<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  FORM 10-KSB


               [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended: December 31, 1996

            [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
            For transition period from __________ to _______________


                        Commission File Number: 0-25548


                            ORBIT TECHNOLOGIES INC.
                 (Name of small business issuer in its charter)


              Delaware                                     84-100269
    (State or other jurisdiction                        (I.R.S. Employer
  of incorporation or organization)                    Identification No.)


                                Palomar Triad One
                      2011 Palomar Airport Road, Suite 100
                           Carlsbad, California 92009
                    (Address of principal executive offices)


        Registrant's telephone number, including area code: 760/930-8944
        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12 (g) of the Act:
                           Common Stock, no par value
                                (Title of class)


         Check whether the issuer (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 the filing
requirements for at least the past 90 days.      Yes  ____   No   X

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form and no disclosure will
be contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.       X

         Issuer's revenues for the year ended December 31, 1996 were $ -0-.

         On December 31, 1996, the aggregate market value of the voting stock
held by non-affiliated totaled approximately $5,075,757 based on the closing
stock price as reported by The OTC-BB of the NASDAQ Stock Market.

         At December 31,1996, 29,405,904 shares of Common Stock were
outstanding.

         Transitional Small Business Disclosure Format: Yes    No   X
                                                           ----  ----
          
<PAGE>   2
                                     PART I

Item 1.  DESCRIPTION OF BUSINESS

The Company is filing this periodic report after the due date that is
prescribed by current regulations.  Information presented is as of December 31,
1996, unless otherwise specifically indicated to the contrary.  Despite the
foregoing, this report is not intended to cover all matters and events to the
date of filing this report.

This Form 10-KSB contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" in Exhibit 99 and elsewhere in
this Form 10-KSB.  The following summary is qualified in its entirety by the
more detailed information and the consolidated financial statements, including
the notes thereto, appearing elsewhere in this Form 10-KSB.

General

Orbit Technologies, Inc. (the "Company" or "Orbit") was incorporated under the
laws of the state of Delaware in 1985.  The Company's mandate is to develop
base technologies into commercially viable products, which are licensed or sold
to affiliated and/or unaffiliated entities that are responsible for the
production and marketing of such products.  The technologies described herein
are undergoing certain feasibility studies and testing, and none has proved
commercially feasible, except for the TiTRODE type electrodes.

The Company is the owner of various patents pending and issued related to a
number of core technologies.  The Company intends to file patents to cover new
technologies it develops or acquires and to cover improvements to existing
patents.

The Company also retains independent engineers, research consultants,
institutes, independent business entities, and other technical and business
consultants as needed to develop and analyze technologies.  The Company is
focusing on two technologies which it believes have potential to yield
commercially viable products.  The Company may license each technology or
specific application.

The Company or its licensee must, with regard to each technology, after
examination and testing, determine whether the technology may be commercially
viable.  At that time, the Company or the licensee must develop a plan to
exploit such technology.  Such plan may require the raising of additional funds
to exploit the technology, including the establishment of a marketing
organization to sell such technology.  Alternatively, the Company or the
licensee may subcontract the manufacturing, or enter into a joint venture with
existing companies that have manufacturing or marketing capabilities or further
license the technologies to companies that have such capabilities.  Upon
further licensing, the Company or the licensee may receive royalty payments.
Any technology may also be sold outright with or without future payments based
on sales.  Therefore, each technology that may be commercially viable might be
exploited in a different manner and no assurances can be given as to how or
whether such technology may be successfully exploited.  To the extent that the
Company seeks to internally exploit any technology, the Company may require
substantial additional capital.  There can be no assurance that such additional
capital may be raised or that the terms of such capital may not result in
substantial dilution to the shareholders of the Company.

Ceramic Silicone Foam

The Company has acquired and is developing the technology to produce a
non-flammable, non-toxic foam material known as "Ceramic Silicone Foam"
("CSF").  CSF possesses the familiar nature of standard foams manufactured by
others and may be used in myriad products from household goods to space craft
seating, but differs in that it remains intact above the melting point of many
metals.  This characteristic affords CSF the possibility of becoming the
product of specification wherever flammability is a concern, such as in
aircraft, public ground transportation and health care and penal institutions.
CSF also has the potential to be effective as a sound suppresser and in toxic
waste containment environments.  Examples of applications, which take advantage
of these qualities, include sound suppression and flame resistance under
automobile hoods and side body panels.  Patents are pending for this technology
and no CSF has been sold to date.





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<PAGE>   3

Additional testing will be required on CSF to determine its fire retardance,
anti-flammability, non-toxicity, physical resiliency, thermal resistance,
thermal insulation properties, tensile strength and resistance to atmospheric
decay.

In May 1996, the Company was awarded a contract to participate in the
Department of Energy's Landfill Stabilization Project to evaluate materials for
treating existing hazardous waste at the Idaho National Engineering
Laboratory's Subsurface Disposal Areas.  These landfill sites are composed of a
variety of mixed waste materials including radioactive waste.  Several
different materials have been selected for testing and Orbit was awarded a
category sole source contract to test and evaluate its CSF.  The contract
provides for initial bench testing with options that can be exercised for more
extensive field-testing.

In November 1996, the Company signed a Teaming Agreement with Ecology and
Environment, Inc. (International Specialists in the Environment), for the sole
purpose of identifying and pursuing mutually agreeable business opportunities
within the U. S. Departments of Energy and Defense, and other federal and state
government agencies and the private sector where the environmental application
of the CSF technology is possible.  Identification and pursuit of business
opportunities includes technology development (i. e. both system design and
application identification and construction), sales and client development
efforts, the bid/proposal process, and the contract negotiation process
regarding awarded projects.

In May 1997, the Company was awarded a subcontract by Lockheed Martin Idaho
Technologies Company to test and evaluate Orbit's CSF as a stabilizing media
for sodium and nitrate salts which include chromium, as part of the contract
awarded by the Idaho National Engineering and Environmental Laboratory's
(INEEL) Radioactive Waste Management Complex (RWMC).  Subcontractors under the
contract to Orbit are the University of Akron's Microscale Physiochemical
Engineering Center, Department of Civil Engineering and Pierpoint Environmental
Management Services.

In August 1997, Lockheed Martin expanded the initial subcontract to include two
additional nitrate-type surrogate waste materials containing cadmium and an
organic solvent.

In September 1997, Orbit Technologies, Inc., Ecology and Environmental, Inc.,
and The University of Akron submitted a proposal entitled "Low- activity Waste
Stabilization using Ceramic Silicon Foam (CSF)" to the Department of Energy -
Idaho Operations Office.

Nuclear/Toxic Waste Containment Technology

The Company's nuclear waste containment technology has proven effective in a
laboratory setting in containing nuclear waste and radioactive particles.  The
Company uses CSF as a base material to create a unique compound through the
addition of certain proprietary materials.  The final CSF material is specially
designed and formulated to be application specific based on the required
performance factors.

In 1994, the Company engaged the Kurchatov Institute for Nuclear Physics in
Moscow, Russia to conduct a six stage study involving the determination of
structural peculiarities, component distribution, radioactive absorption
elements, the influence of temperature, pressure and the investigation of
resistance in corrosion active mediums.  Additional factors in the study
included the impact of internal alpha and gamma radiation, and the manner in
which liquid and solid radioactive wastes are encapsulated in the CSF matrix.

At that time, the Chairman of the State Committee on Atomic Energy of Ukraine
agreed to a two pronged testing protocol for the Chernobyl problem: (1) to
continue laboratory testing on the basis of the Kurchatov Institute's
recommendations called for under the "Implementation Program", and (2) on-site
technological testing at the Chernobyl site.  If the Company's CSF is chosen as
the material of choice, the Ukraine may pay the Company a license fee
concurrently with the execution of any such license.  The subsequent test and
evaluation phases required additional funding.  Adequate funding has not been
available for the follow-on test and evaluation.  No assurances can be given
that the necessary funding can be obtained or that further testing will prove
successful or any such license will be consummated or any license fee paid.

Successful completion of these tests, in whole or in part, could permit the
Company to pursue contracts for the encapsulation and disposal of significant
quantities of high, medium and low levels of nuclear/toxic waste.





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<PAGE>   4
Metafusion Process

Metafusion describes a material coating process (the "Metafusion Process").
The Metafusion Process encompasses the fusion, by chemical or physical means,
of materials at the atomic level.  The reaction takes place at room temperature
and at ambient pressure.  The process uses very little power, no toxic
materials are used and no contaminated waste is produced.  The Metafusion
Process permits the surface of a metal or alloy to be coated with another metal
or alloy so that the applied material is actually fused onto and into the
atomic structure of the surface of the substrate material.  The process is
achieved by electrical excitation of the electrons of the coating and substrate
materials by the application of a mid-range frequency pulsed electrical current
that has been generated to coincide with the natural resonance of the atoms.
The process results in the fusion of the materials and an intermingling of the
atoms at the boundary causing an interdispersion of the materials.  The
Metafusion Process does not generate excessive heat that can alter the
properties of the substrate material.  The Metafusion Process can be
accomplished without expensive or sophisticated equipment.

The Metafusion Process has been scientifically corroborated by a number of
independent entities, including Ontario Research Foundation of Mississauga,
Ontario, which validated the solid Metafusion Process by analyzing the coating
of steel and copper with titanium carbide.  The results of the analysis showed
the presence of the coating material to a depth of five (5) microns into the
substrate.  Hardness tests conducted at the Materials Sciences Laboratory of
the University of California at Los Angeles and the Surface Science Laboratory
of Mountain View, California revealed significant penetration of the applied
materials into the substrate.

The Company believes that the Metafusion Process has myriad commercial
applications.  Potential applications include printed circuits, cutting blades,
tools and dies, jewelry, automotive parts, corrosion resistance in extreme
conditions, and multi-layer applications for the reduction of heat expansion
coefficients.

The Metafusion Process was utilized to coat copper-alloy resistance welding
electrodes (welding tips) through the fusion of titanium carbide or molybdenum
tungsten onto and into copper-alloy welding tips ("TiTRODEs").  The Chrysler
Corporation ("Chrysler") has successfully tested TiTRODE electrodes for use on
its assembly lines.  Chrysler has conducted 18 months of testing on the TiTRODE
type electrodes and has since integrated them into four of its manufacturing
plants.  TiTRODE type electrodes are being sold to Chrysler by Huys Industries,
Inc., a Canadian Corporation, with which the Company claims to have an
agreement beginning in January 1994 whereby the two parties would share net
revenues derived from the sale of TiTRODEs.  To date, the Company believes
Chrysler has purchased over one million TiTRODE type electrodes from Huys
Industries, Inc.  The net revenues from the sale of TiTRODEs to Chrysler have
not been dispersed to the Company and the Company has requested an accounting
to determine the amount of money due to it pursuant to the above referenced
agreement.  Huys has not complied with the request for an accounting and
Orbit's management is evaluating its rights with respect to Huys Industries,
Inc.

The Company holds patents for the original Metafuse Process.  The Company is
working on upgrades to the TiTRODE application of the Metafuse Process and also
on specific application patents as the development of the Ceramic Silicone Foam
technology continues.

The Company had also licensed certain uses of the Metafusion Process to Davis,
Joseph & Negley, a company formerly affiliated with Mr. Joseph.  See Certain
Relationships and Related Transactions.

Other Technologies

The Company is currently evaluating other technologies.  The Company is
continually searching for technologies, which may yield commercially viable
products and would fit specifically into the Company's area of expertise.

Government Regulation

The production and marketing of the Company's products and technologies and its
ongoing research and development activities are subject to regulation for
safety, efficacy and quality by numerous governmental authorities in the United
States and other countries.  Failures or delays by the Company or its
affiliates or licensees in obtaining the required regulatory approvals would
adversely affect the marketing of products being developed by the Company and
the Company's ability to receive product revenues or royalties.  See Risk
Factors, Exhibit 99.





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<PAGE>   5
Human Resources

As of December 31, 1996, the Company had four full time employees.    The
Company also retains independent engineers, research consultants, institutes,
independent business entities, and other technical and business consultants as
needed to develop and analyze technologies and create business strategies.

Research and Development

Research and development expenses for the years ended December 31, 1996 and
1995 were $15,364 and $314,725, respectively.

Item 2.  DESCRIPTION OF PROPERTY

The Company maintains its principal executive offices in Carlsbad, California
where it occupies a 2,800 square foot office at 2011 Palomar Airport Road,
Suite 100, Carlsbad, California 92009 pursuant to a lease expiring in July
1998.  Additional facilities, utilized for the development of CSF, are located
at 6790 Bear Swamp Road, Medina, Ohio 44256, under a lease agreement that
expired in May 1997.

Item 3.  LEGAL PROCEEDINGS (Also see Item 12. Certain Relationships and Related
Transactions)

The Company is involved in certain legal proceedings incidental to its normal
business activities.  As of the date hereof, the Company is not party to any
material litigation except as described below, nor to the knowledge of
Management is there any material litigation or claim threatened or contemplated
against the Company. Most of the litigation is related to or actions by past
Directors and Officers, and their affiliates in which a determination of the
respective rights and duties of the parties is sought.  This includes an
adjudication of the validity of common stock issued to Messrs. Joseph,
Singletary, Wall, and others.  The Company is a party to the following
proceedings:

Emerson v. Wall, Ruffa, Orbit, Case No. 95 - 1866R (CGA), was commenced on
October 24, 1995, in the United States District Court, Southern District of
California.  Plaintiff seeks money damages from Richard A. Wall, Ruffa & Ruffa,
and Orbit emanating from the sales of her residence to Mr. Wall.   Although the
court has dismissed Ruffa & Ruffa and Wall, it is Orbit's belief that Emerson's
claim to Orbit stock and money damages has no merit.  Plaintiff and Orbit have
entered into a settlement agreement to resolve this action over which the court
has maintained jurisdiction.

Sansone v. Joseph et al.  An action filed April 5, 1996 in the Superior Court
of San Diego, Case No. 698631 to recover on a $50,000 pursuant to a note signed
by Orbit and Joseph. Plaintiff obtained Judgment for the full amount of the
debt and attached $60,000 of sales proceeds owed to Joseph in satisfaction of
the Judgment.

In the wake of the Company's demand to surrender stock to the Company for
cancellation, Mr. Joseph initiated the case, Joseph v. Orbit Technologies Inc.,
in the Superior Court of California, County of San Diego, Case No. 701380 on
June 27, 1996.  Mr. Joseph sought money damages for the Company's refusal to
acknowledge the validity of his claims to the Company's stock.  Alternately,
Mr. Joseph sought return of consideration he allegedly provided the Company for
stock.  The Company filed a Cross Complaint against Messrs. Joseph, Singletary,
and their affiliates, to cancel all Company stock claimed to be owned by them,
their affiliates, and to recover money damages for fraud, breach of fiduciary
duties and negligence. The trial began on September 29, 1997. On October 21,
1997, in a Judgment rendered by the San Diego Superior Court of California, the
Court ordered the surrender and cancellation of approximately 11,000,000 shares
claimed by Adrian Joseph; et al.; Mikimak, Ltd., a Bahamian corporation
controlled by Mr. Joseph; and shares claimed by Tatum C. Singletary.   In
addition the Court found by clear and convincing evidence that Joseph committed
actual fraud with respect to the issuance of shares and also that stock
approved by Orbit's Board of Directors on September 15, 1992, was in large
measure, to replace stock which had previously been awarded by the Board of
Directors for OTI Technologies, Inc., a Canadian corporation, and thus was
fraudulent.  Joseph has filed an appeal.  The Company is continuing to identify
additional shares that may be subject to cancellation.

Jeffer, Mangels, Butler & Marmaro, LLP v. Orbit Technologies, Inc..  Action
filed in Los Angeles Superior Court, on September 17, 1996, Case No. BS 041
354, by former attorneys of Orbit to recover attorney fees.  Orbit stipulated
to arbitration of fee dispute and entry of an interim arbitration award in the
amount of approximately $110,000, subject to any defenses, offsets or claims,
which Orbit asserted in the form of  a legal malpractice claim. The company's
legal malpractice action was denied as a result of the retainer agreement
signed by Mr. Joseph in his capacity when he was





                                       4
<PAGE>   6

with the Company.  Mr. Joseph was a personal client of Jeffer, Mangels, Butler
& Marmaro prior to Orbit's involvement with the firm.  Orbit declined to
participate in the arbitration and appealed the Judgment.

Benveniste, et. al. v. Orbit and Its Officers.  The action was filed on March
6, 1997 in the Los Angeles Superior Court as Case No. BC167043.  The action is
to collect principal, interest and other fees and damages relating to various
promissory notes executed between the plaintiffs and Orbit during 1995
aggregating $600,000 and loans made during 1992 aggregating $197,000.

The plaintiffs allege that the defendants violated the securities laws of the
state of California and made negligent misrepresentations related to the
Company's technologies, thereby inducing them to loan monies to the Company.
The plaintiffs also allege that, pursuant to an oral agreement with an officer
of the Company, the exercise price for various stock options to acquire Orbit
stock was reduced to $0.10 per share and the conversion price under various
convertible loan agreements between the plaintiffs and Orbit was also reduced
to $0.10.  Further, the plaintiffs allege that they have not received 500,000
shares of Orbit stock promised as additional compensation under such
agreements.

Orbit contends that the plaintiffs loaned money to another entity (other than
Orbit) in 1992 for which Orbit has no liability.  Additionally, Orbit contends
that the plaintiffs hold substantial shares of Orbit common stock which are
void and/or voidable. Orbit has filed a Cross Complaint seeking to cancel
invalidly issued stock and recover money damages in excess of $7 million.

Management denies the contention that there was an oral agreement to reduce the
exercise and conversion prices of certain financial instruments.  Management
further denies the contentions there were violations of securities laws, that
misrepresentations were made to plaintiffs and that other complaints possess
any merit.

Since February 1996, management has attempted to contact the subject note
holders on numerous occasions via correspondence and telephone in an attempt to
discuss the issues surrounding the loan agreements, set-off, and the respective
claims against both parties.  Attempts to amiably resolve the issues have been
unsuccessful to date.  The trial is scheduled for My 13, 1998.

Orbit Technologies Inc., et al. v. Lahey, et al.  The action filed by Richard
Benveniste and Edgar R. Benveniste on June 2, 1997 in the Delaware Court of
Chancery, Case No. 15720-NC, on behalf of themselves and purportedly on behalf
of the Company against James B. Lahey, James A. Giansiracusa, Ian C. Gent,
Stephen V. Prewett, and William N. Whelen.  The Complaint sought a
determination by the Court of Chancery ( i ) as to who constituted the valid
Directors of the Company in connection with a written consent action initiated
by the plaintiffs {and signed by Richard A. Wall & Associates GmbH (Authorized
representative Kurt Seifman), Kurt Seifman, JTR Associates (Authorized
representative William P.  Ruffa, Jr.), William P. Ruffa, Jr., Pacific
Equities, Inc. (Authorized representative Richard A. Wall), Richard A. Wall,
Cynthia L. Wall, Eleanor Moscatel (By her attorney-in-fact, Richard
Benveniste), Julie Benveniste (By her attorney-in-fact, Richard Benveniste),
Chad Nellis (Son of Cynthia Wall and step son of Richard A. Wall), Mikimak
Limited, and Frank A. Visco}, and ( ii ) in the alternative, that the Company
be required to hold an annual meeting of shareholders.  In response to the
Complaint, on June 20, 1997 the defendants filed their motion to dismiss or, in
the alternative, to stay the Delaware litigation in favor of litigation
relating to the validity of claimed holdings in the Company that was pending in
the state courts of California (Joseph v. Orbit Technologies Inc.).  On
September 2, 1997, a hearing on the defendant's motion to dismiss was held at
which time the Court of Chancery decided to defer a decision on the defendant's
motion to dismiss until such time as an annual meeting of the Company's
shareholders ws held.  The Court thereafter ordered that the Company hold its
annual meeting.  The date for the shareholder meeting has not been established
pending further discussions between the parties.

Jacobs v. Orbit.   This action was filed on June 27, 1997, in the Superior
Court of California, County of Los Angeles as Case No. BC 173600.  The
plaintiff, who has provided legal representation for Orbit, OTI Technologies
Inc. (a Canadian Corporation), Adrian Joseph, Richard A. Wall, Ruffa & Ruffa,
and other individuals who have brought groundless actions against the Company,
seeks money damages allegedly attributable to his inability to sell restricted
stock. Management believes this action has no merit.

Wilson v. Orbit.  This action was filed on September 15, 1997, in the Superior
Court of California, County of Los Angeles as Case No. BC 177867. The plaintiff
seeks money damages allegedly attributable to his inability to sell restricted
stock.  Management believes this action has no merit.





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<PAGE>   7

While the outcome of any such proceedings cannot be accurately predicted, the
Company does not believe the ultimate resolution of any such existing matters
would have a material adverse effect on its financial position or results of
operation.

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

No matters were submitted during the fourth quarter of the year ended December
31, 1996 to a vote of the Company's securities holders.

                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

On April 29, 1994, the Company's Common Stock became reported by the NASD OTC
Electronic Bulletin Board (the "OTC-BB") and continues to be traded on such
reporting market on a limited basis.  The table below shows the high and low
bid prices as reported by the OTC-BB.  The bid prices represent inter-dealer
quotations, without adjustments for retail mark-ups, markdowns or commissions
and may not necessarily represent actual transactions.

Calendar Year ended December 31:

<TABLE>
<CAPTION>
1994                                           High           Low
<S>                                        <C>           <C>   
Second Quarter (from April 29)                 $ 14.00        $  5.00
Third Quarter                                    11.00           7.00
Fourth Quarter                                    7.82           0.50

1995

First Quarter                                  $  0.75           0.35
Second Quarter                                    2.00           0.75
Third Quarter                                     1.31           0.75
Fourth Quarter                                    0.34           0.18

1996

First Quarter                                  $  0.50           0.15
Second Quarter                                    0.80           0.18
Third Quarter                                     0.43           0.15
Fourth Quarter (through December 15)              0.40           0.15
</TABLE>

There were approximately 1300 shareholders of record of Common Stock as of
December 31, 1997.  The Company has not paid cash dividends on its Common Stock
and does not intend to do so in the foreseeable future.

During 1996 the Company converted $950,000 of principal and related accrued
interest of $114,783 into 4,861,091 shares of common stock pursuant to
exemptions under Section 4(2) and or Regulation D., under the Securities Act of
1933, as amended.  Substantially all of the debt conversions were executed at a
conversion rate of $0.22.

ITEM 6.  MANAGEMENT'S PLAN OF OPERATION

Overview

This discussion contains forward-looking statements.  Such statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected.  See Risk Factors, Exhibit 99. Readers
are cautioned not to place undue reliance on these forward-looking statements
that speak only as of the date hereof.  The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.





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<PAGE>   8
Since its inception, the Company has been engaged in the acquisition and
development of certain technologies in the fields of coatings technologies and
material science.  The Company's net operating losses incurred since inception
are primarily the result of two factors: (1) the Company's unsuccessful search
for license, joint venture, or partnership arrangements with entities in
industries aligned with the Company's technologies, and (2) a lack of
technological and business focus.  Net losses for the fiscal years ended
December 31, 1996 and 1995, were $2,027,506 and $4,147,782, respectively.  It
is anticipated that net operating losses will continue and will possibly
increase through at least the next two years.

The Company's business plan and near term strategy will focus the Company's
limited human resources and funding on developing two technologies, the
Metafusion Process and CSF.  One of management's primary objectives is the
successful commercialization of these two technologies.  Once this is
accomplished, the Company will be better poised to develop each technology for
multiple market applications.

Financial Condition

For the fiscal years ended December 31, 1995 and 1996, the Company had revenues
of $0.  General and administrative expenses decreased from $1,744,445 in 1995
to $854,727 in 1996.  For the years ending December 31, 1995 and December 31,
1996, the Company incurred an operating loss of $4,147,782 and $2,027,506,
respectively.  The operating loss decrease of $2,120,276 is principally due to
expenses incurred for the year ended December 31, 1995 in connection with stock
options granted to consultants and employees amounting to approximately
$1,669,000.  Furthermore, on December 27, 1996 the Company entered into a
settlement agreement with O. G. Sansone in connection with prior purchases of
the Company's Common Stock.  The settlement agreement provides for the Company
to issue a $250,000 promissory note and a $250,000 payment via the issuance of
2,941,176 shares of the Company's restricted common stock.  The Company's
rights, titles, patents, and equipment in the "TiTRODE/Metafuse" technology
collateralize the $250,000 promissory note.

TiTRODEs are being sold to Chrysler by an entity unaffiliated (Huys Industries
Inc.) with the Company, but with which the Company has an agreement beginning
in January 1994 whereby the two parties would share equally net revenues
derived from the sale of TiTRODEs to Chrysler.  To date, the Company believes
that the Chrysler Corporation has purchased over one million TiTRODE type
electrodes.  The net revenues from the sale of TiTRODEs to Chrysler have not
been disbursed to the Company and the Company has requested an informal
accounting to determine the amount of money due to it pursuant to the above
referenced agreement.  The Company at this time cannot predict the outcome of
this request for an informal accounting. Huys has not complied with the request
for an accounting and Orbit's management is evaluating its rights with respect
to Huys Industries, Inc.

Plan of Operation

The Company's business plan and near term strategy will focus the Company's
limited human resources on the commercial development of the Metafusion Process
and CSF.   Orbit's primary objective is the successful commercialization of
these two technologies.  The Company has initiated strategic plans and is
actively seeking partnership arrangements and joint ventures in addition to
potential licensees.  Once this is accomplished, the Company will be better
poised to develop each technology for multiple market applications.

In August 1995, the Company entered into an agreement with an automation firm
for the development of manufacturing equipment for producing TiTRODEs.  The
first automated machine has been completed with partial completion of the
second machine.  The company is searching for qualified partners for product
commercialization.  The selected partner would either license the specific
application of the Metafuse technology or become a party of a joint venture
agreement with Orbit.  To date, the funding necessary to move the TiTRODE
Project forward has not been available and the Company remains focused on
progress in developing the CSF technology.

In May 1996, the Company was awarded a sole source contract, within its
category, to participate in the Department of Energy's Landfill Stabilization
Project.  This Project evaluates materials for treating existing hazardous
waste at the Idaho National Engineering Laboratory's Subsurface Disposal Areas.
Several materials in other categories have also been selected for testing.  The
contract provides for initial bench testing with an option that can be
exercised for more extensive field-testing.





                                       7
<PAGE>   9
The results of preliminary testing and analysis in Idaho was the development of
a "White Paper" which recommended a much more extensive evaluation of Orbit's
CSF be conducted to evaluate its use for Calcine Waste Stabilization at the
Idaho facility.  Calcine waste is specific to the Idaho facility and there are
about 13,000,000 pounds of material to be processed.  Part of this study
actually produced three non- radioactive samples of CSF, which produced
acceptable results.  A conceptual process design was also performed as well as
initial cost estimates generated.  This study has had wide spread distribution
within the DOE.

In November 1996, the Company entered into a Teaming Agreement with Ecology &
Environmental, Inc. (International Specialists in the Environment), for the
sole purpose of identifying and pursuing mutually agreeable business
opportunities within the U. S. Departments of Energy and Defense, and other
federal and state government agencies and private sectors where the
environmental application of CSF technology is possible.  Identification and
pursuit of business opportunities includes technology development (i. e. both
system design and application identification and construction), sales and
client development efforts, the bid/proposal process, and the contract
negotiation process regarding awarded projects.

In May 1997, the Company was awarded a contract by Lockheed Martin Idaho
Technologies Company to test and evaluate Orbit's proprietary Ceramic Silicon
Foam (CSF) as a stabilizing media for sodium and nitrate salts which include
chromium, from the Idaho National Engineering and Environmental Laboratory's
(INEEL) Radioactive Waste Management Complex (RWMC).  Subcontractors under the
contract to Orbit are the University of Akron's Microscale Physiochemical
Engineering Center, Department of Civil Engineering and Pierpoint Environmental
Management Services.

In August 1997, Lockheed Martin expanded the initial contract to include two
additional nitrate-type surrogate waste materials containing cadmium and an
organic solvent.

In September 1997, Orbit Technologies, Inc., Ecology and Environmental, Inc.,
and The University of Akron submitted a proposal entitled "Low- activity Waste
Stabilization using Ceramic Silicon Foam (CSF)" to the Department of Energy -
Idaho Operations Office.

Until completion of the development of a technology and the commencement of
sales, the Company will have no operating revenues but will continue to incur
substantial expenses.  No assurances can be given that the Company can complete
development of any technology or that, if any technology is fully developed,
that it can be manufactured on a large-scale basis or at a feasible cost.
Further, no assurance can be given that any technology will receive market
acceptance.  Being a start-up stage entity, the Company is subject to all the
risks inherent in the establishment of a new enterprise and the marketing and
manufacturing of a new product, many of which risks are beyond the control of
the Company.

Liquidity and Capital Resources

At December 31, 1995, the Company had an accumulated deficit and a working
capital deficit of $11,108,832 and $3,409,658, respectively.  At December 31,
1996, the Company had an accumulated deficit and a working capital deficit of
$13,136,339 and $3,170,881, respectively.   The Company had a ratio of
liabilities to tangible assets of approximately 12.9 to 1 as of December 31,
1996.  The Company is also in default of a significant number of notes that
total approximately $1,150,000 in principal as of December 31, 1996.  The
report of the Company's independent certified public accountants includes an
uncertainty paragraph with regard to the ability of the Company to continue as
a going concern.

On May 27, 1997, the Company entered into an installment loan agreement with
Ruth P. Brittingham for $300,000 payable in $100,000 installments on May 27,
1997, September 5, 1997 and December 3, 1997.  The installment loan bears
interest at 12% per annum and is due on May 27, 1998.  The loan agreement
provides for a minimum semi-annual interest payment of $6,000 commencing
December 6, 1997.  The Company's rights, titles and patents, to the technology
known as "Ceramic Silicone Foam" collateralize the installment note.   The
Company will record the additional consideration as interest expense amounting
to $42,750 which is based on the fifty percent (50%) of the fair market value
at the common stock at May 27, 1997, the date of the installment loan
agreement.  Furthermore, the Company granted the shareholder the right to
purchase 150,000 shares of restricted common stock at seventy-five percent
(75%) of the fair market value for a period of 180 days commencing May 27,
1997, the date of the installment agreement.  (See also Item 12.  Certain
Relationships and Related Transactions)





                                       8
<PAGE>   10


The Company will require additional financing.  No assurance can be given that
additional financing can be obtained, or if obtainable, that the terms will be
satisfactory to the Company.  The Company has limited working capital.  In
order to finance its proposed business, the Company will need to obtain
additional financing. To date, the Company has funded its operations from the
private sales of Common Stock or convertible notes (many of which have been
converted into Common Stock).  Such sales have been able to fund only minimal
operations and technological developments.  Development and exploitation of
technologies have been delayed by lack of adequate funding.

ITEM 7.  FINANCIAL STATEMENTS

See the Financial Statements and Notes thereto.


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
        FINANCIAL DISCLOSURE

         None.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

The following table sets forth information concerning the directors and
executive officers of the Company:

<TABLE>
<CAPTION>
Name                            Age        Title
----                            ---        -----
<S>                             <C>        <C>
James B. Lahey                  62         President, Chief Executive Officer, and Director
James A. Giansiracusa           49         Vice President - Operations, Secretary and Director
Ian C. Gent                     54         Chief Financial Officer and Director
Stephen V. Prewett              52         Vice President - Technology Development and Director
William N. Whelen, Jr.          59         Director
</TABLE>

James B. Lahey became President and a director of the Company in March 1995.
From 1993 through 1994 he was President and Executive Vice President of
Sensotron, Inc., which develops technologically advanced transducer products.
From 1989 to 1992 he was Corporate Executive Vice President of W. S. Shamban &
Co., a manufacturer of engineered sealing systems.  He has previously held
senior management positions with W. R Grace & Co. and Ausimont U.S.A.  Mr.
Lahey holds a degree in Civil Engineering.

James A. Giansiracusa has been the Secretary of the Company since October 1993
and became Vice President-Operations in January 1994.  Before joining the
Company, Mr. Giansiracusa was a Lieutenant Colonel in the United States Marine
Corps where his duties included command billets in both aviation and infantry.
He was also a consultant for Wackenhut Services International, an international
security firm, from 1991 to 1992.  During Mr. Giansiracusa's military service
he, at times, was responsible for over 1,300 persons and $20,000,000 in capital
assets.  Mr.  Giansiracusa participated in strategic planning relative to many
global scenarios.  Mr. Giansiracusa was awarded a Master of Science degree in
Systems Management from the University of Southern California in 1983.

Ian C. Gent has been a consultant to the Company since September 1994.  Mr.
Gent became Chief Financial Officer and a director of the Company in April
1995.  He has provided advice in the areas of investment banking, corporate
structuring, and organizational strategies.  Mr. Gent has also assisted with
securities compliance and investor relations.  Between 1989 and 1994 he was
Vice President and Director of the Canadian Commerce Group of Fleet Bank of New
York, a member of the Fleet Financial Group.  In January 1994 he became
President and Chief Executive Officer of West Niagara Capital Corporation, a
private Canadian merchant banking company specializing in technology and real
estate consulting.  During his 27 years experience in the securities and
banking industries, he has held positions as Vice





                                       9
<PAGE>   11

President, Merrill Lynch Royal Securities in Canada, Managing Director of a
regional broker dealer, President and Chief Operating Officer of Southern Tier
Gas Producers, and President and Chief Executive Officer of GDM Securities, a
wholly owned subsidiary of Goldome Savings Bank.  Mr. Gent has a Bachelor of
Science in Business Administration from Ashland College, Ohio and has completed
several advanced management and industry programs. Dr. Stephen V. Prewett has
been a consultant to the Company since July 1994 and has provided technological
assessment support, technology transfer guidance, and license agreement
negotiations.  He became Vice President - Technology Development in July 1994
and a director of the Company in April 1995.  Dr. Prewett has extensive nuclear
industry experience and has served in a variety of positions with the
Department of Energy, including Senior Nuclear Engineer from 1976 to 1982.  Dr.
Prewett was also Director of Environmental Safety and Health and Manager of
Environmental Affairs with Gen Corp, a multi-national manufacturing company
from 1982 to 1984.  Dr. Prewett's background includes market assessment,
identifying teaming partners for new technology implementations, and strategy
assessment to identify market trends and industry growth areas.  Dr. Prewett
received a Bachelor of Science in Applied Physics degree from East Carolina
University, and Masters and Doctorate degrees from Virginia Polytechnic
Institute in Nuclear Science and Engineering.

William N. Whelen, Jr. was appointed a director of the Company in September
1996, filling the vacancy following the resignation of Mr. Joseph.  Mr. Whelen
has spent the last thirty years in the investment banking business.  He has
served with two Philadelphia firms, Suplee Mosley, Close and Kerner, and Jenney
Montgomery Scott.  Today Mr. Whelen is a registered representative of Simon
Securities, New Jersey.  Mr. Whelen has an electrical engineering degree from
Widener University of Chester, Pennsylvania.

There is no family relationship between any of the Company's directors and
officers.  There are no arrangements or understandings between any director or
executive officer and any other person pursuant to which any person has been
elected or nominated as a director or executive officer.

SECTION 16(a) - Beneficial Ownership Reporting compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than
10% of the Company's stock, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission.  Executive
officers, directors and greater than 10% beneficial owners are required by
applicable regulations to furnish the Company with copies of all Section 16(a)
forms they file.

Based solely upon a review of the copies of such forms furnished to the Company
and information involving securities transactions of which the Company is
aware, the Company believes that during the fiscal year ending December 31,
1996, there was compliance with all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than 10% beneficial
stockholders.

ITEM 10.         EXECUTIVE COMPENSATION

Cash Compensation

The following table presents, for each of the last three fiscal years, the
annual compensation earned by the chief executive officer and the most highly
compensated executive officers of the Company for the three fiscal years ended
December 31, 1996:

                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                                           Long Term Compensation Awards
                                                                           -----------------------------
                                  Annual Compensation                
Name and Principal       ------------------------------------        Securities Underlying     All Other Annual
Position                  Year         Salary           Bonus            Options/SAR             Compensation
------------------       -----         ------           -----            -----------             ------------
<S>                     <C>           <C>                 <C>              <C>                    <C>
James B. Lahey,          1996          $120,000(1)          0                  0                      0
President                1995          $120,000(1)          0               800,000                   0
                         1994              0                0                  0                      0

</TABLE>





                                       10
<PAGE>   12
<TABLE>
<S>                           <C>           <C>                           <C>        <C>                <C>
James A                        1996          $ 132,000(1)                  0                  0                  0
Giansiracusa, Vice             1995          $ 132,000(1)                  0          1,406,593                  0
President, Operations          1994          $  47,800                     0                  0                  0

Stephen V. Prewett,            1996          $ 108,000(1)                  0                  0                  0
Vice President,                1995          $ 108,000(1)                  0            594,783                  0
Technology                     1994          $  12,000
Development
                                                                                                         
Adrian Joseph, Chief           1996          $       0                     0                  0                  0
Executive Officer              1995          $ 193,172(2)                  0                  0                  0
                               1994          $ 256,193(2)                  0                  0                  0
</TABLE>



(1)      Messrs. Lahey, Giansiracusa, and Prewett are entitled to deferred
         compensation in the amounts of $138,500, $149,000 and $119,950,
         respectively, from deferrals in the two fiscal years reflected in the
         above table.

(2)      Includes cash paid to Mr. Joseph and his company, Mikimak, Ltd. Mr.
         Joseph was terminated as Chief Executive Officer in February 1996.

The amounts described above do not include other compensation and benefits
provided to Messrs. Lahey, Giansiracusa, Prewett, and Joseph during the fiscal
years described that in the aggregate did not exceed the lesser of $50,000 or
10% of the executive's annual salary and bonus.

The Company entered into Employment Agreements effective April 1, 1995, with
its key employees, Messrs. Lahey, Giansiracusa, and Prewett, to serve in the
positions set forth above for a period of two years, and unless otherwise
terminated, to continue year by year thereafter.  The basic annual salaries
under the Employment Agreements are $120,000, $132,000, and $108,000,
respectively, subject to a 40% deferral that will be paid when the Company's
financial condition permits such payment.   Such individuals also received
stock options under the 1995 Stock Option Plan for 300,000 shares, 500,000
shares, and 500,000 shares, respectively.  During portions of 1995 and 1996,
key officers have deferred salaries in amounts significantly greater than 40%
so that cash could be applied to the Company's operations.

Compensation of Directors

Directors received no payment for their services as directors during 1996,
although the Company's By-Laws provide that directors shall receive $500 for
each meeting.  The compensation of officers and directors is subject to review
and adjustment from time to time by the Board of Directors.

Stock Options

The following table presents information for the named officer in the Summary
Compensation Table with respect to options exercised during fiscal year ended
December 31, 1996 and unexercised options held as of the end of the fiscal
year.

    Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
                                     Values

<TABLE>
<CAPTION>
                                                               Number of Securities          
                              Shares                            Underlying Unexercised           Value of Unexercised In-the-
                            Acquired on         Value          Options/SARs at FY-End (#)      Money Options/SARs at FY-End ($)
  Name                    Execercise (#)     Realized ($)      Exercisable/Unexercisable           Exercisable/Unexerciable
  ----                    --------------     ------------      -------------------------           ------------------------
<S>                      <C>                <C>               <C>                                 <C>
</TABLE>           
                 





                                       11
<PAGE>   13
<TABLE>
 <S>                             <C>              <C>                 <C>                         <C>
 James B. Lahey                  0                0                    800,000/0                  $144,000/$0   (1) (2)
 James A. Giansiracusa           0                0                   1,356,593/0                  $244,186/$0  (1) (2)
 Stephen V. Prewett              0                0                    594,783/0                   $107,060/$0  (1) (2)
 Adrian Joseph                   0                0                       0/0                              0/0
</TABLE>

(1)      Values reflected above are based on the closing price of $ .18 per
         share of the Company's Common Stock for the last business day of the
         fiscal year.

(2)      During the year ended 1995, options granted under the Option Plan to
         three officers of the Company exceeded the 500,000 prescribed limit
         provided for under the Plan. Management believes that the options were
         granted in compliance with the Plan and has asked counsel to review the
         transactions and advise the Company of the appropriate or necessary
         action to address the issue.

ITEM 11.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of December 31, 1996 29,405,904 shares of Common Stock were outstanding.
Management maintains that as of December 31, 1997 the Company had approximately
24,658,739 shares of common stock outstanding, par value $.01 per share (the
"Common Stock"). This number of shares is the result of the cancellation of
approximately 6,066,830 shares claimed by Adrian Joseph; et al.; Mikimak, Ltd.,
a Bahamian corporation controlled by Mr.  Joseph; and shares claimed by Tatum
C. Singletary under an order dated October 21, 1997, Case No. 701380.  The
number of outstanding shares does include approximately 6,000,000 shares held
by other persons or entities that the Board maintains were not validly issued.

The following table sets forth, as of December 31, 1996, certain information as
to shares of the Common Stock owned by (i) each person known by management to
beneficially own more than 5% of the outstanding Common Stock, (ii) each of the
Company's directors, and (iii) all executive officers and directors of the
Company as a group:

<TABLE>
<CAPTION>
Name and Address of Beneficial Owner    Amount and Nature of Beneficial     Percent of Outstanding
                                                  Shares Owned                      Ownership
------------------------------------    -------------------------------     ----------------------
<S>                                     <C>                                 <C>
James B. Lahey (1,5)                                 800,000                             3%
James A. Giansiracusa (2,5)                        1,356,593                             6%
Ian C. Gent (3,5)                                    12,500                              *
Stephen V. Prewett (4,5)                             594,783                             2%
William N. Whelen, Jr. (5)                             ----                               *
All Officers and Directors as a group             2,763,876                             11%
(5 persons)(6)                                                                      
</TABLE>

--------------------------------                                              

*        Amount held represents less than 1%.

(1)      Includes 800,000 shares of Common Stock subject to currently
exercisable options.

(2)      Includes 1,356,593 shares of Common Stock subject to currently
exercisable options.

(3)      Includes 12,500 shares of Common Stock subject to currently exercisable
options.

(4)      Includes 594,783 shares of Common Stock subject to currently
exercisable options.





                                       12
<PAGE>   14

(5)      The address for these individuals is the address of the Company.

(6)      Includes 2,763,876 shares of Common Stock subject to currently
exercisable options.

(7)      Does not include shares owned by Ruth P. Brittingham, 4,022,292, 16%;
S. A. Power Corporation, 2,000,000, 8%; and O. G. Sansone & Colleen Sansone
Defined Benefit Pension Fund, 2,758,670, 11%. Such persons or entities did not
beneficially hold more than 5% of the Company's outstanding shares as of
December 31, 1996.

ITEM 12.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Adrian Joseph, former Chairman and Chief Executive Officer of the Company
previously represented that he or a Bahamian corporation controlled by him,
Mikimak, Ltd., had sold various technologies to the Company in exchange for
Common Stock.  An internal audit has disclosed the apparent inaccuracy of Mr.
Joseph's representations. It appears the Company acquired the technologies from
sources other than Mr. Joseph or Mikimak, Ltd.   As a result, the holdings of
Mr. Joseph, his family and Mikimak, Ltd. have been in question.  On February
12, 1996, the Board of Directors removed Mr. Joseph as Chairman and Chief
Executive Officer.  Mr. Joseph later resigned as a director. In an action filed
by Mr.  Joseph that began on September 29, 1997, the San Diego Superior Court
cancelled all the shares of Orbit stock previously claimed by Messrs.  Joseph,
his family and his Bahamian corporation, Mikimak, Ltd. and past president and
director Tatum C. Singletary.  Pursuant to the Judgement and Order issued on
October 21, 1997 by the San Diego Superior Court of California, Case No.
701380, the Company has cancelled 6,066,830 shares of common stock.

During fiscal 1993, Richard A. Wall received an advance from the Company in the
amount $35,700 based on an alleged promissory note in favor of the Company due
on or before December 31, 1993.   Pacific Equities, Ltd., of which Mr. Wall is
an officer, also executed an alleged promissory note in favor of the Company in
the original principal amount of $92,572 in connection with payment for
warrants exercised by Pacific Equities during 1993.  Said note was due with
interest computed at the rate of 5% per annum at any time prior to the end of
fiscal 1994.  Mr. Wall was contacted with regard to the payment for warrants
exercised, and was given an opportunity to provide evidence of the alleged
notes or the required consideration.  Mr. Wall did not respond to
correspondence from the Company, and management considers the shares invalid.
The Company is in the process of canceling the subject shares.

On September 28, 1988, the Company entered into a license agreement with Davis,
Joseph & Negley ("DJN"), an entity with which Mr. Joseph was formerly
affiliated, pursuant to which the Company licensed certain specific
applications of metafusion, which describes a materials coating process (the
"Metafusion Process").  The Metafusion Process relating to the deposition of
metallic coatings on conducting surfaces.  In consideration of such license,
DJN agreed to assume the Company's indebtedness to Mr. Joseph at the time in
the amount of $175,000.  In addition, DJN agreed to pay the Company a royalty
equal to 3% of DJN's gross sales for all devices manufactured by DJN and 5% of
all monies actually received by DJN from its direct or indirect sublicenses of
the technology.   Neither DJN nor any of its sublicensees have manufactured any
devices and, therefore, no royalties have been paid.  The license shall
terminate concurrent with the latest to expire of the various patents issued
covering the Metafusion Process.

On August 29, 1991, the Company entered into an additional license with DJN to
use the Metafusion Process as it relates to superconductivity.  In
consideration of the issuance of said license, DJN agreed to pay the Company
$120,000, $20,000 of which was paid upon the execution of the agreement and
$100,000 which was paid in September 1994, and to pay a royalty equal to 5% of
DJN's gross income derived from the sale of products manufactured by DJN or any
direct or indirect sublicensees.  The license terminates in the event the
additional license fee is not paid or upon the expiration of the last patent
covering the Metafusion Process.

On June 10, 1993, a contemplated subsidiary of the Company, the TiTRODE
Corporation ("TTC"), entered into a loan agreement with Leslie Lai in the
original principal amount of $200,000.  Pursuant to the loan agreement, the
loan was to become due on or before December 25, 1994, with interest computed
at the rate of 15%.  In addition, the lender was to receive warrants entitling
her to purchase up to ten percent of TTC's outstanding common stock exercisable
for a ten (10) year period for $4,000.  Pursuant to an agreement dated as of
December 31, 1993, the lender agreed to accept 200,000 shares of Orbit Common
Stock.  In addition, the Company agreed to repay the principal amount with
interest.





                                       13
<PAGE>   15
ITEM 13.         EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

<TABLE>
<CAPTION>
Exhibit
Number           Exhibit
<S>      <C>                                                                                                   <C>
1.       Amended and Restated Bylaws. (1)
2.       Restated Certificate of Incorporation (as amended). (1)
3.       Consolidated Statement of Operations for the years ended December 31, 1994, 1993, and 1992. (1)
4.       Consolidated Statement of Shareholder Equity for the years ended December 1994, 1993, and 1992. (1)
5.       Consolidated Statement of Cash Flows for the years ended December 1994, 1993, and 1992. (1)
6.       Notes to Consolidated Financial Statements. (1)
7.       Unaudited Interim Financial Statements. (1)
8.       Consolidated Balance Sheets at September 30, 1995 (unaudited) and December 31, 1994. (1)
9.       Consolidated Statement of Operation for the nine months ended September 30, 1995 and 1994 (unaudited). (1)
10.      Notes to Consolidated Financial Statements (unaudited). (1)
11.      Form of Indemnification Agreement (1)
12.      Agreement with Ukraine (1)
13.      1995 Stock Option Plan and Form S-8 Registration Statement (1)*
14.      Research Agreement with UCLA (1)
15.      License Agreement with UCLA (1)
16.      Computation of Earnings Per Share  (1)
17.      Consolidated Balance Sheets at March 31, 1996 and December 31, 1995. (2)
18.      Consolidated Statements of Operations for the Six Months Ended March 31, 1996 and 1995. (2)
19.      Consolidated Statements of Operations for the Three Months Ended March 31, 1995 and 1994. (2)
20.      Consolidated Statement of Cash Flows for the Six Months Ended March 31, 1996 and 1995. (2)
21.      Notes to Consolidated Financial Statements for the Period Ended March 31, 1996. (2)
22.      Consolidated Balance Sheets at June 30, 1996 and December 31, 1995. (3)
23.      Consolidated Statements of Operations for the Six Months Ended June 30, 1996 and 1995. (3)
24.      Consolidated Statements of Operations for the Three Months Ended June 30, 1995 and 1994. (3)
25.      Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1996 and 1995. (3)
26.      Notes to Consolidated Financial Statements for the Period Ended June 30, 1996. (3)
27.      Consolidated Balance Sheets at September 30, 1996 and December 31, 1995. (4)
28.      Consolidated Statements of Operations for the Nine Months Ended September 30, 1996 and 1995. (4)
29.      Consolidated Statements of Operations for the Three Months Ended September 30, 1996 and 1995. (4)
30.      Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1996 and 1995. (4)
31.      Notes to Consolidated Financial Statements for the Period Ended September 30, 1996. (4)
99.      Risk Factors.        
------------------------------
</TABLE>
*Management Compensation Plan

Note:    Certain previously filed exhibits are no longer being incorporated by
reference (and therefore not numerically listed) as the underlying documents
have either expired or are no longer material or relevant.

(1)      Previously filed as part of the Form 10 filed in May 1995 and which
         are hereby incorporated by reference.
(2)      Previously filed as part of the Form 10-QSB for the Period Ending
         March 31, 1996.
(3)      Previously filed as part of the Form 10-QSB for the Period Ending June
         30, 1996.
(4)      Previously filed as part of the Form 10-QSB for the Period Ending
         September 31, 1996.

(b)      Reports on Form 8-K

A report on Form 8-K has not been filed relating to the Letter of Resignation
of past Director Adrian Joseph and the Resignation of Ian C. Gent as Chief
Financial Officer.





                                       14
<PAGE>   16
                                   SIGNATURES

In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

Orbit Technologies Inc.




By: /S/  JAMES B. LAHEY
   -------------------------------------------
   James B. Lahey
   Chief Executive Officer and Chairman of the
   Board of Directors

Date:    February 23, 1998

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
 NAME                                   TITLE                                DATE
 ----                                   -----                                ----
 <S>                                    <C>                                  <C>
 /S/ JAMES B. LAHEY                     Chief Executive Officer and          February 23, 1998
 ------------------------------         Chairman of the Board (Chief
 James B. Lahey                         Executive Officer)

 /S/JAMES A.     GIANSIRACUSA           Vice President- Operations, Chief    February 23, 1998
 ------------------------------         Financial Officer (Chief Financial
 James A. Giansiracusa                  and Accounting Officer),
                                        Secretary, and Director

 /S/ IAN C. GENT                        Director                             February 23, 1998
 ------------------------------ 
 Ian C. Gent


 /S/STEPHEN V.  PREWETT                 Vice President - Technology          February 23, 1998
 ------------------------------         Development and Director
 Stephen V. Prewett                     

 /S/WILLIAM N. WHELEN                   Director                             February 23, 1998
 ------------------------------ 
 William N. Whelen, Jr.
</TABLE>











                                       15
<PAGE>   17






                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES


                                FINANCIAL REPORT


                              FOR THE YEARS ENDED
                           DECEMBER 31, 1996 AND 1995






<PAGE>   18
                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                           INDEX TO FINANCIAL REPORT
                           DECEMBER 31, 1996 AND 1995





<TABLE>
<CAPTION>
                                                                                              Page Nos. 
                                                                                              --------- 
<S>                                                                                          <C>
INDEPENDENT AUDITORS' REPORT                                                                      F-2


CONSOLIDATED BALANCE SHEET                                                                        F-3
   At December 31, 1996


CONSOLIDATED STATEMENTS OF OPERATIONS                                                             F-4
   For the Years Ended December 31, 1996 and 1995


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY                                               F-5
   For the Years Ended December 31, 1996 and 1995


CONSOLIDATED STATEMENTS OF CASH FLOWS                                                             F-6
   For the Years Ended December 31, 1996 and 1995


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                   F-7 to F-27
</TABLE>





                                      F-1
<PAGE>   19

To the Stockholders of
Orbit Technologies Inc. and Subsidiaries


                          INDEPENDENT AUDITORS' REPORT


We have audited the accompanying consolidated balance sheet of Orbit
Technologies Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' deficiency and cash flows
for the years ended December 31, 1996 and 1995. These financial statements are
the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Orbit Technologies
Inc. and Subsidiaries as of December 31, 1996, and the results of its
operations and its cash flows for the years ended December 31, 1996 and 1995,
in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern.  As shown in the
consolidated financial statements, the Company incurred a net loss of
approximately $2,028,000 during the year ended December 31, 1996, and, as of
that date, had a working capital deficiency of approximately $3,171,000 and
stockholders' deficiency of approximately $3,088,000.  As described more fully
in Notes 1, 6 and 9 to the consolidated financial statements, the Company is in
default on its loan agreements with various individuals, certain of whom have
filed a lawsuit, and is in arrears on accounts with certain vendor creditors
which, among other things, causes the balances to become due on demand.  The
Company is not aware of any alternate sources of capital to meet such demands,
if made.  Those conditions raise substantial doubt about the Company's ability
to continue as a going concern.  Management's plans in regard to these matters
are also described in Note 1.  The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.



                                            /S/ TABB, CONIGLIARO & McGANN, P.C.

                                            TABB, CONIGLIARO & McGANN, P.C.
New York, NY
October 23, 1997





                                      F-2
<PAGE>   20
                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                              AT DECEMBER 31, 1996


                                     ASSETS
<TABLE>
<S>                                                                       <C>
Current assets:
   Cash                                                                    $        188
    Prepaid expenses                                                             10,353
    Advances to officer                                                           1,341
                                                                           ------------

         Total current assets                                                    11,882

Property and Equipment - at cost, net of accumulated depreciation               250,829
Intangible assets, net of accumulated amortization                               78,071
Other assets                                                                      4,015
                                                                           ------------

Total assets                                                               $    344,797
                                                                           ============

                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY


Current liabilities:
   Accounts payable and accrued liabilities                                $  1,429,395
   Due to stockholders                                                          200,466
   Notes payable                                                              1,552,902
                                                                           ------------

         Total current liabilities                                            3,182,763

   Long-term note payable                                                       250,000
                                                                           ------------

         Total liabilities                                                    3,432,763
                                                                           ------------

Commitments, contingencies and other matters
   (Notes 1, 6, 9 and 13)                                                          --

Stockholders' deficiency:
   Preferred stock - par value $.01 per share
    1,000,000 shares authorized and outstanding                                  10,000
   Common stock - par value $.01 per share;
    50,000,000 shares authorized;
     29,405,904 shares issued and outstanding                                   294,060
    Additional paid-in capital                                                9,845,247
    Accumulated deficit                                                     (13,136,339)
    Unearned compensation and finance charges                                   (90,000)
    Notes receivable from stockholders                                          (10,934)
                                                                           ------------

         Total stockholders' equity                                          (3,087,966)
                                                                           ------------

Total liabilities and stockholders' deficiency                             $    344,797
                                                                           ============
</TABLE>




          See accompanying notes to consolidated financial statements.



                                      F-3
<PAGE>   21
                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                1996                   1995    
                                                            ------------           ------------
<S>                                                         <C>                   <C>
Total revenues                                              $      -               $      -
                                                            ------------           ------------

Operating expenses:
   Research and development                                       15,364                314,725
   General and administrative                                    854,727              1,744,445
   Compensatory element of stock options                         360,000              1,669,476
                                                            ------------           ------------

       Total operating expenses                                1,230,091              3,728,646
                                                            ------------           ------------

Operating loss                                                (1,230,091)            (3,728,646)
                                                            ------------           ------------

Other income (expense)
   Miscellaneous income                                             --                   47,079

   Interest expense                                             (268,965)              (159,815)
   Loss from litigation settlement                              (500,000)                  --   
                                                            ------------           ------------

       Total other income (expense)                             (797,415)              (419,136)
                                                            ------------           ------------

Net loss                                                    $ (2,027,506)          $ (4,147,782)
                                                            ============           ============

Per share data:

Net Loss Per Common Share                                   $       (.09)          $      (0.20)
                                                            ============           ============

Weighted average number of common
   shares and common stock equivalents outstanding            23,426,059             21,060,961
                                                            ============           ============
</TABLE>





See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>   22


                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                                                                                  
                                                                                                                   Additional     
                                                              Preferred Stock               Common Stock            Paid-in       
                                                           Shares        Amount       Shares         Amount          Capital      
                                                           ------        ------       ------         ------          -------      

<S>                                                       <C>           <C>           <C>         <C>              <C>
Balances at  December 31, 1994                               --         $   --        17,176,86  $  171,769        $ 5,903,191


Issuance of stock for financing fees                         --             --          575,000          5,750         252,500

Additional Issuance of stock in settlement
  of convertible  promissory notes                           --             --        1,335,543         13,356         (13,356)

Shares issued under non-statutory plan                       --             --        1,117,727         11,177            --   

Shares issued under incentive stock option plan              --             --           12,500            125           6,125

Issuance of stock                                            --             --            1,000             10            --   

Stock issued in connection with
 compensatory obligations                                    --             --          210,000          2,100          23,800

Compensatory element of stock options                        --             --             --             --         2,119,476

Amortization of unearned compensation                        --             --             --             --              --   

Amortization of unearned financing fees                      --             --             --             --              --   

Net loss                                                     --             --             --             --              --   
                                                     ------------   ------------   ------------   ------------    ------------

Balances at December 31, 1995                                --             --       20,428,637        204,287       8,291,736


Issuance of stock for conversion of notes payable       1,000,000         10,000      5,861,091         58,611       1,296,173

Issuance of stock in settlement of litigation                --             --        2,941,176         29,412         220,588

Stock issued in connection with
 compensatory obligations                                    --             --          175,000          1,750          36,750

Payments received on notes receivable
 from stockholders                                           --             --             --             --              --   

Amortization of unearned compensation                        --             --             --             --              --   

Amortization of unearned financing fees                      --             --             --             --              --   

Net loss                                                     --             --             --             --              --   
                                                     ------------   ------------   ------------   ------------    ------------

Balances at  December 31, 1996                                      $       --       31,405,904   $    314,060    $  9,845,247   
                                                     ============   ============   ============   ============    ============


                                                                        Unearned          Notes                     
                                                                       Compensation     Receivable                  
                                                       Accumulated     and Finance        from                      
                                                         Deficit         Charges      Stockholders        Total    
                                                       -----------    ------------    ------------        -----    
<S>                                                   <C>             <C>          <C>                 <C>    
Balances at  December 31, 1994                        (6,961,050)             $-              $-     $ (866,090)


Issuance of stock for financing fees                        --          (258,250)           --              --

Additional Issuance of stock in settlement
  of convertible  promissory notes                          --              --              --              --

Shares issued under non-statutory plan                      --              --         (11,044))             133

Shares issued under incentive stock option plan             --              --            (6,250)           --

Issuance of stock                                           --              --              --                10

Stock issued in connection with
 compensatory obligations                                   --              --              --            25,900

Compensatory element of stock options                       --          (720,000)           --         1,399,476

Amortization of unearned compensation                       --           270,000            --           270,000

Amortization of unearned financing fees                     --           229,800            --           229,800

Net loss                                              (4,147,782)           --              --        (4,147,782)
                                                    ------------    ------------    ------------    ------------

Balances at December 31, 1995                        (11,108,832)       (478,450)        (17,294)     (3,108,553)


Issuance of stock for conversion of notes payable           --              --              --         1,364,784

Issuance of stock in settlement of litigation               --              --              --           250,000

Stock issued in connection with
 compensatory obligations                                   --              --              --            38,500

Payments received on notes receivable
 from stockholders                                          --              --             6,360           6,360

Amortization of unearned compensation                       --           360,000            --           360,000

Amortization of unearned financing fees                     --            28,450            --            28,450

Net loss                                              (2,027,507)           --              --        (2,027,507)
                                                    ------------    ------------    ------------    ------------

Balances at  December 31, 1996                      $(13,136,339)   $    (90,000)   $    (10,934)   $ (3,087,966)
                                                    ============    ============    ============    ============
</TABLE>




          See accompanying notes to consolidated financial statements



                                       F-5

<PAGE>   23

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                       1996           1995
                                                                   -----------    -----------
<S>                                                                <C>            <C>
Cash flows from operating activities:
   Net loss                                                        $(2,027,506)   $(4,147,782)
   Adjustments to reconcile net loss to net cash
      used in operating activities:
Depreciation and amortization                                           15,773         39,651
Amortization of unearned and deferred finance costs                     28,450        306,400
Notes issued in settlement of consulting fees                             --          274,250
Compensatory element of stock options                                  360,000      1,669,476
Stock issued in settlement of current liabilities                       38,500         25,900
Loss on litigation settlement                                          500,000           --
Loss on disposal of fixed assets                                          --            4,377

Cash provided by (used in) the change in assets and liabilities:
       Decrease (increase) in prepaid expenses                            --           14,118
       (Increase) decrease in advances to officer                         --           (1,341)
       (Increase) decrease in deposits                                    --           (2,627)
       Increase in accounts payable and accrued liabilities            721,997        374,268
       (Decrease) increase in due to shareholders                        1,116        (17,350)
                                                                   -----------    -----------

Net cash used in operating activities                                 (361,670)    (1,460,660)
                                                                   -----------    -----------

Cash flows from investing activities
   Cost of license and patents                                            --          (54,550)
   Capital expenditures                                                (47,583)      (152,935)
                                                                   -----------    -----------

Net cash used in investing activities:                                 (47,583)      (207,485)
                                                                   -----------    -----------

Cash flows from financing activities
   Loan proceeds                                                       428,250      1,740,000
   Loan repayments                                                     (29,872)        (4,559)
   Deferred financing costs                                               --          (76,600)
   Proceeds from issuance of common stock                                 --              143
   Repayment of notes receivable from stockholders                       6,360           --   
                                                                   -----------    -----------

Net cash provided by financing activities                              404,738      1,658,984
                                                                   -----------    -----------

Decrease in cash                                                        (4,515)        (9,161)

Cash - beginning                                                         4,703         13,864
                                                                   -----------    -----------

Cash - ending                                                      $       188    $     4,703
                                                                   ===========    ===========
</TABLE>





          See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>   24
                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995



NOTE  1 -      BUSINESS AND CONTINUED OPERATIONS

               Orbit Technologies Inc. (the "Company") was incorporated in the
               State of Delaware on April 29, 1985.  The Company is a
               commercial technology research and development company holding
               rights to certain patents and their technologies.

               The Company's business plan is to develop certain technologies
               until commercially viable products are possible and to license
               or sell these technologies to affiliated and/or unaffiliated
               entities which are responsible for the production and marketing
               of any products resulting therefrom.  Since its incorporation in
               1985, the Company has pursued the research, development,
               acquisition and licensing of certain technologies.  The Company
               concentrated its efforts in the areas of coatings technologies
               and new materials technologies.  While the technologies are
               undergoing certain feasibility studies and testing, none has
               proved commercially feasible, except for the TiTRODE type
               electrodes.  To date, the Company has not financially benefitted
               from the commercialization of the TiTRODE electrode (see Note
               7).

               The accompanying financial statements have been prepared in
               conformity with generally accepted accounting principles, which
               contemplate continuation of the Company as a going concern.
               However, for the year ended December 31, 1996, the Company
               incurred a net loss of approximately $2,028,000 and, as of that
               date, had a stockholders' deficiency and a working capital
               deficiency of approximately $3,088,000 and $3,171,000,
               respectively.  The Company is also in default on a significant
               number of loan agreements which total approximately $1,150,000
               in principal and interest as of December 31, 1996 and is in
               arrears with substantially all of its other payables and accrued
               liabilities.  The Company requires additional funds to continue
               research and development efforts and complete the necessary work
               to commercialize its technologies.  Until completion of the
               development of a technology and the commencement of sales, the
               Company will have no operating revenues, but will continue to
               incur substantial expenses and operating losses.  No assurances
               can be given that the Company can complete development of any
               technology or that, if any technology is fully developed, it can
               be manufactured on a large scale basis or at a feasible cost.
               Further, no assurance can be given that any technology will
               receive market acceptance.  These factors raise substantial
               doubt about the Company's ability to continue as a going
               concern.

               The Company is exploring additional sources of working capital
               including private borrowings, sales of its securities, joint
               ventures and licensing of technologies.  While no assurance can
               be given, management believes the Company can raise adequate
               capital to keep the Company functioning at a minimum level of
               operation in 1997.  Through September 30, 1997, the Company's
               proceeds from all financing activities amounted to approximately
               $408,000 (see Note 13).

               The Company is exploring ways to reduce its existing liabilities
               including exchanging certain of its liabilities for shares of
               its common stock.  During 1997, the Company exchanged $42,750 of
               principal on various promissory notes outstanding at December
               31, 1996 for shares of common stock (see Note 13).

               To date, the Company has not been successful in restructuring
               the remaining debt and the Company continues to be in default
               under such agreements.  Further, one group of note holders,
               representing $600,000 of the promissory notes outstanding as of
               December 31, 1996, has filed a lawsuit against the Company to
               recover loans and other monies provided to the Company (see Note
               9).





                                      F-7
<PAGE>   25
                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


NOTE  1 -      BUSINESS AND CONTINUED OPERATIONS (Continued)


               The Company's ability to continue as a going concern is
               dependent upon obtaining the additional financing, restructuring
               and/or curing the defaults on its debt, completion of research
               and development and the successful marketing of its
               technologies.  These financial statements do not include any
               adjustments relating to the recoverability of recorded asset
               amounts that might be necessary as a result of the above
               uncertainty.  Management believes that actions presently being
               taken, as discussed above, provide the opportunity for the
               Company to continue as a going concern.

NOTE  2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

               Principles of Consolidation

               The consolidated financial statements include the accounts of
the Company and the following wholly-owned subsidiaries:

<TABLE>
<CAPTION>
                                                              Date of                 State of
                    Subsidiary                             Incorporation            Incorporation
                    ----------                             -------------            -------------
<S>                                                       <C>                       <C>
               The Titrode Corporation                     April 2, 1992             Delaware
               Titherm Technology Corporation              April 2, 1992             Delaware
               Shield Safe, Inc.                           March 26, 1993            Delaware
               The Metafuse Corporation                    March 31, 1993            Delaware
               Electronic Recovery Systems, Inc.           March 31, 1993            Delaware
               Nuclear Shield International, Inc.          February 4, 1994          Delaware
</TABLE>

               All material intercompany balances and transactions have been
               eliminated in consolidation.

               Revenue Recognition

               Revenue from license fees is recognized in the year received.
               Revenue from the sale of technology is recognized in the period
               in which it is earned.

               Deferred and Unearned Finance Costs

               Deferred and unearned finance costs represent expenses incurred
               and common shares issued to obtain financing for the Company and
               are amortized over one year.

               Equipment and Fixtures

               Equipment and fixtures are recorded at cost.  Depreciation is
               provided using the accelerated and straight-line methods over
               the estimated useful lives of the related assets as follows:

<TABLE>
<CAPTION>
                    Description                             Years
                    -----------                             -----
<S>                                                          <C>
               Furniture and fixtures                         7
               Computer hardware and software                 5

</TABLE>





                                      F-8
<PAGE>   26
                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995



NOTE  2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


               Intangible Assets

               Patents which consist of legal costs and mandatory filing fees
               are being amortized on the straight-line method over the shorter
               of the estimated economic life of the patents or seventeen
               years.

               Amortization of license fee was provided for on the straight-line
               method over seventeen years.

               In March 1995, the Financial Accounting Standards Board issued
               Statement of Financial Accounting Standards No. 121, "Accounting
               for the Impairment of Long-Lived Assets and for Long-Lived
               Assets to Be Disposed Of", which requires impairment losses to
               be recorded on long-lived assets used in operations when
               indicators of impairment are present and the undiscounted cash
               flows estimated to be generated by those assets are less than
               the assets' carrying amount.  Statement 121 also addresses the
               accounting for long-lived assets that are expected to be
               disposed of.  The Company adopted Statement 121 in the first
               quarter of 1996 and there was no effect to the Company.

               Income Taxes

               The Company has adopted the Financial Accounting Standards Board
               Statement No. 109, "Accounting for Income Taxes" ("SFAS 109")
               effective January 1, 1993.  SFAS 109 requires recognition of
               deferred tax liabilities and assets for the expected future tax
               consequences of events that have been recognized in the
               financial statements or tax returns.  Under this method,
               deferred tax liabilities and assets are determined based on the
               difference between the financial statement carrying amounts and
               tax bases of assets and liabilities using enacted  tax rates in
               effect in the years in which the differences are expected to
               reverse.  Adoption of the statement did not have a material
               effect on the accompanying financial statements.

               Research and Development Costs

               Research and development costs are charged to expense as
               incurred.  The costs of materials and equipment that are
               acquired or constructed for research and development activities,
               and have alternative future uses (either in research and
               development, marketing or production), are classified as
               property and equipment and depreciated over their estimated
               useful lives.  Certain software development costs are
               capitalized.

               Per Share Data

               Net loss per common share and common equivalent share has been
               computed based on the weighted average number of shares of
               common stock and common stock equivalents outstanding during
               each year.  Common stock equivalents are considered
               anti-dilutive, hence, are not included in the weighted average
               calculation.

               Cash and Cash Equivalents

               The Company considers all highly liquid investments with a
               maturity of three months or less to be cash equivalents.





                                      F-9
<PAGE>   27
                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


NOTE  2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



               Post Retirement Benefits

               In December 1990, the Financial Accounting Standards Board
               issued Statement of Financial Accounting Standards No. 106,
               "Employers' Accounting for Post Retirement Benefits Other than
               Pensions" which was effective for years beginning after December
               15, 1992.  The Company has no liabilities for post retirement
               and, therefore, this statement did not have an impact on the
               financial statements.

               Concentration of Credit Risk

               Financial instruments, which potentially subject the Company to
               concentrations of credit risk, are primarily trade accounts
               receivable.  Ongoing credit evaluations of customers' financial
               condition will be performed and generally no collateral will be
               required.

               Fair Value of Financial Instruments

               Cash and cash equivalents, note receivable, accounts payable,
               accrued expenses, due to stockholders and notes payable are
               reflected in the accompanying consolidated balance sheets at
               amounts considered by management to reasonably approximate fair
               value.

               Use of Estimates

               The preparation of financial statements in conformity with
               generally accepted accounting principles requires management to
               make estimates and assumptions that affect the reported amounts
               of assets and liabilities and disclosure of contingent assets
               and liabilities at the date of the financial statements and the
               reported amounts of revenues and expenses during the reporting
               period.  Actual results could differ from those estimates.

               Stock-Based Compensation

               In October 1995, the Financial Accounting Standards Board issued
               SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
               123").  SFAS 123 requires compensation expense to be recorded
               (i) using the new fair value method or (ii) using existing
               accounting rules prescribed by Accounting Principles Board
               Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
               25") and related interpretations with proforma disclosure of
               what net income and earnings per share would have been had the
               Company adopted the new fair value method.  The Company intends
               to continue to account for its stock based compensation plans in
               accordance with the provisions of APB 25.





                                      F-10
<PAGE>   28

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


NOTE  3 -      PROPERTY AND EQUIPMENT

               Property and equipment, at cost, consisted of the following at
               December 31, 1996:

<TABLE>
<S>                                                     <C>
               Office furniture and fixtures             $ 46,605
               Research laboratory furniture
                 and fixtures                              65,087
                                                         --------
                                                          111,692
               Less:  Accumulated depreciation             40,193
                                                         --------
                                                           71,499

               Construction in progress  (a)

                   Total
                                                          179,330
                                                         --------
                                                         $250,829
                                                         ========
</TABLE>



                    (a)    Represents progress payment on two machines which
                           have not been placed in service to date.  Estimated
                           costs to complete both machines approximate $43,734
                           as of December 31, 1996.

               Depreciation expense for the years ended December 31, 1996 and
               1995 was $10,641 and $12,337, respectively.


NOTE  4 -      INTANGIBLE ASSETS

               Intangible assets consisted of the following at December 31,
1996:

<TABLE>
<S>                                                     <C>
               License                                   $ 25,000
               Patent Costs                                87,212
                                                         --------
                                                          112,212
               Less:  Accumulated amortization             34,141
                                                         --------
                                                         $ 78,071
                                                         ========
</TABLE>

               Patent costs are being amortized over seventeen years on the
               straight-line method.

               The license fee had been amortized over seventeen years on the
               straight-line method. The unamortized portion of the license fee
               of $24,265 was fully charged against earnings during 1995. See
               Note 12.

               Amortization expense for the years ended December 31, 1996 and
               1995 was $5,132 and $27,314, respectively.



NOTE 5 -      ACCOUNTS PAYABLE AND ACCRUED EXPENSE

               Accounts payable and accrued expenses consist of the following at
               December 31, 1996:

<TABLE>
<S>                                                   <C>
               Salary and Related Taxes                $  419,762
               Legal and Accounting                       460,268
               Interest                                   267,619
               Consulting Fees                            204,069
               Miscellaneous                               77,677
                                                       ----------
                                                       $1,429,395
                                                       ==========
</TABLE>





                                      F-11
<PAGE>   29
                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

NOTE 6 -         NOTES PAYABLE

                 Notes payable consisted of the following at December 31, 1996:

<TABLE>
<S>                                                     <C>   
               a)  Unsecured notes payable               $  170,000
               b)  Unsecured note payable                   215,402
               c)  Unsecured note                           274,250
               d)  Convertible notes                        593,250
               e)  Promissory notes                         300,000
               f)  Secured promissory notes                 250,000
                                                         ----------
                                                          1,802,901
                   Less current portion                   1,552,902
                                                         ----------
                   Total Long Term Note Payable          $  250,000
                                                         ==========
</TABLE>

                 a) Represents four promissory notes aggregating $170,000, all
                    of which are past due, with interest at 15%.

                 b) On June 10, 1993, Titrode Corporation, a subsidiary of
                    Orbit Technologies, Inc. entered into a loan agreement with
                    a shareholder in the amount of $200,000.  The loan was due
                    June 30, 1995 with interest at 15%.  The agreement provided
                    for the lender to receive, as additional compensation,
                    warrants for ten percent of the issued and outstanding
                    stock of Titrode, exercisable for a ten-year period, for
                    $4,000.  In December of 1993, the Titrode option was
                    exchanged for 200,000 shares of the Company's common stock.

                    During 1995, the entire principal balance of $200,000, plus
                    accrued interest aggregating $24,833, was replaced by a
                    promissory note payable by the Company.  The new note
                    provides for monthly payment of $3,000 commencing November
                    1, 1995, with entire unpaid principal due November 1, 1998.

                    During 1996, the Company was in default under this
                    promissory note agreement.

                 c) Represents a settlement agreement entered into during 1995
                    to pay past due consulting fees. Under such agreement, the
                    Company is required to repay this debt from proceeds of
                    future equity or debt financings as follows:

<TABLE>
<CAPTION>
                                                       Repayment Amount
                                                       ----------------
<S>                                                      <C>
                    6% of the 1st $1,000,000              $ 60,000
                    7% of the 2nd $1,000,000                70,000
                    8% of the 3rd $1,000,000                80,000
                    6.425% of the 4th $1,000,000            64,250
                                                          --------

                                                           274,250
                                                          ========
</TABLE>


                                                                                
                    As part of the settlement agreement, the consultants were
                    granted five-year options to purchase 50,000 shares of the
                    Company at $1.06 per share.

                 d)(i) During the year ended December 31, 1995, the Company
                    received loans from various private investors aggregating
                    $1,415,000. In general, such loans are for one year periods,
                    convertible, together, with any accrued interest, into
                    common shares ranging from $0.50 to $0.75 per share, and
                    provide for interest ranging from 10% to 15% per annum.





                                      F-12
<PAGE>   30
                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

NOTE 6 -       NOTES PAYABLE (Continued)

                    Of the total notes outstanding, $400,000, $100,000 and
                    $915,000 are convertible at $0.50, $0.60 and $0.75 per
                    share, respectively.  The notes are convertible upon the
                    effectiveness of a Registration Statement which includes
                    the underlying shares.  In addition, $715,000 of the notes
                    were issued with attached warrants to purchase 476,662 and
                    238,331 shares of common stock at $0.50 and $1.50 per
                    share, respectively.  Also, $100,000 of the notes have
                    warrants to purchase 66,666 shares of common stock each at
                    $0.50 and $1.50 per share, respectively.  Certain of these
                    notes also have non-qualified options to purchase 1,150,000
                    shares of common stock at prices ranging from $0.30 to
                    $2.00 per share.  These options expire at various dates
                    ranging from nine months to three years from the date of
                    the original notes.

                    During 1996, the Company converted $950,000 of principal
                    and related accrued interest amounting to $114,783 into
                    4,861,091 shares of common stock.  The Company is in
                    default under the remaining note agreements (see Note 9).

                 d)(ii)During 1996, the Company has borrowed $177,250 in one
                    year promissory notes bearing interest at 10% per annum.
                    $77,250 of the notes and related accrued interest are
                    convertible into common stock at 50% of the asked market
                    price at any time, with automatic conversion upon the
                    effectiveness of a Registration Statement under the
                    Securities Act of 1933. The remaining $100,000 of the notes
                    and related accrued interest are convertible into common
                    stock at prices ranging from $0.10 - $0.22 per share of
                    debt. During November of 1996 the Company and certain of its
                    debt holders agreed to convert principal of $100,000 into
                    1,000,000 shares of common stock. To induce the note holders
                    described in note 6d(i) and (ii) to an early conversion, the
                    Company reduced the conversion rate provided for in certain
                    of the original convertible loan agreements. Substantially,
                    all of the debt conversions were executed at the conversion
                    rate of $0.22.

                 d)(iii)During the year ended December 31,1996 the Company
                    borrowed $51,000 from its officers and issued convertible
                    notes to reflect these borrowings. Each note bears interest
                    of 10% per annum and is due one year from the issuance date.
                    The notes principal and accrued related interest are
                    convertible into common stock at the rate of $0.10 and $0.22
                    per share of debt. Of the $51,000 principal balance
                    outstanding at December 31, 1996 $30,000 is convertible at
                    $0.10 per share and the remaining notes principal balance
                    are convertible at $0.22 per share.

                 d) (iv) During the first quarter of 1996, the Company borrowed
                    $200,000 under a one year promissory note which was
                    satisfied by issuance of 2,000,000 shares of common stock.

                 e) Represents one-year promissory notes due January and
                    February 1996 at interest ranging from 0% to 15% per annum.
                    The Company issued 575,000 shares of common stock as
                    additional compensation for these loans. In addition, the
                    note holders have non-qualified options to purchase 683,333
                    shares of common stock at prices ranging from $0.40 to $1.50
                    per share. These options expire at various dates ranging
                    from 45 days to three years from the date of the original
                    notes.

                    The Company is in default under a substantial portion of
                    these obligations (see Note 9).





                                      F-13
<PAGE>   31
                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

NOTE 6     -      NOTES PAYABLE (Continued)

                 f) As discussed further in Note 8, the Company entered into a
                    settlement agreement on December 27, 1996. Pursuant to the
                    agreement the Company issued a $250,000 secured promissory
                    note that is due on December 27, 2000. The promissory note
                    bears interest at 10% per annum and the Company is required
                    to make minimum partial interest payments of $6,000
                    semi-annually. The promissory note is collaterized by the
                    Company's equipment, rights, titles and patents pertaining
                    to the "TiTRODE/Metafuse" technology.


NOTE 7 -       STOCKHOLDERS' EQUITY

                 a) Authorized Shares

                 The Board of Directors of the Company voted to amend the
                 articles of Incorporation to increase the authorized shares of
                 preferred stock from 10,000 shares to 1,000,000 shares and
                 reduce the par value from $100 per share to $.01 per share. The
                 Board of Directors of the Company has broad discretion to
                 create one or more series of preferred stock and to determine
                 the rights, preferences and privileges of any such series. In
                 addition, the Board of Directors of the Company voted to
                 increase the authorized shares of common stock from 3,000,000
                 shares to 20,000,000 shares and to keep the par value at $.01
                 per share. The amendment to the articles of incorporation was
                 filed with the State of Delaware on February 10, 1994.

                 Effective April 7, 1995, the articles of incorporation was
amended to increase the authorized shares of common stock from 20,000,000 shares
to 50,000,000 shares.

                 b) Issuance of Preferred Stock

                 The Company has authorized 1,000,000 shaes of stock having $.01
par value. The Company has not issued any stock nor has the company determined
the rights and privileges of the preferred class.

                 c) Common Stock Transactions

                 During 1996 and 1995, the Company issued 175,000 and 210,000
                 shares respectively of its common stock in settlement of
                 compensatory obligations of $38,500 and $25,900 for the years
                 ended December 31, 1996 and 1995, respectively.

                 As discussed further in Note 8, the Company entered into a
                 settlement agreement on December 27, 1996. Pursuant to the
                 agreement the Company was required to make a payment of
                 $250,000 through the issuance of 2,941,176 shares of the
                 Company's restricted common stock.

                 During November of 1996, the Company and certain of its debt
                 holders agreed to convert principal of $1,250,000 and related
                 accrued interest of $114,785 into 7,861,091 shares of common
                 stock.





                                      F-14

<PAGE>   32

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

NOTE 7 -       STOCKHOLDERS' EQUITY (Continued)

               Common Stock Transactions (Continued)

               To induce the note holders to an early conversion, the Company
               reduced the conversion rate provided for in certain of the
               original convertible loan agreements.  Substantially, all of the
               debt conversions were executed at the conversion rate of $0.22
               per share of debt.

               On December 28, 1993, the holders of the convertible promissory
               notes, aggregating $509,298, converted their promissory notes
               into 325,000 shares of the Company's  common stock.  The actual
               share certificates were issued on October 31, 1994, along with
               57,878 additional shares in consideration for the delay in
               issuing the original shares.  The note holders agreed not to
               sell more than one half (-1/2) of the total number of shares
               received for a period of twelve (12) months from the date the
               certificates were received, the balance of the shares could be
               sold at any time subsequent to May 15, 1995.  In consideration
               of the note holders' agreement not to sell more than one half of
               the shares received during the initial twelve-month period, the
               Company guaranteed the note holders will aggregate a value equal
               to five ($5.00) per share for all shares received in the
               conversion.  Under the guarantee provisions described above, the
               Company was required to issue an additional 1,335,543 shares of
               its common stock in 1995.

               The Company's current management has conducted an internal audit
               of its debt and equity structure.  At this time, the Company's
               management believes that certain stock issuances to the
               Company's former chairman, Mikimak, Ltd. and others, during the
               periods 1991 through 1993, were without consideration and are,
               therefore, subject to cancellation (see Note 9).

               d)   Stock Options

               The Company has granted options to purchase shares of the
               Company's common stock to officers, key employees, consultants
               and financing sources as follows:

                    (1)    1995 Stock Option Plan

                    The Company's 1995 Stock Option Plan (the "Option Plan")
                    was adopted by the Board of Directors and stockholders of
                    the Company in February 1995.  Under the Option Plan,
                    5,000,000 shares of the Company's common stock (subject to
                    certain adjustments) are reserved for issuance upon the
                    exercise of options.  Options granted under the Option Plan
                    may be either (i) options intended to constitute incentive
                    stock options under Section 422 of the Internal Revenue
                    Code of 1986 (the "Code"), as amended, or (ii)
                    non-qualified stock options.  Incentive stock options may
                    be granted under the Option Plan to employees (including
                    officers and directors  who are employees) of the Company
                    on the date of grant.  Non-qualified options may be granted
                    to (i) officers and directors of the Company on the date of
                    the grant, without regard to whether they are employees,
                    and (ii) consultants or advisors to, agents or independent
                    representatives of the Company.

                    By its terms, the Option Plan is to be administered by a
                    committee(the "Committee") appointed by the Board of
                    Directors which shall consist of either the entire Board of
                    Directors, all of whom must be disinterested persons, or by
                    a committee of two or more persons (who must be directors),
                    all of whom must be disinterested persons and who serve at
                    the discretion of the Board of Directors.  Subject to the
                    provisions of the Option Plan, the  Committee has the
                    authority to determine the persons to whom options will be
                    granted, the exercise price, the term during which options
                    may be exercised and such other terms and conditions as it
                    deems appropriate.  However, directors who are not officers
                    of the Company will only receive automatic grants of
                    non-qualified stock options on a periodic basis pursuant to
                    a formula specified in the Option Plan.  The Option Plan
                    provides for a limit of up to 500,000 options per person.





                                      F-15
<PAGE>   33

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

NOTE 7 -       STOCKHOLDERS' EQUITY (Continued)

                    (1)    1995 Stock Option Plan (Continued)

                    Incentive stock options granted under the Option Plan may
                    not have an exercise price less than the fair market value
                    of the common stock on the date of the grant (or 110% of
                    the fair market value in the case of employees holding ten
                    percent or more of the voting stock of the Company).
                    Options granted under the Option Plan will expire, not more
                    than ten years from the date of the grant (5 years in the
                    case of incentive options of employees holding ten percent
                    or more of the voting stock of the Company)  subject to
                    earlier termination under the Option Plan.  Optionees under
                    the Option Plan may exercise their options by paying cash,
                    by using the cashless exercise procedure allowed under
                    Federal Reserve Regulation T or by tendering shares of
                    Company common stock that they already own.  Options
                    generally become exercisable over a three-year period.

                    Included in incentive stock options exercised in 1995 are
                    options for 12,500 shares exercised by an officer of the
                    Company at $0.50 per share.  The officer paid for the
                    shares by issuing a three-month note payable to the Company
                    aggregating $6,250.  The note bears interest at 10% per
                    annum and is included in the accompanying consolidated
                    financial statements as a reduction of stockholders'
                    equity.

                    For options granted under the non-qualified plan,
                    compensation expense is recorded on the date of grant and
                    is measured by the amount per share that the fair market
                    value of the underlying shares on the date of grant exceeds
                    the grant price.  In March of 1995, the Company granted
                    2,302,703 non-qualified stock options under the Option Plan
                    which were exercisable at $.01 per share.  Compensation
                    expense for the year ended December 31, 1995 amounted to
                    $898,054 related to granting of these options.   In August
                    of 1995, in connection with the employment agreements
                    described in Note 7,  the Company granted non-qualified
                    stock options to three officers aggregating 900,000 shares.
                    The compensatory portion of such grants aggregated $720,000
                    and is being amortized over the twenty four-month period
                    commencing April 1, 1995.  Amortization for the years ended
                    December 31, 1996 and 1995 was $360,000 and $270,000,
                    respectively.

                    During the year ended December 31, 1995, 1,117,727
                    non-qualified stock options were exercised at $0.01 per
                    share.  Certain of the stockholders paid for such shares by
                    issuing three-month notes payable to the Company
                    aggregating $11,044.  These notes bear interest at 10% per
                    annum and are included in the accompanying consolidated
                    financial statements as a reduction of stockholders'
                    equity.

                    During the year ended December 31, 1995 options granted
                    under the Option Plan to three officers of the Company
                    exceeded the 500,000 prescribed limit provided for in the
                    Option Plan.  The options granted in excess of such limit
                    approximated 1,500,000 options.

                    Management believes that the options granted were in
                    compliance with the Option Plan and has asked its corporate
                    counsel to review the transactions and advise as to
                    compliance with the Plan. Management of the Company has
                    agreed to revise and/or cancel options granted to the
                    extent that its corporate counsel concludes that an
                    over-issuance had occurred.

                    (2)    Non-Qualified Stock Options Outside the Option Plan

                    From time to time, the Company issues  non-qualified stock
                    options outside the option plan described in (1) above.
                    These options are generally granted to consultants for past
                    services and are granted to note holders in connection with
                    financing agreements.  During 1995, the Company recorded
                    compensation expense aggregating $501,422 related to the
                    granting of 1,285,696 non-qualified options, exercisable at
                    $.01 per share, outside of the Option Plan.  The expense
                    was calculated on the date of grant and was measured by the
                    amount per share that the fair market value of the
                    underlying shares on the date of grant exceeded the grant
                    price.





                                      F-16
<PAGE>   34


                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

NOTE 7 -       STOCKHOLDERS' EQUITY (Continued)

                    (3)    Shares Under Option

                 There were no options granted or exercised during the year
                 ended December 31, 1996. The following is a summary of activity
                 and information relating to shares (rounded to whole shares)
                 subject to option under the above described plans for the year
                 ended December 31, 1995:


<TABLE>
<CAPTION>
                 Options Granted:                                        Incentive    Non-Qualified
                                                                      Stock Options   Stock Options
                                                                        ----------     ----------
<S>                                                                     <C>            <C>
                 1995 Stock Option Plan
                   ($0.50 - $0.87/share)                                 1,028,900           --
                 1995 Stock Option Plan
                   ($0.01/share)                                              --        3,202,703
                 Outside the Option Plan - consultants
                   ($0.01 - $1.06/share)                                      --        1,595,696
                 Outside the Option Plan - financing
                    agreements ($0.30 - $2.00)                                --        1,833,333
                                                                        ----------     ----------

                                                                         1,028,900      6,631,732
                                                                        ----------     ----------

                 Options Exercised:


                 1995 Stock Option Plan
                   ($0.50/share)                                            12,500           --
                 1995 Stock Option Plan
                   ($0.01/share)                                              --        1,117,727
                 Outside the Option Plan
                   ($0.01 - $1.06/share)                                      --             --   
                                                                        ----------     ----------
                                                                            12,500      1,117,727
                                                                        ----------     ----------

                 Options Expired:
                 ----------------

                 1995 Stock Option Plan
                    ($0.50 - $0.87/share)                                     --             --
                 1995 Stock Option Plan
                    ($0.01/share)                                             --             --
                 Outside the Option Plan - consultants                        --             --
                 Outside the Option Plan - financing
                 agreements ($0.30 - $2.00)                                   --          183,333
                                                                        ----------     ----------
                                                                              --          183,333
                                                                        ----------     ----------

                 Balance - End of Year:


                 1995 Stock Option Plan
                   ($0.50 - $0.87/share)                                 1,016,400           --
                 1995 Stock Option Plan
                   ($0.01/share)                                              --        2,084,976
                 Outside the Option Plan - consultants
                   ($0.01 - $1.06/share)                                      --        1,595,696
                 Outside the Option Plan - financing
                   agreements ($0.30 - $2.00)                                 --        1,700,000
                                                                        ----------     ----------

                 Total Outstanding Options as of December 31, 1996
                      and 1995, all of  which  were  exercisable at
                      December 31, 1995                                  1,016,400      5,360,672
                                                                        ----------     ----------

                 Total Value at Option Price                            $  806,200     $1,647,907
                                                                        ==========     ==========

                 Shares available for future grant:

                               1995 Stock Option Plan                                     768,397
                                                                                       ==========
</TABLE>





                                      F-17

<PAGE>   35
                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995



NOTE 7 -         STOCKHOLDERS' EQUITY (Continued)


                    e) Warrants to Purchase Common Shares

                    Under various promissory notes agreements executed during
                    1995, the Company granted to certain note holders warrants
                    to purchase 848,323 shares of the Company's common stock.
                    The warrants, which carry certain anti-dilution provisions,
                    become issuable upon the conversion of the notes and become
                    exercisable one year from such issuance date. The warrants
                    are exercisable at prices ranging from $0.50 per share to
                    $1.50 per share. No warrants were issued or exercised during
                    the years ended December 31, 1996 and 1995.



NOTE 8 -         LOSS FROM LITIGATION SETTLEMENT

                    On December 27, 1996, the Company entered into a settlement
                    agreement with a shareholder in connection with prior
                    purchases of the Company's common stock. The settlement
                    agreement provides for the Company to issue a $250,000
                    promissory note and a $250,000 payment through the issuance
                    of 2,941,176 shares of the Company's restricted common stock
                    which was deemed the fair market value at December 27, 1996.
                    Included in the year ended December 31, 1996 Statement of
                    Operations, the Company has recognized the loss from this
                    settlement amounting to $500,000.


NOTE 9 -         COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

                    Lease Obligation

                    At December 31, 1996, the Company had obligations under
                    various long-term operating leases for office space,
                    equipment and certain automobile. Estimated minimum annual
                    rentals under the leases are as follows:


<TABLE>
<CAPTION>
                Period Ending
                December 31, 
                -------------
                    <S>                              <C>
                    1997                             $   43,434
                    1998                                  17,646
                                                     -----------
                                                     $   61,280
                                                     ===========
</TABLE>



                    Rental expense for the years ended December 31, 1996 and
                    1995 was $35,695 and $44,160, respectively.


Employment and Consulting Agreements

                    On April 1, 1995, the Company entered into three employment
                    agreements with its officers. The agreements provide for
                    monthly salaries aggregating $30,000 and cover a two-year
                    period with automatic annual renewals. In addition to the
                    compensation described above, the Company granted these
                    officers 1,200,000 options, of which 900,000 were
                    exercisable at $.01 per share, under the Option Plan
                    described in Note 7(d). The officers have agreed to defer
                    40% of their respective salaries until a financing of at
                    least $3.5 million is raised by the Company. The accrued
                    salaries under these agreements at December 31, 1996
                    approximated $407,450.





                                      F-18
<PAGE>   36


                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


NOTE 9 -         COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)

                 Employment and Consulting Agreements (Continued)

                 During 1995, the Company entered into a consulting agreement
                 obligating the Company to pay $5,000 per month.  The agreement
                 was for an initial term of six months which expired October
                 15, 1995.  The Company exercised its option to terminate the
                 agreement effective February 22, 1996.  Total consulting fee
                 for the year ended December 31, 1995 amounted to $42,500.

                 The Company had a consulting and employment agreement with its
                 former president which was to expire on January 31, 1995.  The
                 agreement provided for a minimum fee of $144,000 and was based
                 on 10% of all private monies raised by the consultant,
                 exclusive of an additional 2% expense reimbursement.  The
                 consultant was entitled to receive warrants and/or common
                 stock in the Company on a deal-by-deal basis.  The agreement
                 also provided for an automobile allowance.  This agreement was
                 terminated July 31, 1994.  Included in due to stockholders as
                 of December 31, 1996 is $101,966 for services under the
                 agreement and other advances.

                 The Company had a consulting and employment agreement,
                 expiring January 31, 1995, with the former Chairman of the
                 Board of the Company.  The agreement provided for annual
                 consulting fees of $144,000 for the first year and was subject
                 to an annual adjustment thereafter.  This agreement also
                 provided for an automobile allowance.  Included in due to
                 stockholders as of December 31, 1996 is $72,275 for services
                 under the agreement and other advances.

                 Potential Securities Act Liabilities

                 The Company has sold securities and notes without registration
                 under the Securities Act of 1933, as amended (the "Act"), or
                 without qualification under the securities (blue sky) laws of
                 certain states.  As a result of such sales, and a subsequent
                 transfer of the shares by the original purchasers, the Company
                 has not determined it can claim valid exemptions for such
                 sales since the burden of proving any exemption is on the
                 Company.

                 Therefore, no assurances can be given as to the existence or
                 extent of any liability which may result for violating the
                 registration or qualification provisions of the federal or
                 state securities laws.  The Company thus may have a continuing
                 contingent liability under the Securities Act of 1933, as
                 amended, the Securities Exchange Act of 1934, as amended (the
                 "Exchange Act"), and various state securities laws for an
                 undetermined amount for an undetermined period.

                 Potential Liability for Over-issuances

                 Between December 16, 1992 and February 17, 1994, the Company
                 issued more shares of its common stock than it had authorized
                 by its Certificate of Incorporation.  Thus, approximately
                 15,000,000 shares of the Company common stock were
                 "overissued".  Under the Uniform Commercial Code, the Company
                 is obligated to either refund the purchase price or go into
                 the market and repurchase available shares to cover the
                 over-issuance.  The  Company has done neither of these two
                 acts.

                 Potential Liability for Rescission of Dividends

                 In February 1994, the Company declared a stock dividend on a
                 10 to 1 basis of the following corporations, all of which are
                 subsidiaries of the Company.  The Titrode Corporation, The
                 Metafuse Corporation, Electronics Recovery Systems, Inc.,
                 Titherm Technology Corporation and Shield Safe, Inc.  In
                 connection with such dividends, each subsidiary was to receive
                 a license for a particular technology owned by the Company.
                 The Company's Board of Directors has subsequently rescinded
                 such stock dividends principally because of the concern that
                 such dividends may not comply with Delaware law since such
                 dividends would strip the Company of most of its valuable
                 assets.  It is possible that a shareholder could challenge the
                 rescission of the dividend and it is unclear whether such
                 rescission will be upheld by a Delaware court.  Thus, the
                 shareholders entitled to such dividends may have a right to
                 seek payment of such dividend.





                                      F-19
<PAGE>   37


                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

NOTE 9 -         COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)


                 Litigation/Disputes

                 a) The Metafuse technology was utilized to coat copper-alloy
                    resistance welding electrodes (welding tips) through the
                    fusion of titanium carbide or molybdenum tungsten onto and
                    into copper-alloy welding tips ("TiTRODEs").  TiTRODE
                    electrodes have been successfully tested by the Chrysler
                    Corporation ("Chrysler") for use on its assembly lines.
                    Chrysler has conducted 18 months of testing on the TiTRODE
                    type electrodes and has since integrated them into certain
                    of its manufacturing plants.  TiTRODE type electrodes are
                    being sold to Chrysler by a Canadian corporation, with
                    which the Company claims to have an written agreement
                    beginning in January 1994, whereby the two parties would
                    share net revenues derived from the sale of TiTRODEs.  The
                    net revenues from the sale of TiTRODEs to Chrysler have not
                    been dispersed to the Company and the Company has requested
                    an informal accounting to determine the amount of money due
                    to it pursuant to the above referenced written agreement.
                    No revenue has been recognized to date from this venture,
                    as the Company cannot predict the outcome of this request.
                    The Company intends to retain legal counsel to enforce its
                    written agreement.

                 b) Emerson v. Orbit Technologies, Inc. et al..  Plaintiff
                    claims that Richard A. Wall, a former officer of Orbit,
                    caused restricted stock to be issued to her without
                    disclosing the restriction.  Emerson seeks damages of
                    approximately $125,000.  Orbit is named as the issuing
                    corporation.  Plaintiff failed to timely serve Wall and he
                    has been dismissed in the main action. Orbit has filed a
                    cross complaint against Wall for indemnification and, in
                    addition, is seeking to invalidate his Orbit stock holdings
                    and recover monies as a result of Wall's actions.  Orbit's
                    Cross Claim for indemnification against Mr.  Wall was
                    dismissed on procedural grounds.  No discovery has yet been
                    conducted and, thus, it is impossible to estimate the
                    chances of success.       However,  since Orbit received no
                    consideration for the stock, the Company counsel believes
                    there are strong affirmative defenses to Emerson's claims.
                    Orbit intend to vigorously defend and pursue all claims in
                    this action.

                 c) Orbit Technologies, Inc. v. First Liberty Investment Group,
                    Inc. ("First Liberty").  This is an action to recover
                    investment banking fees paid to the defendant by Orbit.  A
                    settlement was reached in March of 1997, whereby First
                    Liberty agreed to pay Orbit $15,000 in full settlement of
                    all obligations.

                 d) Joseph vs. Orbit Technologies Inc.  In October 1995, the
                    Company commenced an internal audit of its debt and equity
                    structure.  In February 1996, preliminary findings of the
                    internal audit suggested that certain stock issuance to
                    former officers and related entities were without
                    consideration.  This resulted in a request made by the
                    Company upon certain individuals, including former
                    directors and officers of the Company, to surrender stock
                    issued to and held by them for purposes of cancellation.
                    One of the individuals, subject to the internal audit and
                    request to surrender stock for cancellation, Adrian Joseph
                    ("Joseph"), the Company's former chairman and president,
                    has initiated a judicial action in the Superior Court of
                    California, County of San Diego, seeking a declaration of
                    his rights in and to Orbit stock.  The Company has sought
                    to cancel all stock held, possessed or controlled by Mr.
                    Joseph either in his individual capacity, his family or
                    corporations.  The Company and current management prevailed
                    in that action as the court denied the challenge of Joseph.
                    Although Joseph's stock was not canceled in this action,
                    the court prevented Joseph from interfering with the
                    business of the Company for a period of one year or the
                    length of any action brought by the parties.





                                      F-20
<PAGE>   38



                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

NOTE 9 -         COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)

                 d) Joseph vs. Orbit Technologies Inc. (Continued)

                    Adrian Joseph, Orbit former CEO, President and Chairman,
                    filed an action for declaratory relief seeking to validate
                    his stock holdings in Orbit.  Orbit has cross-claimed
                    against Joseph and Tatum Singletary, another former
                    officer, seeking to invalidate prior issuance of stock in
                    connection with certain questionable transactions discussed
                    above.

                    On October 21, 1997, the San Diego Superior Court of
                    California ordered Joseph, Singletary, Mikimak, Ltd., a
                    foreign corporation controlled by Joseph, to surrender
                    10,418,988 shares of Orbit common stock to the extent that
                    said common stock are within their possession, custody or
                    control.

                    The Company has not retrospectively adjusted its
                    outstanding shares at December 31, 1996, since management
                    cannot determine the number of shares held by the
                    plaintiffs, and it is more likely than not the plaintiffs
                    will appeal the judgment.

                 e) Jeffer, Mangels, Butler & Marmaro, LLP v. Orbit
                    Technologies, Inc..  Action by former attorneys of Orbit to
                    compel arbitration to recover attorney fees.  Orbit
                    stipulated to arbitration of fee dispute and stipulated to
                    entry of interim arbitration award in the amount of
                    approximately $110,000, subject to any defenses, offsets or
                    claims, which Orbit is asserting by way of a separate legal
                    malpractice action.

                    The Company's legal malpractice action was directed to
                    arbitration by a retainer agreement signed by Mr. Joseph,
                    in his capacity when he was with the Company, who was a
                    personal client of Jeffer, Mangels, Butler & Marmaro.
                    Prior to Orbit's involvement with the firm Orbit declined
                    to participate in the arbitration and is appealing the
                    Judgment based on the same.  Orbit has filed a Notice of
                    Appeal.

                 f) Sansone v. Joseph, et al.  Action by shareholder to recover
                    on $50,000 note signed by Joseph and Orbit which Orbit has
                    defaulted.  Plaintiff has obtained a judgement against
                    Joseph for the full amount of the debt and has attached
                    $60,000 of sales proceeds owed to Joseph against which to
                    collect.  Joseph has cross-claimed against Orbit for
                    indemnification. Based on documents reviewed to date, the
                    Company counsel believes that Orbit's exposure to Joseph on
                    the cross-claim appear minimal.

                 h) Benveniste, et. al. vs. Orbit and Its Officers.  The action
                    was filed on March 6, 1997 in the Los Angeles Superior
                    Court.  The action is to collect principal, interest and
                    other fees and damages relating to various promissory notes
                    executed between the plaintiffs and Orbit during 1995
                    aggregating $600,000 and loans made during 1992 aggregating
                    $197,000.

                    The plaintiffs allege that the defendants violated the
                    securities laws of the state of California and made
                    negligent misrepresentations related to Company's
                    technologies, thereby inducing them to loan monies to the
                    Company.  The plaintiffs also allege that, pursuant to an
                    oral agreement with an officer of the Company, the exercise
                    price for various stock options to acquire Orbit stock was
                    reduced to $0.10 per share and the conversion price under
                    various convertible loan agreements between the plaintiffs
                    and Orbit was also reduced to $0.10.  Further, the
                    plaintiffs allege that they have not received 500,000
                    shares of Orbit stock promised as additional compensations
                    under such agreements and that debt related to the 1992
                    loans of $197,000 is not reflected on the Company's books.





                                      F-21
<PAGE>   39

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


NOTE 9 -         COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)

                 h) Benveniste, et al vs. Orbit and its officers (continued)

                    Management contends that all of the debt and related fees
                    and shares of common stock are properly reflected on
                    Orbit's books as of December 31, 1996.  The Company's
                    records reflect that the debt related to the 1992 loans of
                    $197,000 and related accrued interest was converted into
                    226,550 common shares of Orbit in 1993.  Management also
                    contends that there was no oral agreement to reduce the
                    exercise and conversion prices of certain financial
                    instruments.  Further, management contends that there were
                    no violations of securities laws, that no
                    misrepresentations were made to plaintiffs and all other
                    complaints are without merit.

                    Orbit contends that the plaintiffs loaned money to another
                    entity, other than Orbit in 1992, for which Orbit has no
                    liability.  Additionally, Orbit contends that the
                    plaintiffs hold substantial shares       of Orbit common
                    stock which are void and/or voidable.  By its Cross
                    Complaint, Orbit seeks to cancel invalidly issued stock and
                    recover money damages.

                    Management also contends that there was no oral agreement
                    to reduce the exercise and conversion price of ceratin
                    financial instruments.  Further, management contends that
                    there were no violations of securities laws, that no
                    misrepresentations were made to plaintiffs and all other
                    complaints are without merit.

                    Mangement has attempted to contact the subject note holders
                    on numerous occasions over the last twelve months to work
                    out the issues surrounding the loan agreements, set-off,
                    and the respective claims against both parties.  Attempts
                    to amicably resolve the issues outside the court have been
                    unsuccessful to date.


NOTE 10 -        INCOME TAXES

                    The components of deferred tax assets and liabilities at
                    December 31, 1996 consist of the following:

<TABLE>
<S>                                                              <C>
                   Deferred Tax Assets:
                     Net operating loss carryforwards             $3,234,800
                     Tax effects of temporary differences (1)        848,100
                     Start-up costs                                  362,600
                                                                  ----------

                       Total Gross Deferred Tax Assets             4,445,500

                     Less:  Valuation allowance
                                                                   4,445,500
                                                                  ----------
                     Net Deferred Tax Assets                      $        -
                                                                  =========
</TABLE>

                  (1)      Temporary difference giving rise to the deferred tax
                           asset at December 31, 1996 primarily relates to
                           compensatory element of its grants of stock options.

         The net change in the valuation allowance for deferred tax assets was
         an increase of $686,200.





                                      F-22

<PAGE>   40

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


NOTE 10 -        INCOME TAXES (Continued)


                                                                                
                    As of December 31, 1996, the Company had available
                    approximately $9,514,000 of net operating losses for income
                    tax purposes that may be carried forward to offset future
                    taxable income, if any. The Tax Reform Act of 1986 imposed
                    substantial restrictions on the utilization of net operating
                    loss carry forwards in the event of an ownership change as
                    defined by the Internal Revenue Code.


                    These carryforwards expire in the following approximate
                    amounts:

<TABLE>
<CAPTION>
                       Year of
                      Expiration
                      ----------
                      <S>                                        <C>
                         2000                                     $  557,000
                         2001                                        726,000
                         2002                                         43,000
                         2003                                          2,000
                         2004                                          2,000
                         2005                                          1,000
                         2006                                      1,319,000
                         2007                                        937,000
                         2008                                      1,735,000
                         2009                                        933,000
                         2010                                      1,832,000
                         2011                                      1,427,000
                                                                  ----------
                                                                  $9,514,000
                                                                  ==========
</TABLE>                       



               A reconciliation of income tax expense at the statutory rate to
               income tax expense at the Company's effective rate is as
               follows:


<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,

                                                             1996             1995    
                                                          -----------      -----------
<S>                                                       <C>              <C>
                   Computed tax at the statutory rate     $  (689,520)     $(1,410,246)
                   Non-deductible expenses                      3,300            4,021
                   Tax effects of temporary
                     differences                              235,000          613,148
                   Start-up costs                             (34,018)         170,091
                   Unutilized net operating loss              485,238          622,986
                                                          -----------      -----------
                                                          $         -      $         -
                       Income Tax Expense   
                                                          ===========      ===========
</TABLE>





                                      F-23
<PAGE>   41

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


NOTE 11-         SUPPLEMENTAL CASH FLOW INFORMATION

                    During the years ended December 31, 1996 and 1995, the
                    Company paid $9,120 and $71,433 for interest, respectively.

                    Non-Cash Transactions

                    During the year ended December 31, 1996:

                    a) The Company issued 175,000 shares of common stock as
                    consideration for current compensatory obligation amounting
                    to $38,500.

                    b) Convertible promissory notes and related accrued interest
                    aggregating $1,364,784 were converted to 7,861,091 shares of
                    common stock.

                    c) In connection with a legal settlement agreement, the
                    Company issued a $250,000 promissory note and 2,941,176
                    shares of its common stock valued at $250,000.

                    During the year ended December 31, 1995:

                    a) The Company issued 210,000 shares of its common stock as
                    consideration for current compensatory obligations.

                    b) Accrued interest of $24,833 was converted to long-term
                    debt.

                    c) Common stock issued and options exercised in exchange for
                    notes receivable from stockholders totaled $17,294.


NOTE 12 -        LICENSE AND RESEARCH AGREEMENTS

                    On September 28, 1988, the Company entered into a license
                    agreement, as amended, with Davis, Joseph & Negley ("DJN")
                    pursuant to which the Company licensed certain technology
                    relating to the deposition of metallic coatings on
                    conducting surfaces known as the "Metafuse" process. DJN, in
                    consideration of the issuance of the license by the Company,
                    agreed to assume the Company's indebtedness to the Company's
                    Chairman of the Board in the amount of $175,000. In
                    addition, DJN agreed to pay the Company a royalty equal to
                    3% of DJN's gross sales for all devices manufactured by DJN
                    and 5% of all monies actually received by DJN from its
                    direct or indirect sublicenses. Neither DJN nor its
                    sublicensees have manufactured any devices and, therefore,
                    no royalties have been received. The license agreement shall
                    terminate concurrently with the latest to expire of the
                    letters patent issued to the Company. The Company does not
                    anticipate any royalties under this agreement.

                    On August 29, 1991, the Company entered into an additional
                    license agreement with DJN using the "Metafuse" process.
                    DJN, in consideration of the issuance of the license by the
                    Company, agreed to pay the Company $20,000 upon the
                    execution of the agreement and an additional payment of
                    $100,000 was received in July 1994. DJN agreed to pay the
                    Company a 5% royalty on the gross income derived from the
                    sale of licensed products manufactured by DJN or by any
                    direct or indirect sublicensee of DJN. Neither DJN nor its
                    sublicensees have manufactured any licensed products and,
                    therefore, no royalties have been received. The license
                    agreement shall terminate concurrently with the latest to
                    expire of the letters patent issued to the Company. The
                    Company does not expect any royalties under this agreement.





                                      F-24
<PAGE>   42
                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

NOTE 12-         LICENSE AND RESEARCH AGREEMENTS (Continued)

                 On May 13, 1994, the Company entered into a license agreement
                 with The Regents of the University of California ("The
                 Regents") for diamond and diamond film deposition and methods
                 of doping diamond films.  The license agreement grants to the
                 Company an exclusive license to make, have made, use and sell
                 licensed products and to practice licensed methods.  The
                 license also grants the Company the right to issue exclusive
                 or nonexclusive sublicenses to third parties.  In
                 consideration for the license, the Company paid $25,000.  The
                 agreement calls for a royalty of five percent of net sales
                 with a minimum royalty payment of $25,000 beginning
                 twenty-four months after the effective date of the agreement.
                 The agreement shall remain in effect for the life of the
                 last-to-expire patent, unless terminated earlier per the
                 agreement.  The $25,000 fee was recorded as an intangible
                 asset and was being amortized over seventeen years.  The
                 entire unamortized balance of $24,265 was written off in 1995
                 as a result of a dispute between the Company and the Regents.
                 The Company terminated the agreement in 1996.

                 On May 13, 1994, the Company also entered into a research
                 agreement with The Regents for the period June 1, 1994 - April
                 30, 1996.  The work to be performed is in accordance with the
                 research proposal entitled "Semi-Conducting Diamond Films".
                 The cost to the Company for the performance under the
                 agreement is estimated to be $350,000, payable in eight
                 quarterly installments of $43,750 beginning on June 1, 1994.
                 Only the first installment due June 1, 1994 was paid and work
                 has been suspended.  Either the Company or The Regents may
                 terminate the agreement by giving thirty days written notice
                 to the other.  The quarterly installments are being
                 written-off in the period covered by the payment.  Due to the
                 dispute described previously, only $75,000 was paid and
                 expensed during 1995.  The Company terminated the agreement in
                 1996.

                 On January 20, 1995, the Company entered into a letter of
                 intent with the Yulin District Economics and Trade Development
                 Corporation in Guangxi, Peoples Republic of China ("YDETDC").
                 Pursuant to the letter of intent, the parties contemplated
                 entering into a joint venture to initially set up two mini
                 processing lines, each capable of processing one ton of
                 titanium per eight-hour shift.  Current negotiations in the
                 formation of a joint venture agreement are at a standstill and
                 the Company does not expect this project to materialize.  The
                 Company incurred legal and professional fees and other
                 expenses aggregating $329,000 related to this unsuccessful
                 project.

                 On March 8, 1995, the Company entered into a Heads of
                 Agreement with Rhone-Poulenc VSI Chemicals, a wholly owned
                 subsidiary of Rhone-Poulenc.  The letter of intent
                 contemplates entering into a joint cooperation agreement to
                 test, evaluate, sell and manufacture Ceramic Silicone Foam
                 ("CSF").  No assurances can be given that a joint cooperation
                 agreement will be entered into, the CSF can be successfully
                 sold or that the joint venture will be commercially
                 successful.  The Company does not expect this project to be
                 completed.

                 In May 1996, the Company was awarded a contract to participate
                 in the Department of Energy's Landfill Stabilization Project
                 to evaluate materials for treating existing hazardous waste at
                 the Idaho National Engineering Laboratory's Subsurface
                 Disposal Areas.  These landfill sites are composed of a
                 variety of mixed waste materials including radioactive waste.
                 Several different materials have been selected for testing and
                 Orbit was awarded a category sole source contract to test and
                 evaluate its CSF.  The contract provides for initial bench
                 testing with options that can be exercised for more extensive
                 field-testing.

                 In November 1996, the Company signed a Teaming Agreement with
                 Ecology and Environment, Inc. (International Specialists in
                 the Environment), for the sole purpose of identifying and
                 pursuing mutually agreeable business opportunities within the
                 U.S.  Departments of Energy and Defense, and other federal and
                 state government agencies and the private sector where the
                 environmental application of the CSF technology is possible.
                 Identification and pursuit of business opportunities includes
                 technology development (i.e., both system design and
                 application identification and construction), sales and client
                 development efforts, the bid/proposal process, and the
                 contract negotiation process regarding awarded projects.




                                      F-25
<PAGE>   43
                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

NOTE 13-         SUBSEQUENT EVENTS


                 Notes Payable

                 a) During the first quarter of 1997, the Company converted
                 $42,750 of principal and related accrued interest of
                 approximately $6,915 into 319,499 shares of the Company's
                 common stock.

                 b) On May 27, 1997, the Company entered into an installment
                 loan agreement with an individual shareholder to borrow
                 $300,000 payable in $100,000 installments on May 27,1997,
                 September 5, 1997 and December 3, 1997.  The installment loan
                 bears interest at 12% per annum and is due on May 27, 1997.
                 The loan agreement provides for a minimum semi-annual interest
                 payment of $6,000 commencing December 6, 1997.  The
                 installment note is collateralized by the Company's rights,
                 titles and patents, technology known as "Ceramic  Silicone
                 Foam."  As additional consideration for the $300,000 loan the
                 Company agreed to issue 300,000 shares of the Company's
                 restricted common stock to the shareholder.  The Company will
                 record the additional consideration as interest expense
                 amounting to $42,750 which is based on the fifty percent (50%)
                 of the fair market value of the common stock at May 27,1997,
                 the date of the installment loan agreement.  Furthermore, the
                 Company granted the shareholder the right to purchase 150,000
                 shares of restricted common stock at seventy-five present
                 (75%) of the fair market value for a period of 180 days
                 commencing May 27, 1997, the date of the installment
                 agreement.

                 c) On July 21, 1997, the Company borrowed $25,000 from a
                 private investor and issued a convertible promissory note that
                 matures July 21, 1998 and bears interest at 10% per annum.
                 The note principal balance and accrued interest can be
                 converted into the Company's common stock at a rate of $0.20
                 per share of debt.

                 d) From January 1, 1997, through September 30, 1997, the
                 Chairman of the company has provided funds to the company
                 amounting to approximately $83,000.  Said loans bear interest
                 of 10% percent per annum and mature one year from the date of
                 issuance.  Each loan is evidenced by a promissory note.  The
                 principal and related accrued interest can be converted into
                 common stock at a rate of $0.10 - $0.20 per share of debt.

                 Litigation

                 Benveniste, et al. vs. Lahey, et al.   On June 2, 1997,
                 Richard Benveniste and Edgar Benveniste filed suit in the
                 Delaware Court of Chancery on behalf of themselves and
                 purportedly on behalf of the Company against James B. Lahey,
                 James A.  Giansiracusa, Stephen V. Prewett, Ian C. Gent and
                 William N. Whelen.  The complaint sought a determination by
                 the Court of Chancery (I) as to who constituted the valid
                 directors of the Company in connection with a written consent
                 action initiated by the plaintiffs or, (ii) in the
                 alternative, that the Company be required to hold a annual
                 meeting of shareholders.

                 On September 2, 1997, the Court of Chancery decided to defer a
                 decision on the defendants' motion to dismiss until such time
                 as an annual meeting of the Company's shareholders was held.
                 The Court thereafter ordered that the Company hold its annual
                 meeting.  The Company is in the process of completing the
                 Court's requirements and is scheduling a meeting before the
                 end of the 1997 year.

                 Jacobs vs. Orbit.  This action was filed on June 27, 1997, in
                 the Superior Court of California, County of Los Angeles as
                 Case No. BC 173600.  The plaintiff seeks money damages
                 allegedly attributable to his inability to sell restricted
                 stock.  Management believes this action has no merit.




                                      F-26
<PAGE>   44
                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


NOTE 13-         SUBSEQUENT EVENTS (Continued)


                  Management Compensation Plan

                  On January 3, 1997, the Board of Directors instituted an
                  incentive compensation plan for the Company's key personnel.
                  The plan provides for the issuance of 100,000 shares of common
                  stock for each of the five events described as follows:

                  1.       An increase in the common stock price to $1.00 per
                           share by December 31, 1997.

                  2.       First revenue producing contract.

                  3.       A singular funding of $1,000,000 or more.

                  4.       The filing of registration statement or the reduction
                           of debt over $1,000,000 via a stock conversion or
                           other means.

                  5.       Cancellation and or the surrender of shares by former
                           officers, directors, consultants, etc. who are
                           subject to various legal action by the Company.

               If all the events are accomplished by December 31, 1997 an
additional 100,000 shares will be issued to each key personnel.





                                      F-27