<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 March 31, 1997


                ( ) 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 March 31, 1997: 20,303,028.



        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 March 31,
1997, 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.

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS. (See accompanying Financial Report for the period
ended March 31, 1997.)

ITEM 2. 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.

        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.

        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 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 in the next twelve months.

        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 1997. 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, and that such funding will not
cause a dilution to shareholders of the Company.

        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.

        The Company is examining 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.



<PAGE>   3

        The Company does not expect to make any significant capital purchase in
1997, except for TiTRODE and Ceramic Silicone Foam (CSF).

        The Company has been awarded small research and development 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, 1997, 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 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.

        In November 1997, 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.

        In March 11, 1998, as a result of the success in the testing and
evaluating of CSF under a contract award from a Lockheed Martin contract, a
paper was presented at a conference in Tucson, Arizona, entitled Waste
Management 98.

Other Matters.

        None.

                           PART II - OTHER INFORMATION

ITEM 1 . LEGAL PROCEEDINGS.  No change.

ITEM 2.  CHANGES IN SECURITIES. No change.

ITEM 3.  DEFAULTS ON SENIOR SECURITIES.  None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.  None.

ITEM 5.  OTHER INFORMATION.  None



<PAGE>   4

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.

                   (3)(i)  Articles of Incorporation (1)

                   (3)(ii) By-laws. (1)

                   (10)    Material contracts. (1)(2)

                   (15)    Letter on unaudited interim financial information.(3)

(1) Previously filed as part of the Form 10 filed in May 1995 and which is
    hereby incorporated by reference. 

(2) Previously filed as part of the Form 10-KSB for 1996 and which is hereby
    incorporated by reference. 

(3) See Orbit Technologies Inc. and Subsidiaries Financial Report for the period
    ended March 31, 1997.



<PAGE>   5



                                   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: April 1, 1998                  By: /S/ JAMES B. LAHEY
                                         _________________________________
                                         James B. Lahey, Chief Executive Officer
                                         Chairman of the Board of Directors




Date: April 1, 1998                  By: /S/ JAMES A. GIANSIRACUSA
                                         ________________________________
                                         James A. Giansiracusa, Secretary/Chief
                                         Financial Officer



<PAGE>   6











                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES


                                FINANCIAL REPORT


                                 MARCH 31, 1997













<PAGE>   7



                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                              INDEX TO FORM 10-QSB
                                 MARCH 31, 1997



PART I  -  FINANCIAL INFORMATION

   ITEM 1  -  FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                <C>
      CONSOLIDATED BALANCE SHEETS                                                      F-1
          At March 31, 1997 and December 31, 1996


      CONSOLIDATED STATEMENTS OF OPERATIONS                                            F-2
          For the Three Months Ended March 31, 1997 and 1996


      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY                              F-3
          For the Three Months Ended March 31, 1997 and 1996


      CONSOLIDATED STATEMENTS OF CASH FLOWS                                            F-4
          For the Three Months Ended March 31, 1997 and 1996


      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                   F-5 - F-11


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

</TABLE>

PART II - OTHER INFORMATION


<PAGE>   8







                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                                     ASSETS

<TABLE>
<CAPTION>
                                                                    At                  At
                                                              March 31, 1997       Dec. 31, 1996
                                                              --------------       -------------
                                                                (Unaudited)
<S>                                                             <C>                <C>         
CURRENT ASSETS:
  Cash                                                          $      2,357       $        188
  Prepaid expenses                                                      --               10,353
  Advances to officer                                                   --                1,341
                                                                ------------       ------------
    TOTAL CURRENT ASSETS                                               2,357             11,882

PROPERTY AND EQUIPMENT - At cost, net of accumulated

  Depreciation                                                       247,113            250,829

INTANGIBLE ASSETS, Net of accumulated amortization                    76,788             78,071

OTHER ASSETS                                                           4,015              4,015
                                                                ------------       ------------
    TOTAL ASSETS                                                $    330,273       $    344,797
                                                                ============       ============


<CAPTION>

                    LIABILITIES AND STOCKHOLDERS' DEFICIEN CY


CURRENT LIABILITIES:
<S>                                                            <C>                 <C>         
  Accounts payable and accrued liabilities                     $  1,556,547        $  1,429,395
  Due to stockholders                                               200,466             200,466
  Notes payable                                                   1,586,582           1,552,902
                                                               ------------        ------------

    TOTAL CURRENT LIABILITIES                                     3,343,595           3,182,763

LONG-TERM NOTE PAYABLE                                              250,000             250,000

    TOTAL LIABILITIES                                             3,593,595           3,432,763
                                                               ------------        ------------

CONTINGENCIES AND OTHER MATTERS (Notes 1, 2 and 3)

STOCKHOLDERS' DEFICIENCY:
  Preferred stock - par value $.01 per share; issued and
    outstanding - none                                                 --                  --
  Common stock - par value $.01 per share; 50,000,000
    shares authorized; 31,638,173 and 31,405,904 shares
 issued and outstanding as of March 31, 1997
 and December 31, 1996, respectively                                316,382             314,060
  Additional paid-in capital                                      9,862,953           9,835,247
  Accumulated deficit                                           (13,431,723)        (13,136,339)
  Unearned compensation and financing charges                          --               (90,000)
  Notes receivable from stockholders                                (10,934)            (10,934)
                                                               ------------        ------------

    TOTAL STOCKHOLDERS' DEFICIENCY                               (3,263,322)         (3,087,966)
                                                               ------------        ------------

    TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                  330,273        $    344,797
                                                               ============        ============
</TABLE>



See notes to consolidated financial statements.



                                       F-1


<PAGE>   9



                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
               FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996



<TABLE>
<CAPTION>
                                                 1997                1996
                                            ------------        ------------

<S>                                         <C>                 <C>       
REVENUE                                     $       --          $       --
                                            ------------        ------------

OPERATING EXPENSES
  Research and development                         6,841              12,209
  General and administrative                     158,430             225,056
  Compensatory element of stock
    options                                       90,000              90,000
                                            ------------        ------------

      TOTAL OPERATING EXPENSES                   255,271             327,265
                                            ------------        ------------

OPERATING LOSS                                  (255,271)           (327,265)
                                            ------------        ------------

OTHER EXPENSES
  Interest expense                                40,113              92,560
                                            ------------        ------------

      TOTAL OTHER EXPENSES                       (40,113)            (92,560)
                                            ------------        ------------

NET LOSS                                    $   (295,384)       $   (419,825)
                                            ============        ============

PER SHARE DATA:

NET LOSS PER COMMON SHARE                   $       (.01)       $       (.02)
                                            ============        ============


WEIGHTED AVERAGE NUMBER OF COMMON
  SHARES AND COMMON STOCK EQUIVALENTS
  OUTSTANDING                                 31,530,853          25,799,309
                                            ============        ============
</TABLE>



See notes to consolidated financial statements.



                                       F-2

<PAGE>   10



                           ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                                         (UNAUDITED)
                          FOR THE THREE MONTHS ENDED MARCH 31, 1997



<TABLE>
<CAPTION>
                                                                                         Additional     
                               Preferred Stock                   Common Stock              Paid-in      
                            Shares          Amount          Shares          Amount         Capital      
                         ------------    ------------    ------------    ------------    ------------   
<S>                              <C>     <C>               <C>           <C>             <C>
Balances at
 December 31, 1996                 --    $         --      31,405,904    $    314,060    $  9,835,247   

Issuance of stock
 for conversion of
  notes payable                    --              --         232,269           2,322          27,706   

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

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

Balances at
March 31, 1997                     --    $         --      31,638,173    $    316,382    $  9,862,953   
                         ============    ============    ============    ============    ============   
</TABLE>




<TABLE>
<CAPTION>
                                             Unearned               Notes
                                             Compensation      Receivable
                            Accumulated       and Finance         from
                              Deficit          Charges        Stockholders        Total
                            ------------     ------------     ------------     ------------
<S>                         <C>              <C>              <C>              <C>          
Balances at
 December 31, 1996          $(13,136,339)    $    (90,000)    $    (10,934)    $ (3,087,966)

Issuance of stock
 for conversion of
  notes payable                       --               --               --           30,028

Amortization of
unearned compensation                 --          (90,000)              --          (90,000)

Net loss                        (295,384)              --               --         (295,384)
                            ------------     ------------     ------------     ------------

Balances at
March 31, 1997              $(13,431,723)    $         --     $    (10,934)    $ (3,263,322)
                            ============     ============     ============     ============
</TABLE>



                      See notes to consolidated financial statements



                                       F-3


<PAGE>   11



                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
               FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996



<TABLE>
<CAPTION>
                                                                 1997             1996
                                                              ---------        ---------
<S>                                                           <C>              <C>       
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                    $(295,384)       $(419,825)
  Adjustments to reconcile net loss to net cash
    provided by (used for) operating activities:
      Depreciation and amortization                               4,999            4,000
      Amortization of unearned finance costs                         --           28,450
      Compensatory element of stock options                      90,000           90,000
      Cash provided by (used for) the change in
        assets and liabilities:

            Decrease (increase) in prepaid expenses              10,353               -- 
            (Increase) decrease in advances to officer            1,341               -- 
            Increase in accounts payable and
                accrued liabilities                             129,860          223,962
                                                              ---------        ---------

              NET CASH USED IN OPERATING ACTIVITIES             (58,831)         (73,413)
                                                              ---------        ---------

CASH USED FOR INVESTING ACTIVITIES
   Capital expenditures                                              --          (64,084)
                                                              ---------        ---------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from notes payable                                    61,000          189,750
  Repayment of notes payable                                         --          (27,561)
                                                              ---------        ---------

          NET CASH PROVIDED BY FINANCING ACTIVITIES              61,000          162,189
                                                              ---------        ---------
INCREASE IN CASH                                                  2,169           24,692

CASH - BEGINNING                                                    188            4,703
                                                              ---------        ---------

CASH - ENDING                                                 $   2,357        $  29,395
                                                              =========        =========

SUPPLEMENTAL DISCLOSURES:
 Cash paid during the period for:

    Interest                                                         --        $   5,501
                                                              =========        =========
    Income taxes                                              $      --               --

SCHEDULE OF NON-CASH INVESTING AND FINANCING
   ACTIVITIES:
     Issuance of 232,269 shares of common stock for
       conversion of notes payable and accrued interest       $  30,028               --
                                                              =========        =========

    Issuance of 2,000,000 shares of common stock
       for conversion of notes payable                        $      --        $ 200,000
                                                              =========        =========
</TABLE>



See notes to consolidated financial statements



                                       F-4


<PAGE>   12



                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
               FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996


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
               3.a).

               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 three months ended March 31, 1997 and for the
               year ended December 31, 1996, the Company incurred net losses of
               approximately $295,000 and $2,028,000, respectively, and, as of
               March 31, 1997, had a stockholders' deficiency and a working
               capital deficiency of approximately $3,263,000 and $3,341,000,
               respectively. The Company is also in default on a significant
               number of loan agreements which total approximately $1,509,000 in
               principal and interest as of March 31, 1997 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. From January 1 through December 31, 1997, the Company's
               proceeds from all financing activities amounted to approximately
               $408,000 (see Notes 2 and 4).



                                       F-5


<PAGE>   13



                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
               FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996


NOTE  1 -    BUSINESS AND CONTINUED OPERATIONS (Continued)

             The Company is exploring ways to reduce its existing liabilities
             including exchanging certain of its liabilities for shares of its
             common stock. From January 1 through April 15, 1997, the Company
             exchanged $42,250 of principal on various promissory notes
             outstanding at December 31, 1996 for shares of common stock (see
             Notes 2 and 4).

             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 March 31, 1997,
             has filed a lawsuit against the Company to recover loans and other
             monies provided to the Company (see Note 3).

             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.

             The accompanying unaudited financial statements have been prepared
             in accordance with generally accepted accounting principles for
             interim financial information and with instructions to Form 10-QSB.
             Accordingly, they do not include all of the information and
             footnotes required by generally accepted accounting principles for
             complete financial statements. In the opinion of management, the
             interim financial statements include all adjustments necessary in
             order to make the financial statements not misleading. The results
             of operations for the three months ended are not necessarily
             indicative of the results to be expected for the full year. For
             further information, refer to the Company's audited financial
             statements and footnotes thereto at December 31, 1996, included in
             the Company's Form 10-KSB, filed with the Securities and Exchange
             Commission.

NOTE 2 -     CAPITALIZATION

             Conversion of Debt to Equity

             For the three months ended March 31, 1997 and for the year ended
             December 31, 1996, the Company converted $27,250 and $950,000,
             respectively, of principal, and related accrued interest amounting
             to $2,779 and $114,783, respectively, into 232,269 and 4,861,091
             shares, respectively, of common stock. The Company is in default
             under the remaining note agreements.



                                       F-6


<PAGE>   14



                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
               FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996



NOTE 2 -     CAPITALIZATION (Continued)

             Borrowings Under Convertible Notes Payable

             For the three months ended March 31, 1997 and for the year ended
             December 31,1996 the Company borrowed $61,000 and $51,000,
             respectively, 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 $112,000
             principal balance outstanding at March 31, 1997 $30,000 is
             convertible at $0.10 per share and the remaining notes principal
             balance are convertible at $0.22 per share.

NOTE 3 -     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
                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.



                                       F-7


<PAGE>   15



                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
               FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996



NOTE 3 -     CONTINGENCIES AND OTHER MATTERS (Continued)

             c) 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.

                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 March 31, 1997 and 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.

             d) 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.



                                      F- 8


<PAGE>   16



                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
               FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996



NOTE 3 -     CONTINGENCIES AND OTHER MATTERS (Continued)

                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.

             e) 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.

             f) 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.

                Management contends that all of the debt and related fees and
                shares of common stock are properly reflected on Orbit's books
                as of March 31, 1997 and 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.



                                       F-9


<PAGE>   17



                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
               FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996


NOTE 3 -     CONTINGENCIES AND OTHER MATTERS (Continued)

                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 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 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 4-      SUBSEQUENT EVENTS

             Notes Payable

             a) During the second quarter of 1997, the Company converted $15,000
                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, 1999. 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 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.



                                      F-10


<PAGE>   18



                    ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
               FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996



NOTE 4-      SUBSEQUENT EVENTS (Continued)

             c) 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 collateralized by the
                Company's equipment, rights, titles and patents pertaining to
                the "TiTRODE/Metafuse" technology.

                The Company defaulted on its initial semi-annual interest
                payment that was due on June 27, 1997.

             d) 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.

             e) From April 1, 1997, through September 30, 1997, the Chairman of
                the company has provided funds to the company amounting to
                approximately $15,800. 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-11