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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                   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, 1999

                        COMMISSION FILE NUMBER: 333-8880

                       SATELITES MEXICANOS, S.A. de C.V.
                         BLVD. M. AVILA CAMACHO NO. 40
                           COL. LOMAS DE CHAPULTEPEC
                               11000 MEXICO, D.F.
                                     MEXICO
                                 (525) 201-0800

                     JURISDICTION OF INCORPORATION: MEXICO

 SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d)
                                  OF THE ACT:
                     10 1/8% SERIES B SENIOR NOTES DUE 2004

 THE NUMBER OF OUTSTANDING SHARES OF CAPITAL STOCK AS OF DECEMBER 31, 1999 WAS:

<TABLE>
<C>        <S>
    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
</TABLE>

     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

<TABLE>
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<S>       <C>                                                           <C>
                                   PART I
Item 1.   BUSINESS....................................................    1
Item 2.   DESCRIPTION OF PROPERTY.....................................   15
Item 3.   LEGAL PROCEEDINGS...........................................   15
Item 4.   CONTROL OF REGISTRANT.......................................   16
Item 5.   NATURE OF TRADING MARKETS...................................   16
Item 6.   EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
          HOLDERS.....................................................   16
Item 7.   TAXATION....................................................   17
Item 8.   SELECTED FINANCIAL DATA.....................................   21
Item 9.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
          OPERATIONS AND FINANCIAL CONDITION..........................   22
Item 9A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
          RISK........................................................   27
Item 10.  DIRECTORS AND OFFICERS OF REGISTRANT........................   27
Item 11.  COMPENSATION OF DIRECTORS AND OFFICERS......................   28
Item 12.  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
          SUBSIDIARIES................................................   28
Item 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS..............   28
                                  PART III
Item 15.  DEFAULTS UPON SENIOR SECURITIES.............................   29
Item 16.  CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
          SECURITIES..................................................   29
                                  PART IV
Item 18.  FINANCIAL STATEMENTS........................................   29
Item 19.  FINANCIAL STATEMENTS AND EXHIBITS...........................   30
</TABLE>

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* The registrant has responded to Item 18 in lieu of this Item.

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                                     PART I

ITEM 1.  BUSINESS

                                  THE COMPANY

GENERAL

     In 1997, Loral Space & Communications Ltd. (together with its subsidiaries
"Loral") and Principia, S.A. de C.V. ("Principia"), formerly Telefonica Autrey,
S.A. de C.V., acquired 75% of the outstanding capital stock of Satelites
Mexicanos, S.A. de C.V. (the "Company" or "Satmex") from the government of
Mexico. Satmex is the leading provider of domestic fixed satellite services
("FSS") in Mexico and is expanding its services to become a leading provider of
fixed satellite services throughout Latin America. The Company provides
transponder capacity to customers for distribution of network and cable
television programming, DTH (direct-to-home) television service and on-site
transmission of live news reports, sporting events and other video feeds. Satmex
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. The Company is also marketing the use of satellite transmission
capacity for new applications, such as Internet via satellite. Satmex has
landing rights to provide broadcasting and telecommunications transmission
capacity in the United States, Canada and 23 nations and territories in Latin
America. The Company's broadcasting customers include Grupo Televisa, MVS
Multivision, Television Azteca and PCTV and its telecommunications services
customers include BellSouth, Telmex, Pemex, Cemex and the Mexican subsidiaries
of Ford and DaimlerChrysler. Satmex's data and internet customers include Hughes
Network Systems, Tachyon, Interpacket, ICG, ATC Teleports and Netsat Express.

     The Company's three satellites (Solidaridad 1, Solidaridad 2 and Satmex 5)
are in geostationary orbit at 109.2 degrees W.L., 113 degrees W.L. and 116.8
degrees W.L., respectively, and have a total of 144 36-MHz
transponder-equivalents operating in the C- and Ku-band, with an aggregate
footprint covering substantially all of the continental United States, the
Caribbean as well as all of Latin America, other than certain regions in Brazil.
The Company has expanded its sales outside of Mexico through its network of
agents, distributors and value-added resellers in principal cities in the Latin
American region. Satmex also owns another satellite, Morelos 2, which is in an
inclined orbit.

     The Company is a member of the Loral Global Alliance. Through the alliance,
the Company can offer its customers an integrated portfolio of satellite
capacity that provides "one stop shopping" for local, regional and global
geosynchronous satellite services. The other alliance members are Loral Skynet,
Loral CyberStar and Europe*Star, a joint venture between Loral and Alcatel. The
members of the alliance currently have ten satellites in orbit with a total of
195 C-band and 297 Ku-band 36-MHz transponder-equivalents.

     The Loral Global Alliance provides for cross-selling arrangements among the
alliance members' respective sales force and for cooperative marketing and
promotional activities. The Company believes that such arrangements will enable
the members of the alliance to compete more effectively in sales of
communications satellite services worldwide. In addition, the alliance offers
in-orbit backup capabilities for its members in regions where members' fleets
have overlapping coverage.

SERVICES

     The Company provides satellite transmission capacity to broadcasting
customers for network and cable television programming, DTH television service
and transmission of live news reports, sporting events and other video feeds
from the scene of the event. In addition, the Company provides satellite
transmission capacity to telecommunications service customers for public
telephone networks in Mexico and elsewhere and corporate customers for their
private business networks with data, voice and corporate video applications.
Satmex also provides satellite connectivity to the Internet backbone for ISPs
(Internet Service Providers). The Company offers its customers part-time
service, varied power and footprint service, grades of service protection and
value-added services.

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  BROADCASTING TRANSMISSION SERVICES

     Satellite capacity is utilized for broadcasting transmission services by
various national and international networks for the point to point and point to
multi-point distribution of television programs, video signals, and other
services, including distance learning, special events and live reports.
Customers include private and state-owned broadcasting networks, cable
television operators and DTH operators. Broadcasting transmission clients
usually lease one or more transponders.

     Broadcasting customers use satellite capacity to transmit coverage of live
scheduled special events, such as the Olympics, to programmers on an ad hoc
basis. The Company also provides 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. The
Company's services in this area are focused on the transportation of program
material and syndicated programming for broadcasters on a scheduled basis.

  TELECOMMUNICATIONS TRANSMISSION SERVICES

     The Company provides domestic and international telecommunications
transmission services to public and private telecommunications networks
belonging to financial, industrial and commercial, government, transportation
and tourism, educational and press-related companies. Companies may lease
channels, circuits or fractions of a transponder, allowing these transponders to
be shared among several users.

     The Company provides satellite capacity to telephone companies which use
the capacity as part of their communications network on a national or
international basis. The Company's business communications services include the
provision of satellite capacity to communications carriers that provide private
business 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.

     The Company provides 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, while promoting
the use of satellite networks for business communications in Latin America. The
Mexican government currently represents one of the single largest users of
communications facilities in Mexico.

     The Company offers transponder capacity for end-to-end satellite services
for two types of private business communications networks: IDS (international
digital services) networks and VSAT (very small aperture terminals) networks.
IDS 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, IDS networks require
dedicated, permanent communications links to each point. VSAT networks differ
from IDS networks in that VSAT 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 VSAT technology
and sophisticated software, these networks can be served with a relatively small
amount of satellite capacity.

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  INTERNET SERVICE PROVIDERS

     The Company delivers high-speed satellite-based Internet connectivity,
offering a variety of configurations, throughout North America and Latin
America. The Satmex fleet provides an efficient means by which ISPs, service
integrators, infrastructure enablers, universities, governments and other
corporations may develop new 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. The
Company believes 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.

CUSTOMERS

     The Company has a broad customer base which includes private and
state-owned broadcasting networks, cable television operators, DTH operators,
and public and private telecommunications networks belonging to financial,
industrial and commercial, government, transportation and tourism, educational
and press-related companies. The Company's largest customer is Grupo Televisa
and its subsidiaries ("Televisa"). Revenue from Televisa represented 31%, 29%
and 43%, of service revenue for the years ended December 31, 1999 and 1998 and
for the period November 17, 1997 to December 31, 1997, respectively. Revenue
from the Mexican government represented 10% and 5% of service revenue for the
years ended December 31, 1999 and 1998, respectively, and 40% of service revenue
for the period November 17, 1997 to December 31, 1997.

     Approximately 73%, 89% and 95% of the Company's service revenue for the
years ended December 31, 1999 and 1998 and for the period November 17, 1997 to
December 31, 1997, respectively, were generated from customers in Mexico.

                 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, the Company or its 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 involve
risks and uncertainties. These forward-looking statements may be included in,
but are not limited to, various filings made by the Company with the Securities
and Exchange Commission, press releases or oral statements made by or with the
approval of an authorized executive officer of the Company. Forward-looking
statements are only predictions. Actual events or results could differ
materially from those projected or suggested in any forward-looking statements
as a result of a wide variety of factors and conditions, including, but not
limited to, the factors summarized below.

WE ARE HIGHLY LEVERAGED.

     As of December 31, 1999, we had outstanding debt of $588 million. A
significant portion of our cash flow is used to service this debt, which in turn
affects our ability to pay our other expenses and to fund our expenditures. In
1999, Loral and Principia invested $31.9 million of capital into the Company
through the purchase of preferred stock. We used the proceeds from this capital
contribution to pay down debt in order to ensure compliance with covenants
contained in our debt documents. We cannot guarantee that the shareholders will
make additional equity contributions in the future.

     In February 2000, we amended certain financial covenants in our debt
agreements. In connection with these amendments, we agreed to pay a consent fee
to approving lenders and debtholders and to increase the applicable interest
rates on the debt by up to 0.75%. We believe that our future operating cash flow
and the availability of our revolving credit facility will be sufficient to
service our interest and debt repayment

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requirements and to maintain the financial ratios required by our debt
agreements, as adjusted by these amendments. However, if any additional
amendments to our debt agreements are required in the future, there can be no
assurance as to the terms on which such amendments can be obtained, or whether
they can be obtained at all.

     Covenants contained in the debt documents also limit our management's
option for dealing with business issues, including incurring additional debt,
making capital expenditures and paying dividends. We cannot be certain that the
restrictions contained in those documents will not impair our ability to finance
our future operations or capital needs or to engage in other business
activities.

WE MAY NOT HAVE SUFFICIENT RESOURCES TO REPAY OUR DEBT OBLIGATIONS.

     Our ability to service our debt obligations will depend on our future
performance. At December 31, 1999, we had approximately $238 million of senior
secured notes outstanding, which bear interest at a floating rate. These notes
require repayment in $250,000 quarterly installments, with the balance due on
June 29, 2004. In addition, we have $320 million of 10 1/8% fixed rate notes
outstanding, which must be repaid in full on November 1, 2004. At December 31,
1999, we had $30 million outstanding under our $50 million revolving credit
facility. Any borrowings under our revolving credit facility must be repaid by
December 29, 2002.

     If we are unable to repay any portion of the senior secured notes, the
fixed rate notes or the revolving credit facility when due, we will have to
refinance this indebtedness. We cannot guarantee that this refinancing will be
available, or if available, that it will be on terms acceptable to us.

OUR CONTRACTS WITH TELEVISA REPRESENT A SIGNIFICANT PORTION OF OUR REVENUES;
THEY ARE SCHEDULED TO EXPIRE IN DECEMBER 2001.

     Our largest customer is Televisa, which represented approximately 31% of
our service revenue in 1999. On April 1, 1999, the Company signed a new contract
with Televisa to renew their lease for 12 Ku-band transponders on Solidaridad 2
through December 2001. During the term of the contract, Televisa has a
preferential right to increase its capacity on Solidaridad 2.

WE HAVE SHORT-TERM CUSTOMER CONTRACTS.

     As of December 31, 1999, approximately 22% of our customer contracts have
terms that range from one to three years. Moreover, approximately 58% of our
backlog of non-cancelable lease contracts is expected to be realized within the
next three years. Our revenue would be hurt if we were unable to find new
customers to replace customers whose contracts have expired.

WE COMPETE WITH OTHER COMPANIES FOR CUSTOMERS AND CHANGES IN MEXICAN REGULATIONS
MAY RESULT IN NEW COMPETITORS.

     We face competition from other companies, including PanAmSat Corporation
and Intelsat. PanAmSat has a fleet of 21 satellites, including seven that serve
the Latin American market. Intelsat, an international consortium owned by 140
member countries, has 24 satellites, including four that cover Latin America. In
March 1998, Intelsat spun off six of its satellites to a newly formed company
known as New Skies Satellite N.V., which also competes with us. We cannot assure
you that we will be able to compete successfully. 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.

     The Mexican government has recently liberalized its regulatory environment
to allow non-Mexican satellite companies to provide satellite services in
Mexico. While we have historically been the leading provider of 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 effect
on our revenue.

     As land-based telecommunications services expand, demand for our services
may be reduced. For example, in 1999 we experienced a number of contract
cancellations or nonrenewals by customers who
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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.

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 currently occupied by our satellites and the
fourth relating to our use of the satellite control centers and the related land
and buildings on which they are located. 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 bankruptcy or liquidation.

     Also, the Mexican government has the right to revoke the orbital
concessions pursuant to an expropriation. The Mexican government may also
temporarily seize the orbital concessions in the event of natural disaster, war
or threat to national security, public order or the Mexican economy. In the
past, the Mexican government has used this power to ensure continued service
during labor disputes. If the concessions are terminated, revoked or temporarily
seized, our results of operations and financial condition will be materially and
adversely impacted.

WE OPERATE PRIMARILY IN MEXICO, WHICH MAY SUBJECT US TO ADDITIONAL RISKS.

     For the year ended December 31, 1999, approximately 73% of our service
revenue was from sales within Mexico. As a result, our performance and prospects
will be affected by the political, social and economic developments in Mexico,
including currency fluctuations and inflation. Mexico has in the past
experienced economic crises characterized by exchange rate instability, high
inflation, high domestic interest rates, negative economic growth and reduced
consumer buying power. Should Mexico experience any such economic crisis in the
future, we cannot assure you that our results of operations and financial
condition would not be affected.

     While the Mexican government does not generally restrict the ability of a
person, Mexican or otherwise, to convert pesos to foreign currencies, it has
done so in the past when it has experienced shortages in its foreign exchange
reserves. We cannot guarantee that this will not happen again in the future. If
we were to experience restrictions in our ability to convert pesos into dollars,
we would have difficulty servicing our debt obligations.

     Exchange rate fluctuations could also hurt us. In the past, we generally
hedged against the risk of exchange rate fluctuations. We cannot guarantee that
we will be able to hedge our exchange rate risk in the future or that our hedges
will be successful. Moreover, exchange rate fluctuations could impact our
customers' ability to pay for our services.

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.

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

     - fuel consumption

     - the quality of construction

     - gradual degradation of solar panels and

     - the durability of components.

     While we have obtained in-orbit insurance for Solidaridad 1, Solidaridad 2
and Satmex 5, a satellite failure may result in a drop in our profits, which
loss would not be insured. The in-orbit insurance for Solidaridad 1 and
Solidaridad 2 expires in November 2002 and the in-orbit insurance for Satmex 5
expires in December 2003. We cannot guarantee that we will be able to renew the
insurance at the end of these periods, or that if renewal is available, that it
would be on terms acceptable to us.

     At December 31, 1999, our satellites have remaining estimated useful lives
ranging from 7 to 14 years. However, our Solidaridad 1 satellite has experienced
problems and mechanical difficulties, including loss of its primary command
receiver and loss of pressure in a propulsion subsystem that could shorten its
operational life. On April 28, 1999, Solidaridad 1 lost its primary satellite
control processor. Service was restored after 14 hours using the backup
satellite control processor. The satellite manufacturer, Hughes Space and
Communications, Inc., conducted an extensive investigation into the cause of the
service interruption and has presented a report on the failure analysis to
Satmex. Currently Solidaridad 1 is operating using the back up satellite control
processor. However, Solidaridad 1 does not have any redundant systems should the
back up satellite control processor fail. Failure of the back up command
receiver or the back up satellite control processor would result in a loss of
Solidaridad 1. Moreover, Solidaridad 1 and Solidaridad 2 were manufactured by
Hughes and are similar in design to other Hughes satellites which have
experienced in-orbit component failures.

OUR BUSINESS IS REGULATED, CAUSING UNCERTAINTY AND ADDITIONAL COSTS.

     Our business is regulated by the Mexican authorities. As we expand our
service outside of Mexico into other countries in Latin America and the United
States, we will become subject to regulations in those countries. For example,
we will 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 which we
need, and so increase our cost of doing business. For example, the 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, the concessions are subject to government regulations, which may make
modifications or impose limitations on our operations. If the Mexican government
determines that we are a dominant carrier in our segment, it could impose
informational 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. Because we cannot guarantee the results of negotiations with third
parties, "frequency coordination" is an additional source of uncertainty. For
example, we have to coordinate our Satmex 5 satellite through the Mexican
government with the government of Canada.

THERE ARE POTENTIAL CONFLICTING INTERESTS BETWEEN US AND OUR SHAREHOLDERS.

     Loral and Principia own and have interests in other companies that are in
businesses similar to ours, which could give rise to a conflict of interest. In
particular, Loral Skynet and Loral CyberStar own or are building satellites, the
footprints of which overlap or are planned to overlap with those of our
satellites. We have, together with Loral Skynet, Loral CyberStar and
Europe*Star, a joint venture between Loral and Alcatel, adopted a marketing
policy that provides for collaboration and cross-selling among the Loral Global
Alliance members. If, however, the members of the Loral Global Alliance do not
collaborate but rather

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compete in areas of overlapping capacity, conflicting commercial interests
between us and the Loral entities may arise. If Loral Skynet and Loral CyberStar
do not collaborate with us or vice versa under the Loral Global Alliance, Loral
Skynet and Loral CyberStar might compete directly with us for customers.

DISAGREEMENTS BETWEEN LORAL AND PRINCIPIA COULD RESULT IN DEADLOCK.

     We may undertake certain material actions only with the prior agreement of
both Loral and Principia. If Loral and Principia are unable to reach an
agreement, it could lead to a management 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 under our debt documents, which would entitle certain of our
debtholders to require us to buy back their debt, including in some cases at a
purchase price equal to 101% of the principal amount. A change of control may
under certain circumstances, also result in a termination of our concessions
from the Mexican government.

IF SERVICIOS DEFAULTS IN THE PAYMENT OF CERTAIN DEBT OWED TO THE MEXICAN
GOVERNMENT, THE MEXICAN GOVERNMENT WOULD GAIN CONTROL OF US.

     Servicios Corporativos Satelitales, S.A. de C.V. has issued to the Mexican
government a note in the principal amount of $125.1 million, which bears
interest at 6.03%, matures in December 2004 and is secured by Loral's and
Principia's holdings in Firmamento Mexicano, S. de R.L. de C.V., our parent
company. This obligation is subject to earlier prepayment under certain
circumstances, including upon a failure by Loral and Principia to maintain
sufficient collateral to secure Servicio's obligation to the Mexican government.
Servicios will depend upon dividends from us to repay this obligation to the
Mexican government. We cannot assure you that Servicios will have the resources
to repay this obligation when due. If Servicios were to default in the payment
of this obligation, the Mexican government will have the right to foreclose upon
the Firmamento interests. This would result in the Mexican government gaining
control of us.

JUDGMENTS AGAINST US MAY BE PAID IN PESOS; UPON OUR BANKRUPTCY, OUR DOLLAR
DENOMINATED OBLIGATIONS ARE CONVERTED INTO PESOS.

     If a proceeding were to be brought in Mexico seeking to enforce our
obligations with respect to dollar denominated obligations (including certain of
our outstanding debt), we may elect under Mexican law to make that payment in
pesos, based on the then prevailing exchange rate. Any shortfall based upon
exchange rate fluctuation will be borne by the other party. Moreover, if we were
declared bankrupt, our dollar denominated obligations would be converted into
pesos based on the exchange rate in effect at the time the bankruptcy is
declared. There would be no adjustment to take into account any depreciation on
the value of the peso against the dollar from the time of the bankruptcy
declaration to the date the claim is actually paid.

                                   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
Communications Law, a provider of satellite services, such as the Company, must
operate under a concession granted by the Secretaria 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
voting stock of such a corporation.

     In addition, the Company's 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 expropriation
(rescate) of the Company's concessions, the Ley General del Equilibrio Ecologico
y Proteccion 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 Economica (the Federal Economic
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Competition Law), the Ley de Vias Generales de Comunicacion (the Law of General
Means of Communication) and other international treaties, laws, rules and
decrees.

     Under the Communications 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 Telecommunications Commission 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 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 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.

     The rules promulgated pursuant to the Communications Law requires 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 the Company the following concessions:
(i) the right to occupy each of three orbital positions and exploit their
respective C- and Ku-band frequencies (the "Orbital Concessions") and (ii) 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, the Company may establish rates and terms for transponder
leasing, which must be registered in order to become effective. However, if the
SCT determines that the Company has substantial power in the Mexican market, the
Mexican Telecommunications Commission may determine tariffs and specify
conditions relating to service quality and information requirements.
Additionally, the Company is prohibited from establishing cross subsidies and
using discriminatory practices.

     As part of the Orbital Concessions, the Company is required to allocate 181
MHz C-band and 181MHz Ku-band to the Mexican government, free of charge, for
national security and certain public purposes. In addition, the Company is
required to operate two L-band transponders (one on each of the Solidaridad
satellites), which will continue to be owned by the Mexican government.

     Under the Orbital Concessions, the Company is required to: (i) carry out
research and development in Mexico, (ii) preferentially staff the control
centers with Mexican nationals, and (iii) maintain satellite service
continuously and efficiently. As security for the performance by the Company of
its obligations under each Orbital Concession, the Company was required to post
and must maintain during the term thereof, a surety

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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, 1999, the adjusted amount
was approximately 13 million pesos per Orbital Concession. Under the terms of
the surety bond, the Company has paid to Fianzas Monterrey Aetna, a surety, a
premium of 87,000 pesos per Orbital Concession, and the surety has agreed to pay
to the Federal Treasury of Mexico, in the event the Company breaches the terms
of the Orbital Concessions, a sum of 13 million pesos per Orbital Concession.
The Orbital Concessions were finalized and 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.

     Except in limited circumstances, the Company must notify the SCT prior to
issuing and selling any shares in the Company that represent 10% or more of the
outstanding capital stock of the Company, and must identify the potential
purchaser. Within 30 days of receipt of such notification the SCT may object to
the sale. The Company may only proceed with the proposed sale if no objection is
raised by the SCT. For a term of three years commencing on November 17, 1997,
shareholders of 51% of the paid-in capital stock of the Company, may not
transfer any shares without prior approval from the SCT (except for transfers
between the shareholders not exceeding 5% of the paid-in capital).

     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, the Company may not rent or otherwise sublease the
property without the prior permission of the SCT. Under the Property Concession,
the Company is required to: (i) pay an annual fee in an amount equal to 7.5% of
the assessed property value and (ii) maintain the premises in good condition.

     The duration of the Property Concession is forty 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 (i) the term of any such Orbital
Concession expires, (ii) the Company resigns its rights under any such Orbital
Concession, (iii) the Mexican government through the SCT, expropriates any of
the Orbital Concessions, (iv) the Company is liquidated or becomes bankrupt or
(v) the SCT revokes any of the Orbital Concessions. The Company's 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: (i) failure by the
Company to exercise its rights under any of the Orbital Concessions for a period
greater than 180 days from the date the Orbital Concessions were granted; (ii)
unjustified interruption of the services that may be provided under the Orbital
Concessions; (iii) the Company's undertaking any action or refraining from
taking any action that affects the rights of other licensees or concessionaires;
(iv) failure by the Company to satisfy the terms or conditions set forth in the
Orbital Concessions; (v) unjustified failure by the Company to interconnect
other concessionaires or licensees that have the right to provide
telecommunications services; (vi) change of nationality of the Company and (vii)
assignment or transfer of rights granted under the Orbital Concessions in
contravention of the terms of the Communications Law. In the cases of items (i),
(v), (vi) and (vii) above, the SCT may immediately revoke any of the Orbital
Concessions. In the cases of items (ii), (iii) and (iv) above, the SCT may only
revoke any of the Orbital Concessions if it has imposed sanctions on the Company
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 the Company.

     The SCT also has the right to terminate any of the Orbital Concessions
pursuant to an expropriation (rescate). From and after any such expropriation,
assets used in connection with the exploitation of the Orbital Concessions would
be subject to the ownership and management of the Mexican government.

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     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 the Company if it effects an expropriation or a temporary
seizure, except in the case of a temporary seizure due to war. In respect of an
expropriation (rescate), 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 temporary seizure, 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 temporary seizure.

     If the Orbital Concessions are expropriated and in connection with such
expropriation compensation is paid to the Company, the lenders under the
Company's secured credit facility and the holders of the secured floating rate
notes would have priority over the holders of the 10 1/8% fixed rate notes with
respect to such compensation until all amounts due under the secured credit
facility and all amounts due on the secured floating rate notes are paid in
full, and thereafter the holders of the fixed rate notes would have a claim with
respect to any such remaining compensation which would rank pari passu with the
claims of other unsecured creditors of the Company.

     The Property Concession will terminate if: (i) the Property Concession term
expires; (ii) the Company resigns its rights to the Property Concession; (iii)
the Orbital Concessions are terminated; (iv) the purpose for which the Property
Concession is granted no longer exists; (v) the Mexican government expropriates
the Property Concession for reasons of public interest or (vi) the Property
Concession is revoked. The Mexican government may revoke the Property Concession
for various reasons, including without limitation, the following: (i) failure to
use the Property Concession for the purpose for which it was granted; (ii)
failure to comply with the terms of the Property Concession; (iii) activities,
without prior permission of the SCT, which interfere with satellite operations;
and (iv) 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. The Mexican government will then
have preference to acquire the satellites, control centers and other associated
and necessary equipment for the continuation of satellite service.

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
(i) Mexican satellites are permitted to provide satellite service to, from and
within the United States (in conformance with applicable U.S. law), (ii) U.S.
satellites are permitted to provide satellite service to, from and within Mexico
(in conformance with applicable Mexican law), (iii) the conditions for the
transmission and reception of satellite signals will be as agreed to in
protocols to the agreement, (iv) 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), (v) 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, (vi) licenses for earth stations and satellite services must comply
with national laws and regulations, (vii) applicable foreign ownership
restrictions on satellite service providers and earth station licenses continue
to apply and (viii) both Mexico and the United States retain the right to take
actions that either government considers necessary for the protection of its
essential security interests.

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     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.

  DTH 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 DTH satellite
services. DTH satellite services are defined to include DTH fixed satellite
service ("DTH-FSS") and broadcasting satellite service ("BSS"), 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 DTH-FSS and BSS to, from, and within the other country's
territory. Entities seeking to transmit or receive DTH-FSS or BSS 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 DTH-FSS and BSS 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 DTH-FSS or BSS
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.

  FSS 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 FSS. The definition of FSS 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 DTH-FSS and BSS 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 FSS 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 FSS in Mexico beginning in January 1999. Satellites licensed by Mexico
were authorized to provide domestic FSS 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 DTH-FSS or BSS 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
FSS signals via a satellite licensed by the other Party

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<PAGE>   14

(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 FSS 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.

  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 Simon Bolivar Andean
satellite system, which was amended on March 1, 1999 (the "ANDESAT Agreement").

     Under the ANDESAT Agreement, Satmex has agreed to provide the Andean
Community satellite capacity until January 2003 at certain preferred rates. As
of December 31, 1999, the Andean Community has the right to use, at no charge,
one transponder and beginning in 2000, will have the right to use, at no charge,
an additional one quarter of one transponder. Subject to certain conditions,
ANDESAT has the first purchase option of up to eight transponders for DTH
service on Satmex 5 at a price to be agreed upon by the parties and/or the
parties reaching a shared utility agreement. If requested, Satmex will provide
up to 600 hours of technical assistance at no charge for the design,
construction and launch of the Simon Bolivar satellite system. As of December
31, 1999, Satmex has not provided any technical assistance for the Simon Bolivar
satellite system. In addition, if requested, Satmex will provide, subject to
availability, backup satellite capacity for the first Simon Bolivar satellite.

  ARGENTINE AGREEMENT

     The governments of Mexico and the Argentine Republic recently 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 DTH-FSS, BSS
and other FSS signals to satellite customers in Argentina, and vice versa. The
agreement, using the radiocommunication rules of the International
Telecommunications 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. The agreement may not be implemented until the
mutual exchange of diplomatic notes and the execution of a more detailed
protocol.

  THE GENERAL AGREEMENT ON TRADE IN SERVICES ("GATS")

     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
GATS 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
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<PAGE>   15

entity and assignment and exploitation of available resources. Mexico has
established the following service parameters: (i) telex and telegraph services
are not included; (ii) cross-border traffic must be routed through a company
licensed by the SCT; (iii) license fees are imposed; (iv) 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; (v) services
other than international long-distance that require the use of satellites must
employ Mexican satellites until 2002; and (vi) 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
Federal Communications Commission (the "FCC") regulates satellite providers
operating in the U.S. as well as the provision of satellite services, generally.
The FCC currently regulates access to the U.S. market by non-U.S. licensed
satellite systems through regulation of U.S. earth stations used to communicate
with such satellite systems (including receive-only operations).

     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 (including
affiliates of INTELSAT and Inmarsat licensed by WTO members and providing
covered services) 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 DTH-FSS, direct broadcast
satellite services, and digital audio radio services. The U.S. schedule of
commitments under the WTO Basic Telecom Agreement excludes DTH-FSS, 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

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to bring before the FCC their requests to serve the U.S. they may (i)
participate in a U.S. space station processing round, or (ii) file an
application for an earth station. The FCC does not require space stations
licensed by another country or administration to obtain separate and duplicative
U.S. space station licenses.

     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 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 31, 1999, Satmex requested that the FCC include Satmex's
satellites in the United States Premitted Space Station List. This request is
being reviewed by the FCC and, if approved, Satmex's satellites would be able to
operate in the United States as U.S. satellites.

  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 representatives; 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 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 a 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 no
power to enforce or police its rules; it relies on the goodwill and cooperation
of the individual members.

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     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 construct 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 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 SCT and
to a variety of regulations generally applicable to all satellite and radio
licensees, including the international radio regulations.

  STATUS OF THE COMPANY 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.

     The Satmex 5 request for coordination was published by the ITU on June 24,
1997. The Company is currently conducting coordination discussions with the
government of Canada regarding Satmex 5 and expects to be able to provide
service in Canada in 2000.

  INTELSAT CONSULTATION

     INTELSAT is an international organization that owns and operates satellite
systems. Article XIV of the international agreement creating INTELSAT requires
signatories to the agreement, such as Mexico, to consult with INTELSAT prior to
establishing, acquiring or utilizing space segment facilities or satellites
other than INTELSAT to meet their domestic or international public
telecommunications services requirements. The Mexican government as a signatory
must complete the consultation process with INTELSAT for each new satellite or
modifications to existing satellites to ensure that any such satellite or
modification will not cause INTELSAT technical harm arising from signal
interference. The Mexican government has completed the consultation process for
Solidaridad 1, Solidaridad 2 and Satmex 5.

ITEM 2.  DESCRIPTION OF PROPERTY

     Except for the Company's in-orbit satellites, all of the Company's assets
are located in Mexico. The Company's primary satellite control center is located
at Iztapalapa, Mexico and the Company's secondary satellite control center is
located at Hermosillo, Mexico. These centers are designed to ensure that the
satellites are correctly positioned and that the satellites are operating within
established parameters. The equipment in the satellite control centers is owned
by the Company, while the buildings and land that house these centers are
property of the Mexican government. The Company pays rent to the Mexican
government for the use of the buildings.

     Satmex leases office space in Mexico City for its headquarters. The Company
believes its facilities are adequate for its present needs.

ITEM 3.  LEGAL PROCEEDINGS

     Management is not aware of any pending material 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.

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ITEM 4.  CONTROL OF REGISTRANT

     Prior to October 15, 1997, the Company was not operated as a stand-alone
satellite service provider, but was 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
Mexicano, S. de R.L. de C.V. ("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. On
November 17, 1997, Corporativo Satelites Mexicanos, S.A. de C.V. ("Acquisition
Sub"), an indirect subsidiary of Firmamento, entered into a Stock Purchase
Agreement with the Mexican government to acquire 75% of the outstanding capital
stock of Satmex from the Mexican government for a purchase price of $646.8
million. On November 17, 1997, Acquisition Sub paid $194.0 million of the
purchase price and on December 29, 1997 paid the balance, plus interest. On
December 29, 1997, Acquisition Sub was merged into Satmex.

     In consideration of the debt incurred by Satmex in connection with the
acquisition, Servicios Corporativos Satelitales, S.A. de C.V. ("Servicios"), a
wholly owned subsidiary of Firmamento, agreed to pay to the Mexican government
$125.1 million (the "Government Obligation"). The Government Obligation accrues
deferred interest at the rate of 6.03% per annum, compounds annually and matures
in December 2004. Payment of the Government Obligation is currently secured by
Loral's and Principia's interests in Firmamento. If Servicios were to default in
the payment of the Government Obligation, the Mexican government will have the
right to foreclose upon the Firmamento interests. This would result in the
Mexican government gaining control of the Company.

     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. 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 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. After the
issuance of the preferred stock, Servicios holds 70.7% of the outstanding
capital stock of the Company, Loral holds 5.4%, Principia holds 0.3% and the
Mexican government holds 23.6%.

     The Mexican government holds its 23.6% interest in Satmex through Class N
shares. The Class N shares have limited voting rights and may vote only with
respect to the following matters; extension of the Company's term, merger,
conversion or anticipated dissolution of the Company, amendment to the Company's
corporate purpose, change to the Company's nationality or cancellation of the
Company's registration in the Securities Section of the National Registry of
Securities and Intermediaries or in any Mexican or foreign stock exchange.

ITEM 5.  NATURE OF TRADING MARKETS

     The Company's capital stock is not publicly traded. The Company's 10 1/8%
Series B Senior Notes are not listed on any securities exchange.

ITEM 6.  EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

     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 the Company's contracts are dollar
denominated, the Company is required to accept payment from its customers in
pesos at the current exchange rate on the date of payment. If the Company were
unable to exchange such pesos into dollars or were unable to obtain sufficient
dollars, it would have difficulty meeting its 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.
                                       16
<PAGE>   19

ITEM 7.  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 10 1/8% Series B Senior Notes (the "Senior Notes"). This summary is based
on the tax laws in force as of January 1, 2000 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. Provisions of the Tax Treaty that may affect the taxation of
certain U.S. holders of Senior 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 Senior Notes that are not residents of Mexico for Mexican tax purposes and
that do not conduct a trade or business through a permanent establishment or
fixed base in Mexico (a "Foreign Holder"). For purposes of Mexican taxation, an
individual is a resident of Mexico if he has established his domicile in Mexico,
unless he has resided in another country for more than 183 calendar days,
whether consecutive or not, in any one calendar year and can demonstrate that he
has become a resident of that country for tax purposes. A legal entity is a
resident of Mexico if it is incorporated under Mexican law or if it has
established its main administration or direction center in Mexico. A Mexican
citizen pursuant to Mexican law is presumed to be a resident of Mexico for tax
purposes unless such person can demonstrate otherwise. If a legal entity or an
individual has a permanent establishment or fixed base in Mexico for Mexican
federal tax purposes, such permanent establishment or fixed base shall be
required to pay taxes in Mexico on income attributable thereto in accordance
with applicable tax laws.

  TAXATION OF INTEREST AND PRINCIPAL

     Under the Mexican Income Tax Law, payments of interest made by the Company
in respect of the Senior 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 10% as long as the Senior Notes are registered in the
Special Section of the National Registry of Securities and Intermediaries
maintained by the Mexican National Banking and Securities Commission (the
"Registry").

     Pursuant to a temporary provision of the Mexican Income Tax Law, payments
of interest made by the Company in respect of the Senior Notes to a Foreign
Holder will be subject to a reduced 4.9% Mexican withholding tax rate (the
"Reduced Rate"), until June 30, 2000, if (i) the effective beneficiary of the
interest paid is a resident of a country which has entered into a treaty to
avoid double taxation with Mexico which is in effect, (ii) the requirements for
the application of a lower rate established in the applicable treaty are
satisfied by such Foreign Holder and (iii) the Senior Notes are registered with
the Registry.

     Pursuant to general rules (the "Reduced Rate Regulations") issued by the
Secretaria de Hacienda y Credito Publico (the "Ministry of Finance"), payments
of interest made by the Company to Foreign Holders with respect to the Senior
Notes will be subject to withholding taxes imposed at the Reduced Rate,
regardless of the place or residence or tax regime applicable to the Foreign
Holder recipient of such interest, so long as (i) the Senior Notes are
registered with the Special Section of the Registry, (ii) the Company timely
files with the Ministry of Finance certain information relating to the issuance
of and subsequent changes to the Senior Notes, (iii) the Company timely files
with the Ministry of Finance, after the date of each interest payment under the
Senior Notes, information representing that no party related to the Company (as
such

                                       17
<PAGE>   20

term is defined under the Reduced Rate Regulations) directly or indirectly, is
the effective beneficiary of 5% or more of the aggregate amount of each such
interest payment, and (iv) the Company maintains records that evidence
compliance with item (iii) above. The Reduced Rate Regulations, together with
other tax regulations, are promulgated on an annual basis, and there can be no
assurance that the requirements set forth in the Reduced Rate Regulations
described above for the application of the Reduced Rate will be extended beyond
February 28, 2001.

     Apart from the Reduced Rate, other special rates of Mexican withholding tax
may apply. In particular, under the Tax Treaty, the Mexican withholding tax rate
was reduced from 10% to 4.9%, effective January 1, 1999 (the "Treaty Rate") for
certain holders that are residents of the United States (within the meaning of
the Tax Treaty) under certain circumstances contemplated therein.

     Payments of interest made by the Company with respect to the Senior Notes
to non-Mexican pension or retirement funds will be exempt from Mexican
withholding taxes, provided that (i) 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 (ii) 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 Senior 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 Senior 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 Senior
Notes to a Foreign Holder will not be subject to any Mexican taxes.

  TAXATION OF DISPOSITIONS

     Capital gains resulting from the sale or other disposition of the Senior
Notes by a Foreign Holder will not be subject to Mexican income or other taxes.

  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
Senior Notes. A Foreign Holder of Senior Notes will not be liable for Mexican
estate, gift, inheritance or similar tax with respect to the Senior Notes.

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 Senior 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 Senior 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 Senior
Notes and one or more other investments, nor does it address the tax treatment
of U.S. Holders that do not acquire Senior 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
                                       18
<PAGE>   21

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 Senior 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 Senior 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 Senior 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 Senior Notes (less amounts attributable to accrued interest)
generally will be long-term capital gain or loss if, at the time of the
disposition, the Senior 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 realized by a U.S. Holder generally will be treated as U.S.
source income for U.S. foreign tax credit purposes. The United States Department
of the Treasury recently published temporary regulations which generally treat
the loss recognized by a U.S. Holder as U.S. source loss.

     Subject to the discussion below regarding backup withholding, a Non-U.S.
Holder of Senior Notes will not be subject to U.S. federal income or withholding
tax on gain realized on the sale or other disposition of Senior Notes unless (i)
such gain is effectively connected with the conduct by the Non-U.S. Holder of a
trade or business in the United States or (ii) in the case of gain realized by
an individual Non-U.S. Holder, the 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 Senior Notes payable to a U.S. Holders by a U.S. paying
agent or other U.S. intermediary will be reported to the Internal Revenue
Service and to the U.S. Holders as may be required under applicable regulations.
Backup withholding at a rate of 31% may apply to these payments if the U.S.
Holders 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,
                                       19
<PAGE>   22

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.

     The United States Department of the Treasury recently promulgated final
regulations regarding the information reporting and backup reporting rules
discussed above. In general, the final regulations do not significantly alter
the substantive information reporting and backup withholding requirements but
rather unify current certification procedures and forms and clarify reliance
standards. In addition, the final regulations permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners. The final regulations are generally effective for
payments made on or after January 1, 2001, subject to certain transition rules.
Purchasers of the Senior Notes should consult their own tax advisors concerning
the effect of such regulations on their particular situations.

                                       20
<PAGE>   23

ITEM 8.  SELECTED FINANCIAL DATA

     The following table presents selected financial information for the fixed
satellite service business of the Government of Mexico for the year ended
December 31, 1996, and for the period January 1, 1997 to November 16, 1997 (the
"Predecessor Company") and the Company for the period November 17, 1997 to
December 31, 1997 and for the years ended December 31, 1998 and 1999. The
information was derived from the audited financial statements of the Predecessor
Company and the Company. The financial information presented below should be
read in conjunction with the financial statements of the Predecessor Company and
the Company.

<TABLE>
<CAPTION>
                                                COMPANY                             PREDECESSOR COMPANY
                                ---------------------------------------   ---------------------------------------
                                    YEARS ENDED        FOR THE PERIOD
                                   DECEMBER 31,       NOVEMBER 17, 1997     FOR THE PERIOD         YEAR ENDED
                                -------------------    TO DECEMBER 31,    JANUARY 1, 1997 TO      DECEMBER 31,
                                  1999       1998           1997           NOVEMBER 16, 1997          1996
                                --------   --------   -----------------   -------------------   -----------------
                                                      (AMOUNTS IN MILLIONS OF U.S. DOLLARS)
<S>                             <C>        <C>        <C>                 <C>                   <C>
STATEMENT OF OPERATIONS DATA:
  Revenue.....................  $  135.5   $  104.8       $   12.9             $   93.4              $ 78.2
  Operating income(1).........      25.0       32.8            4.0                 39.9                17.6
  Income (loss) before income
     taxes, minority interest
     and extraordinary loss...     (41.0)     (17.2)          (2.0)                39.6                17.8
  Deferred income tax
     provision(1).............      (5.7)      (0.9)          (1.7)                (1.6)
  Income (loss) before
     minority interest and
     extraordinary
     loss.....................     (46.7)     (18.1)          (3.7)                38.0                17.8
  Net income (loss)...........     (46.7)     (23.7)          (4.4)                38.0                17.8
  Net income (loss) applicable
     to common stockholders...     (47.8)     (23.7)          (4.4)                38.0                17.8
OTHER DATA:
  Depreciation and
     amortization.............  $   61.3   $   48.7       $    5.8             $   30.9              $ 35.0
  Capital expenditures........       6.3      152.3            3.0                 65.9                10.6
  Deficiency of earnings to
     fixed charges(2).........      42.5       37.7            4.9                  N/A                 N/A
BALANCE SHEET DATA (AT END OF
  PERIOD):
  Total assets................  $1,041.7   $1,138.0       $1,035.1                                   $376.8
  Long-term debt..............     587.0      608.0          569.0                                       --
  Telecomm's investment.......        --         --             --                                    369.5
  Stockholders' equity........     336.5      351.3          367.4                                       --
</TABLE>

------------------------------
(1) As a government agency, the Predecessor Company was subject to an assessment
    by the Mexican government equal to 5.8% of monthly revenue in lieu of income
    or asset taxes. The government assessment of $4.5 million and $4.8 million
    for the year ended December 31, 1996 and for the period January 1, 1997 to
    November 16, 1997, respectively, was recorded as an operating expense for
    such periods. The Company is not subject to such an assessment. However, the
    Company is subject to income and asset taxes at statutory rates.

(2) The ratio of earnings to fixed charges is not applicable for the year ended
    December 31, 1996 and the period January 1, 1997 to November 16, 1997
    because there were no fixed charges during those periods.

                                       21
<PAGE>   24

                                 EXCHANGE RATES

     The following table presents, for the periods indicated, 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 contained
herein 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.

<TABLE>
<CAPTION>
                                                                   EXCHANGE RATE(1)
              YEAR ENDED DECEMBER 31,                 -------------------------------------------
              -----------------------                 PERIOD END    AVERAGE(2)     LOW      HIGH
<S>                                                   <C>           <C>           <C>      <C>
1995................................................      7.74         6.43        5.00      8.05
1996................................................      7.88         7.64        7.33      8.05
1997................................................      8.08         7.97        7.72      8.41
1998................................................      9.90         9.24        8.04     10.63
1999................................................      9.48         9.56        9.24     10.60
2000 (through March 31, 2000).......................      9.31         9.45        9.18      9.64
</TABLE>

------------------------------
(1) Source: Federal Reserve Bank.

(2) Average of month-end rates.

ITEM 9.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

     Except for the historical information contained herein, the matters
discussed in the following Management's Discussion and Analysis of Results of
Operations and Financial Condition 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, the Company or its
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 the Company. 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 involve 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 the
Company's control. Some of these factors and conditions include: partial or
total failure of the Company's in-orbit satellites; the Company's reliance on
certain customers; the Company's operations are located in Mexico; competition
in the Company's industry; and the Company owes significant amounts of money. In
addition, the Company operates in an industry sector where securities values may
be volatile and may be influenced by economic and other factors beyond the
Company's control.

OVERVIEW

     Satelites Mexicanos, S.A. de C.V. ("Satmex" or the "Company") owns and
operates three geosynchronous communications satellites, Solidaridad 1,
Solidaridad 2 and Satmex 5. Satmex also owns another satellite, Morelos 2, which
is in an inclined orbit. Satmex operates in one segment and is the leading
provider of fixed satellite services to broadcasting and telecommunications
customers in Mexico. Satmex is also marketing the use of satellite transmission
capacity for new applications, such as connectivity to the Internet backbone via
satellite. Satmex has landing rights to provide broadcasting and
telecommunications transmission capacity in Mexico, the United States, Canada
and 23 nations and territories in the Latin American region.

     In June 1995, the Constitution of Mexico was amended to establish the legal
framework for the privatization of certain fixed satellite services assets and
operations of Telecomunicaciones de Mexico ("Telecomm"), an agency of the
government of Mexico. On June 26, 1997 the Mexican government formed Satmex for
the purpose of completing the privatization process.

     On November 17, 1997, Loral Space & Communications Ltd. together with its
subsidiaries ("Loral") and Principia, S.A. de C.V., ("Principia") formerly
Telefonica Autrey, S.A. de C.V., acquired 75% of the

                                       22
<PAGE>   25

issued and outstanding stock of Satmex for $647 million through Firmamento
Mexicano S. de R. L. de C.V. ("Firmamento"). Loral owns 65% of Firmamento and
Principia owns 35%. Principia holds 51% of Firmamento's voting interests. The
remaining 25% of the capital stock of Satmex was retained 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. The preferred stock can be exchanged at the
Company's option into common stock of the Company, 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. After the issuance of the
preferred stock, Servicios Corporativos Satelitales S.A. de C.V., a wholly owned
subsidiary of Firmamento, holds 70.7% of the outstanding capital stock of
Satmex, Loral holds 5.4%, Principia holds 0.3% and the Mexican government holds
23.6%.

     In 1999, Loral Skynet entered into an end-of-life lease with Satmex for
three Ku-band transponders on Satmex 5. For the year ended December 31, 1999,
Satmex has 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. Quarterly, Loral Skynet will pay
Satmex $5,000 per transponder 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.

RESULTS OF OPERATIONS FOR THE COMPANY

     This discussion covers the financial statements of Satmex for the years
ended December 31, 1999 and 1998 and the period November 17, 1997 through
December 31, 1997.

     During 1998 and 1999, 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 18.6% and 12.3%, respectively. The Company's 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, the Company will be adversely affected by the effect
of inflation in Mexico with respect to its peso denominated expenses.

  Revenue

     Revenue for the year ended December 31, 1999 was $135.5 million, as
compared to $104.8 million during 1998. Revenue for 1999 includes $25.5 million
related to the lease with Loral Skynet, which was accounted for as a sales-type
lease. Excluding the revenue recorded in connection with this lease, revenue for
1999 was $110 million as compared to $104.8 million in 1998. Revenue for 1999
reflects revenue from Satmex 5 which began commercial service on January 22,
1999. Satmex 5 replaced Morelos 2 which went into inclined orbit in August 1998.
Revenue for 1999 has been effected by cancellations and nonrenewals from
customers who switched their telecommunications networks to fiber optic service
providers and by the lower utilization on Solidaridad 1 due to a service
interruption in April 1999, which caused some customers on Solidaridad 1 to move
to Satmex 5. Revenue for the period November 17, 1997 to December 31, 1997 was
$12.9 million.

  Operating expenses

     Operating expenses, excluding the cost of the transponders related to the
lease with Loral Skynet, increased to $96.3 million for 1999, from $71.9 million
for 1998, primarily due to increases in satellite operations costs of $2.9
million, selling and administrative expenses of $7.7 million, depreciation
expense and amortization of concessions of $12.6 million and license fee expense
of $1.2 million as described below. Operating expenses for the period November
17, 1997 to December 31, 1997 were $8.9 million.

                                       23
<PAGE>   26

     Satellite operations.  Satellite operations, which consists primarily of
satellite insurance and the personnel costs related to the operation of the
satellites, was $17.8 million for 1999, as compared to $14.9 million for 1998.
The increase is primarily due to the higher in-orbit insurance expense for
Satmex 5.

     Selling and administrative expenses.  Selling and administrative expenses
for 1999 were $15.9 million, as compared to $8.2 million for 1998. The increase
is primarily due to salaries and benefits associated with the hiring of
additional personnel, incentive compensation expense and increased professional
fees. The increase also reflects spending increases for advertising and
promotional expenses.

     License and management fees.  Loral and Principia are responsible for
managing the Company, for which they receive a management fee. During 1998,
management fees were $0.3 million. For the year ended December 31, 1999, Loral
and Principia waived the management fee.

     In 1998, Loral and the Company agreed to retroactively delay the
commencement of license fees until January 1, 1999, because the intellectual
property and related services to which the fees relate did not begin to be
implemented until the beginning of 1999, after Satmex 5 entered commercial
operations. All intellectual property fees accrued as of December 31, 1997 were
reversed in 1998. For the year ended December 31, 1999, Loral reduced the
license fee to 1.2%. In 1999, Satmex recorded a license fee expense of $1.3
million.

     Depreciation and amortization.  Depreciation expense for 1999 was $48.4
million as compared to $36.0 million for 1998. The increase in depreciation
expense reflects the depreciation for Satmex 5, which entered commercial service
in January 1999, of $14.4 million. Satmex 5 replaced Morelos 2, which was fully
depreciated in June 1998. Amortization expense relating to the orbital
concessions amounted to $12.9 million during 1999 as compared to $12.7 million
during 1998.

  Interest

     Total interest cost was $68.9 million in 1999 as compared to $72.6 million
in 1998 (before deducting $1.6 million and $20.5 million of capitalized interest
related to the construction and launch of Satmex 5 for 1999 and 1998,
respectively). The decrease in total interest cost is due to lower average
outstanding debt in 1999. Interest cost for the period November 17, 1997 to
December 31, 1997 was $17.7 million (before deducting $2.9 million of
capitalized interest related to the construction and launch of Satmex 5.)

  Net foreign exchange gain (loss)

     The Company recorded a net foreign exchange gain of $3,000 during 1999 and
a net foreign exchange loss of $532,000 in 1998. During 1999, the peso increased
4% against the dollar. However, in 1998, the peso declined 23% against the
dollar.

     Foreign exchange gains for the period from November 17, 1997 to December
31, 1997 totaled $8.7 million. Foreign exchange forward contracts were entered
into to hedge the foreign exchange risk on the second installment payment to the
Mexican government and the related interest due on December 29, 1997.

     There were no foreign exchange contracts outstanding at December 31, 1999
and 1998.

  Deferred income tax provision

     Satmex recorded a deferred income tax provision of $5.7 million and $0.9
million for the years ended December 31, 1999 and 1998, respectively.

     The Company is subject to the greater of an income tax at 35% of taxable
income or an asset tax at 1.8% on the average of assets less certain
liabilities. 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.

     The provision for income tax for the year ended December 31, 1998 excluded
a deferred tax benefit of $2.8 million related to the extraordinary charge on
the debt refinancing. The net deferred income tax asset at December 31, 1998 was
increased by $200,000 for the change to the Mexican statutory rate from 34% to
35% which was signed into law on December 31, 1998 to be effective January 1,
1999.

                                       24
<PAGE>   27

     At December 31, 1999 the Company had tax loss carryforwards of
approximately $315.1 million which expire from 2007 to 2008 and tax credits
available against the asset tax of approximately $15 million which are expected
to be fully utilized in 2000. Without these credits, the Company would have
incurred an asset tax liability of approximately $15.0 million in 1999.

  Extraordinary loss

     In 1998, fees of $8.3 million, less applicable income tax benefit of $2.8
million, related to the debt that was refinanced in March 1998 are presented as
an extraordinary loss in the results of operations.

Preferred stock dividend requirement

     The preferred stock dividend requirement in 1999 of $1.1 million, relates
to the value of the stock dividend issuable on the 606,730 shares of preferred
stock issued on March 30, 1999.

RESULTS OF OPERATIONS FOR THE PREDECESSOR COMPANY

     This discussion covers the historical financial statements of the FSS
business of Telecomm ("the Predecessor Company") for the year ended December 31,
1996 and the period January 1, 1997 to November 16, 1997.

  REVENUE

     Revenue of the Predecessor Company was $78.2 million and $93.4 million for
the year ended December 31, 1996 and the period January 1, 1997 to November 16,
1997, respectively. Revenue included approximately $8.0 million and $28.0
million for the year ended December 31, 1996 and the period January 1, 1997 to
November 16, 1997, respectively, related to contracts with Televisa.

  OPERATING EXPENSES

     The Predecessor Company's operating expenses were $60.6 million and $53.5
million for the year ended December 31, 1996 and the period January 1, 1997 to
November 16, 1997, respectively. The most significant operating expenses during
the periods were depreciation, personnel costs, separation bonuses and
employment costs related to the privatization of Satmex, insurance, provision
for uncollectible accounts and assessment paid to the Mexican government.

     Depreciation.  Depreciation expense for the Predecessor Company was $35.0
million and $30.9 million for the year ended December 31, 1996 and the period
January 1, 1997 to November 16, 1997, respectively, which represents
approximately the same monthly depreciation expense during each period.

     Personnel costs.  Personnel costs consist of recurring payroll and payroll
related expenses for the approximately 220 employees who were employees of the
Predecessor Company at November 17, 1997. Such costs for the Predecessor Company
were $2.9 million and $4.1 million for the year ended December 31, 1996 and the
period from January 1, 1997 to November 16, 1997, respectively. Increases in
expenses for the latter period reflect significant compensation increases
effective July 1997.

     Separation bonuses and employment costs.  Separation bonuses and employment
costs related to the privatization of Satmex include, for the period January 1,
1997 to November 16, 1997, non-recurring payments of $4.0 million made to
employees who transferred from Telecomm to Satmex in July 1997, and, for the
year ended December 31, 1996 and the period January 1, 1997 to November 16,
1997, payroll and related costs of $1.0 million and $0.8 million, respectively,
incurred prior to July 1997 for employees who did not transfer to Satmex.

     Insurance.  Satellite insurance expense for the Predecessor Company was
$10.7 million and $8.7 million for the year ended December 31, 1996 and the
period January 1, 1997 to November 16, 1997, respectively. Expenses for the
latter period reflect rate decreases in October 1997 when the policy for
Solidaridad 1 and 2 was renewed.

                                       25
<PAGE>   28

     Provision for uncollectible accounts.  The provision for uncollectible
accounts was determined based upon management's assessment of the amount of
accounts receivable for which collection is not probable. The provision for the
year ended December 31, 1996 was $1.8 million. The credit to the provision for
uncollectible accounts of $3.0 million for the period January 1, 1997 to
November 16, 1997 was the result of improved collections and a reduction in
gross accounts receivable.

     Government assessment.  As a government agency the Predecessor Company
through October 14, 1997, was subject to an assessment by the Mexican government
equal to 5.8% of revenue.

  DEFERRED INCOME TAX PROVISION

     From October 15, 1997 through November 16, 1997 the Predecessor Company was
subject to income and asset taxes at the statutory rates of 34% and 1.8%,
respectively. 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
10 year period. The Predecessor Company prior to October 15, 1997, was not
subject to income and asset taxes.

CAPITAL EXPENDITURES

     Substantially all capital expenditures are denominated in U.S. dollars.
Capital expenditures, including capitalized interest, were $6.3 million for
1999, as compared to $152.3 million for 1998. Expenditures in 1998 related
primarily to the construction and launch of Satmex 5.

LIQUIDITY AND CAPITAL RESOURCES

     At December 31, 1999, the Company had total debt of $588.0 million. At
December 31, 1999, the Company was in compliance with all covenants governing
its debt agreements.

     The Company's primary source of liquidity for working capital purposes is
cash flow from operations. At December 31, 1999, the company had cash and cash
equivalents of $6.4 million. Satmex used funds from operating cash flow, the
sale of preferred stock and the upfront payment on the lease with Loral Skynet
to prepay a portion of the Company's debt. In February 2000, the Company amended
certain financial covenants in its debt agreements. In connection with these
amendments, the Company paid a consent fee to approving lenders and debtholders
and agreed to increase the applicable interest rates on the debt by up to 0.75%.
The Company believes that its cash flow from operations and the availability of
its revolving credit facility will be adequate to service its interest and debt
repayment requirements and ensure compliance with the covenants of its debt
agreements.

     Cash used and provided.  Net cash provided by operating activities for the
year ended December 31, 1999 of $15.2 million, consisted primarily of $37.1
million of funds generated by earnings before non-cash items, an increase in
deferred revenue -- customers of $7.9 million and a decrease in prepaid
insurance of $3.6 million, offset by a decrease in accounts payable and accrued
expenses of $31.9 million and an increase in deferred financing costs and other
assets of $1.4 million.

     Cash used in investing activities for 1999 was $6.3 million for capital
expenditures.

     Cash used in financing activities for the year ended December 31, 1999 was
$14.3 million and reflects the repayment of $86.0 million of the Company's
senior secured notes offset by the sale of preferred stock of $31.9 million,
drawings under the Company's revolving credit facility of $30.0 million and a
reduction of $9.8 million in the interest reserve account.

ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. The Company has not yet determined

                                       26
<PAGE>   29

the impact that the adoption of SFAS 133 will have on its earnings or financial
position. The Company is required to adopt SFAS 133, as amended, on January 1,
2001.

ITEM 9A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to market risk from changes in currency exchange
rates and change in interest rates. The Company from time to time assesses its
exposure and monitors opportunities to manage these risks.

  EXCHANGE RATE RISK

     During 1998 and 1999, 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 18.6% and 12.3%, respectively. The Company's 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, the Company will be adversely affected by the effect
of inflation in Mexico with respect to its peso denominated expenses.

  INTEREST RATE RISK

     At December 31, 1999, the fair value, based on quoted market prices, of the
Company's fixed rate notes was $240 million. The carrying value of the Company's
revolving credit facility and senior secured notes approximates their fair value
because their interest rates are based on floating rates. The carrying value of
the Company's debt exceeded fair value by $80 million. Market risk on debt is
estimated as the potential increase in annual interest expense resulting from a
hypothetical one percent increase in interest rates and amounts to $4.9 million.

ITEM 10.  DIRECTORS AND OFFICERS OF REGISTRANT

     The following table presents the directors and executive officers of the
Company.

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

<TABLE>
<CAPTION>
                NAME                                 POSITION                     PERIOD OF SERVICE
                ----                                 --------                     -----------------
<S>                                   <C>                                      <C>
Sergio Autrey Maza(1)...............  Chairman of the Board and Director       Since November 1997
Bernard L. Schwartz(1)..............  Director                                 Since November 1997
Lauro Gonzalez-Moreno...............  Chief Executive Officer and Director     Since November 1997
Carlos Autrey Maza..................  Director                                 Since October 1999
Eric J. Zahler......................  Director                                 Since November 1997
Joseph Del Riego....................  Chief Operating Officer                  Since April 1998
Cynthia Pelini......................  Chief Financial Officer                  Since April 1998
Juan Manuel Pinedo..................  Sales Executive Director                 Since January 1999
</TABLE>

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

     The Board of Directors of the Company is chaired by Mr. Sergio Autrey Maza
and pursuant to an agreement between Loral and Principia currently consists of
three Principia directors and two Loral directors.

     The Executive Committee is authorized to take action on all matters that
may be authorized by the Board of Directors.

     Mr. Gonzalez is the Chief Executive Officer and was named jointly by
Principia and Loral. The Chief Executive Officer reports to the Executive
Committee and the Board of Directors. His duties include day to

                                       27
<PAGE>   30

day management of the Company, strategic planning and relationship development.
The Chief Executive Officer can be removed at the request of either Principia or
Loral.

     The Chief Operating Officer of the Company is responsible for the day to
day management and operations of the Company and is appointed by Loral, 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.

ITEM 11.  COMPENSATION OF DIRECTORS AND OFFICERS

     For the year ended December 31, 1999, the aggregate compensation, including
bonuses, of the executive officers of the Company paid or accrued in that year
for services in all capacities was approximately $1.5 million. During 1999, the
Company did not make payments to members of the Board for attendance at Board or
committee meetings and the Company did not provide any pension, retirement or
similar benefits for directors or executive officers.

     Members of management are eligible for bonuses. For the year ended December
31, 1999, the Company paid $553,000 for bonuses earned in 1998.

ITEM 12.  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

     Not applicable.

ITEM 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

     Pursuant to a management services agreement among the Company, Loral and
Principia, the Company has agreed to pay a quarterly management fee based on
quarterly gross revenue, as defined, of the Company and its subsidiaries as
follows: with respect to revenue of less than $25 million, no management fee
will be payable, (ii) with respect to revenue in excess of $25 million but less
than $32 million, 10% of all revenue in excess of $25 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
the cumulative gross revenue of the Company and its subsidiaries. The management
fee represents compensation paid to Loral and Principia for management services
rendered to the Company. For the year ended December 31, 1999, Principia and
Loral waived the management fee.

     Loral has licensed certain intellectual property to the Company for an
annual fee of 1.5% of the Company's gross revenue, as defined. For the year
ended December 31, 1999, Loral and the Company reduced the license fee to 1.2%.
In 1999, Satmex recorded a license fee expense of $1.3 million.

     The Company is a member of the Loral Global Alliance, whose other members
are Loral Skynet and Loral CyberStar, subsidiaries of Loral, and Europe*Star, a
joint venture between Loral and Alcatel. The Loral Global Alliance provides for
cross-selling arrangements among the alliance members' respective sales force
and for cooperative marketing and promotional activities. The Company believes
that such arrangements will enable the members of the alliance to compete more
effectively in sales of communications satellite services worldwide. In
addition, the alliance offers in-orbit backup capabilities for its members in
regions where members' fleets have overlapping coverage.

     In connection with the privatization, the Company is required to provide
181 MHz C-band and 181 MHz Ku-band capacity for the Mexican government for
national security and certain public purposes at no charge. The Company also
operates two L-band transponders (one on each of the Solidaridad satellites)
which continued to be owned by the Mexican government. Under the property
concession granted by the Mexican government to the Company, the Company pays to
the government an annual fee of 7.5% of the value of the property on which the
Company's satellite control centers are located.

     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. The preferred stock can be exchanged at the
                                       28
<PAGE>   31

Company's option into common stock of the Company, 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. After the
issuance of the preferred stock, Servicios holds 70.7% of the outstanding
capital stock of Satmex, Loral holds 5.4%, Principia holds 0.3% and the Mexican
government holds 23.6%.

     In 1999, Loral Skynet entered into an end-of-life lease with Satmex for
three Ku-band transponders on Satmex 5. For the year ended December 31, 1999,
Satmex has 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. Quarterly, Loral Skynet will pay
Satmex $5,000 per transponder 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, Holdings formed three wholly-owned subsidiaries; Satmex
Corportivo, S. de R.L. de C.V., ("Corporate") Satmex Administracion, S. de R.L.
de C.V. ("Administration") and Satmex Servicios Tecnicos, S. de R.L. de C.V.
("Technical") (collectively the "Service Companies"). In June 1999, Satmex
transferred its management personnel to Corporate and its administrative
personnel to Administration. In November 1999, Satmex transferred its union
personnel to Technical.

                                    PART III

ITEM 15.  DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

ITEM 16.  CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES

     Not applicable.

                                    PART IV

ITEM 18.  FINANCIAL STATEMENTS

     See Item 19(a) for a list of all financial statements filed as part of this
Form 20-F.

                                       29
<PAGE>   32

ITEM 19.  FINANCIAL STATEMENTS AND EXHIBITS

     (a) List of Financial Statements

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
SATELITES MEXICANOS, S.A. DE C.V.:
Index To Financial Statements...............................  F-1
Independent Auditors' Report................................  F-2
Report of Independent Accountants...........................  F-3
Balance Sheets as of December 31, 1999 and 1998.............  F-4
Statements of Operations for the years ended December 31,
  1999 and 1998 and the period November 17, 1997 to
  December 31, 1997.........................................  F-5
Statements of Changes in Stockholders' Equity for the years
  ended December 31, 1999 and 1998 and the period November
  17, 1997 to December 31, 1997.............................  F-6
Statements of Cash Flows for the years ended December 31,
  1999 and 1998 and the period November 17, 1997 to
  December 31, 1997.........................................  F-7
Notes to the Financial Statements...........................  F-8
TELECOMUNICACIONES DE MEXICO, FIXED SATELLITE SERVICE
  (PREDECESSOR COMPANY):
Report of Independent Accountants...........................  F-20
Balance Sheet as of December 31, 1996.......................  F-21
Results of Operations for the year ended December 31, 1996
  and the period January 1, 1997 to November 16, 1997.......  F-22
Statements of Changes in Investment/Equity for the year
  ended December 31, 1996 and the period January 1, 1997 to
  November 16, 1997.........................................  F-23
Statements of Cash Flows for the year ended December 31,
  1996 and the period January 1, 1997 to November 16, 1997..  F-24
Notes to Financial Statements...............................  F-25
</TABLE>

     (b) List of Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
    2.1       Contract for the Purchase and Sale of Personal Property
              (Contrato de Compraventa de Bienes Muebles), dated as of
              October 15, 1997, by and between the Federal Government of
              the United Mexican States and Satelites Mexicanos, S.A. de
              C.V.+
    2.2       Contract for the Purchase and Sale of Personal Property
              (Contrato de Compraventa de Bienes Muebles), dated as of
              October 15, 1997, by and between the Federal Government of
              the United Mexican States and Satelites Mexicanos, S.A. de
              C.V. (English translation).+
    2.3       Stock Purchase and Sale Agreement (Contrato de Compraventa
              de Acciones), dated as of November 17, 1997, by and between
              the Federal Government of the United Mexican States and
              Corporativo Satelites Mexicanos, S.A. de C.V.+
    2.4       Stock Purchase and Sale Agreement (Contrato de Compraventa
              de Acciones), dated as of November 17, 1997, by and between
              the Federal Government of the United Mexican States and
              Corporativo Satelites Mexicanos, S.A. de C.V. (English
              translation).+
    3.1       Estatutos Sociales (bylaws) of Satelites Mexicanos, S.A. de
              C.V.+
    3.2       Estatutos Sociales (bylaws) of Satelites Mexicanos, S.A. de
              C.V. (English translation)+
    4.1       Indenture, dated as of February 2, 1998, between Satelites
              Mexicanos, S.A. de C.V. and The Bank of New York, as
              trustee.+
    4.2       Amended and Restated Credit Agreement among Firmamento
              Mexicano S. de R.L. de C.V., Servicios Corporativos
              Satelitales, S.A. de C.V., Satelites Mexicanos, S.A. de
              C.V., the several Lenders from time to time parties thereto,
              Donaldson, Lufkin & Jenrette Securities Corporation and
              Lehman Brothers Inc., as arrangers, DLJ Capital Funding,
              Inc. and Lehman Commercial Paper Inc., as Syndication
              Agents, and Citibank, N.A., as Administrative Agent, dated
              as of February 23, 1998.+
</TABLE>

                                       30
<PAGE>   33

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
    4.3       Intercreditor and Collateral Trust Agreement among
              Firmamento Mexicano S. de R.L. de C.V., Servicios
              Corporativos Satelitales, S.A. de C.V., Satelites Mexicanos,
              S.A. de C.V., Citibank, N.A., as Administrative Agent,
              Citibank, N.A., as Indenture Trustee, and Citibank, N.A., as
              Collateral Trustee, dated as of February 23, 1998.+
    4.4       Indenture, dated as of March 4, 1998, among, Satelites
              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.+
    4.5       First Amendment, dated as of June 23, 1998, to the Amended
              and Restated Credit Agreement among Firmamento Mexicano S.
              de R.L. de C.V., Servicios Corporativos Satelitales, S.A. de
              C.V., Satelites Mexicanos, S.A. de C.V., the several Lenders
              from time to time parties thereto, Donaldson, Lufkin &
              Jenrette Securities Corporation and Lehman Brothers Inc., as
              arrangers, DLJ Capital Funding, Inc. and Lehman Commercial
              Paper Inc., as Syndication Agents, and Citibank, N.A., as
              Administrative Agent, dated as of February 23, 1998.+
    4.6       First Supplemental Indenture, dated as of June 30, 1998,
              Supplemental to Indenture, dated as of March 4, 1998, among,
              Satelites 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.+
    4.7       Second Amendment, dated as of February 16, 2000, to the
              Amended and Restated Credit Agreement among Firmamento
              Mexicano S. de R.L. de C.V., Servicios Corporativos
              Satelitales, S.A. de C.V., Satelites Mexicanos, S.A. de
              C.V., the several Lenders from time to time parties thereto,
              Donaldson, Lufkin & Jenrette Securities Corporation and
              Lehman Brothers Inc., as arrangers, DLJ Capital Funding,
              Inc. and Lehman Commercial Paper Inc., as Syndication
              Agents, and Citibank, N.A., as Administrative Agent, dated
              as of February 23, 1998.*
    4.8       Second Supplemental Indenture, dated as of February 16,
              2000, to Indenture, dated as of March 4, 1998, among,
              Satelites 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.*
   10.1       Intentionally omitted.
   10.2       Intentionally omitted.
   10.3       Intentionally omitted.
   10.4       Intentionally omitted.
   10.5       Registration Rights Agreement, dated as of February 2, 1998,
              by and between Satelites Mexicanos, S.A. de C.V. and
              Donaldson, Lufkin & Jenrette Securities Corporation and
              Lehman Brothers Inc., as Initial Purchasers.+
   10.6       Contract Number TVDP-1191/97 for the Provision of Ongoing
              Service for the Transmission of Restricted Television
              Signals by Satellite, dated September 9, 1997, by and
              between the Decentralized Telecommunications Agency of
              Mexico and Corporacion de Radio y Television del Norte de
              Mexico, S.A. de C.V.+#
   10.7       Contract Number TVDP-1191/97 for the Provision of Ongoing
              Service for the Transmission of Restricted Television
              Signals by Satellite, dated September 9, 1997, by and
              between the Decentralized Telecommunications Agency of
              Mexico and Corporacion de Radio y Television del Norte de
              Mexico, S.A. de C.V. (English translation).+#
   10.8       Modifying Agreement to Contract Number TVDP-007/96 for the
              Provision of Ongoing Service for the Transmission of
              Restricted Television Signals by Satellite, dated September
              9, 1997, by and between the Decentralized Telecommunications
              Agency of Mexico and Corporation de Radio y Television del
              Norte de Mexico, S.A. de C.V.+#
</TABLE>

                                       31
<PAGE>   34

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
   10.9       Modifying Agreement to Contract Number TVDP-007/96 for the
              Provision of Ongoing Service for the Transmission of
              Restricted Television Signals by Satellite, dated September
              9, 1997, by and between the Decentralized Telecommunications
              Agency of Mexico and Corporation de Radio y Television del
              Norte de Mexico, S.A. de C.V. (English translation).+#
  10.10       Satellite Concession 116.8 degrees W.L.+
  10.11       Satellite Concession 116.8 degrees W.L. (English
              Translation)+
  10.12       Satellite Concession 113.0 degrees W.L.+
  10.13       Satellite Concession 113.0 degrees W.L. (English
              Translation)+
  10.14       Satellite Concession 109.2 degrees W.L.+
  10.15       Satellite Concession 109.2 degrees W.L. (English
              Translation)+
  10.16       Property Concession+
  10.17       Property Concession (English Translation)+
  10.18       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       Computation of Deficiency of Earnings to Cover Fixed
              Charges*.
</TABLE>

------------------------------
 # Portions of Exhibit omitted pursuant to an application for confidential
   treatment.
 + Incorporated by reference from registrant's Registration Statement on Form
   S-4 filed on November 9, 1998 (File No. 333-8880).
 * Filed herewith.

                                   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.

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

                                          By: /s/ CYNTHIA PELINI
                                            ------------------------------------
                                            Cynthia Pelini
                                            Chief Financial Officer

Date: April 26, 2000

                                       32
<PAGE>   35

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
SATELITES MEXICANOS, S.A. DE C.V.:
Independent Auditors' Report................................  F-2
Report of Independent Accountants...........................  F-3
Balance Sheets as of December 31, 1999 and 1998.............  F-4
Statements of Operations for the years ended December 31,
  1999 and 1998 and the period November 17, 1997 to
  December 31, 1997.........................................  F-5
Statements of Changes in Stockholders' Equity for the years
  ended December 31, 1999 and 1998 and the period
  November 17, 1997 to December 31, 1997....................  F-6
Statements of Cash Flows for the years ended December 31,
  1999 and 1998 and the period November 17, 1997 to
  December 31, 1997.........................................  F-7
Notes to the Financial Statements...........................  F-8
TELECOMUNICACIONES DE MEXICO, FIXED SATELLITE SERVICE
  (PREDECESSOR COMPANY):
Report of Independent Accountants...........................  F-20
Balance Sheet as of December 31, 1996.......................  F-21
Results of Operations for the year ended December 31, 1996
  and the period January 1, 1997 to November 16, 1997.......  F-22
Statements of Changes in Investment/Equity for the year
  ended December 31, 1996 and the period January 1, 1997
  to November 16, 1997......................................  F-23
Statements of Cash Flows for the year ended December 31,
  1996 and the period January 1, 1997 to November 16, 1997..  F-24
Notes to Financial Statements...............................  F-25
</TABLE>

                                       F-1
<PAGE>   36

                          INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
Satelites Mexicanos, S.A. de C.V.

     We have audited the accompanying balance sheet of Satelites Mexicanos, S.A.
de C.V. (a subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) as of
December 31, 1999, and the related statements of operations, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

     We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those 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 audit provides a
reasonable basis for our opinion.

     In our opinion, such financial statements present fairly, in all material
respects, the financial position of Satelites Mexicanos, S.A. de C.V. as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.

Deloitte & Touche
Mexico City, Mexico
February 24, 2000

                                       F-2
<PAGE>   37

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of Satelites Mexicanos, S.A. de C.V.

     In our opinion, the accompanying balance sheet, statements of operations,
changes in stockholders' equity and cash flows presents fairly, in all material
respects, the financial position of Satelites Mexicanos, S.A. de C.V. (a
subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) as of December
31, 1998 and for the year ended December 31, 1998 and the period November 17,
1997 to December 31, 1997, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers
Mexico City
March 29, 1999

                                       F-3
<PAGE>   38

                       SATELITES MEXICANOS, S.A. DE C.V.
        (SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)

                                 BALANCE SHEETS
                        AS OF DECEMBER 31, 1999 AND 1998
                     (Amounts in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                                 1999          1998
                                                              ----------    ----------
<S>                                                           <C>           <C>
                                 ASSETS
Current assets:
  Cash and cash equivalents.................................  $    6,450    $   11,883
  Interest reserve account..................................                     9,765
  Accounts receivable, net..................................       7,341         7,062
  Due from related parties..................................       2,889         1,954
  Prepaid insurance.........................................      13,069        13,219
                                                              ----------    ----------
          Total current assets..............................      29,749        43,883
Satellites and equipment, net...............................     501,174       557,456
Concessions, net............................................     489,331       502,237
Prepaid insurance, non current..............................      10,031        13,454
Deferred financing costs, net...............................       9,368        12,911
Other assets................................................         460           303
Deferred income tax assets..................................       1,621         7,720
                                                              ----------    ----------
          Total assets......................................  $1,041,734    $1,137,964
                                                              ==========    ==========
                  LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt......................  $    1,000    $   36,000
  Accounts payable..........................................       3,341         1,496
  Accrued expenses..........................................       3,480        37,218
  Interest payable..........................................      13,500        13,770
  Deferred income tax liabilities...........................       3,387         3,810
  Due to related parties....................................       2,277           822
                                                              ----------    ----------
          Total current liabilities.........................      26,985        93,116
Deferred revenue -- customers...............................       7,878
Deferred revenue -- Mexican government......................      83,335        85,535
Long-term debt..............................................     587,000       608,000
                                                              ----------    ----------
          Total liabilities.................................     705,198       786,651
                                                              ----------    ----------
Commitments and contingencies (Note 9)

Stockholders' equity:
  Common stock..............................................     380,533       379,403
  Preferred stock...........................................      31,886
  Accumulated deficit.......................................     (75,883)      (28,090)
                                                              ----------    ----------
          Total stockholders' equity........................     336,536       351,313
                                                              ----------    ----------
          Total liabilities and stockholders' equity........  $1,041,734    $1,137,964
                                                              ==========    ==========
</TABLE>

                       See notes to financial statements.

                                       F-4
<PAGE>   39

                       SATELITES MEXICANOS, S.A. DE C.V.
        (SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)

                            STATEMENTS OF OPERATIONS
         FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD
                     NOVEMBER 17, 1997 TO DECEMBER 31, 1997
                     (Amounts in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                               1999        1998        1997
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Revenue:
  Service revenue..........................................  $110,020    $104,779    $ 12,893
  Sales-type lease.........................................    25,500
                                                             --------    --------    --------
                                                              135,520     104,779      12,893
                                                             --------    --------    --------
Operating expenses:
  Cost of transponders under sales-type lease..............    14,234
  Satellite operations.....................................    17,835      14,946       1,928
  Selling and administrative expenses......................    15,887       8,178         860
  License and management fees..............................     1,266          86         247
  Depreciation expense and amortization of concessions.....    61,310      48,728       5,843
                                                             --------    --------    --------
                                                              110,532      71,938       8,878
                                                             --------    --------    --------
Operating income...........................................    24,988      32,841       4,015
Interest income............................................     1,347       2,604
Interest expense and amortization of deferred financing
  costs....................................................   (67,325)    (52,119)    (14,792)
Net foreign exchange gain (loss)...........................         3        (532)      8,774
                                                             --------    --------    --------
Loss before income taxes, minority interest and
  extraordinary loss.......................................   (40,987)    (17,206)     (2,003)
Deferred income tax provision..............................    (5,676)       (931)     (1,711)
                                                             --------    --------    --------
Loss before minority interest and extraordinary loss.......   (46,663)    (18,137)     (3,714)
Minority interest..........................................                              (726)
Extraordinary loss from extinguishment of debt, net of
  income tax benefit of $2,840.............................                (5,513)
                                                             --------    --------    --------
Net loss...................................................   (46,663)    (23,650)     (4,440)
Preferred stock dividend requirement.......................    (1,130)
                                                             --------    --------    --------
Net loss applicable to common stockholders.................  $(47,793)   $(23,650)   $ (4,440)
                                                             ========    ========    ========
</TABLE>

                       See notes to financial statements.

                                       F-5
<PAGE>   40

                       SATELITES MEXICANOS, S.A. DE C.V.
        (SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)

                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
         FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD
                     NOVEMBER 17, 1997 TO DECEMBER 31, 1997
                (Monetary amounts in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                             COMMON STOCK         PREFERRED STOCK
                                         ---------------------   -----------------   ACCUMULATED
                                           SHARES      AMOUNT    SHARES    AMOUNT      DEFICIT      TOTAL
                                         ----------   --------   -------   -------   -----------   --------
<S>                                      <C>          <C>        <C>       <C>       <C>           <C>
Issuance of capital stock..............   7,500,000   $141,134                                     $141,134
Capital stock contribution of
  Government in exchange for 25% of the
  Company's common stock upon the
  merger...............................   2,500,000    145,425                                      145,425
Effect of push down of additional
  contribution paid to Government by
  shareholders.........................                 85,289                                       85,289
Net loss...............................                                               $ (4,440)      (4,440)
                                         ----------   --------                        --------     --------
Balance December 31, 1997..............  10,000,000    371,848                          (4,440)     367,408
Finalization of fair value of assets
  contributed by the Government upon
  the merger...........................                  7,555                                        7,555
Net loss...............................                                                (23,650)     (23,650)
                                         ----------   --------                        --------     --------
Balance December 31, 1998..............  10,000,000    379,403                         (28,090)     351,313
Issuance of preferred stock............                          606,730   $31,886                   31,886
Net loss...............................                                                (46,663)     (46,663)
Preferred stock dividend requirement...                  1,130                          (1,130)
                                         ----------   --------   -------   -------    --------     --------
Balance December 31, 1999..............  10,000,000   $380,533   606,730   $31,886    $(75,883)    $336,536
                                         ==========   ========   =======   =======    ========     ========
</TABLE>

                       See notes to financial statements.

                                       F-6
<PAGE>   41

                       SATELITES MEXICANOS, S.A. DE C.V.
        (SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)

                            STATEMENTS OF CASH FLOWS
         FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD
                     NOVEMBER 17, 1997 TO DECEMBER 31, 1997
                     (Amounts in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                             1999        1998         1997
                                                           --------    ---------    ---------
<S>                                                        <C>         <C>          <C>
OPERATING ACTIVITIES
Net loss.................................................  $(46,663)   $ (23,650)   $  (4,440)
Non-cash items:
  Depreciation expense and amortization of concessions...    61,310       48,728        5,843
  Amortization of deferred financing costs...............     4,715        5,423
  Cost of transponders under sales-type lease............    14,234
  Deferred revenue -- Mexican government.................    (2,200)      (2,200)        (265)
  Extraordinary loss.....................................                  5,513
  Deferred income tax provision..........................     5,676          931        1,711
  Minority interest......................................                                 726
Changes in assets and liabilities:
  Accounts receivable....................................      (279)      (2,611)       3,496
  Prepaid insurance......................................     3,573      (18,123)      (8,313)
  Accounts payable and accrued expenses..................   (31,872)      32,769        4,558
  Interest payable.......................................      (270)      13,441
  Due from/to related parties............................       520        1,960
  Deferred revenue -- customers..........................     7,878
  Deferred financing costs and other assets..............    (1,400)     (11,402)     (15,710)
                                                           --------    ---------    ---------
Cash flow provided by (used in) operating activities.....    15,222       50,779      (12,394)
                                                           --------    ---------    ---------
INVESTING ACTIVITIES
Acquisition of satellites and equipment..................    (6,306)    (152,275)      (3,031)
Investment in subsidiary, net of cash acquired of $194...                            (646,565)
                                                           --------    ---------    ---------
Cash flow used in investing activities...................    (6,306)    (152,275)    (649,596)
                                                           --------    ---------    ---------
FINANCING ACTIVITIES
Borrowings under revolving credit facility...............    30,000
Proceeds from issuance of senior secured notes...........                325,000
Proceeds from issuance of fixed rate notes...............                320,000
Repayment of senior secured notes........................   (86,000)      (1,000)
Decrease (increase) in interest reserve account..........     9,765       15,235      (25,000)
Proceeds from bank loans.................................                             627,500
Repayment of bank loans..................................               (570,000)     (57,500)
Capital contributions....................................    31,886                   141,134
                                                           --------    ---------    ---------
Cash flow (used in) provided by financing activities.....   (14,349)      89,235      686,134
                                                           --------    ---------    ---------
Increase (decrease) in cash and cash equivalents.........    (5,433)     (12,261)      24,144
Cash and cash equivalents at beginning of period.........    11,883       24,144
                                                           --------    ---------    ---------
Cash and cash equivalents at end of period...............  $  6,450    $  11,883    $  24,144
                                                           ========    =========    =========
SUPPLEMENTAL DISCLOSURE:
  Interest paid..........................................  $ 61,923    $  49,851    $  10,924
                                                           ========    =========    =========
</TABLE>

                       See notes to financial statements.

                                       F-7
<PAGE>   42

                       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.  ACTIVITY AND FORMATION OF THE COMPANY

     Satelites Mexicanos, S.A. de C.V. ("Satmex") owns and operates three
geosynchronous communications satellites, Solidaridad 1, Solidaridad 2 and
Satmex 5. Satmex also owns another satellite, Morelos 2, which is in an inclined
orbit. Satmex operates in one business segment and is the leading provider of
fixed satellite services ("FSS") to broadcasting and telecommunications
customers in Mexico. Satmex has landing rights to provide broadcasting and
telecommunications transmission capacity in the United States, Canada and 23
nations and territories in the Latin American region.

     In June 1995, the Constitution of Mexico was amended to establish the legal
framework for the privatization of certain FSS assets and operations of
Telecomunicaciones de Mexico, ("Telecomm"), an agency of the government of
Mexico. On June 26, 1997, the Mexican government formed Satmex for the purpose
of completing the privatization of Telecomm's FSS business. The FSS business was
operated by Telecomm through October 14, 1997 and thereafter by Satmex. On
October 15, 1997, the Mexican government sold Satmex certain assets of Telecomm,
based on historical cost, for $405.0 million plus $63.0 million of value added
tax. The assets consisted principally of three in-orbit satellites, one
satellite under construction and equipment located at two satellite control
facilities.

     Effective October 15, 1997, the Mexican government sold Satmex the rights
to three 20-year concession titles (the "Concessions"), to operate in the three
orbital slots currently occupied by Satmex's satellites (Solidaridad 1 - 109.2
degrees W.L., Solidaridad 2 - 113.0 degrees W.L. and Satmex 5 - 116.8 degrees
W.L.). 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. Additionally, the
Company has a fourth concession that includes the right to use the land and
buildings on which the satellite control centers are located, for an annual rent
equal to 7.5% of appraised value.

     On October 30, 1997, Loral Space & Communications Ltd. (together with its
subsidiaries "Loral") and Principia, S.A. de C.V. ("Principia"), formerly
Telefonica Autrey S.A. de C.V. (collectively "the Sponsors"), were awarded the
right to acquire 75% of the issued and outstanding capital stock of Satmex for
$646.8 million.

     On November 12, 1997, the Sponsors formed Corporativo Satelites Mexicanos,
S.A. de C.V. ("Acquisition Sub"), a wholly owned subsidiary of Firmamento
Mexicano, S. de R. L. de C.V. ("Holdings"), to effect the acquisition of Satmex.
Holdings contributed $141.1 million in cash to Acquisition Sub for the initial
installment payment of the purchase price.

     On November 17, 1997, Acquisition Sub completed the acquisition of the 75%
interest in Satmex ("the Acquisition"). On December 29, 1997, Acquisition Sub
merged with and into Satmex ("the Merger"). There were no operations of
Acquisition Sub prior to the Acquisition.

     The financial statements of Satmex for the period November 17, 1997 to
December 31, 1997 reflect the results of operations for that period and include
the effect of the Acquisition and the Merger.

  THE ACQUISITION

     The Acquisition was made pursuant to the terms of a stock purchase
agreement entered into on November 17, 1997 between the Mexican government and
Acquisition Sub for a purchase price of $646.8 million payable in two
installments. On November 17, 1997, $194.0 million was paid in cash financed by
an equity contribution of $141.1 million and $52.5 million obtained through an
interim unsecured credit facility. The final installment, including interest, of
$466.1 million was paid on December 29, 1997.

                                       F-8
<PAGE>   43
                       SATELITES MEXICANOS, S.A. DE C.V.
        (SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)

                 NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)

     The Acquisition has been accounted for as a purchase. The excess of the
purchase price over net assets acquired has been calculated as follows (in
thousands):

<TABLE>
<S>                                                     <C>          <C>
Purchase price........................................               $646,759
                                                                     ========
Estimated fair value of Satmex at November 16, 1997...  $ 625,289
                                                        =========
Estimated fair value of net assets acquired (75%).....  $ 468,967
Fair market value allocated to the Concessions........    375,345
Deferred revenue associated with reserve capacity.....    (88,000)
Deferred tax adjustment...............................   (109,553)
                                                        ---------
Total fair value......................................               $646,759
                                                                     ========
</TABLE>

     In connection with the Acquisition, 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 1998, the Company completed its
valuation of this obligation and the financial statements reflect $88 million
recorded as deferred revenue and an increase in the value of the Concessions by
the same amount. This obligation is being recognized over 40 years as an
increase in revenues and a corresponding increase in amortization expense.
Amortization of deferred revenue for the years ended December 31, 1999 and 1998
was $2.2 million each year and for the period November 17, 1997 to December 31,
1997 was $265,000.

  THE MERGER

     On December 15, 1997, the stockholders of Satmex agreed to merge
Acquisition Sub with and into Satmex effective December 29, 1997. The merger
between Satmex and Acquisition Sub has been accounted for as a purchase from the
Mexican government of its minority interest in Satmex in exchange for a 25%
interest in Acquisition Sub and additional consideration in the form of a debt
obligation. The minority interest attributable to the Mexican government's 25%
interest in Satmex at December 29, 1997 ($146.1 million based on the net book
value of Satmex at December 29, 1997), was contributed by the Mexican government
in exchange for 25% of the common stock of the Company. In 1998, as a result of
the final allocation of the purchase price, the Company determined that the fair
value of the net assets contributed by the Mexican government at the Merger
exceeded book value by $7.6 million, net of $4.1 million of deferred income
taxes.

     The debt obligation was issued by Servicios Corporativos Satelitales, S.A.
de C.V. ("Servicios"), the parent company of Acquisition Sub, in the form of a
6.03% obligation to the Mexican Government (the "Government Obligation") due in
seven years. The principal amount of the Government Obligation of $125.1 million
was discounted to its estimated fair value of $85.3 million using a 12% interest
rate, which the Company believes represented the fair market rate for similar
instruments. Affiliates of the Sponsors have pledged their interest in Holdings
as collateral for this obligation. Since Servicios owned 100% of the voting
shares of the Company at the time the Government Obligation was incurred, the
balance sheet reflects the push down of this additional consideration paid by
Servicios as a deemed equity contribution and additional value of the
Concessions of $129.2 million and the related deferred tax impact of $43.9
million. Servicios will be dependent upon dividends from Satmex to make all or
part of the interest and principal payment on the Government Obligation.

     The Company believes that the value associated with the effect of the
Merger and the additional consideration paid to the Mexican government
approximates the fair value of the 25% interest acquired from the minority
interest.

                                       F-9
<PAGE>   44
                       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.

  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. 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):

<TABLE>
<CAPTION>
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Current exchange rate at December 31,.......................  Ps. 9.52   Ps. 9.89
Weighted average exchange rate..............................      9.56       9.09
</TABLE>

  Use of estimates

     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. Significant estimates include the
estimated useful lives of the Company's satellites and deferred income taxes.

  Cash and cash equivalents

     Cash and cash equivalents represent investments in short-term deposits and
commercial paper with banks which have original maturities of ninety days or
less.

  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 are:

<TABLE>
<S>                                                <C>
Solidaridad 1....................................    14 years
Solidaridad 2....................................  14.5 years
Satmex 5.........................................    15 years
Equipment........................................     9 years
Furniture and fixtures...........................    10 years
</TABLE>

     Solidaridad 1 and Solidaridad 2 are being depreciated over their estimated
useful lives commencing on their in-orbit service dates of December 12, 1993 and
November 11, 1994, respectively. Satmex 5 is being

                                      F-10
<PAGE>   45
                       SATELITES MEXICANOS, S.A. DE C.V.
        (SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)

                 NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)

depreciated over 15 years commencing on its in-orbit service date of January 22,
1999. The estimated useful lives of the satellites were determined by
engineering analyses performed at the in-orbit service dates. Morelos 2 was
fully depreciated at June 30, 1998.

     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, and construction period interest. Capitalized interest
related to the construction of Satmex 5 was $1.6 million, $20.5 million and $2.9
million for the years ended December 31, 1999 and 1998 and for the period
November 17, 1997 to December 31, 1997, respectively.

     Losses from in-orbit satellite failures, net of insurance proceeds, would
be recorded in the period the loss occurs.

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

  Concessions

     Concessions consist of the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         --------------------
                                                           1999        1998
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
Balance at beginning of period.........................  $516,207    $550,831
Allocation of purchase price...........................               (34,624)
                                                         --------    --------
                                                          516,207     516,207
Accumulated amortization...............................   (26,876)    (13,970)
                                                         --------    --------
                                                         $489,331    $502,237
                                                         ========    ========
</TABLE>

     The Concessions are being amortized over 40 years. Amortization expense was
$12.9 million, $12.7 million and $1.3 million for the years ended December 31,
1999 and 1998 and the period November 17, 1997 to December 31, 1997,
respectively.

  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, 1999
and 1998 was $4.7 million and $5.4 million, respectively.

  Valuation of long-lived assets

     The carrying value 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 benefits, indemnification payments and other benefits plans

     At December 31, 1999 the Company has no obligation for statutory seniority
premiums and severance costs because the Company uses external services from
affiliated companies to perform its activities. The obligation for seniority
premiums at December 31, 1998 was not significant. The Company has no obligation
for post-retirement health care insurance or other benefits.

                                      F-11
<PAGE>   46
                       SATELITES MEXICANOS, S.A. DE C.V.
        (SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)

                 NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)

  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 are not expected to be realized.

  Revenue recognition

     Satmex provides satellite capacity under service lease agreements for
periods ranging from one year to ten years. Some service lease 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 lease 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.
During the year ended December 31, 1999, Satmex recognized revenue of $25.5
million and related undepreciated cost of $14.2 million for the lease of three
Ku-band transponders to Loral Skynet which was accounted for as a sale-type
lease.

  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 carrying value of cash and cash equivalents, accounts receivable, and
accounts payable is a reasonable estimate of their fair value.

     The carrying value of the Company's revolving credit facility and senior
secured notes approximate fair value because their interest rates are based on
floating rates. At December 31, 1999, the fair value of the Company's fixed rate
notes based on quoted market prices was $240 million.

  Foreign exchange forward contracts

     The Company has used foreign exchange forward contracts to hedge the
Company's net monetary liabilities in foreign currencies. Gains and losses from
the contracts are included in the component "Net foreign exchange gain (loss)"
in the Statements of Operations. No such contracts were outstanding at December
31, 1999 and 1998.

  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.

     Revenue from Grupo Televisa and its subsidiaries ("Televisa") represented
31%, 29% and 43% of service revenue for the years ended December 31, 1999 and
1998 and the period November 17, 1997 to December 31,

                                      F-12
<PAGE>   47
                       SATELITES MEXICANOS, S.A. DE C.V.
        (SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)

                 NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)

1997, respectively. Revenue from the Mexican government represented 10% and 5%
of service revenue for the years ended December 31, 1999 and 1998, respectively
and 40% of service revenue for the period November 17, 1997 to December 31,
1997.

     Approximately 73%, 89% and 95% of the Company's service revenue for the
years ended December 31, 1999 and 1998 and for the period November 17, 1997 to
December 31, 1997, respectively, was generated from customers in Mexico.

  Value added tax

     The Company collects value added tax based on revenue from its customers.
Value added taxes previously paid for the acquisition of assets or operating
expenses may be offset against value added tax collected from customers.

  New accounting pronouncements

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. The Company has not yet determined the impact
that the adoption of SFAS 133 will have on its earnings or financial position.
The Company is required to adopt SFAS 133, as amended, on January 1, 2001.

  Reclassifications

     Certain reclassifications have been made to conform prior year amounts to
the current year's presentation.

3.  ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ----------------
                                                              1999      1998
                                                             ------    ------
                                                              (IN THOUSANDS)
<S>                                                          <C>       <C>
Customers..................................................  $3,870    $5,799
Value added tax recoverable................................   3,139     1,291
Other......................................................   1,174       594
Allowance for uncollectible accounts.......................    (842)     (622)
                                                             ------    ------
                                                             $7,341    $7,062
                                                             ======    ======
</TABLE>

                                      F-13
<PAGE>   48
                       SATELITES MEXICANOS, S.A. DE C.V.
        (SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)

                 NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)

4.  SATELLITES AND EQUIPMENT

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         --------------------
                                                           1999        1998
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
Satellites.............................................  $561,362    $340,112
Equipment..............................................    22,059      23,077
Furniture and fixtures.................................     4,394       2,643
Leasehold improvements.................................     2,008       1,784
Construction in progress...............................     3,461
Advances for construction and launch of Satmex 5.......               234,142
                                                         --------    --------
                                                          593,284     601,758
Accumulated depreciation...............................   (92,110)    (44,302)
                                                         --------    --------
                                                         $501,174    $557,456
                                                         ========    ========
</TABLE>

     Depreciation expense was $48.4 million, $36.0 million and $4.6 million for
the years ended December 31, 1999 and 1998 and the period November 17, 1997 to
December 31, 1997, respectively.

5.  BALANCES AND TRANSACTIONS WITH RELATED PARTIES

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            1999        1998
                                                           ------      ------
                                                             (IN THOUSANDS)
<S>                                                        <C>         <C>
AMOUNTS RECEIVABLE:
Holdings.................................................  $  112      $   61
Servicios................................................     145         101
Principia................................................     470         422
Loral....................................................     335
Mexican government agencies..............................   1,827       1,370
                                                           ------      ------
                                                           $2,889      $1,954
                                                           ======      ======
AMOUNTS PAYABLE:
Loral....................................................  $1,501      $  726
Principia................................................      97          96
Holdings.................................................     679
                                                           ------      ------
                                                           $2,277      $  822
                                                           ======      ======
</TABLE>

                                      F-14
<PAGE>   49
                       SATELITES MEXICANOS, S.A. DE C.V.
        (SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)

                 NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)

     Transactions with related parties are as follows:

  Revenue

     Revenue from related parties, primarily the Mexican government, amounted to
$12.1 million, $8.9 million and $7.1 million for the years ended December 31,
1999 and 1998 and the period November 17, 1997 to December 31, 1997,
respectively.

     In 1999, the Company entered into an end-of-life lease with Loral Skynet
for three Ku-band transponders. Satmex accounted for this lease as a sales-type
lease and recorded revenue of $25.5 million.

  Management fee

     Loral and Principia are responsible for managing the Company. Loral and
Principia receive a management fee, based on a sliding scale, up to a maximum of
3.75% of the Company's quarterly gross revenue, as defined. For the year ended
December 31, 1998 and the period November 17, 1997 to December 31, 1997, the
management fee was $276,000 and $57,000, respectively. For the year ended
December 31, 1999, Loral and Principia waived the management fee.

  License fee

     Loral has licensed certain intellectual property to the Company for an
annual fee of 1.5% of the Company's gross revenue, as defined. For the period
November 17, 1997 to December 31, 1997, the fees amounted to $190,000. In 1998
Loral and the Company agreed to delay the commencement of such fees until
January 1, 1999, because the intellectual property and related services to which
the fees relate were not expected to be implemented until the beginning of 1999,
when Satmex 5 was placed in service. Fees accrued in the period November 17,
1997 to December 31, 1997 were reversed in 1998. For the year ended December 31,
1999, Loral agreed to reduce the license fee to 1.2%. In 1999, Satmex recorded a
license fee expense of $1.3 million.

  Rent

     The equipment in the satellite control centers is owned by the Company,
while the buildings and land that house these centers are property of the
Mexican government. The Company pays rent to the Mexican government for the use
of the buildings equal to 7.5% of appraised value. For the years ended December
31, 1999 and 1998 the rent expense under this agreement was $253,000 and
$262,000, respectively.

     For the year ended December 31, 1998, the Company paid $252,000 to an
affiliate of Principia for the rental of office space.

  Service companies

     Satmex uses external services from affiliated companies to perform its
activities. Satmex pays these companies a fee equal to 5% of the gross payroll
and benefits, excluding payroll taxes. For the year ended December 31, 1999 this
fee was $201,000.

  Guarantee arrangements

     In connection with the loan agreements (see Note 6), Holdings and Servicios
have provided and continue to provide guarantees on behalf of the Company.

                                      F-15
<PAGE>   50
                       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

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         --------------------
                                                           1999        1998
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
Senior secured notes (9.26% and 9.03% at December 31,
  1999 and 1998).......................................  $238,000    $324,000
Fixed rate notes.......................................   320,000     320,000
Revolving credit facility (9.62% at December 31,
  1999)................................................    30,000
                                                         --------    --------
Total debt.............................................   588,000     644,000
Less, current maturities...............................     1,000      36,000
                                                         --------    --------
                                                         $587,000    $608,000
                                                         ========    ========
</TABLE>

     At December 31, 1999, the Company has a $50 million five year revolving
credit facility (the "Credit Facility") which bears interest, at the Company's
option, at rates based on margins over LIBOR or the base rate specified in the
credit agreement. The Company pays a commitment fee on the unused portion of
this facility. The Credit Facility expires December 29, 2002.

     On February 2, 1998, the Company issued $320 million 10.125% fixed rate
notes due November 1, 2004 (the "Fixed Rate Notes"). The Fixed Rate Notes are
unsecured and rank senior in right of payment to all subordinated debt of the
Company and pari passu in right of payment to all senior debt of the Company,
including the Credit Facility and the Senior Secured Notes.

     On March 2, 1998, the Company issued $325 million of senior secured
floating rate notes due June 30, 2004 (the "Senior Secured Notes"). The Senior
Secured Notes rank senior in right of payment to all subordinated debt of the
Company and pari passu in right of payment to all senior indebtedness of the
Company including the Credit Facility and the Fixed Rate Notes. The Senior
Secured Notes bear interest, at the Company's option, at rates based on LIBOR or
the base rate specified in the credit agreement, are redeemable at the option of
the Company and are secured equally and ratably with the Credit Facility by
substantially all of the assets of the Company. In addition, the Senior Secured
Notes and the Credit Facility are guaranteed by Holdings and Servicios.

     Both the Credit Facility and the Senior Secured Notes contain covenants
which require maintenance of certain quarterly financial and operating ratio
levels and impose limits on the Company's spending for capital expenditures. In
addition, the Credit Facility, Senior Secured Notes and the Fixed Rate Notes
contain limitations on indebtedness, investments, business combinations and
other customary restrictions.

     The Company is required to make quarterly redemption payments on the Senior
Secured Notes of $250,000 through March 31, 2004 and a final payment of $234.8
million at maturity. In 1999, in addition to the required redemption payments
totaling $1 million, the Company prepaid $84 million of the Senior Secured
Notes.

     On January 10, 2000, Satmex solicited from its holders of the Senior
Secured Notes and the participants in its Credit Facility for an amendment to
permit the modification of certain covenants, in exchange for the payment of a
fee and an increase in the applicable interest margin by up to 0.75%. On
February 16, 2000, this amendment was declared effective.

                                      F-16
<PAGE>   51
                       SATELITES MEXICANOS, S.A. DE C.V.
        (SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)

                 NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)

     In 1998, the Company recorded an extraordinary charge of $8.3 million less
an applicable income tax benefit of $2.8 million. The extraordinary charge
consisted of the write-off of unamortized financing costs on debt issued at the
Acquisition that was refinanced in 1998.

     The aggregate maturities of debt are as follows (in thousands):

<TABLE>
<S>                                                           <C>
2000........................................................  $  1,000
2001........................................................     1,000
2002........................................................    31,000
2003........................................................     1,000
2004........................................................   554,000
                                                              --------
                                                              $588,000
                                                              ========
</TABLE>

 7.  STOCKHOLDERS' EQUITY

     At December 31, 1999 and 1998 the Company's issued and outstanding capital
stock comprised a fixed and variable portion, with the fixed portion represented
by 611,730 shares and 5,000 shares, respectively.

     On March 12, 1999, at an extraordinary general meeting of Satmex's
stockholders it was agreed to increase the fixed capital stock by $56.1 million
through the issuance of 1,068,000 shares of Series C preferred stock. 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. 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 2.008 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 4.016 shares of Series N or Series B common stock
on and after February 2, 2005. After the issuance of the preferred stock,
Servicios holds 70.7% of the outstanding capital stock of Satmex, Loral holds
5.4%, Principia holds 0.3% and the Mexican government holds 23.6%.

     The issued and outstanding capital stock of the Company consisted of the
following:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                       -----------------------
                       SERIES                             1999         1998
                       ------                          ----------   ----------
<S>                                                    <C>          <C>
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
                                                       ----------   ----------
                                                       10,606,730   10,000,000
                                                       ==========   ==========
</TABLE>

     At December 31, 1999 and 1998 the capital stock and the notional value is
as follows:

<TABLE>
<CAPTION>
                                    1999                            1998
                        ----------------------------    ----------------------------
     DESCRIPTION          SHARES          AMOUNT          SHARES          AMOUNT
     -----------        ----------    --------------    ----------    --------------
                                      (IN THOUSANDS)                  (IN THOUSANDS)
<S>                     <C>           <C>               <C>           <C>
Common stock:
  Fixed portion.......       5,000       $      6            5,000       $      6
  Variable portion....   9,995,000        380,527        9,995,000        379,397
                        ----------       --------       ----------       --------
                        10,000,000       $380,533       10,000,000       $379,403
                        ==========       ========       ==========       ========
Preferred stock:
  Fixed portion.......     606,730       $ 31,886
                        ==========       ========
</TABLE>

                                      F-17
<PAGE>   52
                       SATELITES MEXICANOS, S.A. DE C.V.
        (SUBSIDIARY OF SERVICIOS CORPORATIVOS SATELITALES, S.A. DE C.V.)

                 NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)

     Stockholder's equity except restated capital paid by stockholders and net
taxable retained earnings adjusted for inflation in accordance with Mexican tax
law, will be subject to a 35% dividend tax in the event of distribution. In
addition, all dividends paid to individuals or entities resident abroad will be
subject to an additional 7.2% dividend tax. Restatement of capital and net
taxable earnings are computed in accordance with certain tax procedures which is
approximately the accumulated effect of inflation on both items.

     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 up to 80% 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

     The income tax provision for the years ended December 31, 1999 and 1998 and
the period November 17, 1997 to December 31, 1997 is as follows:

<TABLE>
<CAPTION>
                                                      1999     1998     1997
                                                     ------    ----    ------
                                                          (IN THOUSANDS)
<S>                                                  <C>       <C>     <C>
Deferred...........................................  $5,676    $931    $1,711
                                                     ------    ----    ------
Net income tax provision...........................  $5,676    $931    $1,711
                                                     ======    ====    ======
</TABLE>

     The deferred income tax provision for the year ended December 31, 1998
included $200,000 for the change to the Mexican statutory rate from 34% to 35%
which was signed into law on December 31, 1998 to be effective January 1, 1999.

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

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         --------------------
                                                           1999        1998
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
Tax loss carryforwards.................................  $110,273    $100,335
Deferred revenue.......................................    26,729      23,415
Other, net.............................................       911         332
Satellites and equipment...............................   (72,732)    (78,073)
Concessions............................................   (39,567)    (20,905)
Prepaid insurance......................................    (8,110)     (9,303)
Deferred financing costs...............................    (2,729)     (3,363)
                                                         --------    --------
Subtotal...............................................    14,775      12,438
Less valuation allowance...............................    16,541       8,528
                                                         --------    --------
Net deferred tax asset (liability).....................  $ (1,766)   $  3,910
                                                         ========    ========
</TABLE>

     The net deferred income tax asset (liability) is classified as follows:

<TABLE>
<CAPTION>
                                                            1999       1998
                                                           -------    -------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
Current deferred income tax liabilities..................  $(3,387)   $(3,810)
                                                           =======    =======
Long-term deferred income tax assets.....................  $ 1,621    $ 7,720
                                                           =======    =======
</TABLE>

                                      F-18
<PAGE>   53
                       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, 1999 the Company had tax loss carryforwards of
approximately $315.1 million which expire from 2007 to 2008 and credits
available against the asset tax of approximately $15 million which expire in
2003. 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 $16.5 million against the deferred tax assets.

     The provision for income taxes, for the years ended December 31, 1999 and
1998 and the period November 17, 1997 to December 31, 1997 differs from the
amount computed by applying the Mexican income tax rate because of the effect of
the following items:

<TABLE>
<CAPTION>
                                                    1999      1998       1997
                                                  --------   -------    ------
                                                         (IN THOUSANDS)
<S>                                               <C>        <C>        <C>
Tax benefit at Mexican statutory income
  tax rate (35% for 1999 and 1998 and 34% for
  1997).........................................  $(14,345)  $(5,850)   $ (681)
Inflation component and effect of
  remeasurement.................................    12,362      (377)
Non deductible expenses.........................        98        53       134
Valuation allowance.............................     8,013     6,675     1,853
Other...........................................      (452)      430       405
                                                  --------   -------    ------
Net income tax provision........................  $  5,676   $   931    $1,711
                                                  ========   =======    ======
</TABLE>

     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. Asset taxes paid may be used to
offset future income taxes payable if certain conditions are met. For the year
ended December 31, 1999, the Company had no asset-tax liability.

9.  COMMITMENTS AND CONTINGENCIES

     The Company leases office space under a noncancelable operating lease
expiring in May 2005. The monthly rent, including maintenance, is approximately
$107,000. Rent expense under this lease was $1.2 million and $599,000 for the
years ended December 31, 1999 and 1998, 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.

     Future minimum lease receipts due from customers under non-cancelable
operating leases for transponder capacity on satellites in-orbit as of December
31, 1999, are as follows (in thousands):

<TABLE>
<S>                                                           <C>
2000........................................................  $ 80,911
2001........................................................    80,733
2002........................................................    48,424
2003........................................................    43,207
2004........................................................    30,592
Thereafter..................................................    80,475
                                                              --------
                                                              $364,342
                                                              ========
</TABLE>

                                      F-19
<PAGE>   54

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Satelites Mexicanos, S.A. de C.V.

     In our opinion, the accompanying balance sheet, statements of operations,
of changes in Telecomm's investment and of cash flows present fairly, in all
material respects, the financial position, the results of operations, changes in
Telecomm's investment and cash flows of the fixed satellite service business of
Telecomunicaciones de Mexico ("Telecomm") (the Predecessor Company of Satelites
Mexicanos, S.A. de C.V.) as of December 31, 1996 and for the year ended December
31, 1996 and for the period from January 1, 1997 through November 16, 1997, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of Telecomm's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

PRICE WATERHOUSE

Mexico City
December 15, 1997

                                      F-20
<PAGE>   55

             TELECOMUNICACIONES DE MEXICO, FIXED SATELLITE SERVICE

                                 BALANCE SHEET
                            AS OF DECEMBER 31, 1996
                                    (Note 1)
                      (Amounts in thousands of US dollars)

<TABLE>
<S>                                                           <C>
ASSETS
Current assets:
  Accounts receivable (Note 3)..............................  $  8,054
  Prepaid insurance.........................................     7,254
                                                              --------
Total current assets........................................    15,308
Satellites and equipment (Note 4)...........................   361,493
                                                              --------
          Total assets......................................  $376,801
                                                              ========
LIABILITIES AND TELECOMM INVESTMENT
Current liabilities:
  Accounts payable..........................................  $  7,299
                                                              --------
Total current liabilities...................................     7,299
                                                              --------
Commitments and contingencies (Note 6)
Telecomm investment.........................................   369,502
                                                              --------
          Total liabilities and Telecomm investment.........  $376,801
                                                              ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-21
<PAGE>   56

             TELECOMUNICACIONES DE MEXICO, FIXED SATELLITE SERVICE

                             RESULTS OF OPERATIONS
                                    (Note 1)
                      (Amounts in thousands of US dollars)

<TABLE>
<CAPTION>
                                                               YEAR ENDED        FOR THE PERIOD
                                                              DECEMBER 31,      JANUARY 1, 1997
                                                                  1996        TO NOVEMBER 16, 1997
                                                              ------------    --------------------
<S>                                                           <C>             <C>
Revenues....................................................    $78,207             $93,351
                                                                -------             -------
Operating expenses:
  Separation bonuses and employment costs related to
     privatization of SatMex (Note 2).......................    $ 1,004             $ 4,762
  Personnel costs...........................................      2,932               4,120
  Materials and supplies....................................        483                 248
  General and administrative expenses.......................      2,862               2,739
  Depreciation and amortization.............................     34,953              30,854
  Insurance.................................................     10,720               8,690
  Miscellaneous expenses....................................      1,323                 282
  Provision for uncollectible accounts......................      1,761              (3,046)
  Assessment paid to the Mexican Government (Note 5)........      4,535               4,809
                                                                -------             -------
                                                                 60,573              53,458
                                                                -------             -------
Operating income............................................     17,634              39,893
Interest expense............................................                            (24)
Foreign exchange gain (loss)................................        140                (278)
                                                                -------             -------
Income before income tax....................................     17,774              39,591
Income tax..................................................                          1,543
                                                                -------             -------
Net income..................................................    $17,774             $38,048
                                                                =======             =======
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-22
<PAGE>   57

             TELECOMUNICACIONES DE MEXICO, FIXED SATELLITE SERVICE

                 STATEMENTS OF CHANGES IN TELECOMM'S INVESTMENT
                                    (Note 7)
                      (Amounts in thousands of US dollars)

<TABLE>
<CAPTION>
                                                                                 PERIOD FROM
                                                               YEAR ENDED     JANUARY 1, 1997 TO
                                                              DECEMBER 31,       NOVEMBER 16,
                                                                  1996               1997
                                                              ------------    ------------------
<S>                                                           <C>             <C>
Net investment by Telecomm at beginning of period...........    $397,530           $369,502
Net advances to Telecomm....................................     (45,802)              (258)
Net income during the period................................      17,774             35,712(1)
                                                                --------           --------
Net investment by Telecomm at end of period.................    $369,502
                                                                ========
Net assets contributed to SatMex............................                        404,956
Deferred tax asset resulting from contribution of
  concessions...............................................                        171,498
Net income during period....................................                          2,336(2)
Issuance of common stock....................................                              6
                                                                                   --------
Shareholder's equity of SatMex at end of period.............                       $578,796
                                                                                   ========
</TABLE>

------------------------------
(1) For the period January 1, 1997 to October 14, 1997.

(2) For the period October 15, 1997 to November 16, 1997.

   The accompanying notes are an integral part of these financial statements.

                                      F-23
<PAGE>   58

             TELECOMUNICACIONES DE MEXICO, FIXED SATELLITE SERVICE

                            STATEMENTS OF CASH FLOWS
                      (Amounts in thousands of US dollars)

<TABLE>
<CAPTION>
                                                                              FOR THE PERIOD FROM
                                                               YEAR ENDED     JANUARY 1, 1997 TO
                                                              DECEMBER 31,       NOVEMBER 16,
                                                                  1996               1997
                                                              ------------    -------------------
<S>                                                           <C>             <C>
OPERATING ACTIVITIES
Net income..................................................    $ 17,774           $ 38,048
Items not requiring cash:
  Depreciation and amortization.............................      34,953             30,854
  Provision for uncollectible accounts......................       1,761             (3,046)
(Increase) decrease in working capital components:
  Accounts receivable.......................................      (2,033)              (188)
  Prepaid insurance.........................................         682              4,982
  Accounts payable and accrued expenses.....................       3,279             (4,294)
                                                                --------           --------
Cash provided by operating activities.......................      56,416             66,356
                                                                --------           --------
INVESTMENT ACTIVITIES
Acquisition of equipment and advances for construction and
  launch of satellite.......................................     (10,614)           (65,909)
                                                                --------           --------
Cash used in investing activities...........................     (10,614)           (65,909)
                                                                --------           --------
FINANCING ACTIVITIES
Net advances to Telecomm....................................     (45,802)              (258)
Issuance of capital stock...................................                              6
                                                                --------           --------
Cash used in financing activities...........................     (45,802)              (252)
                                                                --------           --------
Net change in cash and cash equivalents.....................          --                195
Cash and cash equivalents at beginning of period............          --                 --
                                                                --------           --------
Cash and cash equivalents at end of period..................    $     --           $    195
                                                                ========           ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-24
<PAGE>   59

             TELECOMUNICACIONES DE MEXICO, FIXED SATELLITE SERVICE

                         NOTES TO FINANCIAL STATEMENTS

                  (Monetary amounts expressed in thousands of
                       US dollars, except share amounts)

NOTE 1--HISTORY AND ACTIVITY OF TELECOMM FSS

     In June 1995, the Constitution of Mexico was amended to establish the legal
framework for the privatization of certain fixed satellite services ("FSS")
assets and operations of Telecomunicaciones de Mexico, ("Telecomm"), a
wholly-owned subsidiary of the Mexican Government ("Telecomm FSS"). On June 26,
1997 the Mexican Government formed Satelites Mexicanos, S.A. de C.V. ("SatMex")
for the purpose of completing the privatization process.

     SatMex was formed by the Government for the purpose of completing the
privatization of the FSS business operated by Telecomm through October 14, 1997
and thereafter by SatMex.

     On October 15, 1997, the Government sold SatMex certain net assets of
Telecomm based on historical cost for $404,956 plus $63,003 of value added tax.
The net assets consisted principally of three satellites, one satellite under
construction and equipment located at two ground control facilities.

     Effective October 15, 1997, the Government sold SatMex the rights to a
20-year concession title (the "Concession"), for $504,400 plus $75,661 of value
added tax, renewable on certain conditions for an additional 20 years thereafter
at no additional cost, to operate in the three orbital slots occupied by
Telecomm FSS satellites at their associated C- and Ku-Band frequencies. Since
the Concession was transferred between commonly controlled entities the assets
were recorded at its historical cost. SatMex has allowed the Government to
retain the L-Band transponders and has reserved certain capacity on each
satellite for use by the Government. The Concession also includes the right to
use the buildings and areas in which the control centers are located, for the
purpose of exploiting the orbital slots and frequency assignments for an annual
rental equivalent to 7.5% of their appraised value.

     The accompanying results of operations and statement of cash flows reflect
the operations of Telecomm's FSS business for the year ended December 31, 1996
and the combined results of operations and statement of cash flows of Telecomm's
FSS and SatMex's activities for the period January 1, 1997 to November 16, 1997.
The combined results of operations and statement of cash flows consists of the
results of operations and cash flows of Telecomm's FSS business for the period
from January 1, 1997 through October 14, 1997 and the results of operations and
cash flows for the period from October 15, 1997 through November 16, 1997 when
such activities were assumed by SatMex (hereafter referred to as the FSS
financial statements).

     The revenues and direct and indirect expenses related to the FSS business
for the year ended December 31, 1996 and for the period January 1, 1997 to
October 14, 1997 were carved out of the accounting records of Telecomm. Indirect
costs incurred by Telecomm on behalf of the FSS business were allocated based on
internally prepared utilization studies. Telecomm's management believes that the
basis of allocation of such services is reasonable. All expenses applicable to
Telecomm FSS on a stand-alone basis have been included in the accompanying
financial statements.

     On October 30, 1997, a joint venture formed by Loral Space & Communications
Ltd. ("Loral") and Telefonica Autrey, S.A. de C.V. ("Telefonica Autrey") agreed
to acquire 75% of the issued and outstanding capital stock of SatMex from the
Mexican Government (the "Government"). On November 17, 1997 the Government sold
75% of its economic interest, representing 100% of the voting interest in SatMex
to a subsidiary ("Acquisition Sub") of the joint venture. On December 29, 1997,
Acquisition Sub merged with and into SatMex.

NOTE 2--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

     The accompanying FSS financial statements are presented in U.S. dollars
following generally accepted accounting principles in the United States of
America.

                                      F-25
<PAGE>   60
             TELECOMUNICACIONES DE MEXICO, FIXED SATELLITE SERVICE

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

     The significant accounting policies are summarized below:

     a. Functional currency and translation--

     Telecomm FSS is required to maintain its books and records in Mexican pesos
("pesos"). The functional currency of Telecomm FSS is the U.S. dollar, the
currency in which the Telecomm FSS sales contracts are denominated and in which
Telecomm FSS incurs a significant portion of its expenses and acquires its fixed
assets.

     Monetary assets and liabilities denominated in pesos are translated into
U.S. dollars using current exchange rates. The difference between the exchange
rate on the date of the transaction and the exchange rate on settlement date, or
balance sheet date if not settled, is included in the income statement as a
foreign exchange gain/loss.

     Non-monetary assets or liabilities originally denominated in pesos are
translated into U.S. dollars using the historical exchange rate at the date of
the transaction.

     b. Use of estimates--

     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.

     c. Cash equivalents--

     Cash equivalents represent investments in short-term deposits and
commercial paper with banks which have original maturities of ninety days or
less.

     d. Fixed assets--

     Fixed assets, principally satellites and advances for construction and
launching of a new satellite, are stated at historical cost, net of
depreciation. Equipment, furniture and fixtures were stated at appraised values
determined by a Mexican Government appraiser as of September 30, 1997.
Management believes that such values represent the net historical cost of these
assets. Depreciation expense for the periods presented was determined based on
management's estimates. The estimated useful lives of furniture and fixtures,
communications equipment and computing equipment are approximately 10, 9 and 4
years, respectively.

     Costs incurred in connection with the construction and successful
deployment of the Telecomm FSS satellites and related equipment are capitalized.
Such costs include direct contract costs, allocated indirect costs, launch
costs, launch insurance, and construction period interest. All capitalized
satellite costs will be amortized over the estimated useful life of the
satellite. The estimated useful lives of the satellites, as determined by an
independent engineering analysis are; Morelos II -- August 1998, Solidaridad
I -- December 2007 and Solidarid II -- June 2009. Losses from unsuccessful
launches and in-orbit failures of satellites, net of insurance proceeds, will be
recorded in the period when the loss occurs.

     e. Depreciation--

     Depreciation of satellites, machinery and equipment is computed by the
straight-line method, based on the estimated useful lives of the related assets.

     f. Separation bonuses--

     In preparation for the privatization, Telecomm FSS transferred 220
employees to SatMex. In connection with the transfer Telecomm FSS negotiated and
paid separation bonuses with the employees who transferred amounting to $4,012.
Employees who did not transfer to SatMex were assigned other responsibilities
within Telecomm. Personnel costs related to employees retained by Telecomm were
$1,004 and $750 for the year ended December 31, 1996 and the period January 1,
1997 to November 16, 1997, respectively.

                                      F-26
<PAGE>   61
             TELECOMUNICACIONES DE MEXICO, FIXED SATELLITE SERVICE

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

     g. Revenue recognition--

     Revenue is recorded when the satellite service is provided. Telecomm FSS
has provided FSS to the teleports business unit of Telecomm amounting to $3,696
in the year ended December 31, 1996 and $2,772 in the nine months ended
September 30, 1997. Effective November 1, 1997 these services will be invoiced
by SatMex to Telecomm on a monthly basis, for a minimum of $180 per month
through December 31, 1997. It is expected this contract will be renewed by the
Government on an annual basis beginning January 1, 1998. In addition, SatMex
will invoice Telecomm $40 per month for control services related to L-Band
transponders retained by Telecomm.

     Historically, Telecomm FSS has provided satellite services to the
Government with substantial discounts. Revenues for these services have been
included in the results of operations for the year ended December 31, 1996 and
the period January 1, 1997 to November 16, 1997, net of such discounts.

     In connection with the privatization SatMex has agreed to provide certain
agencies of the Mexican Government with access to a portion of its available
transponder capacity (the "reserve capacity"), representing approximately 181.44
MHz in C-band and 151.20 megahertz in Ku-band of its currently available
capacity, at no cost. The capacity will be utilized by various Government
agencies such as the Defense and Education Ministries which currently receive
100% discounts on services provided.

     h. Principal customer--

     Revenue from one customer represented 28% of total revenues for the nine
months ended September 30, 1997. No individual customer represented more than
10% of total revenues for the year ended December 31, 1996.

NOTE 3--ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                                  1996
                                                              ------------
<S>                                                           <C>
Trade accounts receivable...................................   $  21,683
Allowance for uncollectible accounts........................     (13,629)
                                                               ---------
                                                               $   8,054
                                                               =========
</TABLE>

NOTE 4--SATELLITES AND EQUIPMENT

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                                  1996
                                                              ------------
<S>                                                           <C>
Satellites..................................................   $ 448,193
Equipment...................................................      23,038
Furniture and fixtures......................................         603
Accumulated depreciation....................................    (130,331)
                                                               ---------
                                                                 341,503
Construction in process.....................................       4,995
Advances for the construction and launch of the SatMex 5
  satellite.................................................      14,995
                                                               ---------
                                                               $ 361,493
                                                               =========
</TABLE>

     Payments amounting to $81,500 have been made to Hughes Communications
International, Inc. and Arianespace for the construction and launch of a new
satellite (SatMex 5) to replace the Morelos II satellite, which completes its
useful life in 1998. The estimated cost of the project, including launch and
insurance, is approximately $224,400. The launch is scheduled for late 1998.

                                      F-27
<PAGE>   62
             TELECOMUNICACIONES DE MEXICO, FIXED SATELLITE SERVICE

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5--TAX MATTERS

     Historically, income of Telecomm FSS from telecommunication services via
satellite was subject to the payment to the Government of an assessment
equivalent to 5.8% of total monthly revenues.

     SatMex as an independent legal commercial entity will not be subject to the
5.8% assessment but will be subject to the payment of income tax or asset tax at
the statutory rates of 34% and 1.8%, respectively.

     Income tax is determined following interperiod allocation procedures under
the liability method. Under this method, deferred income taxes are recognized
for the estimated future tax effects attributable to temporary differences and
tax loss and tax credit carryforwards. Pro forma income tax expense, assuming
Telecomm FSS had operated as a commercial entity for the year ended December 31,
1996 and the period January 1, 1997 to November 16, 1997 would have been $7,585
and $15,096, respectively.

     At October 15, 1997 a deferred tax asset was recognized related to the
estimated future tax benefits from the Concession transferred to SatMex of
$171,498. The amounts paid by SatMex for the Concessions are deductible for
income tax purposes over a six and a half year period. As a new corporate entity
SatMex will be exempt from asset tax through December 31, 2000.

NOTE 6--STOCKHOLDERS' EQUITY

     During special shareholder meetings on October 17 and 27, 1997, SatMex
increased the authorized number of shares to 10,000,000 and approved the
capitalization of $576,454 of the notes payable to the Government in exchange
for the issuance of 9,995,000 common shares.

     At November 16, 1997, as a result of the above mentioned modifications to
SatMex's capital structure, the authorized and outstanding common shares
consisted of the following:

<TABLE>
<CAPTION>
SERIES                                                       SHARES
------                                                     ----------
<S>                                                        <C>
A........................................................   2,601,000
B........................................................   2,499,000
N........................................................   4,900,000
                                                           ----------
                                                           10,000,000
                                                           ==========
</TABLE>

     The principal difference in the series of shares relates to shares with
voting rights (Series "A" and "B") and restricted voting rights (Series "N").

NOTE 7--COMMITMENTS AND CONTINGENCIES

     Management is not aware of any pending litigation against Telecomm FSS.
Liability for all legal actions or other claims against Telecomm FSS or SatMex
prior to October 15, 1997 has been retained by the Government.

                                      F-28