rate Notes
and Floating Rate Notes (including payments of principal in
excess of the issue price of such notes, which, under Mexican
law, are deemed to be interest) to a Foreign Holder will
generally be subject to a Mexican withholding tax assessed at a
rate of 4.9% if (1) the notes are placed through banks or
brokerage houses (casas de bolsa) in a country with which
Mexico has entered into a tax treaty for the avoidance of double
taxation which is in effect, (2) the notes are registered
with the Special Section of the National Registry of Securities
(Registro Nacional de Valores) (the
Registry), and (3) the information requirements
specified by the Ministry of Finance and Public Credit
(Secretaría de Hacienda y Crédito Público)
(the SHCP) under its general rules are satisfied. If
such requirements are not met, the applicable withholding tax
rate will be 10%.

A higher withholding rate (currently and during
2004 up to a maximum of 33%) will be applicable when the
effective beneficiaries of payments treated as interest, whether
directly or indirectly, individually or collectively with
related persons, who receive more than 5% of the aggregate
amount of such payments on the notes are (1) our
shareholders who own, directly or indirectly, individually or
collectively with related persons, more than 10% of our voting
stock, or (2) entities more than 20% of whose stock is
owned, directly or indirectly, individually or collectively with
related persons, by us or by persons related to us. For such
purposes, under the Mexican Income Tax Law, persons are
considered related if one possesses an interest in the business
of the other, common interests exist between them, or a third
person holds an interest in the business or property of both
persons.

Payments of interest made by the Company with
respect to the fixed rate notes to non-Mexican pension or
retirement funds will be exempt from Mexican withholding taxes,
provided that any such fund is duly incorporated pursuant to the
laws of its country of origin, is exempt from income tax in such
country and is registered with the Ministry of Finance for that
purpose and the relevant interest income is exempt from taxes in
such country.

The Company has agreed, subject to specified
exceptions and limitations, to pay additional amounts to the
holders of the fixed rate notes in respect of the Mexican
withholding taxes mentioned above. If the Company pays
additional amounts in respect of such Mexican withholding taxes,
any refunds of, or credits against, Mexican taxes received with
respect to such additional amounts will be for the account of
the Company.

Holders or beneficial owners of fixed rate notes
may be requested to provide certain information or documentation
necessary to enable the Company to establish the appropriate
Mexican withholding tax rate applicable to such holders or
beneficial owners. In the event that the specified information
or documentation concerning the holder or beneficial owner, if
requested, is not provided on a timely basis, the obligation of
the Company to pay additional amounts will be limited.

Under Mexican law and regulations, payments of
principal on the fixed rate notes to a Foreign Holder will not
be subject to any Mexican taxes.



| |                         
| | ------------------------
| | Taxation of Dispositions

The application of Mexican tax law provisions to
capital gains realized on the disposition of Floating Rate Notes
or Fixed Rate Notes by Foreign Holders is unclear. We expect
that no Mexican tax will be imposed on transfers of notes
between Foreign Holders effected outside of Mexico.



| |                         
| | ------------------------
| | Transfer and Other Taxes

There are no Mexican stamp, registration, or
similar taxes payable by a Foreign Holder in connection with the
purchase, ownership or disposition of the fixed rate notes. A
Foreign Holder of fixed rate notes will not be liable for
Mexican estate, gift, inheritance or similar tax with respect to
the fixed rate notes.

59



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U.S. Taxation

This summary of certain U.S. federal income
tax considerations deals principally with U.S. Holders (as
defined below) that will hold fixed rate notes as capital assets
and whose functional currency is the U.S. dollar. This
summary generally does not address the tax treatment of
U.S. Holders that may be subject to special tax rules, such
as banks, insurance companies, dealers in securities, or persons
that hold (or will hold) the fixed rate notes as a position in a
straddle for tax purposes or as part of a
synthetic security or a conversion
transaction or other integrated investment composed of the
fixed rate notes and one or more other investments, nor does it
address the tax treatment of U.S. Holders that do not
acquire fixed rate notes at their issue price as part of the
initial distribution. As used under this section, the term
U.S. Holder means a beneficial owner of a Note
that is a citizen or resident of the United States for
U.S. federal income tax purposes, a corporation or other
entity taxable as a corporation created or organized under the
laws of the United States, any state thereof or the District of
Columbia, a trust whose administration is subject to the primary
supervision of a United States court and having one or more
U.S. persons with the authority to control all of such
trusts substantial decisions, an estate that is subject to
U.S. federal income tax on its income regardless of the
source thereof, or a person whose worldwide income or gain is
otherwise subject to U.S. federal income tax on a net
income basis.



| |                     
| | --------------------
| | Taxation of Interest

A U.S. Holder will treat the gross amount of
interest and additional amounts (i.e., without reduction for
Mexican withholding taxes, determined using the appropriate
Mexican withholding tax rate applicable to the U.S. Holder)
as ordinary interest income in respect of the fixed rate notes.
Mexican withholding taxes paid at the appropriate rate
applicable to the U.S. Holder will be treated as foreign
income taxes eligible for credit against such
U.S. Holders U.S. federal income tax liability,
subject to generally applicable limitations and conditions, or,
at the election of such U.S. Holder, for deduction in
computing such U.S. Holders taxable income. Interest
and additional amounts will constitute income from sources
without the United States for foreign tax credit purposes. For
purposes of applying the U.S. foreign tax credit
limitation, such income generally will constitute passive
income or, in the case of certain U.S. Holders,
financial services income unless the Mexican
withholding tax rate applicable to the U.S. Holder is
imposed at a rate of at least 5%, in which case such income
generally will constitute high withholding tax
interest.

The calculation of foreign tax credits and, in
the case of a U.S. Holder that elects to deduct foreign
taxes, the availability of deductions, involves the application
of rules that depend on a U.S. Holders particular
circumstances. U.S. Holders should consult their own tax
advisors regarding the availability of foreign tax credits and
the treatment of additional amounts.

Subject to the discussion below regarding backup
withholding, a holder or beneficial owner of fixed rate notes
that is not a U.S. Holder (a
Non-U.S. Holder) generally will not be subject
to U.S. federal income or withholding tax on interest
income or additional amounts earned in respect of fixed rate
notes, unless such income is effectively connected with the
conduct by the Non-U.S. Holder of a trade or business in
the United States.



| |                         
| | ------------------------
| | Taxation of Dispositions

Gain or loss realized by a U.S. Holder on
the sale, redemption or other disposition of fixed rate notes
(less amounts attributable to accrued interest) generally will
be long-term capital gain or loss if, at the time of the
disposition, the fixed rate notes have been held for more than
one year. Generally, U.S. Holders that are individuals will
be taxed at a preferential rate with respect to long-term
capital gains. There are limits on the deductibility of capital
losses. Gain or loss realized by a U.S. Holder generally
will be treated as U.S. source income or loss for
U.S. foreign tax credit purposes.

Subject to the discussion below regarding backup
withholding, a Non-U.S. Holder of fixed rate notes will not
be subject to U.S. federal income or withholding tax on
gain realized on the sale or other disposition of fixed rate
notes unless such gain is effectively connected with the conduct
by the Non-U.S. Holder of a trade or business in the United
States or in the case of gain realized by an individual
Non-U.S. Holder, the

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Non-U.S. Holder is present in the United
States for 183 days or more in the taxable year of the sale
and certain other conditions are met.




| |                                                 
| | ------------------------------------------------
| | Backup Withholding and Information
    Reporting

In general, payments of interest and the proceeds
of a sale, redemption or other disposition of the fixed rate
notes payable to a U.S. Holder by a U.S. paying agent
or other U.S. intermediary will be reported to the Internal
Revenue Service and to the U.S. Holder as may be required
under applicable regulations. Backup withholding at a current
rate of 28% may apply to these payments if the U.S. Holder
fails to provide an accurate taxpayer identification number or
certification of foreign or other exempt status or fails to
report all interest and dividends required to be shown on its
federal income tax returns. Any amount withheld from a payment
to a holder under the backup withholding rules is allowable as
credit against such holders U.S. federal income tax
liability, provided that the required information is provided to
the IRS. Certain U.S. Holders (including, among others,
corporations) are not subject to backup withholding.
U.S. Holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the
procedure for obtaining such an exemption.









|         |                                                               
|-------- | --------------------------------------------------------------
|Item 11. | Quantitative and Qualitative Disclosures
    About Market Risk

We are exposed to market risk from changes in
currency exchange rates and change in interest rates. We from
time to time assess our exposure and monitor opportunities to
manage these risks.

Exchange Rate Risk

During 2002 and 2003, the annual rates of
inflation in Mexico, as measured by changes in the National
Consumer Price Index as provided by the Banco de Mexico, were
3.9% and 4.4%, respectively. Our major expenditures, including
capital expenses and satellite insurance will not be affected by
high levels of inflation, because they are denominated in
dollars. Customer contracts are also denominated in dollars.
However, high inflation rates would affect peso denominated
expenses such as payroll and rent and could result in an
increase in uncollectible accounts receivable and customer lease
cancellations. To the extent that the pesos devaluation
against the U.S. dollar is less than the inflation rate in
Mexico, we will be adversely affected by the effect of inflation
in Mexico with respect to our peso denominated expenses.
Approximately half of our costs and expenses are peso
denominated, an amount that represents 28% of our revenue. If
the Mexican peso were to increase in value against the US dollar
by 5%, we estimate that our expenses would increase by
approximately $1 million. If the Mexican peso were to
increase in value against the US dollar by 10%, we estimate that
our expenses would increases by approximately $1.9 million.

Interest Rate Risk

The estimated fair value of our financial
instruments has been determined using available market
information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to
develop estimates of fair value.

The fair value of the Floating Rate Notes (with a
nominal and recorded amount of $203.6 million), based on
best estimates at December 31, 2003, was approximately
$173.1 million. At December 31, 2003, the fair value
of the Companys Fixed Rate Notes (with a nominal and
recorded amount of $320 million) based on quoted market
prices was $131.2 million.

Our Floating Rate Notes accrue interest based on
a floating interest rate, which is currently determined as
London Interbank Offer Rate (Libor) plus
450 basis points and the amount outstanding is
$203.4 million. An increase in Libor of 1% would increase
our financial cost by $2.0 million. An increase in Libor of
2% would increase our financial cost by $4.1 million.

61



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PART II









|         |                                                    
|-------- | ---------------------------------------------------
|Item 13. | Defaults, Dividend Arrearages and
    Delinquencies

The Floating Rate Notes

On June 30, 2004, the Floating Rate Notes
came due and we did not make the required principal payment of
$203.4 million, thereby causing an immediate event of
default on the Floating Rate Notes. As a result of the failure
to pay the principal amount when due, the entire principal
amount of the Floating Rate Notes is currently due on the
Floating Rates Notes ($203.4 million as of June 30,
2004). In addition to the payment event of default, there are
other events of defaults under the indenture governing the
Floating Rate Notes, including, but not limited to, those
relating to insurance and financial covenants, and various cross
defaults resulting from defaults under the Fixed Rate Notes
indenture and the Menoscabo.

The Fixed Rate Notes

On August 1, 2003 and February 1, 2004,
we did not make our $16.2 million interest payments on the
Fixed Rates Notes for a total of $32.4 million, thereby
causing a payment default on the Fixed Rate Notes. The grace
period for those payments expired 30 days after the
defaulted payments at which time the payment defaults became
events of default giving the holders of 25% of the outstanding
principal amount of the Fixed Rate Notes the right to accelerate
the outstanding $320.0 principal amount of the Fixed Rate Notes.
As of June 30, 2004, the total amount that is accrued and
unpaid on the Fixed Rate Notes is $45.9 million. As of the
date of this annual report, we have not received notice of the
acceleration of the principal repayment of the Fixed Rate Notes.
In addition to the payment events of default, there are other
defaults under the indenture governing the Fixed Rate Notes,
including, but not limited to, a cross default resulting from
the payment default under the Floating Rates Notes indenture.









|         |                                                             
|-------- | ------------------------------------------------------------
|Item 14. | Material Modifications to the Rights of
    Security Holders

Not applicable.









|         |                        
|-------- | -----------------------
|Item 15. | Controls and Procedures

Our CEO and chief financial officer
(CFO) have evaluated the effectiveness of our
disclosure controls and procedures (as defined in
Exchange Act rules 13a-14(c) and 15d-14(c)) as of
December 31, 2003. These controls and procedures were
designed to ensure that material information relating to us is
communicated to the CEO and CFO. Based on such evaluation, our
CEO and CFO concluded that our disclosure controls and
procedures are effective in timely alerting them to material
information required to be included in our periodic SEC reports.
There have been no significant changes in our internal controls
and procedures or in other factors that could significantly
affect these controls and procedures subsequent to the date of
this evaluation.









|         |                                     
|-------- | ------------------------------------
|Item 16. | Audit Committee Financial
    Expert








|           |                                                   
|---------- | --------------------------------------------------
|Item 16 A) | Disclosure of Audit Committee Financial
    Expert

We do not have an audit committee or an audit
committee financial expert.









|           |               
|---------- | --------------
|Item 16 B) | Code of Ethics

We have in place a code of ethics that applies to
all officers and senior management. Our code of ethics was not
amended during 2003 and no waivers, either explicit or implicit,
of provisions of the code of ethics were granted to our CEO, CFO
or Chief Accounting Officer in 2003. An English translation of
our code of ethics has been posted on our website at
www.Satmex.com and a copy of our Code of Ethics will be
sent upon request.

62



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##### Table of Contents











|           |                                           
|---------- | ------------------------------------------
|Item 16 C) | Principle Accountant Fees and
    Services

The aggregate fees billed by Galaz, Yamazaki,
Ruiz Urquiza, S.C., a member firm of Deloitte Touche Tohmatsu,
our independent auditor, in connection with professional
services rendered to us in 2003 and 2002 were as follows:

|                   |  |             |     |      |  |   |     | 
|------------------ |  | ----------- | --- | ---- |  | - | --- | 
|                   |  | 2003        |     | 2002
|                   |  |             |     |     
|                   |  |            
|                   |  | (Amounts in
|                   |  | thousands) 
|Audit fees         |  | $           | 417 |      |  | $ | 369 | 
|Audit related fees |  |             | 13  |      |  |   | 3   | 
|Tax fees           |  |             | 122 |      |  |   | 130 | 
|All other fees     |  |             |    |      |  |   |    | 
|                   |  |             |     |      |  |   |     | 
|Total fees         |  | $           | 552 |      |  | $ | 502 | 
|                   |  |             |     |      |  |   |     | 

Audit fees:Audit-related fees in the above table are the aggregate fees
billed by Galaz, Yamazaki, Ruiz Urquiza, S.C., a member firm of
Deloitte Touche Tohmatsu, in connection with the audit of the
annual financial statements and statutory and regulatory audits

Audit-related fees:Audit-related fees in the above table are the aggregate fees
billed by Galaz, Yamazaki, Ruiz Urquiza, S.C., a member firm of
Deloitte Touche Tohmatsu, for financial accounting and reporting
consultations.

Tax fees:Tax fees
in the above table are fees billed by Galaz, Yamazaki, Ruiz
Urquiza, S.C., a member firm of Deloitte Touche Tohmatsu, for
services for tax compliance, and tax advice.

Our Board of Directors, in the absence of an
audit committee, must pre-approve any services provided by
Galaz, Yamazaki, Ruiz Urquiza, S.C., a member firm of Deloitte
Touche Tohmatsu, prior to any engagement that is not
specifically included in the scope of the audit. In 2003, none
of the fees paid to Galaz, Yamazaki, Ruiz Urquiza, S.C., a
member firm of Deloitte Touche Tohmatsu, were approved pursuant
to a de minimus exemption.

63



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PART III









|         |                     
|-------- | --------------------
|Item 18. | Financial Statements

INDEX TO FINANCIAL STATEMENTS

|                                                                                                       |  |      |     | 
|------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                                       |  | Page
|                                                                                                       |  |     
|Report of Independent Registered Firm                                                                  |  |      | F-2 | 
|Balance Sheets as of December 31, 2003 and
    2002                                                    |  |      | F-3 | 
|Statements of Operations for the years ended
    December 31, 2003, 2002 and 2001                      |  |      | F-4 | 
|Statements of Changes in Stockholders
    Equity for the years ended December 31, 2003, 2002 and 2001 |  |      | F-5 | 
|Statements of Cash Flows for the years ended
    December 31, 2003, 2002 and 2001                      |  |      | F-6 | 
|Notes to the Financial Statements                                                                      |  |      | F-7 | 

F-1



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED
FIRM

To the Stockholders and Board of Directors of

Satélites Mexicanos, S.A. de C.V.


Mexico City, Mexico


We have audited the accompanying balance sheets
of Satélites Mexicanos, S.A. de C.V. (a subsidiary of
Servicios Corporativos Satelitales, S.A. de C.V.) as of
December 31, 2003 and 2002, and the related statements of
operations, stockholders equity, and cash flows for each
of the three years in the period ended December 31, 2003.
Our audits also included the financial statement schedule. These
financial statements and the financial statement schedule are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our
audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States of America). These standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such financial statements present
fairly, in all material respects, the financial position of
Satélites Mexicanos, S.A. de C.V. as of December 31,
2003 and 2002, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set
forth therein.

The accompanying financial statements have been
prepared assuming the Company will continue as a going concern.
As discussed in Note 1 to the financial statements, the
Company has defaulted on its fixed rate and floating rate notes.
The Company has experienced continued recurring losses and
current liabilities substantially exceed current assets. These
matters raise substantial doubt about the Companys ability
to continue as a going concern. Managements plans
concerning these matters are also described in Note 1. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.



| |                                          
| | -----------------------------------------
| | Galaz, Yamazaki, Ruiz Urquiza, S.C.      
| | A Member Firm of Deloitte Touche Tohmatsu
|
| | C.P.C. Alfredo Robles                    

July 8, 2004

F-2



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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.

(A Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


BALANCE SHEETS

As of December 31, 2003 and
2002


|                                         |                                                                         |                                            |   |          |         |  |   |         |           | 
|---------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------ | - | -------- | ------- |  | - | ------- | --------- | 
|                                         |                                                                         | 2003                                       |   | 2002    
|                                         |                                                                         |                                            |   |         
|                                         |                                                                         |                                           
|                                         |                                                                         | (Amounts in thousands of                  
|                                         |                                                                         | U.S. dollars)                             
|ASSETS                                  
|Current assets:                          |                                                                         |                                            |   |          |         |  |   |        
|                                         | Cash and cash equivalents                                               |                                            | $ | 11,234   |         |  | $ | 24,324  |          
|                                         | Restricted and segregated cash                                          |                                            |   |          |         |  |   | 6,817   |          
|                                         | Accounts receivable, net                                                |                                            |   | 3,477    |         |  |   | 3,913   |          
|                                         | Prepaid insurance                                                       |                                            |   | 3,275    |         |  |   | 4,716   |          
|                                         | Due from related parties, net                                           |                                            |   | 2,685    |         |  |   | 1,466   |          
|                                         | Deferred income taxes                                                   |                                            |   |          |         |  |   | 1,385   |          
|                                         |                                                                         |                                            |   |          |         |  |   |        
|                                         |                                                                         | Total current assets                       |   |          | 20,671  |  |   |         | 42,621    | 
|                                         | Due from related parties long term                                      |                                            |   | 2,900    |         |  |   | 2,900   |          
|                                         | Satellites and equipment, net                                           |                                            |   | 255,775  |         |  |   | 289,637 |          
|                                         | Construction in process  Satmex 6                                      |                                            |   | 251,171  |         |  |   | 214,903 |          
|                                         | Concessions, net                                                        |                                            |   | 437,711  |         |  |   | 450,616 |          
|                                         | Deferred financing costs, net                                           |                                            |   | 1,929    |         |  |   | 3,759   |          
|                                         | Other assets                                                            |                                            |   | 3,524    |         |  |   | 323     |          
|                                         |                                                                         |                                            |   |          |         |  |   |        
|                                         |                                                                         | Total assets                               |   | $        | 973,681 |  |   | $       | 1,004,759 | 
|                                         |                                                                         |                                            |   |          |         |  |   |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                                                         |                                            |   |          |         |  |   |        
|                                         | Current maturities of long-term debt                                    |                                            | $ | 523,550  |         |  | $ | 1,000   |          
|                                         | Accounts payable                                                        |                                            |   | 480      |         |  |   | 329     |          
|                                         | Accrued expenses                                                        |                                            |   | 6,338    |         |  |   | 4,684   |          
|                                         | Interest payable                                                        |                                            |   | 30,396   |         |  |   | 14,196  |          
|                                         | Due to related parties                                                  |                                            |   | 3,205    |         |  |   | 2,231   |          
|                                         | Deferred revenue  customers                                            |                                            |   |          |         |  |   | 60      |          
|                                         | Deferred revenue  Mexican government                                   |                                            |   | 2,200    |         |  |   | 2,200   |          
|                                         |                                                                         |                                            |   |          |         |  |   |        
|                                         |                                                                         | Total current liabilities                  |   |          | 566,169 |  |   |         | 24,700    | 
|                                         | Accrued expenses, non current                                           |                                            |   |          |         |  |   | 3,276   |          
|                                         | Due to related parties                                                  |                                            |   | 1,141    |         |  |   |         |          
|                                         | Deferred revenue  Mexican government                                   |                                            |   | 72,335   |         |  |   | 74,535  |          
|                                         | Deferred income taxes                                                   |                                            |   | 44,553   |         |  |   | 10,194  |          
|                                         | Long-term debt                                                          |                                            |   |          |         |  |   | 523,374 |          
|                                         |                                                                         |                                            |   |          |         |  |   |        
|                                         |                                                                         | Total liabilities                          |   |          | 684,198 |  |   |         | 636,079   | 
|                                         |                                                                         |                                            |   |          |         |  |   |        
|Commitments and contingencies            |                                                                         |                                            |   |          |         |  |   |        
|Stockholders equity:                    |                                                                         |                                            |   |          |         |  |   |        
|                                         | Common stock (10,000,000 shares authorized,
    issued and outstanding) |                                            |   | 386,561  |         |  |   | 385,054 |          
|                                         | Preferred stock (606,730 shares authorized,
    issued and outstanding) |                                            |   | 31,886   |         |  |   | 31,886  |          
|                                         | Accumulated deficit                                                     |                                            |   | (128,964 | )       |  |   | (48,260 | )        
|                                         |                                                                         |                                            |   |          |         |  |   |        
|                                         |                                                                         | Total stockholders equity                 |   |          | 289,483 |  |   |         | 368,680   | 
|                                         |                                                                         |                                            |   |          |         |  |   |        
|                                         |                                                                         | Total liabilities and stockholders equity |   | $        | 973,681 |  |   | $       | 1,004,759 | 
|                                         |                                                                         |                                            |   |          |         |  |   |        

See notes to financial statements.

F-3



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SATELITES MEXICANOS, S.A. DE C.V.

(A Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2003,
2002 and 2001


|                                                                  |                                                          |                                        |         |        |  |      |         |        |  |   |         |        | 
|----------------------------------------------------------------- | -------------------------------------------------------- | -------------------------------------- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                                                  |                                                          | 2003                                   |         | 2002   |  | 2001
|                                                                  |                                                          |                                        |         |        |  |     
|                                                                  |                                                          |                                       
|                                                                  |                                                          | (Amounts in thousands of U.S. dollars)
|Service revenue                                                   |                                                          | $                                      | 78,823  |        |  | $    | 85,011  |        |  | $ | 128,044 |       
|                                                                  |                                                          |                                        |         |        |  |      |         |        |  |   |         |       
|Operating expenses:                                               |                                                          |                                        |         |        |  |      |         |        |  |   |         |       
|                                                                  | Satellite operations                                     |                                        |         | 13,086 |  |      |         | 17,059 |  |   |         | 19,768 | 
|                                                                  | Selling and administrative expenses                      |                                        |         | 23,812 |  |      |         | 20,824 |  |   |         | 22,638 | 
|                                                                  | License and management fees                              |                                        |         | 1,126  |  |      |         | 1,148  |  |   |         | 3,291  | 
|                                                                  | Depreciation expense and amortization of
    concessions |                                        |         | 48,405 |  |      |         | 47,429 |  |   |         | 47,252 | 
|                                                                  |                                                          |                                        |         |        |  |      |         |        |  |   |         |       
|                                                                  |                                                          |                                        | 86,429  |        |  |      | 86,460  |        |  |   | 92,949  |       
|                                                                  |                                                          |                                        |         |        |  |      |         |        |  |   |         |       
|Operating (loss) income                                           |                                                          |                                        | (7,606  | )      |  |      | (1,449  | )      |  |   | 35,095  |       
|Gain on in-orbit failure of Solidaridad 1                         |                                                          |                                        | 3,317   |        |  |      | 8,379   |        |  |   | 7,264   |       
|Interest income                                                   |                                                          |                                        | 304     |        |  |      | 2,001   |        |  |   | 9,269   |       
|Interest expense and amortization of deferred
    financing costs |                                                          |                                        | (39,732 | )      |  |      | (37,789 | )      |  |   | (55,917 | )     
|Net foreign exchange gain                                         |                                                          |                                        | 264     |        |  |      | 93      |        |  |   | 28      |       
|                                                                  |                                                          |                                        |         |        |  |      |         |        |  |   |         |       
|Loss before deferred income tax                                   |                                                          |                                        | (43,453 | )      |  |      | (28,765 | )      |  |   | (4,261  | )     
|Deferred income tax expense (benefit)                             |                                                          |                                        | 35,744  |        |  |      | (8,837  | )      |  |   | (1,149  | )     
|                                                                  |                                                          |                                        |         |        |  |      |         |        |  |   |         |       
|Net loss                                                          |                                                          |                                        | (79,197 | )      |  |      | (19,928 | )      |  |   | (3,112  | )     
|Preferred stock dividend requirement                              |                                                          |                                        | (1,507  | )      |  |      | (1,507  | )      |  |   | (1,507  | )     
|                                                                  |                                                          |                                        |         |        |  |      |         |        |  |   |         |       
|Net loss applicable to common stockholders                        |                                                          | $                                      | (80,704 | )      |  | $    | (21,435 | )      |  | $ | (4,619  | )     
|                                                                  |                                                          |                                        |         |        |  |      |         |        |  |   |         |       

See notes to financial statements.

F-4



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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.

(A Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY

For the Years Ended December 31, 2003,
2002 and 2001


|                                     |  |                                                 |            |                 |  |             |         |        |  |         |         |       |  |   |        |  |  |   |          |   |  |   |         |  
|------------------------------------ |  | ----------------------------------------------- | ---------- | --------------- |  | ----------- | ------- | ------ |  | ------- | ------- | ----- |  | - | ------ |  |  | - | -------- | - |  | - | ------- | -
|                                     |  |                                                 |            |                 |  |             |         |       
|                                     |  | Common Stock                                    |            | Preferred Stock |  |             |         |       
|                                     |  |                                                 |            |                 |  | Accumulated |         |       
|                                     |  | Shares                                          |            | Amount          |  | Shares      |         | Amount |  | Deficit |         | Total
|                                     |  |                                                 |            |                 |  |             |         |        |  |         |         |      
|                                     |  |                                                
|                                     |  | (Monetary amounts in thousands of U.S. dollars)
|Balance January 1, 2001              |  |                                                 | 10,000,000 |                 |  | $           | 382,040 |        |  |         | 606,730 |       |  | $ | 31,886 |  |  | $ | (22,206  | ) |  | $ | 391,720 |  
|Net loss                             |  |                                                 |            |                 |  |             |         |        |  |         |         |       |  |   |        |  |  |   | (3,112   | ) |  |   | (3,112  | )
|Preferred stock dividend requirement |  |                                                 |            |                 |  |             | 1,507   |        |  |         |         |       |  |   |        |  |  |   | (1,507   | ) |  |   |         |  
|                                     |  |                                                 |            |                 |  |             |         |        |  |         |         |       |  |   |        |  |  |   |          |   |  |   |         |  
|Balance December 31, 2001            |  |                                                 | 10,000,000 |                 |  |             | 383,547 |        |  |         | 606,730 |       |  |   | 31,886 |  |  |   | (26,825  | ) |  |   | 388,608 |  
|Net loss                             |  |                                                 |            |                 |  |             |         |        |  |         |         |       |  |   |        |  |  |   | (19,928  | ) |  |   | (19,928 | )
|Preferred stock dividend requirement |  |                                                 |            |                 |  |             | 1,507   |        |  |         |         |       |  |   |        |  |  |   | (1,507   | ) |  |   |         |  
|                                     |  |                                                 |            |                 |  |             |         |        |  |         |         |       |  |   |        |  |  |   |          |   |  |   |         |  
|Balance December 31, 2002            |  |                                                 | 10,000,000 |                 |  |             | 385,054 |        |  |         | 606,730 |       |  |   | 31,886 |  |  |   | (48,260  | ) |  |   | 368,680 |  
|Net loss                             |  |                                                 |            |                 |  |             |         |        |  |         |         |       |  |   |        |  |  |   | (79,197  | ) |  |   | (79,197 | )
|Preferred stock dividend requirement |  |                                                 |            |                 |  |             | 1,507   |        |  |         |         |       |  |   |        |  |  |   | (1,507   | ) |  |   |         |  
|                                     |  |                                                 |            |                 |  |             |         |        |  |         |         |       |  |   |        |  |  |   |          |   |  |   |         |  
|Balance December 31, 2003            |  |                                                 | 10,000,000 |                 |  | $           | 386,561 |        |  |         | 606,730 |       |  | $ | 31,886 |  |  | $ | (128,964 | ) |  | $ | 289,483 |  
|                                     |  |                                                 |            |                 |  |             |         |        |  |         |         |       |  |   |        |  |  |   |          |   |  |   |         |  

See notes to financial statements.

F-5



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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.

(A Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2003,
2002 and 2001


|                                                                       |                                                                 |                                        |         |        |   |      |          |        |   |   |         |         |  
|---------------------------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------- | ------- | ------ | - | ---- | -------- | ------ | - | - | ------- | ------- | -
|                                                                       |                                                                 | 2003                                   |         | 2002   |   | 2001
|                                                                       |                                                                 |                                        |         |        |   |     
|                                                                       |                                                                 |                                       
|                                                                       |                                                                 | (Amounts in thousands of U.S. dollars)
|Operating activities                                                   |                                                                 |                                        |         |        |   |      |          |        |   |   |         |        
|Net loss                                                               |                                                                 | $                                      | (79,197 | )      |   | $    | (19,928  | )      |   | $ | (3,112  | )      
|Adjustments to reconcile net (loss) income to
    operating cash flow: |                                                                 |                                        |         |        |   |      |          |        |   |   |         |        
|                                                                       | Depreciation expense and amortization of
    concessions        |                                        |         | 48,405 |   |      |          | 47,429 |   |   |         | 47,252  |  
|                                                                       | Amortization of deferred financing costs                        |                                        |         | 2,238  |   |      |          | 2,315  |   |   |         | 2,302   |  
|                                                                       | Gain on in-orbit failure of Solidaridad 1                       |                                        |         | (3,317 | ) |      |          | (5,277 | ) |   |         | (7,264  | )
|                                                                       | Deferred revenue  customers                                    |                                        |         | (60    | ) |      |          | 21     |   |   |         | (3,918  | )
|                                                                       | Deferred revenue  Mexican Government                           |                                        |         | (2,200 | ) |      |          | (2,200 | ) |   |         | (2,200  | )
|                                                                       | Deferred income taxes                                           |                                        |         | 35,744 |   |      |          | (8,837 | ) |   |         | (1,149  | )
|                                                                       | Interest income from restricted and segregated
    cash         |                                        |         | (5     | ) |      |          | (1,360 | ) |   |         | (7,440  | )
|                                                                       | Use of restricted and segregated cash for
    interest payments |                                        |         | 177    |   |      |          | 15,400 |   |   |         |         |  
|Changes in assets and liabilities:                                     |                                                                 |                                        |         |        |   |      |          |        |   |   |         |        
|                                                                       | Accounts receivable                                             |                                        |         | 436    |   |      |          | (2,836 | ) |   |         | 5,434   |  
|                                                                       | Prepaid insurance                                               |                                        |         | 1,441  |   |      |          | 5,870  |   |   |         | 3,323   |  
|                                                                       | Accounts payable and accrued expenses                           |                                        |         | 1,846  |   |      |          | (9,937 | ) |   |         | (2,669  | )
|                                                                       | Interest payable                                                |                                        |         | 16,200 |   |      |          |        |   |   |         | 9,062   |  
|                                                                       | Due from/ to related parties                                    |                                        |         | 896    |   |      |          | 265    |   |   |         | (10,233 | )
|                                                                       | Deferred financing costs and other assets                       |                                        |         | (3,609 | ) |      |          | (135   | ) |   |         | (133    | )
|                                                                       |                                                                 |                                        |         |        |   |      |          |        |   |   |         |        
|Cash flow provided by operating activities                             |                                                                 |                                        | 18,995  |        |   |      | 20,790   |        |   |   | 29,255  |        
|                                                                       |                                                                 |                                        |         |        |   |      |          |        |   |   |         |        
|Investing activities                                                   |                                                                 |                                        |         |        |   |      |          |        |   |   |         |        
|Use of restricted and segregated cash 
    satellite construction     |                                                                 |                                        | 6,645   |        |   |      | 108,013  |        |   |   | 83,806  |        
|Construction in progress  Satmex 6                                    |                                                                 |                                        | (36,268 | )      |   |      | (119,811 | )      |   |   | (91,920 | )      
|Acquisition of equipment                                               |                                                                 |                                        | (1,638  | )      |   |      | (3,436   | )      |   |   | (3,822  | )      
|                                                                       |                                                                 |                                        |         |        |   |      |          |        |   |   |         |        
|Cash flow used in investing activities                                 |                                                                 |                                        | (31,261 | )      |   |      | (15,234  | )      |   |   | (11,936 | )      
|                                                                       |                                                                 |                                        |         |        |   |      |          |        |   |   |         |        
|Financing activities                                                   |                                                                 |                                        |         |        |   |      |          |        |   |   |         |        
|Use of restricted and segregated cash 
    debt payments              |                                                                 |                                        |         |        |   |      | 26,626   |        |   |   | 500     |        
|Borrowing (repayments) under revolving
    credit facility             |                                                                 |                                        |         |        |   |      | 13,000   |        |   |   | (15,000 | )      
|Repayment of revolving credit facility                                 |                                                                 |                                        |         |        |   |      | (13,000  | )      |   |   |         |        
|Repayment of Floating Rate Notes                                       |                                                                 |                                        | (824    | )      |   |      | (31,626  | )      |   |   | (1,000  | )      
|                                                                       |                                                                 |                                        |         |        |   |      |          |        |   |   |         |        
|Cash flow used in financing activities                                 |                                                                 |                                        | (824    | )      |   |      | (5,000   | )      |   |   | (15,500 | )      
|                                                                       |                                                                 |                                        |         |        |   |      |          |        |   |   |         |        
|(Decrease) increase in cash and cash equivalents                       |                                                                 |                                        | (13,090 | )      |   |      | 556      |        |   |   | 1,819   |        
|Cash and cash equivalents  beginning
    of year                      |                                                                 |                                        | 24,324  |        |   |      | 23,768   |        |   |   | 21,949  |        
|                                                                       |                                                                 |                                        |         |        |   |      |          |        |   |   |         |        
|Cash and cash equivalents  end of year                                |                                                                 | $                                      | 11,234  |        |   | $    | 24,324   |        |   | $ | 23,768  |        
|                                                                       |                                                                 |                                        |         |        |   |      |          |        |   |   |         |        
|Supplemental disclosure                                                |                                                                 |                                        |         |        |   |      |          |        |   |   |         |        
|Capitalized interest                                                   |                                                                 | $                                      | 18,572  |        |   | $    | 14,243   |        |   | $ | 3,465   |        
|Interest paid                                                          |                                                                 | $                                      | 30,325  |        |   | $    | 49,309   |        |   | $ | 57,147  |        

Non-cash activities

In 2001, the Company received $235.3 million
of insurance proceeds related to the in-orbit failure of
Solidaridad 1, which was recorded as restricted and
segregated cash.

See notes to financial statements.

F-6



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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.

(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS

(Monetary Amounts Expressed in
U.S. dollars)




|   |            
|-- | -----------
|1. | The Company

Satélites Mexicanos, S.A. de C.V. (The
Company or Satmex) is the leading
provider of fixed satellite services in Mexico and has expanded
its services to become a leading provider of fixed satellite
services throughout Latin America. Satmex provides transponder
capacity to customers for distribution of network and cable
television programming, direct-to-home television service,
on-site transmission of live news reports, sporting events and
other video feeds. It also provides satellite transmission
capacity to telecommunications service providers for public
telephone networks in Mexico and elsewhere and to corporate
customers for their private business networks with data, voice
and video applications. Satmex is also marketing the use of
satellite transmission capacity for new applications, such as
Internet access via satellite.

Satmex provides broadcasting and
telecommunications transmission capacity in Mexico, the United
States, Canada and 40 nations and territories in Latin America
and the Caribbean. Its broadcasting customers include Grupo
Televisa, Television Azteca and PCTV and its telecommunications
services customers include Telmex, Pemex and Elektra. The
Companys data and Internet customers include Hughes
Network Systems.

Satélites Mexicanos, S.A. de C.V. (The
Company or Satmex) currently owns and operates two
satellites, Solidaridad 2 and Satmex 5, in geostationary
orbit at 113.0 degrees W.L. and 116.8 degrees W.L.,
respectively, and has plans to launch its third satellite,
Satmex 6. In total, Satmex has 96 36-MHz transponder-equivalents
operating in the C- and Ku-bands with an aggregate footprint
covering substantially all of the continental United States,
Mexico, the Caribbean and all of Latin America, other than
certain regions in Brazil.

On November 17, 1997, Loral Space &
Communications Ltd. (together with its subsidiaries,
Loral) and Principia, S.A. de C.V.
(Principia), through Firmamento Mexicano, S. de R.L.
de C.V. (Firmamento) and its wholly owned
subsidiary, Servicios Corporativos, S.A. de C.V.
(Servicios) acquired 75% of Satmexs issued and
outstanding stock from the government of Mexico for
approximately $647 million. Loral owns 65% of Firmamento
and Principia owns 35%. Loral holds 49% and Principia holds 51%
of Firmamentos voting interests. The remaining 25% of the
Companys capital stock was retained at that time by the
Mexican government.

On March 30, 1999, the Company issued
606,730 shares of preferred stock to Loral and Principia
for a total purchase price of approximately $31.9 million.
The preferred stock has limited voting rights and pays a
cumulative dividend in common stock of the Company equal to
0.138 shares of Series N or Series B common stock
for each share of preferred stock. The preferred stock can be
exchanged at the Companys option into common stock of the
Company, at an exchange ratio of 1 share of preferred stock
for 2.0008 shares of Series N or Series B common
stock, if the exchange occurs before February 2, 2005, and
at an exchange ratio of 1 share of preferred stock for
4.0016 shares of Series N or Series B common
stock on and after February 2, 2005. As of
December 31, 2003, Servicios holds 70.71% of the
outstanding capital stock of Satmex, Loral holds 4.46%,
Principia holds 1.26% and the Mexican government holds 23.57%.

On July 15, 2003, Loral and certain of its
subsidiaries voluntarily filed petitions for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. This
filing did not include Satmex, Servicios or Firmamento, and
those entities may not file such a petition without the approval
of at least one director nominated by each of Principia and
Loral. Although the Company does not believe that Loral intends
to sell or dispose of its direct or indirect interests in it,
the possibility exists that as part of its reorganization Loral
may do so.

Although Satmex is unable at this time to predict
what effects, if any, Lorals Chapter 11 cases will
have on it, these cases may have a material impact on the
Companys business. In addition, as with any bankruptcy
filing, federal bankruptcy law may restrict the Companys
ability to enforce the terms of its agreements with such
entities in accordance with their terms.

F-7



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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)

Recent
Developments



| |                         
| | ------------------------
| | Defaults on Indebtedness

On June 30, 2004, Satmexs outstanding
senior secured floating rate notes due June 2004 (the
Floating Rate Notes) came due and the Company did
not make the required principal payment of $203.5 million.
Satmex has continued to pay interest on the Floating Rate Notes
monthly. Also, the Company did not make the August 1, 2003
and February 1, 2004, interest payments on its
10.125% senior notes due November 2004 (the Fixed
Rate Notes). The amount of each interest payment due was
$16.2 million for a total of $32.4 million. Satmex did
not make the interest payments on the Fixed Rate Notes due to
cash shortfalls from operating activities. Certain other
covenant defaults have occurred under both indentures.

On September 30, 2003, Satmexs parent
company, Servicios defaulted, as a result of its failure to
maintain a minimum coverage ratio, on its $125.1 million
debt obligation to the Mexican government, which was incurred in
connection with the acquisition of Satmex and which accrues
deferred interest at the rate of 6.03% per annum, compounds
annually and matures in December 2004 (the
Menoscabo). If Servicios were to default in the payment of
the Menoscabo, the Mexican government has the right to initiate
foreclosure proceedings under its collateral which would lead to
the transfer of the holdings of Loral and Principia in
Firmamento to a third party purchaser. The Mexican government
may participate as an interested purchaser of said holdings and,
if awarded the sale, it would gain direct control of Firmamento
and indirect control of Satmex. If the Mexican government gains
control of Satmex, there can be no assurance that it would
assume any of the Companys debt, including the Fixed Rate
Notes and Floating Rate Notes. Also, in that scenario, Satmex
would becontrolled and managed by the Mexican government.

The occurrence of the events of default under the
Fixed Rate Notes gives the holders of those notes the right to
accelerate the principal repayment obligations on those notes.
As of July 8, 2004, Satmex has not received notice of the
acceleration of principal repayment as provided for in the
indentures for the Fixed Rate Notes.

The
Companys Credit Rating

On September 5, 2003, Moodys Investors
Services lowered its ratings of the Companys senior
unsecured indebtedness from Ca to C, as
a result of the payment default on the Fixed Rate Notes.
Ca is the second lowest rating category out of 21
and describes obligations that Moodys believes are, to a
high degree, speculative and that are often in default or have
other marked shortcomings. C is the lowest rating
category and describes obligations that are typically in
default, with little prospect for recovery of principal or
interest.

On August 6, 2003, Standard &
Poors lowered the Companys long term foreign issuer
credit rating from CCC+ to D, as a
result of the payment default on the Fixed Rate Notes. A
CCC+ rating describes an obligation that
Standard & Poors believes is currently vulnerable
to nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its
financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, Standard &
Poors believes that a CCC rated obligor is not
likely to have the capacity to meet its financial commitment on
the obligation. A D rating is assigned when
Standard & Poors believes that the default will
be a general default and that the obligor will fail to pay all
or substantially all of its obligations as they come due. As a
consequence of having a D rating, for a period
longer than six months, Standard & Poors will no
longer rate the Company.

As a result of these defaults and negative credit
ratings, the Company cannot rely on sources of short-term
financing, which could otherwise allow the Company to finance
its operations. The secondary trading prices of the Floating
Rate Notes and Fixed Rate Notes may be materially and adversely
affected by downgrading and potential loss of
Standard & Poors rating. Furthermore, the
negative publicity surrounding these recent downgrades has
generated concern among certain of the Companys existing
customers.

F-8



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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)

The defaults and the possibility of acceleration
of the Companys debt and the lack of access to additional
financing raise substantial doubt about Satmexs ability to
continue as a going concern unless it is able to restructure its
debt and finance the launch of its new Satmex 6 satellite. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Debt
Restructuring

Given these recent developments, Satmex has been
actively exploring with financial advisors the restructuring of
these debt obligations. This restructuring may be part of a
court supervised restructuring that would be commenced by the
Company.

Satmex has been negotiating with an ad hoc
committee of the holders of the Fixed Rate Notes regarding a
possible restructuring of the Fixed Rate Notes, but has not, as
of July 8, 2004, reached any agreement with the ad hoc
committee or any other holder of Fixed Rate Notes regarding the
restructuring of the Fixed Rate Notes. On May 4, 2004, the
ad hoc committee informed the Company that certain of its
members held more than 51% of the outstanding principal amount
of the Fixed Rate Notes.

Satmex is also negotiating to restructure the
Floating Rate Notes with an ad hoc committee of holders of the
Floating Rate Notes. As of July 8, 2004, the Company has
not reached any agreement with the ad hoc committee or any other
holder of Floating Rate Notes regarding the restructuring of the
Floating Rate Notes. On April 28, 2004, the ad hoc
committee informed the Company that its members held more than
62% of the outstanding principal amount of the Floating Rate
Notes.

In October 2003, Satmex 6 was completed, and it
is currently in Kourou, French Guiana awaiting launch. In order
to launch Satmex 6, Satmex must complete payment of the
launch insurance premium and a final payment under the launch
services agreement.

As part of its restructuring, Satmex is working
with its financial advisors to arrange financing for the
remaining amounts necessary to launch Satmex 6. In order to
arrange this financing, Satmex may commence a court supervised
restructuring. The launch of Satmex 6 is critical to the
Companys ability to increase cash flows and improve its
financial position.

If Satmex is not successful in efforts to
negotiate the terms of a consensual restructuring of the Fixed
Rate Notes and the Floating Rate Notes the Company may commence
a voluntary bankruptcy proceedings in the U.S. under
Chapter 11 of the U.S. Bankruptcy Code or a voluntary
or involuntary reorganization proceeding in Mexico, Concurso
Mercantil.

Loss Solidaridad
1

In August 2000, Satmexs Solidaridad 1
satellite, located at 109.2 degrees W.L., ceased operating and
was considered irretrievably lost. The loss was caused by the
failure of the back-up control processor on board the satellite.
Solidaridad 1 was built by Hughes Space and Communications and
commenced service in January 1994. Solidaridad 1 was insured for
$250 million. In January 2001, Satmex received insurance
proceeds of approximately $235.3 million, net of the unpaid
insurance premiums and related value added tax. Satmex used the
net insurance proceeds towards the construction, launch and
insurance of a replacement satellite, Satmex 6, as well as
for debt service. Satmex contracted Space Systems/ Loral, Inc.
(SS/ L), a wholly owned subsidiary of Loral, to
build Satmex 6, designed to provide broader coverage and
higher power levels than any other satellite currently in the
Satmex fleet.

F-9



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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)



|   |                                               
|-- | ----------------------------------------------
|2. | Summary of Significant Accounting
    Policies



| |                      
| | ---------------------
| | Basis of Presentation

The Companys financial statements are
presented in U.S. dollars and have been prepared using
accounting principles generally accepted in the United States of
America.

Reclassifications

Certain amounts in the financial statements as of
and for the year ended December 31, 2002 and 2001 have been
reclassified in order to conform to the presentation of the
financial statements as of and for the year ended
December 31, 2003.

Functional
Currency and Translation

The Company maintains its legal books and records
in Mexican pesos. The functional currency of the Company is the
U.S. dollar. Monetary assets and liabilities denominated in
pesos are translated into U.S. dollars using current
exchange rates. The effect of changes in exchange rates is
recorded in the results of operations. Non-monetary assets and
liabilities originally denominated in pesos are translated into
U.S. dollars using the historical exchange rate at the date
of the transaction. Capital stock is translated at historical
exchange rates.

The financial statements should not be construed
as representations that Mexican pesos have been, could have been
or may in the future be converted into U.S. dollars at such
rates or any other rates.

Relevant exchange rates used in the preparation
of the financial statements were as follows (Mexican pesos per
one U.S. dollar):

|                                     |  |      |           |      |  |      |           |  |  |  |          | 
|------------------------------------ |  | ---- | --------- | ---- |  | ---- | --------- |  |  |  | -------- | 
|                                     |  | 2003 |           | 2002 |  | 2001
|                                     |  |      |           |      |  |     
|Current exchange rate at December 31 |  |      | Ps. 11.24 |      |  |      | Ps. 10.31 |  |  |  | Ps. 9.14 | 
|Weighted average exchange rate       |  |      | 10.79     |      |  |      | 9.66      |  |  |  | 9.34     | 

Foreign
Currency Transactions

Transactions denominated in foreign currencies
are recorded at the rate of exchange in effect at the date of
the transactions. Monetary assets and liabilities denominated in
foreign currencies are converted into the Companys
functional currency at the rate of exchange in effect at the
balance sheet date. The effect of changes in exchange rates is
recorded in the results of operations.

Use of
Estimates

The preparation of financial statements in
conformity with U.S. GAAP 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. Although management believes the estimates and
assumptions used in the preparation of these financial
statements were appropriate in the circumstances, actual results
could differ from those estimates and assumptions.

Cash and Cash
Equivalents

The Company considers all highly-liquid debt
instruments purchased with an original maturity of three months
or less to be cash equivalents.

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SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)

Restricted
and Segregated Cash

In accordance with the Companys debt
agreements, the insurance proceeds from the failure of
Solidaridad 1 were restricted to use for debt service on the
Companys Floating Rate Notes and revolving credit facility
and for payments toward the construction and launch of Satmex 6.
Upon receipt of the net insurance proceeds of
$235.3 million, Satmex allocated $50.0 million of the
proceeds for debt service and the remainder of the proceeds
towards the construction and launch of Satmex 6. At
December 31, 2003, Satmex had used all of the restricted
and segregated cash received.

Satellites
and Equipment

Satellites and equipment are stated at historical
cost. Depreciation expense is calculated using the straight-line
method over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the shorter of the
lease term or the estimated useful life of the improvements.

The estimated useful lives of the Companys
fixed assets as of December 31, 2003, were:

|                       |  |  |             | 
|---------------------- |  |  | ----------- | 
|Solidaridad 2          |  |  | 14.5  years | 
|Satmex 5               |  |  | 15 years    | 
|Equipment              |  |  | 9 years     | 
|Furniture and fixtures |  |  | 10 years    | 

Solidaridad 2 and Satmex 5 are being depreciated
over their estimated useful lives commencing on their in-orbit
service dates of November 11, 1994 and January 22,
1999, respectively. The estimated useful lives of the satellites
were determined by engineering analyses performed at the
in-orbit service dates.

Gains or losses from unsuccessful launches and
in-orbit failures of the Companys satellites, net of
insurance proceeds, are recorded in the period a loss occurs.

Construction
in Progress

Costs incurred in connection with the
construction and successful deployment of the Companys
satellites and related equipment are capitalized. Such costs
include direct contract costs, allocated indirect costs, launch
costs, launch insurance, construction period interest and the
estimated value of satellite incentive payments. Capitalized
interest related to the construction of Satmex 6 was
$18.6 million, $14.2 million and $3.5 million for
the years ended December 31, 2003, 2002 and 2001,
respectively. All capitalized satellite costs are amortized over
the estimated useful life of the related satellite. The
estimated useful life of the satellites was determined by
engineering analyses performed at the satellites
in-service date. Satellite lives are reevaluated periodically.

Except for the Companys in-orbit
satellites, all the Companys long-lived assets are located
in Mexico.

Concessions

The Mexican government granted Satmex the rights
to three 20-year concession titles (the
Concessions), to operate in three orbital slots. The
Concessions are renewable on certain conditions for an
additional 20 years at no additional cost. The Concessions
require Satmex to reserve certain capacity on each satellite for
use by the Mexican government. The Concessions are being
amortized over 40 years. Amortization expense totals
$12.9 million annually.

F-11



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SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)

Deferred
Financing Costs

Deferred financing costs are being amortized over
the period of the related debt (see Note 6). Amortization
expense for the years ended December 31, 2003, 2002 and
2001 was $2.2 million, $2.3 million and
$2.3 million, respectively.

Valuation of
Long-Lived Assets

The carrying values of the Companys
long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that an asset may not be
recoverable. Assets are determined to be impaired when the
estimated undiscounted cash flows expected to result from the
use of the asset are less than the carrying value of the asset.
The Company measures impairment as the difference between the
carrying value and the fair value of the asset.

Labor
Obligations

The Company does not have employees and uses
external services from its Related Service Companies. In
accordance with Mexican Labor Law, under certain circumstances
the Company retains the obligation to provide seniority premium
benefits to employees provided by related service companies
(Satmex Corporativo, S. de R.L. de C.V., Satmex
Administración, S. de R.L. de C.V., Satmex Servicios
Técnicos, S.de R.L. de C.V. and Vita Brevis, S.C.)
(collectively, Related Service Companies). These
benefits consist of a one-time payment equivalent to
12 days wages for each year of service (at the
employees most recent salary, but not to exceed twice the
legal minimum wage), payable to all employees with 15 or more
years of service, as well as to certain employees provided by
affiliated service companies terminated involuntarily prior to
the vesting of their seniority premium benefit.

Costs associated with these benefits are provided
for based on computations provided by such affiliated service
companies.

Mandated severance benefits to such employees
terminated under certain circumstances consist of a one-time
payment of three months wages plus 20 days wages for each
year of service payable upon involuntary termination without
justification. These benefits are recognized when determined to
be payable.

Deferred
Income Tax

The Company recognizes deferred income tax assets
and liabilities for the future consequences of temporary
differences between the financial statement carrying amounts of
assets and liabilities and their respective income tax bases,
measured using enacted rates. The effects of changes in the
statutory rates are accounted for in the period that includes
the enactment date. Deferred income tax assets are also
recognized for the estimated future effects of tax loss
carryforwards and asset tax credit carryforwards. Deferred
income tax assets are reduced by any benefits that, in the
opinion of management, are not likely to be realized.

Revenue
Recognition

Satmex provides satellite capacity under service
lease agreements for periods ranging from one year to ten years.
Such services are recognized as revenues on a monthly basis as
provided. Some service agreements provide for cash advances from
customers with reduced rents. Such cash advances are recognized
as revenue on a straight-line method over the total term.

In the case of end-of-life leases, in which
Satmex collects the total rent in advance and provides no
insurance or warranty on the related transponders, Satmex
recognizes the total revenue and related cost as sales-type
leases.

F-12



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SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)

Deferred
Revenue  Mexican Government

The Company is required to provide the Mexican
government, at no charge, approximately 7% of its available
transponder capacity for the duration of the Concessions. In
1997, the Company recorded $88 million as deferred revenue,
as the value of this obligation, and an increase in the value of
the Concessions by the same amount. This obligation is being
amortized over 40 years as an increase in revenue and a
corresponding increase in amortization expense. Amortization of
deferred revenue totals $2.2 million annually.

Financial
Instruments

The estimated fair value of the Companys
financial instruments has been determined using available market
information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to
develop estimates of fair value.

The fair value of the Companys Floating
Rate Notes (with a nominal and recorded amount of
$203.6 million), based on best estimates at
December 31, 2003, was approximately $173.1 million.
At December 31, 2003, the fair value of the Companys
Fixed Rate Notes (with a nominal and recorded amount of
$320 million) based on quoted market prices was
$131.2 million.

Derivative
Instruments

The Company records all derivatives including
bifurcated embedded derivatives, on the balance sheet at fair
value, regardless of the purpose or intent for holding them. The
accounting for changes in fair value of the derivatives varies,
depending if the derivative is considered to be a hedge for
accounting purposes, and whether that hedged instrument is a
fair value, or a cash flow hedge.

The Company formally documents all relationships
between hedging instruments and hedged items, as well as its
risk management objectives and strategies for undertaking
various derivative transactions. It is the Companys policy
is to not enter into derivative financial instruments for
speculative purposes.

Derivatives that are considered to be hedges from
an accounting perspective are recognized in the balance sheet at
fair value with changes in fair value either: (1) offset by
changes in fair value of the hedged assets, liabilities or firm
commitments through earnings as a component of the corresponding
asset or liability if the derivative is designated as a fair
value hedge, or (2) recognized in other comprehensive
income until the hedged item is recognized in earnings if the
derivative is designated as a cash flow hedge. The ineffective
portion of the change in fair value for a hedged derivative is
immediately recognized in earnings, regardless of whether the
hedged derivative is designated as a cash flow or fair value
hedge. The Company has not entered to any derivative contracts
for the years ended December 31, 2003 and 2002.

Concentration
of Credit Risk and Principal Customers

Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally
of cash and cash equivalents and accounts receivable. The
Companys cash and cash equivalents are maintained with
high-credit-quality financial institutions. The Companys
customers are the Mexican government and large and mid-sized
corporations. The creditworthiness of such institutions is
generally substantial. As the Company expands its operations, it
has added customers in emerging markets or customers that are in
the development stage. Management believes that its credit
evaluation, approval and monitoring processes mitigate potential
credit risks.

A large portion of revenues are derived from a
small number of customers. Approximately 32 of Satmexs
customers account for approximately 80% of the current revenue
base, and Satmexs top 10 customers represented
approximately 54% of revenues during 2003. The Companys
largest customer is Hughes Network

F-13



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SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)

Systems, a wholly owned subsidiary of The DirecTV
Group, previously Hughes Electronics Corporation. Revenue from
Hughes Network Systems represented 23%, 15% and 10%, of service
revenue for the years ended December 31, 2003, 2002 and
2001, respectively. Satmex expects that Hughes Network Systems
will continue to expand its capacity requirements and represent
a greater portion of service revenue in 2004.

Revenue from Innova, S. de R.L. de C.V.
(Innova), an affiliate of Grupo Televisa,
represented 19% of service revenue for the years ended
December 31 2001.

Approximately 42%, 49% and 55% of the
Companys service revenue for the years ended
December 31, 2003, 2002 and 2001, respectively, was
generated from customers in Mexico.

Recent
Accounting Pronouncements

On January 1, 2003, the Company adopted
SFAS No. 143, Accounting for Asset Retirement
Obligations,which addressed the financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs. The adoption of SFAS No. 143 on January 1, 2003
did not have a material effect on the Companys financial
position, results of operations or cash flows.

In April 2002, the Financial Accounting Standards
Board (FASB) issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical
Corrections. SFAS No. 145 rescinds SFAS
No. 4, Reporting Gains and Losses from
Extinguishments of Debt, and an amendment of that
Statement, SFAS No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements, whereby
gains and losses from extinguishments of debt are no longer
classified as extraordinary items within the income statement
unless considered unusual and infrequent. SFAS No. 145 also
rescinds SFAS No. 44, Accounting for Intangible
Assets of Motor Carriers. SFAS No. 145 amends
SFAS No. 13, Accounting for Leases, to
eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are
similar to sale leaseback transactions. SFAS No. 145 also
amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe
their applicability under changed conditions. The provision of
SFAS No. 145 related to the rescission of SFAS No. 4
was applied by the Company beginning January 1, 2003. The
provisions of SFAS No. 145 related to SFAS No. 13 were
effective for transactions occurring after May 15, 2002.
The adoption of SFAS No. 145 did not have a material impact
on the Companys results of operations, financial position
or cash flows.

In June 2002, the Financial Accounting Standards
Board, or FASB, issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities
(SFAS 146). SFAS 146 requires companies to
recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an
exit or disposal plan. Examples of costs covered by this
standard include lease termination costs and certain employee
severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal
activity. Previous accounting guidance was provided by EITF
Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring). SFAS 146 replaces EITF Issue
No. 94-3. The adoption of SFAS 146 on January 1,
2003 did not have a material effect on Satmexs financial
position, results of operations or cash flows.

In November 2002, FASB issued FASB Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. This interpretation elaborates on
the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the

F-14



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SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)

guarantee. The disclosure requirements of this
interpretation are effective for interim and annual periods
after December 15, 2002. The initial recognition and
initial measurement requirements of this interpretation are
effective prospectively for guarantees issued or modified after
December 31, 2002. The interpretations expanded
disclosures had no impact on Satmexs financial position or
result of operations. The adoption of the recognition and
initial measurement requirements of this interpretation on
January 1, 2003 did not have a material effect on
Satmexs financial position, results of operations or cash
flows.

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities(FIN 46).
FIN 46 clarified the application of Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity
investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46
was effective immediately for all variable interests held by the
Company in a variable interest entity created after
January 31, 2003. For a variable interest held by the
Company in a variable interest entity created before
February 1, 2003, the Company will be required to apply the
provisions of FIN 46 as of December 31, 2004. The
Company does not currently have any variable interests in a
variable interest entity and therefore the adoption of the
standard did not have any effect on Satmexs financial
position, results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149,
Amendments of Statement 133 on Derivative
Instruments and Hedging Activities, which amends and
clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded
in other contracts and for hedging activities under SFAS
No. 133 Accounting for Derivative Instruments and
Hedging Activities.

The changes in SFAS No. 149 improve
financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. SFAS No. 149
was effective for contracts entered into or modified after
June 30, 2003, except as stated below, and for hedging
relationships designated after or modified after June 30,
2003. All provisions of this statement, except as stated below,
should be applied prospectively. The provisions of SFAS
No. 149 that relate to SFAS No. 133 implementation
issues that have been effective for fiscal quarters that began
prior to June 15, 2003, continue to be applied in
accordance with their respective effective dates. The adoption
of SFAS No. 149 did not have any material effect on its
financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS
No. 150 establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics
of both liabilities and equity. SFAS No. 150 requires that
certain financial instruments be classified as liabilities that
were previously considered equity. The provisions of SFAS
No. 150 are effective for financial instruments entered
into or modified after May 31, 2003, and for pre-existing
instruments, were effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption
of SFAS No. 150 did not have a material effect on its
financial position, results of operations or cash flows.

F-15



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SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)



|   |                    
|-- | -------------------
|3. | Accounts Receivable

|                                     |  |                |        |      |  |   |        |  
|------------------------------------ |  | -------------- | ------ | ---- |  | - | ------ | -
|                                     |  |               
|                                     |  | December 31,  
|                                     |  |               
|                                     |  | 2003           |        | 2002
|                                     |  |                |        |     
|                                     |  |               
|                                     |  | (In thousands)
|Customers                            |  | $              | 3,123  |      |  | $ | 4,656  |  
|Prepaid expenses                     |  |                | 1,275  |      |  |   | 144    |  
|Value added tax recoverable          |  |                | 652    |      |  |   | 526    |  
|Other                                |  |                | 286    |      |  |   | 326    |  
|Allowance for uncollectible accounts |  |                | (1,859 | )    |  |   | (1,739 | )
|                                     |  |                |        |      |  |   |        |  
|                                     |  | $              | 3,477  |      |  | $ | 3,913  |  
|                                     |  |                |        |      |  |   |        |  



|   |                         
|-- | ------------------------
|4. | Satellites and Equipment

|                                |  |                |          |      |  |   |          |  
|------------------------------- |  | -------------- | -------- | ---- |  | - | -------- | -
|                                |  |               
|                                |  | December 31,  
|                                |  |               
|                                |  | 2003           |          | 2002
|                                |  |                |          |     
|                                |  |               
|                                |  | (In thousands)
|Satellites                      |  | $              | 409,119  |      |  | $ | 409,119  |  
|Equipment                       |  |                | 31,399   |      |  |   | 30,677   |  
|Furniture and Fixtures          |  |                | 7,384    |      |  |   | 6,664    |  
|Leasehold improvements          |  |                | 4,467    |      |  |   | 4,371    |  
|Construction in process  other |  |                | 336      |      |  |   | 455      |  
|                                |  |                |          |      |  |   |          |  
|                                |  |                | 452,705  |      |  |   | 451,286  |  
|Accumulated depreciation        |  |                | (196,930 | )    |  |   | (161,649 | )
|                                |  |                |          |      |  |   |          |  
|                                |  | $              | 255,775  |      |  | $ | 289,637  |  
|                                |  |                |          |      |  |   |          |  

Depreciation expense was $35.5 million,
$34.5 million and $34.4 million for the years ended
December 31, 2003, 2002 and 2001, respectively.



|   |                                                   
|-- | --------------------------------------------------
|5. | Balances and Transactions with Related
    Parties

|                                                         |  |                |        |      |  |   |       |  
|-------------------------------------------------------- |  | -------------- | ------ | ---- |  | - | ----- | -
|                                                         |  |               
|                                                         |  | December 31,  
|                                                         |  |               
|                                                         |  | 2003           |        | 2002
|                                                         |  |                |        |     
|                                                         |  |               
|                                                         |  | (In thousands)
|Amounts receivable, net:                                 |  |                |        |      |  |   |       |  
|Loral                                                    |  | $              | 2,342  |      |  | $ |       |  
|Mexican government agencies                              |  |                | 1,959  |      |  |   | 1,887 |  
|Enlaces S. de R.L. de C.V. (Enlaces)                     |  |                | 267    |      |  |   |       |  
|Related Service Companies                                |  |                | 51     |      |  |   | 9     |  
|Allowance for uncollectible accounts                     |  |                | (1,934 | )    |  |   | (430  | )
|                                                         |  |                |        |      |  |   |       |  
|                                                         |  | $              | 2,685  |      |  | $ | 1,466 |  
|                                                         |  |                |        |      |  |   |       |  
|Amounts receivable long-term                             |  |                |        |      |  |   |       |  
|Enlaces (advance payment for concession
    acquisition) |  | $              | 2,900  |      |  | $ | 2,900 |  
|                                                         |  |                |        |      |  |   |       |  

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SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)

|                           |  |                |       |      |  |   |       | 
|-------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                           |  |               
|                           |  | December 31,  
|                           |  |               
|                           |  | 2003           |       | 2002
|                           |  |                |       |     
|                           |  |               
|                           |  | (In thousands)
|Amounts payable:           |  |                |       |      |  |   |       | 
|Loral                      |  | $              | 1,925 |      |  | $ | 314   | 
|Related Service Companies  |  |                | 1,280 |      |  |   | 1,881 | 
|Enlaces                    |  |                |       |      |  |   | 36    | 
|                           |  |                |       |      |  |   |       | 
|                           |  | $              | 3,205 |      |  | $ | 2,231 | 
|                           |  |                |       |      |  |   |       | 
|Amounts payable long-term: |  |                |       |      |  |   |       | 
|Loral                      |  | $              | 1,141 |      |  | $ |       | 
|                           |  |                |       |      |  |   |       | 

Transactions with related parties, not otherwise
disclosed, are as follows:

|                         |                                                  |                |   |        |  |      |   |        |  |  |   |        | 
|------------------------ | ------------------------------------------------ | -------------- | - | ------ |  | ---- | - | ------ |  |  | - | ------ | 
|                         |                                                  |               
|                         |                                                  | December 31,  
|                         |                                                  |               
|                         |                                                  | 2003           |   | 2002   |  | 2001
|                         |                                                  |                |   |        |  |     
|                         |                                                  |               
|                         |                                                  | (In thousands)
|Revenues                 |                                                  |                |   |        |  |      |   |        |  |  |   |       
|                         | From Mexican government agencies services        |                | $ | 5,648  |  |      | $ | 6,708  |  |  | $ | 8,323  | 
|                         | From Loral services                              |                |   | 2,737  |  |      |   | 2,600  |  |  |   | 4,744  | 
|                         | From Enlaces services and lease of equipment     |                |   | 1,218  |  |      |   | 651    |  |  |   | 350    | 
|                         | From Enlaces sales telecommunication equipment   |                |   |        |  |      |   |        |  |  |   | 1,134  | 
|                         | From Enlaces interest income                     |                |   |        |  |      |   | 204    |  |  |   | 120    | 
|Expenses                 |                                                  |                |   |        |  |      |   |        |  |  |   |       
|                         | Related Service Companies (Administrative labor) |                | $ | 15,464 |  |      | $ | 16,881 |  |  | $ | 17,925 | 
|                         | Purchase equipment to Enlaces                    |                |   |        |  |      |   | 2,388  |  |  |   |        | 
|                         | Intellectual fee to Loral                        |                |   | 1,141  |  |      |   | 1,213  |  |  |   | 1,840  | 
|                         | Replacement capacity to Loral                    |                |   | 989    |  |      |   | 4,196  |  |  |   | 7,255  | 
|                         | Rent control center to Mexican government        |                |   | 407    |  |      |   | 321    |  |  |   | 317    | 
|                         | Sales commissions to Skynet                      |                |   | 395    |  |      |   | 547    |  |  |   | 574    | 
|                         | Guaranty fees to Servicios and Firmamento        |                |   | 63     |  |      |   | 102    |  |  |   |        | 
|                         | Management fee to Loral and Principia            |                |   |        |  |      |   |        |  |  |   | 2,324  | 
|Construction in progress |                                                  |                |   |        |  |      |   |        |  |  |   |       
|                         | Construction Satmex 6 to Loral                   |                | $ | 12,170 |  |      | $ | 22,080 |  |  | $ | 84,000 | 

F-17



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SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)



|   |                  
|-- | -----------------
|6. | Long-Term Debt(i)

|                                                                                     |  |                |         |      |  |   |         | 
|------------------------------------------------------------------------------------ |  | -------------- | ------- | ---- |  | - | ------- | 
|                                                                                     |  |               
|                                                                                     |  | December 31,  
|                                                                                     |  |               
|                                                                                     |  | 2003           |         | 2002
|                                                                                     |  |                |         |     
|                                                                                     |  |               
|                                                                                     |  | (In thousands)
|Floating Rate Notes (5.62% and 5.88% at
    December 31, 2003 and 2002 respectively) |  | $              | 203,550 |      |  | $ | 204,374 | 
|Fixed Rate Notes                                                                     |  |                | 320,000 |      |  |   | 320,000 | 
|                                                                                     |  |                |         |      |  |   |         | 
|Total debt                                                                           |  |                | 523,550 |      |  |   | 524,374 | 
|Less current maturities                                                              |  |                | 523,550 |      |  |   | 1,000   | 
|                                                                                     |  |                |         |      |  |   |         | 
|                                                                                     |  | $              |         |      |  | $ | 523,374 | 
|                                                                                     |  |                |         |      |  |   |         | 



---



|    |                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------
|(i) | The long term debt is currently in default; see
    Note 1  The Company, Recent
    Developments



| |                     
| | --------------------
| | The Fixed Rate Notes

On February 2, 1998, Satmex issued the Fixed
Rate Notes in an aggregate principal amount of
$320 million, all of which was outstanding on
December 31, 2003. The interest rate on the Fixed Rate
Notes is 10.125%. Satmex is required to make interest payments
on the Fixed Rate Notes semi-annually in cash in arrears on
February 1 and August 1 until maturity. The Fixed Rate
Notes mature on November 1, 2004 and are unsecured,
unsubordinated obligations, rank pari passuin right of
payment with all of the existing and future unsecured,
unsubordinated obligations, and are senior in right of payment
to all of the future subordinated indebtedness.

The Fixed Rate Notes indenture contains certain
covenants that impose certain limitations and restrictions on
the ability to incur additional indebtedness, pay dividends or
make other distributions, make certain loans and investments,
apply the proceeds of asset sales (and use the proceeds
thereof), create liens, enter into certain transactions with
affiliates, merge, consolidate or transfer substantially all of
the assets and make investments in unrestricted subsidiaries.
The events of default under the Fixed Rate Notes indenture
includes various events of default customary for similar issues
of notes, including the failure to pay principal and interest
when due, cross acceleration and certain events of bankruptcy,
insolvency and reorganization.

Satmex did not make the August 1, 2003 and
February 1, 2004, interest payments on the Fixed Rate
Notes. The amount of each interest payment due was
$16.2 million for a total of $32.4 million. Satmex did
not make the interest payments due to cash shortfalls from
operating activities. Certain other covenant defaults have
occurred under this indenture. The occurrence of the events of
default under the Fixed Rate Notes gives the holders of those
notes the right to accelerate principal repayment obligations on
those notes.



| |                        
| | -----------------------
| | The Floating Rate Notes

On March 2, 1998, Satmex issued
$325 million of senior secured Floating Rate Notes due
June 30, 2004. The Floating Rate Notes rank senior in right
of payment to all of subordinated debt and pari passuin
right of payment to all senior indebtedness, including the Fixed
Rate Notes. They are secured by a lien on substantially all of
the Companys assets. The Floating Rate Notes bear interest
at rates based either on LIBOR or the base rate specified in the
Fixed Rate Notes indenture, at the Companys option, and
are redeemable at the Companys option. In addition, the
Floating Rate Notes are guaranteed by Firmamento and Servicios.

F-18



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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)

In addition to containing similar covenants as
the Fixed Rate Notes, the Floating Rate Notes contain covenants
that require maintenance of certain quarterly financial and
operating ratio levels and impose limits on spending for capital
expenditures.

Satmex is required to make quarterly redemption
payments on the Floating Rate Notes of $250,000 through
March 31, 2004, plus additional prepayments from excess
cash flow, as defined in the Floating Rate Note indenture, with
the balance due on June 30, 2004.

On June 30, 2004, the Companys
outstanding senior secured Floating Rate Notes due June 2004
(the Floating Rate Notes) came due and Satmex did
not make the required principal payment of $203.4 million.
Certain other covenant defaults have occurred under this
indenture. The occurrence of the events of default under the
Floating Rate Notes gives the holders of those notes the right
to accelerate the principal repayment obligations on those notes.

See Note 1 for additional information
related to Defaults on Indebtedness



|   |                     
|-- | --------------------
|7. | Stockholders Equity

At December 31, 2003 and 2002 the
Companys issued and outstanding capital stock was
comprised of a fixed and variable portion, with the fixed
portion represented by 611,730 shares and the variable
portion by 9,995,000 shares, respectively in both years.

On March 30, 1999, the Company issued
606,730 shares of preferred stock to Loral and Principia
for a total purchase price of approximately $31.9 million.
The preferred stock has limited voting rights and pays a
cumulative dividend in common stock of the Company equal to
0.138 shares of Series N or Series B common stock
for each share of preferred stock. The preferred stock can be
exchanged at the Companys option into common stock of the
Company, at an exchange ratio of 1 share of preferred stock
for 2.0008 shares of Series N or Series B common
stock, if the exchange occurs before February 2, 2005, and
at an exchange ratio of 1 share of preferred stock for
4.0016 shares of Series N or Series B common
stock on and after February 2, 2005. As of
December 31, 2003, Servicios holds 70.71% of the
outstanding capital stock of Satmex, Loral holds 4.46%,
Principia holds 1.26% and the Mexican government holds 23.57%.
Loral and Principia own 65% and 35% of Firmamento, respectively.

At December 31, 2003 and 2002, the issued
and outstanding capital stock of the Company consisted of the
following:

|                  |  |              |            |      |  |  |            | 
|----------------- |  | ------------ | ---------- | ---- |  |  | ---------- | 
|                  |  |             
|                  |  | December 31,
|                  |  |             
|Series            |  | 2003         |            | 2002
|                  |  |              |            |     
|A Common stock    |  |              | 2,601,000  |      |  |  | 2,601,000  | 
|B Common stock    |  |              | 2,499,000  |      |  |  | 2,499,000  | 
|N Common stock    |  |              | 4,900,000  |      |  |  | 4,900,000  | 
|C Preferred stock |  |              | 606,730    |      |  |  | 606,730    | 
|                  |  |              |            |      |  |  |            | 
|                  |  |              | 10,606,730 |      |  |  | 10,606,730 | 
|                  |  |              |            |      |  |  |            | 

F-19



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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)

At December 31, 2003 and 2002 the capital
stock and the notional value is as follows:

|                 |                  |        |            |                |  |        |         |                |  |  |            |           |  |   |         |         | 
|---------------- | ---------------- | ------ | ---------- | -------------- |  | ------ | ------- | -------------- |  |  | ---------- | --------- |  | - | ------- | ------- | 
|                 |                  |        |            |               
|                 |                  | 2003   |            | 2002          
|                 |                  |        |            |               
|                 |                  | Shares |            | Amount         |  | Shares |         | Amount        
|                 |                  |        |            |                |  |        |         |               
|                 |                  |        |            | (In thousands) |  |        |         | (In thousands)
|Common stock:    |                  |        |            |                |  |        |         |                |  |  |            |           |  |   |         |        
|                 | Fixed portion    |        |            | 5,000          |  |        | $       | 6              |  |  |            | 5,000     |  |   | $       | 6       | 
|                 | Variable portion |        |            | 9,995,000      |  |        |         | 386,555        |  |  |            | 9,995,000 |  |   |         | 385,048 | 
|                 |                  |        |            |                |  |        |         |                |  |  |            |           |  |   |         |        
|                 |                  |        | 10,000,000 |                |  | $      | 386,561 |                |  |  | 10,000,000 |           |  | $ | 385,054 |        
|                 |                  |        |            |                |  |        |         |                |  |  |            |           |  |   |         |        
|Preferred stock: |                  |        |            |                |  |        |         |                |  |  |            |           |  |   |         |        
|                 | Fixed portion    |        |            | 606,730        |  |        | $       | 31,886         |  |  |            | 606,730   |  |   | $       | 31,886  | 
|                 |                  |        |            |                |  |        |         |                |  |  |            |           |  |   |         |        

Stockholders equity except restated paid-in
capital and tax retained earnings will be subject to a dividend
tax, payable by the Company, in the event of distribution. As of
December 31, 2002, the dividend tax rate was 35% and
beginning January 1, 2003, such rate will be reduced by one
percentage point each year until reaching 32% in 2005. Any
income tax paid on such distribution may be credited against
future income tax payable by the Company in the year in which
the dividend tax is paid and in the following two years.

Series A shares have full voting rights and
can only be acquired by Mexican individuals, Mexican
corporations or irrevocable trusts. These shares are divided
into Class I (minimum fixed capital) and Class II
(variable capital) shares. Series B shares have full voting
rights and may be acquired by Mexican or foreign investors.
These shares are divided into Class I (minimum fixed
capital) and Class II (variable capital) shares.
Series N shares contain restricted voting and limited
corporate rights and may represent more than 49% of the total
capital of the Company. These shares may be acquired by Mexican
and foreign investors and currently represent variable capital.



|   |                               
|-- | ------------------------------
|8. | Income Taxes and Tax on Assets

The income tax (benefit) expense for the years
ended December 31, 2003, 2002 and 2001 is as follows:

|                                 |  |                |        |      |  |      |        |   |  |   |        |  
|-------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                 |  | 2003           |        | 2002 |  | 2001
|                                 |  |                |        |      |  |     
|                                 |  |               
|                                 |  | (In thousands)
|Deferred                         |  | $              | 35,744 |      |  | $    | (8,837 | ) |  | $ | (1,149 | )
|                                 |  |                |        |      |  |      |        |   |  |   |        |  
|Net income tax expense (benefit) |  | $              | 35,744 |      |  | $    | (8,837 | ) |  | $ | (1,149 | )
|                                 |  |                |        |      |  |      |        |   |  |   |        |  

F-20



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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)

The components of the net deferred income tax
asset and (liability) are as follows:

|                                          |  |                |         |      |  |   |         |  
|----------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                          |  |               
|                                          |  | December 31,  
|                                          |  |               
|                                          |  | 2003           |         | 2002
|                                          |  |                |         |     
|                                          |  |               
|                                          |  | (In thousands)
|Tax loss carryforwards                    |  | $              | 106,377 |      |  | $ | 89,006  |  
|Deferred revenue                          |  |                | 17,212  |      |  |   | 19,232  |  
|Other, net                                |  |                | 2,568   |      |  |   | 1,381   |  
|Satellites and equipment                  |  |                | (47,390 | )    |  |   | (51,696 | )
|Gain on in-orbit failure of Solidaridad l |  |                |         |      |  |   | 1,139   |  
|Concessions                               |  |                | (36,526 | )    |  |   | (39,773 | )
|Prepaid insurance                         |  |                | (1,749  | )    |  |   | (1,523  | )
|Deferred financing costs                  |  |                | (467    | )    |  |   | (967    | )
|                                          |  |                |         |      |  |   |         |  
|Subtotal                                  |  |                | 40,025  |      |  |   | 16,799  |  
|Valuation allowance                       |  |                | (84,578 | )    |  |   | (25,608 | )
|                                          |  |                |         |      |  |   |         |  
|Net deferred tax liability                |  | $              | (44,553 | )    |  | $ | (8,809  | )
|                                          |  |                |         |      |  |   |         |  

The net deferred income tax liability is
classified as follows:

|                                          |  |                |        |      |  |   |        | 
|----------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                                          |  | 2003           |        | 2002
|                                          |  |                |        |     
|                                          |  |               
|                                          |  | (In thousands)
|Current deferred income tax assets        |  | $              |        |      |  | $ | 1,385  | 
|                                          |  |                |        |      |  |   |        | 
|Long-term deferred income tax liabilities |  | $              | 44,553 |      |  | $ | 10,194 | 
|                                          |  |                |        |      |  |   |        | 

At December 31, 2003 the Company had tax
loss carryforwards of approximately $332 million which
expire from 2008 to 2013. Due to the uncertainties regarding the
Companys ability to realize the full benefit from these
tax loss carryforwards, Satmex established a valuation allowance
of $84.6 million at December 31, 2003 against the
deferred tax assets.

|                 |  |                |         | 
|---------------- |  | -------------- | ------- | 
|Expiration Date: |  |               
|                 |  | (In thousands)
|2008             |  | $              | 87,788  | 
|2010             |  |                | 122,378 | 
|2012             |  |                | 56,245  | 
|2013             |  |                | 66,016  | 
|                 |  |                |         | 
|                 |  | $              | 332,427 | 
|                 |  |                |         | 

F-21



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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)

The provision for income taxes, for the years
ended December 31, 2003, 2002 and 2001 differs from the
amount computed by applying the Mexican income tax rate because
of the effect of the following items:

|                                                                                              |  |                |         |      |  |      |         |   |  |   |        |  
|--------------------------------------------------------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                                              |  | 2003           |         | 2002 |  | 2001
|                                                                                              |  |                |         |      |  |     
|                                                                                              |  |               
|                                                                                              |  | (In thousands)
|Tax benefit at Mexican statutory income tax rate
    (34%) in 2003 and (35%) in 2002 and 2001 |  | $              | (14,774 | )    |  | $    | (10,068 | ) |  | $ | (1,491 | )
|Inflation component and effect of remeasurement                                               |  |                | (8,981  | )    |  |      | (11,895 | ) |  |   | 1,386  |  
|Non deductible expenses                                                                       |  |                | 529     |      |  |      | 79      |   |  |   | 75     |  
|Change in valuation allowance                                                                 |  |                | 58,970  |      |  |      | 14,887  |   |  |   | (1,119 | )
|Effect of change in statutory tax rates                                                       |  |                |         |      |  |      | (1,840  | ) |  |   |        |  
|                                                                                              |  |                |         |      |  |      |         |   |  |   |        |  
|Net income tax expense (benefit)                                                              |  | $              | 35,744  |      |  | $    | (8,837  | ) |  | $ | (1,149 | )
|                                                                                              |  |                |         |      |  |      |         |   |  |   |        |  

On January 1, 2002, the Mexican government
enacted a new income tax law that reduces the statutory income
tax rate by 1% per year beginning January 1, 2003
through January 1, 2005. The effect of this change on the
deferred tax assets and liabilities was recognized in 2002.

The Mexican asset tax law provides for a minimum
tax of 1.8% on average assets, as defined in the law, less
certain liabilities, which is payable to the extent it exceeds
amounts due for income taxes. During 2000, the Company received
a favorable ruling from the Mexican Supreme Court of Justice
allowing the deduction for foreign liabilities, including but
not limited to, financial liabilities, when computing the
taxable base for the asset tax. This ruling will have a
favorable effect to reduce the Companys asset tax in the
future. Any asset taxes paid may be used to offset future income
taxes payable in the following ten years if certain conditions
are met. For the years ended December 31, 2003 and 2002 the
Company had no asset tax liability because Satmex has credits
available against the asset tax of approximately
$35 million which expired on December 31, 2003.



|   |                              
|-- | -----------------------------
|9. | Commitments and Contingencies

On January 1, 2002, the Mexican government
amended existing tax legislation to impose a tax on all
satellite service providers transmitting into Mexico. The fee is
based on megahertz used in the C- and Ku-bands. The amended law
provides that fees paid to the Mexican government to acquire
concession rights can be offset against this tax liability.
Satmex believes that it has sufficient credits available under
the amended law to significantly offset this fee in both the
current and in future years.

Further, the Mexican government amended the tax
law, on January 1, 2002, to broaden the scope of
telecommunications services subject to a 10% tax. In 2003,
Satmex presented its opinion that its services do not fall
within the scope of this tax to the Mexican government and the
Satmex interpretation was fully confirmed by the Mexican tax
authorities in 2003. This 10% tax was eliminated in 2004.

Satmex 5 was launched in 1998 with a primary and
a secondary Xenon Ion Propulsion System (XIPS), each
designed to perform station-keeping activities that maintain the
satellites position in orbit during its design life. To
provide further back-up, Satmex 5 has an independent chemical
propulsion system that provides station-keeping operations to
maintain its position in orbit. Should both the primary and
secondary XIPS fail, Satmex currently estimates that the back-up
chemical propulsion system of Satmex 5 would provide up to
3.9 years of station-keeping capability to maintain its
position in orbit.

During standard station-keeping procedures to
maintain the satellites position in orbit on
November 17, 2003, the secondary XIPS, which was then the
system in operation, failed to operate satisfactorily. The
primary XIPS was started on December 1, 2003 as an
alternate to the secondary XIPS, and it initially failed to

F-22



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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)

operate satisfactorily. Satmex engineers and the
manufacturer, Boeing Satellite Systems, working together,
returned the primary XIPS to an acceptable level of operation.

In connection with the events surrounding Satmex
5s XIPS, the Company sent insurers notices of occurrence
on November 24, 2003, December 3, 2003 and
December 10, 2003. These notices are conditions to the
filing of any formal proof of loss under the terms of the
expired Satmex 5 insurance policy. On June 7, 2004, the
180 day claim period to file a proof of loss expired and,
based on a review of technical and operational considerations
regarding Satmex 5 and the terms of in-orbit insurance coverage
for the satellite, Satmex concluded that the conditions
necessary to establish a partial claim did not exist.

In February 2004, Satmex and the satellite
manufacturer agreed on returning to use the secondary XIPS as
the operating propulsion system and it is performing outside of
its operating margins. The primary XIPS remains available as a
back-up system. The Company cannot make any assurance that the
secondary XIPS will continue to perform its station-keeping
operations or if the primary XIPS will work as a back-up. If
both of these systems were to fail, The Company would lose
operation of Satmex 5 within 3.9 years and Satmexs
business would be materially and adversely harmed.

The original insurance policy covering Satmex 5
expired on December 5, 2003. Satmex renewed the in-orbit
insurance for the Satmex 5 satellite and such insurance provided
coverage for $100 million. The new policy excludes coverage
for the XIPS and any related systems. Because XIPS on other
satellites have also experienced anomalies, this exclusion has
become a typical feature in insurance policies for satellites
with this same propulsion system. Except as otherwise provided
above, the new policy is effective as of December 5, 2003
for a one-year period and is based on prevailing market terms
and conditions.

In November 2003 Satmex renewed the in-orbit
insurance for Solidaridad 2 for a one-year period on
substantially similar terms to the previous one-year policy. The
current policy for Solidaridad 2 does not insure against an
in-orbit failure due to the loss of the satellites control
processors, the same component that caused the loss of
Solidaridad 1 and other Boeing 601 satellites. Further, the
current policy requires that 90% of the satellites
capacity must be impaired before a total loss can be declared.

Any uninsured loss of Satmex 5 or Solidaridad 2
would have a material adverse effect on Satmexs results of
operations and financial condition.

As of December 31, 2003, Satmex had a
contingent obligation in the amount of $4.5 million
representing three surety bonds issued as a condition to
maintain compliance with the orbital concessions. Satmex pledged
and deposited $2.7 million as collateral to these surety
bonds. The collateral will be returned to the Company upon the
completion of the financial restructuring.

The Company leases office space under a
noncancelable operating lease expiring in May 2005. The monthly
rent, including maintenance, is approximately $106,000. Rent
expense under this lease was $1.3 million,
$1.4 million and $1.4 million for the years ended
December 31, 2003, 2002 and 2001, respectively. Minimum
payments for the future will amount to $1.3 million and
$530,000 in 2004 and 2005, respectively.

Management is not aware of any pending litigation
against the Company. Liability for all legal actions or other
claims against Satmex prior to October 15, 1997 has been
retained by the Mexican government.

F-23



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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.


(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


NOTES TO THE FINANCIAL STATEMENTS 
(Continued)

Future minimum revenue due from customers under
non-cancelable operating contracts for transponder capacity on
satellites in-orbit as of December 31, 2003, are as follows
(in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 68,528  | 
|2005       |  |   | 57,423  | 
|2006       |  |   | 33,870  | 
|2007       |  |   | 26,005  | 
|2008       |  |   | 16,679  | 
|Thereafter |  |   | 50,030  | 
|           |  |   |         | 
|           |  | $ | 252,535 | 
|           |  |   |         | 



|    |                             
|--- | ----------------------------
|10. | Revenue by Customer Location

The following table presents revenue by country
based on customer location for the years ended December 31,
2003, 2002 and 2001:

|              |       |                |        |        |  |      |        |        |  |   |        |         | 
|------------- | ----- | -------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------- | 
|              |       | 2003           |        | 2002   |  | 2001
|              |       |                |        |        |  |     
|              |       |               
|              |       | (In thousands)
|Mexico        |       | $              | 33,449 |        |  | $    | 41,630 |        |  | $ | 69,826 |        
|United States |       |                | 40,740 |        |  |      | 37,619 |        |  |   | 50,992 |        
|Other         |       |                | 4,634  |        |  |      | 5,762  |        |  |   | 7,226  |        
|              |       |                |        |        |  |      |        |        |  |   |        |        
|              | Total |                | $      | 78,823 |  |      | $      | 85,011 |  |   | $      | 128,044 | 
|              |       |                |        |        |  |      |        |        |  |   |        |        

The company does not present segment disclosure
as it only operates in one segment.

F-24



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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.

(A Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)


VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 2003, 2002 AND
2001


|                                                    |                              |                                        |   |            |  |            |   |                |  |  |   |       |     |  |   |        | 
|--------------------------------------------------- | ---------------------------- | -------------------------------------- | - | ---------- |  | ---------- | - | -------------- |  |  | - | ----- | --- |  | - | ------ | 
|                                                    |                              | Balance at                             |   | Additional |  |            |   |               
|                                                    |                              | Beginning of                           |   | Charged to |  |            |   | Balance at End
|                                                    |                              | year                                   |   | Expenses   |  | Deductions |   | of Year       
|                                                    |                              |                                        |   |            |  |            |   |               
|                                                    |                              |                                       
|                                                    |                              | (Amounts in thousands of U.S. dollars)
|Allowance for doubtful accounts                     |                              |                                        |   |            |  |            |   |                |  |  |   |       |     |  |   |       
|                                                    | Year ended December 31, 2003 |                                        | $ | 1,739      |  |            | $ | 300            |  |  | $ | 180   | (1) |  | $ | 1,859  | 
|                                                    | Year ended December 31, 2002 |                                        | $ | 2,046      |  |            | $ | 254            |  |  | $ | 561   | (1) |  | $ | 1,739  | 
|                                                    | Year ended December 31, 2001 |                                        | $ | 1,708      |  |            | $ | 1,450          |  |  | $ | 1,112 | (1) |  | $ | 2,046  | 
|Allowance for due from related parties
    accounts |                              |                                        |   |            |  |            |   |                |  |  |   |       |     |  |   |       
|                                                    | Year ended December 31, 2003 |                                        | $ | 430        |  |            | $ | 1,504          |  |  | $ |       |     |  | $ | 1,934  | 
|                                                    | Year ended December 31, 2002 |                                        | $ |            |  |            | $ | 430            |  |  | $ |       |     |  | $ | 430    | 
|Valuation allowance deferred income
    taxes       |                              |                                        |   |            |  |            |   |                |  |  |   |       |     |  |   |       
|                                                    | Year ended December 31, 2003 |                                        | $ | 25,608     |  |            | $ | 58,970         |  |  | $ |       |     |  | $ | 84,578 | 
|                                                    | Year ended December 31, 2002 |                                        | $ | 10,721     |  |            | $ | 14,887         |  |  | $ |       |     |  | $ | 25,608 | 
|                                                    | Year ended December 31, 2001 |                                        | $ | 11,840     |  |            | $ |                |  |  | $ | 1,119 | (2) |  | $ | 10,721 | 



---

(1) Write-offs
of uncollectible accounts.




|    |                                      
|--- | -------------------------------------
|(2) | Amortization of net operating losses.

* * * * * *

F-25



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##### Table of Contents











|         |         
|-------- | --------
|Item 19. | Exhibits

|            |    |             |  |                                                                                                                                                                                                                                                                                                                                         
|----------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 1  | .1          |  | Estatutos Sociales(bylaws) of Satélites Mexicanos,
    S.A. de C.V.                                                                                                                                                                                                                                                                    
|            | 1  | .2          |  | Estatutos Sociales(bylaws) of Satélites Mexicanos,
    S.A. de C.V. (English translation).                                                                                                                                                                                                                                             
|            | 2  | .1          |  | Indenture, dated as of February 2, 1998,
    between Satélites Mexicanos, S.A. de C.V. and The Bank of
    New York, as trustee.                                                                                                                                                                                                       
|            | 2  | .2          |  | Indenture, dated as of March 4, 1998, among,
    Satélites Mexicanos, S.A. de C.V., as the Issuer,
    Firmamento Mexicano S. de R.L. de C.V. and Servicios
    Corporativos Satelitales, S.A. de C.V., as Guarantors, and
    Citibank, N.A., as trustee.                                                                             
|            | 2  | .3          |  | First Supplemental Indenture, dated as of
    June 30, 1998, Supplemental to Indenture, dated as of
    March 4, 1998, among, Satélites Mexicanos, S.A. de
    C.V., as the Issuer, Firmamento Mexicano S. de R.L. de C.V. and
    Servicios Corporativos Satelitales, S.A. de C.V., as Guarantors,
    and Citibank, N.A., as trustee.
|            | 2  | .4          |  | Second Supplemental Indenture, dated as of
    February 16, 2000, to Indenture, dated as of March 4,
    1998, among, Satélites Mexicanos, S.A. de C.V., as the
    Issuer, Firmamento Mexicano S. de R.L. de C.V. and Servicios
    Corporativos Satelitales, S.A. de C.V., as Guarantors, and
    Citibank, N.A., as trustee.       
|            | 2  | .5          |  | Supplemental Indenture, dated as of
    November 25, 2002, to Indenture, dated as of
    February 2, 1998, between Satélites Mexicanos, S.A. de
    C.V. and The Bank of New York, as trustee.                                                                                                                                       
|            | 2  | .6          |  | Third Supplemental Indenture, dated as of
    March 18, 2003, to Indenture, dated as of March 4,
    1998, among, Satélites Mexicanos, S.A. de C.V., as the
    Issuer, Firmamento Mexicano S. de R.L. de C.V. and Servicios
    Corporativos Satelitales, S.A. de C.V., as Guarantors and
    Citibank, N.A., as trustee.           
|            | 4  | .1          |  | Satellite Concession 116.8 degrees W.L.                                                                                                                                                                                                                                                                                                
|            | 4  | .2          |  | Satellite Concession 116.8 degrees W.L. (English
    Translation)                                                                                                                                                                                                                                                                      
|            | 4  | .3          |  | Satellite Concession 113.0 degrees W.L.                                                                                                                                                                                                                                                                                                
|            | 4  | .4          |  | Satellite Concession 113.0 degrees W.L. (English
    Translation)                                                                                                                                                                                                                                                                      
|            | 4  | .5          |  | Satellite Concession 109.2 degrees W.L.                                                                                                                                                                                                                                                                                                
|            | 4  | .6          |  | Satellite Concession 109.2 degrees W.L. (English
    Translation)                                                                                                                                                                                                                                                                      
|            | 4  | .7          |  | Property Concession                                                                                                                                                                                                                                                                                                                    
|            | 4  | .8          |  | Property Concession (English Translation)                                                                                                                                                                                                                                                                                              
|            | 4  | .9          |  | Amended and Restated Membership Agreement, dated
    as of August 21, 1998 among Loral SatMex Ltd., Ediciones
    Enigma, S.A. de C.V. and Firmamento Mexicano, S. de R.L. de
    C.V.                                                                                                                                                 
|            | 12 | .1          |  | Secion 302 Certification of Lauro González
    Moreno, Chief Executive Officer.*                                                                                                                                                                                                                                                        
|            | 12 | .2          |  | Section 302 Certification of Cynthia Pelini,
    Chief Financial Officer.*                                                                                                                                                                                                                                                              
|            | 13 | .1          |  | Section 906 Certification of Lauro
    González Moreno, Chief Executive Officer.*                                                                                                                                                                                                                                                       
|            | 13 | .3          |  | Section 906 Certification of Cynthia Pelini,
    Chief Financial Officer.*                                                                                                                                                                                                                                                              



---



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | Incorporated by reference from the
    registrants Registration Statement on Form F-4 filed
    on November 9, 1998 (File No. 333-8880).



|    |                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------
|  | Incorporated by reference from the
    registrants Annual Report on Form 20-F for the year
    ended December 31, 1999.
|   
| | Incorporated by reference from the
    registrants Annual Report on Form 20-F for the year
    ended December 31, 2002.



| |   |                
| | - | ---------------
| | * | Filed herewith.



---



##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 12
of the Securities Exchange Act of 1934, the registrant certifies
that it meets all of the requirements for filing on
Form 20-F and has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly
authorized.



| |                                  
| | ---------------------------------
| | SATÉLITES MEXICANOS, S.A. DE C.V.



| |     |                   
| | --- | ------------------
| | By: | /s/ CYNTHIA PELINI

| |                        
| | -----------------------
| |                        
| | Cynthia Pelini         
| | Chief Financial Officer

Date: July 15, 2004