<PAGE>   1
                                   FORM 10-QSB


                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549


                 (X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the Quarterly period ended September 30, 1996


                ( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d)
                               OF THE EXCHANGE ACT


                           Commission File No. 0-25548


                            ORBIT TECHNOLOGIES, INC.




         Delaware                                     841 00 1269
------------------------------            --------------------------------------
(State of Jurisdiction of                 (I. R. S. Employer Identification No.)
Incorporation or Organization)



        2011 Palomar Airport Road, Suite 100, Carlsbad, California 92009
        ----------------------------------------------------------------
                    (Address of Principal Executive Offices)



                                 (760) 930-8944
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)



Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days. Yes    No X
                                                                      ---   ---


The number of outstanding shares of the registrant's only class of common stock
as of September 30, 1996: 23,519,204.



        Transitional Small Business Disclosure Format: Yes       No X
                                                          ---      ---




<PAGE>   2

INTRODUCTION. The Company is filing this periodic report after the due date that
is prescribed by current regulations. Information presented is as of September
30, 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-QSB 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. The following summary is
qualified in its entirety by the more detailed information and the audited
financial statements, including the notes thereto, appearing elsewhere in the
Form 10-KSB for the subject year.

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS. (See accompanying Financial Report for the period
ended September 30, 1996.)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Plan of Operation

        Since its incorporation in 1985, the Company has engaged in the,
research, development, acquisition and licensing of technologies. Initially, the
Company concentrated its efforts in the areas of coating technologies and new
materials technologies. The Company is currently focused on two technologies
that may provide the greatest potential in the short term for commercialization
and to generate a revenue stream. Once commercialization has been proven, it is
the intent of the Company to define specific, discrete product lines for each
application and develop multiple market applications.

        The Company's business plan is to focus on specific technologies
discussed herein for multiple market applications and then possibly license each
to an unaffiliated entity which will engage in manufacturing, marketing, joint
venture and sub-licensing strategies with respect to each technology or
application thereof as best suits each technology. Recently, the Company has
entered into an agreement to exploit one of the technologies, although no
assurances can be given that such technology can be successfully marketed as
contemplated by such letter of intent.

        Until completion of the development of a technology and the commencement
of sales of technology, 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, 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.

Results of Operations

Nine Months Ended September 30, 1996 vs. 1995. The Company had revenues of $ -0-
for the three months ended September 30, 1996 and 1995, respectively. General
and administrative expenses decreased from $899,877 in the first nine months of
1995 to $581,202 in the first nine months of 1996 as a result of reduction in
overhead. For the three months ended September 30, 1996, general and
administrative expenses were $183,616 compared to $474,260 in the three months
ended September 30, 1995. The Company is focusing on the commercialization of
its technologies. Research and development expenses decreased in the nine months
ended September 30, 1996 to $14,602 from $368,399 in 1995 as the Company
continued to refine its technologies. Research and development expenses were
reduced significantly to $22 as compared with $112,503 for the three months
ended September 30, 1996 and 1995, respectively. Compensatory element of stock
options in the three months ended September 30, 1996 decreased to $90,000 from
$1,578,686 in 1995.

        For the nine months ending September 30, 1996 and 1995, the Company
incurred operating losses of $865,804 and $2,846,962, respectively. Such losses
were $273,638 and $2,165,449 for the three months ended September 30, 1996 and
1995, respectively. Such operating losses have decreased since the development
of the technologies, including administrative expenses and interest and the
compensatory element of stock options issued.



<PAGE>   3

        TiTRODES are being sold to Chrysler Corporation by an entity
unaffiliated with the Company (Huys Industries, Inc.) under an agreement by
which the parties would share equally net revenues derived from the sale of
TiTRODES to Chrysler Corporation. The net revenues from the sale of TiTRODES to
Chrysler Corporation have not been disbursed 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.

Liquidity and Capital Resources

        At September 30, 1996, the Company had a stockholders' deficiency and a
working capital deficit of $3,705,528 and $4,100,532, respectively. The Company
had a ratio of liabilities to tangible assets of 10 to 1 as of September 30,
1996. The Company is also in default on notes that total $2,579,410 in principal
and interest as of September 30, 1996.

        The Company will require additional financing. No assurance can be given
that additional financing 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.

        The Company is exploring additional sources of working capital including
borrowing, sales of securities, joint ventures and the 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 1996. During 1996, the Company has borrowed $228,250, of which
$207,250 was received as of September 30, 1996, in one year promissory notes
bearing interest at the rate of 10% per annum. Further, the Company is in
discussions with certain investment bankers about offerings to raise additional
capital. No assurance can be given that the Company can successfully obtain any
working capital or complete any proposed offerings or if obtained, that such
funding will not cause a dilution to shareholders of the Company.

        The Company is exploring ways to reduce its existing liabilities
including exchanging some of such liabilities with affiliates and others for
shares of its Common Stock. No assurance can be given that such efforts will be
successful.

        The Company does not expect to make any significant capital purchase in
1996, except for TiTRODE and Ceramic Silicone Foam (CSF).

        To date, the Company has funded its operations from the private sales of
Common Stock or notes (most 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.

        The Company has been awarded small R & D contracts based on initial
positive results of tests by the Idaho National Engineering Laboratory (INEL)
for use of Orbit's Ceramic Silicon Foam (CSF) material for stabilizing
radioactive calcine waste. Orbit has made additional proposals for continue
evaluation of CSF for use at INEL and believes those proposals will continue to
receive positive consideration for future contracts.

        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 private sectors 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.



<PAGE>   4

        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.

Other Matters.

        In October 1995, the Company commenced an internal audit of its books
and records to examine its debt and equity structure. In February 1996,
preliminary findings of the internal audit suggested that substantial
irregularities existed in the books, records and affairs of the company at the
direction and behest of former Directors and Officers of the company. 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 a request to surrender stock for cancellation, Adrian Joseph
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. In that action,
the Company 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 cancelled, 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.

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS. See Part II, Item 6. Exhibits and Reports on Form
        8-K.

        In the wake of the Company's demand to surrender stock to the Company
for cancellation, Mr. Joseph initiated a second action, 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 Company stock.
Alternately, Mr. Joseph sought return of consideration he allegedly provided the
Company for stock. The Company has 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, and resulted in a judgment by which 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.

        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 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.

ITEM 2. CHANGES IN SECURITIES. During November 1996 and February 1997, the
Company and certain of its debt holders agreed to convert principal of
$1,142,000 and related accrued interest of $129,000 into 6,590,595 shares of
common stock. The convertible notes were issued in reliance on the exemptions
provided by Sec. 4(2) and Regulation D and/or Regulation D of the Securities Act
of 1933. Also see Notes to Consolidated Financial Statements, Note 3.



<PAGE>   5

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

        (a)           LIST OF DOCUMENTS FILED AS PART OF THIS REPORT:

                      (1)    Financial Statements.

                      (2)    Exhibits -- See (C) below.

        (b)           REPORTS ON FORM 8-K.  None.

        (c)   EXHIBITS

        Exhibit
        Number        Exhibit

        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)

*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.



<PAGE>   6

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.

*Management Compensation Plan

(1)     Previously filed as part of the Form-10 filed in May 1995, Form 10-KSB
for 1995, Forms 10-QSB for the periods ending March 30, 1996 and June 30, 1996
which are hereby incorporated by reference.



<PAGE>   7






                                   SIGNATURES

        In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


ORBIT TECHNOLOGIES INC.
      Registrant



Date: February 26, 1998               By: /s/ JAMES B. LAHEY                 
     -----------------------             -------------------------------------
                                         James B. Lahey, Chief Executive Officer
                                         Chairman of the Board of Directors




Date: 02-27-98                        By: /s/ JAMES A. GIANSIRACUSA      
     -----------------------             -------------------------------------
                                         James A. Giansiracusa, Secretary/Chief
                                         Financial Officer



<PAGE>   8




                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES


                                FINANCIAL REPORT


                               SEPTEMBER 30, 1996



<PAGE>   9

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                              INDEX TO FORM 10-QSB
                               SEPTEMBER 30, 1996




PART I  -  FINANCIAL INFORMATION

   ITEM 1  -  FINANCIAL STATEMENTS
<TABLE>
<S>                                                                          <C>
      CONSOLIDATED BALANCE SHEETS                                          F-1
          At September 30, 1996 and December 31, 1995


      CONSOLIDATED STATEMENTS OF OPERATIONS                                F-2
          For the Nine Months Ended September 30, 1996 and 1995


      CONSOLIDATED STATEMENTS OF OPERATIONS                                F-3
          For the Three Months Ended September 30, 1996 and 1995


      CONSOLIDATED STATEMENTS OF CASH FLOWS                                F-4
          For the Nine Months Ended September 30, 1996 and 1995


      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                      F-5 - F-10
</TABLE>


   ITEM 2  -  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS


PART II - OTHER INFORMATION




<PAGE>   10

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                    (Note 2)
<TABLE>
<CAPTION>
                                                                    At                   At
                                                              Sept.30, 1996        Dec. 31, 1995
                                                              -------------        -------------
                                                               (Unaudited)
<S>                                                           <C>                  <C>          
CURRENT ASSETS
  Cash                                                        $      53,355        $       4,703
  Prepaid expenses                                                    4,391               10,353
  Advances to officer                                                 1,341                1,341
                                                              -------------        -------------
    TOTAL CURRENT ASSETS                                             59,087               16,397
PROPERTY AND EQUIPMENT - At cost, net of accumulated
  Depreciation                                                      310,334              213,887
INTANGIBLE ASSETS, Net of accumulated amortization                   79,354               83,203
OTHER ASSETS                                                          5,316                4,015
                                                              -------------        -------------
    TOTAL ASSETS                                              $     454,091        $     317,502
                                                              =============        =============

               LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES
  Accounts payable                                            $     633,957        $     533,527
  Accrued expenses                                                  746,902              288,654
  Due to stockholders                                               199,350              199,350
  Notes payable (Note 3)                                          2,579,410            2,404,524
                                                              -------------        -------------
    TOTAL CURRENT LIABILITIES                                     4,159,619            3,426,055
                                                              -------------        -------------
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Note 4)
STOCKHOLDERS' DEFICIENCY:
  Preferred stock - par value $.01 per share; 1,000,000
     shares authorized; 1,000,000 and -0- shares issued
     and outstanding as of September 30, 1996 and
     December 31, 1995, respectively                                 10,000                 --
  Common stock - par value $.01 per share; 50,000,000
     shares authorized; 20,428,637 shares issued and
     outstanding as of September 30, 1996 and
   December 31, 1995                                                204,287              204,287
Additional paid-in capital                                        8,481,737            8,291,736
Accumulated deficit                                             (12,210,618)         (11,108,832)
Unearned compensation and financing charges                        (180,000)            (478,450)
Notes receivable from stockholders                                  (10,934)             (17,294)
                                                              -------------        -------------
  TOTAL STOCKHOLDERS' DEFICIENCY                                 (3,705,528)          (3,108,553)
                                                              -------------        -------------
  TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY              $     454,091        $     317,502
                                                              =============        =============
</TABLE>


                See notes to consolidated financial statements.



                                       F-1


<PAGE>   11



                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995



<TABLE>
<CAPTION>
                                                1996                1995
                                            ------------        ------------
<S>                                         <C>                 <C>       
REVENUE                                     $         --        $         --
                                            ------------        ------------

OPERATING EXPENSES
  Research and development                        14,602             368,399
  General and administrative                     581,202             899,877
  Compensatory element of stock
    options                                      270,000           1,578,686
                                            ------------        ------------

      TOTAL OPERATING EXPENSES                   865,804           2,846,962
                                            ------------        ------------

OPERATING LOSS                                  (865,804)         (2,846,962)
                                            ------------        ------------

OTHER INCOME (EXPENSE)
  Other income                                        --               1,200
  Financing costs                                (28,450)           (168,820)
  Interest expense                              (207,532)           (105,822)
                                            ------------        ------------

      TOTAL OTHER EXPENSE                       (235,982)           (273,442)
                                            ------------        ------------

NET LOSS                                    $ (1,101,786)       $ (3,120,404)
                                            ============        ============

PER SHARE DATA:

NET LOSS PER COMMON SHARE                   $       (.04)       $       (.17)
                                            ============        ============

WEIGHTED AVERAGE NUMBER OF COMMON
  SHARES AND COMMON STOCK EQUIVALENTS
  OUTSTANDING                                 25,799,309          18,865,664
                                            ============        ============
</TABLE>



                See notes to consolidated financial statements.

                                       F-2


<PAGE>   12

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995


<TABLE>
<CAPTION>
                                                1996                1995
                                            ------------        ------------
<S>                                         <C>                 <C>       
REVENUE                                     $         --        $         --
                                            ------------        ------------

OPERATING EXPENSES
  Research and development                            22             112,503
  General and administrative                     183,616             474,260
  Compensatory element of stock
    options                                       90,000           1,578,686
                                            ------------        ------------

      TOTAL OPERATING EXPENSES                   273,638           2,165,449
                                            ------------        ------------

OPERATING LOSS                                  (273,638)         (2,165,449)
                                            ------------        ------------

OTHER INCOME (EXPENSE)
  Other income                                        --                 150
  Financing costs                                     --             (64,560)
  Interest expense                               (74,141)            (49,947)
                                            ------------        ------------

      TOTAL OTHER EXPENSE                        (74,141)           (114,357)
                                            ------------        ------------

NET LOSS                                    $   (347,779)       $ (2,279,806)
                                            ============        ============

PER SHARE DATA:

NET LOSS PER COMMON SHARE                   $       (.01)       $       (.12)
                                            ============        ============

WEIGHTED AVERAGE NUMBER OF COMMON
  SHARES AND COMMON STOCK EQUIVALENTS
  OUTSTANDING                                 25,799,309          18,996,869
                                            ============        ============
</TABLE>



                See notes to consolidated financial statements.



                                       F-3


<PAGE>   13

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995



<TABLE>
<CAPTION>
                                                          1996               1995
                                                      -----------        -----------
<S>                                                   <C>                <C>         
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                            $(1,101,786)       $(3,120,404)
  Adjustments to reconcile net loss to net cash
    Used in operating activities:
      Depreciation and amortization                        12,723             12,792
      Amortization of deferred finance costs               28,450            168,820
      Compensatory element of stock options               270,000          1,578,686
      Accrued interest                                    164,483            105,719
                                                      -----------        -----------
        Sub-total                                        (626,130)        (1,254,387)
    Cash Provided By (Used In) the Change in
      Assets and liabilities:
        Decrease (increase) in prepaid expenses             5,962            (12,613)
        Increase in other assets                           (1,301)              --
        Increase in accounts payable                      100,430            265,583
        Increase (decrease) in accrued expenses           293,765            (52,599)
        Decrease in due to shareholders                      --              (17,350)
                                                      -----------        -----------
          NET CASH USED IN OPERATING ACTIVITIES          (227,274)        (1,071,366)
                                                      -----------        -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures                                   (105,320)          (125,684)
  Cost of patents                                            --              (42,052)
                                                      -----------        -----------
          NET CASH USED IN INVESTING ACTIVITIES          (105,320)          (167,736)
                                                      -----------        -----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Loan repayments                                         (32,364)              --
  Loan proceeds                                           407,250          1,590,000
  Repayment of notes receivable from
    stockholders                                            6,360               --
  Deferred financing costs                                   --             (131,692)
                                                      -----------        -----------
          NET CASH PROVIDED BY FINANCING
            ACTIVITIES                                    381,246          1,458,308
                                                      -----------        -----------
INCREASE IN CASH                                           48,652            219,206
CASH - BEGINNING                                            4,703             13,864
                                                      -----------        -----------
CASH - ENDING                                         $    53,355        $   233,070
                                                      ===========        ===========
</TABLE>



                See notes to consolidated financial statements.



                                       F-4


<PAGE>   14

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 1996



NOTE  1 -    BASIS OF PRESENTATION

             The accompanying unaudited consolidated financial statements have
             been prepared in accordance with generally accepted accounting
             principles for interim financial information and with the
             instructions in Item 310 of Regulation S-B. Accordingly, they do
             not include all the information and footnotes required by generally
             accepted accounting principles for complete financial statements.

             In the opinion of Company management, the accompanying unaudited
             consolidated financial statements and related notes included
             thereto contain all adjustments (consisting solely of normal
             recurring adjustments) necessary to present fairly its financial
             position as of September 30, 1996, the results of its operations
             for the nine months and three months ended September 30, 1996 and
             1995 and its cash flows for the nine months ended September 30,
             1996 and 1995.

NOTE  2 -    GOING CONCERN

             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, 1995, the Company incurred
             a net loss of $4,147,782 and, as of that date, had a stockholders'
             deficiency and a working capital deficiency of $3,108,553 and
             $3,409,658, respectively. The Company had a net loss of $1,101,786
             for the nine months ended September 30, 1996. The Company is also
             in default on a significant number of loan agreements which total
             approximately $1,475,000 in principal and interest as of December
             31, 1995 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
             1996 and 1997. During 1996, the Company's proceeds from all
             financing activities amounted to $428,250, of which $407,250 was
             received as of September 30, 1996.



                                       F-5


<PAGE>   15

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 1996



NOTE  2 -    GOING CONCERN (Continued)

             The Company is exploring ways to reduce its existing liabilities
             including exchanging certain of its liabilities for shares of its
             common stock. During the fourth quarter of 1996, the Company
             exchanged $965,000 of principal on various promissory notes
             outstanding at December 31, 1995 for shares of common stock.

             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,
             1995, has filed a lawsuit against the Company to recover loans and
             other monies provided to the Company (see Note 4).

             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 3 -     CAPITALIZATION

             Borrowings Under Convertible Notes Payable

             During 1996, the Company has borrowed $228,250, of which $207,250
             was received as of September 30, 1996, 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 the Registration Statement under the Securities
             Act of 1933. The remaining $151,000 of the notes and related
             accrued interest are convertible into common stock at prices
             ranging from $0.10 - $0.22 per share of debt.

             Issuance of Preferred Stock

             During the first quarter of 1996, the Company borrowed $200,000
             pursuant to a one year promissory note which was satisfied by
             issuance of 1,000,000 shares of preferred stock. Such stock is
             automatically convertible into 2,000,000 shares of common stock on
             or prior to the due date of the note. The board of directors issued
             a resolution granting each share of preferred stock three votes and
             assigned such voting rights to one of the Company's officers.



                                       F-6


<PAGE>   16

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 1996



NOTE 3 -     CAPITALIZATION (Continued)

             Conversion of Debt to Equity

             During November of 1996 and February 1997, The Company and certain
             of its debt holders agreed to convert principal of $1,142,000 and
             related accrued interest of $129,000 into 6,590,595 shares of
             common stock. Of such principal to be converted, 965,000 was
             outstanding as of December 31, 1995.

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

NOTE  4 -    COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

             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 oral 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 oral 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 oral agreement.

             b)   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,



                                      F-7


<PAGE>   17

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 1996



NOTE  4 -    COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)

                  subject to the internal audit and request to surrender stock
                  for cancellation, Adrian 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 cancelled, 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.

             c)   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. 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.


             d)   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.



                                       F-8


<PAGE>   18

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 1996



NOTE  4 -    COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)

             e)   Joseph v. Orbit Technologies, Inc. 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
                  their stock and to recover millions of dollars earned by said
                  individuals from the sale of Orbit stock. If Orbit is
                  unsuccessful, and the disputed stock is validated, the Company
                  counsel believes that it should not result in any monetary
                  award against Orbit. An adverse outcome merely affects the
                  debt/equity structure of the Company. The Company intends to
                  vigorously pursue this action.

             f)   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 malpractice action has been filed as a cross-complaint in
                  the case of Joseph v. Orbit Technologies, Inc. Whether it will
                  remain a claim in that action or will be sent back to the
                  arbitrator is an issue currently pending before the court. The
                  Company has retained a law firm to handle the legal
                  malpractice claims on a contingency basis.

             g)   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 1991 aggregating $197,000.



                                       F-9


<PAGE>   19

                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 1996



NOTE  4 -    COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)

                  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 1991 loans of $197,000 is not reflected on the Company's
                  books.

                  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, 1995. The Company's records reflect that
                  the debt related to the 1991 loans of $191,000 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.

                  Management has attempted to restructure these loan agreements
                  and has been unsuccessful to date.



                                      F-10