UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999      Commission file number  0-22085
                                                                         -------

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

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

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


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

          Securities registered pursuant to Section 12 (b) of the Act:
                                      None

          Securities registered pursuant to Section 12 (g) of the Act:
                          11 1/4% Senior Notes Due 2007
                     12 1/2% Senior Discount Notes Due 2007
                                (Title of Class)

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant  was required to file such  reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X  No_

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

The number of shares of common stock, par value $.01 per share of the registrant
outstanding  as of March 15, 2000 was 100, all of which were owned,  directly or
indirectly, by Loral Space & Communications Ltd.

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

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None



<PAGE>


                                     PART I

ITEM 1.  BUSINESS.

GENERAL

     Loral CyberStar, Inc. ("Loral CyberStar" or the "Company"),  formerly known
as Orion Network Systems,  Inc.  ("Orion") prior to its acquisition on March 20,
1998 by Loral  Space &  Communications  Ltd.  ("Loral"),  is a  rapidly  growing
provider of satellite-based  communications services,  providing Fixed Satellite
Services, including video distribution and other satellite transmission services
and Data Network Services,  including managed data network services and Internet
services.   Loral   CyberStar   believes   that   demand   for   satellite-based
communications  services  will continue to grow due to  accelerating  demand for
high speed data  services,  growing  demand for Internet and intranet  services,
especially  outside the United  States,  worldwide  deregulation  and continuing
technological advancement.

BUSINESS SEGMENTS

     Loral CyberStar operates in the following two segments:

Fixed Satellite Services

     Loral  CyberStar,  through its agreements with Loral Skynet,  a division of
Loral  SpaceCom  Corporation,   provides  transmission  capacity  to  cable  and
television  programmers,  news  and  information  networks,   telecommunications
companies,  Internet service providers ("ISPs") and other carriers for a variety
of applications.  Customers  include PSINet,  HBO, Disney,  Cable & Wireless and
United  Pan Europe  Communications.  A majority  of the  Company's  transmission
capacity  services  consist of video  services.  The  Company  generally  offers
transmission  capacity  services  under  long  term  contracts  and also  offers
occasional use services for periods of up to a few hundred hours.

     Telstar  11  (formerly  known as Orion 1), a high power  satellite  with 34
Ku-band  transponders,  commenced  operations  in  January  1995,  and  provides
coverage  to 34  European  countries,  much of the  United  States  and parts of
Canada,  Mexico  and North  Africa.  As of  December  31,  1999,  Telstar 11 was
operating at approximately 90% utilization.

     Telstar  12  (formerly  known as Orion 2), a high power  satellite  with 38
Ku-band  transponders,  expands Loral Cyberstar's  European coverage and extends
coverage to portions of the former Soviet Union, Latin America,  the Middle East
and South  Africa.  Telstar 12 was launched in October 1999 into 15 degrees W.L.
and commenced revenue generating operations in January 2000. Although Telstar 12
was originally  intended to operate at 12 degrees W.L., Loral CyberStar  reached
an  agreement  with  Eutelsat  to operate  Telstar 12 at 15 degrees  W.L.  while
Eutelsat  continued to develop its services at 12.5 degrees W.L. Eutelsat has in
turn  agreed not to use its 14.8  degrees  W.L.  orbital  slot and to assert its
priority rights at such location on Loral  CyberStar's  behalf.  As part of this
coordination  effort,  Loral  CyberStar  agreed  to  provide  to  Eutelsat  four
transponders on Telstar 12 for the life of the satellite.  Eutelsat also has the
right to acquire,  at cost, four transponders on the next replacement  satellite
for  Telstar  12.  As  part of the  international  coordination  process,  Loral
CyberStar  continues  to  conduct   discussions  with  various   administrations
regarding  Telstar 12's  operations at 15 degrees W.L. If these  discussions are
not successful, Telstar 12's useable capacity may be reduced.

     On May  4,  1999,  the  Company's  Orion  3  satellite  was  placed  into a
lower-than-expected  orbit after its launch on a Delta III rocket.  According to
Boeing,  the Delta III's second stage  apparently  failed to complete its second
stage burn,  and, as a result,  the satellite,  manufactured by Hughes Space and
Communications  Corporation,  achieved  an orbit  well below the  planned  final
altitude.  As a result,  the satellite cannot be used for its intended  purpose.
The  satellite  and launch were fully  insured for  approximately  $266 million,
which was received in the third  quarter of 1999.  DACOM  Corporation,  a Korean
communications  company which had purchased eight  transponders on Orion 3 for a
total of $89 million,  had made prepayments of approximately  $34 million to the
Company.  Under Loral  CyberStar's  agreement with DACOM, the amount prepaid was
refunded in July 1999.

     To replace Orion 3, on September 28, 1999,  Loral CyberStar  purchased from
APT Satellite  Company Limited ("APT") all transponder  capacity (except for one
C-band  transponder  retained by APT) and existing customer leases on the Apstar
IIR satellite for approximately $273 million. Insurance proceeds from the May 4,
1999  launch  failure  of the Orion 3  satellite  were used to fund the  initial
payments and a significant  portion of the final payment of  approximately  $182
million in March 2000.


                                       2
<PAGE>

     Apstar IIR,  which was  manufactured  by SS/L, was launched in October 1997
and as of  September  28,  1999  had  an  estimated  remaining  useful  life  of
approximately 13 years. Loral CyberStar has full use of 27 C-band and 16 Ku-band
transponders aboard Apstar IIR for the remaining life of the satellite.  Located
at 76.5 degrees  E.L.,  Apstar IIR covers a region that includes  Asia,  Europe,
Africa and Australia, which represents over 75% of the world's population. Under
the  purchase  agreement,  Loral  CyberStar  will also have the  option to lease
replacement  satellites from APT upon the end of life of Apstar IIR. In November
1999, the satellite was renamed Telstar  10/Apstar IIR. As of December 31, 1999,
Telstar 10/Apstar IIR was operating at approximately 44% utilization.

         In  March  2000,  Loral  CyberStar  entered  into an  agreement  with a
subsidiary  of Loral to  assign  to the  Loral  subsidiary,  pending  regulatory
approval, its Ka-band orbital slots located at 89 degrees W.L., 81 degrees W.L.,
78 degrees E.L. and 47 degrees W.L. In connection with this  transaction,  Loral
CyberStar  also  agreed to  transfer  to the Loral  subsidiary  all  agreements,
including  satellite  construction  contracts,  related to such slots. The total
purchase  price  for the slots and these  agreements  was $36.5  million,  which
purchase  price was  applied by Loral  CyberStar  towards  the last  installment
payment on Telstar 10/Apstar IIR.

Data Network Services

     Loral   CyberStar   provides   multinational   corporations   with  managed
communications   networks   designed  to  carry   high-speed  data,  fax,  video
teleconferencing,  voice and other  specialized  services.  The Loral  CyberStar
network  delivers  high-speed  data to customers in emerging  markets and remote
locations  which would  otherwise lack the necessary  infrastructure  to support
these services.  Loral CyberStar also offers intranet services and provides high
speed Internet access and transmission  services to companies outside the United
States  seeking  to avoid  "last  mile"  terrestrial  connections  and to bypass
congested  regional  Internet  network  routes.  Loral  CyberStar  provides  its
services directly to customer premises using very small aperture terminals.

     As a result of a transaction  completed in December 1998,  Loral  CyberStar
has access to  technology  licensed  from The  Fantastic  Corporation  that will
enable  it  to  provide  broadband  infrastructure  for  multicast  delivery  of
multimedia   products  and  services  to   corporations,   content   developers,
broadcasters,  ISPs and other  enterprises  that have time sensitive and complex
data  requirements.  Loral  CyberStar  continues to introduce  new products that
capitalize on the strengths its satellites  bring to the global  Internet access
market.  For  example,  during  the  fourth  quarter  of 1998,  Loral  CyberStar
introduced  its  WorldCast  Business  Edition,  which  supplies   high-bandwidth
satellite  capacity to improve  businesses' access to the U.S. Internet backbone
from foreign  locations.  Loral  CyberStar  has also  introduced a new multicast
service,  called WorldCast Newsfeed,  that will enable ISPs to receive news from
the Internet using Loral  satellites,  thereby  minimizing  terrestrial  network
costs.  More  recently,  Loral  CyberStar  has agreed to work together with Real
Networks,  a leader in media  delivery  on the  Internet,  to deliver  streaming
multimedia  service to customers of European  ISPs, and has entered into a joint
marketing  agreement  with  Akamai to improve  delivery  of web  content to ISPs
worldwide.  Loral  CyberStar also has an agreement with PSINet to provide a high
speed, satellite-based Internet link into South America.

     Based on Internet standards,  Loral CyberStar's  multicast solution enables
content providers,  businesses and ISP to package, manage, and broadcast content
- including text, audio, video, graphics,  pictures, animation software - to end
users  around the world.  By using the Loral  satellites,  Loral  CyberStar  can
achieve  efficiencies  for its customers by  transmitting  data once to multiple
locations  within a  satellite's  coverage  area  rather  than to each  location
individually as is necessary with terrestrial connections.

         In December 1999, the Brazilian  government  awarded Loral  CyberStar a
license to deliver domestic and international  data  communications  services in
Brazil.  Under  this  license  -- one of the  first to be  awarded  to a foreign
company under the country's recent market-opening regulations -- Loral CyberStar
can  provide  the  Brazilian  and  the  international  business  community  with
broadband  data services  capable of delivering  content  directly to the user's
desktop,  as well as a network  infrastructure  for advanced  telecommunications
services.

ACQUISITION OF  ORION BY LORAL

     On March 20,  1998,  Orion was  acquired by Loral,  through the merger (the
"Merger") of Loral Satellite  Corporation,  a wholly owned  subsidiary of Loral,
with and into Orion.  Loral  consummated  the  acquisition by issuing 18 million
shares of its common  stock and  assuming  existing  Orion  vested  options  and
warrants to purchase 1.4 million  shares of Loral common stock  representing  an
aggregate purchase price of $472.5 million.  Orion was 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  was
subsequently  further changed to "Loral  CyberStar,  Inc." On December 31, 1999,
Loral


                                    3
<PAGE>

CyberStar,  Inc. merged with and into Loral Orion Services, Inc. and on the same
date Loral Orion Services, Inc. changed its name to Loral CyberStar, Inc.

     Following  the  Merger,  the capital  stock of Orion  ceased to be publicly
traded.  However, the Company continues to have registered bonds outstanding and
will  continue to have 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.

AGREEMENTS WITH LORAL SKYNET

     During the fourth quarter of 1998, Loral completed its integration plan for
Loral  CyberStar  and  transferred  management  of Loral  CyberStar's  satellite
capacity leasing and satellite operations to Loral Skynet,  effective January 1,
1999.   Loral  CyberStar  and  Loral  Skynet,   a  division  of  Loral  SpaceCom
Corporation,  which in turn is a wholly-owned  subsidiary of Loral, have entered
into  agreements  (the "Loral  Skynet  Agreements")  effective  January 1, 1999,
whereby  Loral Skynet  provides to Loral  CyberStar  (i)  marketing and sales of
satellite capacity services on the Loral CyberStar satellite network and related
billing and  administration of customer contracts for those services (the "Sales
Services")  and (ii)  telemetry,  tracking  and control  services  for the Loral
CyberStar  satellite  network (the "Technical  Services",  and together with the
Sales Services, the "Services"). The Company is charged Loral Skynet's costs for
providing these services plus a 5 percent administrative fee.

SUMMARY SATELLITE DATA

     The following table presents a brief description of the Company's satellite
network.  The Company is subject to regulation and licensing by the U.S. Federal
Communications  Commission  and  other  national  telecommunications  regulatory
bodies,  and  to  the  frequency   coordination  process  of  the  International
Telecommunications Union, or ITU.

     All   satellite   systems  are  subject  to  ITU   frequency   coordination
requirements and must obtain appropriate authority to provide service in a given
territory.  The result of the required  international  coordination  process may
limit the extent to which all or some portion of a particular authorized orbital
slot may be used for  commercial  operations.  In  addition,  the  result of the
process by which satellite systems must seek authorization to provide service in
a given  territory  may limit the extent to which such  service  may be provided
from a given orbital location.

     The  Company's  ability to  provide  satellite  service  in the  geographic
regions  noted  below will be subject to  technical  constraints,  international
coordination,  local regulatory approval and any limitations on the scope of the
approval so obtained.
<TABLE>
<CAPTION>

                                    TELSTAR 10/APSTAR IIR          TELSTAR 11                TELSTAR 12
                                    ---------------------          ----------                ----------
<S>                                     <C>                         <C>                          <C>
Region Covered ...............      China, Japan, Korea, India,    Europe, Southeastern       Eastern U.S., Southeastern
                                    Hawaii, Southeast Asia,        Canada, U.S., East of      Canada, Europe, Commonwealth
                                    Australia, New Zealand,        the Rockies and parts      of Independent States, Middle
                                    Eastern Russia and Oceania     of Mexico                  East, North Africa, Latin
                                                                                              America and South Africa

Satellite Manufacturer ........     Space Systems/Loral            MMS Space Systems          Space Systems/Loral
                                                                   (subsidiary of Matra
                                                                   Marconi Space)

Ku-Band Transponders (1)(2)....     14@54 MHz                      28@54 MHz                  38@54 MHz
                                    2@36 MHz                       6@36 MHz

C-Band Transponders (1)(3).....     25@36 MHz                      --                         --
                                    2@30 MHz

Usable Bandwidth(4)............     1788 MHz                       1728 MHz                  2052 MHz

EIRP(5)........................     44 - 52Dbw                     47 to 52 Dbw              47 to 50 Dbw
                                    30 - 37Dbw
                                    for C-band returns

Total Prime Power(6) ..........     8500 Watts                     4500 Watts                7000 Watts

</TABLE>


                                       4
<PAGE>
<TABLE>
<CAPTION>

                                    TELSTAR 10/APSTAR IIR          TELSTAR 11                TELSTAR 12
                                    ---------------------          ----------                ----------
<S>                                  <C>                           <C>                        <C>
Expected End of Useful Life(7).     2012                           2005                       2015

Approximate Percentage of World
Population Covered by
Satellite(8)...................     75%                            17.9%                      27%
</TABLE>


  (1) Satellite  transponders  receive  signals up from earth  stations and then
      convert,  amplify  and  transmit  the  signals  back  down to other  earth
      stations.

  (2) Ku-band  frequencies  are  higher  than  C-band  frequencies  and are used
      worldwide for commercial satellite communications.

  (3) C-band frequencies minimize interference from atmospheric  conditions such
      as rain.  C-band  satellites  share  frequencies  with  terrestrial  based
      microwave  systems and therefore  require more on-ground  coordination  to
      avoid interference  problems and generally are lower power,  requiring the
      use of large  earth  stations  to  receive  signals.  A portion of Telstar
      10/Apstar  IIR is  designed to transmit  over  C-band  frequencies,  since
      Telstar  10/Apstar  IIR  covers  areas  of Asia  where  satellite  signals
      experience significant interference from rain during several months of the
      year.

  (4) Bandwidth is a measure of the  transponder  resource which  determines the
      information carrying capacity. The actual information carrying capacity of
      a  transponder  is  determined  by  a  combination  of  the  transponder's
      bandwidth and radio-frequency ("RF") power.

  (5) Equivalent  isotropic radiated power ("EIRP") is a measure of the RF power
      of each  transponder.  Smaller and less expensive earth terminal  antennas
      can be used with higher EIRP transponders.

  (6) Total prime power is the total amount of power that is required to support
      all of the communications and electronics functions of the satellite.

  (7) The expected  end of a  satellite's  in-orbit  useful life is based on the
      period during which the  satellite's  on board fuel permits proper station
      keeping maneuvers for the satellite.

  (8) The approximate  percentages of world population  covered or to be covered
      by the Loral CyberStar satellites are not additive. In the aggregate,  the
      footprints of the Loral CyberStar  satellites cover over  approximately 85
      percent of the world's population.

INSURANCE

     Loral CyberStar has obtained  satellite  in-orbit  insurance for Telstar 11
covering   the  period  from  August  1998  to  August  2003  in  an  amount  of
approximately $195 million providing protection against partial or total loss of
the  satellite's  communications  capability,  including  loss of  transponders,
power,  fuel,  or ability to control the  positioning  of the  satellite.

     Loral CyberStar has obtained launch and in-orbit life insurance for Telstar
12 covering  the period  from launch to five years after  launch in an amount of
approximately $261 million. This coverage provides protection against partial or
total  loss of the  satellite's  communications  capability,  including  loss of
transponders,  power,  fuel  or  ability  to  control  the  positioning  of  the
satellite.

                                       5
<PAGE>


     Loral  Cyberstar  has obtained  satellite  in-orbit  insurance  for Telstar
10/Apstar  IIR in an amount of  approximately  $272 million  covering the period
from October 1999 to October 2001.  The coverage is provided in a main policy at
an insured value of $163 million and a  supplemental  policy at an insured value
of $109 million.  Both policies provide protection against partial or total loss
of the  satellite's  communications  capacity,  including loss of  transponders,
power, fuel or ability to control the positioning of the satellite.

     In-orbit  insurance for its satellites will not protect the Company against
business interruption,  loss or delay of revenues and similar losses and may not
fully reimburse the Company for its expenditures.

EMPLOYEES

     As of December 31, 1999,  Loral CyberStar and its subsidiaries had 232 full
time employees, none of whom are subject to collective bargaining agreements.

                 CERTAIN FACTORS THAT MAY EFFECT FUTURE RESULTS

     This annual report on Form 10-K contains forward-looking  statements within
the  meaning of Section  27A of the  Securities  Act of 1933,  as  amended,  and
Section 21E of the  Securities  Exchange Act of 1934,  as amended.  In addition,
from time to time, the Company,  Loral or their representatives have made or may
make forward-looking statements, orally or in writing. They can be identified by
the use of forward-looking words such as "believes",  "expects", "plans", "may",
"will",  "should",  or  "anticipates"  or their negatives or other variations of
these words or other  comparable  words,  or by  discussions  of  strategy  that
involve risks and uncertainties. Such forward-looking statements may be included
in, but are not limited to,  various  filings  made by the Company or Loral with
the Securities and Exchange  Commission,  press releases or oral statements made
by or with the  approval of an  authorized  executive  officer of the Company or
Loral. Forward-looking statements are only predictions. Actual events or results
could differ materially from those projected or suggested in any forward-looking
statements as a result of a wide variety of factors and  conditions,  including,
but not limited to, the factors summarized below.

THE COMPANY HAS SUBSTANTIAL DEBT.

     As of December 31, 1999,  the Company had  approximately  $1.04  billion of
 debt,  including  $74.1  million  of a note  payable  to  Loral  SpaceCom.  The
 Company's  senior notes and senior discount  notes,  which both mature in 2007,
 are non-recourse to Loral.

     The Company has  sufficient  funds in its  restricted  cash account to make
interest  payments on the senior notes through 2000.  Thereafter,  the Company's
ability to meet its debt service  obligations  will be dependent upon the future
performance of the Company,  including its ability to increase  revenues,  which
will be subject to financial, business, competitive and other factors, including
factors beyond the Company's control. The Company will also be required to begin
making cash interest payments on the senior discount notes starting in 2002. The
Company  expects to  continue  to incur net losses and have  negative  cash flow
(after payments for capital expenditures and interest) for the immediate future.
There can be no  assurance  that the Company will be able to achieve the revenue
increases,  or otherwise generate  sufficient cash flow to meet its debt service
obligations with respect to all of its outstanding indebtedness.

THE COMPANY'S  DEBT IMPOSES  RESTRICTIONS  AND  OTHERWISE  AFFECTS THE COMPANY'S
ABILITY TO UNDERTAKE CERTAIN ACTIONS.

     The indentures relating to the Company's senior notes contain restrictions,
which  among  other  things,   limit  the  Company's   ability  to  incur  other
indebtedness,  create liens, make investments, sell assets and engage in mergers
and  consolidations.  In  addition,  the  level  of the  Company's  indebtedness
adversely affects:

o        the  Company's  ability to generate  cash flow to pay expenses and fund
         its expenditures, which will be affected by the Company's need to use a
         substantial amount of its cash flow to service existing indebtedness.

o        the Company's  ability to raise  additional debt or equity financing in
         the future.

o        the Company's  flexibility  in planning for, or reacting to, changes to
         its business and market conditions,  especially in the rapidly evolving
         data business.


                                       6
<PAGE>


THE COMPANY HAS FUNDING REQUIREMENTS.

     The Company  currently  anticipates  that it will have  additional  funding
requirements  over the next  three  years to fund  the  purchase  of very  small
aperture terminals, other capital expenditures,  interest payments on the senior
notes and the senior discount notes and other operating  needs. The Company does
not have a revolving  credit  facility.  Accordingly,  the Company  will need to
secure funding from Loral or raise additional  financing.  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  relating to the senior notes and the senior discount
notes limit the amount of such  additional  debt and  prohibit  the Company from
using  Telstar  10/Apstar  IIR,  Telstar  11 and  Telstar 12 as  collateral  for
indebtedness  for money  borrowed.  If the  Company  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.

AFTER LAUNCH,  THE COMPANY'S  SATELLITES  REMAIN VULNERABLE TO IN-ORBIT FAILURE,
WHICH MAY RESULT IN UNINSURED LOSSES.

     Random failure of satellite components may result in damage to or loss of a
satellite  before the end of its expected life.  Satellites are carefully  built
and tested and have  certain  redundant  systems  in case of  failure.  However,
in-orbit failure may result from the various causes, including:

o        component failure;

o        loss of power or fuel;

o        inability to control  positioning of the  satellite;

o        solar and other astronomical events; and

o        space debris.

     Repair of  satellites  in space is not  feasible.  Many factors  affect the
useful lives of satellites.  These factors include fuel consumption, the quality
of  construction,  gradual  degradation  of solar panels and the  durability  of
components. Although some failures may be covered in part by insurance, they may
result in uninsured losses as well.

     In November 1995, a component on Telstar 11  malfunctioned,  resulting in a
2-hour  service  interruption.   The  malfunctioning  component  supported  nine
transponders  serving  the  European  portion of Telstar  11's  footprint.  Full
service was restored using a back-up component. If that back-up component fails,
Telstar 11 would lose a significant amount of usable capacity.

OUR BUSINESS IS REGULATED, CAUSING UNCERTAINTY AND ADDITIONAL COSTS.

     Our business is regulated by authorities in many  jurisdictions,  including
the Federal  Communications  Commission,  the  International  Telecommunications
Union and the European  Union.  As a result,  some of the  activities  which are
important  to the  Company's  strategy  are beyond its  control.  The  Company's
international service offerings are strategically important activities which are
regulated  by  various   government   and   quasi-government   authorities   and
organizations.

     Regulatory  authorities in the various  jurisdictions  in which the Company
operates can modify,  withdraw or impose charges or conditions upon the licenses
which we need,  and so  increase  the  Company's  cost of  doing  business.  The
regulatory  process also requires  potentially  costly  negotiations  with third
parties  operating  or  intending  to  operate  satellites  at or  near  orbital
locations where the Company places its satellites so that the frequencies of the
satellites do not interfere.  For example, as part of the Company's coordination
effort on Telstar 12, the Company agreed to provide four transponders on Telstar
12 to Eutelsat for the life of the satellite.  The Company also granted Eutelsat
the  right  to  acquire,  at cost,  four  transponders  on the next  replacement
satellite for Telstar 12. Moreover,  the Company,  as part of this international
coordination   process,   continues   to  conduct   discussions   with   various
administrations  regarding  Telstar 12's  operations at 15 degrees W.L. If these
discussions  are not successful,  Telstar 12's useable  capacity may be reduced.
The  Company  cannot  guarantee  successful   frequency   coordination  for  its
satellites.

     Failure to successfully coordinate the Company's satellites' frequencies or
to receive other required  regulatory  approvals  could have a material  adverse
effect on the Company's financial condition and results of operations.


                                       7
<PAGE>


THE COMPANY HAS MANY COMPETITORS.

     The Company competes for customers and market share. In its fixed satellite
services business, the Company faces competition from companies such as PanAmSat
Corporation, GE Americom, SES Astra and quasi-governmental organizations such as
Intelstat  and Eutelsat.  Competition  in this market may cause  downward  price
pressures, which may adversely affect the Company's profit.

     The  Company's  data  business  also faces  competition  from  providers of
land-based  data  communications  services,  such as  cable  operators,  digital
subscriber  line,  or  DSL,   providers,   wireless  local  loop  providers  and
traditional  telephone  service  providers.  In  addition,  the Company may face
competition in the future from proposed satellite systems,  including  Teledesic
Corporation's proposed system and Hughes' Spaceway system.

     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.

     As  land-based   telecommunications   services  expand,   demand  for  some
satellite-based   services  may  be  reduced.   New   technology   could  render
satellite-based services less competitive by satisfying consumer demand in other
ways or through the use of incompatible standards.

LAUNCH FAILURES MAY DELAY SOME OF OUR OPERATIONS IN THE FUTURE.

     Satellite launches are risky and launch attempts have ended in failure. The
Company  ordinarily  insures against launch failures,  but at considerable cost.
The cost and the  availability of insurance vary depending on market  conditions
and the launch  vehicle used. The Company's  insurance  typically does not cover
business  interruption,  and so both  launch  failures  and  in-orbit  satellite
failures result in uninsured losses.  Replacement of a lost satellite  typically
requires up to 18 months  from the time a contract is executed  until the launch
date of the replacement satellite.

         On May 4, 1999,  the Orion 3  broadcast  communications  satellite  was
placed into a  lower-than-expected  orbit after its launch on a Boeing Delta III
rocket.  According to Boeing, the Delta III rocket apparently failed to complete
its second stage burn, and, as a result,  the satellite,  manufactured by Hughes
Space and Communications  Corporation,  achieved an orbit well below the planned
final  altitude.  As a result,  the  satellite  cannot be used for its  intended
purpose.  This loss resulted in Loral CyberStar  having to refund  approximately
$34 million to DACOM  Corporation,  representing  the amount of the  prepayments
made by DACOM towards its purchase of eight transponders on Orion 3.

THERE ARE RISKS IN CONDUCTING BUSINESS INTERNATIONALLY.

     Much of the  Company's  business is  conducted  outside the United  States,
which  imposes  more  risks.  The  Company  could  be  harmed   financially  and
operationally   by  changes  in  foreign   regulations  and   telecommunications
standards,  tariffs or taxes and other trade barriers.  Customers outside of the
developed world could have difficulty in obtaining the U.S. dollars they owe the
Company, including as a result of exchange controls. Additionally, exchange rate
fluctuations may adversely affect the ability of the Company's  customers to pay
in U.S.  dollars.  Moreover,  if the Company  were ever to need to pursue  legal
remedies against its foreign customers and business partners, it may have to sue
them abroad, where it could be hard for the Company to enforce its rights.

EFFECT OF YEAR 2000

     The  Company's  computer  systems and  software  programs  are  functioning
properly.  However,  there is still a possibility that some computer systems and
software  programs may not function  properly  later in the year 2000 and beyond
because of a once common  programming  standard which used two digits instead of
four to signify a year.  This  problem is often  referred  to as the "Year 2000"
issue.

     If the Company is unable to fix a serious Year 2000 problem, there could be
an  interruption  or  failure  of the  Company's  operations.  Likewise,  if the
Company's suppliers or customers are unable to fix a material Year 2000 problem,
a  resulting  interruption  or  failure  of  their  business  could  hurt  Loral
CyberStar.

ITEM 2.  PROPERTIES.

     Loral  CyberStar  owns seven  acres of land in Mt.  Jackson,  Virginia  and
leases approximately  78,000 square feet for office space worldwide.  Management
believes that the facilities are sufficient for its current operations.


                                       8
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS.

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

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

     Omitted pursuant to General Instruction I of Form 10-K.


                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     All of the  Company's  outstanding  common  stock  is  owned,  directly  or
indirectly,  by  Loral  Space  &  Communications  Corporation,  a  wholly  owned
subsidiary  of Loral.  Therefore,  there is no  public  trading  market  for the
Company's  common  stock.  The  Company has never paid  dividends  on its common
stock. The Company's indentures relating to its senior notes and senior discount
notes include certain  restrictions on the Company's ability to pay dividends or
make loans to its parent.

ITEM 6.  SELECTED FINANCIAL DATA.

     Omitted pursuant to General Instruction I of Form 10-K.

ITEM 7.  MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS.

 Except for the historical  information  contained herein, the matters discussed
in this  Management's  Narrative  Analysis  of  Results  of  Operations  are not
historical  facts,  but 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  CyberStar,   Loral  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  CyberStar or Loral with the  Securities  and Exchange  Commission,  press
releases  or oral  statements  made by or with  the  approval  of an  authorized
executive officer of Loral CyberStar or Loral. They can be identified by the use
of forward-looking words such as "believes",  "expects", "plans", "may", "will",
"should" or  "anticipates" or their negatives or other variations of these words
or other comparable  words, or by discussions of strategy that involve risks and
uncertainties.  The forward-looking statements are only predictions,  and actual
events or results could differ  materially  from those projected or suggested in
any  forward-looking  statements  as a result of a wide  variety  of  factors or
conditions,  many of which  are  beyond  the  Company's  control.  Some of these
factors and conditions  include:  (i) the Company has substantial debt; (ii) the
Company's debt imposes  restrictions and otherwise affects the Company's ability
to undertake certain actions;  (iii) the Company has funding requirements;  (iv)
the Company's satellites may fail prematurely;  (v) the Company cannot guarantee
successful  coordination  for its satellites;  and (vi) the Company faces severe
competition.

GENERAL

     The principal  business of Loral  CyberStar,  Inc. (the "Company" or "Loral
CyberStar"),  formerly  known  as  Orion  Network  Systems,  Inc.,  ("Orion"  or
"Predecessor    Company")   and   its   subsidiary   guarantors   is   providing
satellite-based  communications services for private communications networks and
video  distribution and other satellite  transmission  services.  In 1998, Loral
CyberStar organized its business into two distinct operating segments as follows
(see Note 8 to the consolidated financial statements):

     Fixed  Satellite  Services:  Leasing  transponder  capacity  and  providing
     value-added  services  to  customers  for a wide  variety of  applications,
     including  the  distribution  of  broadcast  programming,  news  gathering,
     business television, distance learning and direct-to-home ("DTH") services.
     Loral Skynet began managing the Company's Fixed Satellite  Services ("FSS")
     assets effective January 1, 1999.

     Data  Network   Services:   Business  in  development,   providing  managed
     communications   networks  and  Internet  and  intranet   services,   using
     transponder  capacity  on the Loral  Skynet  Telstar  and  Loral  CyberStar
     fleets.


                                       9
<PAGE>

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

     The  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 customers.

     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 immediate 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 Loral  CyberStar  satellite
network footprint);  (iii) in-orbit insurance premiums; and (iv) personnel costs
and travel related to telemetry, tracking and control facility ("TT&C"), network
monitoring,  network design and similar  activities.  Regarding TT&C costs,  the
Company and Loral Skynet, a division of Loral SpaceCom Corporation,  which is in
turn a  wholly-owned  subsidiary  of Loral,  have entered into  agreements  (the
"Loral Skynet  Agreements")  effective on January 1, 1999,  whereby Loral Skynet
provides  to Loral  CyberStar  (i)  marketing  and sales of  satellite  capacity
services  on the Loral  CyberStar  satellite  network  and  related  billing and
administration  of customer  contracts for those services (the "Sales Services")
and (ii)  telemetry,  tracking  and  control  services  for the Loral  CyberStar
satellite  network  (the  "Technical  Services",  and  together  with the  Sales
Services,  the "Services").  Loral CyberStar is charged Loral Skynet's costs for
providing  these  services  plus a 5 percent  administrative  fee.  Loral Skynet
currently  provides  the  Services  for its own  Telstar  satellite  network and
Technical  Services for other third parties.  Loral  CyberStar  believes that it
will achieve cost savings as a result of the  consolidation of the Services with
Loral Skynet  pursuant to the Loral Skynet  Agreements and allow Loral CyberStar
to place greater  resources and focus on the business of providing  Data Network
Services,  which  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.

SATELLITE NETWORK

     Telstar 11 (formerly  Orion 1) Telstar 11, a high power  satellite  with 34
Ku-band  transponders,  commenced  operations  in  January  1995,  and  provides
coverage  to 34  European  countries,  much of the  United  States  and parts of
Canada, Mexico and North Africa.

     Telstar 12 (formerly  Orion 2). Telstar 12 , a high power satellite with 38
Ku-band  transponders,  expands Loral CyberStar's  European coverage and extends
coverage to portions of the former Soviet Union, Latin America,  the Middle East
and South Africa.  Telstar 12 was launched  aboard an Ariane  launch  vehicle in
October 1999 into 15 degrees  W.L.,  and  commenced  operations in January 2000.
Although Telstar 12 was originally intended to operate at 12 degrees W.L., Loral
Cyberstar reached an agreement with Eutelsat to operate Telstar 12 at 15 degrees
W.L.  while  Eutelsat  continued  to develop its  services at 12.5  degrees W.L.
Eutelsat has in turn agreed not to use its 14.8 degrees W.L. orbital slot and to
assert its priority rights at such location on Loral CyberStar's behalf. As part
of this coordination  effort, Loral CyberStar agreed to provide to Eutelsat four
transponders on Telstar 12 for the life of the satellite.  Eutelsat also has the
right to acquire,  at cost, four transponders on the next replacement  satellite
for Telstar 12. As part of the international  coordination  process, the Company
continues to conduct discussions with various administrations  regarding Telstar
12's  operations  at 15 degrees W.L. If these  discussions  are not  successful,
Telstar 12's useable capacity may be reduced.



                                       10
<PAGE>



     Orion  3.  On  May 4,  1999,  the  Orion  3  satellite  was  placed  into a
lower-than-expected  orbit after its launch on a Delta III rocket.  According to
Boeing,  the Delta III rocket  apparently  failed to complete  its second  stage
burn, and, as a result, the satellite, manufactured by Hughes, achieved an orbit
well below the planned  final  altitude.  The  satellite  cannot be used for the
company's  intended  purpose as a result.  The  satellite  and launch were fully
insured for approximately $266 million,  which was received in the third quarter
of 1999. DACOM Corporation,  a Korean communications company which had purchased
eight  transponders on Orion 3 for a total of $89 million,  had made prepayments
of approximately $34 million to the Company. Under the agreement with DACOM, the
amount prepaid was refunded in July 1999.

     Telstar  10/Apstar  IIR. To replace Orion 3, on September  28, 1999,  Loral
Asia Pacific  Satellite  (HK) Limited  ("Loral  CyberStar  HK"), a subsidiary of
Loral CyberStar, purchased from APT Satellite Company Limited ("APT") the rights
to all transponder  capacity (except for one C-band transponder retained by APT)
and  existing  customer  leases on the Apstar IIR  satellite,  and  renamed  the
satellite  Telstar  10/Apstar  IIR,  for  approximately  $273  million.  Telstar
10/Apstar IIR, which was  manufactured by SS/L, was launched in October 1997 and
as of September  28, 1999,  had an expected  remaining  useful life of 13 years.
Loral  CyberStar HK has full use of the  transponders  for the remaining life of
Telstar  10/Apstar IIR. Located at 76.5 degrees E.L., Apstar IIR covers a region
that includes Asia, Europe,  Africa and Australia,  which represents over 75% of
the world's population.  Under the purchase  agreement,  Loral CyberStar HK will
also have the option to lease from APT  replacement  satellites  upon the end of
life of Telstar 10/Apstar IIR.

     As of December  31, 1999,  Loral  CyberStar  had made  initial  payments of
approximately  $91 million to APT and paid  approximately  $182 million in March
2000.  Insurance proceeds from the Orion 3 failure were used to fund the initial
payments and a significant portion of the final payment.

RESULTS OF OPERATIONS

     On March 20, 1998, Orion was acquired by Loral Space & Communications Ltd.,
through the merger (the "Merger") of Loral Satellite Corporation, a wholly owned
subsidiary of Loral,  with and into Orion.  Loral consummated the acquisition by
issuing 18 million shares of its common stock and assuming existing Orion vested
options and  warrants  to purchase  1.4  million  shares of Loral  common  stock
representing  an  aggregate  purchase  price of  $472.5  million.  Orion was 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 was
subsequently  further changed to "Loral  CyberStar,  Inc." On December 31, 1999,
Loral CyberStar, Inc. merged with and into Loral Orion Services, Inc. and on the
same date Loral Orion Services, Inc. changed its name to Loral CyberStar, Inc.

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

     For accounting purposes,  the Merger was accounted for as of March 31, 1998
using the  purchase  method.  Accordingly,  the  consolidated  balance  sheet at
December  31,  1999  and 1998  reflects  the  push-down  of the  purchase  price
allocations.  The purchase  price  represented  $447.7  million in excess of the
Company's net book value,  which was  primarily  allocated to costs in excess of
net assets  acquired  of $620.4  million and a fair value  adjustment  of $153.4
million to increase the carrying value of the Company's  senior notes and senior
discount notes.


                                       11
<PAGE>

         In  evaluating  financial  performance,  management  uses  revenues and
earnings before interest,  taxes, depreciation and amortization and merger costs
("EBITDA")  as a measure of a segment's  profit or loss.  In order to provide an
understanding  of the Company,  the results of operations  discusses the results
for the year ended December 31, 1999 and on a pro forma basis for the year ended
December 31, 1998.  The pro forma  results of operations  for 1998,  include the
results of the  Company  for the nine  months  ended  December  31, 1998 and the
Predecessor Company for the three months ended March 31, 1998. In addition,  the
pro forma results of operations  for 1998 has been presented to give the effects
as of January 1, 1998,  of the Merger with Loral as  described  in Note 1 to the
Company's  financial  statements.  The pro forma results of operations  does not
purport to present  the actual  results of  operations  of the  Company  had the
Merger with Loral in fact  occurred on January 1, 1998,  nor is it indicative of
the results of operations that may be achieved in the future.

     As a  result  of the  Merger,  the pro  forma  adjustments  resulted  in an
increase in depreciation and amortization expenses of approximately $4.4 million
for 1998.  This increase  primarily  relates to the step up in the book value of
Telstar 11 and increased  amortization expenses for cost in excess of net assets
acquired  associated  with the Merger.  The pro forma results for 1998 include a
$12.8 million  adjustment to eliminate  merger costs. Pro forma interest expense
for 1998 was $64.5  million,  a decrease  of $3.1  million  from the  historical
amount.  The  decrease  in interest  expense is  primarily  attributable  to the
elimination of the debentures, as a result of the Merger.


OPERATING REVENUES (IN MILLIONS):

<TABLE>
<CAPTION>
                                                                          Pro forma
                                                     Year ended          year ended
                                                    December 31,         December 31,
                                                       1999                 1998
                                                  ---------------    -----------------
<S>                                                     <C>                  <C>
Fixed satellite services  ................        $        35.7      $      33.1
Data network services  ...................                 69.2             50.3
                                                  -------------      -----------
Operating revenues .......................        $       104.9      $      83.4
                                                  =============      ===========

</TABLE>


EBITDA (1) (IN  MILLIONS):


<TABLE>
<CAPTION>
                                                                          Pro forma
                                                     Year ended          year ended
                                                    December 31,         December 31,
                                                       1999                 1998
                                                  ---------------    -----------------
<S>                                                     <C>                  <C>
Fixed satellite services..................        $      21.9          $      21.4
Data network services  ...................               (8.3)               (12.4)
                                                  -----------          -----------
EBITDA ...................................        $      13.6          $       9.0
                                                  ===========          ===========

</TABLE>

     Revenue and Backlog. Revenues for the year ended December 31, 1999 and 1998
were  $104.9  million  and $83.4  million,  respectively,  an  increase of $21.5
million or 26 percent. This increase was primarily attributable to the Company's
Data Network Services  operations,  which grew from an Internet service provider
customer base of 77 in 1998 to 133 in 1999.

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


                                       12
<PAGE>

     At December 31, 1999,  the Company had a contracted  backlog  (representing
future  revenues  under  customer  contracts) of  approximately  $628.5  million
compared to $308.5  million at December  31,  1998,  an increase of 104 percent.
Revenue from contracted backlog is typically earned over two to five years.

     Direct Expenses. Direct expenses for 1999 were $40.8 million, or 39 percent
of sales compared to $26.3  million,  or 32 percent of sales for the same period
in 1998. This increase was primarily  attributable to lease costs of third party
space segment capacity,  Internet access,  and terrestrial link charges incurred
to support the Data Network Services segment. The Company also recorded a charge
of $1.8 million in the fourth quarter of 1999,  reflecting  obsolescence in some
of its private communications network equipment.

     Sales and  Marketing  Expenses.  Sales and  Marketing  expenses  were $25.0
million for the year ended  December 31, 1999,  as compared to $25.2 million for
the same period in 1998.

     Engineering  and Technical  Services  Expenses.  Engineering  and technical
services  expenses  for the year  ended  December  31,  1999 were  $9.2  million
compared  to $8.4  million  for the same  period in 1998,  an  increase  of $0.8
million or 10 percent.  This increase is primarily  due to  additional  salaries
associated with support of the Data Network Services operations.

     General and Administrative  Expenses.  General and administrative  expenses
were $16.4  million  for the year ended  December  31,  1999,  compared to $14.5
million for the same period in 1998,  an increase of $1.9 million or 13 percent.
The increase was  attributable  to increased bad debt expense  during the period
for the fixed satellite services segment.

     Depreciation  and  Amortization.  Depreciation  and  amortization was $75.8
million for the year ended  December 31, 1999  compared to $68.3 million for the
same period in 1998, an increase of $7.5 million or 11 percent. The increase was
primarily  due to the  acquisition  of the Telstar  10/Apstar  IIR  satellite in
September 1999. The Company also placed into service the Telstar 12 satellite in
December 1999 and recognized additional depreciation expense in conjunction with
the  build-out  of its  infrastructure  to  support  the Data  Network  Services
segment.

         Interest.  Interest income was $7.3 million for the year ended December
31, 1999, compared to $14.7 million for the same period in 1998. The decrease in
interest  income was due to a reduction  in the balances  held in the  Company's
segregated and restricted funds,  which was used for satellite  spending and for
interest payments on the Company's senior notes.  Interest expense for the years
ended  December  31,  1999  and  1998  was  $69.8  million  and  $64.5  million,
respectively,  net of  capitalized  interest of $20.3 million and $19.7 million,
respectively.  The increase was primarily due to interest incurred on loans from
Loral.

     Income  Taxes.  The Company is included in the  consolidated  U.S.  federal
income tax return of Loral.  Pursuant to a tax sharing  agreement  for 1999 with
Loral,  the Company is entitled to  reimbursement  for the use of its tax losses
when such losses are  utilized by Loral.  For the year ended  December 31, 1999,
the  Company  recorded  a  receivable  under  this  tax  sharing   agreement  of
approximately  $15.1 million and a deferred tax  provision of $4.7 million.  The
deferred tax asset of $49.2  million on the  accompanying  balance  sheet arises
primarily 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.

RESULTS BY OPERATING SEGMENT

Fixed Satellite Service

     Fixed  satellite  services  revenue for 1999 was $35.7 million versus $33.1
million  in 1998.  EBITDA on the same  basis was $21.9  million  in 1999,  or 61
percent of revenues,  versus EBITDA of $21.4 million,  or 65 percent of revenues
in 1998.

     During the fourth quarter of 1998, Loral completed its integration plan for
the Company and  transferred  management  of the  Company's  satellite  capacity
leasing and satellite operations to Loral Skynet,  effective January 1, 1999. In
addition to increasing  operational  efficiency,  the realignment  permits Loral
CyberStar to focus on and leverage its  experience  in the global data  services
market.

Data Network Services

     Revenues for the data network  services  segment in 1999 were $69.2 million
versus $50.3 million in 1998,  primarily from Loral  CyberStar's  corporate data
networking and Internet and Intranet services businesses.  EBITDA for 1999 was a
loss of approximately $8.3 million versus a loss of $12.4 million in 1998.


                                       13
<PAGE>

     Also see Note 8 to the  consolidated  financial  statements  for additional
information on segment results.

ACCOUNTING PRONOUNCEMENTS

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest

     As of December 31, 1999 and 1998, the fair value of the Company's long-term
debt was estimated to be $556.0  million and $761 million,  respectively,  using
quoted market prices,  for the Company's Senior Notes and Senior Discount Notes.
As of December 31, 1999 and 1998,  the long-term  debt carrying  value  exceeded
fair value by $409 million and $173 million,  respectively.  Market risk on debt
is estimated as the potential increase in annual interest expense resulting from
a  hypothetical  one percent  increase in the interest  rates and amounted to $8
million and $9 million, for 1999 and 1998, respectively.


                                       14

<PAGE>



ITEM 8.

INDEPENDENT AUDITORS' REPORT

To the Shareholder of Loral Cyberstar, Inc.:

We have audited the accompanying consolidated balance sheets of Loral Cyberstar,
Inc.  (formerly  Loral  Orion,  Inc.) and its  subsidiaries  (collectively,  the
Successor  Company),  a wholly owned  subsidiary of Loral Space & Communications
Corporation,  as of  December  31,  1999 and 1998 and the  related  consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year ended  December  31, 1999 and the nine months ended  December 31, 1998.  We
have  also  audited  the  consolidated  statements  of  operations,  changes  in
stockholders'  equity  and cash flows of Orion  Network  Systems,  Inc.  and its
subsidiaries (collectively,  the Predecessor Company) for the three months ended
March  31,  1998.  These  financial  statements  are the  responsibility  of the
Successor  and  Predecessor  Companies'  management.  Our  responsibility  is to
express an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Loral
Cyberstar,  Inc. and its  subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the year ended December 31,
1999 and the nine months ended  December 31, 1998 in conformity  with  generally
accepted  accounting  principles.  Further,  in  our  opinion,  the  Predecessor
Company's consolidated financial statements referred to above present fairly, in
all material respects,  the results of their operations and their cash flows for
the three  months ended March 31, 1998 in  conformity  with  generally  accepted
accounting principles.

As discussed in Note 1 to the consolidated  financial statements,  the Successor
Company  adopted a new accounting  basis  effective March 31, 1998 in connection
with a change of  ownership  and  recorded net assets as of that date at the new
owner's acquisition cost. Accordingly,  depreciation,  amortization and interest
charges in the  accompanying  consolidated  statement of operations for the year
ended  December  31, 1999 and the nine months ended  December 31, 1998,  are not
comparable to those of earlier periods presented.

DELOITTE & TOUCHE LLP



McLean, VA
February 22, 2000, except for note 11 as to which the date is March 24, 2000



                                       15
<PAGE>


ITEM 8 (CONTINUED).

                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS




To the Board of Directors  of Loral  CyberStar,  Inc.  (formerly  Orion  Network
Systems, Inc.):

     We have  audited the  consolidated  statements  of  operations,  changes in
stockholders'  equity  (deficit),  and  cash  flows  of  Loral  CyberStar,  Inc.
(formerly  Orion Network  Systems,  Inc.) for the year ended  December 31, 1997.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit.

     We conducted our audit in  accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the  audit  to  obtain  reasonable  assurance  about  whether  the  consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the consolidated results of operations and cash flows
of Loral CyberStar,  Inc.  (formerly Orion Network  Systems,  Inc.) for the year
ended  December 31, 1997, in conformity  with  accounting  principles  generally
accepted in the United States.



                                                           /s/ Ernst & Young LLP



Washington, DC
February 20, 1998





                                       16
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                                          DECEMBER 31,

                                                                           -----------------           ----------------
                                                                                 1999                        1998
                                                                           -----------------           ----------------
                                ASSETS
<S>                                                                               <C>                          <C>
Current assets:
  Cash and cash equivalents                                              $       24,117              $       35,861
  Restricted and segregated assets                                              187,315                      50,180
  Accounts receivable (less allowance for doubtful accounts
    of $2,257 and $1,019 at December 31, 1999 and 1998, respectively)            16,797                      15,292
  Prepaid expenses and other current assets                                      11,716                       4,299
  Due from CyberStar L.P.                                                           181                          --
                                                                         ---------------             ---------------
Total current assets                                                            240,126                     105,632

Restricted and segregated assets                                                     --                      22,675

Property and equipment, at cost:
  Land                                                                               74                          74
  Satellite and related equipment                                               784,344                     263,188
  Telecommunications equipment                                                   44,747                      35,630
  Furniture and computer equipment                                                9,910                       8,693
                                                                         ---------------             ---------------
                                                                                839,075                     307,585
  Less accumulated depreciation                                                 (88,549)                    (38,706)
  Satellite construction in progress, including capitalized
     interest of $20,198 at December 31, 1998                                   16, 951                     331,861
                                                                         ---------------             ---------------
  Net property and equipment                                                    767,477                     600,740

Due from Loral Space and Communications                                              --                       3,619
Cost in excess of net assets acquired associated
  with the Loral merger, net                                                    593,219                     608,015
Deferred income taxes                                                            49,223                      53,915
Other assets, net                                                                34,242                      22,908
                                                                         ---------------             ---------------
    Total assets                                                         $    1,684,287              $    1,417,504
                                                                         ===============             ===============
</TABLE>

                 See notes to consolidated financial statements.


                                       17
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                           CONSOLIDATED BALANCE SHEETS
                  (in thousands, except share and par amounts)
                                   (continued)

<TABLE>
<CAPTION>


                                                                                        December 31,
                                                                                      ----------------
                                                                                  1999                    1998
                                                                         ----------------          ------------------
                 LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                              <C>                         <C>
Current liabilities:
  Current portion of long-term debt                                      $        2,071             $        1,826
  Accounts payable                                                                3,098                      2,035
  Satellite purchase price payable                                              181,928                         --
  Accrued and other current liabilities                                          55,478                     16,162
  Customer deposits                                                               9,069                      7,897
  Deferred revenue                                                                2,624                     35,841
  Interest payable                                                               22,842                     22,842
  Note payable to Loral SpaceCom                                                 74,114                         --
  Due to Skynet Delaware                                                            305                         --
  Due to Space Systems/Loral                                                      9,750                         --
                                                                         ---------------           -----------------
    Total current liabilities                                                   361,279                     86,603

Long-term debt                                                                  963,299                    931,669
Deferred revenue                                                                  5,957                         --
Other long-term liabilities                                                         448                        141
Due to Space Systems/Loral                                                        5,900                         --

Commitments and contingencies:
Stockholders' equity:
  Common stock, $.01 par value; 1,000 shares authorized; 100
    shares outstanding at December 31, 1999 and 1998                                 --                         --
  Capital in excess of par value                                                544,176                    481,791
  Unearned compensation                                                          (1,804)                    (3,347)
  Accumulated other comprehensive income (loss)                                    (824)                       616
  Accumulated deficit                                                          (194,144)                   (79,969)
                                                                         ----------------          -----------------
    Total stockholders' equity                                                  347,404                    399,091
                                                                         ----------------          -----------------
    Total liabilities and stockholders' equity                           $    1,684,287             $    1,417,504
                                                                         ================          =================
</TABLE>

                 See notes to consolidated financial statements.



                                       18
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                                   Predecessor Company

                                                                         Nine months        Three months
                                                        Year ended          ended              ended               Year ended
                                                  December 31, 1999    December 31, 1998    March 31, 1998       December 31, 1997
                                                  -----------------    -----------------    --------------       ----------------
<S>                                                     <C>                  <C>                 <C>                    <C>
Service revenue                                    $     104,882    $        64,608            $     18,790       $     72,741

Operating expenses:
  Direct                                                  40,752             19,906                   6,406             26,531
  Sales and marketing                                     24,955             19,365                   5,790             19,424
  Engineering and technical services                       9,167              6,486                   1,898              7,750
  General and administrative                              16,416             10,834                   3,707             13,956
  Depreciation and amortization                           75,783             51,434                  12,483             48,161
  Merger costs                                                --                612                  12,145                 --
                                                  ----------------     --------------       ----------------      ---------------
       Total operating expenses                          167,073            108,637                  42,429            115,822
                                                  ----------------     --------------       ----------------      ---------------
Loss from operations                                     (62,191)           (44,029)                (23,639)           (43,081)

Interest income                                            7,335              9,299                   5,425             24,711
Interest expense                                         (69,776)           (46,439)                (21,190)           (83,769)
Other income (expense)                                       100                167                    (287)              (507)
                                                  ----------------     --------------       ----------------      ---------------

Loss before income taxes,  extraordinary loss
  on extinguishment of debt, minority interest
  and preacquisition loss of acquired subsidiary        (124,532)           (81,002)                (39,691)          (102,646)
Income tax benefit                                        10,357              1,033                      --                 --

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

Limited Partners' interest in the net loss of
   Orion Atlantic                                             --                 --                      --             12,043

Preacquisition loss of acquired subsidiary                    --                 --                      --                626
                                                  ----------------     --------------       ----------------      ---------------

Net loss                                                (114,175)           (79,969)                (39,691)          (105,740)

Preferred stock dividend, net of forfeitures                  --                 --                   1,387             (6,034)
                                                  ----------------     --------------       ----------------      ---------------

Net loss attributable to common stockholders       $    (114,175)    $      (79,969)           $    (38,304)      $   (111,774)
                                                  ================     ==============       ================      ===============
</TABLE>

                 See notes to consolidated financial statements.


                                       19
<PAGE>



                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                            Common Stock
                                                     -----------------------------
                                                                                      Capital in
                                                         Number                       Excess of       Accumulated       Treasury
                                                       of Shares        Amount        Par Value         Deficit         Stock 1
                                                     ---------------  ------------   --------------  ----------------  ------------
<S>                                                        <C>        <C>            <C>             <C>               <C>
Balance December 31, 1996
  (Predecessor Company)                                    11,245     $       112    $     86,932    $     (87,482)    $        --
  Issuance of common stock                                     11              --             142               --              --
  Conversion of preferred stock                             3,352              34          38,812               --              --
  Conversion of debentures                                    735               7          10,285               --              --
  Issuance of common stock for the purchase of APSC            86               1           1,199               --              --
  Issuance of common stock for interest payments              205               2           2,623               --              --
  Issuance of common stock for preferred stock
    dividend payments                                         121               1           2,069               --              --
  Issuance of warrants relating to  Senior Notes and
     Senior Discount Notes, net                                --              --           9,224               --              --
  Exercise of stock options and warrants                      176               2           1,764               --              --
  Employee stock purchase plan                                 28               1             244               --              --
  Preferred stock dividend and accretion, net of
     forfeitures                                               --              --              --           (6,034)             --
  Purchase of treasury stock                                   --              --              --               --             (91)
  1997 net loss                                                --              --              --         (105,740)             --
  Other comprehensive loss                                     --              --              --               --              --
  Comprehensive loss                                           --              --              --               --              --
                                                     ---------------  -------------  --------------  ----------------  ------------
Balance December 31, 1997                                  15,959     $       160    $    153,294    $    (199,256)    $       (91)
                                                     ===============  =============  ==============  ================  ============
</TABLE>

<TABLE>
<CAPTION>
                                                                              Accumulated
                                                                                 Other             Total
                                                              Unearned       Comprehensive     Stockholders'
                                                            Compensation     Income (Loss)    Equity (Deficit)
                                                            ------------     -------------    ----------------
<S>                                                         <C>              <C>              <C>
Balance December 31, 1996
  (Predecessor Company)                                     $          --    $          --    $         (438)
  Issuance of common stock                                             --               --               142
  Conversion of preferred stock                                        --               --            38,846
  Conversion of debentures                                             --               --            10,292
  Issuance of common stock for the purchase of APSC                    --               --             1,200
  Issuance of common stock for interest payments                       --               --             2,625
  Issuance of common stock for preferred stock
     dividend payments                                                 --               --             2,070
  Issuance of warrants relating to  Senior Notes and
     Senior Discount Notes, net                                        --               --             9,224
  Exercise of stock options and warrants                               --               --             1,766
  Employee stock purchase plan                                         --               --               245
  Preferred stock dividend and accretion, net of
     forfeitures                                                       --               --            (6,034)
  Purchase of treasury stock                                           --               --               (91)
  1997 net loss                                                        --               --
  Other comprehensive loss                                             --             (956)
  Comprehensive loss                                                   --               --          (106,696)
                                                            -------------    -------------    ----------------
Balance December 31, 1997                                   $          --    $        (956)   $      (46,849)
                                                            =============    =============    ================
</TABLE>



    See notes to consolidated financial statements. (continued on next page)


                                       20
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                                   (CONTINUED)
                                 (IN THOUSANDS)
                                  COMMON STOCK

<TABLE>
<CAPTION>
                                                            Common Stock
                                                     ----------------------------
                                                                                     Capital in
                                                         Number                      Excess of       Accumulated         Treasury
                                                       of Shares        Amount       Par Value         Deficit           Stock 1
                                                     -------------    -----------   ------------    ----------------    ------------
<S>                                                      <C>           <C>            <C>             <C>                <C>
Balance December 31, 1997
  (Predecessor Company)                                  15,959       $      160    $  153,294       $  (199,256)       $    (91)
  Issuance of common stock                                   14               --           246                --              --
  Conversion of preferred stock                           5,739               57        69,831                --              --
  Conversion of debentures                                3,572               36        49,964                --              --
  Issuance of common stock for interest payments            184                2         2,577                --              --
  Issuance of common stock for preferred stock
    dividend payments                                       316                3         5,455                --              --
  Exercise of stock options and warrants                    165                2         1,638                --              --
  Employee stock purchase plan                               20               --           292                --              --
  Preferred stock dividends and accretion, net
    of forfeitures                                           --               --            --             1,387              --
  Recapitalization related to purchase by Loral         (25,969)            (260)      195,215           237,560              91
  Increase purchase price                                    --               --         3,491                --              --
  Net loss for the three months ended March 31, 1998         --               --            --           (39,691)             --
  Other comprehensive loss                                   --               --            --                --              --
  Comprehensive Loss                                         --               --            --                --              --
                                                         ------       ----------    ----------       -----------        --------
Balance March 31, 1998                                       --       $       --    $  482,003       $        --        $     --
  Amortization of unearned compensation                      --               --            --                --              --
  Stock option forfeitures                                   --               --          (212)               --              --
  Net loss for the nine months ended December 31, 1998       --               --            --           (79,969)             --
  Other comprehensive income                                 --               --            --                --              --
  Comprehensive loss                                         --               --            --                --              --
                                                         ------       ----------    ----------       -----------        --------
Balance December 31, 1998                                    --       $       --    $  481,791       $   (79,969)       $     --
  Amortization of unearned compensation                      --               --            --                --              --
  Loral Space and Communications capital contribution        --               --        62,385                --              --
  1999 net loss                                              --               --            --          (114,175)             --
  Other comprehensive loss                                   --               --            --                --              --
  Comprehensive loss                                         --               --            --                --              --
                                                         ------       ----------    ----------       -----------        --------
Balance at December 31, 1999                                  --      $       --    $  544,176       $  (194,144)       $     --
</TABLE>

<TABLE>
<CAPTION>
                                                                      Accumulated
                                                                         Other             Total
                                                      Unearned       Comprehensive     Stockholders'
                                                    Compensation     Income (Loss)    Equity (Deficit)
                                                    ------------     -------------    ----------------
<S>                                                        <C>         <C>              <C>
Balance December 31, 1997
  (Predecessor Company)                                   $    --      $     (956)     $      (46,849)
  Issuance of common stock                                     --              --                 246
  Conversion of preferred stock                                --              --              69,888
  Conversion of debentures                                     --              --              50,000
  Issuance of common stock for interest payments               --              --               2,579
  Issuance of common stock for preferred stock
    dividend payments                                          --              --               5,458
  Exercise of stock options and warrants                       --              --               1,640
  Employee stock purchase plan                                 --              --                 292
  Preferred stock dividends and accretion, net
    of forfeitures                                             --              --               1,387
  Recapitalization related to purchase by Loral            (4,512)          1,473             429,567
  Increase purchase price                                      --              --               3,491
  Net loss for the three months ended March 31, 1998           --              --                  --
  Other comprehensive loss                                     --            (517)                 --
  Comprehensive Loss                                           --              --             (40,208)
                                                           ------      ----------      --------------
Balance March 31, 1998                                     (4,512)     $       --      $      477,491
  Amortization of unearned compensation                       953              --                 953
  Stock option forfeitures                                    212              --                  --
  Net loss for the nine months ended December 31, 1998         --              --                  --
  Other comprehensive income                                   --             616
  Comprehensive loss                                           --              --             (79,353)
                                                           ------      ----------      --------------
Balance December 31, 1998                                  (3,347)     $      616      $      399,091
  Amortization of unearned compensation                     1,543              --               1,543
  Loral Space and Communications capital contribution          --              --              62,385
  1999 net loss                                                --              --                  --
  Other comprehensive loss                                     --          (1,440)                 --
  Comprehensive loss                                           --              --            (115,615)
                                                           ------      ----------      --------------
Balance at December 31, 1999                              $(1,804)     $     (824)     $      347,404
</TABLE>

                 See notes to consolidated financial statements.

1    Includes  269,274  treasury shares of which 255,515 were carried at no cost
     through March 31, 1998.

                                       21
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                                       PREDECESSOR COMPANY
                                                                                               -----------------------------------
                                                                               NINE MONTHS     THREE MONTHS
                                                               YEAR ENDED         ENDED            ENDED             YEAR ENDED
                                                              DECEMBER 31,     DECEMBER 31,      MARCH 31,          DECEMBER 31,
                                                                 1999             1998              1998                1997
                                                             ---------------   ------------    --------------    ------------------
<S>                                                                  <C>              <C>             <C>                  <C>
OPERATING ACTIVITIES:
Net loss                                                    $      (114,175)  $     (79,969)  $      (39,691)    $      (105,740)
Adjustments to reconcile net loss to net cash provided by
  (used in) operating activities:
  Extraordinary loss on extinguishment of debt                           --              --               --              15,763
  Deferred income tax provision                                       4,692           3,771
  Depreciation and amortization                                      75,783          51,434           12,483              48,161
  Amortization of deferred financing costs                                               --              609               2,410
  Provision for bad debts                                             3,304           1,325              150               1,022
  Non-cash interest expense                                          33,758          21,325           10,070              34,347
  Interest earned on restricted assets                               (2,292)         (3,575)          (1,431)            (18,203)
  Other                                                                  --            (291)           1,644                  --
  Limited Partners' interest in net loss of Orion Atlantic               --              --               --             (12,043)
  Loss on obsolescence of assets                                      1,758              --               --                  --
  Changes in operating assets and liabilities:
     Accounts receivable                                             (4,809)         (3,578)          (1,408)             (2,393)
     Prepaid expenses and other current assets                       (7,417)           (502)             693              (2,277)
     Other assets                                                   (15,619)         (1,352)             201              (3,640)
     Accounts payable, accrued liabilities and other
       current liailities                                             9,805          (1,367)          (2,186)             (2,393)
     Interest payable                                                    --          12,403          (12,510)             16,180
     Customer deposits                                                1,172           5,071               23               1,612
     Due to Space Systems/Loral                                       5,900              --               --                  --
     Due to Skynet Delaware                                             305              --               --                  --
     Deferred revenue                                                 6,196          10,768              297              11,935
     Due from CyberStar, L.P.                                          (181)
     Due from Loral Space and Communications                             --          (3,619)              --                  --
                                                             ---------------   ------------    --------------    ------------------
Net cash provided by (used in) operating activities                  (1,820)         11,844          (31,056)            (15,789)

Investing activities:
Increase in restricted and segregated assets                         (2,942)        (15,321)          (3,198)           (419,187)
Uses of and transfers from restricted and segregated                156,380         273,960           35,938              90,500
assets
Satellite construction costs, including capitalized interest       (202,170)       (270,429)         (14,575)           (102,282)
Capital expenditures (See Note 2)                                  (105,354)        (13,667)          (3,805)            (11,062)
Purchase of Teleport Europe GmbH, net of cash acquired                   --              --               --              (8,375)
                                                             ---------------   ------------    --------------    ------------------
Net cash provided by (used in) investing activities                (154,086)        (25,457)          14,360            (450,406)

Financing activities:
Equity contributed from Loral SpaceCom                               62,385              --               --                  --
Due to Loral SpaceCom                                                77,733              --               --                  --
Due to Space Systems/Loral                                            9,750              --               --                  --
Debt and equity financing costs                                          --              --               --             (26,122)
Proceeds from issuance of common stock, net of Issuance
  Costs                                                                  --              --            2,117               2,153
Treasury stock purchase                                                  --              --               --                 (91)
Proceeds from issuance of debt                                           --              --               --             770,397
Repayment of senior notes and notes payable                          (1,223)         (2,815)            (254)           (216,723)
Swap termination fee                                                     --              --               --              (5,288)
Payment of satellite incentives                                        (246)         (2,580)            (324)            (18,621)
Other                                                                (4,237)          1,068           (1,051)             (1,689)
                                                             ---------------   ------------    --------------    ------------------
Net cash provided by (used in) financing activities                 144,162          (4,327)             488             504,016
                                                             ---------------   ------------    --------------    ------------------

Net increase (decrease) in cash and cash equivalents                (11,744)        (17,940)         (16,208)             37,821
Cash and cash equivalents at beginning of period                     35,861          53,801           70,009              32,188
                                                             ---------------   ------------    --------------    ------------------
Cash and cash equivalents at end of period                   $       24,117   $      35,861   $       53,801     $        70,009
                                                             ===============   ============    ==============    ==================
</TABLE>


                 See notes to consolidated financial statements.


                                       22
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)

1.   ORGANIZATION AND BUSINESS

     The principal  business of Loral  CyberStar,  Inc. (the "Company" or "Loral
CyberStar"),  formerly  known as Orion Network  Systems,  Inc.,  ("Orion" or the
"Predecessor   Company"),   and   its   subsidiary   guarantors   is   providing
satellite-based  communications services for private communications networks and
video  distribution and other satellite  transmission  services.  In 1998, Loral
CyberStar organized its business into two distinct operating segments as follows
(see Note 8):

     Fixed  Satellite  Services:  Leasing  transponder  capacity  and  providing
     value-added  services  to  customers  for a wide  variety of  applications,
     including  the  distribution  of  broadcast  programming,  news  gathering,
     business television, distance learning and direct-to-home ("DTH") services.
     Loral Skynet, a division of Loral Spacecom Corporation,  which is in turn a
     subsidiary of Loral Space & Communications Ltd.  ("Loral"),  began managing
     the Company's Fixed Satellite  Services ("FSS") assets effective January 1,
     1999.

     Data  Network   Services:   Business  in  development,   providing  managed
     communications   networks  and  Internet  and  intranet   services,   using
     transponder  capacity  on the Loral  Skynet  Telstar  and  Loral  CyberStar
     fleets.

ACQUISITION OF ORION BY LORAL

     On March 20,  1998,  Orion was  acquired  by Loral  through the merger (the
"Merger") of Loral Satellite  Corporation,  a wholly owned  subsidiary of Loral,
with and into Orion.  Loral  consummated  the  acquisition by issuing 18 million
shares of its common  stock and  assuming  existing  Orion  vested  options  and
warrants to purchase 1.4 million  shares of Loral common stock  representing  an
aggregate purchase price of $472.5 million.  Orion was 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  was
subsequently  further changed to "Loral  CyberStar,  Inc." On December 31, 1999,
Loral CyberStar, Inc. merged with and into Loral Orion Services, Inc. and on the
same date Loral Orion Services, Inc. changed its name to Loral CyberStar, Inc.

     The consolidated  financial statements for the three months ended March 31,
1998 and as of and for the year ended December 31, 1997,  respectively,  reflect
the results of operations of the Predecesor Company. The consolidated  financial
statements as of and for the year ended  December 31, 1999 and as of and for the
nine months ended  December 31, 1998 reflect the results of  operations of Loral
CyberStar.   Hereafter,   references  to  the   "Company"   include  both  Loral
CyberStar,Inc.  and its predecessor,  Orion Network Sytems, Inc.

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

     For accounting purposes,  the Merger was accounted for as of March 31, 1998
using the  purchase  method.  Accordingly,  the  consolidated  balance  sheet at
December 31, 1998 reflects the push-down of the purchase price allocations.  The
purchase  price  represented  $447.7 million in excess of the Company's net book
value,  which was primarily  allocated to costs in excess of net assets acquired
of $620.4 million and a fair value  adjustment of $153.4 million to increase the
carrying value of Company's senior notes and senior discount notes. In addition,
Loral agreed to assume Orion's unvested  employee stock options,  which resulted
in a new measurement date and an unearned  compensation  charge of $4.3 million,
to be amortized over the vesting period of the options.

     Had the  acquisition  of the  Company  occurred  on January  1,  1998,  the
unaudited  pro  forma  sales,  operating  loss and net  loss for the year  ended
December  31,  1998 would have been $83.4  million;  $59.3  million;  and $108.1
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, 1998.


                                       23
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

1.   ORGANIZATION AND BUSINESS (CONTINUED)

LORAL CYBERSTAR SUBSIDIARIES

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

ACQUISITION OF ORION ATLANTIC LIMITED PARTNERSHIP INTERESTS IN THE EXCHANGE

     Through  January 31,  1997,  Orion  Satellite  Corporation  (whose name was
subsequently changed to Loral Orion Services, Inc.) was the sole general partner
in Orion Atlantic L.P. ("Orion  Atlantic") and the Company had a combined 41 2/3
percent equity interest in Orion Atlantic.  As a result of the Company's control
of Orion Atlantic,  the Company's  consolidated financial statements include the
accounts of Orion Atlantic.  All of Orion  Atlantic's  revenues and expenses are
included in the Company's  consolidated  financial statements,  with appropriate
adjustment to reflect the interests of the limited  partners in Orion Atlantic's
losses prior to the Exchange as described  below.  The Company  acquired all the
remaining interests in Orion Atlantic on January 31, 1997 during the Exchange as
described below. The Company's  consolidated  financial  statements also include
the accounts of all other subsidiaries of the Company.

     On January 31, 1997,  the Company  acquired all of the limited  partnership
interests  which  it did  not  already  own in the  Company's  former  operating
subsidiary,  Orion Atlantic, that owned the Telstar 11 satellite (formerly Orion
1) prior to its merger with Loral Orion Services, Inc. Specifically, the Company
acquired  the Orion  Atlantic  limited  partnership  interests  and other rights
relating  thereto  held  by  British  Aerospace  Communications,  Inc.,  COM DEV
Satellite Communications Limited, Kingston Communications International Limited,
Lockheed Martin Commercial Launch Services, Inc., MCN Sat US, Inc., an affiliate
of Matra Hachette,  and Trans-Atlantic  Satellite,  Inc., an affiliate of Nissho
Iwai Corp. (collectively,  the "Exchanging Partners"). The Company accounted for
this  transaction  as an  acquisition  of  minority  interest,  and as a result,
approximately  $34.3  million  was  allocated  to the  cost  of the  Telstar  11
satellite and related equipment.

     Pursuant to a Section 351 Exchange  Agreement and Plan of  Conversion  (the
"Exchange  Agreement"),  the Exchanging  Partners exchanged their Orion Atlantic
limited partnership interests for 123,172 shares of a newly created class of the
Company's Series C Preferred Stock (the  "Exchange").  In addition,  the Company
acquired  certain rights held by certain of the  Exchanging  Partners to receive
repayment  of  various  advances  (aggregating  approximately  $41.6  million at
January 31, 1997).  The 123,172 shares of Series C Preferred Stock issued in the
Exchange were convertible  into  approximately 7 million shares of the Company's
common stock.  As a result of the Exchange,  certain of the Exchanging  Partners
became  principal  stockholders  of the  Company.  The  exchange is described in
greater  detail under the caption "The  Merger,  the Exchange and the  Debenture
Investments" in the Company's  Registration  Statement on Form S-4 (Registration
No. 333-19795).

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

THE ORION MERGER

     The Exchange was conducted on a tax-free  basis by means of an Orion Merger
(defined  below)  that was  consummated  on January  31,  1997.  Pursuant to the
Exchange Agreement,  Orion Oldco Services, Inc., formerly known as Orion Network
Systems,  Inc. ("Old Orion"),  formed the Company as a new Delaware  corporation
with a certificate of incorporation,  bylaws and capital structure substantially
identical in all material respects with those of Old Orion. Also pursuant to the
Exchange Agreement, the Company formed a wholly-owned  subsidiary,  Orion Merger
Company, Inc. ("Orion Merger Subsidiary").  Pursuant to an Agreement and Plan of
Merger,  Orion  Merger  Subsidiary  was merged with and into Old Orion,  and Old
Orion


                                       24
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

1.   ORGANIZATION AND BUSINESS (CONTINUED)

became a wholly-owned subsidiary of the Company (the "Orion Merger"). On January
31, 1997, the effective time of the Orion Merger, all of the stockholders of Old
Orion received stock in the Company with  substantially  identical rights to the
Old Orion  stock  they held  prior to the  effective  time of the Orion  Merger.
Following  the Orion  Merger,  the  Company  changed  its name from Orion  Newco
Services,  Inc. to Orion Network  Systems,  Inc. and the Company's  wholly-owned
subsidiary Orion Network Systems, Inc. changed its name to Orion Oldco Services,
Inc. The Exchange  and Orion  Merger are  described in greater  detail under the
caption "The Merger,  the Exchange and Debenture  Investments"  in the Company's
Registration Statement on Form S-4 (Registration No. 333-19795).

FINANCINGS

     On January 31, 1997,  the Company  completed a $710  million bond  offering
(the "Bond  Offering")  comprised of  approximately  $445 million of Senior Note
Units,  each of which  consisted  of one 11.25  percent  Senior Note due 2007 (a
"Senior  Note") and one Warrant to purchase  0.8463 shares of common stock,  par
value $.01 per share ("Common Stock"), of the Company (a "Senior Note Warrant"),
and  approximately  $265.4 million of Senior Discount Note Units,  each of which
consisted of one 12.5 percent Senior Discount Note due 2007 (a "Senior  Discount
Note," and  together  with the Senior  Notes,  the  "Notes")  and one Warrant to
purchase  0.6628 shares of Common Stock of the Company (a "Senior  Discount Note
Warrant", and together with Senior Note Warrants,  the "Warrants").  Interest on
the Senior Notes are payable  semi-annually in cash on January 15 and July 15 of
each year,  with the first  payment made on July 15, 1997.  The Senior  Discount
Notes  will not pay cash  interest  prior to July  15,  2002.  Thereafter,  cash
interest  will accrue until  maturity at an annual rate of 12.5 percent  payable
semi-annually on January 15 and July 15 of each year,  commencing July 15, 2002.
The exercise  price for the Warrants were $.01 per share of common stock.  There
were 697,400 Warrants issued in connection with the Notes (see Note 6).

     In addition,  on January 31, 1997,  the Company also  completed the sale of
$60 million of its convertible junior subordinated debentures (the "Debentures")
to two investors,  British Aerospace  Holdings,  Inc. ("British  Aerospace") and
Matra  Marconi  Space UK Limited  ("Matra  Marconi  Space").  British  Aerospace
purchased $50 million of the  Debentures  and Matra Marconi Space  purchased $10
million of the Debentures (collectively, the "Debentures Offering", and together
with the Bond Offering,  the "Financings").  The Convertible  Debentures were to
mature in 2012,  and bore  interest at a rate of 8.75 percent per annum  payable
semi-annually in arrears solely in Common Stock of the Company.  The Convertible
Debentures were subordinated to all other indebtedness of the Company, including
the  Notes.  Prior  to the  acquisition  of the  Company  by  Loral,  all of the
debentures had been converted to common stock.

     The net proceeds of the Bond Offering and Debentures  Offering were used by
the Company to repay the Orion 1 credit Facility (as discussed in Note 5 below),
pre-fund the first three years of interest payments on certain of the Notes, and
to build and launch two additional satellites, Telstar 12 (formerly Orion 2) and
Orion 3.

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

ACQUISITION OF TELEPORT EUROPE GMBH

     On March 26, 1997, the Company acquired  German-based  Teleport Europe GmbH
(now known as Loral Orion-Europe GmbH) ("Loral Orion Europe"),  a communications
company  specializing in private satellite networks for voice and data services.
The  Company  purchased  the  shares of Loral  Orion  Europe  held by the German
companies, Vebacom GmbH and


                                       25
<PAGE>



                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

1.   ORGANIZATION AND BUSINESS (CONTINUED)

RWE  Telliance  AG, now known as  o.tel.o,  for  approximately  $9  million.  In
addition,  the Company  acquired  Loral Orion  Europe's  licenses and  operating
agreements to provide satellite  network services in 40 countries,  including 17
countries  in which the  Company  previously  did not provide  service.  The net
purchase  price of Loral  Orion  Europe was $8.4  million and was  allocated  as
follows (in thousands):

<TABLE>
<CAPTION>
<S>                                                             <C>
Working capital deficit, net of cash acquired....       $      (683)
Property and equipment ...........................            9,346
Other, net ......................................              (288)
                                                           ----------
                                                            $ 8,375
                                                           ==========
</TABLE>

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION POLICY

     The consolidated financial statements for the year ended December 31, 1999,
the nine months ended  December 31, 1998, the three months ended March 31, 1998,
and for the  year  ended  December  31,  1997,  include  the  accounts  of Loral
CyberStar, its wholly-owned  subsidiaries and Orion Financial Partnership (OFP),
in which Loral CyberStar holds a 50 percent interest.

CASH AND CASH EQUIVALENTS

     Loral CyberStar  considers all highly liquid  investments  purchased with a
maturity  of  three  months  or less  to be  cash  equivalents.  Cash  and  cash
equivalents includes (in thousands):
<TABLE>
<CAPTION>

                                              December 31,
                                 -------------------------------
                                      1999                1998
                                  -----------     -------------
<S>                                   <C>                  <C>
Cash ..................       $       13,339    $        3,919
Money market funds ....                1,943             4,985
Commercial paper ......                8,835            26,957
                                  -----------     -------------
                              $       24,117    $       35,861
                                  ===========     =============
</TABLE>

RESTRICTED AND SEGREGATED ASSETS

     Restricted and segregated assets are classified as held to maturity and are
recorded at cost and consist of the following (in thousands):
<TABLE>
<CAPTION>

                                                         December 31,
                                              ----------------------------------
                                                    1999              1998
                                              ----------------  ----------------
<S>                                                    <C>               <C>
Commercial paper .......................       $      162,005    $           --
U.S. treasury notes ....................               25,310            72,855
                                              ----------------  ----------------
Total restricted and segregated assets..              187,315            72,855
Less current portion ...................             (187,315)          (50,180)
                                              ----------------  ----------------
Long-term portion ......................       $           --    $       22,675
                                              ================  ================
</TABLE>

     At December  31,  1999,  $49.8  million is  restricted  for use as interest
payments on the Senior  Notes  through July 2000.  At December  31, 1998,  $72.9
million was restricted for use as interest  payments on the Senior Notes through
January 2000.


                                       26
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Included  in  restricted  and  segregated  assets is $2.3  million and $2.1
million of accrued  interest at December  31, 1999 and 1998,  respectively.  The
balance at December 31, 1999 is restricted for use for interest  payments on the
Notes through July 2000 and  segregated  for a significant  portion of the final
payment on Telstar  10/Apstar IIR. The U.S.  treasury notes held at December 31,
1999 mature January 2000.

CONCENTRATION OF CREDIT RISK

     Financial   instruments  which  potentially   subject  Loral  CyberStar  to
concentrations of credit risk consist  principally of cash and cash equivalents,
restricted and segregated assets and accounts receivable. The Company's cash and
cash  equivalents  and  restricted and  segregated  assets are  maintained  with
high-credit-quality  financial  institutions and U.S treasury notes.  Management
believes that its credit evaluation,  approval and monitoring processes combined
with negotiated billing arrangements mitigate potential credit risks with regard
to the Company's current customer base.

PROPERTY AND EQUIPMENT

     Property and  equipment  acquired  after March 31, 1998 is carried at cost.
All property and equipment at March 31, 1998, was recorded at its estimated fair
market value, as of the date of the Merger.  Depreciation  expense is calculated
using the straight-line method over the estimated useful lives as follows:
<TABLE>
<CAPTION>
      <S>                                             <C>
    Satellite and related equipment..............    10.5 -16.5 years
    Telecommunications equipment.................    2-7 years
    Furniture and computer equipment.............    2-7 years
</TABLE>

     Costs  incurred  in  connection  with  the   construction   and  successful
deployment of the Telstar 11 and Telstar 12 satellites and related equipment are
capitalized.  Such costs include direct contract cost, allocated indirect costs,
launch costs,  launch  insurance,  construction  period interest and the present
value of satellite  incentive  payments.  Similar costs for the two high-powered
Ka-band satellites are included in "Satellites  construction in progress." Loral
CyberStar began depreciating the Telstar 11 and Telstar 12 satellites over their
estimated  useful life commencing on the date of operational  delivery in orbit,
January 1995 and December 1999,  respectively.  Satellite  lives are reevaluated
periodically.

     On May 4, 1999, the Orion 3 satellite was placed into a lower-than-expected
orbit after its launch on a Delta III rocket. According to Boeing, the Delta III
rocket  apparently  failed to complete its second stage burn,  and, as a result,
the satellite,  manufactured by Hughes, achieved an orbit well below the planned
final  altitude.  As a result,  the  satellite  cannot be used for its  intended
purpose.  The  satellite and launch were fully  insured for  approximately  $266
million,  which was received in the third quarter of 1999. DACOM Corporation,  a
Korean communications  company which had purchased eight transponders on Orion 3
for a total of $89 million, had made prepayments of approximately $34 million to
the Company.  Under the agreement with DACOM, the amount prepaid was refunded in
July 1999.

     To replace  Orion 3, on September  28, 1999,  Loral Asia Pacific  Satellite
(HK) Limited ("Loral CyberStar HK"), a subsidiary of Loral CyberStar,  purchased
from APT  Satellite  Company  Limited  ("APT")  the  rights  to all  transponder
capacity  (except  for one  C-band  transponder  retained  by APT) and  existing
customer leases on the Apstar IIR satellite,  and renamed the satellite  Telstar
10/Apstar IIR, for  approximately  $273 million.  Telstar  10/Apstar IIR, had an
estimated  remaining  useful life of 13 years as of September  28,  1999.  Loral
CyberStar HK has full use of the  transponders for the remaining life of Telstar
10/Apstar IIR. Under the purchase  agreement,  Loral CyberStar HK will also have
the  option to lease  from APT  replacement  satellites  upon the end of life of
Telstar 10/Apstar IIR.

     As of December  31, 1999,  Loral  CyberStar  had made  initial  payments of
approximately  $91 million to APT and is  scheduled  to pay  approximately  $182
million in March 2000.  Insurance proceeds from the Orion 3 failure were used to
fund the initial payments and will be used to fund a significant  portion of the
final payment.


                                       27
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

VALUATION OF LONG-LIVED ASSETS AND COSTS IN EXCESS OF NET ASSETS ACQUIRED

     The  carrying  value of Loral  CyberStar's  long-lived  assets and costs in
excess of net assets  acquired is reviewed  for  impairment  whenever  events or
changes in  circumstances  indicate  that an asset may not be  recoverable.  The
Company looks to current and future profitability, as well as current and future
undiscounted  cash flows,  excluding  financing costs, as primary  indicators of
recoverability.  If an impairment is determined to exist, any related impairment
loss is  calculated  based on fair  value.  In the fourth  quarter of 1999,  the
Company  recorded $1.8 million in direct  costs,  which is presented in the Data
Services  segment,  as a result of the  obsolescence  of private  communications
equipment.

DEFERRED FINANCING COSTS

     Deferred  financing  costs related to a debt  financing were amortized over
the period the debt was expected to be outstanding.  The net deferred  financing
costs  outstanding  at March 31, 1998 were written off to costs in excess of net
assets acquired  associated with the Loral Merger.  Deferred  financing costs of
$10.5 million  relating to the Orion 1 Credit  Facility were expensed in January
1997  in  connection  with  the  Financings  and  are  included  in the  caption
"Extraordinary loss on extinguishment of debt" for 1997.

COST IN EXCESS OF NET ASSETS ACQUIRED

     Cost in excess of net assets  acquired  associated with the Merger amounted
to  $620.4   million,   which  is  being  amortized  over  40  years  using  the
straight-line method. Accumulated amortization relating to cost in excess of net
assets  acquired  at  December  31,  1999 and 1998 was $27.1  million  and $11.7
million, respectively.

OTHER ASSETS

     Intangible assets  associated with the Merger are primarily  amortized over
the remaining useful life of Telstar 11, which was  approximately  five years at
December 31, 1999. Accumulated amortization relating to other assets at December
31, 1999 and 1998 was $6.3 million and $2.6 million,  respectively.  The Company
amortizes  FCC license  application  costs  related to Telstar 11 and Telstar 12
over  the  estimated  useful  lives of the  satellites.  Software  licenses  are
amortized  over three years which  represents  the estimated  useful life of the
software.

     Other assets,  net of amortization as of December 31, 1999 and 1998, was as
follows (in thousands):
<TABLE>
<CAPTION>

                                                                            December 31,
                                                                ----------------------------------
                                                                      1999                  1998
                                                                ----------------  ----------------
<S>                                                              <C>              <C>
Note receivable .........................................        $        1,842   $         2,476
FCC license application costs ...........................                 2,374             1,767
Prepaid satellite insurance .............................                11,132                --
Software license ........................................                 3,750                --
Intangible assets .......................................                10,822            15,261
Other  ..................................................                 4,322             3,404
                                                                ----------------  ----------------
                                                                 $       34,242    $       22,908
                                                                ================  ================
</TABLE>


                                       28
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FOREIGN CURRENCY TRANSLATION

         Results of  operations  for foreign  entities,  primarily the Company's
Loral Orion Europe GmbH subsidiary,  are translated using average exchange rates
during the period.  Assets and liabilities are translated to U.S.  dollars using
the exchange rate in effect at the balance sheet date. The resulting translation
adjustments are reflected in stockholders' equity (deficit) as accumulated other
comprehensive income (loss).

INTEREST RATE MODIFICATION AGREEMENT

     The Company entered into an interest-rate  swap and cap agreement to modify
the interest characteristics of the Orion 1 Credit Facility from a floating to a
fixed-rate basis. This agreement involved the receipt of floating rate amount in
exchange for fixed-rate interest payments over the life of the agreement without
an  exchange  of the  underlying  principal  amount.  The  differential  paid or
received  was  accrued  as  interest  rates  changed  and was  recognized  as an
adjustment  to interest  expense.  The fair value of the swap  agreement was not
recognized in the financial statements. This agreement was terminated in January
1997 in connection  with the Financings  discussed in Note 1. The Company had no
such agreements in place at December 31, 1999 or 1998.

REVENUE RECOGNITION

     Revenue is recognized  as earned in the period in which  telecommunications
and related services are provided.

     The following  summarizes the Company's  domestic and foreign  revenues (in
thousands):
<TABLE>
<CAPTION>
                                                                                     Predecessor Company
                                                                              -------------------------------
                                                  Year         Nine months       Three months         Year
                                                  ended           ended             Ended             ended
                                              December 31,     December 31,     March 31, 1998    December 31,
                                            --------------    -------------    ---------------   -------------
<S>                                              <C>              <C>                 <C>                <C>
Revenues from unaffiliated customers:
    United States.......................     $     46,801     $     24,001     $       6,895     $     30,927
    Germany ...........................            15,573           14,617             4,517           15,437
    Other foreign ......................           42,508           25,990             7,378           22,284
Revenues from related parties...........               --               --                --            4,093
                                            --------------    -------------    ---------------   -------------
Total services revenue..................     $    104,882     $     64,608     $      18,790     $     72,741
                                            ==============    =============    ===============   =============
</TABLE>



                                       29
<PAGE>
                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

INCOME TAXES

     The Company recognizes deferred tax assets and liabilities for the expected
future consequences of temporary differences between financial reporting and tax
bases of assets and  liabilities  using enacted tax rates that will be in effect
when the differences are expected to reverse.

     Following is a summary of the  components  of the net  deferred  income tax
asset balance at December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
                                                                 December 31,
                                                       -----------------------------------
                                                                1999               1998
                                                        --------------    ---------------
<S>                                                     <C>               <C>
Net operating loss carryforward .................       $       94,305    $       78,642
Amortization of premium and discount on
  Senior Notes and Senior Discount Notes ........               98,086            69,203
Amortization of intangibles .....................               (3,713)             (928)
Depreciation ....................................              (11,636)           (3,678)
Other ...........................................                3,264             4,209
                                                        --------------    ---------------
  Subtotal                                                     180,306           147,448
                                                        --------------    ---------------
Less valuation allowance.........................             (131,083)          (93,533)
                                                        ==============    ===============
  Net deferred income tax asset..................       $       49,223    $       53,915
                                                        ==============    ===============
</TABLE>

     At December 31,  1999,  the Company had  approximately  $301 million in net
operating  loss  carryforwards  which expire at varying  dates from 2003 through
2019. Due to uncertainties regarding its ability to realize the benefits of such
net operating loss  carryforwards and certain other net deferred tax assets, the
Company  established  a valuation  allowance of $131 million  against  these net
deferred tax assets.

     In 1999, the Company is included in the U.S.  federal income tax return for
Loral.  Pursuant to a tax sharing  agreement for 1999 with Loral, the Company is
entitled  to  reimbursement  for the use of its tax losses  when such losses are
utilized by Loral.  For the year ended December 31, 1999, the Company recorded a
receivable under this tax sharing agreement of approximately $15.1 million and a
deferred tax provision of  approximately  $4.7  million,  resulting in a net tax
benefit of approximately $10.4 million. The Company's effective tax benefit rate
(8.3%)  differs  from the federal  statutory  rate (35%),  primarily  due to the
valuation  allowance  established  for the  carryforward of the current year tax
loss (22.3%) and the non-deductible amortization of cost in excess of net assets
acquired  (4.4%).  The deferred tax asset of $49.2  million on the  accompanying
balance sheet primarily 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.

     At December 31, 1998, the Company had  approximately  $225.9 million in net
operating  loss  carryforwards  which expire at varying  dates from 2004 through
2013.  The use of these loss  carryforwards,  may be limited  under the Internal
Revenue Code as a result of ownership changes experienced by the Company. Due to
uncertainty  regarding its ability to realize the benefits of such net operating
loss  carryforwards  and certain  other net  deferred  tax  assets,  the Company
established a valuation allowance against deferred tax assets of $93.5 million.

     In 1998, the Company is included in the U.S.  federal income tax return for
Loral.  Pursuant to a tax sharing  agreement for 1998 with Loral, the Company is
entitled  to  reimbursement  for the use of its tax losses  when such losses are
utilized by Loral.  For the nine months ended  December  31,  1998,  the Company
recorded a receivable  under this tax sharing  agreement of  approximately  $4.9
million and a deferred tax provision of approximately $3.8 million, resulting in
a net tax benefit of  approximately  $1.1 million.  The Company's  effective tax
benefit  rate (1%)  differs from the federal  statutory  rate (35%),  due to the
valuation  allowance  established  for the  carryforward of the current year tax
loss (29%) and the  non-deductible  amortization of cost in excess of net assets
acquired  (5%).  The  deferred  tax asset of $53.9  million on the  accompanying
balance sheet primarily 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.

                                       30
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

STATEMENTS OF CASH FLOWS

     Non-cash  investing and financing  activities  and  supplemental  cash flow
information is (in thousands):

<TABLE>
<CAPTION>

                                                                                                     Predecessor Company
                                                                                             ---------------------------------------
                                                             Year          Nine months         Three months            Year
                                                            Ended             ended                ended              ended
                                                      December 31, 1999  December 31, 1998     March 31, 1998    December 31, 1997
                                                      -----------------   ---------------     ---------------     ---------------
<S>                                                   <C>                 <C>                 <C>                 <C>
Preferred stock dividend, net of forfeitures          $           --      $           --      $      (1,387)      $        6,034
Conversion of redeemable preferred stock to
  common stock                                                    --                  --             69,888               38,846
Conversion of subordinated debentures, accrued
  interest and deferred  financing costs to
  common stock                                                    --                  --             50,000               10,292
Conversion of Company common stock to Loral
  common stock as a result of this merger                         --                  --            469,000                   --
Issuance of Series C preferred stock                              --                  --                 --               94,000
Issuance of common stock for preferred stock
  dividends                                                       --                  --              5,858                2,070
Issuance of common stock and warrants                             --                  --              4,757               13,407
Interest paid                                                 52,139              25,551             25,237               35,573
Acquisition of Teleport Europe, net of cash acquired  $           --      $           --      $          --       $        8,375

</TABLE>



     Included in accounts  receivable and other current  liabilities at December
31,  1998 and March 31,  1998 are  customer  deposits  and up front fees of $3.4
million and in $1.1 million, respectively.

USE OF ESTIMATES

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

EARNINGS PER SHARE

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


                                       31
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  - (CONTINUED)

COMPREHENSIVE INCOME

     The Company follows  Statement of Financial  Accounting  Standards No. 130,
Reporting  Comprehensive Income ("SFAS 130") for the reporting and disclosure 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 (loss). Total comprehensive loss is as follows (in
thousands):
<TABLE>
<CAPTION>
                                                                                                     Predecessor Company
                                                                                             ---------------------------------------
                                                                     Year        Nine months      Three months         Year
                                       As of December 31,            Ended           ended            ended            ended
                                ---------------------------------  December 31    December 31,      March 31,        December 31,
                                     1999             1998           1999           1998             1998              1997
                                ---------------    --------------  -----------   -------------     --------------    --------------
<S>                            <C>                <C>             <C>           <C>                  <C>             <C>
Cumulative translation         $     (824)        $    616        $ (1,440)     $    616             $(517)          $  (956)
   adjustment
Accumulated other
   comprehensive (loss) income $     (824)        $    616        $ (1,440)     $    616             $(517)          $  (956)
                               ---------------    --------------  -----------   -------------     --------------    --------------
</TABLE>

ACCOUNTING PRONOUNCEMENTS

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

RECLASSIFICATIONS

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

3.  ORION ATLANTIC

     Orion  Atlantic  was a  Delaware  limited  partnership  formed  to  provide
international private communications networks and basic transponder capacity and
capacity  services  (including  ancillary  ground  services) to  businesses  and
institutions with  trans-Atlantic and  intra-European  needs. As of December 31,
1998,  Orion Atlantic  merged with Loral Orion  Services,  Inc. The business was
organized by Orion  Network  Services  ("Orion"),  the general  partner of Orion
Atlantic.   The  principal  purposes  of  Orion  Atlantic  was  to  finance  the
construction, launch and operation of up to two telecommunications satellites in
geosynchronous  orbit over the Atlantic  Ocean and to establish a  multinational
sales and service  organization.  Eight  international  corporations,  including
Orion,  invested a total of $90  million in equity as limited  partners in Orion
Atlantic. Orion Atlantic through January 1997, was financed by a credit facility
which  provided up to $251 million for the first  satellite  from a syndicate of
major international banks led by Chase Manhattan Bank, N.A. In addition to their
equity  investments,  the limited  partners had agreed to lease  capacity on the
satellites  up to an  aggregate  $155  million and had entered  into  additional
contingent capacity lease contracts  ("contingent call") up to an aggregate $271
million,  as support for repayment of the senior debt. The firm capacity  leases
and  contingent  calls were payable  over a seven-year  period after the Orion 1
satellite was placed in service. In July 1995, January and July 1996 the limited
partners  (excluding  the Company)  paid $7.6  million,  $18.0 million and $12.1
million, respectively, pursuant to the contingent calls. As discussed in Note 1,
in January 1997, the Company acquired all of the limited  partnership  interests
it did not already own in Orion Atlantic.

     Orion 1 -- The fixed base price of Orion 1, excluding  obligations relating
to satellite performance, aggregated $227 million. In addition to the fixed base
price,  the  contract  required  payments  in lieu of a further  contract  price
increase,  aggregating approximately $44 million through 2007. Such payments are
due,  generally,   if  24  out  of  34  satellite   transponders  are  operating
satisfactorily.  Shortly after  acceptance of the satellite in January 1995, the
Company filed a warranty claim with the satellite  manufacturer  relating to one
transponder that was not performing in accordance with contract  specifications.
In August 1995, Orion Atlantic received a one time refund of $2.75 million which
was applied as a mandatory  prepayment to the senior notes payable -- banks. The
Company believes that since Orion 1 is properly deployed and operational,  based
upon  industry  data  and  experience,  payment  of  the  satellite  performance
obligation is highly  probable and the Company  capitalized the present value of
this  obligation  of  approximately  $14.8  million  as part of the  cost of the
satellite.  The present value was estimated by discounting  the obligation at 14
percent.  As of March  31,  1998,  in  association  with the Loral  Merger,  the
obligation was revalued and recorded at  approximately  $16.2 million using a 12
percent discount rate over the remaining expected term.

                                       32
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

3.  ORION ATLANTIC (CONTINUED)

     Redemption of STET Partnership Interest; Issuance of New Interest to Orion.
-- In November 1995, Orion Atlantic  redeemed the limited  partnership  interest
held by STET (the "STET  Redemption") for $11.5 million,  including $3.5 million
of cash and $8 million in 12 percent  promissory notes due through 1997.  STET's
firm and  contingent  capacity  leases  remained in place until  released by the
Banks  under  the  Orion  1  Credit   Facility.   STET's  existing   contractual
arrangements  with  Orion  Atlantic  were  modified  in a  number  of  respects,
including (i) a reduction of approximately  $3.5 million in amounts due by Orion
Atlantic to  Telespazio  S.p.A.,  an affiliate of STET,  over a ten-year  period
under  contracts  relating to the  construction  of Orion 2,  back-up  tracking,
telemetry  and  command  services  through a facility  in Italy and  engineering
consulting   services,   (ii)  the   establishment  of  ground   operations  and
distribution  agreements between Orion Atlantic and Telecom Italia, a subsidiary
of STET,  relating to Italy,  and the  granting to Telecom  Italia of  exclusive
marketing rights relating to Italy for a period ending December 1998 conditioned
upon  Telecom  Italia  achieving  certain  sales  quotas,  and  (iii)  canceling
exclusive ground operations and sales  representation  agreements  between Orion
Atlantic and STET (or its affiliates) relating to Eastern Europe.

     Orion  Atlantic  funded  the  STET  Redemption  by  selling  a new  limited
partnership interest to Orion for $8 million (including $3.5 million in cash and
$4.5 million in 12 percent  promissory  notes due through  1997).  In connection
with the STET redemption,  Orion agreed to indemnify Telecom Italia for payments
which were made in July 1995 of approximately $1 million and which would be made
in the  future  under its firm and  contingent  capacity  agreements  with Orion
Atlantic and posted a $10 million  letter of credit to support  such  indemnity.
The Company  accounted  for this  transaction  as an  acquisition  of a minority
interest and, as a result,  approximately $3.1 million was allocated to the cost
of the Telstar 11 satellite and related equipment.

     During 1995,  Orion Atlantic  entered into  agreements with certain limited
partners (including the Company) under which the participating  limited partners
voluntarily  gave up their rights to receive  capacity under their firm capacity
agreements through January 1996. The participating limited partners continued to
make payments for such capacity but have the right to receive refunds from Orion
Atlantic out of cash  available  after  operating  costs and payments  under the
Credit  Facility.  In addition,  services  revenue included $4.1 million in 1997
from limited partners pursuant to the firm capacity commitments,  not subject to
refund.  In connection  with the Exchange  described in Note 1, such rights were
acquired by the Company.

4.  COMMITMENTS AND CONTINGENCIES

     Telstar 11 (formerly  Orion 1) -- In November  1995, a component on Telstar
11 malfunctioned, resulting in a 2-hour service interruption. The malfunctioning
component  supported nine  transponders  serving the European portion of Telstar
11's  footprint.  Full service was restored using a back-up  component.  If that
back-up  component fails,  Telstar 11 would lose a significant  amount of usable
capacity.  In such  event,  while the Company  would be  entitled  to  insurance
proceeds of  approximately  $195  million as of December  1999,  and could lease
replacement  capacity and function as a reseller with respect to such  capacity,
the loss of capacity would have a material adverse effect on the Company.

     Telstar 12  (formerly  Orion 2) -- During the second  quarter of 1998,  the
Company entered into a satellite  procurement  contract with Space Systems/Loral
("SS/L"),  a wholly owned  subsidiary  of Loral  SpaceCom  Corporation,  for the
construction  and  launch of the  Telstar  12  satellite  for  operation  in the
Atlantic Ocean region at 12(degree)  W.L. (the "SS/L  Contract").  In connection
therewith,  the Company  notified  Matra  Marconi  Space  ("Matra")  that it was
canceling its satellite procurement contract with Matra for the construction and
launch of a satellite for  operation in the Atlantic  Ocean region at 12(degree)
W.L.  (the "Matra  Contract").  The Company had no  obligation  to make  further
payments to Matra as a result of this  cancellation,  but Matra retained amounts
previously  paid by the  Company  of $49.1  million.  As of March 31,  1998,  in
association  with the  Merger,  these  costs and other  internal  direct  costs,
totaling   approximately  $61  million,   capitalized  in  connection  with  the
construction of the Telstar 12 satellite, were written off to costs in excess of
net assets acquired.  Loral  CyberStar's cash was used to fund the SS/L Contract
up to an amount that when added to the amounts previously paid to Matra, did not
exceed $202  million,  the total  amount that would  otherwise  have been due to
Matra if the Matra Contract had not been canceled.  All  requirements to SS/L in
excess of $202 million for Telstar 12 were funded with


                                       33
<PAGE>



                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

4.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

additional equity contributed from Loral.

     Telstar 12 , a high power satellite with 38 Ku-band  transponders,  expands
Loral  CyberStar's  European  coverage  and extends  coverage to portions of the
former Soviet Union, Latin America, the Middle East and South Africa. Telstar 12
was  launched  aboard an Ariane  launch  vehicle in October 1999 into 15 degrees
W.L.,  and  commenced  operations  in  January  2000.  Although  Telstar  12 was
originally  intended to operate at 12 degrees W.L.,  Loral Cyberstar  reached an
agreement with Eutelsat to operate  Telstar 12 at 15 degrees W.L. while Eutelsat
continued  to develop its  services at 12.5  degrees  W.L.  Eutelsat has in turn
agreed not to use its 14.8 degrees W.L.  orbital slot and to assert its priority
rights  at  such  location  on  Loral  CyberStar's   behalf.  As  part  of  this
coordination  effort,  Loral  CyberStar  agreed  to  provide  to  Eutelsat  four
transponders on Telstar 12 for the life of the satellite.  Eutelsat also has the
right to acquire,  at cost, four transponders on the next replacement  satellite
for Telstar 12. As part of the international  coordination  process, the Company
continues to conduct discussions with various administrations  regarding Telstar
12's  operations  at 15 degrees W.L. If these  discussions  are not  successful,
Telstar 12's useable capacity may be reduced.

       Agreements  with Loral Skynet - During the fourth quarter of 1998,  Loral
completed its integration plan for Loral CyberStar and transferred management of
Loral CyberStar's  satellite capacity leasing and satellite  operations to Loral
Skynet,  effective January 1, 1999. Loral CyberStar and Loral Skynet, a division
of Loral SpaceCom  Corporation,  which in turn is a  wholly-owned  subsidiary of
Loral,  have entered into agreements (the "Loral Skynet  Agreements")  effective
January 1, 1999,  whereby Loral Skynet provides to Loral CyberStar (i) marketing
and  sales of  satellite  capacity  services  on the Loral  CyberStar  satellite
network and related billing and  administration of customer  contracts for those
services  (the  "Sales  Services")  and (ii)  telemetry,  tracking  and  control
services for the Loral CyberStar  satellite  network (the "Technical  Services",
and  together  with the Sales  Services,  the  "Services").  Loral  CyberStar is
charged  Loral  Skynet's  costs for  providing  these  services plus a 5 percent
administrative fee (see Note 8).

     Litigation  --  On  November  9,  1996,   Orion  and  Skydata   Corporation
("Skydata")  executed a letter with respect to the settlement in full of pending
litigation  and  arbitration  related  to a  patent  dispute.  As  part  of  the
settlement,   Skydata  granted  Orion  (and  its  affiliates)  an  unrestricted,
world-wide  paid-up  license to make,  use or sell products or methods under the
patent and all other corresponding  continuation and reissue patents.  Orion has
paid Skydata $437,000 during 1997 and 1998 as part of this settlement.

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

     Lease  arrangements  - The  Company  has  entered  into  operating  leases,
principally for office space and space segment capacity from third parties. Rent
expense was $7.9 million,  $2.8  million,  $0.3 million and $1.3 million for the
year ended December 31, 1999, the nine months ended December 31, 1998, the three
months ended March 31, 1998 and the year ended December 31, 1997, respectively.



                                       34
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

4.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

     Future minimum lease payments are as follows (in thousands):


<TABLE>
<CAPTION>

<S>                                   <C>
2000............................      $     15,426
2001............................            10,868
2002............................            10,830
2003............................             5,820
2004............................             4,650
Thereafter......................            14,000
                                     --------------
                                      $     61,594
                                     ==============
</TABLE>


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


<S>                                    <C>
2000............................       $   168,977
2001............................           130,990
2002............................            92,024
2003............................            55,507
2004............................            39,647
Thereafter......................           141,328
                                     --------------
                                       $   628,473
                                     ==============

</TABLE>
5.  LONG-TERM DEBT

     Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>

                                                                          December 31,
                                                                ----------------  ---------------
                                                                      1999             1998
<S>                                                             <C>                <C>
Senior notes (including premium of $58.7 and
  $64.6 million at December 31, 1999 and 1998, respectively     $    501,734       $   507,573
Senior discount notes (principal amount at maturity
  $484 million and accreted principal amount
  $378 million at December 31, 1999 and 1998, respectively           448,408           408,812
Notes payable - TT&C Facility..........................                3,729             4,953
Satellite incentive obligations........................               11,129            11,376
Other..................................................                  370               781
                                                                 ---------------    -------------
     Total debt........................................              965,370           933,495
Less: current portion..................................               (2,071)           (1,826)
                                                                 ---------------    -------------
     Long-term debt....................................         $    963,299       $   931,669
                                                                 ===============    =============
</TABLE>


                                       35
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

5.  LONG-TERM DEBT (CONTINUED)

Total interest (including commitment fees, capitalized interest and amortization
of deferred  financing costs) incurred for the year ended December 31, 1999, the
nine months ended  December 31, 1998,  the three months ended March 31, 1998 and
the year ended December 31, 1997 was $90.1 million, $62.8 million, $24.5 million
and  $91.1  million,  respectively.  Capitalized  interest  for the  year  ended
December 31, 1999,  the nine months  ended  December 31, 1998,  the three months
ended March 31, 1998 and the year ended  December 31, 1997,  was $20.3  million,
$16.4 million,  $3.3 million and $7.3 million,  respectively.  Aggregate  annual
maturities of long-term debt consist of the following (in thousands):
<TABLE>
<CAPTION>

<S>                                           <C>
2000....................................      $         2,071
2001....................................                2,509
2002....................................                2,623
2003....................................                1,728
2004....................................                1,738
Thereafter..............................              954,701
                                             -----------------
                                              $       965,370
                                             ==================
</TABLE>
     Senior Notes and Senior  Discount Notes -- On January 31, 1997, the Company
completed a $710  million  bond  offering  (the "Bond  Offering")  comprised  of
approximately  $445 million of Senior Note Units, each of which consisted of one
11.25 percent Senior Note due 2007 (a "Senior Note") and one Warrant to purchase
0.8463 shares of common stock,  par value $.01 per share ("Common Stock") of the
Company (a "Senior Note Warrant"),  and  approximately  $265.4 million of Senior
Discount Note Units, each of which consisted of one 12.5 percent Senior Discount
Note due 2007 (a "Senior Discount Note," and together with the Senior Notes, the
"Notes")  and one  Warrant  to  purchase  0.6628  shares of Common  Stock of the
Company (a "Senior  Discount  Note  Warrant  and  together  with the Senior Note
Warrants, the "Warrants"). Interest on the Senior Notes is payable semi-annually
in cash on January 15 and July 15 of each year,  commencing  July 15, 1997.  The
Senior  Discount  Notes do not pay cash  interest  prior to  January  15,  2002.
Thereafter,  cash  interest  accrues  until  maturity  at an annual rate of 12.5
percent  payable  semi-annually  on  January  15,  and  July  15 of  each  year,
commencing  July 15, 2002.  These  warrants were assumed by Loral as a result of
the Loral Merger and were  converted to warrants to acquire  Loral common stock.
The Company  made cash  interest  payments  of $25.0  million  $24.9  million in
January 1998 and July 1998 and $24.9  million in January 1999 and July 1999,  on
the Senior  Notes.  The  indentures  supporting  the Senior Notes and the Senior
Discount Notes contain certain  covenants  which,  among other things,  restrict
distributions to stockholders of the Company, the repurchase of equity interests
in the  Company  and the  making of certain  other  investments  and  restricted
payments,  the  incurrence  of  additional  indebtedness  by the Company and its
restricted subsidiaries, the creation of liens, certain asset sales, transaction
with affiliates and related parties, and mergers and consolidations. The Company
is in compliance with the  requirements of such  indentures.  The exercise price
for the  Warrants  will be $.01 per share of common  stock.  There were  697,400
Warrants  issued in connection  with the Notes (see Note 6). On May 27, 1998, $2
million of Senior Notes were redeemed at 101 percent of the principal  amount of
the notes plus accrued  interest to the payment date,  and resulted in a gain on
retirement of debt of approximately  $0.3 million.  The accreted principal value
of the Senior  Discount  Notes was $378 million and $334 million at December 31,
1999 and 1998, respectively.

     Convertible  Junior  Subordinated  Debentures  -- On January 31,  1997,  in
connection  with the Financings  discussed in Note 1, the Company  completed the
sale of $60  million of its  convertible  junior  subordinated  debentures  (the
"Convertible  Debentures") to two investors,  British Aerospace  Holdings,  Inc.
("British  Aerospace")  and  Matra  Marconi  Space UK  Limited  ("Matra  Marconi
Space").  British Aerospace purchased $50 million of the Convertible  Debentures
and Matra Marconi Space purchased $10 million of the Convertible Debentures. The
Convertible  Debentures  were to mature in 2012,  and bore interest at a rate of
8.75 percent per annum that was to be paid  semi-annually  in arrears  solely in
Common Stock of the Company. The Convertible Debentures were subordinated to all
other  indebtedness  of the Company,  including  the Notes.  Matra Marconi Space
converted their $10 million of Convertible  Debentures and accrued interest into
735,292  shares  of  common  stock in  December  1997.  In March  1998,  British
Aerospace  converted  their $50 million of  Convertible  Debentures  and accrued
interest into  approximately  3.6 million shares of common stock. As of December
31, 1998, all of the debentures had been converted to common stock.



                                       36
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

5.  LONG-TERM DEBT (CONTINUED)

     The net proceeds of the Bond Offering and Debentures  Offering were used by
the Company to repay the Orion 1 Credit Facility, pre-fund the first three years
of  interest  payments  on  certain  of the  Notes,  and to build and launch two
additional satellites, Telstar 12 and Orion 3.

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

     Note Payable - TT&C  Facility -- In June 1995 upon  acceptance  of the TT&C
Facility,  the Company  refinanced  $9.3 million from  General  Electric  Credit
Corporation as a seven-year  term loan,  payable  monthly.  The interest rate is
fixed at 13.5  percent.  The TT&C  debt is  secured  by the TT&C  Facility,  the
Satellite  Control System Contract and the Company's  leasehold  interest in the
TT&C  Facility   land.   The  TT&C  financing   agreement   contains   customary
representations,  warranties and covenants  regarding certain  activities of the
Company.  The Company is in compliance  with the  requirements  of the financing
agreement.

     Satellite  Incentive  Obligations --The  obligations  relating to satellite
performance  have been recorded at the present value  (discounted  at 14 percent
for Orion and 12 percent after the Merger, the Company's  estimated  incremental
borrowing rate for unsecured  financing) of the required  payments through 2007.
During  1999 and 1998,  payments  aggregating  $1.6  million  and $7.2  million,
respectively, were made pursuant to this obligation.

     Notes Payable - STET -- In connection with the STET Redemption, the Company
issued $8 million of promissory  notes bearing interest at 12 percent per annum.
At December 31, 1997, the $8 million  promissory notes issued in connection with
the STET Redemption had been repaid.

     Notes  Payable - Limited  Partners -- In January 1997,  the Company  issued
Series C Convertible Preferred Stock in exchange for the Preferred Participation
Units (PPUs) aggregating $8.1 million due to certain former limited partners for
development  of Orion  Atlantic's  network  services  business.  Holders of PPUs
earned interest on aggregate  amounts drawn at the rate of 30 percent per annum.
As of March  31,  1998,  the  Series C  Convertible  Preferred  Stock  issued in
exchange for the PPUs have been converted to common stock.

 6.  REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

     As of March 31, 1998, all of the  redeemable  convertible  preferred  stock
outstanding  at December  31,  1997,  including  accrued  dividends  on Series C
Preferred Stock,  were converted to  approximately  6.1 million shares of common
stock at prices ranging from $8.50 to $17.80 per share.

Redeemable Preferred Stock

     In June  1994,  the  Company  issued  11,500  shares  of Series A 8 percent
Cumulative  Redeemable  Convertible  Preferred  Stock at  $1,000  per  share and
granted an option to purchase an  additional  3,833 shares of similar  preferred
stock at $1,000 per share. Dividends on preferred stock accrued at 8 percent per
year and were  payable  as and when  declared.  The  Company  could  redeem  the
preferred stock at the amount invested plus accrued and unpaid  dividends.  Upon
such a  redemption,  the  preferred  stockholders  were to  receive a warrant to
acquire at $8.50 per share the  number of shares of common  stock into which the
preferred stock was convertible.  The 11,500 shares issued were convertible into
1,352,941 shares of common stock ($8.50 per share). Upon conversion, accrued and
unpaid dividends were forfeited. After the Company issued preferred stock (along
with warrants and options to make an additional  investment)  in June 1994,  the
Directors and  affiliates  of Directors  who purchased  common stock in December
1993 and the institutions and other investors who purchased common stock in June
1994 each  exercised its right to receive  preferred  stock (along with warrants
and options to make an additional  investment)  in exchange for the common stock
previously acquired and the Company issued an aggregate of 3,000 shares of


                                       37
<PAGE>



                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

  6.  REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)

 Series A Preferred  Stock and related  options for 1,000 shares to such persons
and entities.  The 3,000 shares issued were  convertible  into 352,941 shares of
common stock  ($8.50 per share).  Through  December  31,  1997,  7,567 shares of
preferred  stock  were  converted  into  890,235  shares  of common  stock.  The
remaining  6,933 shares  outstanding  were  convertible  into 815,647  shares of
common stock at December 31, 1997. All Series A Preferred Stock  outstanding was
converted into common stock in connection with the Merger.

         In June 1995, certain Directors,  affiliates of Directors,  and certain
holders of Series A Preferred Stock purchased 4,483 shares of Series B Preferred
Stock for  approximately  $4.5 million.  This purchase was pursuant to an option
granted in June 1995 to purchase $1 of preferred  stock  similar to the Series A
Preferred  Stock for each $3 of Series A Preferred Stock purchased in June 1994,
except that such similar  preferred  stock would be convertible at any time with
Common  Stock at a price  within a range of $10.20 to $17.00 per share of common
stock based upon when the option is exercised.  The Series B Preferred Stock had
rights,  designations  and  preferences  substantially  similar  to those of the
Series A Preferred Stock, and was subject to similar covenants,  except that the
Series B Preferred Stock was convertible  into 439,510 shares of Common Stock at
an  initial  price  of  $10.20  per  share,  subject  to  certain  anti-dilution
adjustments,  and  purchases  of Series B Preferred  Stock did not result in the
purchaser receiving any rights to purchase additional  preferred stock.  Through
December 31, 1997,  2,424 shares of preferred  stock were converted into 237,647
shares of common stock. The remaining 2,059 shares  outstanding were convertible
into 201,862 shares of common stock at December 31, 1997. All Series B Preferred
Stock outstanding was converted into common stock in connection with the Merger.

         In  January  1997  the  Company  issued  123,172  shares  of  Series  C
Cumulative Redeemable Preferred Stock to British Aerospace Communications, Inc.,
COM DEV Satellite Communications Limited, Kingston Communications  International
Limited, Lockheed Martin Commercial Launch Services, Inc., MCN Sat US, Inc., and
Trans-Atlantic  Satellite, Inc. in exchange for their Orion Atlantic partnership
interests.  Dividends on the  preferred  stock accrued at 6 percent per year and
were  distributable in the Company's common stock calculated based on the market
price of such stock under a formula provided in the Certificate of Designations.
The shares were  convertible  into  approximately  7 million  shares ($17.50 per
share) of the Company's common stock.  Through December 31, 1997,  40,531 shares
of preferred stock,  including dividends,  were converted into approximately 2.4
million shares of common stock. Series C Cumulative Preferred Stock was recorded
net of deferred  offering  costs of  approximately  $3.3  million.  The Series C
Cumulative  Preferred Stock was subject to mandatory  redemption at par value in
25 years.  The  difference  between the  carrying  value and par value was being
accreted over such period.

     The  preferred  stock  had a  liquidation  preference  equal to the  amount
invested plus accrued and unpaid dividends. Preferred stockholders were entitled
to vote on an  as-converted  basis  and had the  right  to put the  stock to the
Company upon a merger,  change of control or sale of substantially all assets at
the greater of liquidation value or fair value. All Series C Preferred Stock was
converted into common stock in connection with the Merger.

Stockholders' Equity

     1987  Employee  Stock  Option Plan - Under the 1987  Employee  Stock Option
Plan,  1,470,588 shares of common stock were reserved for issuance upon exercise
of options granted.  Shares of common stock were generally  purchased under this
plan at prices not less than the fair market  value,  as determined by the Board
of Directors, on the date the option was granted.


                                       38
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

  6.  Redeemable Preferred Stock and Stockholders' Equity (continued)

     In November  1993,  stock  options for 95,588  shares of common  stock were
granted to key executives  which may be exercised  only upon the  achievement of
certain business and financial objectives.  At December 31, 1995, the executives
had  earned  the  right  to  exercise  40,441  of  these  options  based  on the
achievement of such objectives. The remaining options were canceled during 1996.

     Stock options vested annually over a one to five-year  period.  All options
were  exercisable  up to seven years from the date of grant.  The Company's 1987
Employee  Stock Option Plan expired in 1997. No further shares are available for
grant under this plan.  There were 506,803  options  exercisable at December 31,
1997.

     In July 1996, the Company  granted,  subject to shareholder  approval,  the
Chairman of the Executive  Committee  100,000 options at $9.83 per share.  These
options vested as follows, 50,000 on January 17, 1997 and 50,000 upon successful
completion  of either a  refinancing  of the Orion 1  satellite,  financing  for
construction,  launch  and  insurance  for  Orion 2 or Orion 3 or a  substantial
acquisition or relationship with a strategic  partner.  These  requirements were
met in January 1997.

     In March 1998, the 1987 Employee Stock Option Plan was assumed by Loral and
all outstanding options were converted to options to acquire Loral common stock.

     Stock options under the 1987 Employee Stock Option Plan outstanding at:
<TABLE>
<CAPTION>
                                                Predecessor Company
                                             March 31,      December 31,
                                          --------------- ----------------
                                               1998               1997
<S>                                        <C>                      <C>
Range of exercise price..............      $8.16 - $12.29   $8.16 - $12.29
                                           ==============   ==============

Outstanding at  beginning of period .          1,174,310           911,663
Granted during period................                 --           400,670
Exercised............................           (157,041)          (81,383)
Canceled.............................             (1,250)          (56,640)
Converted to options to acquire
     Local common stock..............         (1,016,019)               --
                                           --------------   --------------
Outstanding at end of period.........                 --         1,174,310
                                           ==============   ==============
</TABLE>

     1997  Employee  Stock Option Plan - In 1997,  the Company  adopted a second
stock option plan. Under this plan, as amended, 1,300,000 shares of common stock
were reserved for issuance upon  exercise of options  granted.  Shares of common
stock could be purchased  under this plan at prices not less than the fair value
as determined by the Board of Directors, on the date the option were granted.

     In March 1998, the 1997 Employee Stock Option Plan was assumed by Loral and
all outstanding options were converted to options to acquire Loral common stock.


     Stock options under the 1997 Employee Stock Option Plan outstanding at:

<TABLE>
<CAPTION>
                                                 Predecessor Company
                                          --------------------------------
                                            March 31,       December 31,
                                                1998           1997
                                          --------------   ---------------
<S>                                       <C>                       <C>
Range of exercise price.............      $9.30 - $17.06    $9.30 - $17.06
                                          ==============   ===============
Outstanding at beginning of period..             552,000                --
Granted during period...............                  --           556,000
Exercised  .........................              (5,000)               --
Canceled   .........................             (80,000)           (4,000)
Converted to options to acquire
     Local common stock.............            (467,000)               --
                                          --------------   ---------------
Outstanding at end of period........                  --           552,000
                                          ==============   ===============
</TABLE>

     Non-Employee  Director Stock Option Plan - In 1996,  the Company  adopted a
Non-Employee  Director  Stock Option plan.  Under this plan,  380,000  shares of
common stock were reserved for issuance.  During 1997, there were 80,000 options
granted  pursuant  to this  plan at $9.60  per  share.  At  December  31,  1997,
aggregate options  outstanding  pursuant to this plan totaled 270,000, of which,
180,000 were exercisable at prices ranging from $8.49 to $12.53 per share.

     In March 1998, the  Non-Employee  Director Stock Option Plan was assumed by
Loral and all  outstanding  options were  converted to options to acquire  Loral
common stock.


                                       39
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

  6.  REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)

     Compensation expense relating to these plans was not significant.

     The Company has elected to continue to follow  Accounting  Principles Board
Opinion No. 25,  Accounting for Stock Issued to Employees ("APB 25") and related
Interpretations  in  accounting  for its  employee  stock based award  programs,
because the alternative fair value accounting  provided for under FASB Statement
No. 123, Accounting for Stock Based Compensation ("SFAS 123") which is effective
for awards after January 1, 1996,  requires use of option  valuation models that
were not developed for use in valuing employee stock options. Under APB 25, when
the  exercise  price  of the  employee  award  equals  the  market  price of the
underlying  stock on the date of grant, as has been the case  historically  with
the Company's awards, no compensation expense is recognized.

     Pro forma information  regarding net income and earnings per share required
by SFAS 123, has been  determined  as if the Company had accounted for its stock
options under the fair value method of that  statement.  The fair value of these
options was estimated at the date of the grant using a  Black-Scholes  valuation
model with the following assumptions as of March 31, 1998 and December 31, 1997:

<TABLE>
<CAPTION>

<S>                                             <C>
Risk-free interest rate .............           6.5%
Expected dividend yields ............            0.0%
Expected life of option .............        6.5 years
Volatility of the Company's stock ...          69%
</TABLE>




                                       40
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

  6.  REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)

     For  purposes of pro forma  disclosures,  the  estimated  fair value of the
options is amortized to expense over the option's vesting period.  The effect of
applying SFAS 123 on pro forma net loss is not necessarily representative of the
effects on reported net loss for future years due to,  among other  things,  (1)
the vesting  period of the stock  options  and the (2) fair value of  additional
stock  options in future  years.  The  Company's  pro forma  information  are as
follows (in thousands, except per share information):

<TABLE>
<CAPTION>

                                                         Predecessor Company
                                                  -------------------------------
                                                   Three months       Year Ended
                                                       Ended         December 31,
                                                     March 31,           1997
                                                       1998
                                                  ---------------   ----------------
<S>                                                <C>              <C>
Pro forma net loss .........................       $      (40,777)  $     (110,703)
                                                  ===============   ================
Pro forma net loss per share ...............                   --   $       (10.03)
                                                  ===============   ================

</TABLE>

     401(k) Profit Sharing Plan -- In September  1996,  the Company  amended the
401(k) profit sharing plan. Under this plan, 100,000 shares of common stock were
reserved  for  issuance  as  the  Company's   discretionary  match  of  employee
contributions.  The Company's matching  contributions may be made in either cash
or in the equivalent  amount of the Company's  common stock. For the four months
ended  April 30,  1998 and the year  ended  December  31,  1997,  the  Company's
matching  contribution was 3,341 and 10,480 shares of the Company's common stock
with a value of approximately $60,000 and $180,000, respectively.

     Effective May 1, 1998,  the 401(k) Profit  Sharing Plan was merged into the
Loral Space and  Communications  Ltd.  Savings Plan and $0.8 million of matching
contributions  were  incurred  in this plan for the period  May 1, 1998  through
December 31, 1998.  During the period ended  December 31, 1999,  $0.4 million of
matching contributions were incurred in this plan.

     Stock Purchase Plan -- In September  1996, the Company  adopted an employee
stock  purchase  plan.  Under this  plan,  500,000  shares of common  stock were
reserved for  issuance.  Shares of common stock were  purchased  under this plan
through  payroll  deduction.  The  purchase  price of each share of common stock
purchased  under the plan was 85 percent of the fair market  value of the common
stock on the  measurement  date.  During 1998 and 1997 the Company issued 20,180
and 27,731 shares,  respectively,  pursuant to the Plan. In March 1998 the Stock
Purchase Plan was terminated.

     Stock Warrants - In November 1996, the Company  granted 50,000  warrants to
DACOM to purchase  shares of common stock at $14 per share.  The  warrants  were
exercisable for a six month period  beginning six months after the  commencement
date, as defined in the Joint  Investment  Agreement with DACOM,  and ending one
year after the commencement  date and terminated at that time or at any time the
Joint Investment Agreement was terminated. The fair value of the warrants at the
date of issue was $300,000 and was  estimated  using a Black  Scholes  valuation
model.


                                       41
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

  6.  REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)

      Warrants outstanding  (including the warrants issued to DACOM as discussed
above) at:


                                                Predecessor Company
                                          -------------------------------------
                                            March 31,            December 31,
                                                1998                 1997
                                          ----------------   -------------------
Range of exercise price.............      $  0.01 - $14.00   $  0.01 - $14.00
                                          ================   ===================
Outstanding at beginning of period..             740,550            142,115
Granted during period...............                  --            697,400
Exercised  .........................              (2,518)           (96,159)
Canceled   .........................                  --             (2,806)
Converted to warrants to acquire
     Local common stock.............            (738,032)                --
                                          ----------------   -------------------
Outstanding at end of period........                  --            740,550
                                          ================   ===================


     There were 690,550 warrants exercisable at December 31, 1997.

     The holders of  preferred  stock also held  warrants to purchase  1,017,509
shares of common stock at the conversion  price of such preferred  stock.  These
warrants did not become  exercisable  unless the Company  exercised its right to
repurchase the preferred stock at the liquidation value, plus accrued and unpaid
dividends.  As of March 31, 1998,  these  warrants were forfeited as a result of
the conversion of all preferred stock to common stock.

     In January  1997,  the  Company  issued  Senior  Note  Warrants  and Senior
Discount  Note Warrants to acquire  376,608 and 320,792  shares of common stock,
respectively  at $.01 per  share in  connection  with  the  Bond  Offering.  The
warrants were not exercisable  prior to six months after the closing date of the
Bond Offering and became separately  transferable from the Notes six months from
date of issuance.  The  estimated  fair value of the warrants  aggregating  $9.6
million was  allocated  $5.2  million to Senior Notes and $4.4 million to Senior
Discount  Notes as debt  discount.  At December 31, 1997,  6,850  warrants  were
converted  into 5,797 shares of common stock.  In March 1998,  the warrants were
converted to warrants to purchase Loral common stock.

     Shares Reserved for Issuance - The Company had no shares of common stock at
December 31, 1999 and 1998,  reserved for issuance upon conversion of debentures
and preferred  stock,  exercise of outstanding  stock options and warrants,  and
common stock issued under the stock purchase and 401(k) profit sharing plans.

     Loral's  1996 Stock  Option  Plan - Certain  employees  of Loral  CyberStar
participate  in Loral's  1996 Stock Option  Plan.  Under this plan,  options are
granted at the  discretion  of Loral's  Board of Directors to employees of Loral
and its affiliates.  Such options become exercisable as determined by the Board,
generally over five years,  and generally  expire no more than 10 years from the
date of grant.  For the year ended December 31, 1999,  Loral granted certain key
employees of Loral CyberStar 519,000 options to purchase Loral common stock at a
weighted average price of $17.22 per share (weighted average fair value of $5.72
per share).  For the nine months ended December 31, 1998,  Loral granted options
at a weighted average price of $24.55 per share (weighted  average fair value of
$5.88 per share).  During  1999,  620 options  were  exercised  and 179,860 were
cancelled  and at December 31,  1999,  options to purchase  807,180  shares were
outstanding,  63,836 of which were  exercisable  and at December  31,  1998,  no
options were  exercised,  options to purchase  513,420 shares were  outstanding,
1,200 of which were exercisable.

                                       42
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

 6.  REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)

     As described  above,  Loral CyberStar  accounts for its stock-based  awards
using the intrinsic value method in accordance with Accounting  Principles Board
Opinion  No. 25,  "Accounting  for Stock  Issued to  Employees"  and its related
interpretations.   SFAS  No.  123,  "Accounting  for  Stock-Based  Compensation"
requires the disclosure of pro forma net income (loss) as if Loral CyberStar had
adopted the fair value  method.  SFAS No. 123 requires  that equity  instruments
granted to an  employee by a  principal  stockholder  be included as part of the
disclosure.  The  pro  forma  incremental  effect  on net  loss  required  to be
disclosed under SFAS No. 123 is approximately  $0.8 million and $1.9 million for
the year ended  December 31, 1999 and the nine months  ended  December 31, 1998,
respectively.

     The Company's calculations were made using the Black-Scholes option pricing
model with the  following  weighted  average  assumptions:  expected life six to
twelve months following vesting;  stock volatility,  30% in 1999 and 25% for the
nine months ended December 31, 1998; risk free interest rate, 4.4% to 6.6% based
on date of grant; and no dividends during the expected term.

7.  FAIR VALUES OF FINANCIAL INSTRUMENTS

     Other than  amounts due under the Senior Notes and Senior  Discount  Notes,
CyberStar  believes that the carrying  amounts reported in the balance sheets of
its other  financial  assets and  liabilities  approximates  their fair value at
December  31, 1999 and 1998.  The fair value of the  Company's  Senior Notes and
Senior  Discount was estimated based on quoted market prices and at December 31,
1999 and 1998, were approximately  $327.8 million and $438.6 million, and $213.0
million and $304.9 million, respectively.

8.  SEGMENTS

     The Company has two reportable business segments:  Fixed Satellite Services
and Data Network Services (see Note 1).

         In  evaluating  financial  performance,  management  uses  revenues and
earnings before interest,  taxes and depreciation and amortization ("EBITDA") as
the  measure of a  segment's  profit or loss.  The  accounting  policies  of the
reportable segments are the same as those described in Note 2.

     Summarized financial  information  concerning the reportable segments is as
follows:





                                      1999
                               SEGMENT INFORMATION
                                  (in millions)
<TABLE>
<CAPTION>


                                                 FIXED                                TOTAL
                                                SATELLITE       SERVICES           REPORTABLE        INTERSEGMENT
                                                 SERVICES       DATA NETWORK        SEGMENTS         ELIMINATIONS     CONSOLIDATED
                                             ---------------   ---------------   ---------------    ---------------  --------------

<S>                                          <C>               <C>               <C>                 <C>              <C>
Revenue from external customers ......       $          35.7   $          69.2   $        104.9      $        --      $       104.9
Intersegment revenue .................                   7.1              --                7.1               (7.1)            --
                                             ---------------   ---------------   ---------------    ---------------  --------------
Gross revenue ........................       $          42.8    $         69.2    $       112.0      $        (7.1)   $       104.9
                                             ===============   ===============   ===============    ===============  ==============
EBITDA1 ..............................       $          21.9    $         (8.3)  $         13.6      $        --      $        13.6
Depreciation and amortization ........                  60.4              15.4             75.8               --               75.8
                                             ---------------   ---------------   ---------------    ---------------  --------------
Loss from operations .................       $         (38.5)  $         (23.7)  $        (62.2)     $        --      $       (62.2)
                                             ===============   ===============   ===============    ===============  ==============
Total assets .........................       $       1,605.0   $         589.5   $      2,194.5      $      (510.2)   $     1,684.3
                                             ===============   ===============   ===============    ===============  ==============
Capital expenditures..................       $         292.9   $          14.6   $        307.5      $        --      $       307.5
                                             ===============   ===============   ===============    ===============  ==============
</TABLE>


                                       43
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)


8.  SEGMENTS (CONTINUED)



                       NINE MONTHS ENDED DECEMBER 31, 1998
                               SEGMENT INFORMATION
                                  (IN MILLIONS)
<TABLE>
<CAPTION>
                                                 FIXED                                 TOTAL
                                                SATELLITE        DATA NETWORK       REPORTABLE
                                                 SERVICES          SERVICES           SEGMENTS         CONSOLIDATED
                                             ---------------   ---------------   --------------      --------------
<S>                                          <C>               <C>               <C>                 <C>
Revenue from external customers ......       $          25.2   $          39.4   $         64.6      $        64.6
                                             ===============   ===============   ==============      ==============
EBITDA 1 .............................       $          16.3   $          (8.3)  $          8.0      $         8.0
Depreciation and amortization ........                 41.6               9.8              51.4               51.4
Merger costs .........................                   --                --                --                0.6
                                             ---------------   ---------------   --------------      --------------
Income (loss) from operations ........       $         (25.3)  $         (18.1)  $        (43.4)     $       (44.0)
                                             ===============   ===============   ==============      ==============
Total assets .........................       $       1,325.7   $          91.8   $      1,417.5      $     1,417.5
                                             ===============   ===============   ==============      ==============
Capital expenditures .................       $         272.1   $          12.0   $        284.1      $       284.1
                                             ===============   ===============   ==============      ==============
</TABLE>






                        THREE MONTHS ENDED MARCH 31, 1998
                               SEGMENT INFORMATION
                               PREDECESSOR COMPANY
                                  (IN MILLIONS)
<TABLE>
<CAPTION>

                                                 FIXED                                 TOTAL
                                                SATELLITE        DATA NETWORK       REPORTABLE
                                                 SERVICES          SERVICES           SEGMENTS         CONSOLIDATED
                                             ---------------   ---------------   --------------      --------------


<S>                                          <C>               <C>               <C>                 <C>
Revenue from external customers ......       $           7.9   $          10.9   $         18.8      $        18.8
                                             ===============   ===============   ==============      ==============
EBITDA 1 .............................       $           5.1   $          (4.1)  $          1.0      $         1.0
Depreciation and amortization ........                  9.6               2.9              12.5               12.5
Merger costs .........................                   --                --                --               12.1
                                             ---------------   ---------------   --------------      --------------
Income (loss) from operations.........       $          (4.5)  $          (7.0)  $        (11.5)     $       (23.6)
                                             ===============   ===============   ==============      ==============
Total assets .........................       $       1,333.0   $          98.2   $      1,431.2      $     1,431.2
                                             ===============   ===============   ==============      ==============
Capital expenditures .................       $          14.8   $           3.6   $         18.4      $        18.4
                                             ===============   ===============   ==============      ==============
</TABLE>





                                       44
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

8.  SEGMENTS (CONTINUED)

                                      1997
                               SEGMENT INFORMATION
                               PREDECESSOR COMPANY
                                  (IN MILLIONS)
<TABLE>
<CAPTION>
                                                 FIXED                                 TOTAL
                                                SATELLITE        DATA NETWORK       REPORTABLE
                                                 SERVICES          SERVICES           SEGMENTS         CONSOLIDATED
                                             ---------------   ---------------   --------------      --------------
<S>                                          <C>               <C>               <C>                 <C>
Revenue from external customers ......       $          31.3   $          41.4   $         72.7      $        72.7
                                             ===============   ===============   ==============      ==============
EBITDA 1 .............................       $          21.3   $         (16.2)  $          5.1      $         5.1
Depreciation and amortization ........                  34.1              14.1             48.2               48.2
                                             ---------------   ---------------   --------------      --------------
Income (loss) from operations.........       $         (12.8)  $         (30.3)  $        (43.1)     $       (43.1)
                                             ===============   ===============   ==============      ==============
Capital expenditures .................       $         102.3   $          11.0   $        113.3      $       113.3
                                             ===============   ===============   ==============      ==============
Total assets .........................       $         849.0   $          47.5   $        896.5      $       896.5
                                             ===============   ===============   ==============      ==============
</TABLE>
----------

1    EBITDA (which is equivalent  to operating  income (loss) efore  deprciation
     and  amortization  and merger  costs) is  provided  because it is a measure
     commonly  used in the  communication  industry to analyze  companies on the
     basis of operating performance,  leverage and liquidity and is presented to
     enhance the understanding of Loral CyberStar's operating results.  However,
     EBITDA is not an  alternative  to net income as an indicator of a company's
     operating  performance,  or cash flow  from  operations  as a measure  of a
     company's liquidity.  EBITDA may be calculated  differently ans, therefore,
     may not be  comparable  to  similarly  titled  measures  reported  by other
     companies.


     With the  exception of the  Company's  satellites  in orbit,  the Company's
long-lived assets are primarily located in the United States,  Germany and other
foreign countries,  and at December 31, 1999 and December 31, 1998,  amounted to
approximately $65.0 million and $4.6 million,  $2.1 million and $365.1 million,
$10.1 million and $1.2 million, respectively.


                                       45

<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

 9.  RELATED PARTY TRANSACTIONS

     During 1999, Loral CyberStar,  Inc. obtained  additional  financing (via an
intercompany note from Loral Space & Communications Corporation) to complete the
construction  of its  satellite  fleet  and  meet  its  operating  requirements.
Borrowings  under  this note can be made for  periods of 1, 2, 3 or 6 months and
bear interest at LIBOR (5.31% at December 31, 1999) plus 275 basis  points.  The
intercompany  note can be prepaid at any time without  penalty and is payable on
demand.  During 1999, the note was transferred from Loral Space & Communications
Corporation to Loral SpaceCom Corporation. At December 31, 1999, the outstanding
borrowing  amount  under this  intercompany  note was $74.1  million  (including
accrued  interest of $4.1  million) and is  reflected on the balance  sheet as a
note payable to Loral SpaceCom.

     Space  Systems/Loral  built the Telstar 12 satellite  for Loral  CyberStar,
Inc.  that was  launched  in  October  1999  and  commenced  revenue  generating
operations in January 2000. At December 31, 1999,  Loral CyberStar had a payable
balance to Space Systems/Loral of $15.7 million,  representing the final payment
on the satellite  construction  contract of $9.8 million (due in March 2000) and
$5.9 million of long-term insurance costs (due in 2001).

     Loral  CyberStar Data Network  Services  leases  transponder  capacity from
Loral Skynet. At December 31, 1999, Loral CyberStar, Inc. had a payable to Loral
Skynet of $0.3  million.  Loral  Skynet also  provides  telemetry,  tracking and
control  services  for the Loral  CyberStar  satellite  network.  The Company is
charged  Loral  Skynet's  costs for  providing  these  services plus a 5 percent
administrative fee, which amounted to $18.7 million for 1999.

     At December 31, 1999, Loral CyberStar  maintained a receivable balance from
Cyberstar L.P. of $0.2 million,  which  represented  total amounts earned during
the year and as of year end for services performed on behalf of CyberStar L.P..

     At December 31, 1998,  Loral  CyberStar had a receivable from Loral of $3.6
million.  This  receivable  balance  was  generated  from  Loral's  use of Loral
CyberStar's tax losses pursuant to a tax sharing agreement entered into in 1998.

     In December  1999, in connection  with a  contractual  arrangement  between
Space Systems/Loral,  a subsidiary of Loral, and one of SS/L's customers,  Loral
Cyberstar agreed to lease to SS/L the capacity of three  transponders on Telstar
10/Apstar IIR through the end of life of the satellite.  Under this arrangement,
Loral Cyberstar will receive a reimbursement of costs until such time as Telstar
10/Apstar  IIR is fully  leased up, at which time  thereafter,  the lease  rates
would be increased to market rates.

10.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following is a summary of the quarterly  results of operations  for the
years ended December 31, 1999 and 1998 (in thousands):


<TABLE>
<CAPTION>


                                                          March 31,             June 30,            September 30,       December 31,
                                                    ----------------        --------------         --------------     --------------
<S>                                                         <C>                  <C>                      <C>             <C>
1999
  Revenues...................................      $        22,538       $        24,072       $        25,168       $       33,104
  Loss from operations.......................              (13,471)              (11,928)              (13,972)             (22,820)
  Loss before income taxes...................              (26,069)              (28,320)              (31,136)             (39,007)
  Net loss ..................................              (24,235)              (27,515)              (31,622)             (30,803)

</TABLE>
<TABLE>
<CAPTION>


                                                       Predecessor
                                                         Company
                                                          March 31,             June 30,            September 30,       December 31,
                                                    ----------------        --------------         --------------     --------------
<S>                                                         <C>                  <C>                      <C>             <C>
1998
  Revenues...................................      $        18,790       $        20,243       $        21,153       $       23,212
  Loss from operations.......................              (23,639)              (15,296)              (13,951)             (14,782)
  Loss before income taxes...................              (39,691)              (28,000)              (26,301)             (26,701)
  Net loss...................................              (39,691)              (19,755)              (29,614)             (30,600)

</TABLE>


                                       46
<PAGE>


                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
                                   (CONTINUED)

11.  SUBSEQUENT EVENT

     On March  24,  2000,  Loral  CyberStar  entered  into an  agreement  with a
subsidiary  of Loral to  assign  to the  Loral  subsidiary,  pending  regulatory
approval, its Ka-band orbital slots located at 89 degrees W.L., 81 degrees W.L.,
78 degrees E.L. and 47 degrees W.L. In connection with this  transaction,  Loral
CyberStar  also  agreed to  transfer  to the Loral  subsidiary  all  agreements,
including  satellite  construction  contracts,  related to such slots. The total
purchase  price  for the slots and these  agreements  was $36.5  million,  which
purchase  price was  applied by Loral  CyberStar  towards  the last  installment
payment on Telstar 10/Apstar IIR.
<PAGE>

ITEM 9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  AND  ACCOUNTING  AND
FINANCIAL DISCLOSURES.

     As a result of the Merger,  the Board of Directors of the Company appointed
Deloitte & Touche LLP ("Deloitte & Touche") as independent  auditors,  effective
May 13, 1998.  Deloitte & Touche  replaced  Ernst & Young LLP ("Ernst & Young"),
which  served as the  Company's  independent  auditors for the fiscal year ended
December 31, 1997 and was dismissed, effective May 13, 1998.

     The report  issued by Ernst & Young on the Company's  financial  statements
for the fiscal year ended December 31, 1997 did not contain any adverse  opinion
or disclaimer of opinion,  and was not qualified or modified as to  uncertainty,
audit scope or accounting principles.

      During the fiscal year ended  December  31,  1997,  and during the interim
period  preceding  May 13, 1998,  (i) there were no  disagreements  with Ernst &
Young on any matter of accounting  principles or practices,  financial statement
disclosure,  or auditing  scope or procedure  and which,  if not resolved to the
satisfaction of Ernst & Young, would have caused Ernst & Young to make reference
to these matters in their report and (ii) there were no "reportable  events" (as
that term is described in Item 304(a)(i)(v) of Regulation S-K).


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     Omitted pursuant to General Instruction I of Form 10-K.

ITEM  11.     EXECUTIVE COMPENSATION.

     Omitted pursuant to General Instruction I of Form 10-K.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     Omitted pursuant to General Instruction I of Form 10-K.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Omitted pursuant to General Instruction I of Form 10-K.




                                       47
<PAGE>



                                     PART IV

ITEM 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K.

     (a)      (1) and (2) List of Financial  Statements and Financial  Statement
              Schedules

     The following  consolidated  financial  statements  of Loral  CyberStar are
     included in Item 8:

              Consolidated Balance Sheets - December 31, 1999 and 1998

              Consolidated  Statements of  Operations - Year ended  December 31,
              1999 and the nine months  ended  December  31,  1998,  and for the
              Predecessor Company the three months ended March 31, 1998, and the
              year ended December 31, 1997

              Consolidated   Statements  of  Changes  in  Stockholders'   Equity
              (Deficit) - Year ended December 31, 1999 and the nine months ended
              December  31,  1998,  and for the  Predecessor  Company  the three
              months ended March 31, 1998, and the year ended December 31, 1997

              Consolidated  Statements  of Cash Flows - Year ended  December 31,
              1999 and the nine months  ended  December  31,  1998,  and for the
              Predecessor Company the three months ended March 31, 1998, and the
              year ended December 31, 1997

              Notes to Consolidated Financial Statements

     All  schedules  for which  provision is made in the  applicable  accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

         (b)    Reports on Form 8-K filed in the fourth quarter of 1999:

                October 13, 1999   Item 5 -  Other Events     Apstar IIR Closing
                December 2, 1999   Item 5 -  Other Events     Name Change

         (c)    Exhibits


EXHIBIT
NUMBER                                                       EXHIBIT DESCRIPTION

2.1               Agreement and Plan of Merger,  dated as of October 7, 1997, by
                  and  among  Orion,  Loral  and  Loral  Satellite  Corporation.
                  (Incorporated  by reference  to exhibit  number 2.1 in Current
                  Report on Form 8-K dated October 9, 1997).

2.2               Principal  Stockholder  Agreement  among Orion,  Loral,  Loral
                  Satellite   Corporation   and  the   stockholders   that   are
                  signatories   thereto,   dated   as  of   October   7,   1997.
                  (Incorporated  by reference  to exhibit  number 2.2 in Current
                  Report on Form 8-K dated October 9, 1997).

2.3               Amendment  No. 1  Agreement  and Plan of  Merger,  dated as of
                  February  11,  1998,  by and  among  Orion,  Loral  and  Loral
                  Satellite  Corporation.  (Incorporated by reference to exhibit
                  number 2.2 in  Registration  Statement  No.  333-46407 on Form
                  S-4).

2.4               Amendment  No.  1 to  Principal  Stockholder  Agreement  among
                  Orion, Loral, Loral Satellite Corporation and the stockholders
                  that are  signatories  thereto,  dated as of December 1, 1997.
                  (Incorporated  by  reference  to Exhibit  number 2.4 in Annual
                  Report on Form 10-K for fiscal year ended December 31, 1997).

3.1               Certificate  of Merger  of Loral  Satellite  Corporation  into
                  Orion dated  March 20,  1998 and  Exhibit A thereto,  Restated
                  Certificate of Incorporation of the Company.  (Incorporated by
                  reference to Exhibit 3.1 in Annual Report on Form 10-K for the
                  fiscal year ended December 31, 1998.)



                                       48
<PAGE>


EXHIBIT
NUMBER                                                       EXHIBIT DESCRIPTION


3.2               Certificate  of Merger of Loral  CyberStar,  Inc.  into  Loral
                  Orion Services, Inc.*

3.3               Merger Agreement between Loral CyberStar, Inc. and Loral Orion
                  Services, Inc.*

3.4               Certificate  of  Incorporation  of the Company and  amendments
                  thereto.*

3.5               Amended and Restated Bylaws of the Company.*

4.1               Form of  Senior  Note  Indenture  and  Form  of Note  included
                  therein.  (Incorporated  by reference to Exhibit number 4.1 to
                  Registration Statement No. 333-19167 on Form S-1).

4.2               Form  of  Senior  Discount  Note  Indenture  and  Form of Note
                  included therein. (Incorporated by reference to Exhibit number
                  4.2 to Registration Statement No. 333-19167 on Form S-1).

4.3               Form   of   Collateral   Pledge   and   Security    Agreement.
                  (Incorporated   by   reference   to  Exhibit   number  4.3  to
                  Registration Statement No. 333-19167 on Form S-1).

10.1              Second  Amended  and  Restated   Purchase   Agreement,   dated
                  September 26, 1991 ("Satellite Contract") by and between Loral
                  Orion  Services,  Inc.  (formerly  known  as  Orion  Satellite
                  Corporation)   and  British   Aerospace   PLC  and  the  First
                  Amendment,  dated as of September 15, 1992,  Second Amendment,
                  dated as of November  9, 1992,  Third  Amendment,  dated as of
                  March 12, 1993, Fourth Amendment,  dated as of April 15, 1993,
                  Fifth  Amendment,  dated  as  of  September  22,  1993,  Sixth
                  Amendment, dated as of April 6, 1994, Seventh Amendment, dated
                  as of August 9, 1994, Eighth  Amendment,  dated as of December
                  8, 1994, and Amendment No. 9 dated October 24, 1995,  thereto.
                  [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE
                  DOCUMENTS.]  (Incorporated  by  reference  to exhibits  number
                  10.13 and 10.14 in Registration Statement No. 33-80518 on Form
                  S-1).

10.2              Restated  Amendment  No. 10 dated  December 10, 1996,  between
                  LOSI  and  Matra  Marconi  Space  to the  Second  Amended  and
                  Restated Purchase  Agreement,  dated September 16, 1991 by and
                  between  OrionServ and British  Aerospace PLC (which  contract
                  and prior exhibits  thereto were  incorporated by reference as
                  exhibit  number 10.1).  (Incorporated  by reference to exhibit
                  number 10.2 in  Registration  Statement No.  333-19795 on Form
                  S-4).

10.3              Contract for a Satellite  Control  System,  dated  December 7,
                  1992, by and between Loral Orion  Services,  Inc.,  Telespazio
                  S.p.A.   and  Martin   Marietta   Corporation.   [CONFIDENTIAL
                  TREATMENT  HAS BEEN  GRANTED FOR  PORTIONS OF THIS  DOCUMENT.]
                  (Incorporated   by  reference  to  exhibit   number  10.31  in
                  Registration Statement No. 33-80518 on Form S-1).

10.4              Credit  Agreement,  dated  as of  November  23,  1993,  by and
                  between Loral Orion  Services,  Inc. (as successor in interest
                  to  Orion  Atlantic,   L.P.)  and  General   Electric  Capital
                  Corporation (`GECC'). [CONFIDENTIAL TREATMENT HAS BEEN GRANTED
                  FOR PORTIONS OF THIS DOCUMENT.]  (Incorporated by reference to
                  exhibit number 10.32 in Registration Statement No. 33-80518 on
                  Form S-1).

10.5              Security  Agreement,  dated as of November  23,  1993,  by and
                  between Loral Orion Services, Inc. and GECC.  (Incorporated by
                  reference to exhibit  number 10.33 in  Registration  Statement
                  No. 33-80518 on Form S-1).

10.6              Assignment  and Security  Agreement,  dated as of November 23,
                  1993,  by and between  Loral Orion  Services,  Inc.  and GECC.
                  (Incorporated   by  reference  to  exhibit   number  10.34  in
                  Registration Statement No. 33-80518 on Form S-1).

10.7              Consent and  Agreement,  dated as of November 23, 1993, by and
                  between   Loral  Orion   Services,   Inc.,   Martin   Marietta
                  Corporation  and GECC.  (Incorporated  by reference to exhibit
                  number 10.35 in  Registration  Statement No.  33-80518 on Form
                  S-1).


                                       49
<PAGE>


EXHIBIT
NUMBER                                                       EXHIBIT DESCRIPTION

10.8              Deed of Trust,  dated as of November 23, 1993,  by and between
                  Loral Orion Services,  Inc., W. Allen Ames, Jr. and Michael J.
                  Schwel, as Trustees,  and GECC.  (Incorporated by reference to
                  exhibit number 10.37 in Registration Statement No. 33-80518 on
                  Form S-1).

10.9              Lease Agreement, dated as of November 23, 1993, by and between
                  OrionNet, Inc. and Loral Orion Services, Inc. (as successor in
                  interest to Orion Atlantic, L.P.), as amended by an Amendment,
                  dated  January  3,  1995.  [CONFIDENTIAL  TREATMENT  HAS  BEEN
                  GRANTED FOR  PORTIONS  OF THESE  DOCUMENTS.  (Incorporated  by
                  reference to exhibit  number 10.38 in  Registration  Statement
                  No. 33-80518 on Form S-1).

10.10             Note for Interim Loans,  dated as of November 23, 1993, by and
                  between Loral Orion  Services,  Inc. (as successor in interest
                  to Orion Atlantic,  L.P.) and GECC. (Incorporated by reference
                  to exhibit number 10.42 in Registration Statement No. 33-80518
                  on Form S-1).

10.11             Lease  Agreement,  dated as of October 2, 1992, by and between
                  OrionNet  and  Research  Grove   Associates,   as  amended  by
                  Amendment  No. 1 dated March 26, 1993.  Amendment  No. 2 dated
                  August 23, 1993,  and Amendment No. 3 dated December 20, 1993.
                  (Incorporated   by  reference  to  exhibit   number  10.39  in
                  Registration Statement No. 33-80518 on Form S-1).

10.12             Restated Definitive Agreement,  dated October 29, 1998, by and
                  between   Orion  and   Republic  of  the   Marshall   Islands.
                  [CONFIDENTIAL  TREATMENT  HAS BEEN  REQUESTED  FOR PORTIONS OF
                  THIS  DOCUMENT.](Incorporated by reference to Exhibit 10.12 in
                  Annual Report on Form 10-K for the fiscal year ended  December
                  31, 1998).

10.13             TT&C Earth Station  Agreement,  dated as of November 11, 1996,
                  by and between Loral Orion Services,  Inc. (by assignment from
                  Loral Orion-Asia  Pacific,  Inc., formerly known as Orion Asia
                  Pacific  Corporation and DACOM Corp.  [CONFIDENTIAL  TREATMENT
                  HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated
                  by reference to exhibit number 10.39 in Registration Statement
                  No. 333-19795 on Form S-4).

10.14             Joint Investment Agreement,  dated as of November 11, 1996, by
                  and between Loral Orion  Services,  Inc. (by  assignment  from
                  Loral Orion-Asia  Pacific,  Inc., formerly known as Orion Asia
                  Pacific Corporation) and DACOM Corp.  [CONFIDENTIAL  TREATMENT
                  HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated
                  by reference to exhibit number 10.40 in Registration Statement
                  No. 333-19795 on Form S-4).

10.15             Orion 3 Spacecraft Purchase Contract,  dated January 15, 1997,
                  by and among  Hughes Space and  Communications  International,
                  Inc.,  Loral Orion  Services,  Inc. (by assignment  from Loral
                  Orion-Asia  Pacific,   Inc.,  formerly  known  as  Orion  Asia
                  Pacific,  Inc.) and Orion.  [CONFIDENTIAL  TREATMENT  HAS BEEN
                  GRANTED FOR  PORTIONS  OF THIS  DOCUMENT.].  (Incorporated  by
                  reference to Exhibit  number 10.52 to  Registration  Statement
                  No. 333-19167 on Form S-1).

10.16             Letter  Agreement,  effective  as of May 20/21,  1997,  by and
                  between  Orion  and  Morgan  Stanley  & Co.  (Incorporated  by
                  reference  to Exhibit  number  10.53 to Annual  Report on Form
                  10-K for the fiscal year ended December 31, 1997).

10.17             Orion-Z Spacecraft  Purchase Contract,  dated May 15, 1998, by
                  and   between   Loral   Orion   Services,   Inc.   and   Space
                  Systems/Loral,  Inc. and  Amendment  No. 1 dated  December 29,
                  1998.  [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS
                  OF THIS DOCUMENT.] (Incorporated by reference to Exhibit 10.17
                  in  Annual  Report  on Form  10-K for the  fiscal  year  ended
                  December 31, 1998).

10.18             Agreement,  dated  January 1, 1999, by and between Loral Orion
                  Services, Inc. and Loral Skynet. (Incorporated by reference to
                  Exhibit  10.18 in Annual  Report  on Form 10-K for the  fiscal
                  year ended December 31, 1998).


                                       50
<PAGE>


EXHIBIT
NUMBER                                                       EXHIBIT DESCRIPTION

10.19             Agreement,  dated  January 1, 1999, by and between Loral Orion
                  Services, Inc. and Loral Skynet. (Incorporated by reference to
                  Exhibit  10.19 in Annual  Report  on Form 10-K for the  fiscal
                  year ended December 31, 1998).

10.20             Lease  Agreement  dated as of August 18,  1999 by and  between
                  Loral Asia Pacific  Satellite  (HK) Limited and APT  Satellite
                  Company Limited  (incorporated  by reference to Exhibit number
                  99.1 to Current Report on Form 8-K filed on August 23, 1999).

23 None

27 Financial Data Schedule.*

-----------------
* Filed herewith.

     (d) Financial statement schedule - none


                                       51
<PAGE>



                                   SIGNATURES
CORPORATE UPDATE TITLES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                            LORAL CYBERSTAR, INC.

                                            By:  /s/ W. Neil Bauer
                                                --------------------------------
                                            Title: President

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

     Signature                                Title                                Date
     ---------                                -----                                ----

<S>                                             <C>                                <C>
/s/ Bernard L. Schwartz             Chairman of the Board                       March 30, 2000
--------------------------          and Chief Executive  Officer
Bernard L. Schwartz

                                    Director                                    March 30, 2000
--------------------------
George Baker

/s/ Eric J. Zahler                  Executive Vice President                    March 30, 2000
----------------------------        and Director
Eric J. Zahler

/s/ Michael P. DeBlasio             First Senior Vice President                 March 30, 2000
-------------------------           and Director
Michael P. DeBlasio

/s/ Daniel Hirsch                   Director                                    March 30, 2000
--------------------------
Daniel Hirsch

/s/ W. Neil Bauer                   President and Director                      March 30, 2000
--------------------------
W. Neil Bauer

/s/ Richard J. Townsend             Senior Vice President                       March 30, 2000
------------------------            and Chief Financial Officer
Richard J. Townsend                 (Principal Financial Officer)


/s/ Harvey B. Rein                  Vice President and                          March 30, 2000
-------------------------           Controller
Harvey B. Rein                      (Principal Accounting Officer)

</TABLE>

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