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 SEPTEMBER 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>                                                                                                <C>
PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited)

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

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

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

         Notes to Condensed Consolidated Financial Statements...........................................   7

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Opera tions.................................................................................  10
PART II. OTHER INFORMATION

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

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


<PAGE>




PART I.  FINANCIAL INFORMATION

ITEM I.  FINANCIAL STATEMENTS

                                LORAL ORION, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                          DECEMBER 31,
                                                                                                       -------------------
                                                                                                               1997
                                                                                      SEPTEMBER 30,        PREDECESSOR
                                                                                         1998                COMPANY  
                                                                                    ----------------    -----------------
                                                                                      (unaudited)              Note

                                     ASSETS
<S>                                                                                 <C>                  <C>             
Current assets:
   Cash                                                                             $         57,005     $         70,009
   Restricted assets                                                                          50,180               50,064
   Accounts receivable                                                                        14,323               11,781
   Prepaid expenses and other current assets                                                   5,272                6,846
                                                                                    ----------------    -----------------
Total current assets                                                                         126,780              138,700

Restricted and segregated assets, including accrued interest of
   approximately $1.0 million and $3.7 million at September 30, 1998                          21,604              306,826
   and December 31, 1997, respectively
Property and equipment at cost:
   Land                                                                                           74                   74
   Satellite and related equipment                                                           255,188              322,159
   Telecommunications equipment                                                               32,028               40,654
   Furniture and computer equipment                                                           10,225                8,627
                                                                                    ----------------    -----------------
                                                                                             297,515              371,514

Less, accumulated depreciation                                                               (25,876)             (77,080)

Satellite construction in progress, including capitalized
  interest of $13.2 million and $7.3 million at September 30, 1998
  and December 31, 1997, respectively                                                        322,319              106,843
                                                                                    ----------------    -----------------
Net property and equipment                                                                   593,958              401,277
Due from Loral                                                                                 6,366                   --
Deferred financing costs, net                                                                 20,058               22,510
Costs in excess of net assets acquired associated with the Loral Merger, net                 597,571                   --
Deferred income taxes                                                                         49,769                   --
Other assets, net                                                                              6,226               27,179
                                                                                    ----------------    -----------------

TOTAL ASSETS                                                                        $      1,422,332    $         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 (CONTINUED)
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                          DECEMBER 31,
                                                                                                       -------------------
                                                                                                              1997    
                                                                                      SEPTEMBER 30,        PREDECESSOR
                                                                                         1998                COMPANY  
                                                                                    ----------------     ----------------
                                                                                      (unaudited)              Note

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S>                                                                                 <C>                  <C>             
Current liabilities:                                                               
   Accounts payable                                                                 $          1,193     $          5,231
   Accrued liabilities                                                                        32,021               10,595
   Other current liabilities                                                                   8,889                7,130
   Interest payable                                                                           10,386               24,772
   Current portion of long-term debt                                                           2,020                6,405
                                                                                    ----------------     ----------------
     Total current liabilities                                                                54,509               54,133

Long-term debt                                                                               908,593              790,671
Other liabilities                                                                             34,288               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                                            --                  160
   Capital in excess of par value                                                            478,511              153,294
   Treasury stock, 0 and 269,274 shares at September 30, 1998 and
     December 31,1997, respectively                                                               --                  (91)
   Unearned compensation                                                                      (3,850)                  --
   Cumulative translation adjustment                                                            (350)                (956)
   Accumulated deficit                                                                       (49,369)            (199,256)
                                                                                    ----------------    -----------------
     Total stockholders' equity (deficit)                                                    424,942              (46,849)
                                                                                    ----------------    -----------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                $      1,422,332    $         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             SIX MONTHS    THREE MONTHS   NINE MONTHS  
                                                                    ENDED                    ENDED          ENDED          ENDED    
                                                                SEPTEMBER 30,            SEPTEMBER 30,    MARCH 31,    SEPTEMBER 30,
                                                                -------------            -------------    ---------    -------------
                                                            1998            1997             1998            1998          1997    
                                                                        PREDECESSOR                      PREDECESSOR    PREDECESSOR
                                                                          COMPANY                          COMPANY        COMPANY  
                                                      --------------    -----------     --------------   -----------    -----------

<S>                                                       <C>            <C>              <C>              <C>           <C>     
REVENUE                                                   $ 21,153       $ 17,619         $ 41,396         $ 18,790      $ 54,539
                                                                                                                        
OPERATING EXPENSES:                                                                                                     
   Direct                                                    7,265          6,312           14,277            6,406        19,691
   Sales and marketing                                       5,186          4,820           11,986            5,790        13,381
   Engineering and technical services                        2,779          1,792            4,328            1,898         5,415
   General and administrative                                3,351          3,839            7,308            3,707        10,732
   Depreciation and amortization                            16,327         12,127           32,443           12,483        35,823
   Merger costs                                                196             --              301           12,145            --
                                                          --------       --------         --------         --------      -------- 
     Total operating expenses                               35,104         28,890           70,643           42,429        85,042
                                                          --------       --------         --------         --------      -------- 
                                                                                                                        
LOSS FROM OPERATIONS                                       (13,951)       (11,271)         (29,247)         (23,639)      (30,503)
                                                                                                                        
OTHER (INCOME) EXPENSE:                                                                                                 
   Interest income                                          (2,427)        (6,124)          (7,574)          (5,425)      (18,254)
   Interest expense                                         14,996         22,331           32,748           21,190        62,291
   Other                                                      (219)            32             (120)             287           605
                                                          --------       --------         --------         --------      -------- 
     Total other (income) expense                           12,350         16,239           25,054           16,052        44,642
                                                          --------       --------         --------         --------      -------- 
                                                                                                                        
                                                                                                                        
Loss before taxes, extraordinary loss on                                                                                
extinguishment of debt, minority interest and                                                                           
preacquisition loss of acquired subsidiary                 (26,301)       (27,510)         (54,301)         (39,691)      (75,145)
                                                                                                                        
Income tax benefit (expense)                                (3,313)            --            4,932               --            --
                                                                                                                        
Extraordinary loss on extinguishment of debt                    --             --               --               --       (15,763)
                                                                                                                        
Limited Partners' and minority interest in the net loss                                                                 
   of Orion Atlantic and other consolidated entities            --             --               --               --        12,043
                                                                                                                        
Preacquisition loss of acquired subsidiary                      --             --               --               --           626
                                                          --------       --------         --------         --------      -------- 
                                                                                                                        
NET LOSS                                                   (29,614)       (27,510)         (49,369)         (39,691)      (78,239)
                                                                                                                        
Preferred stock dividend and accretion, net of                                                                          
  forfeitures                                                   --          2,309               --           (1,387)        6,281
                                                          --------       --------         --------         --------      -------- 
                                                                                                                        
Net loss attributable to common stockholders              $(29,614)      $(29,819)        $(49,369)        $(38,304)     $(84,520)
                                                          ========       ========         ========         ========      ======== 
</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          NINE MONTHS    
                                                                         SIX MONTHS               ENDED                 ENDED       
                                                                            ENDED             MARCH 31, 1998      SEPTEMBER 30, 1997
                                                                      SEPTEMBER 30, 1998    PREDECESSOR COMPANY  PREDECESSOR COMPANY
                                                                      ------------------    -------------------  -------------------
<S>                                                                      <C>                     <C>                 <C>      
OPERATING ACTIVITIES
Net loss                                                                 $ (49,369)              $ (39,691)          $ (78,239)
Adjustments to reconcile net loss to net cash used in operating                                                   
  activities:                                                                                                     
   Extraordinary loss on extinguishment of debt                                 --                      --              15,763
   Deferred taxes                                                            2,231                      --                  --
   Depreciation and amortization                                            32,443                  12,483              35,823
   Amortization of deferred financing costs                                  1,303                     609               2,382
   Provision for bad debts                                                     650                     150                 797
   Non cash interest expense                                                15,276                  10,292              27,625
   Interest earned on restricted assets                                     (5,825)                 (4,629)             (2,616)
   Other                                                                        --                   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                                                      (1,934)                 (1,408)             (1,533)
   Prepaid expenses and other current assets                                (5,170)                  4,388              (3,506)
   Other assets                                                                188                     201              (2,743)
   Accounts payable and accrued liabilities                                 19,834                  (2,199)             (3,224)
   Other current liabilities                                                 1,427                     333               1,889
   Interest payable                                                            (53)                (11,754)              1,848
   Deferred revenue                                                         12,000                      --              12,250
   Due from Loral                                                           (6,366)                     --                  --
                                                                         ---------               ---------           --------- 
Net cash provided by (used in) operating activities                         16,635                 (29,581)             (5,527)
                                                                                                                  
INVESTING ACTIVITIES                                                                                              
Capital expenditures                                                       (10,794)                 (3,805)            (11,924)
Increase in restricted and segregated assets                               (12,000)                     --            (357,182)
Uses of and transfers from restricted and segregated assets                276,123                  31,962                  --
Satellite construction costs, including capitalized interest              (261,394)                (14,575)            (80,600)
Purchase of Teleport Europe GmbH, net of cash acquired                          --                      --              (8,375)
Other                                                                           --                      --                (183)
                                                                         ---------               ---------           --------- 
Net cash provided by (used in) investing activities                         (8,065)                 13,582            (458,264)
                                                                                                                  
FINANCING ACTIVITIES                                                                                              
Debt and equity financing costs                                                 --                      --             (25,959)
Proceeds from issuance of common stock                                          --                   2,117               1,325
Proceeds from issuance of debt                                                  --                      --             770,397
Repayment of senior notes payable and notes payable                           (534)                   (254)           (215,581)
Swap termination fee                                                            --                      --              (5,288)
Payment of satellite incentive obligations                                  (5,461)                 (1,302)            (16,867)
Other                                                                          629                    (770)             (3,613)
                                                                         ---------               ---------           --------- 
Net cash (used in) provided by financing activities                         (5,366)                   (209)            504,414

Net increase (decrease) in cash and cash equivalents                         3,204                 (16,208)             40,623
Cash and cash equivalents at beginning of period                            53,801                  70,009              42,188
                                                                         ---------               ---------           --------- 
Cash and cash equivalents at end of period                               $  57,005               $  53,801           $  82,811
                                                                         =========               =========           =========
</TABLE>


See Notes to Condensed Consolidated Financial Statements.

                                       6

<PAGE>



                                LORAL ORION, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A.  BASIS OF PRESENTATION

BUSINESS AND OWNERSHIP

Loral Orion,  Inc.,  (the  "Company"  or "Loral  Orion"),  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 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
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 six months ended  September 30, 1998 and the three
months ended 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 filing requirements with the SEC.

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.

                                       7

<PAGE>



                                LORAL ORION, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A.  BASIS OF PRESENTATION (CONTINUED)

For accounting purposes, the Merger was accounted for as of March 31, 1998 using
the purchase method.  Accordingly,  the condensed  consolidated balance sheet at
March 31, 1998 reflected 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  ($597.6  million) is being
amortized over 40 years using the straight-line method.

Had the  acquisition  of the Company  occurred on January 1, 1997, the unaudited
pro forma sales,  operating loss and net loss applicable to common  stockholders
for the nine  months  ended  September  30,  1998 and 1997 would have been $60.2
million and $54.5 million;  $44.1 million and $41.5  million;  and $67.7 million
and $54.2  million,  respectively.  These  results,  which are based on  various
assumptions are not  necessarily  indicative of what would have occurred had the
acquisition been consummated on 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 six months ended  September  30, 1998,  three
months  ended  March 31, 1998 and nine months  ended  September  30, 1997 are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                         THREE MONTHS            NINE MONTHS    
                                                             ENDED                  ENDED       
                                   SIX MONTHS           MARCH 31, 1998        SEPTEMBER 30, 1997
                                     ENDED                PREDECESSOR            PREDECESSOR    
                               SEPTEMBER 30, 1998           COMPANY                COMPANY      
                               ------------------       --------------        ------------------
<S>                           <C>                     <C>                    <C>                 
Net loss                      $          (49,369)     $          (39,691)    $           (78,239)
Cumulative translation                                                       
  adjustment                                (350)                     --                    (742)
                              ------------------      ------------------     ------------------- 
Comprehensive loss            $          (49,719)     $          (39,691)    $           (78,981)
                              ==================      ==================     =================== 
</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.


                                       8

<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    
                                                                             SEPTEMBER 30,       PREDECESSOR 
                                                                                  1998              COMPANY  
                                                                             -------------       ----------- 
<S>                                                                         <C>                <C>          
Senior notes (net of premium of $58.4 million at September 30, 1998
   and unamortized discount of $4.9 million at December 31, 1997)            $    503,422       $    440,100
Senior discount notes (maturity value of $484 million)                            397,878            292,337
Convertible junior subordinated debentures                                             --             50,000
Notes payable - TT&C Facility                                                       5,233              6,022
Satellite incentive obligations                                                     3,027              6,479
Other                                                                               1,053              2,138
                                                                            -------------      -------------
   Total long-term debt                                                           910,613            797,076
Less: current portion                                                               2,020              6,405
                                                                            -------------      -------------
   Long-term debt less current portion                                      $     908,593      $     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 was
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)

Prior to March 31,  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 D.  INCOME TAXES

The Company is included in the  consolidated  U.S.  Federal income tax return of
for 1998 Loral  Space &  Communications  Corporation.  Pursuant to a tax sharing
agreement for 1998 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 six months ended September 30, 1998,
the  Company  recorded  a  receivable  under  this  tax  sharing   agreement  of
approximately  $7.1 million and a deferred tax  provision of $2.2  million.  The
deferred tax asset of $49.8  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 period  amounts have been  reclassified  to conform to the current
period presentation.


                                        9

<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 Network  System's,  Inc. 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 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 the first
quarter  of 1999,  for a firm  fixed  price  of $208  million  excluding  launch
insurance and performance incentives.


                                       10

<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 May 1999).  Payments are subject to
refund  if Orion 3 fails to  commence  commercial  operation  by June 30,  1999.
Through September 30, 1998, the Company has received $35.1 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 from 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 nine
months 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 and include 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   and  the
depreciation of 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.


                                       11

<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 nine  months  ended
September  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 nine months ended  September 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 was accounted for as of March 31, 1998 using
the purchase method.  Accordingly,  the condensed  consolidated balance sheet at
March 31, 1998 reflected 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  ($597.6  million) is being
amortized over 40 years using the straight-line method.

Had the  acquisition  of the Company  occurred on January 1, 1997, the unaudited
pro forma sales,  operating loss and net loss applicable to common  stockholders
for the nine  months  ended  September  30,  1998 and 1997 would have been $60.2
million and $54.5 million;  $44.1 million and $41.5  million;  and $67.7 million
and $54.2  million,  respectively.  These  results,  which are based on  various
assumptions are not  necessarily  indicative of what would have occurred had the
acquisition been consummated on 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  September 30, 1998 and
September 30, 1997;  and the pro forma results of operations for the nine months
ended  September 30, 1998 compared with the pro forma results of operations  for
the nine months ended September 30, 1997.

Revenue and Backlog.  Total  revenues for the three months ended  September  30,
1998 and 1997 were $21.2 million and $17.6 million,  an increase of $3.6 million
or  20  percent.  This  increase  is  primarily   attributable  to  the  private
communications  network  services  operations which included the addition of 132
customer  sites in service  compared to the same  period in 1997.  The pro forma
revenues  for the nine  months  ended  September  30,  1998 and 1997 were  $60.2
million and $54.5 million,  an increase of $5.7 million or 10 percent,  which is
attributable to the additional  installed  customer sites in service for private
communications  network  services for the nine month period ended  September 30,
1998 compared to the same period in 1997.

At September 30, 1998, the Company had a customer contract backlog (representing
future  revenues under  contract) of  approximately  $299.7 million  compared to
$254.1  million at September 30, 1997,  an increase of 18 percent.  Revenue from
customer contract backlog is typically earned over two to five years.


                                       12

<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 September 30, 1998,
were $7.3  million  compared to $6.3  million  for the same  period in 1997,  an
increase of $1.0 million or 16 percent. This increase 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 and additional  maintenance  costs associated with
growth in the installed  customer base of private networks.  Direct expenses for
the pro forma nine months ended  September  30, 1998 and 1997 were $20.7 million
and $19.7 million, respectively.

Sales and Marketing Expenses. Sales and marketing expenses were $5.2 million for
the three months ended  September  30, 1998, as compared to $4.8 million for the
same  period in 1997,  an  increase  of $0.4  million  or 8  percent.  Sales and
marketing  expenses for the pro forma nine months ended  September  30, 1998 and
1997 were $17.8  million and $13.4  million,  an increase of $4.4  million or 33
percent.  These  increases  primarily  relate to additional  sales  salaries and
commissions,  independent  contractor fees 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  for the three  months  ended  September  30,  1998  were $2.8  million
compared to $1.8 million for the same period in 1997.  Engineering and technical
services  expenses  for the pro forma nine months ended  September  30, 1998 and
1997 were $6.2  million and $5.4  million,  respectively.  These  increases  are
primarily  due to  additional  salaries  associated  with  support of  Worldcast
Internet.

General Administrative  Expenses.  General and administrative expenses were $3.4
million for the three months ended September 30, 1998,  compared to $3.8 million
for the same period in 1997.  General and  administrative  expenses  for the pro
forma nine months ended September 30, 1998 and 1997 were $11.0 million and $10.7
million, respectively.

Depreciation and  Amortization.  Depreciation  and amortization  expense for the
three  months  ended  September  30, 1998 were $16.3  million  compared to $12.1
million for the same period in 1997,  an increase of $4.2 million or 35 percent.
Depreciation  and  amortization  expense  for the pro forma  nine  months  ended
September 30, 1998 and 1997 were $48.3 million and $46.8 million, an increase of
$1.9  million  or 4  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 $2.4 million for the three months ended September
30, 1998,  compared to $6.1 million for the same period in 1997. Interest income
for the pro forma  nine  months  ended  September  30,  1998 and 1997 were $13.0
million and $18.3 million,  respectively. The decrease in interest income is due
to a reduction in the balance held in the Company's segregated funds, which were
used for the construction of satellites.  Interest  expense,  net of capitalized
interest of $6.1 million and $2.0 million, respectively, was $15 million for the
three months ended  September  30, 1998,  and $22.3  million for the  comparable
period in 1997.  The  decrease in interest  expense for the three  months  ended
September 30, 1998 is due to additional  capitalized interest costs attributable
to  the  two  satellites  under  construction,  redemption  of  the  convertible
debentures  and  amortization  of the fair value  adjustment of the  outstanding
debt.  Interest  expense for the pro forma nine months ended  September 30, 1998
and 1997 were $49.3 million and $54.5 million, respectively.


                                       13

<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.  Pursuant  to a tax
sharing  agreement for 1998 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 six  months  ended
September  30, 1998,  the Company  recorded a receivable  under this tax sharing
agreement of  approximately  $7.1  million and a deferred tax  provision of $2.2
million.  The deferred tax asset of $49.8  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.  As a result of the above,  the Company  incurred  net losses of $18.5
million and $27.5  million for the three  months  ended  September  30, 1998 and
1997. Net losses for the pro forma nine months ended September 30, 1998 and 1997
were $56.7 million and $54.2 million, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Existing Capital  Resources.  As of September 30, 1998, the Company had cash and
cash  equivalents  of $57.0  million  and  restricted  assets of $71.8  million,
including  $70.8  million  plus  accrued  interest of $1.0  million  placed in a
pledged  account (to  pre-fund  the next three  interest  payments on the Senior
Notes).

While the Company believes its existing resources 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 are fully provided for by
restricted cash through January 2000.

The in-orbit  delivered costs of the Orion 2 and Orion 3 satellites are expected
to aggregate  approximately  $356.5  million,  of which $301.2  million has been
incurred by the Company  through  September  30, 1998.  The Company will need to
make  additional  payments of  approximately  $13.0 million and $42.3 million in
1998 and 1999, respectively.  These amounts exclude the cost of launch insurance
and $8.0  million of  incentive  payments for Orion 3 payable over 15 years from
the date of launch.  The  contracts  for Orion 2 and Orion 3 provide  firm fixed
prices for the  construction  and launch of those  satellites  and  provide  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  can use a portion  of its  working  capital to make  payments  for
additional  satellites  and  certain  related  costs  (or  to pay  interest  and
principal  on the Senior  Notes) if it chooses to do so. The Company has working
capital of $72.3  million at  September  30,  1998,  of which  $50.2  million is
restricted.  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  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 Loral or from  outside  sources in the  amounts and at the
times needed, there would be a material adverse effect on the Company.


                                       14

<PAGE>



                                LORAL ORION, INC.

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

OTHER MATTERS

IMPACT OF YEAR 2000

The Company's  Year 2000 Program is proceeding on schedule.  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  as "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.

The Company has  implemented  a Year 2000 program (the "Year 2000  Program") for
its  internal  products,  system  and  equipment,  as well as for key vendor and
customer  supplied  products,  systems and  equipment.  As part of the Year 2000
Program,  the Company is assessing  the Year 2000  capabilities  of, among other
things, its satellite,  ground equipment,  research and development  activities,
and facility management systems. The Year 2000 Program consists of the following
phases:  Inventory of Year 2000 items,  Assessment  (including  prioritization),
Remediation  (including  modification,  upgrading and replacement),  Testing and
Auditing.  This five-step  program is divided into six major  sections  covering
both information and non-information technology systems: 1) business systems, 2)
technical systems, 3) products and services, 4) imbedded  hardware/firmware,  5)
vendor supplied products and 6) customer provided products. To date, the Company
completed  approximately 90% of the inventory phase and approximately 25% of its
assessment phase. The Company expects to complete the first four phases, through
the testing  phase,  of the Year 2000 Program during the second quarter of 1999,
which is prior to any  anticipated  material  impact  on the  operations  of the
Company. The fifth phase, the audit phase, is expected to commence in January of
1999 and continue through the third quarter of 1999 to accommodate  re-audits if
deemed necessary.

Both internal and external resources are being utilized to execute the Company's
plan.  The program to address Year 2000 has been underway  since July 1997.  The
incremental  costs  incurred  to  date  for  this  effort  by  the  Company  was
approximately  $25,000. Based on the efforts of the Company to date, the Company
anticipates  additional  incremental expenses of approximately  $125,000 will be
incurred to substantially complete the effort.

Based upon the  accomplishments to date, no contingency plans are expected to be
needed.  As risks  are  identified,  contingency  plans  will be  developed  and
implemented as necessary.  However, because of the progress achieved to date and
the  Company's  expectations  that its Year 2000 program  will be  substantially
complete in the second quarter of calendar 1999, the Company  believes  adequate
time will be available to insure  alternatives  can be  developed,  assessed and
implemented  prior to a Year 2000 issue having a material negative impact on the
operations  of the  Company.  However,  there  can  be no  assurance  that  such
modifications and conversions, if required, will be completed on a timely basis.

The cost of the  program  and the dates on which the  Company  believes  it will
substantially  complete Year 2000  modifications  are based on management's best
estimates.  Such estimates  were derived using software  surveys and programs to
evaluate  calendar date  exposures and numerous  assumptions  of future  events,
including the continued availability of certain resources, third-party year 2000
readiness and other factors.  Because none of these estimates can be guaranteed,
actual results could differ  materially  and adversely  from those  anticipated.
Specific  factors  that  might  cause an  adjustment  of costs  are:  number  of
personnel  trained in this area,  the ability to locate and correct all relevant
computer  codes,  the ability to  validate  supplier  certification  and similar
uncertainies.

The Company's  failure to remediate a material Year 2000 problem could result in
an interruption or failure of certain basic business operations.  These failures
could  materially  and  adversely  effect the Company's  results of  operations,
liquidity and financial  condition.  The Company is also assessing the Year 2000
readiness  of  key  third-party   suppliers.   Information  requests  have  been
distributed to such suppliers and replies are being evaluated. If the


                                       15

<PAGE>



                                LORAL ORION, INC.

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

risk is deemed material, on-site visits to suppliers will be conducted to verify
the  adequacy  of  the  information  received.   However,  due  to  the  general
uncertainty  of the Year 2000  problem,  including  uncertainty  with  regard to
third-party suppliers and customers,  the Company is unable to determine at this
time  whether  the  consequences  of Year 2000  failures  will  have an  adverse
material impact on the Company's  results of operations,  liquidity or financial
condition.  The  Company's  Year 2000  Program is expected to have  considerably
reduced the Company's  level of exposure in regard to third-party  supplier Year
2000 problems.






                                       16

<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 three months ended September 30, 1998:

          None.





                                       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: November 16, 1998               /s/ Michael P. DeBlasio
                                      ------------------------------------------
                                      Michael P. DeBlasio
                                      First Senior Vice President
                                      (Principal Financial Officer and
                                      Principal Accounting Officer)

















                                       18