<PAGE>

================================================================================

                                  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 QUARTER ENDED JUNE 30, 2002

                         COMMISSION FILE NUMBER 0-22085

                                LORAL ORION, INC.

           DELAWARE                                              52-1564318
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

                      500 HILLS DRIVE, BEDMINSTER, NJ 07921

                            TELEPHONE: (908) 470-2300

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                          11 1/4% SENIOR NOTES DUE 2007
                     12 1/2% SENIOR DISCOUNT NOTES DUE 2007
                            10% SENIOR NOTES DUE 2006

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [Not Applicable]

      The number of shares of common stock, par value $.01 per share of the
registrant outstanding as of June 30, 2002 was 100, all of which were owned,
directly or indirectly, by Loral Space & Communications Ltd.

      THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I
(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING WITH THE REDUCED DISCLOSURE
FORMAT PURSUANT TO GENERAL INSTRUCTION I (2) OF FORM 10-Q.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None
<PAGE>

                                     PART 1.
                              FINANCIAL INFORMATION

                       LORAL ORION, INC. AND SUBSIDIARIES
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT PAR AMOUNT)

<TABLE>
<CAPTION>
                                                                               JUNE 30,        DECEMBER 31,
                                                                                 2002              2001
                                                                                 ----              ----
                                    ASSETS                                    (UNAUDITED)         (NOTE)
<S>                                                                           <C>              <C>
Current assets:
   Cash and cash equivalents ............................................     $    54,800      $    19,399
   Accounts receivable, net .............................................          11,576           13,568
   Prepaid expenses and other current assets ............................           7,865           11,204
   Due from Loral companies, net ........................................           9,587            4,805
                                                                              -----------      -----------
Total current assets ....................................................          83,828           48,976
Satellites and related equipment, net ...................................         543,278          579,910
Cost in excess of net assets acquired, net ..............................              --          562,201
Deferred tax assets .....................................................          32,130           32,130
Other assets, net .......................................................          19,970           21,668
                                                                              -----------      -----------
                                                                              $   679,206      $ 1,244,885
                                                                              ===========      ===========

                 LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

Current liabilities:
   Current portion of long-term debt ....................................     $    80,101      $    49,449
   Accounts payable .....................................................           1,326            3,390
   Customer advances ....................................................           1,143            1,080
   Deferred revenue .....................................................           2,519            5,954
   Accrued interest .....................................................           4,700            1,889
                                                                              -----------      -----------
Total current liabilities ...............................................          89,789           61,762
Customer advances .......................................................           3,083            4,379
Deferred revenue ........................................................           6,550            5,142
Long-term debt ..........................................................         927,456          959,555
Note payable to Loral SpaceCom ..........................................          29,700           29,700
Commitments and contingencies (Note 8)
Stockholder's equity (deficit):
   Common stock, $.01 par value .........................................              --               --
   Paid-in capital ......................................................         604,166          604,166
   Retained deficit .....................................................        (981,538)        (419,819)
                                                                              -----------      -----------
Total stockholder's equity (deficit) ....................................        (377,372)         184,347
                                                                              -----------      -----------
                                                                              $   679,206      $ 1,244,885
                                                                              ===========      ===========
</TABLE>

NOTE: The December 31, 2001 balance sheet has been derived from the audited
consolidated financial statements at that date.

            See notes to condensed consolidated financial statements


                                       1
<PAGE>

                       LORAL ORION, INC. AND SUBSIDIARIES
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                       JUNE 30,                    JUNE 30,
                                                                       --------                    --------
                                                                 2002          2001           2002          2001
                                                                 ----          ----           ----          ----
<S>                                                            <C>           <C>           <C>            <C>
Revenues from satellite services .........................     $ 27,579      $ 27,598      $  57,200      $ 53,922
Operating expenses:
     Cost of satellite services ..........................       22,529        25,375         45,295        50,945
     Selling, general and administrative expenses ........        3,235         2,374          6,343         5,700
                                                               --------      --------      ---------      --------
Income (loss) from operations ............................        1,815          (151)         5,562        (2,723)
Interest income ..........................................           43            15            149            30
Interest expense .........................................       (3,492)      (24,837)        (6,750)      (50,075)
Other income .............................................           38            68            152           171
                                                               --------      --------      ---------      --------
Loss before income taxes, cumulative effect
     of change in accounting principle and discontinued
     operations ..........................................       (1,596)      (24,905)          (887)      (52,597)
Income tax (provision) benefit ...........................         (938)          572          1,369           878
                                                               --------      --------      ---------      --------
Income (loss) before cumulative effect of change in
     accounting principle and discontinued operations ....       (2,534)      (24,333)           482       (51,719)
Cumulative effect of change in accounting principle
     (Note 9) ............................................           --            --       (562,201)           --
                                                               --------      --------      ---------      --------
Loss from continuing operations ..........................       (2,534)      (24,333)      (561,719)      (51,719)
Loss from operations of discontinued operations, net
     of tax provision (Note 7) ...........................           --        (4,970)            --        (9,845)
                                                               --------      --------      ---------      --------
Net loss .................................................     $ (2,534)     $(29,303)     $(561,719)     $(61,564)
                                                               ========      ========      =========      ========
</TABLE>

            See notes to condensed consolidated financial statements


                                       2
<PAGE>

                       LORAL ORION, INC. AND SUBSIDIARIES
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       SIX MONTHS ENDED
                                                                           JUNE 30,
                                                                           --------
                                                                      2002           2001
                                                                      ----           ----
<S>                                                                <C>            <C>
Operating Activities:
     Loss from continuing operations .........................     $(561,719)     $(51,719)
     Non-cash items:
        Deferred  taxes ......................................            --         4,369
        Depreciation and amortization ........................        37,647        44,764
        Cumulative effect of change in accounting principle ..       562,201
        Non-cash interest (income) expense ...................          (529)       19,882
     Changes in operating assets and liabilities:
        Accounts receivable ..................................         1,992          (856)
        Prepaid expenses and other current assets ............         2,324         2,680
        Other assets .........................................         1,698          (697)
        Accounts payable and accrued interest ................           747            87
        Customer advances ....................................        (1,233)       (1,258)
        Deferred revenue .....................................        (2,027)        1,752
        Due from Loral companies, net ........................        (4,782)        1,235
                                                                   ---------      --------
Net cash provided by operating activities ....................        36,319        20,239
                                                                   ---------      --------
Net cash used in discontinued operations .....................            --       (14,203)
                                                                   ---------      --------
Investing Activities:
     Property and equipment, net .............................            --           (46)
                                                                   ---------      --------
Net cash used in investing activities ........................            --           (46)
                                                                   ---------      --------
Financing Activities:
     Payment of satellite incentive obligation ...............          (918)         (288)
     Increase in note payable to Loral SpaceCom ..............            --        (3,197)
     Repayment of notes payable ..............................            --          (772)
                                                                   ---------      --------
Net cash used in financing activities ........................          (918)       (4,257)
                                                                   ---------      --------
Net increase in cash and cash equivalents ....................        35,401         1,733
Cash and cash equivalents at beginning of period .............        19,399             2
                                                                   ---------      --------
Cash and cash equivalents at end of period ...................     $  54,800      $  1,735
                                                                   =========      ========
</TABLE>

            See notes to condensed consolidated financial statements


                                       3
<PAGE>

                       LORAL ORION, INC. AND SUBSIDIARIES
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.    ORGANIZATION AND BUSINESS

      The principal business of Loral Orion, Inc. (the "Company" or "Loral
Orion"), formerly known as Loral Cyberstar, Inc., is providing fixed satellite
services, including video distribution and other satellite transmission services
by leasing transponder capacity on its satellites to its customers for various
applications, including broadcasting, news gathering, Internet access and
transmission, private voice and data networks, business television, distance
learning and direct-to-home television ("DTH"). Loral Skynet, a division of
Loral SpaceCom Corporation ("LSC"), which is a subsidiary of Loral Space &
Communications Corporation, which is in turn a subsidiary of Loral Space &
Communications Ltd. ("Loral"), manages the Company's business. Prior to December
21, 2001, the Company operated in two business segments: Fixed Satellite
Services and Data Services. On December 21, 2001, the Company, in connection
with an exchange offer for its outstanding senior notes and senior discount
notes (notes 3, 4 and 7), transferred its data services business to a subsidiary
of Loral. Accordingly, the Company now operates in one segment, Fixed Satellite
Services ("FSS").

2.    BASIS OF PRESENTATION

      The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company pursuant to the rules of the Securities and
Exchange Commission ("SEC") and, in the opinion of the Company, include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the results of operations, financial position, and cash flows
for the periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to SEC rules. The Company believes that the
disclosures made are adequate to keep the information presented from being
misleading. The results of operations for the three and six months ended June
30, 2002, are not necessarily indicative of the results to be expected for the
full year. It is suggested that these financial statements be read in
conjunction with the Company's latest Annual Report on Form 10-K.

Reclassifications

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


                                       4
<PAGE>

3.    LONG-TERM DEBT

      Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                  JUNE 30,     DECEMBER 31,
                                                                                    2002            2001
                                                                                    ----            ----
<S>                                                                              <C>            <C>
      10.00% senior notes due 2006 (principal amount $613 million) .........     $  903,738     $  903,738
      11.25% senior notes due 2007 (principal amount $37 million) ..........         40,080         40,385
      12.50% senior discount notes due 2007 (principal amount at
          maturity $49 million and accreted principal amount $49 million) ..         54,472         54,696
      Satellite incentive obligations ......................................          9,267         10,185
                                                                                 ----------     ----------
           Total debt ......................................................      1,007,557      1,009,004
      Less, current portion ................................................         80,101         49,449
                                                                                 ----------     ----------
           Long-term debt ..................................................     $  927,456     $  959,555
                                                                                 ==========     ==========
</TABLE>

4.    NOTE PAYABLE TO LORAL SPACECOM CORPORATION

      In connection with the completion of the Company's debt exchange offers in
December 2001, LSC canceled its $79.7 million intercompany note issued to it by
Loral Orion which ranked pari passu to senior debt in exchange for the transfer
of Loral Orion's data services business (see Note 7) and the issuance of a new
note to LSC in the principal amount of $29.7 million due 2006, having an
interest rate of 10% per annum payable in kind, subordinated to Loral Orion's
new 10% senior notes. Loral Orion's data services business was transferred to a
newly-formed subsidiary of Loral, which assumed the name Loral Cyberstar, Inc.

5.    RELATED PARTY TRANSACTIONS

      Due from (to) Loral companies consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                 JUNE 30,   DECEMBER 31,
                                                  2002          2001
                                                  ----          ----
<S>                                              <C>          <C>
      Loral Space and Communications Corp. ...   $2,232       $ 6,728
      Loral Cyberstar, Inc. ..................    5,724           374
      Loral Space and Communications Ltd .....    1,170        (1,031)
      CyberStar L.P. .........................       79            79
      Loral Skynet ...........................      382        (1,336)
      Space Systems/Loral ....................       --            (9)
                                                 ------       -------
                                                 $9,587       $ 4,805
                                                 ======       =======
</TABLE>

6.    SEGMENTS

      The Company has presented the results of its previously reported data
services segment as a discontinued operation (see Note 7). As a result, the
Company's continuing operations are organized and operate in one business
segment: Fixed Satellite Services (see Note 1). The Company's segment
information for 2001 has been restated to reflect the results of such
transactions. Revenues before elimination of intercompany revenues from its
discontinued operations and other eliminations totaled $32.8 million and $65.8
million for the three and six months ended June 30, 2001, respectively.


                                       5
<PAGE>

7.    DISCONTINUED OPERATIONS

      In connection with the completion of the Company's debt exchange offers in
December 2001, the Company transferred its data services business to a
subsidiary of Loral. Accordingly, the historical condensed consolidated
statements of operations and cash flows for 2001 have been restated to account
for the data services segment as a discontinued operation. The financial data
presented for the Company's data services segment reflects the historical sales
and expenses of the data services segment after elimination of intercompany
transactions with FSS. Discontinued operations include revenue for the data
services segment of $21.7 million and $45.6 million for the three and six months
ended June 30, 2001, respectively. Cumulative translation losses attributable to
discontinued operations was $0.4 million and $0.9 million for the three and six
months ended June 30, 2001, respectively.

8.    COMMITMENTS AND CONTINGENCIES

      In November 1995, a component on Telstar 11 malfunctioned, resulting in a
2-hour service interruption. The malfunctioning component supported nine
transponders serving the European portion of Telstar 11's footprint. Full
service was restored using a back-up component. If that back-up component fails,
Telstar 11 would lose nine of the 34 transponders on the satellite. In such
event, the Company would be entitled to insurance proceeds of approximately $53
million and believes that it would be able to satisfy most of the lost capacity
on another Company owned satellite. Such an event may have an adverse effect on
the financial position and results of operations of the Company.

      Telstar 12 was launched in October 1999 into 15 degrees W.L., and
commenced operations in January 2000. Although Telstar 12 was originally
intended to operate at 12 degrees W.L., Loral Orion reached an agreement with
Eutelsat to operate Telstar 12 at 15 degrees W.L. while Eutelsat continued to
develop its services at 12.5 degrees W.L. Eutelsat has in turn agreed not to use
its 14.8 degrees W.L. orbital slot and to assert its priority rights at such
location on Loral Orion's behalf. As part of this coordination effort Loral
Orion agreed to provide to Eutelsat four transponders on Telstar 12 for the life
of the satellite and has retained risk of loss. Eutelsat also has the right to
acquire, at cost, four transponders on the next replacement satellite for
Telstar 12. As part of the international coordination process, the Company
continues to conduct discussions with various administrations regarding Telstar
12's operations at 15 degrees W.L. If these discussions are not successful,
Telstar 12's useable capacity may be reduced.

      Telstar 10/Apstar IIR has experienced minor losses of power from its solar
arrays. Although, to date, Telstar 10/Apstar IIR has not experienced any
degradation in performance, there can be no assurance that Telstar 10/Apstar IIR
will not experience additional power loss that could result in performance
degradation, including loss of transponder capacity. In the event of additional
power loss, the extent of the performance degradation, if any, will depend on
numerous factors, including the amount of the additional power loss, when in the
life of Telstar 10/Apstar IIR the loss occurred, and the number and type of uses
being made of transponders then in service. A complete or partial loss of
Telstar 10/Apstar IIR could result in a loss of revenues and profits. Based upon
information currently available, including design redundancies to accommodate
small power losses and the fact that no pattern has been identified as to the
timing or specific location within the solar arrays of the failures, the Company
believes that this matter will not have a material adverse effect on its
consolidated financial position or its results of operations.

      While the Company has in the past, consistent with industry practice,
typically obtained in-orbit insurance for its satellites, the Company cannot
guarantee that, upon a policy's expiration, the Company will be able to renew
the insurance on acceptable terms, especially on satellites that have, or that
are part of a family of satellites that have experienced problems in the past.
Telstar 10/Apstar IIR was manufactured by Space Systems/Loral ("SS/L") and has
the same solar array configuration as another 1300-class satellite manufactured
by SS/L that recently experienced a solar array failure. SS/L believes that this
failure is an isolated event and does not reflect a systemic problem in either
the satellite design or manufacturing process. Accordingly, the Company does not
believe that this anomaly will affect Telstar 10/ Apstar IIR. However, as a
result of discussions with insurers relating to the renewal of insurance for
Telstar 10/Apstar IIR approximately 25% of the insurance coverage has excluded
losses due to solar array failures and approximately 75% of the insurance
coverage provides for coverage of losses due to solar array failures in the
event of a capacity loss of 65% or more. An uninsured loss of a satellite will
have a material adverse effect on the Company's consolidated financial position
and its results of operations.


                                       6
<PAGE>

      Loral Orion anticipates it will have additional funding requirements over
the next three years if it elects to replace Telstar 11 which is expected to
reach the end of its useful life in 2005. To the extent that excess cash flow
from Loral Orion's satellites is not sufficient to meet these requirements,
Loral Orion will need to secure funding from Loral or raise additional financing
to fund this requirement and there can be no assurance that the Company will be
successful in doing so. Sources of additional capital may include public or
private debt, vendor financing, equity financings or strategic investments. To
the extent that Loral Orion seeks to raise additional debt financing, its
indenture relating to the Company's 10% senior notes limits the amount of such
additional debt to $100 million for such replacement satellite and prohibits
Loral Orion from using Telstar 11, Telstar 10/Apstar IIR and Telstar 12 as
collateral for indebtedness.

      The Company is party to various litigation arising in the normal course of
its operations. In the opinion of management, the ultimate liability for these
matters, if any, will not have a material adverse effect on the Company's
financial position or results of operations.

9.    ACCOUNTING FOR GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS

      On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"), which addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination and
the accounting for goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 provides that intangible assets with finite useful lives
be amortized and that goodwill and intangible assets with indefinite lives not
be amortized, but rather be tested at least annually for impairment. SFAS 142
also changed the evaluation criteria for testing goodwill for impairment from an
undiscounted cash flow approach, which was previously utilized under the
guidance in Accounting Principles Board Opinion No. 17, Intangible Assets, to a
test based on fair value. Fair value is determined by the amount at which an
asset or liability could be bought or sold in a current transaction between
willing parties, that is, other than in a forced or liquidation sale. Quoted
market prices in active markets are the best evidence of fair value and must be
used as the basis for the measurement, if available. If quoted market prices are
not available, the estimate of fair value must be based on the best information
available, including prices for similar assets and liabilities and the results
of using other valuation techniques, such as public company trading multiples
and future discounted cash flows.

Goodwill

      In accordance with SFAS 142, the Company's previously recognized cost in
excess of net assets acquired ("goodwill") of $562 million (at December 31,
2001) from the acquisition of the Company by Loral in 1998 was reviewed under
the new transitional guidance as of January 1, 2002. The Company hired
professionals in the valuation consulting business to determine the fair value
of the Company. Since there were no quoted market prices in active markets for
the Company, the measurement of fair value was based on the best information
available in the circumstances, including reasonable and supportable assumptions
and projections, to determine that the most appropriate method of fair value was
public company trading multiples. Those professionals determined that the
Company's goodwill under the new guidance in SFAS 142 was fully impaired.
Accordingly, as of January 1, 2002, the Company recorded a non-cash charge for
the cumulative effect of the change in accounting principle of $562 million.

      The charge is the result of a change in the evaluation criteria for
goodwill from an undiscounted cash flow approach which was previously utilized
under the guidance in Accounting Principles Board Opinion No. 17 to the fair
value approach which is stipulated in SFAS 142.

      The following table presents the actual financial results and as adjusted
financial results without the amortization of goodwill for the Company for the
three and six months ended June 30, 2001 (in thousands):

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED           SIX MONTHS ENDED
                                                      ------------------           ----------------
                                                    ACTUAL      AS ADJUSTED     ACTUAL      AS ADJUSTED
                                                    ------      -----------     ------      -----------
<S>                                                <C>           <C>           <C>           <C>
      Reported loss from continuing operations     $(24,333)     $(24,333)     $(51,719)     $(51,719)
      Add back amortization of goodwill                  --         3,877            --         7,754
                                                   --------      --------      --------      --------
      Loss from continuing operations               (24,333)      (20,456)      (51,719)      (43,965)
      Loss from operations of discontinued
         operations, net of taxes                    (4,970)       (4,970)       (9,845)       (9,845)
                                                   --------      --------      --------      --------
      Net loss                                     $(29,303)     $(25,426)     $(61,564)     $(53,810)
                                                   ========      ========      ========      ========
</TABLE>


                                       7
<PAGE>

Other Acquired Intangible Assets

      The Company evaluated the useful lives of its other acquired intangible
assets in connection with the adoption of SFAS 142 and determined that no
changes to the useful lives were necessary.

      Other acquired intangible assets are included in other assets in the
Company's condensed consolidated balance sheets and were as follows at June 30,
2002 and December 31, 2001 (in millions):

<TABLE>
<CAPTION>
                                       JUNE 30, 2002            DECEMBER 31, 2001
                                       -------------            -----------------

                                    GROSS     ACCUMULATED      GROSS     ACCUMULATED
                                    AMOUNT    AMORTIZATION     AMOUNT    AMORTIZATION
                                    ------    ------------     ------    ------------
<S>                                 <C>          <C>           <C>          <C>
      Customer relations ...        $ 7.0        $(4.1)        $ 7.0        $(3.6)
      Trademarks ...........          6.0         (3.5)          6.0         (3.0)
      Regulatory ...........          2.5         (1.3)          2.5         (1.2)
                                    -----        -----         -----        -----
           Total ...........        $15.5        $(8.9)        $15.5        $(7.8)
                                    =====        =====         =====        =====
</TABLE>

      As of June 30, 2002, the weighted average remaining amortization period
for customer relations and trademarks was three years and for regulatory fees
was eight years.

      Total amortization expense for other acquired intangible assets for the
three months ended June 30, 2002 and 2001 was $0.6 million and $0.8 million
respectively, and for the six months ended June 30, 2002 and 2001 was $1.1
million and $1.3 million, respectively. Annual amortization expense for other
acquired intangible assets over the next five years is estimated to be as
follows (in millions):

<TABLE>
<S>                                                                   <C>
      2002 ................................................           $2.0
      2003 ................................................            2.0
      2004 ................................................            2.0
      2005 ................................................            1.2
      2006 ................................................             --
</TABLE>

10.   NEW ACCOUNTING PRONOUNCEMENTS

      In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations ("SFAS 143"). SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and the normal operation of a
long-lived asset, except for certain obligations of lessees. The Company is
required to adopt SFAS 143 on January 1, 2003. The Company has not yet
determined the impact that the adoption of SFAS 143 will have on its results of
operations or its financial position.

      In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. It supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of APB 30, Reporting the Results of Operations -- Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions, for the disposal of a
segment of a business. The Company adopted SFAS 144 on January 1, 2002. The
Company has determined that there was no effect on the Company's consolidated
financial position or results of operations relating to the adoption of SFAS
144.


                                       8
<PAGE>

      In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 generally requires that any gains or losses on
extinguishment of debt in current or prior periods be classified as other income
(expense), beginning in fiscal 2003, with early adoption encouraged. The Company
is currently evaluating the impact of adopting the provisions of SFAS No. 145 in
its consolidated financial statements.

      In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities ("SFAS 146"). SFAS 146 requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. Examples of costs covered by the standard include lease termination costs
and certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
Previous accounting guidance was provided by EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). SFAS 146
replaces EITF Issue No. 94-3. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002.

11.   FINANCIAL INFORMATION FOR PARENT, ISSUER'S PARENT, GUARANTOR AND OTHER
      SUBSIDIARIES

      In December 2001, Loral Orion (the "Parent Company") issued new 10% senior
notes in an exchange offer (see Note 3) which are fully and unconditionally
guaranteed, on a joint and several basis, by one of its wholly-owned
subsidiaries (the "Guarantor Subsidiary") and Loral ("Issuer's Parent"). The
Company's remaining original senior notes and senior discount notes are fully
and unconditionally guaranteed on a joint and several basis by the Parent
Company, the Guarantor Subsidiary and substantially all of the other
wholly-owned subsidiaries in existence through December 21, 2001 (the "Other
Subsidiaries").

      Presented below is condensed consolidating financial information for the
Parent Company, Issuer's Parent, the Guarantor Subsidiary and the Other
Subsidiaries for the three and six months ended June 30, 2002 and 2001. The
Other Subsidiaries were part of the Company's data services segment, the net
assets of which were substantially transferred on December 21, 2001 to a
subsidiary of Loral (see Note 7), and have been accounted for as a discontinued
operation. The condensed consolidating financial information has been presented
to show the nature of assets held, results of operations and cash flows of the
Parent Company, Issuer's Parent, Guarantor Subsidiary and Other Subsidiaries.

      The supplemental condensed consolidating financial information reflects
the investments of the Parent Company in the Guarantor Subsidiary and the Other
Subsidiaries using the equity method of accounting. The Company's significant
transactions with its subsidiaries other than the investment account and related
equity in net loss of unconsolidated subsidiaries are the intercompany payables
and receivables between its subsidiaries. The note payable due to Loral SpaceCom
bears interest at 10% per annum. All principal and interest on this note is due
at maturity on July 30, 2006.


                                       9
<PAGE>

                      CONDENSED CONSOLIDATING BALANCE SHEET
                                  JUNE 30, 2002
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                             PARENT        ISSUER'S       GUARANTOR       OTHER
                                             COMPANY        PARENT        SUBSIDIARY   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                             -------        ------        ----------   ------------   ------------   ------------
<S>                                         <C>           <C>             <C>           <C>           <C>             <C>
Current assets:
   Cash and cash equivalents ...........    $  54,800     $     7,530     $      --     $      --     $    (7,530)    $  54,800
   Accounts receivable, net ............       10,890              --           686            --              --        11,576
   Prepaid expenses and other
     current assets ....................        4,250           1,984         3,218            --          (1,587)        7,865
                                            ---------     -----------     ---------     ---------     -----------     ---------
       Total current assets ............       69,940           9,514         3,904            --          (9,117)       74,241
Property, plant and equipment, net .....      328,070              --       215,208            --              --       543,278
Notes (payable) receivable from
   unconsolidated subsidiaries .........      (29,700)        200,000            --            --        (200,000)      (29,700)
Due (to) from Loral companies, net .....        9,587              --            --            --              --         9,587
Due (to) from unconsolidated
   subsidiaries ........................      (85,667)         19,043        93,526            --         (26,902)           --
Investments in unconsolidated
   subsidiaries ........................      303,384         572,637      (271,698)           --        (604,323)           --
Investments in and advances to
   affiliates ..........................           --          52,362            --            --         (52,362)           --
Deferred tax assets ....................       32,130              --            --            --              --        32,130
Other assets, net ......................       19,249           5,126           721            --          (5,126)       19,970
                                            ---------     -----------     ---------     ---------     -----------     ---------
                                            $ 646,993     $   858,682     $  41,661     $      --     $  (897,830)    $ 649,506
                                            =========     ===========     =========     =========     ===========     =========
Current liabilities:
   Current portion of
     long-term debt ....................    $  80,101     $        --     $      --     $      --     $        --     $  80,101
   Accounts payable ....................         613           1,038           713            --          (1,038)        1,326
   Customer advances ...................          546              --           597            --              --         1,143
   Accrued interest and
     preferred dividends ...............        4,700          20,646            --            --         (20,646)        4,700
   Deferred revenue ....................        2,340              --           179            --              --         2,519
   Other current liabilities ...........           --          10,218            --            --         (10,218)           --
   Income taxes payable ................           --           7,958            --            --          (7,958)           --
   Deferred tax liabilities ............           --          23,872            --            --         (23,872)           --
                                            ---------     -----------     ---------     ---------     -----------     ---------
       Total current liabilities .......       88,300          63,732         1,489            --         (63,732)       89,789
Deferred tax liabilities ...............           --          19,925         7,462            --         (27,387)           --
Long-term liabilities ..................        8,609              --         1,024            --                         9,633
Long-term debt .........................      927,456         350,000            --            --        (350,000)      927,456
6% Series C convertible
     redeemable preferred stock ........           --         131,996            --            --        (131,996)           --
6% Series D convertible
     redeemable preferred stock ........           --          55,378            --            --         (55,378)           --
Shareholders' equity (deficit):
   6% Series C convertible
     redeemable preferred stock ........           --         266,772            --            --        (266,772)           --
   6% Series D convertible
     redeemable preferred stock ........           --         109,205            --            --        (109,205)           --
   Common stock ........................           --           3,711            --            --          (3,711)           --
   Paid-in capital .....................      604,166       3,035,219            --            --      (3,035,219)      604,166
   Treasury stock, at cost .............           --          (3,360)           --            --           3,360            --
   Unearned compensation ...............           --              (4)           --            --               4            --
   Retained (deficit) earnings .........     (981,538)     (3,195,504)       31,686            --       3,163,818      (981,538)
   Accumulated other
     comprehensive income ..............           --          21,612            --            --         (21,612)           --
                                            ---------     -----------     ---------     ---------     -----------     ---------
Total stockholder's equity (deficit)  ..     (377,372)        237,651        31,686            --        (269,337)     (377,372)
                                            ---------     -----------     ---------     ---------     -----------     ---------
                                            $ 646,993     $   858,682     $  41,661     $      --     $  (897,830)    $ 649,506
                                            =========     ===========     =========     =========     ===========     =========
</TABLE>


                                       10
<PAGE>

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED JUNE 30, 2002
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                             PARENT        ISSUER'S       GUARANTOR       OTHER
                                             COMPANY        PARENT        SUBSIDIARY   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                             -------        ------        ----------   ------------   ------------   ------------
<S>                                         <C>           <C>             <C>           <C>           <C>             <C>
Revenues from satellite services .......    $  24,971     $        --     $  11,281     $      --     $    (8,673)    $  27,579
Costs of satellite services ............       24,104                         7,098            --          (8,673)       22,529
Selling, general and
   administrative expenses .............        2,925           2,438           310            --          (2,438)        3,235
Management fee expense .................           --            (264)           --            --             264            --
                                            ---------     -----------     ---------     ---------     -----------     ---------
Operating income (loss) ................       (2,058)         (2,174)        3,873            --           2,174         1,815
Interest and investment income .........           81           5,387            --            --          (5,387)           81
Interest expense .......................       (3,492)         (9,805)           --            --           9,805        (3,492)
                                            ---------     -----------     ---------     ---------     -----------     ---------
(Loss) income before income taxes and
   equity in net loss of
   unconsolidated subsidiaries and
   affiliates ..........................       (5,469)         (6,592)        3,873            --           6,592        (1,596)
Income tax benefit (provision) .........          433          (1,605)       (1,371)           --           1,605          (938)
                                            ---------     -----------     ---------     ---------     -----------     ---------
(Loss) income before equity in
   net loss of unconsolidated
   subsidiaries and affiliates .........       (5,036)         (8,197)        2,502            --           8,197        (2,534)
Equity in net income (loss) of
   unconsolidated subsidiaries, net
   of taxes ............................        2,502          11,818            --            --         (14,320)           --
Equity in net loss of affiliates,
   net of taxes ........................           --         (20,282)           --            --          20,282            --
                                            ---------     -----------     ---------     ---------     -----------     ---------
Net (loss) income ......................    $  (2,534)    $   (16,661)    $   2,502     $      --     $    14,159     $  (2,534)
                                            =========     ===========     =========     =========     ===========     =========
</TABLE>


                                       11
<PAGE>

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2002
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                             PARENT        ISSUER'S       GUARANTOR       OTHER
                                             COMPANY        PARENT        SUBSIDIARY   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                             -------        ------        ----------   ------------   ------------   ------------
<S>                                         <C>           <C>             <C>           <C>           <C>             <C>
Revenues from satellite services .......    $  51,807     $        --     $  24,173     $      --     $   (18,780)    $  57,200
Costs of satellite services ............       49,879                        14,196            --         (18,780)       45,295
Selling, general and
   administrative expenses .............        5,629           2,457           714            --          (2,457)        6,343
Management fee expense .................           --              27            --            --             (27)           --
                                            ---------     -----------     ---------     ---------     -----------     ---------
Operating income (loss) ................       (3,701)         (2,484)        9,263            --           2,484         5,562
Interest and investment income .........          301          10,617            --            --         (10,617)          301
Interest expense .......................       (6,750)        (19,652)           --            --          19,652        (6,750)
                                            ---------     -----------     ---------     ---------     -----------     ---------
(Loss) income before income taxes,
   equity in net loss of
   unconsolidated subsidiaries and
   affiliates and cumulative effect
   of change in accounting principle ...      (10,150)        (11,519)        9,263            --          11,519          (887)
Income tax benefit (provision) .........        4,597          (3,154)       (3,228)           --           3,154         1,369
                                            ---------     -----------     ---------     ---------     -----------     ---------
(Loss) income before equity in
   net loss of unconsolidated
   subsidiaries and affiliates and
   cumulative effect of change in
   accounting principle ................       (5,553)        (14,673)        6,035            --          14,673           482
Equity in net income (loss) of
   unconsolidated subsidiaries, net
   of taxes ............................        6,035        (862,469)           --            --         856,434            --
Equity in net loss of affiliates,
   net of taxes ........................           --         (35,879)           --            --          35,879            --
                                            ---------     -----------     ---------     ---------     -----------     ---------
(Loss) income before cumulative
   effect of change in accounting
   principle ...........................          482        (913,021)        6,035            --         906,986           482
Cumulative effect of change in
   accounting principle ................     (562,201)             --            --            --              --      (562,201)
                                            ---------     -----------     ---------     ---------     -----------     ---------
Net (loss) income ......................    $(561,719)    $  (913,021)    $   6,035     $      --     $   906,986     $(561,719)
                                            =========     ===========     =========     =========     ===========     =========
</TABLE>


                                       12
<PAGE>

                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2002
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                              PARENT        ISSUER'S      GUARANTOR       OTHER
                                              COMPANY        PARENT       SUBSIDIARY   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                              -------        ------       ----------   ------------   ------------   ------------
<S>                                         <C>           <C>             <C>           <C>           <C>             <C>
Operating activities:
   (Loss) income from
     continuing operations .............    $(561,719)    $  (913,021)    $   6,035     $      --     $   906,986     $(561,719)
   Non-cash items:
     Cumulative effect of change
     in accounting principle ...........      562,201              --            --            --              --       562,201
     Equity in net loss of
     affiliates, net of taxes ..........           --          35,879            --            --         (35,879)           --
     Equity in net loss of
     unconsolidated subsidiaries,
     net of taxes ......................       (6,035)        862,469            --            --        (856,434)           --
     Deferred taxes ....................           --           3,135         2,248            --          (5,383)           --
     Depreciation and amortization .....       27,141              --        10,506                            --        37,647
     Non-cash interest income ..........         (529)             --            --            --              --          (529)
   Changes in operating assets
   and liabilities:
     Accounts receivable, net ..........        2,181              --          (189)           --              --         1,992
     Prepaid expenses and other
       current assets ..................          788          (1,719)        1,536            --           1,719         2,324
     Due to (from) Loral companies,
       net .............................       15,766              --       (20,151)           --            (397)       (4,782)
     Due to (from) unconsolidated
     subsidiaries ......................       (2,645)         (6,129)           --            --           8,774            --
     Other assets ......................        1,587            (379)          111            --             379         1,698
     Accounts payable ..................       (2,065)           (317)           --            --             318        (2,064)
     Accrued expenses and other
     current liabilities ...............        2,811          (1,897)           --            --           1,897         2,811
     Customer advances .................       (1,192)             --           (40)           --              (1)       (1,233)
     Income taxes payable ..............           --              19            --            --             (19)           --
     Deferred revenue ..................       (1,971)             --           (56)           --              --        (2,027)
     Other .............................           --             165            --            --            (165)           --
                                            ---------     -----------     ---------     ---------     -----------     ---------
Net cash provided by (used in)
   operating activities ................       36,319         (21,795)           --            --          21,795        36,319
Investing activities:
     Investments in and advances
       to affiliates ...................           --          (2,162)           --            --           2,162            --
     Investments in and advances to
       unconsolidated subsidiaries .....           --            (857)           --            --             857            --
                                            ---------     -----------     ---------     ---------     -----------     ---------
Net cash used in investing activities ..           --          (3,019)           --            --           3,019            --
                                            ---------     -----------     ---------     ---------     -----------     ---------
Financing activities:
     Repayments of long-term
       obligations .....................         (918)             --            --            --              --          (918)
     Preferred dividends ...............           --         (20,878)           --            --          20,878            --
     Proceeds from stock issuances .....           --           7,154            --            --          (7,154)           --
                                            ---------     -----------     ---------     ---------     -----------     ---------
Net cash used in financing activities ..         (918)        (13,724)           --            --          13,724          (918)
                                            ---------     -----------     ---------     ---------     -----------     ---------
Increase (decrease) in cash
   and cash equivalents ................       35,401         (38,538)           --            --          38,538        35,401
Cash and cash equivalents --
   beginning of period .................       19,399          46,068            --            --         (46,068)       19,399
                                            ---------     -----------     ---------     ---------     -----------     ---------
Cash and cash equivalents --
   end of period .......................    $  54,800     $     7,530     $      --     $      --     $    (7,530)    $  54,800
                                            =========     ===========     =========     =========     ===========     =========
</TABLE>


                                       13
<PAGE>

                      CONDENSED CONSOLIDATING BALANCE SHEET
                                DECEMBER 31, 2001
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                             PARENT         ISSUER'S      GUARANTOR       OTHER
                                             COMPANY         PARENT       SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS     CONSOLIDATED
                                             -------         ------       ----------   ------------    ------------     ------------
<S>                                       <C>             <C>             <C>           <C>            <C>              <C>
Current assets:
   Cash and cash equivalents .........    $    19,399     $    46,068     $      --     $        --     $   (46,068)    $    19,399
   Accounts receivable, net ..........         13,071              --           497              --              --          13,568
   Prepaid expenses and
     other current assets ............          6,053             265         5,151              --            (265)         11,204
                                          -----------     -----------     ---------     -----------     -----------     -----------
       Total current assets ..........         38,523          46,333         5,648              --         (46,333)         44,171
Property, plant and equipment, net ...        354,196              --       225,714              --              --         579,910
Costs in excess of net assets
   acquired, net .....................        562,201              --            --              --              --         562,201
Notes (payable) receivable from
   unconsolidated subsidiaries .......        (29,700)        200,000            --              --        (200,000)        (29,700)
Due to (from) Loral companies, net ...        (15,135)             --        19,940              --              --           4,805
Due to (from) unconsolidated
   subsidiaries ......................        (47,826)         12,915        53,038              --         (18,127)             --
Investments in unconsolidated
   subsidiaries ......................        297,349       1,432,614      (271,698)             --      (1,458,265)             --
Investments in and advances to
   affiliates ........................             --          77,061            --              --         (77,061)             --
Deferred tax assets ..................         32,130              --            --              --              --          32,130
Other assets, net ....................         20,836           6,632           832              --          (6,632)         21,668
                                          -----------     -----------     ---------     -----------     -----------     -----------
                                          $ 1,212,574     $ 1,775,555     $  33,474     $        --     $(1,806,418)    $ 1,215,185
                                          ===========     ===========     =========     ===========     ===========     ===========
Current liabilities:
   Current portion of long-term
     debt ............................    $    49,449     $        --     $      --     $        --     $        --     $    49,449
   Accounts payable ..................          2,677           1,357           713              --          (1,357)          3,390
   Customer advances .................            952              --           128              --              --           1,080
   Accrued interest and
     preferred dividends .............          1,889          22,543            --              --         (22,543)          1,889
   Deferred revenue ..................          5,719              --           235              --              --           5,954
   Income taxes payable ..............             --           7,939            --              --          (7,939)             --
   Deferred tax liabilities ..........             --          21,222            --              --         (21,222)             --
                                          -----------     -----------     ---------     -----------     -----------     -----------
     Total current liabilities .......         60,686          53,061         1,076              --         (53,061)         61,762
Deferred tax liabilities .............             --          21,626         5,214              --         (26,840)             --
Long-term liabilities ................          7,986              --         1,533              --               2           9,521
Long-term debt .......................        959,555         350,000            --              --        (350,000)        959,555
Shareholders' equity (deficit):
   6% Series C convertible
     redeemable preferred stock ......             --         485,371            --              --        (485,371)             --
   6% Series D convertible
     redeemable preferred stock ......             --         296,529            --              --        (296,529)             --
   Common stock ......................             --           3,368            --              --          (3,368)             --
   Paid-in capital ...................        604,166       2,771,964            --              --      (2,771,964)        604,166
   Treasury stock, at cost ...........             --          (3,360)           --              --           3,360              --
   Unearned compensation .............             --             (81)           --              --              81              --
   Retained (deficit) earnings .......       (419,819)     (2,223,710)       25,651              --       2,198,059        (419,819)
   Accumulated other
     comprehensive income ............             --          20,787            --              --         (20,787)             --
                                          -----------     -----------     ---------     -----------     -----------     -----------
Total stockholder's equity ...........        184,347       1,350,868        25,651              --      (1,376,519)        184,347
                                          -----------     -----------     ---------     -----------     -----------     -----------
                                          $ 1,212,574     $ 1,775,555     $  33,474     $        --     $(1,806,418)    $ 1,215,185
                                          ===========     ===========     =========     ===========     ===========     ===========
</TABLE>


                                       14
<PAGE>

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED JUNE 30, 2001
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                             PARENT        ISSUER'S       GUARANTOR       OTHER
                                             COMPANY        PARENT        SUBSIDIARY   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                             -------        ------        ----------   ------------   ------------   ------------
<S>                                         <C>           <C>             <C>           <C>           <C>             <C>
Revenues from satellite services .......    $  23,586     $        --     $  11,501     $      --     $    (7,489)    $  27,598
Costs of satellite services ............       26,362              --         6,502            --          (7,489)       25,375
Selling, general and
   administrative expenses .............        2,336             285            38            --            (285)        2,374
Management fee expense .................           --          13,170            --            --         (13,170)           --
                                            ---------     -----------     ---------     ---------     -----------     ---------
Operating (loss) income ................       (5,112)        (13,455)        4,961            --          13,455          (151)
Interest and investment income .........           80           5,943             3            --          (5,943)           83
Interest expense .......................      (24,833)         (9,786)           (4)           --           9,786       (24,837)
                                            ---------     -----------     ---------     ---------     -----------     ---------
(Loss) income before income taxes,
   equity in net loss of
   unconsolidated subsidiaries
   and affiliates and
   discontinued operations .............      (29,865)        (17,298)        4,960            --          17,298       (24,905)
Income tax benefit (provision) .........        2,308          (1,593)       (1,736)           --           1,593           572
                                            ---------     -----------     ---------     ---------     -----------     ---------
(Loss) income before equity in
   net loss of unconsolidated
   subsidiaries and affiliates and
   discontinued operations .............      (27,557)        (18,891)        3,224            --          18,891       (24,333)
Equity in net income (loss) of
   unconsolidated subsidiaries, net
   of taxes ............................        1,462         (15,097)           --            --          13,635            --
Equity in net loss of affiliates,
   net of taxes ........................           --         (20,708)           --            --          20,708            --
                                            ---------     -----------     ---------     ---------     -----------     ---------
(Loss) income from continuing
   operations ..........................      (26,095)        (54,696)        3,224            --          53,234       (24,333)
Loss from operations of
   discontinued operations, net
   of taxes ............................       (3,208)             --            --        (1,762)             --        (4,970)
                                            ---------     -----------     ---------     ---------     -----------     ---------
Net (loss) income ......................    $ (29,303)    $   (54,696)    $   3,224     $  (1,762)    $    53,234     $ (29,303)
                                            =========     ===========     =========     =========     ===========     =========
</TABLE>


                                       15
<PAGE>

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2001
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                             PARENT        ISSUER'S       GUARANTOR       OTHER
                                             COMPANY        PARENT        SUBSIDIARY   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                             -------        ------        ----------   ------------   ------------   ------------
<S>                                         <C>           <C>             <C>           <C>           <C>             <C>
Revenues from satellite services .......    $  45,845     $        --     $  24,161     $      --     $   (16,084)    $  53,922
Costs of satellite services ............       54,182              --        12,847            --         (16,084)       50,945
Selling, general and
   administrative expenses .............        5,662             598            38            --            (598)        5,700
Management fee expense .................           --          23,605            --            --         (23,605)           --
                                            ---------     -----------     ---------     ---------     -----------     ---------
Operating (loss) income ................      (13,999)        (24,203)       11,276            --          24,203        (2,723)
Interest and investment income .........          194          12,213             7            --         (12,213)          201
Interest expense .......................      (50,067)        (18,379)           (8)           --          18,379       (50,075)
                                            ---------     -----------     ---------     ---------     -----------     ---------
(Loss) income before income taxes,
   equity in net loss of
   unconsolidated subsidiaries
   and affiliates and
   discontinued operations .............      (63,872)        (30,369)       11,275            --          30,369       (52,597)
Income tax benefit (provision) .........        4,824          (3,189)       (3,946)           --           3,189           878
                                            ---------     -----------     ---------     ---------     -----------     ---------
(Loss) income before equity in
   net loss of unconsolidated
   subsidiaries and affiliates and
   discontinued operations .............      (59,048)        (33,558)        7,329            --          33,558       (51,719)
Equity in net income (loss) of
   unconsolidated subsidiaries, net
   of taxes ............................        3,824         (35,765)           --            --          31,941            --
Equity in net loss of affiliates,
   net of taxes ........................           --         (44,382)           --            --          44,382            --
                                            ---------     -----------     ---------     ---------     -----------     ---------
(Loss) income from continuing
   operations ..........................      (55,224)       (113,705)        7,329            --         109,881       (51,719)
Loss from operations of
   discontinued operations, net
   of taxes ............................       (6,340)             --            --        (3,505)             --        (9,845)
                                            ---------     -----------     ---------     ---------     -----------     ---------
Net (loss) income ......................    $ (61,564)    $  (113,705)    $   7,329     $  (3,505)    $   109,881     $ (61,564)
                                            =========     ===========     =========     =========     ===========     =========
</TABLE>


                                       16
<PAGE>

                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2001
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                              PARENT        ISSUER'S      GUARANTOR       OTHER
                                              COMPANY        PARENT       SUBSIDIARY   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                              -------        ------       ----------   ------------   ------------   ------------
<S>                                         <C>           <C>             <C>           <C>           <C>             <C>
Operating activities:
   (Loss) income from continuing
     operations ........................    $ (55,224)    $  (113,705)    $   7,329     $      --     $   109,881     $ (51,719)
   Non-cash items:
     Equity in net loss of
       affiliates, net of taxes ........           --          44,382            --            --         (44,382)           --
     Equity in net loss of
       unconsolidated subsidiaries,
       net of taxes ....................       (3,824)         35,765            --            --         (31,941)           --
     Deferred taxes ....................        2,569           2,893         1,800            --          (2,893)        4,369
     Depreciation and amortization .....       34,258              --        10,506            --              --        44,764
     Non-cash interest expense .........       19,882              --            --            --              --        19,882
   Changes in operating assets and
     liabilities:
       Accounts receivable, net ........         (151)             --          (705)           --              --          (856)
       Prepaid expenses and other
         current assets ................        1,013              --         1,667            --              --         2,680
       Due to (from) Loral companies,
         net ...........................       19,721              --       (18,486)           --              --         1,235
       Due to (from) unconsolidated
         subsidiaries ..................           --          15,221                          --         (15,221)           --
       Other assets ....................         (697)          1,092            --            --          (1,092)         (697)
       Accounts payable and interest
         payable .......................        2,021             (29)       (1,934)           --              29            87
       Accrued expenses and other
         current liabilities ...........           --          (2,538)           --            --           2,538            --
       Customer advances ...............       (1,252)             --            (6)           --              --        (1,258)
       Income taxes payable ............           --             295            --            --            (295)           --
       Deferred revenue ................          201              --         1,551            --              --         1,752
       Other ...........................                           68            --            --             (68)           --
                                            ---------     -----------     ---------     ---------     -----------     ---------
Net cash (used in) provided by
   operating activities ................       18,517         (16,556)        1,722            --          16,556        20,239
                                            ---------     -----------     ---------     ---------     -----------     ---------
Net cash used in discontinued
   operations ..........................      (14,203)             --            --            --              --       (14,203)
                                            ---------     -----------     ---------     ---------     -----------     ---------
Investing activities:
       Property and equipment, net .....          (46)                                                                      (46)
       Investments in and advances to
         affiliates ....................           --         (17,175)           --            --          17,175            --
       Investments in and advances to
         unconsolidated subsidiaries ...           --         (12,682)           --            --          12,682            --
                                            ---------     -----------     ---------     ---------     -----------     ---------
Net cash used in investing activities ..          (46)        (29,857)           --            --          29,857           (46)
                                            ---------     -----------     ---------     ---------     -----------     ---------
Financing activities:
       Repayment of notes payable ......         (288)             --            --            --              --          (288)
       Repayments of long-term
         obligations ...................         (772)             --            --            --              --          (772)
       Preferred dividends .............           --         (28,292)           --            --          28,292            --
       Proceeds from stock issuances ...           --           9,908            --            --          (9,908)           --
       Repayment of note due
       to Loral SpaceCom ...............       (3,197)             --            --            --              --        (3,197)
                                            ---------     -----------     ---------     ---------     -----------     ---------
Net cash used in financing
   activities ..........................       (4,257)        (18,384)           --            --          18,384        (4,257)
                                            ---------     -----------     ---------     ---------     -----------     ---------
Increase (decrease) in cash
   and cash equivalents ................           11         (64,797)        1,722            --          64,797         1,733
Cash and cash equivalents--
   beginning of period .................            2         151,405            --            --        (151,405)            2
                                            ---------     -----------     ---------     ---------     -----------     ---------
Cash and cash equivalents --
   end of period .......................    $      13     $    86,608     $   1,722     $      --     $   (86,608)    $   1,735
                                            =========     ===========     =========     =========     ===========     =========
</TABLE>


                                       17
<PAGE>

12.   SUBSEQUENT EVENT

      Under the New York Stock Exchange criteria for continued listing, the
Exchange will normally give consideration to de-listing a company's stock when
the average closing price of the stock is less than $1.00 over a consecutive
30-trading day period. The average closing price of Loral common stock has been
less than $1.00 for 30 consecutive trading days. If the New York Stock Exchange
notifies Loral that its stock price is below the Exchange's price criteria,
Loral must bring its stock price and average stock price back above $1.00 by six
months following receipt of the notification. Failure to do so will result in
the Exchange's commencement of suspension and delisting procedures. If
shareholder approval is required for an action to cure the price condition,
Loral must obtain such approval no later than its next annual meeting and
implement the action promptly thereafter. In such event, the price condition
will be deemed cured if Loral's stock price promptly exceeds $1.00 per share,
and the price remains above that level for at least the following 30 trading
days. De-listing of the Loral's stock by the New York Stock Exchange would
result in a material adverse effect on the liquidity of Loral shares, have an
adverse effect on its trading value and impair Loral's ability to raise funds in
the capital markets. As such, this may impact the ability of Loral to support
the Company's operations. There can be no assurance that if Loral shares are
de-listed from the New York Stock Exchange, there will be any future trading
market for Loral common stock. Loral believes that, if notified by the New York
Stock Exchange that its stock is below the Exchange's price criteria, it will be
able to cure the condition and maintain its listing on the Exchange.


                                       18
<PAGE>

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

      Except for the historical information contained herein, the matters
discussed in the following Management's Narrative Analysis of Results of
Operations of Loral Orion, Inc. ("Loral Orion" or 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 involves risks and uncertainties. These
forward-looking statements are only predictions, and actual events or results
may differ materially as a result of a wide variety of factors and conditions,
many of which are beyond the Company's control. Some of the factors and
conditions that could affect the outcome of forward-looking statements relate to
(i) the Company's financial structure, and (ii) operational matters. For a
detailed discussion of these factors and conditions, please refer to the section
of the Company's latest Annual Report on Form 10-K titled "Certain Factors that
May Affect Future Results" beginning on page 5 and to the other periodic reports
filed with the SEC by Loral Orion. In addition, we caution you that 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. The
Company undertakes no obligation to update any forward-looking statements.

GENERAL

      The principal business of Loral Orion, Inc. (the "Company" or "Loral
Orion") is leasing transponder capacity on its satellites to its customers for
various applications, including broadcasting, news gathering, Internet access
and transmission, private voice and data networks, business television, distance
learning and direct-to-home television ("DTH"). Loral Skynet, a division of
Loral SpaceCom Corporation, which is a subsidiary of Loral Space &
Communications Corporation, which is in turn a subsidiary of Loral Space &
Communications Ltd. ("Loral"), manages the Company's continuing operations.

      Prior to December 21, 2001, the Company operated in two business segments:
Fixed Satellite Services and Data Services. On December 21, 2001, the Company,
in connection with the debt exchange offers for its outstanding senior notes and
senior discount notes, transferred its data services business to a subsidiary of
Loral. Accordingly, it now operates in one segment, Fixed Satellite Services.

      No restrictions exist on the ability of any of the subsidiaries of Loral
Orion ("Subsidiary Guarantors") other than inconsequential subsidiaries, 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).

      The historical condensed consolidated statements of operations and cash
flows for 2001 have been restated to account for the data services segment as a
discontinued operation. The financial data presented for the Company's data
services segment reflects the historical sales and expenses of the data services
segment after elimination of intercompany transactions with FSS.

CRITICAL ACCOUNTING MATTERS

      See the Company's latest Annual Report on Form 10-K filed with the SEC and
Accounting Pronouncements below.


                                       19
<PAGE>

RESULTS OF OPERATIONS

      In evaluating financial performance, management uses revenues and earnings
before interest, taxes, depreciation and amortization ("EBITDA") as a measure of
a segment's profit or loss. The following discusses the results of Loral Orion,
Inc. for the three and six months ended June 30, 2002 and June 30, 2001,
respectively.

OPERATING REVENUES FROM CONTINUING OPERATIONS (IN MILLIONS):

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED         SIX MONTHS ENDED
                                           JUNE 30,                  JUNE 30,
                                           --------                  --------
                                        2002        2001         2002        2001
                                                                 ----        ----
<S>                                   <C>         <C>          <C>         <C>
      Fixed Satellite Services ..     $  27.6     $  32.9      $  57.2     $  65.8
      Eliminations (1) ..........          --        (5.3)          --       (11.9)
                                      -------     -------      -------     -------
      Operating Revenues ........     $  27.6     $  27.6      $  57.2     $  53.9
                                      =======     =======      =======     =======
</TABLE>

EBITDA (2) (IN MILLIONS):

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED         SIX MONTHS ENDED
                                           JUNE 30,                  JUNE 30,
                                           --------                  --------
                                        2002        2001         2002        2001
                                                                 ----        ----
<S>                                   <C>         <C>          <C>         <C>
      Fixed Satellite Services ..     $  20.6     $  27.1      $  43.2     $  53.9
      Eliminations (1) ..........          --        (5.3)          --       (11.9)
                                      -------     -------      -------     -------
      EBITDA ....................     $  20.6     $  21.8      $  43.2     $  42.0
                                      =======     =======      =======     =======
</TABLE>

(1)   Represents sales to the Company's discontinued operation (formerly the
      data services segment) in 2001 (see below).

(2)   EBITDA (which is equivalent to operating income (loss) before depreciation
      and amortization, including amortization of unearned compensation) is
      provided because it is a measure commonly used in the communications
      industry to analyze companies on the basis of operating performance,
      leverage and liquidity and is presented to enhance the understanding of
      the Company's operating results. However, EBITDA should not be construed
      as an alternative to net income as an indicator of a company's operating
      performance, or cash flow from operations as a measure of a company's
      liquidity. EBITDA may be calculated differently and, therefore, may not be
      comparable to similarly titled measures reported by other companies.

THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH 2001

      Revenues from continuing operations in both 2002 and 2001 were $27.6
million. Revenues in 2002 increased as a result of sales to the Company's former
data services business, which were eliminated in 2001 until the Company
transferred the data services business to a subsidiary of Loral in connection
with the Company's exchange offers (see Exchange Offers). This was offset by a
decrease in volume and prices, resulting from the global economic downturn in
2002, which has caused a delay in demand for new telecommunications applications
and services.

      Cost of satellite services for continuing operations in 2002 and 2001 were
$22.5 million and $25.4 million, respectively. This decrease was primarily due
to reduced goodwill amortization resulting from the Company's adoption of SFAS
No. 142 (See Accounting Pronouncements), offset by increased insurance costs as
a result of the Company renewing the insurance on one of its satellites after
September 11, 2001.


                                       20
<PAGE>

      Selling, general and administrative expenses for continuing operations in
2002 and 2001 were $3.2 million and $2.4 million, respectively. The increase was
primarily due to corporate management expenses allocated by Loral in 2002 (see
Operational Matters).

      Interest expense in 2002 and 2001 was $3.5 million and $24.8 million,
respectively. The decrease was primarily due to the Company not recognizing any
interest expense on its new 10% senior notes issued in connection with the
Company's exchange offers completed in December 2001 (See Exchange Offers).

      The Company is included in the consolidated U.S. federal income tax return
of Loral Space & Communications Corporation. Pursuant to a tax sharing agreement
for 2002 with Loral Space & Communications Corporation, the Company is entitled
to reimbursement for the use of its current period tax losses to the extent such
losses are utilized by the consolidated group in the current period; otherwise
the Company is required to pay its separate Company income tax liability to
Loral Space & Communications Corporation. For 2002, the Company recorded a
provision of $0.9 million resulting from a reduction of the prior quarter
reimbursement received under the tax sharing agreement. For 2001 the Company
recorded a net tax benefit of $0.5 million consisting of a reimbursement under
the tax sharing agreement of $1.9 million, offset by deferred tax provision of
$1.4 million.

SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH 2001

      Revenues from continuing operations in 2002 and 2001 were $57.2 million
and $53.9 million, respectively. This increase was primarily due to sales to the
Company's former data services business in 2002, which were eliminated in 2001
until the Company transferred the data services business to a subsidiary of
Loral in connection with the Company's exchange offers (see Exchange Offers).
This was offset by a decrease in volume and prices, resulting from the global
economic downturn in 2002, which has caused a delay in demand for new
telecommunications applications and services.

      Cost of satellite services for continuing operations in 2002 and 2001 were
$45.3 million and $50.9 million, respectively. This decrease was primarily due
to reduced goodwill amortization resulting from the Company's adoption of SFAS
No. 142 (See Accounting Pronouncements), offset by increased insurance costs as
a result of the Company renewing the insurance on one of its satellites after
September 11, 2001.

      Selling, general and administrative expenses for continuing operations in
2002 and 2001 were $6.3 million and $5.7 million, respectively. The increase was
primarily due to corporate management expenses allocated by Loral in 2002 (see
Operational Matters), offset by lower bad debt, marketing and other expenses.

      Interest expense in 2002 and 2001 was $6.8 million and $50.1 million,
respectively. The decrease was primarily due to the Company not recognizing any
interest expense on its new 10% senior notes (See Exchange Offers).

      For 2002, the Company recorded an income tax benefit of $1.4 as its
reimbursement for the use of its tax losses under the tax sharing agreement. For
2001, the Company recorded a net tax benefit of $0.8 million consisting of a use
of its tax losses under the tax sharing agreement of $3.4 million, offset by a
deferred tax provision of $2.6 million.

      On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which resulted in the Company recording a charge for the
cumulative effect of change in accounting principle of $562 million (see
Accounting Pronouncements).

OPERATIONAL MATTERS

      At June 30, 2002, the Company had an external contracted backlog of
approximately $527 million (which includes $50 million to Loral companies), as
compared to $576 million at December 31, 2001 (which included $59 million to
Loral companies).


                                       21
<PAGE>

      Loral Orion anticipates it will have additional funding requirements over
the next three years if it elects to replace Telstar 11 which is expected to
reach the end of its useful life in 2005. To the extent that excess cash flow
from Loral Orion's satellites is not sufficient to meet these requirements,
Loral Orion will need to secure funding from Loral or raise additional financing
to fund this requirement and there can be no assurance that the Company will be
successful in doing so. Sources of additional capital may include public or
private debt, vendor financing, equity financings or strategic investments. To
the extent that Loral Orion seeks to raise additional debt financing, its
indenture relating to the Company's 10% senior notes limits the amount of such
additional debt to $100 million for such replacement satellite and prohibits
Loral Orion from using Telstar 11, Telstar 10/Apstar IIR and Telstar 12 as
collateral for indebtedness.

      In November 1995, a component on Telstar 11 malfunctioned, resulting in a
2-hour service interruption. The malfunctioning component supported nine
transponders serving the European portion of Telstar 11's footprint. Full
service was restored using a back-up component. If that back-up component fails,
Telstar 11 would lose nine of the 34 transponders on the satellite. In such
event, the Company would be entitled to insurance proceeds of approximately $53
million and believes that it would be able to satisfy most of the lost capacity
on another Company owned satellite. Such an event may have an adverse effect on
the financial position and results of operations of the Company.

      Telstar 12, originally intended to operate at 12 degrees W.L., was
launched aboard an Ariane launch vehicle in October 1999 into the orbital slot
located at 15 degrees W.L., and commenced operations in January 2000. Under an
agreement reached with Eutelsat, Loral Orion agreed to operate Telstar 12 at 15
degrees W.L. while Eutelsat continues to develop its services at 12.5 degrees
W.L. Eutelsat has in turn agreed not to use its 14.8 degrees W.L. orbital slot
and to assert its priority rights at such location on Loral Orion's behalf. As
part of this coordination effort, Loral Orion agreed to provide to Eutelsat four
54 MHz transponders on Telstar 12 for the life of the satellite and has retained
risk of loss with respect to those transponders. Eutelsat also has the right to
acquire, at cost, four transponders on the next replacement satellite for
Telstar 12. As part of the international coordination process, Loral continues
to conduct discussions with various administrations regarding Telstar 12's
operations at 15 degrees W.L. If these discussions are not successful, Telstar
12's useable capacity may be reduced.

      Telstar 10/Apstar IIR has experienced minor losses of power from its solar
arrays. Although, to date, Telstar 10/Apstar IIR has not experienced any
degradation in performance, there can be no assurance that Telstar 10/Apstar IIR
will not experience additional power loss that could result in performance
degradation, including loss of transponder capacity. In the event of additional
power loss, the extent of the performance degradation, if any, will depend on
numerous factors, including the amount of the additional power loss, when in the
life of Telstar 10/Apstar IIR the loss occurred, and the number and type of uses
being made of transponders then in service. A complete or partial loss of
Telstar 10/Apstar IIR could result in a loss of revenues and profits. Based upon
information currently available, including design redundancies to accommodate
small power losses and the fact that no pattern has been identified as to the
timing or specific location within the solar arrays of the failures, the Company
believes that this matter will not have a material adverse effect on its
consolidated financial position or its results of operations.

      While the Company has in the past, consistent with industry practice,
typically obtained in-orbit insurance for its satellites, the Company cannot
guarantee that, upon a policy's expiration, the Company will be able to renew
the insurance on acceptable terms, especially on satellites that have, or that
are part of a family of satellites that have experienced problems in the past.
Telstar 10/Apstar IIR was manufactured by Space Systems/Loral ("SS/L") and has
the same solar array configuration as another 1300-class satellite manufactured
by SS/L that recently experienced a solar array failure. SS/L believes that this
failure is an isolated event and does not reflect a systemic problem in either
the satellite design or manufacturing process. Accordingly, the Company does not
believe that this anomaly will affect Telstar 10/ Apstar IIR. However, as a
result of discussions with insurers relating to the renewal of insurance for
Telstar 10/Apstar IIR approximately 25% of the insurance coverage has excluded
losses due to solar array failures and approximately 75% of the insurance
coverage provides for coverage of losses due to solar array failures in the
event of a capacity loss of 65% or more. An uninsured loss of a satellite will
have a material adverse effect on the Company's consolidated financial position
and its results of operations.

      The Company, like others in the satellite industry, is faced with
significantly higher premiums on launch and in-orbit insurance and significantly
shorter coverage periods than those that have been available in the past, which
was due in part to the events of September 11, 2001. This development in the
insurance industry will increase the Company's cost of doing business. The


                                       22
<PAGE>

Company intends to pass on some of the increased cost to its customers. There
can be no assurance, however, that it will be able to do so. Insurance market
conditions have historically been cyclical in nature. While the Company
anticipates that these conditions will improve in the future, there can be no
assurance that they will.

      Beginning in 2002, Loral initiated the allocation of corporate management
expenses to its individual subsidiaries and divisions, including Loral Orion.
The allocation of these expenses is computed with respect to Loral Orion in a
manner consistent with Loral's other subsidiaries and divisions, using a fixed
formula based on three factors: employee payroll, revenues and assets. The
amount allocated for the first six months of 2002 was $1.8 million. The amount
to be allocated to Loral Orion is estimated to be between three and four million
dollars for the year ended 2002.

      Under the New York Stock Exchange criteria for continued listing, the
Exchange will normally give consideration to de-listing a company's stock when
the average closing price of the stock is less than $1.00 over a consecutive
30-trading day period. The average closing price of Loral common stock has been
less than $1.00 for 30 consecutive trading days. If the New York Stock Exchange
notifies Loral that its stock price is below the Exchange's price criteria,
Loral must bring its stock price and average stock price back above $1.00 by six
months following receipt of the notification. Failure to do so will result in
the Exchange's commencement of suspension and delisting procedures. If
shareholder approval is required for an action to cure the price condition,
Loral must obtain such approval no later than its next annual meeting and
implement the action promptly thereafter. In such event, the price condition
will be deemed cured if Loral's stock price promptly exceeds $1.00 per share,
and the price remains above that level for at least the following 30 trading
days. De-listing of the Loral's stock by the New York Stock Exchange would
result in a material adverse effect on the liquidity of Loral shares, have an
adverse effect on its trading value and impair Loral's ability to raise funds in
the capital markets. As such, this may impact the ability of Loral to support
the Company's operations. There can be no assurance that if Loral shares are
de-listed from the New York Stock Exchange, there will be any future trading
market for Loral common stock. Loral believes that, if notified by the New York
Stock Exchange that its stock is below the Exchange's price criteria, it will be
able to cure the condition and maintain its listing on the Exchange.

EXCHANGE OFFERS

      On December 21, 2001, Loral Orion issued $613 million principal amount of
new senior notes due 2006 guaranteed by Loral, in exchange for the
extinguishment of $841 million principal amount of Loral Orion senior notes due
in 2007 and senior discount notes due 2007 as discussed below. As part of the
exchange, Loral issued to the new noteholders 6.04 million five-year warrants to
purchase Loral common stock at a price of $2.37 per share. The warrants were
valued at $6.7 million using the Black Scholes option pricing model with the
following assumptions: stock volatility, 75%, risk free interest rate, 4.36%,
and no dividends during the expected term, and is reflected in capital in excess
of par value on the consolidated balance sheet. After the exchange offers,
principal amount of $37 million of the existing senior notes and principal
amount of $49 million of the existing senior discount notes remain outstanding
at their original maturities and interest rates, but the indentures for the
existing notes were amended so as to remove substantially all of their operating
restrictions and events of default.

      The interest rate on the new senior notes is 10%, a reduction from the
11.25% interest rate on the existing senior notes and the 12.5% rate on the
existing senior discount notes. Interest is payable semi-annually on July 15 and
January 15, beginning July 15, 2002. As a result of the lower interest rate and
the $229 million reduction in principal amount of debt, Loral Orion's annual
cash interest payments will be reduced by approximately $39 million. Under U.S.
generally accepted accounting principles dealing with debt restructurings, the
Company recorded an after-tax extraordinary gain of $26 million on the exchange,
after expenses of $5 million. The carrying value of the new senior notes on the
balance sheet is $904 million, although the actual principal amount of the new
senior notes is $613 million. The difference between this carrying value and the
actual principal amount of the new senior notes will be amortized over the life
of the new senior notes, fully offsetting interest expense through maturity of
the new senior notes. The indenture relating to the new senior notes contains
covenants, including, without limitation, restrictions on Loral Orion's ability
to pay dividends or make loans to Loral. The indenture for the new senior notes
and certain of Loral's debt agreements and indentures provide in certain
circumstances for cross default or cross acceleration.

      In connection with the consummation of the exchange offers, Loral SpaceCom
Corporation ("LSC") cancelled its $79.7 million intercompany note issued to it
by Loral Orion which ranked pari passu to senior debt in exchange for the
transfer of the


                                       23
<PAGE>

Company's data services business and the issuance of a new note to LSC in the
principal amount of $29.7 million due 2006, having an interest rate of 10% per
annum payable in kind, and subordinated to Loral Orion's new senior notes. Loral
Orion's data services business was transferred to a newly-formed subsidiary of
Loral, which assumed the name "Loral CyberStar, Inc".

ACCOUNTING PRONOUNCEMENTS

      On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets ("SFAS 142") which addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination and
the accounting for goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 provides that intangible assets with finite useful lives
be amortized and that goodwill and intangible assets with indefinite lives not
be amortized, but rather be tested at least annually for impairment. SFAS 142
also changed the evaluation criteria for testing goodwill for impairment from an
undiscounted cash flow approach, which was previously utilized under the
guidance in Accounting Principles Board Opinion No. 17, Intangible Assets, to a
test based on fair value. Fair value is determined by the amount at which an
asset or liability could be bought or sold in a current transaction between
willing parties, that is, other than in a forced or liquidation sale. Quoted
market prices in active markets are the best evidence of fair value and must be
used as the basis for the measurement, if available. If quoted market prices are
not available, the estimate of fair value must be based on the best information
available, including prices for similar assets and liabilities and the results
of using other valuation techniques, such as public company trading multiples
and future discounted cash flows.

      In accordance with SFAS 142, the Company's previously recognized cost in
excess of net assets acquired ("goodwill") of $562 million (at December 31,
2001) from the acquisition of the Company by Loral in 1998 was reviewed under
the new transitional guidance as of January 1, 2002. The Company hired
professionals in the valuation consulting business to determine the fair value
of the Company. Since there were no quoted market prices in active markets for
the Company, the measurement of fair value was based on the best information
available in the circumstances, including reasonable and supportable assumptions
and projections, to determine that the most appropriate method of fair value was
public company trading multiples. Those professionals determined that the
Company's goodwill under the new guidance in SFAS 142 was fully impaired.
Accordingly, as of January 1, 2002, the Company recorded a non-cash charge for
the cumulative effect of the change in accounting principle of $562 million.

      The charge is the result of a change in the evaluation criteria for
goodwill from an undiscounted cash flow approach which was previously utilized
under the guidance in Accounting Principles Board Opinion No. 17 to the fair
value approach which is stipulated in SFAS 142.

      The following table presents the actual financial results and as adjusted
financial results without the amortization of goodwill for the Company for the
three and six months ended June 30, 2001 (in thousands):

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED         SIX MONTHS ENDED
                                                       ------------------         ----------------
                                                     ACTUAL     AS ADJUSTED     ACTUAL      AS ADJUSTED
                                                     ------     -----------     ------      -----------
<S>                                                <C>           <C>           <C>           <C>
      Reported loss from continuing operations     $(24,333)     $(24,333)     $(51,719)     $(51,719)
      Add back amortization of goodwill                  --         3,877            --         7,754
                                                   --------      --------      --------      --------
      Loss from continuing operations               (24,333)      (20,456)      (51,719)      (43,965)
      Loss from operations of discontinued
         operations, net of taxes                    (4,970)       (4,970)       (9,845)       (9,845)
                                                   --------      --------      --------      --------
      Net loss                                     $(29,303)     $(25,426)     $(61,564)     $(53,810)
                                                   ========      ========      ========      ========
</TABLE>

      In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations ("SFAS 143"). SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and the normal operation of a
long-lived asset, except for certain obligations of lessees. The


                                       24
<PAGE>

Company is required to adopt SFAS 143 on January 1, 2003. The Company has not
yet determined the impact that the adoption of SFAS 143 will have on its results
of operations or its financial position.

      In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. It supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of APB 30, Reporting the Results of Operations -- Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions, for the disposal of a
segment of a business. The Company adopted SFAS 144 on January 1, 2002. The
Company has determined that there was no effect on the Company's consolidated
financial position or results of operations relating to the adoption of SFAS
144.

      In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 generally requires that any gains or losses on
extinguishment of debt in current or prior periods be classified as other income
(expense), beginning in fiscal 2003, with early adoption encouraged. The Company
is currently evaluating the impact of adopting the provisions of SFAS No. 145 in
its consolidated financial statements.

      In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities ("SFAS 146"). SFAS 146 requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. Examples of costs covered by the standard include lease termination costs
and certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
Previous accounting guidance was provided by EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). SFAS 146
replaces EITF Issue No. 94-3. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002.


                                       25
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits

      The following exhibits are filed as part of this report:

      Exhibit 99.1 - Chief Executive Officer Certification
      Exhibit 99.2 - Chief Financial Officer Certification

      (b)   Reports on Form 8-K:

      None

                                    SIGNATURE

      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, INC.
                                       Registrant


Date: August 14, 2002                          /s/ RICHARD J. TOWNSEND
                                       -----------------------------------------
                                                   Richard J. Townsend
                                       Senior Vice President and Chief Financial
                                               Officer (Principal Financial
                                               Officer and Registrant's
                                               Authorized Officer)


                                       26
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
 EXHIBIT NO.                 DESCRIPTION
 -----------                 -----------
<S>             <C>
Exhibit 99.1 -- Chief Executive Officer Certification
Exhibit 99.2 -- Chief Financial Officer Certification
</TABLE>


                                       27