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, 2000 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, 2001 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


                                       1
<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  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 ownership of three high power  geostationary
satellites,  and with 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 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.

     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 and has retained risk
of loss.  Eutelsat also has the right to acquire,  at cost, four transponders on
the next  replacement  satellite  for Telstar  12. As part of the  international
coordination  process,  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.


                                       2
<PAGE>

     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.

     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 percent 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.

     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 was applied by
Loral CyberStar  towards the last installment  payment on Telstar 10/Apstar IIR.
This  assignment  was  approved  by the  Federal  Communications  Commission  on
December 11, 2000.

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.

     Based on Internet standards,  Loral CyberStar's  multicast solution enables
content providers, businesses and ISPs to package, manage, and broadcast content
- including text, audio, video, graphics,  pictures, animation software - to end
users  around the world.  By using the Loral and third party  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.

     Loral  CyberStar  also recently  began beta trials for its streaming  media
services with a select group of corporate  customers.  Loral CyberStar  believes
that with the technical  advantages  inherent in satellite  delivery,  streaming
media  service  will be a  valuable  addition  to its  service  offering  to its
customers.

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


                                       3
<PAGE>

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,
which are non-recourse to Loral, and thus continues 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

     Loral CyberStar and Loral Skynet, a division of Loral SpaceCom Corporation,
which in turn is a  wholly-owned  subsidiary of Loral,  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. Loral CyberStar
believes it has achieved cost  efficiencies  in connection with the Loral Skynet
Agreements.

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.


                                       4
<PAGE>

<TABLE>
<CAPTION>
                                        TELSTAR 10/APSTAR IIR           TELSTAR 11                 TELSTAR 12
                                        ---------------------           ----------                 ----------
<S>                                   <C>                        <C>                       <C>
Region Covered...................     China, Japan, Korea,       Europe, Southeastern      Eastern U.S.,
                                      India, Hawaii,             Canada, U.S., east of     Southeastern Canada,
                                      Southeast Asia,            the Rockies and parts     Europe, Commonwealth of
                                      Australia, New Zealand,    of Mexico                 Independent States,
                                      Eastern Russia and                                   Middle East, North
                                      Oceania                                              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 - 52 dBW                47  - 52 dBW              47 - 50 dBW
                                      30 - 37 dBW
                                      for C-band returns

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

Expected End of Useful Life (7)..     2012                       2005                      2015

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

                                       5
<PAGE>

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.

     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 may 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, 2000,  Loral CyberStar and its subsidiaries had 290 full
time employees,  none of whom are subject to collective  bargaining  agreements.
Management believes its relations with employees are good.

                 CERTAIN FACTORS THAT MAY AFFECT 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  undertakes  no
obligation to update any forward-looking statements.

THE COMPANY HAS SUBSTANTIAL DEBT.

     As of December 31, 2000,  the Company had  approximately  $1.11  billion of
debt,  including  $107.9  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'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


                                       6
<PAGE>

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 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.

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 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.



                                       7
<PAGE>

     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.

     The Company's  Telstar 10/Apstar IIR satellite has experienced minor losses
of power  from its solar  arrays.  Space  Systems/Loral  ("SS/L")  is  currently
investigating the cause of these failures.  Although, to date, Telstar 10/Apstar
IIR  has  not  experienced  any  degradation  in  performance,  there  can be no
assurance that it will not experience additional power loss that could result in
performance degradation, including loss of transponder capacity. In the event of
additional power loss, the extent of the performance  degradation,  if any, will
depend on numerous  factors,  including the amount of the additional power loss,
when in the life of Telstar  10/Apstar  IIR the loss occurred and the number and
type of use being made of  transponders  then in service.  A complete or partial
loss of Telstar 10/Apstar IIR would result in a loss of revenue and customers to
the Company. This investigation is in its very early stages and not all relevant
information  is now  known.  Based upon  information  currently  available,  the
Company believes that this matter will not have a material adverse effect on the
consolidated financial position or results of operations to the Company.

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 and has retained risk of loss.  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.

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 Company faces
continued price pressures from fiber competitors for its Internet services.



                                       8
<PAGE>

     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 24 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  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.

ITEM 2.  PROPERTIES.

     Loral  CyberStar  owns seven  acres of land in Mt.  Jackson,  Virginia  and
leases approximately  86,000 square feet for office space worldwide.  Management
believes that the facilities are sufficient for its current operations.

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.


                                       9
<PAGE>

                                     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 frequency coordination for its satellites; and (vi) the Company faces
severe  competition.   The  Company  undertakes  no  obligation  to  update  any
forward-looking statements.

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. Loral CyberStar is
organized  into two  distinct  operating  segments as follows (see Note 7 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  services
         ("DTH"). Loral Skynet, a division of Loral SpaceCom Corporation,  which
         is a subsidiary of Loral Space & Communications  Corporation,  which is
         in turn a subsidiary of Loral Space and Communications, Ltd. ("Loral"),
         manages the Company's Fixed Satellite Services ("FSS") segment.

         Data Services:  Providing managed communications  networks and Internet
         and intranet  services,  using  transponder  capacity  primarily on the
         Loral Skynet and Loral CyberStar fleets.



                                       10
<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 Fixed Satellite  Services revenues are principally  generated
from long-term  contracts or occasional use services for  transmission  capacity
services.

     The Company's Data Services 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 by its 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  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.

     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  (for  services  outside  of  the  Loral  CyberStar  satellite  network
footprint);  (iii) in-orbit  insurance  premiums;  and (iv) personnel  costs and
travel related to the telemetry, tracking and control facility ("TT&C"), network
monitoring,  network design and similar  activities.  Regarding TT&C costs,  the
Company and Loral  Skynet,  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 CyberStar  believes it has achieved
cost efficiencies in connection with the Loral Skynet  Agreements.  Loral Skynet
currently  provides  the  Services  for its own  Telstar  satellite  network and
Technical Services for other third parties. 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.



                                       11
<PAGE>

     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 and retained the risk
of loss.  Eutelsat also has the right to acquire,  at cost, four transponders on
the next  replacement  satellite  for Telstar  12. As part of the  international
coordination  process, the Company continues to conduct discussions with various
administrations  regarding  Telstar 12's  operations at 15 degrees W.L. If these
discussions are not successful, Telstar 12's useable capacity may be reduced.

     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  and  cannot be used for its  intended
purpose.  The  satellite and launch were fully  insured for  approximately  $266
million, which was received in 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.,  Telstar  10/Apstar IIR
covers  a region  that  includes  Asia,  Europe,  Africa  and  Australia,  which
represents  over 75  percent  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.

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." Following the Merger,
the capital stock of Orion ceased to be publicly  traded.  However,  the Company
continues to have registered bonds outstanding, which are non-recourse to Loral,
and thus continues to have filing  requirements with the Securities and Exchange
Commission.  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.

     For accounting purposes,  the Merger was accounted for as of March 31, 1998
using the purchase method. Accordingly,  the consolidated balance sheets reflect
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


                                       12
<PAGE>

allocated to cost 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.

     In evaluating financial performance,  management uses revenues and earnings
before interest, taxes, depreciation and amortization ("EBITDA") as a measure of
a  segment's  profit or loss.  The  following  discusses  the  results  of Loral
CyberStar for the years ended December 31, 2000 and 1999.


                                       13
<PAGE>

OPERATING REVENUES  (IN MILLIONS):

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                        -----------------------
                                                        1999              2000
                                                        ----              ----
<S>                                                    <C>               <C>
Fixed Satellite Services ...................           $109.4            $ 42.8
Data Services ..............................            106.7              69.2
Eliminations ...............................            (28.9)             (7.1)
                                                       ------            ------

Operating revenues .........................           $187.2            $104.9
                                                       ======            ======
</TABLE>


EBITDA (1) (IN MILLIONS):

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                         -----------------------
                                                         1999              2000
                                                         ----              ----
<S>                                                      <C>              <C>
Fixed Satellite Services .....................           $81.9            $21.9
Data Services ................................           (14.8)            (8.3)
Eliminations .................................            (2.9)              --
                                                         -----            -----

EBITDA .......................................           $64.2            $13.6
                                                         =====            =====
</TABLE>

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

     Revenues for the year ended  December 31, 2000 and 1999 were $187.2 million
and $104.9  million,  respectively,  an increase of $82.3 million or 78 percent.
This increase was primarily  attributable to the faster than expected loading of
Telstar  12  and  Telstar   10/Apstar  IIR,  improved  results  in  the  private
communications  network services operations,  which added 209 customer sites for
the year ended  December  31,  2000 as compared to the same period in 1999 and a
contract termination settlement with a customer.

     At December  31,  2000,  the Company  had an  external  contracted  backlog
(representing  future revenues under customer contracts) of approximately $930.2
million  compared to $628.5  million at  December  31,  1999,  an increase of 48
percent.  Revenue from contracted  backlog is typically  earned over two to five
years.

     Direct  expenses for 2000 were $64.9 million  compared to $38.7 million for
1999. This increase was primarily attributable to increased lease costs of third
party transponder  capacity,  Internet access,  in-orbit satellite insurance for
Telstar 12 and Telstar  10/Apstar IIR, and terrestrial  link charges incurred to
support the Data Services segment.



                                       14
<PAGE>

     Sales and  marketing  expenses  were $25.8 million for 2000, as compared to
$25.0 million for 1999.

     Engineering  and  technical  services  expenses for 2000 were $10.9 million
compared to $9.2  million for 1999,  an increase of $1.7  million or 18 percent.
This increase is primarily due to additional salaries associated with support of
the Data Services operations.

     General and  administrative  expenses were $21.3 million for the year ended
December 31,  2000,  compared to $18.4  million for the same period in 1999,  an
increase  of $2.9  million or 16  percent.  The  increase  was  attributable  to
legal and other costs in support of the Company's operations in 2000.

     Depreciation and amortization was $107.7 million for 2000 compared to $75.8
million for 1999, an increase of $31.9  million or 42 percent.  The increase was
primarily  due to the  acquisition  of the Telstar  10/Apstar  IIR  satellite in
September  1999 and placing the Telstar 12  satellite  into  service in December
1999.

     Interest  income was $4.2  million for 2000,  compared to $7.3  million for
1999.  The  decrease in interest  income was due to a reduction  in the balances
held in the  Company's  restricted  and  segregated  funds,  which  was used for
satellite  acquisition and for interest  payments on the Company's Senior Notes.
Interest  expense  for the  years  ended  December  31,  2000 and 1999 was $97.2
million  and $69.8  million,  respectively,  net of  capitalized  interest of $0
million and $20.3 million,  respectively.  The increase was primarily due to the
decrease in capitalized interest and interest incurred on loans from Loral.

     The Company is included in the consolidated  U.S. federal income tax return
of Loral Space & Communications Corporation. Pursuant to a tax sharing agreement
for 2000 with Loral Space & Communications Corporation,  the Company is entitled
to reimbursement  for the use of its tax losses when such losses are utilized by
Loral Space & Communications Corporation.  For the year ended December 31, 2000,
the Company recorded a current income tax benefit of approximately  $3.1 million
under this tax sharing agreement (a receivable from Loral Space & Communications
Corporation) and a deferred tax provision of $4.2 million.

RESULTS BY OPERATING SEGMENT

Fixed Satellite Service

     Fixed Satellite  Services  revenue for 2000 was $109.4 million versus $42.8
million  in 1999.  EBITDA on the same  basis was $81.9  million  in 2000,  or 75
percent of revenues,  versus EBITDA of $21.9 million,  or 51 percent of revenues
in 1999.  These increases are due to the faster than expected loading of Telstar
12 and Telstar  10/Apstar  IIR and the leasing  revenues  to Data  Services  for
capacity.

Data Services

     Data Services  revenue for 2000 was $106.7  million versus $69.2 million in
1999.  This increase is mainly due to the added customer sites in 2000 and $12.0
million resulting from a contract termination settlement with a customer. EBITDA
for 2000 was a loss of approximately $14.8 million versus a loss of $8.3 million
in 1999.  The increase in EBITDA loss is primarily due to the  increased  direct
costs from both third  party and  intercompany  leasing  activities  incurred in
connection with the expansion of the business.

     See  Note  7  to  the  consolidated  financial  statements  for  additional
information on segment results.

ACCOUNTING PRONOUNCEMENTS

     Statement of Financial  Accounting  Standards ("SFAS") No. 133,  Accounting
for Derivative  Instruments and Hedging  Activities ("SFAS 133"),  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. They key criterion for hedge accounting is that the derivative must
be highly



                                       15
<PAGE>

effective  in  achieving  offsetting  changes in fair value or cash flows of the
hedged items during the term of the hedge.  The Company adopted SFAS No. 133, as
amended,  on January 1, 2001. There was no effect on the Company's  consolidated
financial position due to adoption of this standard.

     In December 1999, the  Securities  and Exchange  Commission  ("SEC") issued
Staff  Accounting  Bulletin ("SAB") No. 101,  "Revenue  Recognition in Financial
Statements."  SAB No.  101,  as amended,  was  effective  for the Company in the
fourth  quarter of 2000 and  clarified  the SEC's views on U.S. GAAP relating to
revenue recognition in financial statements. The requirements of SAB No. 101 did
not have a significant impact on the Company's  consolidated  financial position
or results of operations.

     In September  2000, the FASB issued SFAS No. 140,  Accounting for Transfers
and Servicing of Financial Assets and  Extinguishments of Liabilities.  SFAS No.
140 replaces SFAS No. 125,  Accounting  for Transfers and Servicing of Financial
Assets  and  Extinguishments  of  Liabilities.  It  revises  the  standards  for
accounting  for  securitizations  and other  transfers of  financial  assets and
collateral and requires  certain  disclosures,  but it carries over most of SFAS
No.  125's  provisions  without  reconsideration.  The  Company  has adopted the
applicable disclosure requirements of SFAS No. 140 in its consolidated financial
statements  as of December 31, 2000.  The Company is  currently  evaluating  the
impact of adopting  the  remaining  provisions  of SFAS No.  140,  which will be
effective for transactions entered into after March 31, 2000.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest

     As of December 31, 2000 and 1999, the fair value of the Company's long-term
debt was  estimated to be $285  million and $556  million,  respectively,  using
quoted market prices,  for the Company's Senior Notes and Senior Discount Notes.
As of December 31, 2000 and 1999,  the long-term  debt carrying  value  exceeded
fair value by $716 million and $409 million,  respectively.  Market rate risk on
debt is estimated as the potential increase in annual interest expense resulting
from a  hypothetical  one  percentage  point  increase in the interest rates and
amounted to $9 million and $8 million, for 2000 and 1999, respectively.


                                       16
<PAGE>

ITEM 8.

INDEPENDENT AUDITORS' REPORT

To the Stockholder 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,  2000 and 1999 and the  related  consolidated
statements  of  operations,  stockholder's  equity  and cash flows for the years
ended December 31, 2000 and 1999 and the nine months ended December 31, 1998. We
have also  audited the  consolidated  statements  of  operations,  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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the 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, 2000 and 1999, and the
results of their  operations  and their cash flows for the years ended  December
31, 2000 and 1999 and the nine months ended December 31, 1998 in conformity with
accounting  principles  generally  accepted  in the  United  States of  America.
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 accounting  principles  generally  accepted in
the United States of America.

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 statements of operations for the years
ended  December 31, 2000 and 1999 and the nine months  ended  December 31, 1998,
are not comparable to the results presented for the three months ended March 31,
1998.

DELOITTE & TOUCHE LLP

San Jose, CA
February 15, 2001


                                       17
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                        --------------------------------------------
                                                                              2000                        1999
                                                                        -----------------           ----------------
<S>                                                                      <C>                         <C>
                                ASSETS

Current assets:
  Cash and cash equivalents                                              $       37,169              $       24,117
  Restricted and segregated cash                                                     --                     187,315
  Accounts receivable, net                                                       22,204                      16,797
  Prepaid expenses and other current assets                                       8,218                      11,716
  Due from Loral companies                                                        9,545                         181
                                                                        -----------------           ----------------
Total current assets                                                             77,136                     240,126

Property and equipment, net                                                     702,311                     767,477
Cost in excess of net assets acquired, net                                      577,710                     593,219
Deferred tax assets                                                              44,982                      49,223
Other assets, net                                                                26,810                      34,242
                                                                        -----------------           ----------------

TOTAL ASSETS                                                              $    1,428,949             $    1,684,287
                                                                        =================           ================

                 LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
  Current portion of long-term debt                                       $        2,551             $        2,071
  Accounts payable                                                                 7,368                      3,098
  Satellite purchase price payable                                                    --                    181,928
  Accrued and other current liabilities                                           11,366                     13,995
  Customer deposits                                                                7,062                      9,069
  Deferred revenue                                                                 5,691                      2,624
  Interest payable                                                                22,846                     22,842
  Note payable to Loral SpaceCom                                                 107,866                     74,114
  Due to Loral companies                                                           4,495                     51,538
                                                                        -----------------           ----------------
Total current liabilities                                                        169,245                    361,279

Long-term debt                                                                   997,991                    963,299
Customer deposits                                                                  5,413                         --
Deferred revenue                                                                     998                      5,957
Other long-term liabilities                                                          125                        448
Due to Space Systems/Loral                                                            --                      5,900

Commitments and contingencies:
Stockholder's equity:
  Common stock, $.01 par value; 1,000 shares authorized;
    100 shares outstanding at December 31, 2000 and 1999                              --                         --
  Capital in excess of par value                                                 588,197                    544,176
  Accumulated deficit                                                           (331,562)                  (194,144)
  Unearned compensation                                                               --                     (1,804)
  Accumulated other comprehensive loss                                            (1,458)                      (824)
                                                                        -----------------           ----------------
Total stockholder's equity                                                       255,177                    347,404
                                                                        -----------------           ----------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY                               $     1,428,949             $    1,684,287
                                                                        =================           ================
</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>
                                                                                                                  THREE MONTHS
                                                           YEAR ENDED DECEMBER 31,         NINE MONTHS               ENDED
                                                         ---------------------------          ENDED              MARCH 31, 1998
                                                            2000              1999       DECEMBER 31, 1998     PREDECESSOR COMPANY
                                                         ---------         ---------     -----------------     -------------------
<S>                                                      <C>               <C>               <C>                   <C>
Revenues                                                 $ 187,190         $ 104,882         $  64,608             $  18,790

Operating expenses:
  Direct                                                    64,887            40,752            19,906                 6,406
  Sales and marketing                                       25,824            24,955            19,365                 5,790
  Engineering and technical services                        10,894             9,167             6,486                 1,898
  General and administrative                                21,344            16,416            10,834                 3,707
  Depreciation and amortization                            107,733            75,783            51,434                12,483
  Merger costs                                                  --                --               612                12,145
                                                         ---------         ---------         ---------             ---------
Total operating expenses                                   230,682           167,073           108,637                42,429
                                                         ---------         ---------         ---------             ---------

Loss from operations                                       (43,492)          (62,191)          (44,029)              (23,639)

  Interest income                                            4,157             7,335             9,299                 5,425
  Interest expense                                         (97,223)          (69,776)          (46,439)              (21,190)
  Other income (expense)                                       270               100               167                  (287)
                                                         ---------         ---------         ---------             ---------

Loss before income taxes                                  (136,288)         (124,532)          (81,002)              (39,691)

Income tax (expense) benefit                                (1,130)           10,357             1,033                    --
                                                         ---------         ---------         ---------             ---------

Net loss                                                  (137,418)         (114,175)          (79,969)              (39,691)

Preferred stock dividend, net of forfeitures                    --                --                --                 1,387
                                                         ---------         ---------         ---------             ---------

Net loss attributable to common stockholders             $(137,418)        $(114,175)        $ (79,969)            $ (38,304)
                                                         =========         =========         =========             =========
</TABLE>




                 See notes to consolidated financial statements.


                                       19
<PAGE>

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



<TABLE>
<CAPTION>
                                                             COMMON STOCK
                                                          ------------------
                                                                               CAPITAL IN
                                                           NUMBER              EXCESS OF   ACCUMULATED   TREASURY      UNEARNED
                                                          OF SHARES   AMOUNT   PAR VALUE     DEFICIT       STOCK     COMPENSATION
                                                          ---------   ------   ---------     -------       -----     ------------
<S>                                                        <C>       <C>      <C>          <C>          <C>          <C>
 Balance at January 1, 1998 (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
      forfeiture                                                --       --           --        1,387           --           --
   Recapitalization related to purchase by Loral           (25,969)    (260)     195,215      237,560           91       (4,512)
   Increase purchase price                                      --       --        3,491           --           --           --
   Net loss for the three months ended March 31, 1998           --       --           --      (39,691)          --           --
   Other comprehensive loss                                     --       --           --           --           --           --
   Comprehensive loss                                           --       --           --           --           --           --
                                                            ------    -----    ---------    ---------    ---------    ---------
 Balance at March 31, 1998                                      --       --      482,003           --           --       (4,512)
   Amortization of unearned compensation                        --       --           --           --           --          953
   Stock option forfeitures                                     --       --         (212)          --           --          212
   Net loss for the nine months ended December 31, 1998         --       --           --      (79,969)          --           --
   Other comprehensive income                                   --       --           --           --           --           --
   Comprehensive loss                                           --       --           --           --           --           --
                                                            ------    -----    ---------    ---------    ---------    ---------
 Balance at December 31, 1998                                   --       --      481,791      (79,969)          --       (3,347)
   Amortization of unearned compensation                        --       --           --           --           --        1,543
   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)          --       (1,804)
  Amortization of unearned compensation                         --       --           --           --           --          815
  Stock option forfeitures                                      --       --         (989)          --           --          989
  Loral Space and Communications capital contribution           --       --       45,010           --           --           --
  2000 net loss                                                 --       --           --     (137,418)          --           --
  Other comprehensive loss                                      --       --           --           --           --           --
  Comprehensive loss                                            --       --           --           --           --           --
                                                            ------    -----    ---------    ---------    ---------    ---------
Balance at December 31, 2000                                    --    $  --    $ 588,197    $(331,562)   $      --    $      --
                                                            ======    =====    =========    =========    =========    =========

<CAPTION>
                                                             ACCUMULATED
                                                                OTHER            TOTAL
                                                            COMPREHENSIVE     STOCKHOLDER'S
                                                            INCOME (LOSS)   EQUITY (DEFICIT)
                                                            -------------   ----------------
<S>                                                           <C>              <C>
 Balance at January 1, 1998 (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                  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 at March 31, 1998                                           --          477,491
   Amortization of unearned compensation                             --              953
   Stock option forfeitures                                          --               --
   Net loss for the nine months ended December 31, 1998              --               --
   Other comprehensive income                                       616               --
   Comprehensive loss                                                --          (79,353)
                                                              ---------        ---------
 Balance at December 31, 1998                                       616          399,091
   Amortization of unearned compensation                             --            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                                      (824)         347,404
  Amortization of unearned compensation                              --              815
  Stock option forfeitures                                           --               --
  Loral Space and Communications capital contribution                --           45,010
  2000 net loss                                                      --               --
  Other comprehensive loss                                         (634)              --
  Comprehensive loss                                                 --         (138,052)
                                                              ---------        ---------
Balance at December 31, 2000                                  $  (1,458)       $ 255,177
                                                              =========        =========
</TABLE>

                 See notes to consolidated financial statements.


                                       20
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                                   THREE MONTHS
                                                                                                                       ENDED
                                                                                                   NINE MONTHS       MARCH 31,
                                                                    YEAR ENDED DECEMBER 31,           ENDED            1998
                                                                  --------------------------       DECEMBER 31,     PREDECESSOR
                                                                     2000             1999             1998           COMPANY
                                                                  ---------        ---------        ---------        ---------
<S>                                                               <C>              <C>              <C>              <C>
OPERATING ACTIVITIES
Net loss                                                          $(137,418)       $(114,175)       $ (79,969)       $ (39,691)
Non-cash items:
  Deferred income tax provision                                       4,241            4,692            3,771               --
  Depreciation and amortization                                     107,733           75,783           51,434           13,092
  Provision for bad debts                                             3,266            3,304            1,325              150
  Non-cash interest expense                                          37,075           33,758           21,325           10,070
  Interest earned on restricted cash                                 (3,518)          (2,292)          (3,575)          (1,431)
  Other                                                                  --               --             (291)           1,644
  Loss on obsolescence of assets                                         --            1,758               --               --
Changes in operating assets and liabilities:
  Accounts receivable                                                (8,673)          (4,809)          (3,578)          (1,408)
  Prepaid expenses and other current assets                           3,498           (7,417)            (502)             693
  Other assets                                                        3,365          (15,619)          (1,352)             201
  Accounts payable, accrued liabilities and other
    current liabilities                                               1,641            9,805           (1,367)          (2,186)
  Interest payable                                                        4               --           12,403          (12,510)
  Customer deposits                                                   3,406            1,172            5,071               23
  Deferred revenue                                                   (1,892)           6,196           10,768              297
  Due from Loral companies                                           (9,364)            (181)          (3,619)              --
  Due to Loral companies                                            (47,043)           6,205               --               --
  Due to Space Systems/Loral                                         (5,900)           9,750               --               --
                                                                  ---------        ---------        ---------        ---------
Net cash provided by (used in) operating activities                 (49,579)           7,930           11,844          (31,056)

INVESTING ACTIVITIES
Increase in restricted and segregated cash                              (64)          (2,942)         (15,321)          (3,198)
Use and transfers from restricted and segregated cash               190,898          156,380          273,960           35,938
Property and equipment                                             (206,468)        (307,524)        (284,096)         (18,380)
                                                                  ---------        ---------        ---------        ---------
Net cash provided by (used in) investing activities                 (15,634)        (154,086)         (25,457)          14,360

FINANCING ACTIVITIES
Proceeds from sale of orbital slots to Loral, net                    34,260               --               --               --
Equity contributed from Loral                                        10,750           62,385               --               --
Increase in note payable to Loral SpaceCom                           35,752           77,733               --               --
Proceeds from issuance of common stock, net of
  issuance costs                                                         --               --               --            2,117
Repayment of notes payable                                           (1,398)          (1,223)          (2,815)            (254)
Payment of satellite incentive obligation                              (280)            (246)          (2,580)            (324)
Other                                                                  (819)          (4,237)           1,068           (1,051)
                                                                  ---------        ---------        ---------        ---------
Net cash provided by (used in) financing activities                  78,265          134,412           (4,327)             488
                                                                  ---------        ---------        ---------        ---------

Net increase (decrease) in cash and cash equivalents                 13,052          (11,744)         (17,940)         (16,208)
Cash and cash equivalents at beginning of period                     24,117           35,861           53,801           70,009
                                                                  ---------        ---------        ---------        ---------
Cash and cash equivalents at end of period                        $  37,169        $  24,117        $  35,861        $  53,801
                                                                  =========        =========        =========        =========
</TABLE>

                 See notes to consolidated financial statements.


                                       21
<PAGE>

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

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. Loral CyberStar is
organized into two distinct operating segments as follows (see Note 7):

     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 a
     subsidiary of Loral Space & Communications Corporation,  which is in turn a
     subsidiary of Loral Space and Communications  Ltd.  ("Loral"),  manages the
     Company's Fixed Satellite Services ("FSS") segment.

     Data Services:  Providing managed communications  networks and Internet and
     intranet services, using transponder capacity on the Loral Skynet 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,  reflect  the  results  of  operations  of the  Predecessor  Company.  The
consolidated  financial  statements  as of and for the years ended  December 31,
2000 and 1999 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,  which are non-recourse to Loral, and thus continues 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 sheets reflect
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 cost 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. 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, which were
amortized over the vesting period of the options.


                                       22
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

1.   ORGANIZATION AND BUSINESS (CONTINUED)

     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.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION POLICY

     The consolidated financial statements for the years ended December 31, 2000
and 1999,  the nine months ended  December 31, 1998,  and the three months ended
March 31,  1998,  include the  accounts  of Loral  CyberStar,  its  wholly-owned
subsidiaries and Orion Financial  Partnership  ("OFP"), in which Loral CyberStar
holds a 50 percent interest. All intercompany transactions have been eliminated.

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 include (in thousands):

<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                    -------------------
                                                     2000         1999
                                                    -------     -------
<S>                                                 <C>         <C>
         Cash                                       $11,049     $13,339
         Money market funds                           2,065       1,943
         Commercial paper                            24,055       8,835
                                                    -------     -------
         Total cash and cash equivalents            $37,169     $24,117
                                                    =======     =======
</TABLE>


RESTRICTED AND SEGREGATED CASH

     Restricted and segregated cash was classified as held to maturity, recorded
at cost and consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                    -------------------
                                                      2000       1999
                                                    --------   --------
<S>                                                 <C>        <C>
         Commercial paper                           $     --   $162,005
         U.S. treasury notes                              --     25,310
                                                    --------   --------
         Total restricted and segregated cash       $     --   $187,315
                                                    ========   ========
</TABLE>

     Of the balance at December 31, 1999,  $49.8 million was  restricted for use
for the January  2000 and July 2000  interest  payments on the Senior Notes (see
Note 4) and  $137.5  million  was  segregated  for the final  payment on Telstar
10/Apstar IIR.


                                       23
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 cash and accounts  receivable.  The Company's cash and
cash  equivalents  and  restricted  and  segregated  cash  are  maintained  with
high-credit-quality  financial  institutions  and in  U.S  treasury  notes.  The
company does not require collateral against its receivables; however, 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.

     As of December  31, 2000 and 1999,  accounts  receivable  was reduced by an
allowance for doubtful accounts of $3.5 million and $2.3 million, respectively.

PROPERTY AND EQUIPMENT

         Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                     ---------------------------
                                                        2000             1999
                                                     ---------        ----------
<S>                                                  <C>              <C>
Land .........................................       $      74        $      74
Leasehold improvements .......................             383              181
Satellites and related equipment .............         783,859          781,905
Telecommunications equipment .................          53,562           34,132
Furniture and computer equipment .............          24,086           22,953
Construction in progress .....................          14,219           16,781
                                                     ---------        ----------
Property and equipment .......................         876,183          856,026
Less accumulated depreciation ................        (173,872)         (88,549)
                                                     ---------        ----------
Total property and equipment, net ............       $ 702,311        $ 767,477
                                                     =========        =========
</TABLE>

     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 for the years
ended December 31, 2000 and 1999 and the nine months ended December 31, 1998 was
$87.3  million,  $54.9  million,  and $36.9 million  respectively.  Depreciation
expense is calculated using the  straight-line  method over the estimated useful
lives as follows:

<TABLE>
<S>                                                         <C>
      Leasehold improvements ...........................    5 - 10.5 years
      Satellites 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 satellites  and related  equipment  are  capitalized.  Such costs
include direct contract costs,  allocated indirect costs,  launch costs,  launch
insurance,  construction  period  interest  and the present  value of  satellite
incentive  payments.  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.


                                       24
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     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 and cannot be used for its intended  purpose.  The satellite and
launch were fully insured for approximately $266 million,  which was received in
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 CyberStar  purchased from
APT Satellite  Company Limited  ("APT"),  for  approximately  $273 million,  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.  Loral  CyberStar  has  full use of the
transponders for the remaining life of Telstar 10/Apstar IIR. Under the purchase
agreement,  Loral  CyberStar  will  also  have  the  option  to  lease  from APT
replacement satellites upon the end of life of Telstar 10/Apstar IIR.

     Satellites and related equipment are either leased by customers or held for
lease by the Company.  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,  2000  are  as  follows  (in
thousands):

<TABLE>
<S>                                               <C>
            2001............................      $    152,105
            2002............................           164,079
            2003............................           127,538
            2004............................            90,577
            2005............................            60,361
            Thereafter......................           335,504
                                                  ------------
                                                  $    930,164
                                                  ============
</TABLE>


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,  2000 and 1999 was $42.7  million  and $27.1
million, respectively.

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

     The  carrying  value of Loral  CyberStar's  long-lived  assets  and cost 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.


                                       25
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

OTHER ASSETS

     Intangible assets  associated with the Merger are primarily  amortized over
the remaining useful life of Telstar 11, which was  approximately  6.75 years at
the date of the Merger.  Accumulated  amortization  relating to other  assets at
December  31,  2000  and  1999  aggregated   $10.4  million  and  $6.3  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 accumulated  amortization as of December 31, 2000 and
1999, was as follows (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                         -----------------------
                                                           2000            1999
                                                         -------         -------
<S>                                                      <C>             <C>
Note receivable ................................         $   274         $ 1,842
FCC license application costs ..................           1,510           2,374
Prepaid satellite insurance ....................           4,885          11,132
Software license ...............................           3,327           3,750
Intangible assets ..............................           8,651          10,822
Deposits .......................................           2,499           3,251
Long-term receivables ..........................           5,435              --
Other ..........................................             229           1,071
                                                         -------         -------
Total other assets .............................         $26,810         $34,242
                                                         =======         =======
</TABLE>

FOREIGN CURRENCY TRANSLATION

     Results of operations for foreign  entities,  primarily the Company's Loral
CyberStar-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).

REVENUE RECOGNITION

     The  Company  provides  satellite  capacity  under  lease  agreements  that
generally  provide for the use of satellite  transponders and, in certain cases,
earth stations for periods generally ranging from one year to the end of life of
the satellite.  Some of these  agreements  have certain  obligations,  including
providing spare or substitute capacity, if available,  in the event of satellite
failure. If no spare or substitute  capacity is available,  the agreement may be
terminated.  The Company  also  provides  managed  communications  networks  and
Internet and Intranet  services  under data services  agreements.  Revenue under
transponder  lease and data  services  agreements  is recognized as services are
performed,  provided that a contract exists,  the price is fixed or determinable
and collectability is reasonably assured.  Revenues under contracts that include
fixed lease payment  increases are recognized on a straight-line  basis over the
life of the lease.


                                       26
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Revenue from equipment  sales are primarily  recognized  upon acceptance by
the customer. Revenue from equipment sales under long-term fixed price contracts
is recognized using the cost-to-cost  percentage-of-completion method. Losses on
contracts are recognized when  determined and revisions in profit  estimates are
reflected in the period in which the conditions that require the revision become
known and are estimable.

INCOME TAXES

     The benefit  (provision)  for income taxes on the loss before  income taxes
differs from the amount  computed by applying the statutory U.S.  Federal income
tax rate because of the effect of the following items (in thousands):

<TABLE>
<CAPTION>
                                                                                                                        NINE MONTHS
                                                                                           YEAR ENDED DECEMBER 31,         ENDED
                                                                                          ------------------------      DECEMBER 31,
                                                                                            2000            1999            1998
                                                                                          --------        --------        --------
<S>                                                                                       <C>             <C>             <C>
Tax benefit at U.S. statutory ......................................................      $ 47,701        $ 43,586        $ 28,351
   Federal income tax rate .........................................................           (35%)           (35%)           (35%)
Permanent adjustments which change statutory amount:
Non-deductible amortization of cost in excess of net assets required ...............        (5,428)         (5,411)         (4,089)
Valuation allowance established for carryforward of current year tax loss ..........       (43,403)        (27,818)        (23,229)
                                                                                          --------        --------        --------
Net income tax benefit (provision) .................................................      $ (1,130)       $ 10,357        $  1,033
                                                                                          ========        ========        ========
</TABLE>

     In 2000, the Company is included in the U.S.  federal income tax return for
Loral Space & Communications  Corporation.  Pursuant to a tax sharing  agreement
for 2000 with Loral Space & Communications Corporation,  the Company is entitled
to  reimbursement  for the use of its tax losses to the extent  such  losses are
utilized  by  Loral  Space &  Communications  Corporation.  For the  year  ended
December  31,  2000,  the  Company  recorded  a current  income  tax  benefit of
approximately  $3.1 million related to this tax sharing agreement and a deferred
tax provision of approximately $4.2 million, resulting in a net tax provision of
approximately $1.1 million.

     In 1999, the Company was included in the U.S. federal income tax return for
Loral Space & Communications  Corporation.  Pursuant to a tax sharing  agreement
for 1999 with Loral Space & Communications Corporation, the Company was entitled
to  reimbursement  for the use of its tax losses to the extent  such losses were
utilized  by  Loral  Space &  Communications  Corporation.  For the  year  ended
December  31,  1999,  the  Company  recorded  a current  income  tax  benefit of
approximately $15.1 million related to this tax sharing agreement and a deferred
tax provision of approximately  $4.7 million,  resulting in a net tax benefit of
approximately $10.4 million.

     In 1998, the Company was included in the U.S. federal income tax return for
Loral Space & Communications  Corporation.  Pursuant to a tax sharing  agreement
for 1998 with Loral Space & Communications Corporation, the Company was entitled
to  reimbursement  for the use of its tax losses to the extent  such losses were
utilized by Loral Space & Communications Corporation.  For the nine months ended
December  31,  1998,  the  Company  recorded  a current  income  tax  benefit of
approximately  $4.9 million related to this tax sharing agreement and a deferred
tax provision of approximately  $3.8 million,  resulting in a net tax benefit of
approximately $1.0 million.


                                       27
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

     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 in effect at the end of
the year.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Following is a summary of the  components  of the net  deferred  income tax
asset at December 31, 2000 and 1999 (in thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                      -------------------------
                                                         2000            1999
                                                      ---------       ---------
<S>                                                   <C>             <C>
Net operating loss carryforward ................      $ 161,429       $  94,305
Amortization of premium and discount on Senior
  Notes and Senior Discount Notes...............        111,528          98,086
Amortization of intangibles ....................         (2,457)         (3,713)
Depreciation ...................................        (55,326)        (11,636)
Other ..........................................          5,002           3,264
                                                      ---------       ---------
Subtotal .......................................        220,176         180,306
Less valuation allowance .......................       (175,194)       (131,083)
                                                      ---------       ---------
Net deferred income tax asset ..................      $  44,982       $  49,223
                                                      =========       =========
</TABLE>

     At December 31,  2000,  the Company had  approximately  $486 million in net
operating  loss  carryforwards  which expire at varying  dates from 2003 through
2020. 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 against its net deferred tax assets of
$175  million at December  31,  2000,  $131 million at December 31, 1999 and $94
million at December 31, 1998.


                                       28
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (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>
                                                                                                                      THREE MONTHS
                                                                                                                          ENDED
                                                                                                     NINE MONTHS        MARCH 31,
                                                                        YEAR ENDED DECEMBER 31,         ENDED             1998
                                                                       -------------------------      DECEMBER 31,     PREDECESSOR
                                                                         2000            1999            1998            COMPANY
                                                                       ---------       ---------       ---------       ---------
<S>                                                                    <C>             <C>             <C>             <C>
Preferred stock dividend, net of forfeitures ......................    $      --       $      --       $      --       $  (1,387)
Conversion of redeemable preferred stock to Common stock ..........           --              --              --          69,888
Conversion of subordinated debentures, accrued Interest
   and deferred financing costs to Common stock ...................           --              --              --          50,000
Conversion of Company common stock to Loral Common stock
   as the result of this Merger ...................................           --              --              --         469,000
Issuance of Series C preferred stock ..............................           --              --              --              --
Issuance of common stock for preferred stock Dividends ............           --              --              --           5,858
Issuance of common stock and warrants .............................           --              --              --           4,757
Taxes paid ........................................................          261             254              98              17
Interest paid, net of capitalized interest ........................    $  51,879       $  31,877       $   9,151       $  21,937
</TABLE>


USE OF ESTIMATES

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the  financial  statements  and  amounts of  revenues  and  expenses
reported for the period.  Significant  estimates  include the  estimated  useful
lives of the company's satellites and the amortization period of costs in excess
of net assets. 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.


                                       29
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

OTHER COMPREHENSIVE INCOME (LOSS)

     Accumulated  other  comprehensive  loss at  December  31,  2000 and 1999 is
comprised entirely of cumulative  translation  adjustments.  Other comprehensive
loss is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                                     THREE MONTHS
                                                                                                                         ENDED
                                                                  YEAR ENDED DECEMBER 31,          NINE MONTHS         MARCH 31,
                                                                 --------------------------           ENDED              1998
                                                                                                   DECEMBER 31,       PREDECESSOR
                                                                   2000              1999              1998             COMPANY
                                                                 --------          --------          --------           --------
<S>                                                              <C>               <C>               <C>                <C>
  Net loss ................................................      $137,418          $114,175          $ 79,969           $ 39,691
  Foreign currency translation adjustment .................           634             1,440              (616)                --
                                                                 --------          --------          --------           --------

  Comprehensive loss ......................................      $138,052          $115,615          $ 79,353           $ 39,691
                                                                 ========          ========          ========           ========
</TABLE>



ACCOUNTING PRONOUNCEMENTS

     Statement of Financial  Accounting  Standards ("SFAS") No. 133,  Accounting
for Derivative  Instruments and Hedging  Activities ("SFAS 133"),  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 key criterion for hedge accounting is that the derivative must
be highly effective in achieving  offsetting changes in fair value or cash flows
of the hedged items during the term of the hedge.  The Company  adopted SFAS No.
133,  as  amended,  on  January 1,  2001.  There was no effect on the  Company's
consolidated financial position due to adoption of this standard.

     In December 1999, the  Securities  and Exchange  Commission  ("SEC") issued
Staff  Accounting  Bulletin ("SAB") No. 101,  "Revenue  Recognition in Financial
Statements."  SAB No.  101,  as amended,  was  effective  for the Company in the
fourth  quarter of 2000 and  clarified  the SEC's views on U.S. GAAP relating to
revenue recognition in financial statements. The requirements of SAB No. 101 did
not have a significant impact on the Company's  consolidated  financial position
or results of operations.

     In September  2000, the FASB issued SFAS No. 140,  Accounting for Transfers
and Servicing of Financial Assets and  Extinguishments of Liabilities.  SFAS No.
140 replaces SFAS No. 125,  Accounting  for Transfers and Servicing of Financial
Assets  and  Extinguishments  of  Liabilities.  It  revises  the  standards  for
accounting  for  securitizations  and other  transfers of  financial  assets and
collateral and requires  certain  disclosures,  but it carries over most of SFAS
No.  125's  provisions  without  reconsideration.  The  company  has adopted the
applicable disclosure requirements of SFAS No. 140 in its consolidated financial
statements  as of December 31, 2000.  The Company is  currently  evaluating  the
impact of adopting the remaining  provisions of SFAS 140 which will be effective
for transactions entered into after March 31, 2000.


                                       30
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECLASSIFICATIONS

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

3.   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 31, 2000, 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 was launched in October 1999 into 15 degrees W.L., and commenced
operations  in January  2000.  Although  Telstar 12 was  originally  intended to
operate at 12 degrees W.L.,  Loral 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  and has retained  risk of loss.  Eutelsat  also has the right to
acquire,  at cost,  four  transponders  on the next  replacement  satellite  for
Telstar  12. As part of the  international  coordination  process,  the  Company
continues to conduct discussions with various administrations  regarding Telstar
12's  operations  at 15 degrees W.L. If these  discussions  are not  successful,
Telstar 12's useable capacity may be reduced.

     Based upon its current expectations for growth, Loral CyberStar anticipates
it will have additional  funding  requirements over the next three years to fund
the  streaming  media  investment,  the purchase of VSATs,  Senior Note interest
payments,  other capital expenditures and other operating needs. Loral CyberStar
will need to secure funding form Loral,  or raise  additional  financing to fund
these requirements.  Sources of additional capital may include public or private
debt,  equity  financings  or  strategic  investments.  To the extent that Loral
CyberStar seeks to raise  additional debt  financing,  its indentures  limit the
amount of such  additional  debt and prohibit Loral CyberStar from using Telstar
11,  Telstar  10/Apstar IIR and Telstar 12 as collateral  for  indebtedness  for
money borrowed.  If Loral CyberStar requires additional  financing and is unable
to obtain such financing  from Loral or from outside  sources in the amounts and
at the  times  needed,  there  would  be a  material  adverse  effect  on  Loral
CyberStar.

     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.

     The Company's  Telstar 10/Apstar IIR satellite has experienced minor losses
of power  from its solar  arrays.  Space  Systems/Loral  ("SS/L")  is  currently
investigating the cause of these failures.  Although, to date, Telstar 10/Apstar
IIR  has  not  experienced  any  degradation  in  performance,  there  can be no
assurance that it will not experience additional power loss that could result in
performance degradation, including loss of transponder capacity. In the event of
additional power loss, the extent of the performance  degradation,  if any, will
depend on numerous  factors,  including the amount of the additional power loss,
when in the life of Telstar 10/Apstar IIR the


                                       31
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

3.   COMMITMENTS AND CONTINGENCIES (CONTINUED)

loss occurred and the number and type of use being made of transponders  then in
service.  A complete or partial loss of Telstar  10/Apstar IIR would result in a
loss of revenue and customers to the Company.  This investigation is in its very
early  stages  and  not  all  relevant  information  is now  known.  Based  upon
information currently available,  the Company believes that this matter will not
have a material adverse effect on the consolidated financial position or results
of operations to the Company.

     The Company has entered into operating leases, principally for office space
and  transponder  capacity from third  parties.  Rent expense was $20.5 million,
$7.9  million,  $2.8 million and $0.3  million for the years ended  December 31,
2000 and 1999,  the nine months  ended  December  31, 1998 and the three  months
ended March 31, 1998, respectively.

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

<TABLE>
<S>                                             <C>
          2001............................      $     16,997
          2002............................            14,652
          2003............................             8,653
          2004............................             7,417
          2005............................            15,324
          Thereafter......................               690
                                                ------------
                                                $     63,733
                                                ============
</TABLE>

4.   LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                                                                           DECEMBER 31,
                                                                                                -----------------------------------
                                                                                                   2000                    1999
                                                                                                -----------             -----------
<S>                                                                                             <C>                     <C>
11.25% Senior Notes (principal amount at maturity $443
  million and premium of $52.4 and $58.7 million at
  December 31, 2000 and 1999, respectively) ........................................            $   495,377             $   501,734
12.5% Senior Discount Notes (principal amount at maturity
   $484 million and accreted principal amount of $427 and
   $378 million at December 31, 2000 and 1999, respectively) .......................                491,841                 448,408
Note payable - TT&C Facility .......................................................                  2,331                   3,729
Satellite incentive obligations ....................................................                 10,848                  11,129
Other ..............................................................................                    145                     370
                                                                                                -----------             -----------
     Total debt ....................................................................              1,000,542                 965,370
Less current portion ...............................................................                 (2,551)                 (2,071)
                                                                                                -----------             -----------
     Long-term debt ................................................................            $   997,991             $   963,299
                                                                                                ===========             ===========
</TABLE>


                                       32
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

4.   LONG-TERM DEBT (CONTINUED)

     Total interest  (including  commitment  fees and  amortization  of deferred
financing  costs,  net of  capitalized  interest)  incurred  for the years ended
December  31, 2000 and 1999,  the nine months  ended  December  31, 1998 and the
three  months  ended  March 31, 1998 was $97.2  million,  $90.1  million,  $62.8
million and $24.5  million,  respectively.  Capitalized  interest  for the years
ended  December 31, 2000 and 1999,  the nine months ended  December 31, 1998 and
the three months  ended March 31, 1998,  was $0 million,  $20.3  million,  $16.4
million and $3.3 million, respectively. Aggregate annual maturities of long-term
debt,  including  unamortized premium on Senior Notes and Senior Discount Notes,
consist of the following (in thousands):

<TABLE>
<S>                                               <C>
            2001............................      $      2,551
            2002............................             2,748
            2003............................             1,728
            2004............................             1,738
            2005............................             1,958
            Thereafter......................           989,819
                                                  ------------
                                                  $  1,000,542
                                                  ============
</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. 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.

     In  connection  with the  acquisition  by Loral (see Note 1), the  carrying
value of the Senior Notes and Senior  Discount  Notes was increased to reflect a
fair value  adjustment  of $153.4  million  based on quoted market prices at the
date of  acquisition.  Such adjustment  resulted in effective  interest rates of
8.69  percent and 9.69 percent on the Senior  Notes and Senior  Discount  Notes,
respectively,  through maturity.  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,
transactions   with   affiliates   and   related   parties,   and   mergers  and
consolidations.  The Company  believes it is in compliance with the requirements
of such  indentures.  There were 697,400  Warrants issued in connection with the
Notes for which the aggregate estimated fair value of $9.6 million was allocated
$5.2 million to the Senior Notes and $4.4 million to the Senior  Discount  Notes
as debt  discount.  The  exercise  price for the  Warrants  is $.01 per share of
common stock. These warrants were assumed by Loral as a result of the Merger and
were  converted to warrants to acquire Loral common  stock.  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.


                                       33
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

4.   LONG-TERM DEBT (CONTINUED)

     All subsidiaries of Loral CyberStar ("Subsidiary  Guarantors"),  other than
inconsequential  subsidiaries,  have  unconditionally  guaranteed the Notes 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).

     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 net book value of the assets  that  secure  this note
payable totaled $4.7 million at December 31, 2000 and are classified as property
and equipment on the Consolidated  Balance Sheet.  The TT&C financing  agreement
contains customary  representations,  warranties and covenants regarding certain
activities of the Company.  The Company  believes it 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 12 percent,
the Company's estimated  incremental  borrowing rate for unsecured financing) of
the required payments through 2007.

5.   EMPLOYEE BENEFITS

     The Company's  employees  participate  in the Loral Space &  Communications
Ltd.  Savings  Plan which  provides  that the  Company  match  contributions  of
participating  employees up to a  designated  level.  Under this plan,  matching
contributions  incurred by the Company  totaled $0.5  million,  $0.4 million and
$0.8  million  for the years ended  December  31, 2000 and 1999 and for the nine
months ended December 31, 1998.

     Certain  employees of Loral CyberStar  participate in Loral's 1996 and 2000
stock option plans.  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 three to
five years,  and generally  expire no more than 10 years from the date of grant.
For the year ended  December 31, 2000,  Loral  granted  certain key employees of
Loral  CyberStar  504,985  options to purchase  Loral common stock at a weighted
average  exercise price of $2.97 per share (weighted  average fair value of $.95
per share - see below.) For the year ended  December  31,  1999,  Loral  granted
519,000  options  at a  weighted  average  exercise  price of  $17.22  per share
(weighted  average  fair  value of $5.72  per share - see  below).  For the nine
months ended  December 31, 1998,  Loral  granted  options at a weighted  average
exercise  price of $24.55 per share  (weighted  average  fair value of $5.88 per
share - see below).  During 2000,  660 options were  exercised  and 248,160 were
cancelled and at December 31, 2000,  options to purchase  1,062,545  shares were
outstanding,  154,500 of which were  exercisable.  During 1999, 620 options were
exercised  and 179,860  were  cancelled  and at December  31,  1999,  options to
purchase 806,380 shares were  outstanding,  63,836 of which were exercisable and
at December 31, 1998, no options were exercised, and options to purchase 513,420
shares were outstanding, 1,200 of which were exercisable.

     Loral CyberStar  accounts for its stock-based awards to employees 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 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. If
the


                                       34
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

5.   EMPLOYEE BENEFITS (CONTINUED)

computed  fair  values of the awards  had been  amortized  to  expense  over the
vesting  period  of  the  awards,  pro  forma  net  loss  applicable  to  common
stockholders  would have been $137.8 million,  $115.0 million and $81.9 million,
for the  years  ended  December  31,  2000 and 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,  45% in 2000, 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.

6.   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, 2000 and 1999.  The fair value of the  Company's  Senior Notes and
Senior  Discount  Notes was  estimated  based on quoted  market  prices,  and at
December  31,  2000 was  approximately  $155  million and $116  million,  and at
December 31, 1999 was approximately $328 million and $213 million, respectively.

7.   SEGMENTS

     The Company's two operating  segments are Fixed Satellite Services and Data
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.  Intersegment  revenues consist primarily
of  sales  by  Fixed  Satellite  Services  to Data  Services  for the  lease  of
transponder capacity. The accounting policies of the reportable segments are the
same as those  described  in Note 2,  however  for segment  reporting  purposes,
revenues recognized under long-term leases entered into after December 31, 1999,
which have been  prepaid  include the value of the  implicit  interest  discount
provided  to the  customer.  Summarized  financial  information  concerning  the
Company's operating segments is as follows (in millions):

                          YEAR ENDED DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                      FIXED SATELLITE                        TOTAL REPORTABLE
                                         SERVICES         DATA SERVICES          SEGMENTS           ELIMINATIONS       CONSOLIDATED
                                      ---------------     --------------     -----------------     --------------     --------------
<S>                                    <C>                <C>                  <C>                 <C>                <C>
Revenue from external customers ...    $         84.1     $        106.0       $        190.1      $        (2.9)     $       187.2
Intersegment revenue ..............              25.3                0.7                 26.0              (26.0)                --
                                       --------------     --------------       --------------      -------------      -------------
Gross revenue......................    $        109.4     $        106.7       $        216.1      $       (28.9)     $       187.2
                                       ==============     ==============       ==============      =============      =============
EBITDA(1) .........................    $         81.9     $        (14.8)      $         67.1      $        (2.9)     $        64.2
Depreciation and amortization......              90.0               17.7                107.7                 --              107.7
                                       --------------     --------------       --------------      -------------      -------------
Loss from operations...............    $         (8.1)    $        (32.5)      $        (40.6)     $        (2.9)     $       (43.5)
                                       ==============     ==============       ==============      =============      =============
Total assets ......................    $      1,333.6     $        418.0       $      1,751.6      $      (322.7)     $     1,428.9
                                       ==============     ==============       ==============      =============      =============
Capital expenditures ..............    $        182.1     $         24.4       $        206.5      $          --      $       206.5
                                       ==============     ==============       ==============      =============      =============
</TABLE>


                                       35
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

7.   SEGMENTS (CONTINUED)

                          YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                     FIXED SATELLITE                        TOTAL REPORTABLE
                                        SERVICES         DATA SERVICES          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
                                      ==============     ==============       ==============      ===============    =============
EBITDA(1) .........................   $         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     $        595.5       $      2,194.5      $        (510.2)   $     1,684.3
                                      ==============     ==============       ==============      ===============    =============
Capital expenditures ..............   $        292.9     $         14.6       $        307.5      $           --     $       307.5
                                      ==============     ==============       ==============      ===============    =============
</TABLE>


                       NINE MONTHS ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                               FIXED SATELLITE                        TOTAL REPORTABLE
                                                   SERVICES         DATA 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
                                                ---------------    ----------------    ---------------      ---------------
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>



                                       36
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

7.   SEGMENTS (CONTINUED)

                        THREE MONTHS ENDED MARCH 31, 1998
                               PREDECESSOR COMPANY

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

     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, 2000 and 1999, amounted to approximately
$89.7 million and $65.0 million, $1.7 million and $2.1 million, and $4.2 million
and $10.1 million, respectively.

     The Company had one  customer in 2000 that  accounted  for greater  than 10
percent of its total revenue.  The revenue associated with this customer,  which
is included in the Data Services segment, amounted to $19.8 million for the year
ended December 31, 2000.

     The following  summarizes the Company's  domestic and foreign  revenues (in
thousands):

<TABLE>
<CAPTION>
                                                                                                                    THREE MONTHS
                                                                                                                       ENDED
                                                               YEAR ENDED DECEMBER 31,           NINE MONTHS          MARCH 31,
                                                               -----------------------              ENDED               1998
                                                                                                 DECEMBER 31,        PREDECESSOR
                                                               2000               1999               1998              COMPANY
                                                             --------           --------           --------           --------
<S>                                                          <C>                <C>                <C>                <C>
Revenues from unaffiliated customers:
  United States ........................................     $ 87,801           $ 46,801           $ 24,001           $  6,895
  Germany ..............................................       15,756             15,573             14,617              4,517
  China ................................................       13,558                536                 --                 --
  United Kingdom .......................................       10,518              7,021              7,245              2,444
  Other foreign ........................................       59,557             34,951             18,745              4,934
                                                             --------           --------           --------           --------
Total revenue ..........................................     $187,190           $104,882           $ 64,608           $ 18,790
                                                             ========           ========           ========           ========
</TABLE>



                                       37
<PAGE>

8.   RELATED PARTY TRANSACTIONS

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

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                               -----------------
                                                                2000       1999
                                                               ------     ------
<S>                                                            <C>        <C>
         Due from Space Systems/Loral ....................     $  353     $   --
         Due from Loral Space and Communications Corp ....      1,165         --
         Due from Loral Communications Services ..........         67         --
         Due from CyberStar L.P. .........................      7,960        181
                                                               ------     ------
                                                               $9,545     $  181
                                                               ======     ======
</TABLE>


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

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                             -------------------
                                                              2000        1999
                                                             -------     -------
<S>                                                          <C>         <C>
         Due to Space Systems/Loral ....................     $     1     $ 9,750
         Due to Loral Skynet ...........................       4,038      41,788
         Due to Loral Space and Communications Ltd. ....         456          --
                                                             -------     -------
                                                             $ 4,495     $51,538
                                                             =======     =======
</TABLE>

     Loral CyberStar has obtained additional financing (via an intercompany note
from Loral  SpaceCom) 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  (6.71  percent at
December  31, 2000) plus 275 basis  points.  The note can be prepaid at any time
without  penalty and is payable on demand.  All  borrowings  under this note are
subject to Loral's  approval.  At December 31, 2000,  $107.9 million  (including
accrued  interest of $12.4 million) was  outstanding,  which is reflected on the
balance sheet as a note payable to Loral  SpaceCom.  Such borrowings and accrued
interest totaled $74.1 million at December 31, 1999.

     Loral  CyberStar and Loral Skynet 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,  which amounted to $21.4 million for 2000
and $18.7 million for 1999.

     Loral CyberStar Data Services began leasing transponder capacity from Loral
Skynet in 2000.  Amounts  incurred for  transponder  capacity  leased from Loral
Skynet totaled $4.5 million in 2000.

     Loral CyberStar and CyberStar L.P., a subsidiary of Loral,  entered into an
agreement  whereby  Loral  CyberStar  provides to CyberStar  L.P.  marketing and
general and  administrative  services.  These services  totaled $3.8 million and
$0.4 million in 2000 and 1999, respectively.

     .Space  Systems/Loral ("SS/L"),  a subsidiary of Loral SpaceCom,  built the
Company's  Telstar 12 satellite  that was launched in October 1999.  The Company
made  payments to SS/L during 2000,  1999 and 1998 totaling  approximately  $9.8
million, $98.3 million and $128.4 million, respectively.

     In December 1999, in connection with a contractual arrangement between SS/L
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 its
life. Under this arrangement,  Loral Cyberstar  recorded revenue of $4.4 million
in 2000.


                                       38
<PAGE>

                              LORAL CYBERSTAR, INC.
     (A WHOLLY OWNED SUBSIDIARY OF LORAL SPACE & COMMUNICATIONS CORPORATION)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

8.   RELATED PARTY TRANSACTIONS (CONTINUED)

     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 N.L., 81 degrees W.L.,
78 degrees  E.L.  and 47 degrees  W.L. In  connection  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 was
applied  by Loral  CyberStar  toward  the last  installment  payment  on Telstar
10/Apstar  IIR In  connection  with the sale,  the  Company  recorded  a gain of
approximately $34 million. Since the sale was to a subsidiary of Loral, the gain
was credited  directly to equity.  This  assignment  was approved by the Federal
Communications Commission on December 11, 2000.

9.   SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following is a summary of the quarterly  results of operations  for the
years ended December 31, 2000 and 1999 (in thousands):

<TABLE>
<CAPTION>
                                                        MARCH 31,            JUNE 30,         SEPTEMBER 30,       DECEMBER 31,(1)
                                                        ---------            --------         -------------       ---------------
<S>                                                     <C>                 <C>                 <C>                 <C>
2000
  Revenues .........................................    $ 42,182            $ 41,120            $ 43,517            $ 60,371
  Loss (income) from Operations ....................      14,913              17,720              12,691              (1,832)
  Loss before income taxes .........................      36,086              41,000              36,953              22,249
  Net loss .........................................      37,048              38,102              35,007              27,261
</TABLE>
<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
<FN>
(1)  The fourth quarter of 2000 includes a $12.0 million settlement resulting from a contract termination with a customer.
</FN>
</TABLE>


                                       39
<PAGE>

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

         None

                                    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.


                                       40
<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, 2000 and 1999

              Consolidated  Statements of Operations - Years ended  December 31,
              2000 and 1999, the nine months ended December 31, 1998 and for the
              Predecessor Company the three months ended March 31, 1998.

              Consolidated  Statements  of  Stockholders'  Equity - Years  ended
              December  31, 2000 and 1999,  the nine months  ended  December 31,
              1998, and for the Predecessor Company the three months ended March
              31, 1998.

              Consolidated  Statements  of Cash Flows - Year ended  December 31,
              2000, year ended December 31, 1999, the nine months ended December
              31, 1998, and for the  Predecessor  Company the three months ended
              March 31, 1998.

              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 2000

                  None

         (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).


                                       41
<PAGE>

EXHIBIT
NUMBER                             EXHIBIT DESCRIPTION

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.)

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).


                                       42
<PAGE>

EXHIBIT
NUMBER                             EXHIBIT DESCRIPTION

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).

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).


                                       43
<PAGE>

EXHIBIT
NUMBER                             EXHIBIT DESCRIPTION

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).

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.

                                       44
<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.


                                       45
<PAGE>

<TABLE>
<CAPTION>
            Signature                                                Title                                              Date
     -----------------------------                       ---------------------------------                       ------------------
<S>                                                       <C>                                                      <C>
    /s/ Bernard L. Schwartz                               Chairman of the Board                                    March 29, 2001
    ------------------------------                        and Chief Executive Officer
    Bernard L. Schwartz


    /s/ George Baker                                      Director                                                 March 29, 2001
    ------------------------------
    George Baker

    /s/ Eric J. Zahler                                    Executive Vice President                                 March 29, 2001
    ------------------------------                        and Director
    Eric J. Zahler


    /s/ Michael P. DeBlasio                               First Senior Vice President                              March 29, 2001
    ------------------------------                        and Director
    Michael P. DeBlasio


    /s/ Daniel Hirsch                                     Director                                                 March 29, 2001
    ------------------------------
    Daniel Hirsch

    /s/ W. Neil Bauer                                     President and Director                                   March 29, 2001
    ------------------------------
    W. Neil Bauer

    /s/ Richard J. Townsend                               Senior Vice President                                    March 29, 2001
    ------------------------------                        and Chief Financial Officer
    Richard J. Townsend                                   (Principal Financial Officer)


    /s/ Harvey B. Rein                                    Vice President and                                       March 29, 2001
    ------------------------------                        Controller
    Harvey B. Rein                                        (Principal Accounting Officer)
</TABLE>


                                       46