SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998

Commission file number 000-22085
                       ---------

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

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

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

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

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

                                      INDEX

                                LORAL ORION, INC.


<TABLE>
<CAPTION>

                                                                                                  Page
                                                                                                  ----
<S>                                                                                                <C> 
PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited)

         Condensed Consolidated Balance Sheets --- June 30, 1998 and  December 31, 1997
         (Predecessor Company)..................................................................   3

         Condensed Consolidated Statements of Operations --- Three months ended
         June 30, 1998; three months ended June 30, 1997 and March 31, 1998 and six
         months ended June 30, 1997 (Predecessor Company).......................................   5


         Condensed Consolidated Statements of Cash Flows --- Three months ended
         June 30, 1998; three months ended March 31, 1998 and six months ended
         June 30, 1997 (Predecessor Company)....................................................   6

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


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.....................................................................       11


PART II. OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K.......................................................  17

Signature.......................................................................................  18
</TABLE>




                                       2

<PAGE>
PART I.  FINANCIAL INFORMATION

ITEM I.  FINANCIAL STATEMENTS

                                LORAL ORION, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                            1997
                                                                       June 30,         Predecessor
                                                                         1998             Company
                                                                         ----             -------
                                                                      (unaudited)           Note
                                     ASSETS
<S>                                                                 <C>                  <C>      
Current assets:
   Cash                                                             $ 44,082             $  70,009
   Restricted assets                                                  50,068                50,064
   Accounts receivable                                                12,953                11,781
   Prepaid expenses and other current assets                           6,670                 6,846
                                                                       -----                 -----
Total current assets                                                 113,773               138,700

Restricted and segregated  assets,  including  accrued
   interest of approximately $2.9 million and $3.7 million
   at June 30, 1998  and December 31, 1997, respectively              84,482               306,826
Property and equipment at cost:
   Land                                                                   74                    74
   Satellite and related equipment                                   255,295               322,159
   Telecommunications equipment                                       29,764                40,654
   Furniture and computer equipment                                    7,702                 8,627
                                                                       -----                 -----
                                                                     292,835               371,514

Less: accumulated depreciation                                       (12,936)              (77,080)

Satellite  construction  in  progress,  including 
  capitalized  interest of $7.1
  million and $7.3 million at June 30, 1998
  and December 31, 1997, respectively                                261,056              106,843
                                                                     -------              -------
Net property and equipment                                           540,955              401,277
Due from Loral                                                         8,558                   --
Deferred financing costs, net                                         20,722               22,510
Costs in excess of assets acquired associated with the Loral
   Merger, net                                                       601,395                   --
Deferred income taxes                                                 51,275                   --
Other assets, net                                                      6,555               27,179
                                                                       -----               ------
TOTAL ASSETS                                                      $1,427,715            $ 896,492
                                                                  ==========            =========
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

Note:  The December 31, 1997 Balance Sheet has been derived from the
audited consolidated financial statements at that date.

                                       3
<PAGE>
                                Loral Orion, Inc.
                      Condensed Consolidated Balance Sheets
                                 (in thousands)
                                   (continued)
<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                            1997
                                                                       June 30,         Predecessor
                                                                         1998             Company
                                                                         ----             -------
                                                                      (unaudited)           Note
<S>                                                                 <C>                  <C>      
       LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Accounts payable                                                  $    2,264      $    5,231
   Accrued liabilities                                                   13,590          10,595
   Other current liabilities                                              8,077           7,130
   Interest payable                                                      22,843          24,772
   Current portion of long-term debt                                      3,354           6,405
                                                                          -----           -----
     Total current liabilities                                           50,128          54,133

Long-term debt                                                          900,891         790,671
Other liabilities                                                        21,746          21,803

Redeemable preferred stock                                                   --          76,734

Stockholders' equity (deficit):
   Common stock, $.01 par value, 1,000 and 40,000,000 shares
     authorized; 100 and 15,959,089 shares outstanding                        1             160
   Capital in excess of par value                                       478,511         153,294
   Treasury stock, 0 and 269,274 at June 30, 1998 and
     December 31,1997, respectively                                          --             (91)
   Unearned compensation                                                  (4,182)            --
   Cumulative translation adjustment                                         375           (956)
   Accumulated deficit                                                   (19,755)       (199,256)
                                                                         -------        -------- 
     Total stockholders' equity (deficit)                                454,950         (46,849)
                                                                         -------         ------- 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                 $ 1,427,715     $   896,492
                                                                     ===========     ===========
</TABLE>


See Notes to Condensed Consolidated Financial Statements.

Note:  The December 31, 1997 Balance Sheet has been derived from the
audited consolidated financial statements at that date.

                                       4
<PAGE>
                                Loral Orion, Inc.
                 Condensed Consolidated Statements of Operations
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                         Three months ended      Three months ended  Six months ended
                                                             June 30,                March 31,           June 30,
                                                        ------------------------     ---------           --------
                                                                         1997          1998               1997
                                                                      Predecessor   Predecessor        Predecessor
                                                        1998            Company       Company            Company
                                                        ----            -------       -------            -------

<S>                                                   <C>             <C>            <C>            <C>       
Revenue                                               $ 20,243        $  16,687      $ 18,790       $   36,920

Operating expenses:
   Direct                                                7,012            5,591         6,406           13,378
   Sales and marketing                                   6,800            4,435         5,790            8,562
   Engineering and technical services                    1,549            1,866         1,898            3,623
   General and administrative                            3,957            3,580         3,707            6,894
   Depreciation and amortization                        16,116           12,130        12,483           23,696
   Merger costs                                            105              --         12,145               --
                                                           ---                         ------                 
     Total operating expenses                           35,539           27,602        42,429           56,153
                                                        ------           ------        ------           ------
Loss from operations                                   (15,296)         (10,915)      (23,639)         (19,233)

Other expense (income):
   Interest income                                      (5,147)          (8,717)       (5,425)         (12,130)
   Interest expense                                     17,752           22,389        21,190           39,960
   Other                                                    99              159           287              572
                                                            --              ---           ---              ---
     Total other expense (income)                       12,704           13,831        16,052           28,402
                                                        ------           ------        ------           ------

Loss before taxes, extraordinary loss on
     extinguishment of debt, minority interest
     and preacquisition loss of acquired subsidiary    (28,000)         (24,746)      (39,691)         (47,635)
 
Income taxes                                             8,245              --             --              --
 
Extraordinary loss on extinguishment of debt               --               --             --          (15,763)

Limited Partners' and minority interest in the net loss
   of Orion Atlantic and other consolidated entities       --                1             --           12,043

Preacquisition loss of acquired subsidiary                 --               --             --              626
                                                       ------           ------        ------           ------
Net loss                                              (19,755)         (24,745)       (39,691)        (50,729)

Preferred stock dividend and accretion, net of
  forfeitures                                              --            2,312         (1,387)           3,972
                                                       ------           ------        ------           ------
Net loss attributable to common stockholders        $ (19,755)        $(27,057)      $(38,304)        $(54,701)
                                                    =========         ========       ========         ======== 
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                       5
<PAGE>
                                Loral Orion, Inc.
                 Condensed Consolidated Statements of Cash Flows
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS         SIX MONTHS
                                                                                        ENDED              ENDED
                                                                  THREE MONTHS       MARCH 31, 1998     JUNE 30, 1997
                                                                     ENDED             PREDECESSOR       PREDECESSOR
                                                                JUNE 30, 1998           COMPANY            COMPANY
                                                                -------------           -------            -------
<S>                                                              <C>                  <C>               <C>       
OPERATING ACTIVITIES
Net loss                                                         $(19,755)            $ (39,691)        $ (50,729)
Adjustments to reconcile net loss to net cash used 
   in operating activities:
   Extraordinary loss on extinguishment of debt                        --                    --            15,763
   Deferred taxes                                                     725                    --                --
   Amortization and depreciation                                   16,116                12,483            23,696
   Amortization of deferred financing costs                           653                   609             1,178
   Provision for bad debts                                            425                   150               500
   Accrued and accreted interest                                    7,614                10,292            17,326
   Interest earned on restricted assets                            (4,107)               (4,629)           (3,957)
   Other                                                              228                 1,644               --
   Limited Partners' and minority interest in the 
    net loss of Orion
    Atlantic and other consolidated entities                           --                    --           (12,043)
Changes in operating assets and liabilities:
   Accounts receivable                                               (340)               (1,408)             (655)
   Prepaid expenses and other current assets                       (6,166)                4,388            (4,398)
   Other assets                                                       (65)                  201            (2,676)
   Accounts payable and accrued liabilities                         3,021                (2,199)           (2,299)
   Other current liabilities                                          202                   333             1,121
   Interest payable                                                12,405               (11,754)           12,272
   Due from Loral                                                  (8,558)                   --                --
                                                                  --------             --------         ---------
Net cash provided by (used in) operating activities                 2,398               (29,581)           (4,901)

INVESTING ACTIVITIES
Capital expenditures                                               (6,114)               (3,805)          (8,955)
Increase in restricted and segregated assets                           --                    --         (401,377)
Use of restricted and segregated assets                           199,336                31,962               --
Satellite construction costs, including capitalized interest     (200,141)              (14,575)          (50,281)
Purchase of Teleport Europe, net of cash acquired                      --                    --            (8,375)
Other                                                                  --                    --             (180)
                                                                  --------             --------         ---------
Net cash provided by (used in) investing activities                (6,919)               13,582         (469,168)

FINANCING ACTIVITIES
Debt and equity financing costs                                        --                    --           (26,066)
Proceeds from issuance of common stock, net of issuance costs          --                 2,117             1,126
Proceeds from issuance of debt                                         --                    --           770,397
Repayment of senior notes payable banks and notes payable            (265)                 (254)         (215,339)
Swap termination fee                                                   --                    --            (5,288)
Payment of satellite incentive                                      (5,061)              (1,302)          (15,697)
Other                                                                  128                 (770)           (2,303)
                                                                  --------             --------         ---------
Net cash (used in) provided by financing activities                 (5,198)                (209)          506,830

Net increase (decrease) in cash and cash equivalents                (9,719)             (16,208)           32,761
Cash and cash equivalents at beginning of period                    53,801               70,009            42,188
                                                                  --------             --------         ---------
Cash and cash equivalents at end of period                        $ 44,082             $ 53,801         $  74,949
                                                                  ========             ========         =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.

                                       6
<PAGE>

                                LORAL ORION, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
                                                                                            THREE MONTHS        SIX MONTHS
                                                                                                ENDED             ENDED
                                                                           THREE MONTHS     MARCH 31, 1998    JUNE 30, 1997
                                                                               ENDED         PREDECESSOR       PREDECESSOR
                                                                           JUNE 30, 1998       COMPANY           COMPANY
                                                                           -------------       -------           -------
<S>                                                                           <C>            <C>                <C>      
   Non cash:

   Preferred stock dividend, net of forfeitures                               $   --         $   (1,387)        $   3,972
                                                                              ======         ==========         =========
   Conversion of redeemable preferred stock to common stock                   $   --         $   69,889         $     10
                                                                              ======         ==========         =========
   Conversion of Company common stock and stock options to Loral
     common stock and stock options as the result of the Loral merger         $   --         $  469,000         $      --
                                                                              ======         ==========         =========
   Conversion of subordinated debentures, accrued interest, and deferred
     financing costs to common  stock                                         $   --         $   52,080         $      --
                                                                              ======         ==========         =========
   Issuance of Series C Preferred Stock                                       $   --         $       --         $  94,000
                                                                              ======         ==========         =========
   Issuance of common stock for preferred stock dividend                      $   --         $    5,458         $      --
                                                                              ======         ==========         =========
   Issuance of common stock, stock options and warrants                       $   --         $    2,177         $  10,425
                                                                              ======         ==========         =========

Supplemental:
   Interest paid during the period                                            $  197         $   25,237         $  10,776
                                                                              ======         ==========         =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.

                                       7
<PAGE>
                                LORAL ORION, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A.  BASIS OF PRESENTATION

BUSINESS AND OWNERSHIP

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

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

GENERAL

The accompanying unaudited condensed consolidated financial statements have been
prepared by Loral Orion  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
results of operations,  financial position and cash flows.  Certain  information
and footnote  disclosures  normally included in financial statements prepared in
accordance with generally accepted accounting  principles have been condensed or
omitted  pursuant to such 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  months  ended June 30, 1998 and March 31,
1998 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 audited  consolidated  financial  statements and notes thereto of Orion
Network Systems', Inc. latest annual report on Form 10-K.

RECENT DEVELOPMENTS

ACQUISITION OF THE COMPANY BY LORAL

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

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

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

                                       8
<PAGE>

                                LORAL ORION, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A.  BASIS OF PRESENTATION (CONTINUED)

For accounting purposes,  the Merger is being accounted for as of March 31, 1998
using the purchase method. Accordingly, the condensed consolidated balance sheet
at March 31, 1998  reflects  the  push-down of the  purchase  price  allocations
(based on  preliminary  estimates and subject to  adjustment)  to the assets and
liabilities  (including an increase of $148.6  million to the carrying  value of
the Senior Notes and Senior  Discount  Notes,  based on quoted market prices) of
Orion at that  date and a  related  increase  in  deferred  tax  assets of $52.0
million.  The cost in excess of net assets  acquired  ($601.4  million) is being
amortized over 40 years using the straight-line method.

Had the  acquisition  of the Company and the  financing  transactions  described
below occurred on January 1, 1997, the unaudited pro forma sales, operating loss
and net loss applicable to common  stockholders for the six months ended June 30
1998 and 1997 would have been $39.0 million and $36.9 million; $30.2 million and
$26.6 million; and $38.1 million and $35.6 million, respectively. These results,
which are based on various  assumptions are not  necessarily  indicative of what
would have occurred had the acquisition been consummated as of January 1, 1997.

COMPREHENSIVE INCOME

As of January 1, 1998,  the Company  adopted  Statement of Financial  Accounting
Standards  No.  130  (SFAS  130),  "Reporting  Comprehensive  Income".  SFAS 130
established new rules for the reporting and display of comprehensive  income and
its components.  SFAS 130 requires  unrealized  gains or losses on the Company's
foreign currency translation adjustments,  to be included in other comprehensive
income.

Total  comprehensive loss for the three months ended June 30, 1998, three months
ended  March  31,  1998  and  six  months  ended  June  30,  1997   amounted  to
approximately $19.4 million,  39.7 million and $51.3 million  respectively.  The
following are the components of comprehensive loss (in thousands):

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED      SIX MONTHS ENDED
                                      THREE MONTHS ENDED       MARCH 31, 1998           JUNE 30, 1997
                                        JUNE 30, 1998        PREDECESSOR COMPANY     PREDECESSOR COMPANY
                                        -------------        -------------------     -------------------

<S>                                     <C>                     <C>                     <C>      
Net loss                                $  (19,755)             $  (39,691)             $(50,729)
Cumulative translation adjustment              75                       --                  (563)
                                        ----------              ----------              -------- 
Comprehensive loss                      $  (19,380)             $  (39,691)             $(51,292)
                                        ==========              ==========              ======== 
</TABLE>

EARNINGS PER SHARE

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

                                       9
<PAGE>
                                LORAL ORION, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE B.  LONG-TERM DEBT

Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                                             1997
                                                                          JUNE 30,        PREDECESSOR
                                                                            1998            COMPANY
                                                                          --------        -----------
<S>                                                                       <C>             <C>    
Senior notes (net of premium of $60.3 million at June 30, 1998
   and unamortized discount of $4.9 million at December 31, 1997)         $505,267       $ 440,100
Senior discount notes (maturity value of $484 million)                     388,402         292,337
Convertible junior subordinated debentures                                     --           50,000
Notes payable - TT&C Facility                                                5,503           6,022
Satellite incentive obligations                                              2,484           6,479
Other                                                                        2,589           2,138
                                                                             -----           -----
   Total long-term debt                                                    904,245         797,076
Less: current portion                                                        3,354           6,405
                                                                             -----           -----
   Long-term debt less current portion                                    $900,891      $  790,671
                                                                          ========      ==========
</TABLE>


In  connection  with the Merger,  Loral did not assume  Orion's  Senior Notes or
Senior  Discount  Notes.  Such debt remains  outstanding  and is non-recourse to
Loral.  The carrying value of Orion's Senior Notes and Senior Discount Notes has
been  increased  to  reflect  a fair  value  adjustment  of  $148.6  million  in
connection with the Merger, based on quoted market prices at March 31, 1998.


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

As of  June  30,  1998,  all  of  the  redeemable  convertible  preferred  stock
outstanding at December 31, 1997,  including  accrued  dividends on the Series C
Preferred  Stock,  have been  converted to  approximately  6.1 million shares of
common stock at prices ranging from $8.50 to $17.50 per share.

NOTE E.  INCOME TAXES

The Company is included in the  consolidated  U.S.  Federal income tax return of
Loral Space &  Communications  Corporation,  a wholly owned subsidiary of Loral.
Pursuant  to  a  tax  sharing   agreement  with  Loral  Space  &  Communications
Corporation,  the Company is entitled  to  reimbursement  for the use of its tax
losses when such losses are utilized by the  consolidated  group.  For the three
months ended June 30,  1998,  the Company  recorded a receivable  under this tax
sharing  agreement of $9.0 million and a deferred tax provision of $0.7 million.
The deferred tax asset of $51.3 million on the accompanying balance sheet arises
from the tax effect of the temporary  differences between the carrying amount of
the Senior Notes and the Senior  Discount Notes payable for financial and income
tax purposes.

NOTE E.  RECLASSIFICATIONS

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

                                       10
<PAGE>
                                LORAL ORION, INC.

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

Except for the historical information contained herein, the matters discussed in
this Management's  Discussion and Analysis of Financial Condition and Results of
Operations,  and  elsewhere in this Form 10-Q,  are  forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the  Securities  Exchange Act of 1934,  as amended.  In addition,
from time to time,  Loral Orion or their  representatives  have made or may make
forward-looking   statements,   orally  or  in  writing.   Such  forward-looking
statements may be included in, but are not limited to,  various  filings made by
Loral Orion with the Securities and Exchange  Commission  press releases or oral
statements  made by or with the approval of an authorized  executive  officer of
Loral Orion.  Actual  results could differ  materially  from those  projected or
suggested  in any  forward-looking  statements  as a result of a wide variety of
factors or conditions. See the section of Orion's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, entitled "Forward Looking Statements".

GENERAL

The  Company's  principal  business is providing  satellite  communications  for
private  communications  networks  and video  distribution  and other  satellite
transmission services.

No restrictions  exist on the ability of Subsidiary  Guarantors to pay dividends
or make other distributions to the Company, except to the extent provided by law
generally (e.g., adequate capital to pay dividends under state corporate laws).

ORION 2 AND ORION 3

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

The Company also notified  Matra Marconi Space  ("Matra")  that it cancelled its
satellite  procurement  contract with Matra for the construction and launch of a
satellite  for operation in the Atlantic  Ocean region at  12(degree)  W.L. (the
"Matra  Contract").  As a result of the cancellation of the Matra Contract,  the
Company will have no  obligation  to make further  payments to Matra,  but Matra
will be  entitled  to retain  amounts  previously  paid by the  Company of $49.1
million.

The Company  believes that the Orion 2 satellite being procured from SS/L offers
significant benefits compared to the Matra satellite.  Orion's cash flow will be
used to fund the SS/L  Contract  up to an amount  that when added to the amounts
previously  paid to Matra,  will not exceed $202 million,  the total amount that
would  otherwise  have  been  due to Matra if the  Matra  Contract  had not been
canceled. Any requirements to SS/L in excess of $202 million for Orion 2 will be
funded  with  additional   equity   contributed   from  Loral.   Moreover,   the
SS/L-designed satellite is both larger and more powerful than the Matra-designed
satellite.  The SS/L  satellite  will have 8  additional  transponders  and will
provide greater  transmitted power to Orion's  customers.  The expected in-orbit
life of the SS/L  satellite is  approximately  16 years compared to 13 years for
the  Matra  satellite.  The SS/L  satellite  is  designed  to  provide  enhanced
transponder  switching  capabilities as compared to the Matra satellite and also
allows for both uplinking and  downlinking of  transmissions  from South Africa,
while the Matra satellite would not have allowed for uplinking.

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

                                       11
<PAGE>
                                LORAL ORION, INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Pre-Construction  Lease on Orion 3. The Company has entered into a contract with
DACOM Corp., a Korean communications company ("DACOM"),  under which DACOM will,
subject to certain conditions, lease eight dedicated transponders on Orion 3 for
13 years, in return for  approximately  $89 million,  payable over a period from
December 1996 through seven months following the lease commencement date for the
transponders (which is scheduled to occur by January 1999). Payments are subject
to refund if Orion 3 fails to commence  commercial  operation  by June 30, 1999.
Through June 30, 1998, the Company has received $23.1 million from DACOM.

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

OVERVIEW


The  Company's  revenues  are  principally  generated  under  two to  five  year
contracts  for delivery of  communications  services  derived  principally  from
recurring monthly fees from its customers. The revenues from each contract vary,
depending upon the type of service, amount of capacity, data handling ability of
the  network,  the  number of very small  aperture  terminals  ("VSATs")  (which
generally are owned by the  Company),  value-added  services and other  factors.
Substantially  all of the Company's  contracts are denominated in U.S.  dollars.
The  Company  begins  to  record  revenues  under  its  contracts  upon  service
commencement to the customer.

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


The Company's direct cost of services includes principally (i) costs relating to
the  installation,  maintenance  and  licensing  of VSAT earth  stations  at its
customers'  premises;  (ii) satellite  lease payments for  transponder  capacity
(generally  for  services  outside  of the Orion 1  footprint);  (iii)  in-orbit
insurance premiums; and (iv) personnel costs and travel related to TT&C, network
monitoring,  network design and similar activities. These costs will increase as
the Company's  business grows. Sales and marketing expenses consist of salaries,
sales commissions (including commissions to third party sales  representatives),
travel and promotional  expenses.  The Company commenced a significant expansion
of its  marketing  program  in 1997  which  has  continued  in 1998.  Due to the
complexity  of the  Company's  services,  and the  continued  expansion of sales
personnel, sales and marketing expenses increased significantly during the first
half of 1998 and they are  expected to increase  through the  remainder of 1998.
General and  administrative  expenses  consist of personnel costs other than for
selling  and  engineering,   information  systems,  professional  services,  and
occupancy costs. These costs will increase generally as the Company's operations
expand.   Depreciation  and   amortization   expenses  result  mainly  from  the
depreciation  of the Orion 1  satellite,  goodwill  amortization,  VSATs and the
related equipment to service the expansion of the private network  communication
services business. Interest income is primarily the result of interest earned on
the proceeds from the Company's debt and equity  offerings.  Interest costs stem
primarily from the Company's outstanding Senior Notes and Senior Discount Notes.

                                       12
<PAGE>
                                LORAL ORION, INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS

Acquisition  of Teleport  Europe GmbH. On March 26, 1997,  the Company  acquired
German-based  Teleport  Europe GmbH (a  communications  company  specializing in
private  satellite  networks  for  voice  and  data  services),  whose  name was
subsequently  changed to Loral  Orion-Europe GmbH ("Orion Europe").  The Company
has  consolidated  the  operations of Orion Europe for the six months ended June
30, 1997,  retroactively to January 1, 1997. The effect of this consolidation on
operations  prior  to  acquisition  was to  increase  consolidated  revenues  by
approximately  $4.1 million,  increase total operating expenses by approximately
$4.0  million  and  other   expenses  by   approximately   $0.7   million.   The
preacquisition  loss of Orion Europe of $0.6 million has been  deducted from the
consolidated statement of operations for the six months ended June 30, 1997.

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

For accounting purposes,  the Merger is being accounted for as of March 31, 1998
using the purchase method. Accordingly, the condensed consolidated balance sheet
at March 31, 1998  reflects  the  push-down of the  purchase  price  allocations
(based on  preliminary  estimates and subject to  adjustment)  to the assets and
liabilities  (including an increase of $148.6  million to the carrying  value of
the Senior Notes and Senior  Discount  Notes,  based on quoted market prices) of
Orion at that  date and a  related  increase  in  deferred  tax  assets of $52.0
million.  The cost in excess of net assets  acquired  ($601.4  million) is being
amortized over 40 years using the straight-line method.

Had the  acquisition  of the Company and the  financing  transactions  described
below occurred on January 1, 1997, the unaudited pro forma sales, operating loss
and net loss applicable to common  stockholders for the six months ended June 30
1998 and 1997 would have been $39.0 million and $36.9 million; $30.2 million and
$26.6 million; and $38.1 million and $35.6 million, respectively. These results,
which are based on various  assumptions are not  necessarily  indicative of what
would have occurred had the acquisition been consummated as of January 1, 1997.

In order to provide an understanding  of the Company,  the results of operations
discusses  the actual  results for the three months ended June 30, 1998 and June
30, 1997;  and the pro forma results of operations for the six months ended June
30, 1998 compared  with the pro forma  results of operations  for the six months
ended June 30, 1997.

Revenue and  Bookings.  Total  revenues for the three months ended June 30, 1998
and 1997 were $20.2 million and $16.7 million, an increase of $3.5 million or 21
percent. This increase is primarily  attributable to the private  communications
network services operations which included the addition of 146 customer sites in
service  compared to the same period in 1997. The pro forma revenues for the six
months  ended June 30, 1998 and 1997 were $39.0  million and $36.9  million,  an
increase of $2.1 million or 6 percent,  which is  attributable to the additional
installed customer sites in service for private  communications network services
for the six month  period  ended June 30,  1998  compared  to the same period in
1997.

At June 30,  1998,  the Company had a customer  contract  backlog  (representing
future  revenues under  contract) of  approximately  $269.6 million  compared to
$253.8 million at June 30, 1997, an increase of 6 percent. Revenue from customer
contract backlog is typically earned over contract terms of two to five years.

                                       13
<PAGE>
                                LORAL ORION, INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

OPERATING EXPENSES


Direct Expenses.  Direct expenses for the three months ended June 30, 1998, were
$7.0  million  compared  to $5.6  million  for the same  period in 1997.  The 25
percent  increase  for the  three  months  ended  June 30,  1998  was  primarily
attributable to Internet  access and terrestrial  link charges in support of the
Worldcast  Internet  access  product  which  provides   international   internet
connectivity  through the Orion 1 satellite.  Direct  expenses for the pro forma
six months ended June 30, 1998 and 1997 were $13.4 million.


Sales and Marketing Expenses. Sales and marketing expenses were $6.8 million for
the three months  ended June 30, 1998,  as compared to $4.4 million for the same
period in 1997,  an increase of $2.4 million or 55 percent.  Sales and marketing
expenses  for the pro forma six months  ended June 30,  1998 and 1997 were $12.6
million  and $8.6  million,  an increase  of $4.0  million or 47 percent.  These
increases relate to additional  sales salaries and  commissions,  consulting and
advertising  associated  with the growth in the private  communications  network
service  business and Worldcast.  The Company  expects the increase in sales and
marketing expenses to continue for the remainder of 1998.

Engineering and Technical Services Expenses.  Engineering and technical services
expenses  remained  steady for the three and pro forma six month  periods  ended
June 30, 1998 as compared to the  comparable  periods in 1997.  Engineering  and
technical  services  expenses for the three months ended June 30, 1998 were $1.5
million  compared to $1.9 million for the same period in 1997.  Engineering  and
technical services expenses for the pro forma six months ended June 30, 1998 and
1997 were $3.4 million and $3.6 million respectively.

General Administrative  Expenses.  General and administrative expenses were $4.0
million the three months  ended June 30, 1998,  compared to $3.6 million for the
same  period in 1997,  an increase  of $0.4  million or 11 percent.  General and
administrative  expenses  for the pro forma six months  ended June 30,  1998 and
1997 were $7.7  million  and $6.9  million,  respectively,  an  increase of $0.8
million or 12 percent.  These  increases are  primarily due to outside  services
associated  with the planned  expansion  of the  Company's  operations  into new
markets.

Depreciation and  Amortization.  Depreciation  and amortization  expense for the
three months ended June 30, 1998 were $16.1  million  compared to $12.1  million
for the  same  period  in 1997,  an  increase  of $4.0  million  or 33  percent.
Depreciation  and  amortization  expense for the pro forma six months ended June
30,  1998 and 1997 were $32.0  million  and $31.1  million,  an increase of $0.9
million or 3 percent.  These increases were primarily the result of depreciation
of  ground   equipment  to  service  the   expansion  of  the  private   network
communication  services  business and  amortization of costs in excess of assets
acquired  and  unearned  compensation  associated  with the  acquisition  of the
Company by Loral.

Interest.  Interest  income was $5.1 million for the three months ended June 30,
1998,  compared to $8.7 million for the same period in 1997. Interest income for
the pro forma six months  ended June 30,  1998 and 1997 were $10.6  million  and
$12.1  million,  respectively.  The  decrease  in  interest  income  is due to a
reduction  in the  balance  held in the  Company's  segregated  funds.  Interest
expense,  net  of  capitalized  interest  of  $3.3  million  and  $1.6  million,
respectively,  was $17.8  million for the three months ended June 30, 1998,  and
$22.4  million  for the  comparable  period in 1997.  The  decrease  in interest
expense  for  the  three  months  ended  June  30,  1998  is due  to  additional
capitalized interest costs attributable to the two satellites, redemption of the
convertible  debentures  and  amortization  of the fair value  adjustment of the
outstanding  debt.  Interest expense for the pro forma six months ended June 30,
1998 and 1997 were $34.3 million and $36.4 million,  respectively.  The decrease
in interest expense for the pro forma six months ended June 30, 1998 compared to
the pro  forma  six  months  ended  June 30,  1997 is the  result  of  increased
capitalized  interest  for the period  ended June 30, 1998  compared to the same
period in 1997.


<PAGE>
                                LORAL ORION, INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Income Taxes.  The Company is included in the  consolidated  U.S. Federal income
tax  return  of  Loral  Space  &  Communications  Corporation,  a  wholly  owned
subsidiary  of Loral.  Pursuant  to a tax sharing  agreement  with Loral Space &
Communications Corporation, the Company is entitled to reimbursement for the use
of its tax losses when such losses are utilized by the  consolidated  group. For
the three months ended June 30, 1998,  the Company  recorded a receivable  under
this tax sharing  agreement of $9.0 million and a deferred tax provision of $0.7
million.  The deferred tax asset of $51.3  million on the  accompanying  balance
sheet  arises  from the tax  effect of the  temporary  differences  between  the
carrying  amount of the Senior Notes and the Senior  Discount  Notes payable for
financial and income tax purposes.

Net Loss. The Company incurred net losses of $19.8 million and $24.7 million for
the three months ended June 30, 1998 and 1997.  Net losses for the pro forma six
months ended June 30, 1998 were $38.1 million and $35.6 million, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Existing Capital  Resources.  As of June 30, 1998, the Company had cash and cash
equivalents  of $44.1 million and  restricted  and  segregated  assets of $134.6
million,  including $15.9 million which was segregated by the Company to be used
to make  payments for  additional  satellites  and certain  related  costs.  The
restricted  and  segregated  assets also  included  $92.7  million  plus accrued
interest of $2.9 million placed in a pledged  account (to pre-fund the remaining
four  interest  payments  on  the  Senior  Notes).  Additionally,   included  in
restricted and segregated assets, is $23.1 million held in escrow and subject to
refund pending the successful launch and commencement of commercial operation of
Orion 3 as required by the DACOM agreement.

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

The in-orbit  delivered costs of the Orion 2 and Orion 3 satellites are expected
to  aggregate  approximately  $468  million,  of which  $299.7  million has been
incurred by the Company  through  June 30,  1998.  The Company will need to make
additional payments of approximately $123 million,  $45 million and $0.3 million
in 1998,  1999 and 2000,  respectively.  These  amounts  include  the  Company's
estimate  regarding the cost of launch insurance.  The contracts for Orion 2 and
Orion 3 provide  firm  fixed  prices  for the  construction  and launch of those
satellites  and  provides  for  penalties  in the event of late  delivery by the
manufacturer,  however,  the Company's  actual  payments could be  substantially
higher due to any change orders for the satellites,  increased  insurance rates,
delays and other factors.

The  Company  has  segregated  $15.9  million to make  payments  for  additional
satellites  and certain  related  costs (or to pay interest and principal on the
Senior  Notes).  The Company  also can use a portion of its working  capital for
such  costs if it chooses to do so. The  Company  had  working  capital of $63.6
million at June 30, 1998. However, there can be no assurance that cost increases
for Orion 2 and/or Orion 3 due to change orders,  increased  insurance  rates or
construction  delays, among other factors may not increase the Company's capital
requirements  or that  the  Company's  growth  may vary  from  its  expectations
resulting in changes in its cash requirements or expected cash.

The balance of the Company's funding  requirements are dependent upon its growth
and cash flow from  operations.  The Company cannot predict whether its existing
resources  and cash flows will be adequate  to cover its future  cash needs.  If
existing  resources  and cash flows are not  sufficient  to cover the  Company's
future cash needs,  the Company will need to secure  borrowings  from Loral,  or
raise  additional  financing.  The  Company  does  not have a  revolving  credit
facility or other source of readily  available  capital.  Sources of  additional
capital may include  public or private  debt,  equity  financings  or  strategic
investments. To the extent that the Company seeks to raise additional


<PAGE>
                                LORAL ORION, INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

debt financing, the Indentures limit the amount of such additional debt (under a
variety of  provisions  contained in such  Indentures)  and prohibit the Company
from using Orion 1, Orion 2 or Orion 3 as collateral for  indebtedness for money
borrowed.  If the Company requires additional  financing and is unable to obtain
such financing from its new parent or from outside sources in the amounts and at
the times needed, there would be a material adverse effect on the Company.

YEAR 2000 ISSUE

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


<PAGE>
                                LORAL ORION, INC.

PART II. OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

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

              27      Financial Data Schedule

         (b) Reports on Form 8-K during the six months ended June 30, 1998:

              Current  report  on Form 8-K  dated  May 13,  1998  reporting  the
         Company's change of auditors in connection with the Loral Merger.



                                       17
<PAGE>
                                LORAL ORION, INC.

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 13, 1998                _____________________________
                                      Michael P. DeBlasio
                                      First Senior Vice President
                                      (Principal Financial Officer and
                                      Principal Accounting Officer)















                                       18