UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                    FORM 10-Q



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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

Commission file number  0-26450
                        -------

                           ORION NETWORK SYSTEMS, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        Delaware                                             52-1271418
-------------------------------                          --------------------
(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)                  (Zip Code)

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

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



Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

          Class                                Outstanding at September 30, 1996
----------------------------                   ---------------------------------
Common Stock, $.01 par value                           10,973,018 shares



<PAGE>




                                      INDEX


                  ORION NETWORK SYSTEMS, INC. AND SUBSIDIARIES


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

Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets---September 30, 1996 and
             December 31, 1995.................................................................   3

         Condensed Consolidated Statements of Operations---three and nine months ended
             September 30, 1996 and 1995.......................................................   5

         Condensed Consolidated Statements of Cash Flows---nine months ended
             September 30, 1996 and 1995.......................................................   6

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

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of
         Operations............................................................................  10


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.....................................................................   14

Item 2.  Changes in Securities.................................................................   14

Item 3.  Defaults upon Senior Securities.......................................................   14

Item 4.  Submission of Matters to a Vote of Security Holders...................................   14

Item 5.  Other Information.....................................................................   14

Item 6.  Exhibits and Reports on Form 8-K......................................................   15



Signatures.....................................................................................   16
</TABLE>


<PAGE>




Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

                           ORION NETWORK SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                                                        September 30,         December 31,
                                                                             1996                 1995
                                                                      -------------------    ---------------
ASSETS                                                                   (Unaudited)

<S>                                                                          <C>                <C>        
Current assets:
    Cash and cash equivalents                                                $36,656,619        $55,111,585

    Accounts receivable                                                        5,808,568          5,189,598

    Accrued interest                                                             157,125            129,810

    Prepaid expenses and other current assets                                  5,584,196          3,168,058

                                                                      -------------------    ---------------
        Total current assets                                                  48,206,508         63,599,051

Property and equipment at cost:

    Land                                                                          73,911             73,911

    Telecommunications equipment                                              22,707,786         13,836,841

    Furniture and computer equipment                                           4,598,505          3,395,799

    Satellite and related equipment                                          322,450,415        321,918,549
                                                                      -------------------    ---------------

                                                                             349,830,617        339,225,100

    Less accumulated depreciation                                            (57,914,578)       (32,170,865)
                                                                      -------------------    ---------------

        Net property and equipment                                           291,916,039        307,054,235

Deferred financing costs, net                                                 11,208,678         12,894,720

Other assets, net                                                              4,645,948          5,527,221
                                                                      -------------------    ---------------

TOTAL ASSETS                                                                $355,977,173       $389,075,227
                                                                      ===================    ===============
</TABLE>


See Notes to Condensed Consolidated Financial Statements.


<PAGE>




                           ORION NETWORK SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (CONTINUED)


<TABLE>
<CAPTION>

                                                                                                 September 30,         December 31,
                                                                                                       1996                 1995
                                                                                                -----------------    ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY                                                              (Unaudited)

<S>                                                                                                        <C>                  <C>
Current liabilities:
    Accounts payable                                                                             $   4,094,026        $  10,454,723
    Accrued liabilities                                                                              7,374,884            6,812,223
    Other current liabilities                                                                        5,402,117            2,111,687
    Interest payable                                                                                 3,128,365            8,005,079
    Current portion of long-term debt                                                               33,873,930           28,607,110
                                                                                                 -------------        -------------
        Total current liabilities                                                                   53,873,332           55,990,822

Long term debt                                                                                     221,781,393          250,669,286
Other liabilities                                                                                   32,878,061           20,698,084

Limited Partners' interest in Orion Atlantic                                                        19,961,032           14,626,338
Minority interest in other consolidated entities                                                        52,984               52,354

Redeemable preferred stock:

    Series A 8% Cumulative  Redeemable  Convertible  Preferred Stock, $.01 par
        value, 15,000 shares authorized; 13,871 and 14,491 shares
        issued and outstanding, plus accrued dividends                                              15,820,460           15,705,054
    Series B 8% Cumulative Redeemable Convertible Preferred Stock,
        $.01 par value, 5,000 shares authorized; 4,298 and 4,483 shares
        issued and outstanding, plus accrued dividends                                               4,718,526            4,652,647

Stockholders' equity:

    Common stock, $.01 par value,  40,000,000 shares authorized; 11,232,533 and
        11,115,965 issued, 10,973,018 and 10,856,450
        outstanding and 259,515 held as treasury shares (at no cost)                                   112,325              111,160
    Capital in excess of par value                                                                  86,610,720           85,485,613
    Accumulated deficit                                                                            (79,831,650)         (58,916,131)
                                                                                                 -------------        -------------
       Total stockholders' equity                                                                    6,891,395           26,680,642
                                                                                                 -------------        -------------

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                                                         $ 355,977,173        $ 389,075,227
                                                                                                 =============        =============


See Notes to Condensed Consolidated Financial Statements.

</TABLE>

<PAGE>
                           ORION NETWORK SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>


                                                                  Three Months ended                    Nine months ended
                                                                   September 30,                           September 30,
                                                       ----------------------------------       ---------------------------------
                                                             1996                1995                1996                1995
                                                         ------------        ------------        ------------        ------------
                                                          (Unaudited)         (Unaudited)         (Unaudited)         (Unaudited)

<S>                                                     <C>                 <C>                 <C>                 <C>         
REVENUE                                                 $ 12,246,599        $  6,201,444        $ 30,015,517        $ 13,947,425  

OPERATING EXPENSES:
   Direct expenses                                         1,800,065           4,131,374           4,285,834          10,019,683 
   Sales and marketing                                     2,753,409           2,098,200           7,792,666           5,914,332
   Engineering and technicl services                       2,143,303           2,235,423           6,333,525           6,021,853
   General and administrative                              3,871,365           3,321,532          11,469,235           7,168,165
   Depreciation and amortization                           8,829,170           7,939,599          26,402,947          22,276,632
                                                         ------------        ------------        ------------        ------------
      Total operating expenses                            19,397,312          19,726,128          56,284,207          51,400,665
 
                                                         ------------        ------------        ------------       -------------
LOSS FROM OPERATIONS                                      (7,150,713)        (13,524,684)        (26,268,690)        (37,453,240)
OTHER EXPENSE (income)

   Interest income                                          (530,651)           (617,346)         (1,841,868)         (1,078,347)
   Interest expense                                        6,398,747           6,285,065          20,228,519          17,080,146
   Other expense (income)                                    (33,868)             (6,646)            (48,356)            (43,216)
                                                        ------------        ------------        ------------        -------------
    Total other expense (income)                           5,834,228           5,661,073          18,338,295          15,958,583

LOSS BEFORE MINORITY INTEREST                            (12,984,941)        (19,185,757)        (44,606,985)        (53,411,823)

Limited partners' and minority interest in
  the net loss of Orion Atlantic and
  other consolidated entities                              7,188,636          12,187,276          24,799,698          33,426,738


                                                        ------------        ------------        ------------        -------------
NET LOSS                                                  (5,796,305)         (6,998,481)        (19,807,287)        (19,985,085)

Preferred stock dividend                                     265,873             370,002           1,006,285             959,646 
                                                        ------------        ------------        ------------        -------------

Net loss attributable to
   common stockholders                                  ($ 6,062,178)       ($ 7,368,483)       ($20,813,572)       ($20,944,731)
                                                        ============        ============        ============        ============

Net loss per common share                               ($      0.53)       ($      0.78)       ($      1.81)       ($      2.42) 
                                                        ============        ============        ============        ============

Weighted average common
   shares outstanding                                     10,964,945           9,472,574          10,943,287           8,522,067
                                                        ============        ============        ============        ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.



<PAGE>

                           ORION NETWORK SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>


                                                                Nine months ended
                                                                  September 30,
                                                        -----------------------------------
                                                             1996                1995
                                                        ---------------     ---------------
                                                          (Unaudited)         (Unaudited)
<S>                                                     <C>             <C>
OPERATING ACTIVITIES
Net loss                                                 ($19,807,287)   ($19,985,085)
Adjustments to reconcile net loss to
          net cash used in operating activities:
      Depreciation and amortization
      Amortization of deferred financing costs             26,402,947      22,276,632
      Provision for bad debts                               1,597,941       1,597,941
      Satellite incentives and accrued interest               524,999         671,226
      Limited partners' interest in Orion Atlantic          1,747,334       6,463,771
      Minority interest in other consolidated entities    (24,800,306)    (33,454,227)
      Gain on sale of assets                                      608          27,489
      Changes in operating assets and liabilities:            (41,054)        (45,616)
          Accounts receivable
          Accrued interest                                 (1,143,969)     (1,921,320)
          Prepaid expenses and accrued liabilities            (27,315)             --
          Other assets                                     (2,416,138)     (4,261,808)
          Accounts payable and accrued liabilities            427,741      (1,618,912)
          Other current liabilities                        (5,818,070)        745,518
          Interest payable                                  3,279,274         977,374
                                                           (4,876,714)     (1,883,773)
                                                         ------------    ------------
Net cash used in operating activities                     (24,950,009)    (30,410,790)

INVESTING ACTIVITIES
Capital expenditures                                      (10,266,012)     (3,863,019)
Refund from satellite manufacturer                                 --       2,750,000
FCC license costs                                            (117,600)       (381,337)
                                                         ------------    ------------
Net cash used in investing activities                     (10,383,612)     (1,494,356)

FINANCING ACTIVITIES
Limited partners' capital contributions                    30,135,000       7,600,000
Proceeds from issuance of common stock                        219,380      51,616,441
Proceeds from issuance of redeemable preferred stock               --       4,483,001
PPU borrowings                                                     --       2,275,000
Proceeds from issuance of notes payable                            --         551,850
Proceeds from senior note payable to banks                         --      18,367,134
Repayment of senior note payable to banks                 (22,768,340)     (9,718,049)
Repayment of notes payable                                 (2,328,096)     (1,668,818)
Payments on capital lease obligations                        (559,266)       (416,679)
Capacity and other liabilities                             12,179,977      10,662,162
Distributions to joint venture minority interest                   --         (25,904)
                                                         ------------    ------------
Net cash provided by financing                             16,878,655      83,726,138
activities

Net (decrease) / increase in cash and cash equivalents    (18,454,966)     51,820,992
Cash and cash equivalents at beginning of period           55,111,585      11,218,831
                                                         ============    ============
Cash and cash equivalents at end of period               $ 36,656,619    $ 63,039,823
                                                         ============    ============
</TABLE>

See Notes to Condensed Consolidated Financial Statements.


<PAGE>




                           ORION NETWORK SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW



SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION.

<TABLE>
<CAPTION>
                                                                     Nine months ended
                                                                       September 30,
                                                             -----------------------------------
                                                                  1996                1995
                                                             ----------------     --------------
                                                               (Unaudited)         (Unaudited)
<S>                                                               <C>                  <C>     
Transactions not providing or requiring cash:

      Accrued dividend on preferred stock                        $ 1,108,232        $   959,646
                                                             ================     ==============

      Conversion of preferred stock to common stock              $   804,945
                                                                                    $        --
                                                             ================     ==============

Interest paid during the period, net of amounts capitalized      $11,436,501        $10,857,800
                                                             ================     ==============
</TABLE>


See Notes to Condensed Consolidated Financial Statements.


<PAGE>




                           ORION NETWORK SYSTEMS, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.  Operating  results for the three and nine months ended September
30, 1996 are not necessarily  indicative of the results that may be expected for
the year ending  December 31, 1996.  The balance  sheet at December 31, 1995 has
been derived  from the audited  financial  statements  at that date but does not
include all of the  information  and  footnotes  required by generally  accepted
accounting   principles   for  complete   financial   statements.   For  further
information,  refer  to the  consolidated  financial  statements  and  footnotes
thereto included in the 1995 Orion Network  Systems,  Inc. Annual Report on Form
10-K.

Net loss per  common  share is based on the  weighted  average  number of common
shares  outstanding  during the  period.  Pursuant  to the  requirements  of the
Securities  and Exchange  Commission,  common  stock  issued and stock  issuable
relating to convertible preferred stock, warrants and options granted within one
year of filing the  registration  statement,  are treated as outstanding for all
periods prior to the second quarter of 1995.

NOTE B. OTHER LIABILITIES

International Private Satellite Partners,  L.P. (d/b/a Orion Atlantic), in which
Orion and its subsidiary, OrionSat, have an aggregate 41.66% ownership interest,
has entered into refund agreements with certain limited partners  (including the
Company) under which the  participating  limited partners have voluntarily given
up their rights to receive  capacity under their firm capacity  agreements.  The
participating  limited  partners may withdraw from these refund  agreements  and
exercise their right to receive transmission capacity on Orion 1 in exchange for
continuing payments under their firm capacity  agreements,  upon 30 days notice,
following  January 1996. The  participating  limited  partners would continue to
make payments for such capacity but would have the right to receive refunds from
Orion Atlantic out of cash available  after  operating  costs and payments under
the senior  secured notes  payable--banks.  Through  September  30, 1996,  Orion
Atlantic has received $24.3 million (excluding  payments from the Company) under
the firm capacity agreements subject to refund.

NOTE C. LONG-TERM DEBT
<TABLE>
<CAPTION>

Long-term debt consists of the following:
                                                        September 30, 1996             December 31, 1995
                                                        ------------------             -----------------
<S>                                                       <C>                             <C>          
Senior notes payable---banks                              $ 207,714,842                   $ 230,483,182
Notes payable--- TT&C Facility                                7,171,429                       8,774,266
Satellite incentive obligations                              21,749,574                      20,002,240
Notes payable---STET                                          8,000,000                       8,000,000
Notes payable---limited partners                              8,050,000                       8,050,000
Other                                                         2,969,478                       3,966,708
                                                          -------------                   -------------
              Total long-term debt                          255,655,323                     279,276,396
Less: current portion                                       (33,873,930)                    (28,607,110)
                                                          -------------                   -------------
              Long-term debt less current portion         $ 221,781,393                   $ 250,669,286
                                                          =============                   =============
</TABLE>

<PAGE>




                           ORION NETWORK SYSTEMS, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE D. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

In the nine months  ended  September  30,1996,  certain  preferred  stockholders
exercised  their  right to convert  805 shares of  preferred  stock into  91,071
shares of common stock at prices ranging from $8.50 to $10.20 per share.

NOTE E. COMMITMENTS AND CONTINGENCIES

In October 1995, Skydata  Corporation  ("Skydata"),  a former contractor,  filed
suit against Orion  Atlantic,  Orion  Satellite  Corporation  and Orion,  in the
United States District Court for the Middle  District of Florida,  claiming that
certain Orion Atlantic  operations using frame relay switches infringe a Skydata
patent.  Skydata's  suit sought  damages in excess of $10 million and asked that
any damages assessed be trebled. On December 11, 1995, the Orion parties filed a
motion to  dismiss  the  lawsuit  on the  grounds  of lack of  jurisdiction  and
violation of a mandatory  arbitration  agreement.  In addition,  on December 19,
1995, the Orion parties filed a Demand for Arbitration  against Skydata with the
American  Arbitration  Association in Atlanta,  Georgia,  requesting  damages in
excess of $100,000 for breach of contract and declarations,  among other things,
that Orion and Orion  Atlantic owns a royalty-free  license to the patent,  that
the patent is invalid and  unenforceable  and that Orion and Orion Atlantic have
not infringed on the patent.  On March 5, 1996,  the court granted the Company's
motion to dismiss the lawsuit on the basis that Skydata's  claims are subject to
arbitration.  Skydata  appealed  the  dismissal  to the United  States  Court of
Appeals  to the  Federal  Circuit.  Skydata  also  filed a  counterclaim  in the
arbitration  proceedings asserting a claim for $2 million damages as a result of
the conduct of Orion and its affiliates. On May 15, 1996, the arbitrator granted
the Orion  parties'  request  for an initial  hearing on claims  relating to the
Orion parties' rights to the patent,  including the co-ownership claim and other
contractual claims. This initial hearing was scheduled to take place in November
1996.  On  November  9,  1996,  Orion and  Skydata  agreed to settle in full the
pending litigation and arbitration.  As part of the settlement, the parties have
agreed to release  all claims by either  side  relating in any way to the patent
and/or the pending litigation and arbitration.  In addition,  Skydata has agreed
to grant Orion (and its  affiliates) an  unrestricted  paid-up  license to make,
have  made,  use or sell  products  or  methods  under the  patent and all other
corresponding  continuation and reissue patents. Orion has agreed to pay Skydata
$437,000 over a period of two years as part of the settlement.  The parties have
agreed to document the terms of the settlement in a formal settlement agreement.

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




<PAGE>




                           ORION NETWORK SYSTEMS, INC.

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

GENERAL

From its  inception  in 1982 through  January 20,  1995,  when Orion 1 commenced
commercial  operations,  Orion  was  a  development  stage  enterprise.  Orion's
principal business is the provision of private network communication services to
multinational  businesses  and video  communications  for  television  and other
distribution.  Revenues from inception through December 31, 1994,  totaling $8.5
million,  were generated  primarily from sales of private network services using
leased satellite capacity.  Orion incurred net losses in each year through 1995,
and Orion anticipates that it will continue to incur net losses at least through
1999.  As of  September  30,  1996,  Orion had an  accumulated  deficit of $79.8
million.

Prior to acceptance of Orion's first satellite in January 1995,  Orion's efforts
were  devoted  primarily to  monitoring  the  construction,  launch and in-orbit
testing of Orion 1, product development,  marketing and sales of interim private
communications network services, raising additional financing for such services,
marketing  of  capacity  and  planning  Orion  2  and  Orion  3.  Subsequent  to
acceptance,  Orion's  efforts have been primarily  focused on building  customer
relationships, marketing and sales of network and satellite services, as well as
planning for the future construction of Orion 2 and Orion 3.

As a result of OrionSat's control of Orion Atlantic,  the Company's consolidated
financial statements include the accounts of Orion Atlantic,  in which Orion and
its subsidiary,  OrionSat,  have an aggregate 41.66% ownership interest.  All of
Orion  Atlantic's  revenues and  expenses  are included in Orion's  consolidated
financial  statements,  with appropriate  adjustment to reflect the interests of
the limited  partners  of Orion  Atlantic  other than Orion in Orion  Atlantic's
income or loss.  Substantially all of the assets and liabilities reported in the
condensed  consolidated  balance sheet as of September 30, 1996 pertain to Orion
Atlantic.

RESULTS OF OPERATIONS

Quarter Ended September 30, 1996 Compared the Quarter Ended September 30, 1995

Revenue  and  bookings.  Total  revenue  for the  three  and nine  months  ended
September 30, 1996 was $12.2 million and $30.0 million, compared to $6.2 million
and $13.9  million  for the same  periods in 1995,  an increase of 97% and 116%,
respectively.  Revenues from private  communications  network services were $4.5
million for the third quarter of 1996 and $2.0 million for the comparable period
in 1995, as the number of customer  sites in service  increased to 260 from 123.
Revenues from video  communications  services and transponder  capacity  leasing
were $7.5 million for the third quarter of 1996 compared to $3.7 million for the
third quarter of 1995.

As of September  30,  1996,  Orion had  bookings  (defined as recurring  revenue
during  the  non-cancelable   contract  term,  plus  installation   charges)  of
approximately  $195.1  million  compared to $117.4  million as of September  30,
1995.  Revenue from bookings typically is earned over contract terms of three to
five years.


<PAGE>



                           ORION NETWORK SYSTEMS, INC.

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

OPERATING EXPENSES.

Direct  expenses.  Direct expenses for the three and nine months ended September
30, 1996, were $1.8 million and $4.3 million  compared to $4.1 million and $10.0
million for the same periods in 1995. The decrease of $2.3 million,  or 56%, for
the quarter and $5.7  million,  or 57%, for the nine month period was  primarily
attributable to accruals for satellite incentive  obligations during the initial
satellite  deployment  period from January 20, 1995  through June 30, 1995.  The
Company  capitalized  the present  value of the  remaining  satellite  incentive
obligation of  approximately  $14.8 million,  effective July 1, 1995, as part of
the cost of the satellite.

Sales and marketing expenses. Sales and marketing expenses were $2.8 million and
$7.8 million  respectively,  for the three and nine months ended  September  30,
1996,  as compared to $2.1 million and $5.9 million in the same periods of 1995.
Sales and marketing  expenses  increased $0.7 million or 33% for the quarter and
increased  $1.9 million or 32% year to date over the three and nine months ended
September  30,  1995.  The  increases  are  primarily   attributable   to  sales
commissions,  third party sales  representative  fees and ground  operator  fees
associated with the growth in private communications network service business.

Engineering and technical expenses. Engineering and technical expenses were $2.1
million and $6.3 million in the three and nine months ended  September 30, 1996,
as compared to $2.2 million and $6.0 million for the comparable periods in 1995.

General and administrative  expenses.  General and administrative  expenses were
$3.9 million and $11.5 million for the three and nine months ended September 30,
1996,  compared to $3.3  million and $7.2  million  for the same  periods  ended
September  30,  1995.  The  increase of $4.3  million or 60% for the nine months
ended  September  30, 1996,  was primarily due to the inclusion of in-orbit life
insurance  for the entire  period  during 1996.  The policy was effective in May
1995.

Depreciation and  amortization.  Depreciation  and amortization  expense for the
three and nine months  ended  September  30,  1996,  was $8.8  million and $26.4
million, an increase of $0.9 or 11% and $4.1 or 18% respectively,  over the same
periods in 1995. The increase  primarily a results from  depreciation  of ground
equipment to service the expansion of the private network communication services
business and the Orion 1 satellite which was placed in service January 20, 1995.

Interest.  Interest  income was $0.5  million and $1.8 million for the three and
nine months ended September 30, 1996, compared to $0.6 million and $1.1 million,
an increase of $0.7 million or 64% for the nine months ended September 30, 1995.
The  increase in  interest  income  during the first  three  quarters of 1996 is
primarily a result of interest earned on the proceeds from the Company's initial
public offering in August 1995. Interest expense,  net of capitalized  interest,
was $6.4 million and $20.2 million for the three and nine months ended September
30, 1996 and $6.3 million and $17.1 million for the comparable  periods in 1995.
The increase in interest  expense of $3.1 million in the first three quarters of
1996 is attributable to expensing interest (including  commitment fees, interest
accretion  associated  with  the  Orion 1  satellite  incentive  obligation  and
amortization  of deferred  financing  costs) from the in-service date of Orion 1
and the impact of the interest  rate cap agreement in the period ended March 31,
1996.  Prior  to the  in-service  date of Orion 1,  substantially  all  interest
expense was capitalized.

Net Loss.  The Company  incurred net losses of $5.8  million and $19.8  million,
$7.0 million and $20.0 million for the three and nine months ended September 30,
1996 and 1995,  respectively,  after  deduction  of the  limited  partners'  and
minority  interests'  share in the Company's  operating  losses before  minority
interests' of $7.2 , $24.8, $12.2 and $33.4 million, respectively.


<PAGE>




                           ORION NETWORK SYSTEMS, INC.

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


LIQUIDITY AND CAPITAL RESOURCES

Funding to date.  Orion has  required  significant  capital  for  operating  and
investing activities in the development of its business,  and management expects
a need for  significant  additional  capital in the future to develop  fully its
global satellite  communications system. The Company's funding has been provided
primarily by the sale of equity  securities,  including  the  completion  of its
initial public offering in August 1995 which  generated  proceeds to the Company
of  approximately  $52 million,  (net of  underwriting  discounts),  bank loans,
vendor financing, lease arrangements and short-term loans from its investors. As
of September 30, 1996,  Orion had a working  capital  deficiency of $5.6 million
and the net cash used in operations for the nine months ended September 30, 1996
and 1995, was $25.0 million and $30.4 million, respectively.

Funding for the  construction  and launch of the Orion 1  satellite  and related
facilities  was fully  committed  through $90 million of equity from the limited
partners of Orion  Atlantic,  an  aggregate  of $251  million  under the Orion 1
credit  facility  and  approximately  $11 million  under other debt  facilities,
principally related to the construction of the TT&C Facility.

Amounts  outstanding  under the Orion 1 credit facility bear interest of LIBOR +
1.75%.  Orion  Atlantic  entered into interest rate hedging  arrangements  which
fixed the maximum interest rate through November 1995 at 11.54%.  Thereafter, an
interest cap agreement is in place relating to a notional amount declining every
nine months  from $150  million  effective  November  30, 1995 to $15.6  million
effective  March 31,  2001.  Under the terms of the cap  agreement,  when  LIBOR
equals or  exceeds  5.5%  Orion  Atlantic  pays the bank a fee equal to 3.3% per
annum of the  notional  amount and receives a payment from the bank in an amount
equal to the  difference  between the actual LIBOR rate and 5.5% on the notional
amount.  There was an  unrealized  loss on this cap as of September  30, 1996 of
approximately $9.7 million.

Current Funding Requirements.  Management estimates that, based upon its current
expectations   for  growth,   Orion   (exclusive  of  the  substantial   funding
requirements  for  Orion  2 and  Orion  3) will  require  aggregate  funding  of
approximately  $5.5  million  through the end of 1996.  Orion  expects  that its
requirements  will be met through  existing cash balances and expected  proceeds
from the exercise of certain outstanding options and warrants to purchase shares
of common stock.

In the event of a deficiency in cash flow required to service the Orion 1 credit
facility,  the limited partners of Orion Atlantic,  including the Company, would
be obligated to make additional  payments toward such deficiency under the terms
of their contingent satellite capacity commitment agreements.

To pursue the  construction,  launch and operation of Orion 2 and Orion 3, Orion
will need to arrange  an  estimated  $600  million in  funding.  The  Company is
currently  exploring  various  alternatives  relating to the aggregate  unfunded
financing  requirements  for Orion 2 and Orion 3. There can be no assurance that
the Company will be  successful  in  arranging  the  required  financing  or, if
successful, that such financing will be on terms favorable to the Company.

In 1995, Orion Atlantic  commenced but ultimately  deferred a plan to raise over
$290 million of financing for Orion 2, plus $300 million of senior secured notes
to repay the  existing  Orion 1 credit  facility,  make  certain  repayments  to
limited partners of Orion Atlantic and provide working capital.  The Company may
recommence  this financing  plan, but there can be no assurance as to the timing
or terms and conditions of such  financing,  or as to whether such financing can
be completed on acceptable terms.


<PAGE>




                           ORION NETWORK SYSTEMS, INC.

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


The  Company  intends to use a portion of the net  proceeds  of its August  1995
initial public offering, debt and vendor financing,  and possibly investments by
strategic  partners and future equity financings to finance Orion 3. The Company
does not yet have commitments for the additional financing required for Orion 3.
It is the Company's  present  intention to commence  construction of Orion 3 (to
the  extent  permitted  by  the  then  satellite   contract  for  Orion  3,  the
authorizations to construct,  launch and operate Orion 3 and applicable laws and
regulations)  following the execution of a definitive  satellite  contract.  The
Company  believes  that a portion of the  approximately  $52 million of proceeds
from its August 1995  initial  public  offering and vendor  financing  under the
satellite  contract will provide the funding for the first year of construction.
If the remaining  financing is not raised when needed,  the Company likely would
incur  various  financial  or other  penalties  under  its  satellite  contract.
Although the amount of such penalties  cannot be determined at the present time,
such penalties could be material.

Existing Obligations. Orion Atlantic began repayment of the term loans under the
Orion 1 credit  facility in 1995.  Sales of services  to  customers  and certain
capacity commitments of the limited partners are expected to provide the cash to
meet Orion  Atlantic's  loan  repayment  obligations.  The Company and the other
limited  partners of Orion  Atlantic  have agreed to lease  capacity on Orion 1,
subject to obligations of Orion  Atlantic  under the refund  agreement  (defined
below) to refund lease  payments,  and have entered into  additional  contingent
capacity lease contracts as support for payment of the senior bank debt of Orion
Atlantic.  The Company's  obligations  under these firm and contingent  capacity
arrangements are $2.5 million and $4.3 million, respectively, per year for seven
years,  and the Company is obligated to indemnify STET (a former limited partner
whose  partnership  interest in Orion Atlantic was purchased by Orion  Atlantic)
against  certain  payments made by STET under its firm and  contingent  capacity
leases.  This indemnity could increase  Orion's  obligations to make payments in
the event of cash deficits of Orion Atlantic to $8.6 million per year, and could
require  Orion  for a term of four  years  commencing  in  January  1998 to make
payments to Orion  Atlantic of up to  approximately  $2.5 million per year.  The
Company maintains a $10 million letter of credit supporting this indemnification
obligation.

As the general partner of Orion Atlantic,  OrionSat could be required to satisfy
all  obligations of Orion  Atlantic,  including all debt incurred,  in the event
that (i) the  limited  partners  fail to  satisfy  their  obligations  under the
capacity leases or; (ii) the amounts received under the capacity leases and from
third party sales are insufficient to satisfy Orion Atlantic's obligations.  The
obligations of Orion Atlantic exceed $325 million as of September 30, 1996.

Amounts  outstanding  under the Orion 1 credit  facility  (approximately  $210.4
million as of September  30, 1996) are secured by the assets of Orion  Atlantic,
the  partnership  interests of the  partners in Orion  Atlantic and the stock of
OrionSat.  Among other customary covenants and requirements,  the Orion 1 credit
facility includes significant restrictions on the distribution of any funds from
Orion Atlantic to the partners. Distributions can only be made if Orion Atlantic
has sufficient  revenues to cover operating costs and debt service. At September
30, 1996, the Company had outstanding indebtedness of approximately $7.2 million
under a seven year term loan provided by General  Electric  Capital  Corporation
for the TT&C Facility,  which is secured by the TT&C Facility and various assets
relating  thereto.   Additionally,   at  September  30,  1996  the  Company  had
outstanding  approximately  $21.1 million payable to the manufacturer of Orion 1
through  2006 and $8.0  million to a former  partner in Orion  Atlantic  through
1997. Also at September 30, 1996, the Company had outstanding approximately $8.1
million  of  subordinated  debt  under a facility  of up to $10.5  million  from
certain limited partners  (excluding the Company) for Orion  Atlantic's  network
services.


<PAGE>




                           ORION NETWORK SYSTEMS, INC.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

In October 1995, Skydata  Corporation  ("Skydata"),  a former contractor,  filed
suit against Orion  Atlantic,  Orion  Satellite  Corporation  and Orion,  in the
United States District Court for the Middle  District of Florida,  claiming that
certain Orion Atlantic  operations using frame relay switches infringe a Skydata
patent.  Skydata's  suit sought  damages in excess of $10 million and asked that
any damages assessed be trebled. On December 11, 1995, the Orion parties filed a
motion to  dismiss  the  lawsuit  on the  grounds  of lack of  jurisdiction  and
violation of a mandatory  arbitration  agreement.  In addition,  on December 19,
1995, the Orion parties filed a Demand for Arbitration  against Skydata with the
American  Arbitration  Association in Atlanta,  Georgia,  requesting  damages in
excess of $100,000 for breach of contract and declarations,  among other things,
that Orion and Orion  Atlantic owns a royalty-free  license to the patent,  that
the patent is invalid and  unenforceable  and that Orion and Orion Atlantic have
not infringed on the patent.  On March 5, 1996,  the court granted the Company's
motion to dismiss the lawsuit on the basis that Skydata's  claims are subject to
arbitration.  Skydata  appealed  the  dismissal  to the United  States  Court of
Appeals  to the  Federal  Circuit.  Skydata  also  filed a  counterclaim  in the
arbitration  proceedings asserting a claim for $2 million damages as a result of
the conduct of Orion and its affiliates. On May 15, 1996, the arbitrator granted
the Orion  parties'  request  for an initial  hearing on claims  relating to the
Orion parties' rights to the patent,  including the co-ownership claim and other
contractual claims. This initial hearing was scheduled to take place in November
1996.  On  November  9,  1996,  Orion and  Skydata  agreed to settle in full the
pending litigation and arbitration.  As part of the settlement, the parties have
agreed to release  all claims by either  side  relating in any way to the patent
and/or the pending litigation and arbitration.  In addition,  Skydata has agreed
to grant Orion (and its  affiliates) an  unrestricted  paid-up  license to make,
have  made,  use or sell  products  or  methods  under the  patent and all other
corresponding  continuation and reissue patents. Orion has agreed to pay Skydata
$437,000 over a period of two years as part of the settlement.  The parties have
agreed to document the terms of the settlement in a formal settlement agreement.

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

ITEM 2. CHANGES IN SECURITIES

                  None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

                  None.

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

                  None.

ITEM 5. OTHER INFORMATION

                  None.



<PAGE>




                           ORION NETWORK SYSTEMS, INC.

Part II. OTHER INFORMATION (continued)

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

          11.1  Statement regarding:  Computation of Net Loss Per Common Share.

          27     Financial Data Schedule.

 (b) Reports on Form 8-K during the three  months  ended  September  30,
1996:

                  None.


<PAGE>




                           ORION NETWORK SYSTEMS, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                     ORION NETWORK SYSTEMS, INC.
                                     ---------------------------
                                             (Registrant)



Date: November 8, 1996
                                       -------------------------------
                                       W. Neil Bauer, President,
                                       Chief Executive Officer and Director
                                       (Principal Executive Officer)



Date: November 8, 1996
                                       ------------------------------------
                                       David J. Frear, Vice President,
                                       Chief Financial Officer and Treasurer
                                       (Principal Financial Officer and
                                       Principal Accounting Officer)