UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998

Commission file number 000-22085

                        LORAL ORION NETWORK SYSTEMS, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


                     
              Delaware                                    52-2008654
              --------                                    ----------
    (State or other jurisdiction of                    (I.R.S. Employer
  incorporation or organization No. )                    Identification)


2440 Research Boulevard, Suite 400, Rockville, Maryland           20850
----------------------------------------------------------   ------------
      (Address of principal executive offices)                  (Zip Code)


                                 (301) 258-8101
         --------------------------------------------------------------
               (Registrant's telephone number including area code)

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]     No [__]
<PAGE>


                                      INDEX

                        LORAL ORION NETWORK SYSTEMS, INC.



<TABLE>
<CAPTION>
                                                                                                PAGE
                                                                                                ----
PART I. FINANCIAL INFORMATION

<S>                                                                                              <C>
Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets---March 31, 1998 and  December 31, 1997..........   3
        
         Condensed Consolidated Statements of Operations --- Three months ended
         March 31, 1998 and 1997................................................................   5

         Condensed Consolidated Statements of Cash Flows --- Three months ended

         March 31, 1998 and 1997................................................................   6

         Notes to Condensed Consolidated Financial Statements...................................   8

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations..........................................................................  14

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings......................................................................  21

Item 2.  Changes in Securities..................................................................  21

Item 3.  Defaults upon Senior Securities........................................................  21

Item 4.  Submission of  Matters to a Vote of Security Holders...................................  21

Item 5.  Other Information......................................................................  22

Item 6.  Exhibits and Reports on Form 8-K.......................................................  22

Signatures......................................................................................  23
</TABLE>





                                       2
<PAGE>
PART I.  FINANCIAL INFORMATION

ITEM I.  FINANCIAL STATEMENTS

                        LORAL ORION NETWORK SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                            PREDECESSOR
                                                                                              COMPANY
                                                                           MARCH             DECEMBER 31,
                                                                           1998                  1997
                                                                           ----                  ----
                                                                        (Unaudited)
<S>                                                                   <C>                  <C>             
ASSETS

Current assets:
   Cash and cash equivalents                                          $     53,801,235     $     70,008,657

   Restricted assets                                                        50,067,976           50,064,014

   Accounts receivable                                                      13,038,813           11,780,972

   Prepaid expenses and other current assets                                 5,656,251            6,846,598
                                                                             ---------            ---------
Total current assets                                                       122,564,275          138,700,241

Restricted and segregated assets, including accrued interest of
   approximately $1.3 million and $3.7 million at March 31, 1998
   and December 31, 1997, respectively                                     275,881,731          306,825,961
   

Property and equipment at cost:

   Land                                                                         73,911               73,911

   Telecommunications equipment                                             26,556,325           40,654,418

   Furniture and computer equipment                                          5,801,702            8,626,501

   Satellite and related equipment                                         254,289,081          322,159,088
                                                                           -----------          -----------
                                                                           286,721,019          371,513,918

     Less: accumulated depreciation                                                 --          (77,079,857)

   Satellite construction in progress, including capitalized
     interest of $4.3 million and $7.3 million at March 31, 1998
     and December 31, 1997, respectively                                    60,593,654          106,843,174
                                                                            ----------          -----------
   Net property and equipment                                              347,314,673          401,277,235

Deferred financing costs, net                                               21,388,574           22,510,041

Costs in excess of assets acquired associated with the Loral
   merger                                                                  605,503,935                   --

Other assets, net                                                           58,568,356           27,178,809
                                                                            ----------           ----------

TOTAL ASSETS                                                          $  1,431,221,006    $     896,492,287
                                                                      ================    =================
</TABLE>

See Notes to Condensed Consolidated Financial Statements.


                                       3
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                            PREDECESSOR    
                                                                                                              COMPANY      
                                                                                        MARCH 31,           DECEMBER 31,   
                                                                                         1998                  1997        
                                                                                         ----                  ----        
                                                                                      (Unaudited)          
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                           
                                                                                                       
<S>                                                                               <C>                  <C>             
Current liabilities:
   Accounts payable                                                               $      1,469,527     $      5,230,567
   Accrued liabilities                                                                  11,911,591           10,594,952
   Other current liabilities                                                             7,462,709            7,129,861
   Interest payable                                                                     10,438,456           24,771,509
   Current portion of long-term debt                                                     6,080,956            6,406,143
                                                                                         ---------            ---------
     Total current liabilities                                                          37,363,239           54,133,032
Long-term debt                                                                         898,119,174          790,670,606
Other liabilities                                                                       21,738,593           21,803,582
Redeemable preferred stock:
   Series A 8% Cumulative Redeemable Convertible Preferred
     Stock, $.01 par value, 15,000 shares authorized; 0 and
     6,933 shares issued and outstanding at March 31, 1998 and                                  --            8,613,508
     December 31, 1997, respectively, plus accrued dividends
   Series B 8%  Cumulative  Redeemable  Convertible  Preferred  Stock,  $.01 par
     value, 5,000 shares  authorized;  0 and 2,059 shares issued and outstanding
     at March 31, 1998 and
     December 31,  1997, respectively, plus accrued dividends                                   --            2,466,755
   Series C 6%  Cumulative  Redeemable  Convertible  Preferred  Stock,  $.01 par
      value, 150,000 shares authorized; 0 and 82,641
      shares issued and outstanding at March 31, 1998 and December 31,
      1997, respectively, plus accrued dividends and accretion                                  --           65,653,949

Stockholders' equity (deficit):
   Common stock, $.01 par value, 1,000 and 40,000,000 shares
     authorized; 100 and 15,959,089 shares outstanding                                           1              159,591
   Capital in excess of par value                                                      478,511,999          153,294,210
   Treasury stock, 0 and 269,274 at March 31, 1998 and                                          --              (91,490)
     December 31,1997, respectfully
   Unearned compensation                                                                (4,512,000)
   Accumulated other comprehensive income                                                       --             (955,800)
   Accumulated deficit                                                                          --         (199,255,656)
                                                                                       -----------          ----------- 
     Total stockholders' equity (deficit)                                              474,000,000          (46,849,145)
                                                                                       -----------          ----------- 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                              $  1,431,221,006    $     896,492,287
                                                                                 ================    =================

</TABLE>
See Notes to Condensed Consolidated Financial Statements.


                                       4
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                                                                MARCH 31,
                                                                ------------------------------------------
                                                                    PREDECESSOR          PREDECESSOR
                                                                      COMPANY              COMPANY
                                                                       1998                  1997 
                                                                       ----                  ---- 
                                                                    (Unaudited)          (Unaudited)

<S>                                                               <C>                 <C>              
REVENUE                                                           $     18,789,877    $      20,233,069

OPERATING EXPENSES:
   Direct                                                                6,406,385            7,787,700
   Sales and marketing                                                   5,789,730            4,126,377
   Engineering and technical services                                    1,897,570            1,756,889
   General and administrative                                            3,707,252            3,312,905
   Depreciation and amortization                                        12,482,954           11,566,579
   Merger costs                                                         12,144,670                   --
                                                                        ----------                     
     Total operating expenses                                           42,428,561           28,550,450
                                                                        ----------           ----------

LOSS FROM OPERATIONS                                                   (23,638,684)          (8,317,381)

OTHER EXPENSE (INCOME):
   Interest income                                                      (5,425,395)          (3,413,080)
   Interest expense                                                     21,190,127           17,570,631
   Other                                                                   287,749              414,017
                                                                           -------              -------
     Total other expense (income)                                       16,052,481           14,571,568
                                                                        ----------           ----------

Loss before extraordinary loss on extinguishment of debt,
minority interest and preacquisition loss of acquired subsidiary       (39,691,165)         (22,888,949)

Extraordinary loss on extinguishment of debt                                    --          (15,763,220)

Limited Partners' and minority interest in the net loss of

   Orion Atlantic and other consolidated entities                               --           12,042,239

Preacquisition loss of acquired subsidiary                                      --              626,246
                                                                         ----------           ----------    
NET LOSS                                                               (39,691,165)         (25,983,684)

Preferred stock dividend and accretion, net of forfeitures              (1,387,117)           1,660,367
                                                                        ----------            ---------

Net loss attributable to common stockholders                      $    (38,304,048)    $    (27,644,051)
                                                                  ================     ================ 
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                       5
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED
                                                                                MARCH 31,
                                                                     --------------------------------
                                                                     PREDECESSOR          PREDECESSOR
                                                                       COMPANY              COMPANY
                                                                        1998                  1997
                                                                        ----                  -----
                                                                     (Unaudited)          (Unaudited)

<S>                                                                <C>                  <C>              
OPERATING ACTIVITIES                                                 
Net loss                                                           $    (39,691,165)    $    (25,983,684)
Adjustments to reconcile net loss to net cash used in
   operating activities:
   Extraordinary loss on extinguishment of debt                                  --           15,763,220
   Amortization and depreciation                                         12,482,954           11,566,579
   Amortization of deferred financing costs                                 608,793              577,549
   Provision for bad debts                                                  150,000              200,000
   Accrued and accreted interest                                         10,292,464            6,000,043
   Interest earned on restricted assets                                  (4,629,142)                  --
   Other                                                                  1,643,875                   --
   Limited Partners' and minority interest in 
    the net loss of Orion Atlantic                                               --          (12,042,239)
    and other consolidated entities
Changes in operating assets and liabilities:
   Accounts receivable                                                   (1,407,841)             (63,711)
   Prepaid expenses and other current assets                              4,388,497             (541,079)
   Other assets                                                             201,064           (3,016,738)
   Accounts payable and accrued liabilities                              (2,198,539)          (1,003,594)
   Other current liabilities                                                332,848              181,915
   Interest payable                                                     (11,753,786)                (239)
                                                                        -----------                 ---- 
Net cash used in operating activities                                   (29,579,978)          (8,361,978)


INVESTING ACTIVITIES
Capital expenditures                                                     (3,804,771)          (4,013,941)
Increase in restricted and segregated assets                                     --         (374,381,564)
Release of restricted and segregated assets                              31,962,000                   --
Satellite construction costs, including capitalized interest            (14,574,521)         (42,044,448)
Purchase of Teleport Europe, net of cash acquired                                --           (8,374,845)
Other                                                                            --             (567,863)
                                                                        -----------          ------------- 
Net cash provided by (used in) investing activities                      13,582,708         (429,382,661)
                                                                         
FINANCING ACTIVITIES
Debt and equity financing costs                                                  --          (25,497,717)
Proceeds from issuance of common stock, net of issuance costs             2,116,749            1,012,842
Proceeds from issuance of debt                                                   --          770,397,000
Repayment of senior notes payable banks and notes payable                  (254,021)        (213,640,133)
Swap termination fee                                                             --           (5,287,827)
Payment of satellite incentive                                           (1,302,446)         (13,358,379)
Other                                                                      (770,434)          (1,169,524)
                                                                           --------           ---------- 
Net cash (used in) provided by financing activities                        (210,152)         512,456,262

Net increase (decrease) in cash and cash equivalents                    (16,207,422)          74,711,623
Cash and cash equivalents at beginning of period                         70,008,657           42,187,807
                                                                         ----------           ----------
Cash and cash equivalents at end of period                         $     53,801,235    $     116,899,430
                                                                   ================    =================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.

                                        6
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (CONTINUED)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
                                                                                           THREE MONTHS ENDED
                                                                                               MARCH 31,
                                                                                    -------------------------------------
                                                                                   PREDECESSOR          PREDECESSOR
                                                                                     COMPANY              COMPANY    
                                                                                       1998                 1997
                                                                                       ----                 ----
                                                                                   (Unaudited)          (Unaudited)
<S>                                                                               <C>                <C>         
Non cash:
   Preferred stock dividend, net of forfeitures                                   $  (1,387,117)     $  1,660,367
                                                                                  =============      ============
   Conversion of redeemable preferred stock to common stock                       $  69,888,830      $     10,000
                                                                                  =============      ===========
   Conversion of Company common stock and stock options to Loral
    common stock and stock options as the result of the Loral merger              $ 469,000,000      $         --
                                                                                   =============      ===========
   Conversion of subordinated debentures, accrued interest, and deferred 
    financing costs to common  stock                                              $  52,080,438      $         --
                                                                                   =============      ===========
   Issuance of Series C Preferred Stock                                           $          --      $ 94,000,000
                                                                                   =============      ===========
   Issuance of common stock for preferred stock dividend                          $   5,458,263      $         --
                                                                                   =============      ===========
   Issuance of common stock, stock options and warrants                           $   2,176,854      $ 10,282,262
                                                                                   =============      ===========
Supplemental:
   Interest paid during the year                                                  $  25,236,556      $ 10,661,415
                                                                                  =============      ===========
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                       7
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A.  BASIS OF PRESENTATION

GENERAL

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring  accruals)  considered  necessary for fair presentation have
been included.  Operating  results for the three months ended March 31, 1998 are
not  necessarily  indicative  of the results  that may be expected  for the year
ending  December  31,  1998.  The balance  sheet at  December  31, 1997 has been
derived from the audited financial  statements at that date but does not include
all of the information and footnotes required by generally  accepted  accounting
principles for complete financial statements. For further information,  refer to
the consolidated financial statements and footnotes thereto included in the 1997
Orion Network Systems, Inc. Annual Report on Form 10-K.

BUSINESS AND OWNERSHIP

Loral Orion Network  Systems,  Inc.,  (the  "Company"),  formally  Orion Network
Systems,  Inc., is a holding company with no assets or operations other than its
investments  in its  subsidiaries.  Through  the  operations  of  the  following
subsidiaries ("Subsidiary Guarantors"),  the Company's principal business is the
provision of satellite-based communications services:

                                                    Jurisdiction of organization
                   Name                                    or Incorporation
                   ----                                    ----------------

Asia  Pacific  Space  and  Communications,  Ltd.           Delaware

International  Private Satellite Partners,  L.P.           Delaware
(doing business as Orion Atlantic, L.P.)

Orion Network Systems-Asia Pacific, Inc.
(formerly  known  as  Orion  Asia  Pacific                 Delaware
Corporation)

Orion Network Systems-Europe, Inc.
(formerly known as Orion Atlantic Europe,                  Delaware
Inc.)

Orion Oldco Services, Inc.
(formerly  known as Orion Network  Systems,                Delaware
Inc.)

OrionNet Finance Corporation                               Delaware

OrionNet, Inc.                                             Delaware

Orion Network Services, Inc.
(formerly    known   as   Orion   Satellite                Delaware
Corporation)

Orion Network Systems-Europe GmbH
(formerly known as Teleport Europe GmbH)            Federal Republic of Germany


                                       8
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A.  BASIS OF PRESENTATION (CONTINUED)

Each of the  Subsidiary  Guarantors is a wholly-owned  (100%)  subsidiary of the
Company.  The  Subsidiary  Guarantors  comprise  all of the direct and  indirect
subsidiaries of the Company (other than inconsequential subsidiaries).

Separate  financial  statements of the  Subsidiary  Guarantors are not presented
because (a) such Subsidiary Guarantors have jointly and severally guaranteed the
Notes on a full and unconditional basis, (b) the aggregate assets,  liabilities,
earnings and equity of the Subsidiary Guarantors are substantially equivalent to
the assets,  liabilities,  earnings and equity of the Company on a  consolidated
basis,  and (c) management has determined that such  information is not material
to investors.

RECENT DEVELOPMENTS

ACQUISITION OF THE COMPANY BY LORAL

On March 20, 1998, Orion Network Systems,  Inc.  ("Orion") was acquired by Loral
Space & Communications  Ltd.  ("Loral"),  through the merger (the "Merger") of a
wholly owned subsidiary of Loral,  Loral Satellite  Corporation  ("Merger Sub"),
with and into Orion.  Loral  consummated the acquisition by issuing 17.9 million
shares of its common stock and assuming  existing  Orion options and warrants to
purchase  1.9 million  shares of Loral common  stock  representing  an aggregate
purchase  price  of $469  million.  Orion  was the  surviving  corporation  (the
"Surviving Corporation") of the Merger and thereby became a subsidiary of Loral.
At the  effective  time of the Merger,  Orion  changed its name to "Loral  Orion
Network Systems, Inc."

As a result of the Merger:

i.    each share of common  stock,  par value $.01 per share,  of Orion  ("Orion
      Common Stock"), excluding treasury shares and shares owned by Loral or its
      subsidiaries,  was  converted  into and exchanged for the right to receive
      .71553 fully paid and nonassessable shares of common stock, par value $.01
      per share, of Loral ("Loral Common Stock").

ii.   each share of preferred  stock, par value $.01 per share, of Orion ("Orion
      Preferred  Stock")  was  converted  into and  exchanged  for the  right to
      receive .71553 fully paid and  nonassessable  shares of Loral Common Stock
      for each  share of Orion  Common  Stock  into  which  such  share of Orion
      Preferred Stock was convertible immediately prior to the Merger,

iii.  each outstanding stock option to purchase shares of Orion Common Stock was
      converted  into an option to acquire  .71553  shares of Loral Common Stock
      multiplied  by the number of shares of Orion  Common  Stock for which such
      option was exercisable,

iv.   each  outstanding  warrant to purchase  shares of Orion  Common  Stock was
      converted  into a warrant to acquire  .71553  shares of Loral Common Stock
      multiplied  by the number of shares of Orion  Common  Stock for which such
      warrant was exercisable immediately prior to the Merger, and

v.    each  outstanding  share of Orion Common Stock and Orion  Preferred  Stock
      owned by Loral or any of its  subsidiaries was converted into the right to
      receive  enough shares in the Surviving  Corporation as necessary in order
      to ensure  that such  entity's  proportionate  interest  in the  Surviving
      Corporation immediately after the Merger is as it was in Orion immediately
      before the Merger.


                                       9
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A.  BASIS OF PRESENTATION (CONTINUED)

Following  the Merger,  the capital  stock of Loral Orion  ceased to be publicly
traded.  However, the Company continues to have registered bonds outstanding and
will continue to have  statutory  filing  requirements  with the  Securities and
Exchange Commission.

The Merger was effected  pursuant to that certain  Agreement and Plan of Merger,
dated as of October 7, 1997,  as amended  February  11,  1998 and March 20, 1998
(the  "Merger  Agreement"),  by and among  Orion,  Loral and Merger Sub, and the
related  certificate  of merger  between  Orion and  Merger  Sub filed  with the
Secretary of State of the State of Delaware on March 20, 1998.

The foregoing  description  of the Merger does not purport to be complete and is
qualified in its entirety by the terms and  conditions of the Merger  Agreement,
filed as Exhibits 2.1 and 2.2 to  Registration  Statement No.  333-46407 on Form
S-4.

For accounting purposes,  the Merger is being accounted for as of March 31, 1998
using the purchase method. Accordingly,  the consolidated balance sheet at March
31, 1998  reflects the  push-down of the purchase  price  allocations  (based on
preliminary  estimates and subject to adjustment) to the assets and  liabilities
(including  an increase of $148.6  million to the  carrying  value of the Senior
Notes and Senior Discount Notes, based on quoted market prices) of Orion at that
date.  The cost in excess  of net  assets  acquired  ($605.5  million)  is being
amortized  over 40 years  using the  straight-line  method.  The  statements  of
operations  and cash flows for the three  months  ended  March 31, 1998 and 1997
relate to Orion prior to the Loral purchase (the Predecessor).

Had the  acquisition  of the Company and the  financing  transactions  described
below occurred on January 1, 1997,  the unaudited pro forma net loss  applicable
to common stockholders for the quarters ended March 31, 1998 and 1997 would have
been $18.4 million and $19.0 million,  respectively.  These  results,  which are
based on various  assumptions are not necessarily  indicative of what would have
occurred had the acquisition been consummated as of January 1, 1997.

OTHER

In January  1997,  Loral Orion  consummated  a series of  transactions  that are
described below.

ACQUISITION OF ORION ATLANTIC LIMITED PARTNERSHIP INTERESTS IN THE EXCHANGE

On January  31,  1997,  the  Company  acquired  all of the  limited  partnership
interests  which it did not already own in the Company's  operating  subsidiary,
Orion  Atlantic,  that owns the Orion 1  satellite.  Specifically,  the  Company
acquired  the Orion  Atlantic  limited  partnership  interests  and other rights
relating  thereto  held  by  British  Aerospace  Communications,  Inc.,  COM DEV
Satellite Communications Limited, Kingston Communications International Limited,
Lockheed Martin Commercial Launch Services, Inc., MCN Sat US, Inc., an affiliate
of Matra Hachette,  and Trans-Atlantic  Satellite,  Inc., an affiliate of Nissho
Iwai Corp. (collectively, the "Exchanging Partners").

Pursuant  to a  Section  351  Exchange  Agreement  and Plan of  Conversion  (the
"Exchange Agreement"), the Exchanging Partners exchanged (the "Exchange"), their
Orion  Atlantic  limited  partnership  interests  for 123,172  shares of a newly
created  class of the  Company's  Series C Preferred  Stock.  In  addition,  the
Company  acquired  certain rights held by certain of the Exchanging  Partners to
receive repayment of various advances  (aggregating  approximately $41.4 million
at December 31, 1996).  The 123,172 shares of Series C Preferred Stock issued in
the  Exchange  were  convertible  into  approximately  7  million  shares of the
Company's  common stock. As a result of the Exchange,  certain of the Exchanging
Partners became principal stockholders of the Company. The exchange is described
in greater detail under the caption "The Merger,  the Exchange and the Debenture
Investments" in the Company's  Registration  Statement on Form S-4 (Registration
No. 333-19795).

                                       10
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A.  BASIS OF PRESENTATION (CONTINUED)

The Exchange and the acquisition by the Company of the only outstanding minority
interest in the Company's subsidiary Asia Pacific Space and Communications, Ltd.
from  British  Aerospace  Satellite  Investments,  Inc.  on  January 8, 1997 (in
exchange for approximately  86,000 shares of the Company's Common Stock) results
in the  Company  owning  100%  of  Orion  Atlantic  and  its  other  significant
subsidiaries and, therefore, a greatly simplified corporate structure.

THE ORION MERGER

The  Exchange  was  conducted  on a tax-free  basis by means of an Orion  Merger
(defined  below)  that was  consummated  on January  31,  1997.  Pursuant to the
Exchange Agreement,  Orion Oldco Services, Inc., formerly known as Orion Network
Systems,  Inc. ("Old Orion"),  formed the Company as a new Delaware  corporation
with a certificate of incorporation,  bylaws and capital structure substantially
identical in all material respects with those of Old Orion. Also pursuant to the
Exchange Agreement, the Company formed a wholly-owned  subsidiary,  Orion Merger
Company, Inc. ("Orion Merger Subsidiary").  Pursuant to an Agreement and Plan of
Merger,  Orion  Merger  Subsidiary  was merged with and into Old Orion,  and Old
Orion became a wholly-owned  subsidiary of the Company (the "Orion Merger").  On
January  31,  1997,  the  effective  time  of  the  Orion  Merger,  all  of  the
stockholders  of Old Orion  received  stock in the  Company  with  substantially
identical rights to the Old Orion stock they held prior to the effective time of
the Orion Merger.  Following the Orion Merger, the Company changed its name from
Orion Newco  Services,  Inc. to Orion  Network  Systems,  Inc. and the Company's
wholly-owned  subsidiary Orion Network  Systems,  Inc. changed its name to Orion
Oldco  Services,  Inc. The  Exchange  and Orion Merger are  described in greater
detail under the caption "The Merger, the Exchange and Debenture Investments" in
the Company's Registration Statement on Form S-4 (Registration No. 333-19795).

The  Company  is the  successor  issuer to Old  Orion  and filed a  Registration
Statement on Form 8-B with the Securities and Exchange Commission on January 31,
1997,  to register  all the issued and  outstanding  shares of common  stock and
preferred stock of the Company.

FINANCINGS

On January 31, 1997,  the Company  completed a $710 million bond  offering  (the
"Bond Offering")  comprised of approximately  $445 million of Senior Note Units,
each of which  consists of one 11.25% Senior Note due 2007 (a "Senior Note") and
one Warrant to purchase 0.8463 shares of common stock,  par value $.01 per share
("Common  Stock") of the Company (a "Senior Note  Warrant"),  and  approximately
$265.4  million of Senior  Discount  Note Units,  each of which  consists of one
12.5% Senior Discount Note due 2007 (a "Senior Discount Note," and together with
the Senior  Notes,  the  "Notes") and one Warrant to purchase  0.6628  shares of
Common Stock of the Company (a "Senior Discount Note Warrant,  and together with
Senior Note  Warrants,  the  "Warrants").  Interest on the Senior  Notes will be
payable  semi-annually  in cash on January 15 and July 15 of each year, with the
first payment made on July 15, 1997. The Senior Discount Notes will not pay cash
interest  prior to July 15, 2002.  Thereafter,  cash  interest will accrue until
maturity at an annual rate of 12.5% payable semi-annually on January 15 and July
15 of each year,  commencing  July 15, 2002. The exercise price for the Warrants
will be $.01 per share of Common Stock of the Company.

In addition,  on January 31, 1997,  the Company also  completed  the sale of $60
million of its convertible junior subordinated  debentures (the "Debentures") to
two investors,  British Aerospace Holdings, Inc. ("British Aerospace") and Matra
Marconi Space UK Limited ("Matra Marconi Space").  British  Aerospace  purchased
$50 million of the Debentures  and Matra Marconi Space  purchased $10 million of
the Debentures  (collectively,  the "Debentures Offering", and together with the
Bond Offering,  the  "Financings").  As of March 20, 1998, all of the debentures
had been converted to common stock.

                                       11
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A.  BASIS OF PRESENTATION (CONTINUED)

The net proceeds of the Bond Offering and  Debentures  Offering were used by the
Company to repay the Orion 1 credit facility,  pre-fund the first three years of
interest  payments on certain of the Notes, and will be used to build and launch
two additional satellites, Orion 2 and Orion 3.

The  extraordinary  loss on  extinguishment of debt of $15.8 million in 1997 was
the result of expensing unamortized deferred financing costs associated with the
Orion 1 credit  facility  which was  refinanced  with the proceeds from the Bond
offering and termination of a interest rate cap agreement.

ACQUISITION OF TELEPORT EUROPE GMBH

On March 26, 1997, the Company acquired  German-based  Teleport Europe GmbH (now
known as Orion Network  Systems-Europe  GmbH) ("Orion  Europe") a communications
company  specializing in private satellite networks for voice and data services.
The Company  purchased the shares of Orion Europe held by the German  companies,
Vebacom GmbH and RWE  Telliance  AG, now known as o.tel.o for  approximately  $9
million. In addition, the Company acquired Orion Europe's licenses and operating
agreements to provide satellite  network services in 40 countries,  including 17
countries  in which the  Company  previously  did not provide  service.  The net
purchase price of Orion Europe was $8.4 million and allocated as follows:

Working capital deficit, net of cash acquired          $ (.6)
Property and equipment                                   9.3
Other, net                                               (.3)
                                                       ----- 
                                                       $ 8.4
                                                       =====

COMPREHENSIVE INCOME

As of January 1, 1998,  the Company  adopted  Statement of Financial  Accounting
Standards  No.  130  (SFAS  130),  "Reporting  Comprehensive  Income".  SFAS 130
established new rules for the reporting and display of comprehensive  income and
its  components;  however,  the adoption of this  Statement had no impact on the
Company's net loss or stockholders'  equity.  SFAS 130 requires unrealized gains
or losses on the Company's foreign currency translation adjustments, which prior
to adoption were reported separately in stockholders'  equity, to be included in
other comprehensive income.

Total comprehensive loss for the three months ended March 31, 1998 and March 31,
1997 amounted to  approximately  $39.7 million and $26.9 million,  respectively.
The following are the components of comprehensive income (loss):

                                                 QUARTER ENDED
                                     -------------------------------------
                                      MARCH 31, 1998       MARCH 31, 1997
                                      --------------       --------------

Net loss                             $ (39,691,165)       $ (25,983,684)
Foreign currency translation
  adjustment                                    --             (955,800)
                                     -------------        ------------- 
Comprehensive loss                   $ (39,691,165)       $ (26,939,484)
                                     =============        ============= 


EARNINGS PER SHARE

Earnings per share is not presented since it is not considered meaningful due to
the Merger with Loral and recapitalization of the Company.

                                       12
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE B.  LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                              MARCH 31,           DECEMBER 31,
                                                                                1998                  1997
                                                                                ----                  ----

<S>                                                                        <C>                 <C>              
Senior notes (net of premium of $64.1 million at March 31, 1998            $    509,155,341    $     440,099,914
   and unamortized discount of $4.9 million at December 31, 1997)
Senior discount notes (maturity value of $484 million)                          381,198,809          292,336,605
Convertible junior subordinated debentures                                               --           50,000,000
Notes payable - TT&C Facility                                                     5,767,580            6,021,601
Satellite incentive obligations                                                   6,153,919            6,478,533
Other                                                                             1,924,481            2,140,096
                                                                                  ---------            ---------
   Total long-term debt                                                         904,200,130          797,076,749
Less: current portion                                                             6,080,956            6,406,143
                                                                                  ---------            ---------
   Long-term debt less current portion                                     $    898,119,174    $     790,670,606
                                                                           ================    =================
</TABLE>

NOTE C.  REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

As of  March  31,  1998,  all  of the  redeemable  convertible  preferred  stock
outstanding at December 31, 1997,  including  accrued  dividends on the Series C
Preferred Stock,  were converted to  approximately  6.1 million shares of common
stock at prices ranging from $8.50 to $17.50 per share.

NOTE D.  COMMITMENTS AND CONTINGENCIES

While the Company is party to regulatory  proceedings  incident to its business,
there  are no  material  legal  proceedings  pending  or,  to the  knowledge  of
management, threatened against the Company or its subsidiaries.

NOTE E.  RECLASSIFICATION

Certain prior year amounts have been reclassified to conform to the current year
presentation.




                                       13
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.


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

GENERAL

The Company's  principal  business is the provision of satellite  communications
for private  communications  networks and video distribution and other satellite
transmission services. From its inception in 1982 through January 20, 1995, when
Orion 1 commenced  commercial  operations,  the Company was a development  stage
enterprise.  Prior to January 1995, the Company's efforts were devoted primarily
to monitoring the construction,  launch and in-orbit testing of Orion 1, product
development,  marketing  and sales of  interim  private  communications  network
services, raising financing and planning Orion 2 and Orion 3.

Through  January 31,  1997,  Orion  Satellite  Corporation  (whose name has been
changed to Orion Network  Services,  Inc.) was the sole general partner in Orion
Atlantic,  L.P.  ("Orion  Atlantic") and had a 41 2/3% equity  interest in Orion
Atlantic. As a result of the Company's control of Orion Atlantic,  the Company's
consolidated financial statements include the accounts of Orion Atlantic. All of
Orion   Atlantic's   revenues  and  expenses  are  included  in  the   Company's
consolidated  financial statements,  with appropriate  adjustment to reflect the
interests  of the  Limited  Partners  in Orion  Atlantic's  losses  prior to the
Exchange  (as  described  in  Note A to  the  Condensed  Consolidated  Financial
Statements).  The assets and liabilities  reported in the  consolidated  balance
sheet at December 31, 1997 primarily  pertain to Orion  Atlantic.  The Company's
consolidated  financial  statements  also  include  the  accounts  of all  other
subsidiaries  of  Orion.  See  Note A to the  Condensed  Consolidated  Financial
Statements for a discussion of recent developments.

All  subsidiaries  of  the  Company   ("Subsidiary   Guarantors"),   other  than
inconsequential  subsidiaries,  have  unconditionally  guaranteed  the Notes (as
defined  below) on a joint  and  several  basis.  No  restrictions  exist on the
ability of Subsidiary Guarantors to pay dividends or make other distributions to
the Company,  except to the extent  provided by law  generally  (e.g.,  adequate
capital to pay dividends under state corporate laws).

ORION 2 AND ORION 3 CONSTRUCTION AND LAUNCH

Orion 2. On May 15,  1998,  the Company  entered  into a  satellite  procurement
contract with Space Systems/Loral  ("SS/L"), a wholly owned subsidiary of Loral,
for the  construction  and launch of the Orion 2 satellite  for operation in the
Atlantic  Ocean  region at  12(degree)  W.L.  (the  "SS/L  Contract").  The SS/L
Contract  provides  for  delivery  in-orbit  of the Orion 2 aboard an Ariane 44L
launch  vehicle by June 30,  1999.  The SS/L  satellite  design  provides for 38
Ku-band  transponders  with a  footprint  covering  the Eastern  United  States,
Southeastern Canada,  Europe, the Commonwealth of Independent States, the Middle
East, North and South Africa and South America.

The Company has also notified Matra Marconi Space ("Matra") that it is canceling
its satellite procurement contract with Matra for the construction and launch of
a satellite for operation in the Atlantic  Ocean region at 12(degree)  W.L. (the
"Matra  Contract").  As a result of the cancellation of the Matra Contract,  the
Company will have no  obligation  to make further  payments to Matra,  but Matra
will be entitled to retain amounts previously paid by the Company.

The Company  believes that the Orion 2 satellite being procured from SS/L offers
significant benefits compared to the Matra satellite. The SS/L contract provides
for a firm fixed  price  which,  when added to the  amounts  previously  paid to
Matra, does not exceed $202 million,  the total amount that would otherwise have
been due to Matra if the Matra  Contract had not been  canceled.  Moreover,  the
SS/L-designed satellite is both larger and more powerful than the Matra-designed
satellite.  The SS/L  satellite  will have 8  additional  transponders  and will
provide greater  transmitted power to Orion's  customers.  The expected on-orbit
life of the SS/L  satellite is  approximately  16 years compared to 13 years for
the  Matra  satellite.  The SS/L  satellite  is  designed  to  provide  enhanced
transponder  switching  capabilities as compared to the Matra satellite and also
allows for both uplinking and  downlinking of  transmissions  from South Africa,
while the Matra satellite would not have allowed for uplinking.

Orion 3. The Company  commenced  construction  of Orion 3 in  December  1996 and
entered  into  a  satellite   contract  with  Hughes  Space  and  Communications
International,  Inc.  for Orion 3 in  January  1997.  The  contract  for Orion 3
provides  for  delivery in orbit of Orion 3 by December  1998,  for a firm fixed
price of $208 million excluding launch insurance and performance incentives.

                                       14
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS (CONTINUED)

Pre-Construction  Lease on Orion 3. The Company has entered into a contract with
DACOM Corp., a Korean communications company ("DACOM"),  under which DACOM will,
subject to certain conditions, lease eight dedicated transponders on Orion 3 for
13 years, in return for  approximately  $89 million,  payable over a period from
December 1996 through seven months following the lease commencement date for the
transponders (which is scheduled to occur by January 1999). Payments are subject
to refund if Orion 3 fails to commence commercial operation by June 30, 1999.

Satellite  Launch and Operation Risk.  There can be no assurance that Orion 2 or
Orion 3 will be  successfully  launched  or  operate  in  accordance  with their
design.   While  the  Company  intends  to  procure  launch  insurance  for  the
satellites,  a total or partial loss of either satellite will involve delays and
loss of  revenue  which  will  impair  the  Company's  ability  to  service  its
indebtedness,  including  the Notes,  and such  insurance  will not  protect the
Company  against  business  interruption,  loss or delay of  revenues or similar
losses and may not fully reimburse the Company for its expenditures.

OVERVIEW

The  Company's  revenues  are  principally  generated  under  three to five year
contracts  for delivery of  communications  services.  Such revenues are derived
principally  from  recurring  monthly  fees from its  customers,  although  many
contracts  include  initial  non-recurring  installation  and other fees.  These
non-recurring  fees generally are structured to cover the Company's actual costs
of installation of the customer's site-based  equipment.  The revenues from each
contract  vary,  depending  upon the type of service,  amount of capacity,  data
handling  ability of the network,  the number of very small  aperture  terminals
("VSATs") (which generally are owned by the Company),  value-added  services and
other  factors.  Depending on the complexity of the services to be provided to a
customer,  the  period  between  the date of  signature  of a  contract  and the
commencement of actual  services (and receipt of fees) typically  ranges from 30
days to six months. Substantially all of the Company's contracts are denominated
in U.S.  dollars,  although some contracts are  denominated in pounds  sterling,
Deutschemarks, Austrian shillings or French francs. The Company begins to record
revenues under its contracts upon service commencement to the customer.

The services provided by the Company have been subject to decreasing prices over
recent  years  and this  pricing  pressure  is  expected  to  continue  (and may
accelerate) for the foreseeable future,  particularly if, as expected,  capacity
continues to increase.  The Company will need to increase its volume of sales in
order to  compensate  for such  price  reductions.  The  Company  believes  that
customers  will  increase  the data speeds in their  communications  networks to
support new applications, and that such upgrading of customer networks will lead
to  increased  revenues  that will  mitigate  the  effect  of price  reductions.
However,  there can be no assurance that this will occur. The Company expects to
continue to incur net losses and negative cash flow (after  payments for capital
expenditures and interest) for the foreseeable future.

The Company's direct cost of services includes principally (i) costs relating to
the  installation,  maintenance  and  licensing  of VSAT earth  stations  at its
customers'  premises;  (ii) satellite  lease payments for  transponder  capacity
(generally  for  services  outside  of the Orion 1  footprint);  (iii)  in-orbit
insurance premiums; and (iv) personnel costs and travel related to TT&C, network
monitoring,  network design and similar activities. These costs will increase as
the  Company's  business  grows.  Specifically,  in-orbit  insurance  costs will
increase  significantly  following  the  launches  of  Orion 2 and  Orion 3. The
Company constructed its TT&C facilities to control two satellites.  As a result,
the  Company  anticipates  a slight  increase  in costs  with Orion 2 and a more
substantial  increase in costs with Orion 3, which will  require  separate  TT&C
facilities and associated  miscellaneous expenses.  Sales and marketing expenses
consist of salaries,  sales  commissions  (including  commissions to third party
sales representatives), travel and promotional expenses. The Company commenced a
significant  expansion  of its  marketing  program in 1997  which will  continue
through 1998. Due to the complexity of the Company's services, and the continued
expansion  of  sales   personnel,   sales  and  marketing   expenses   increased
significantly during the first quarter of 1998 and they are expected to increase
through the  remainder of 1998.  Engineering  and  technical  expenses,  consist
principally of

                                       15

<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS (CONTINUED)

personnel  costs and travel.  General  and  administrative  expenses  consist of
personnel  costs other than for selling and  engineering,  information  systems,
professional  services, and occupancy costs. These costs will increase generally
as the Company's  operations  expand.  Depreciation  and  amortization  expenses
result  mainly from the  depreciation  of the Orion 1  satellite,  VSATs and the
related equipment to service the expansion of the private network  communication
services  business and will increase  substantially  after the launch of Orion 2
and Orion 3. Interest  income is primarily the result of interest  earned on the
proceeds from the Company's private and public equity offerings.  Interest costs
stem primarily from the bond offering  completed January 31, 1997. The Company's
costs (other than sales  commissions)  generally do not vary  substantially with
the amount of revenue from the Orion 1 satellite.

RESULTS OF OPERATIONS

Three Months  Ended March 31, 1998  Compared to the Three Months Ended March 31,
1997.

Acquisition  of Teleport  Europe GmbH. On March 26, 1997,  the Company  acquired
German-based  Teleport  Europe GmbH (a  communications  company  specializing in
private  satellite  networks  for  voice  and  data  services),  whose  name was
subsequently changed to Orion Network  Systems-Europe GmbH ("Orion Europe"). The
Company has  consolidated  the  operations  of Orion Europe for the three months
ended  March 31,  1997,  retroactively  to January  1, 1997.  The effect of this
consolidation  on operations  prior to acquisition was to increase  consolidated
revenues by  approximately  $4.1 million,  increase total operating  expenses by
approximately $4.0 million and other expenses by approximately $0.7 million. The
preacquisition  loss of Orion Europe of $0.6 million has been  deducted from the
consolidated statement of operations for the three months ended March 31, 1997.

Revenue and  bookings.  Total  revenue for the three months ended March 31, 1998
were $18.8  million  compared to $20.2  million  for the same period in 1997,  a
decrease of 7 percent.  Revenues from private  communications  network  services
were  $10.0  million  for the first  quarter  of 1998 and $7.9  million  for the
comparable  period in 1997.  Revenues  from video  communications  services  and
transponder  capacity  leasing were $8.4  million for the first  quarter of 1998
compared to $8.2  million for the  comparable  period in 1997.  Revenues for the
three  months  ended March 31, 1998,  included  $0.4 million of equipment  sales
compared to $4.1 million of which $3.8 million was associated  with a sales-type
lease to an existing customer, for the same period in 1997.

At March 31, 1998,  the Company had a customer  contract  backlog  (representing
future revenues under contract) of approximately $285.9 million compared to $244
million at March 31,  1997,  an increase of 17 percent.  Revenue  from  customer
contract backlog is typically earned over contract terms of three to five years.

OPERATING EXPENSES

Direct expenses.  Direct expenses for the three months ended March 31, 1998 were
$6.4 million  compared to $7.8 million for the same period in 1997. The decrease
of $1.4 million or  approximately  18 percent,  for the three months ended March
31, 1998,  was  primarily  attributable  to a sales-type  equipment  lease to an
existing  customer in the first quarter of 1997 that increased  expenses in that
quarter.

Sales and marketing expenses. Sales and marketing expenses were $5.8 million for
the three months ended March 31, 1998,  as compared to $4.1 million for the same
period in 1997,  an increase  of $1.7  million or 40  percent.  The  increase is
related to additional sales salaries and commissions, consulting and advertising
associated  with  the  growth  in the  private  communications  network  service
business.  The Company  expects the increase in sales and marketing  expenses to
continue for the remainder of 1998.

Engineering and technical services expenses.  Engineering and technical services
expenses remained steady for the first quarter of 1998 and the comparable period
in 1997.  Total expenses were $1.9 million for the three months ending March 31,
1998 and $1.8 million for the three months ending March 31, 1997.

                                       16
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS (CONTINUED)

General administrative  expenses.  General and administrative expenses were $3.7
million for the three months ended March 31, 1998,  compared to $3.3 million for
the same  period in 1997.  The  increase  of $0.4  million or 12 percent for the
three  months  ended March 31, 1998 was  primarily  due to outside  services and
other expenses.

Depreciation and  amortization.  Depreciation  and amortization  expense for the
three  months  ended  March 31,  1998 were $12.5  million,  an  increase of $0.9
million or 8 percent,  over the same period in 1997. The increase is primarily a
result from  depreciation  of ground  equipment to service the  expansion of the
private network communication services business.

Merger Costs.  Merger costs for the three months ended March 31, 1998 were $12.1
million.  These  costs  are due to  accounting,  legal,  underwriting  and other
expenses associated with the acquisition of the Company by Loral.

Interest.  Interest income was $5.4 million for the three months ended March 31,
1998, compared to $3.4 million, an increase of $2 million or 59 percent over the
same period in 1997. The increase in interest  income is primarily the result of
a change in the  premium  amortization  on bonds  held in a pledged  account  to
prefund the first six interest  payments on the senior notes, plus an additional
month of accrued  interest  on the  bonds,  which  were  acquired  at the end of
January  1997.  Interest  expense was $21.2  million for the three  months ended
March 31, 1998 and $17.6 million for the comparable period in 1997. The increase
in expense of $3.6 million in the first three months of 1998 is  attributable to
a full quarter of interest on the senior notes and the senior discount notes.

Other.  Other  expenses  for the three  months  ended  March 31,  1998 were $0.3
compared to $.0.4 for the same period in 1997.

Extraordinary  loss  on  extinguishment  of  debt.  The  extraordinary  loss  on
extinguishment  of debt of $15.8  million for the three  months  ended March 31,
1997 was the result of expensing  unamortized  deferred  financing  costs of the
Orion 1  credit  facility  which  was  refinanced  with  the  proceeds  from the
Company's  recent  Bond  Offering  and  termination  of  an  interest  rate  cap
agreement.

Net loss. The Company incurred net losses of $39.7 million and $26.0 million for
the three months ended March 31, 1998 and 1997, respectively, after deduction of
the limited  partners' and minority  interests' share in the Company's losses of
$12.0 million,  and elimination of the preacquisition loss of Teleport Europe of
$0.6 million from the consolidated  statement of operations for the three months
ended March 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

PRIOR FUNDING.  The Company has required  significant  capital for operating and
investing  activities in the  development of its business,  and will continue to
need to expend significant additional capital in the future to develop fully its
global satellite communications system. The Company's funding for its operations
through  January  1997  had  been  provided  primarily  by the  sale  of  equity
securities,  including the completion of its initial  public  offering in August
1995 which generated  proceeds to the Company of approximately  $52 million (net
of underwriting discounts), bank loans, vendor financing, lease arrangements and
short-term loans from its investors.  Funding for the construction and launch of
the Orion 1 satellite and related  facilities  was fully  committed  through $90
million of equity from the limited  partners of Orion Atlantic,  an aggregate of
$251 million under a secured bank credit facility and  approximately $11 million
under other debt facilities, dedicated primarily to the construction of the TT&C
facility,  which is being used to control  Orion 1. The Orion 1 credit  facility
was  repaid  in  January  1997  with the  proceeds  from the Bond  Offering  and
concurrently  with the Bond  Offering,  the Company  acquired all of the limited
partnership  interests  (which  it did not  already  own) in Orion  Atlantic  in
exchange for 123,172 shares of Series C Convertible preferred stock representing
approximately 7 million underlying shares of Common Stock.

                                       17
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                       RESULTS OF OPERATIONS (CONTINUED)

EXISTING CAPITAL  RESOURCES.  The net proceeds of the January 1997 Bond Offering
to the Company  were  approximately  $684  million,  and the net proceeds of the
Debentures  Offering  were  approximately  $59  million.  Of the  Bond  Offering
proceeds,  approximately  $223  million  was used for  repayment  of the Orion 1
credit  facility  (including  payment of  accrued  interest  and hedge  breakage
costs),  approximately $24 million was used to make certain initial payments for
the  Orion 2  satellite  contract,  approximately  $13  million  was used to pay
accrued  satellite  incentive  fees  under the Orion 1  satellite  contract  and
approximately $4 million was used to pay amounts owing to STET, a former limited
partner of Orion  Atlantic.  As of March 31, 1998, the Company had cash and cash
equivalents  of $53.8 million and  restricted  and  segregated  assets of $325.9
million, including $208.6 million which was segregated by the Company to be used
to make  payments for  additional  satellites  and certain  related  costs.  The
restricted  and  segregated  assets also  included  $92.9  million  plus accrued
interest of $1.3 million placed in a pledged  account (to pre-fund the remaining
four  interest  payments  on  the  Senior  Notes).  Additionally,   included  in
restricted and segregated assets, is $23.1 million held in escrow and subject to
refund pending the successful launch and commencement of commercial operation of
Orion 3 as required by the DACOM agreement.

EXISTING INDEBTEDNESS

NOTES. In the Bond Offering,  the Company issued  approximately  $445 million of
11.25% Senior Notes due 2007 and approximately  $484 million principal amount at
maturity  ($265.4 million initial accreted value) of 12.5% Senior Discount Notes
due 2007.  Interest  on the  Senior  Notes is payable  semi-annually  in cash on
January  15 and July 15 of each  year,  commencing  July 15,  1997.  The  Senior
Discount  Notes  do  not  accrue  cash  interest  prior  to  January  15,  2002.
Thereafter,  cash interest will accrue until maturity at an annual rate of 12.5%
payable  semi-annually  on January 15 and July 15 of each year,  commencing July
15, 2002.

The  Notes  have  the  benefit  of  guarantees  issued  by each of the  material
subsidiaries  of the  Company.  The Senior  Notes are secured by the  securities
purchased  with the $92.4  million held in a pledged  account  until the Company
makes the remaining  four  scheduled  interest  payments on the Senior Notes and
thereafter  the Senior Notes will be unsecured.  The Senior  Discount  Notes are
unsecured.  The Notes are redeemable,  at the Company's  option,  in whole or in
part, at any time on or after January 15, 2002 at specified  redemption  prices.
In the event of a change in control  (as defined in the  indentures  relating to
the Notes),  such as occurred with the Loral Merger, the Company is obligated to
make an offer to  purchase  ("Offer to  Purchase")  all  outstanding  Notes at a
purchase price equal to 101% of their principal or accreted value,  plus accrued
and unpaid  interest  thereon to the  repurchase  date.  On April 17, 1998,  the
Company made such an Offer to Purchase. The Offer to Purchase expires on May 21,
1998. To date, no votes have been tendered for purchase.  Because the Notes have
recently traded at prices above 101% of their principal amount, the Company does
not  anticipate  that the holders of a material  principal  amount of Notes will
accept the Offer to Purchase.

The  indebtedness  evidenced  by the Notes  ranks pari passu in right of payment
with all existing and future unsubordinated  indebtedness of the Company and the
guarantors,  respectively,  and senior in right of payment to all  existing  and
future  subordinated  indebtedness  of  the  Company  and  the  guarantors.  The
indentures  relating to the Notes (the  "Indentures")  contain certain covenants
which,  among  other  things,  restrict  distributions  to  stockholders  of the
Company,  the  repurchase  of equity  interests in the Company and the making of
certain other investments and restricted payments,  the incurrence of additional
indebtedness  by the Company and its  restricted  subsidiaries,  the creation of
certain liens,  certain asset sales,  transactions  with  affiliates and related
parties, and mergers  consolidations.  The foregoing description of the notes is
qualified in its entirety by the terms of such Notes contained in the Indentures
and Notes documents. As of December 18, 1997, a majority of the holders of Notes
executed consents waiving  compliance with certain  provisions of the Indentures
in connection with the Loral Merger.

                                       18
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                       RESULTS OF OPERATIONS (CONTINUED)

DEBENTURES.  In January 1997, the Company also completed the sale of $60 million
of its  Debentures  to British  Aerospace  ($50 million) and Matra Marconi Space
($10 million). The Debentures were due to mature in 2012, and bore interest at a
rate of 8.75% per annum that was to be paid  semi-annually  in arrears solely in
common  stock of the  Company at prices of between  $10.21 and $14.00 per share,
depending  on  the  average  trading  prices  of the  Common  Stock  during  the
applicable  measurement period. As of March 20, 1998, all of the debentures (and
accrued but unpaid interest) had been converted into common stock.

OTHER  INDEBTEDNESS  AND OTHER  OBLIGATIONS.  At March 31, 1998, the Company had
outstanding  indebtedness of approximately  $5.8 million under a seven year term
loan  provided by General  Electric  Capital  Corporation  ("GECC") for the TT&C
facility and various assets relating  thereto.  Additionally,  at March 31, 1998
the  Company  had  obligations  of  approximately  $6.2  million  payable to the
manufacturer of Orion 1 through 2007.

Current Funding Requirements. While the Company believes its existing resources,
including borrowings from its new parent, are adequate to fund its needs for the
remainder of 1998, based upon its current  expectations for growth,  the Company
anticipates it will have substantial  funding  requirements  over the next three
years to fund the costs of Orion 2 and  Orion 3, the  purchase  of VSATs,  other
capital  expenditures  and other capital needs.  Interest  charges on the Senior
Notes over the next three years are fully provided for by restricted cash.

The in-orbit  delivered costs of the Orion 2 and Orion 3 satellites are expected
to aggregate approximately $468 million, of which $93.7 has been incurred by the
Company  through  December 31, 1997. In addition to the $10.9  million  incurred
through the first  quarter of 1998,  the Company  will need to make  payments of
approximately  $318.1  million,  $45 million and $0.3 million in 1998,  1999 and
2000,  respectively.  These amounts include the Company's estimate regarding the
cost of launch  insurance.  The  contracts  for Orion 2 and Orion 3 provide firm
fixed prices for the  construction  and launch of those  satellites and provides
for penalties in the event of late delivery by the  manufacturer,  however,  the
Company's actual payments could be substantially higher due to any change orders
for the satellites, increased insurance rates, delays and other factors.

In connection with the Bond Offering, the Company segregated $407 million of the
net proceeds to make  payments for  additional  satellites  and certain  related
costs (or to pay interest and principal on the Senior  Notes).  The Company also
can use a portion of its working  capital for such costs if it chooses to do so.
The Company had working  capital of $85.2  million at March 31,  1998.  However,
there can be no assurance  that cost increases for Orion 2 and/or Orion 3 due to
change orders,  increased  insurance rates or construction  delays,  among other
factors  may not  increase  the  Company's  capital  requirements  or  that  the
Company's growth may vary from its expectations resulting in changes in its cash
requirements or expected cash.

The balance of the Company's funding  requirements are dependent upon its growth
and cash flow from  operations.  The Company cannot predict whether its existing
resources  and cash flows will be adequate  to cover its future  cash needs.  If
existing  resources  and cash flows are not  sufficient  to cover the  Company's
future  cash  needs,  the Company  will need to secure  borrowings  from its new
parent,  or raise  additional  financing.  The Company does not have a revolving
credit  facility  or other  source of  readily  available  capital.  Sources  of
additional  capital may include  public or private  debt,  equity  financings or
strategic investments.  To the extent that the Company seeks to raise additional
debt financing, the Indentures limit the amount of such additional debt (under a
variety of  provisions  contained in such  Indentures)  and prohibit the Company
from using Orion 1, Orion 2 or Orion 3 as collateral for  indebtedness for money
borrowed.  If the Company requires additional  financing and is unable to obtain
such financing from its new parent or from outside sources in the amounts and at
the times needed, there would be a material adverse effect on the Company.

                                       19
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                       RESULTS OF OPERATIONS (CONTINUED)

YEAR 2000 ISSUE

The Company is evaluating  the potential  effect on its  information  processing
systems to determine what actions will be necessary in connection with the "Year
2000 Issue".  The Year 2000 Issue is the result of computer  programs which were
written using two digits rather than four to signify a year (i.e., the year 1997
is denoted "97" and not "1997"). Computer programs written using only two digits
may  recognize  the year 2000 as the year 1900.  This  could  result in a system
failure or miscalculations causing disruption of operations.  It is not known at
this time what  modifications,  if any, will be required.  All costs  associated
with any modification will be expensed as incurred. In addition, the Company has
requested  information from third-party entities on which it relies,  certifying
that their computer systems will not negatively affect the Company's operations.
No  assurance  can be  given  that  there  will  not be some  unforeseen  issue,
particularly  with  third  parties'  systems,  that may  materially  affect  the
Company's operations.










                                       20
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

While the Company is party to regulatory  proceedings  incident to its business,
there  are no  material  legal  proceedings  pending  or,  to the  knowledge  of
management, threatened against the Company or its subsidiaries.

ITEM 2.  CHANGES IN SECURITIES

         None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

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

         (a) A Special  Meeting of Stockholders of the Company was held on March
             20, 1998.

         (b) Not applicable.

         (c) The  results of the voting at the Special  Meeting of  Stockholders
             were as follows:

              (1) Approval  and  adoption of the  Agreement  and Plan of Merger,
                  dated as of October 7, 1997,  as amended on February 11, 1998,
                  among  the  Company,  Loral  Space &  Communications  Ltd.,  a
                  Bermuda  company,  and Loral  Satellite  Corporation,  a newly
                  formed Delaware  corporation and a wholly owned  subsidiary of
                  Loral and the transactions contemplated thereunder,  including
                  the Merger (as defined therein).

                  For:        15,360,468
                  Against:         7,314
                  Abstain:        51,078

              (2) Approval of amendments to Loral Orion's Non-Employee  Director
                  Stock Option Plan and certain  options  granted  thereunder to
                  provide for early vesting of certain options and conversion of
                  options granted under the plan in connection with the Merger.

                  For:        15,384,726
                  Against:        50,373
                  Abstain:        71,927

              (3) Approval of amendments to the Stock Option Agreement, dated as
                  of July 17, 1996, by and between  Orion and John G. Puente,  a
                  director  and  Chairman  of  the  Executive  Committee  of the
                  Company's   Board  of  Directors,   and  the  options  granted
                  thereunder  to  provide  for  conversion  of such  options  in
                  connection with the Merger.

                  For:        15,366,428
                  Against:        58,173
                  Abstain:        82,425



                                       21

<PAGE>
                  LORAL ORION NETWORK SYSTEMS, INC. (CONTINUED)

              (4) Approval of amendments to the Stock Option Agreement, dated as
                  of March 12, 1997, by and between Orion and Gustave M. Hauser,
                  director and Chairman of Loral Orion's Board of Directors (the
                  "Hauser Option Agreement"), and the options granted thereunder
                  to provide for  conversion of such options in connection  with
                  the Merger.

                  For:        15,360,235
                  Against:        60,596
                  Abstain:        86,195

ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits required by Item 601 of Regulation S-K:

              27  Financial Data Schedule

         (b) Reports on From 8-K during the three months ended March 31, 1998:

              None.





                                       22
<PAGE>
                        LORAL ORION NETWORK SYSTEMS, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                      LORAL ORION NETWORK SYSTEMS, INC.
                                      ---------------------------------
                                      (Registrant)

Date: May 15, 1998

                                      ----------------------------------
                                      Michael P. DeBlasio
                                      First Senior Vice President
                                      (Principal Financial Officer and
                                      Principal Accounting Officer)





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