<PAGE>
 
                                 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, 1999


              [_]  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 
    Incorporation or Organization)                      Identification No.)


           5950 La Place Court, Suite 140, Carlsbad, California 92008
           ----------------------------------------------------------
                    (Address of Principal Executive Offices)


                                 (760) 918-9168
--------------------------------------------------------------------------------
                (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, 1999: 32,257,261.


     Transitional Small Business Disclosure Format: Yes [_]  No  [X]
<PAGE>
 
                         PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS.  (See accompanying Financial Report for the
period ended March 31, 1999.)

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

Forward Looking Statements
--------------------------

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 as a result of certain factors,
including those set forth under "Risk Factors" in Exhibit 99 and elsewhere in
this Form 10-QSB.

Plan of Operation
-----------------

Since 1996, the Company has focused on the development and use of its
polydimethalsiloxane-based Polymer Encapsulation Technology (PET) as a method
for stabilizing and encapsulating various radioactive and toxic waste materials
leading to a final waste form for disposal.

Significant progress has been attained as evidenced by the success achieved on
test and evaluation contracts completed for Lockheed Martin Idaho Technologies
Company (LMITCO) in conjunction with the U. S. Department of Energy, Idaho
Operations Office, at their Idaho Falls waste site.  The Company's business plan
and near term strategy will focus the Company's human resources and funding on
developing the Polymer Encapsulation Technology (PET) as a modern technology
solution to various radioactive and toxic waste materials identified for
environmentally safe disposal.

As a next step in product acceptance, Lockheed Martin Idaho Technologies Company
and Orbit, together with input from the Microscale Physiochemical Laboratory at
the University of Akron and Ecology and Environmental, Inc. (Orbit's Teaming
Partner) have recently completed the Scope of Work that will lead to a follow-on
calcine evaluation contract utilizing Orbit's PET as a potential transportation
medium in addition to a stabilization and encapsulation material. The
elastomeric properties and material characteristics provided by PET are of
particular benefit in eliminating the potential risk that would occur in the
transportation of the waste from one site to another for long term storage or
disposal.  It is estimated that this evaluation phase will be completed in late
1999.

After product performance evaluations are successfully completed for stabilizing
and encapsulating the waste, a pilot plant evaluation is normally conducted.
The pilot plant demonstrates actual processing methods and applications
incorporating both PET and selected waste materials.

Building on the successes achieved under the Lockheed Martin contracts, the
marketing strategy is to build a substantial government and private sector
business in which Orbit's system will be used in the containment of various
radioactive and heavy metal wastes. Work has begun with initial contacts being
made with industry leaders in the waste management and waste remediation sectors
and potential end-users of the technology.  Ultimately, the Company plans to
develop strategic relationships with prime contractors throughout the waste
management industry.

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

Background

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

                                       2
<PAGE>
 
The results of preliminary testing and analysis in Idaho was the development of
a "White Paper" which recommended a much more extensive evaluation of Orbit's
CSF be conducted to evaluate its use for Calcine Waste Stabilization at the
Idaho facility.  Calcine waste is specific to the Idaho facility and there are
about 13,000,000 pounds of material to be processed.  Part of this study
actually produced three non-radioactive samples that produced acceptable
results. A conceptual process design was also performed as well as initial cost
estimates generated.  This study has had wide distribution within the Department
of Energy (DOE).

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

In May 1997, the Company was awarded a contract by Lockheed Martin Idaho
Technologies Company (LMITCO) to test and evaluate Orbit's material as a
stabilizing media for sodium and nitrate salts, which included 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. Conclusions from a report published in November 1997 by
Lockheed Martin indicated that Orbit's material appears to be suitable for he
stabilization of DOE complex salt wastes.  The final waste form passed the TCLP
protocol and DOT oxidizer tests.

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.  The proposal received wide dissemination within the
U.S. Department of Energy.

In March 1998, the Company was awarded a contract by Lockheed Martin Idaho
Technologies Company to evaluate encapsulation of both surrogate and actual WERF
(Waste Experimental Reduction Facility) low level waste with its Polymer
Encapsulation Technology (PET).

In July 1998, the Statement of Work was modified and redirected the Company to
focus on a low level calcine material.  These new tests included mixing studies
and enhanced treatment methodologies. Test reports by Lockheed Martin indicated
that encapsulation of the low-level mixed waste fraction from INTEC calcined
waste has potential as an encapsulating media for final disposal and the report
recommended exploration of further treatment formulations.

In August 1998, a paper detailing the Company's mixed waste encapsulation
technology, entitled "Encapsulation of Nitrate Salt Waste Using Polysiloxane,"
was selected for presentation at the 216th Annual American Chemical Society
National Meeting. The paper examined the use of a new waste management solution
to encapsulate the U.S. Department of Energy's approximately 250 million-kg of
dry nitrate salt waste which is laden with heavy metals and radioactive
isotopes.

In October 1998, the Company filed a new patent application for its Polymer
Encapsulation Technology (PET).  The new patent was the result of rigorous test
and evaluation over the last year and included the results of enhanced
formulations and improved process applications. The Company's system involves a
method for stabilizing granular salts generated by solidifying neutralized
acidic solutions used to recover and reformulate weapons material.

In the last six months the Company has included new surfactant additives, or
binding agents, that enable the system to encapsulate and stabilize waste
material which may include soluble chromium compounds, sodium nitrate, potassium
nitrate, plutonium 238 and 239, uranium 238, and other harmful contaminants.

Orbit's encapsulation system is designed to form a cohesive material suitable
for transportation and final disposal, featuring a low leaching index as well as
the ability to perform at increased waste loading factors. The system has been
developed for 

                                       3
<PAGE>
 
the treatment of waste material to prevent environmental damage, because certain
wastes that cannot be easily or economically rendered environmentally harmless
still pose significant disposal problems.

In October 1998, Orbit's new and recently patented Polymer Encapsulation
technology (PET) was selected for presentation at the 19th U. S. Department of
Energy Low-Level Radioactive Waste Management Conference. The goal of the
conference was to provide an opportunity for information exchange between
representatives of the commercial and defense related low-level radioactive
waste management communities.

Other Matters.
--------------

     None.


                                 PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS. Howdy Kabrins v. Orbit Technologies, Inc.  This
                            ----------------------------------------       
action was filed on September 4, 1998 in the Superior Court of California, For
the County of San Diego, North County Branch, Case No. N0 79127.  Plaintiff
sought payment pursuant to a Convertible Promissory Note upon which the
defendant has not paid. The action has been settled by the plaintiff agreeing to
convert half of the outstanding balance of the debt, approximately $68,281, into
stock at a conversion price of $0.25 per share and Orbit has agreed to accept a
10% Note for the remainder of the debt.

ITEM 2.  CHANGES IN SECURITIES. No change.

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

     (10)      Material contracts. /(1)/
 
     (11)      Computation of per share earnings. /(2)/

     (15)      Letter on unaudited interim financial information. /(2)/

     (18)      Letter on change in accounting principles. /(2)/

     (27)      Financial Data Schedule. /(2)/

     (99)      Risk Factors. /(1)/

(1) Previously filed as part of the Form 10-KSB for 1998 and which is hereby
    incorporated by reference.

(2) See Orbit Technologies Inc. and Subsidiaries Financial Report for the period
    ended March 31, 1999.

                                       4
<PAGE>
 
                                 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: May 19, 1999                 By: /s/ James B. Lahey
     ______________________            _______________________________________
                                       James B. Lahey, Chief Executive Officer
                                       Chairman of the Board of Directors


Date: May 19, 1999                 By: /s/ James A. Giansiracusa
     ______________________            _______________________________________
                                       James A. Giansiracusa, Secretary/Chief
                                       Financial Officer

                                       5
<PAGE>
 
                   ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
                   ----------------------------------------


                               FINANCIAL REPORT
                               ----------------


                                MARCH 31, 1999
                                --------------

                                       6
<PAGE>
 
                   ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
 
                             INDEX TO FORM 10-QSB

                                MARCH 31, 1999


 
PART I  -  FINANCIAL INFORMATION
 
  ITEM 1  -  FINANCIAL STATEMENTS
 
    CONSOLIDATED BALANCE SHEETS                                 F-1
      At March 31, 1999 and December 31, 1998            
                                                         
                                                         
    CONSOLIDATED STATEMENTS OF OPERATIONS                       F-2
      For the Three Months Ended March 31, 1998 and 1999       
                                                         
                                                         
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY         F-3
      For the Three Months Ended March 31, 1998 and 1999       
                                                         
                                                         
    CONSOLIDATED STATEMENTS OF CASH FLOWS                       F-4
      For the Three Months Ended March 31, 1998 and 1999       
                                                         
                                                         
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS               F-5 - F-10

 
  ITEM 2  -  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
PART II - OTHER INFORMATION

                                       7
<PAGE>
 
                   ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS




<TABLE>
<CAPTION>
                                            ASSETS
                                            ------
--------------------------------------------------------------------------------------------------------------
                                                                               At                   At
                                                                       December 31, 1998      March 31,1999
                                                                       ------------------   ------------------
                                                                                               (Unaudited)
--------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                  <C>
CURRENT ASSETS:
  Cash
                                                                        $ 20,367            $ 25,964
PROPERTY AND EQUIPMENT - At cost, net of accumulated
   depreciation and allowance against equipment expenditures              39,735              34,768
 
INTANGIBLE ASSETS, Net of accumulated amortization                        67,809              66,526
 
OTHER ASSETS                                                               4,800               5,300
                                                                        --------            --------
     TOTAL ASSETS                                                       $132,711            $132,558
                                                                        ========            ========
--------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> 
                                LIABILITIES AND STOCKHOLDERS' DEFICIENCY
                                ----------------------------------------
--------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>              <C>
CURRENT LIABILITIES:                                                                  
  Accounts payable and accrued liabilities                             $  1,977,161     $  2,049,074
  Notes payable                                                           1,632,591        1,607,591
                                                                       ------------     ------------
    TOTAL CURRENT LIABILITIES                                             3,609,752        3,656,665
                                                                       ------------     ------------ 
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS                                            
   (Notes 1, 2 and 3)                                                                   
                                                                                        
STOCKHOLDERS' DEFICIENCY:                                                               
  Preferred stock - par value $.01 per share; shares authorized -                       
    1,000,000; shares issued and outstanding - none                               -                -
  Common stock - par value $.01 per share; shares authorized -                                 
    50,000,000;  shares issued and outstanding - 32,484,716 and                         
    32,878,619 as of December 31, 1998 and March 31, 1999,                              
    respectively                                                            324,848          328,786
  Additional paid-in capital                                             11,093,727       11,279,025
  Accumulated deficit                                                   (14,895,616)     (15,131,918)
                                                                       ------------     ------------
    TOTAL STOCKHOLDERS' DEFICIENCY                                       (3,477,041)      (3,524,107)
                                                                       ------------     ------------
    TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                     $    132,711     $    132,558
                                                                       ============     ============
--------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.

                                      F-1
<PAGE>
 
                   ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                Three Months Ended March 31,
                                               ------------------------------
                                                    1998               1999
                                                  --------           --------
-----------------------------------------------------------------------------
<S>                                            <C>                <C>
                                               
REVENUE                                        $         -        $         -
                                               -----------        -----------
                                                                             
COSTS AND EXPENSES                                                           
  Research and development                           2,100                  - 
  General and administrative                       164,853            100,333 
  Amortization of financing costs                    5,344                  - 
  Debt conversion expense                                -             95,593 
  Interest expense                                  60,976             40,376 
                                               -----------        ----------- 
      TOTAL COSTS AND EXPENSES                     233,273            236,302 
NET LOSS                                       -----------        ----------- 
PER SHARE DATA:                                $  (233,273)       $  (236,302) 
--------------                                 ===========        =========== 
                                                                              
BASIC AND DILUTED LOSS PER SHARE               $      (.01)       $      (.01)
                                               ===========        =========== 
WEIGHTED AVERAGE COMMON SHARES USED IN BASIC    
   AND DILUTED LOSS PER SHARE                   27,419,304         32,724,552
                                               ===========        =========== 
-----------------------------------------------------------------------------
</TABLE>



See notes to consolidated financial statements.

                                      F-2
<PAGE>
 
                   ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                                  (UNAUDITED)

                   FOR THE THREE MONTHS ENDED MARCH 31, 1999

<TABLE>
<CAPTION>
                                           
                                                  Common Stock        Additional    
                                            -----------------------     Paid-in       Accumulated 
                                               Shares       Amount      Capital         Deficit         Total 
                                            ---------------------------------------------------------------------
<S>                                         <C>            <C>         <C>           <C>              <C> 
Balances at December 31, 1998               32,484,716     $324,848    $11,093,727   $ (14,895,616)   $(3,477,041)
                                                                                                       
Issuance of stock for conversion of notes                                                              
  payable and accrued interest                 393,903        3,938         89,705               -         93,643
Debt conversion expense                              -            -         95,593               -         95,593
Net loss                                             -            -              -        (236,302)      (236,302)
                                            ----------     --------    -----------    ------------    -----------    
Balances at March 31, 1999                  32,878,619     $328,786    $11,279,025    $(15,131,918)   $(3,524,107)
                                            ==========     ========    ===========    ============    ===========
</TABLE>



See notes to consolidated financial statements.

                                      F-3
<PAGE>
 
                   ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                          Three Months Ended March 31,
                                                                          ----------------------------
                                                                              1998            1999
------------------------------------------------------------------------------------------------------ 
<S>                                                                       <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES                                                     
  Net loss                                                                $(233,273)        $(236,302)
  Adjustments to reconcile net loss to net cash used in operating                                    
     activities:                                                                                     
          Depreciation and amortization                                       2,656             6,250
          Amortization of unearned and deferred finance costs                 5,344                 -
          Debt conversion expense                                                 -            95,593
          Issuance of stock for services                                        586                 -
                                                                                                     
      Cash provided by (used for) the change in assets and liabilities:                              
           Decrease in other assets                                               -              (500)
           Increase in accounts payable and accrued liabilities             115,602            90,556
                                                                          ---------         ---------
           NET CASH USED IN OPERATING ACTIVITIES                           (109,085)          (44,403)
                                                                          ---------         ---------
CASH USED IN INVESTING ACTIVITIES 
   Capital expenditures                                                           -                 -                           
                                                                          ---------         ---------                           
CASH FLOWS FROM FINANCING ACTIVITIES                                                                 
  Proceeds from sale of stock                                               106,100                 -                           
  Proceeds from loan                                                              -            50,000
                                                                          ---------         ---------
           NET CASH PROVIDED BY FINANCING ACTIVITIES                        106,100            50,000   
                                                                          ---------         ---------
INCREASE IN CASH                                                             (2,985)            5,597

CASH - BEGINNING                                                              3,631            20,367 
                                                                          ---------         --------- 
CASH - ENDING                                                             $     646         $  25,964
                                                                          =========         ========= 
SUPPLEMENTAL DISCLOSURES:                                                 
 Cash paid during the period for:                                         
    Interest                                                              $   6,900         $       -   
                                                                          =========         =========
    Income taxes                                                          $       -         $       - 
                                                                          =========         ========= 
SCHEDULE OF NON-CASH INVESTING AND FINANCING                                                          
   ACTIVITIES:                                                            
     Issuance of 393,903 shares of common stock for conversion            $       -         $  93,643 
        of $93,643 notes payable and accrued interest                     =========         ========= 
                                                                                                      
     Issuance of 108,412 shares of common stock for conversion            $  25,586         $       - 
        of $25,586 notes payable and legal fees                           =========         ========= 
------------------------------------------------------------------------------------------------------ 
</TABLE>



See notes to consolidated financial statements.

                                      F-4
<PAGE>
 
                   ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


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 third parties which would be 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.

         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, 1998 and the three months ended March 31, 1999, the
         Company incurred net losses of approximately $877,000 and $236,000,
         respectively, and as of March 31, 1999, had a stockholders' deficiency
         and a working capital deficiency of approximately $3,524,000 and
         $3,631,000, respectively.  The Company is also in default on a
         significant number of loan agreements which total approximately
         $2,128,000 in principal and interest as of March 31, 1999, 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 1999.  From
         January 1, 1999 through March 31, 1999, the Company's proceeds from all
         financing activities amounted to approximately $50,000.

         The Company is exploring ways to reduce its existing liabilities
         including exchanging certain of its liabilities for shares of its
         common stock.  During the first quarter of 1999, the Company exchanged
         $75,000 of principal on various promissory notes outstanding at
         December 31, 1998 for shares of common stock (see Note 2).

                                      F-5
<PAGE>
 
                   ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1 - BUSINESS AND CONTINUED OPERATIONS (Continued)

         To date, the Company has not completed its restructuring of the
         remaining debt and the Company continues to be in default under such
         agreements.  On March 6, 1997, one group of note holders, representing
         $600,000 of the promissory notes outstanding as of December 31, 1997,
         has filed a lawsuit against the Company to recover loans and other
         monies provided to the Company.  During June 1998, the Company and the
         note holders reached a tentative settlement, which is subject to the
         approval of the majority of the shareholders and approval of the
         residing court (see Note 3b).

         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.

         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, 1998, included in the Company's Form 10-KSB, filed with
         the Securities and Exchange Commission.

NOTE 2 - CAPITALIZATION

         Conversion of Debt to Equity
         ----------------------------

         During the first quarter of 1999, the Company converted $25,000 of
         principal and $362 of accrued interest, relating to a note payable
         outstanding at December 31, 1998, into 120,771 shares of the Company's
         common stock.

         As part of a settlement agreement with a noteholder, during the first
         quarter of 1999, the Company agreed to convert principal of $50,000 and
         accrued interest of $18,281, relating to a note payable outstanding at
         December 31, 1998, into 273,132 shares of the Company's common stock.
         Under the original loan agreement, the debt was convertible, at the
         option of the noteholder, at $0.60 per share.  The difference between
         the original conversion rate of $0.60 and the actual conversion rate of
         $0.25 was reflected in the accompanying financial statement as a debt
         conversion expense of $95,593.

                                      F-6
<PAGE>
 
                   ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


NOTE 2 - CAPITALIZATION (Continued)

         Notes Payable
         -------------

         During the first quarter of 1999, the Company received the proceeds of
         a $50,000 from loans from two unrelated individuals.  The loans are due
         in one year, bear interest at 8% per annum, and are convertible into
         common stock at a 20% discount to the average 5-day market price at the
         conversion date.

NOTE 3 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

         Litigation/Disputes
         -------------------

         a)  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 $160,000, subject to any defenses, offsets
             or claims, which Orbit is asserting by way of a separate legal
             malpractice action.

             The Company's legal malpractice action was directed to arbitration
             by a retainer agreement signed by Mr. Joseph, in his capacity when
             he was with the Company. Prior to Orbit becoming a client, Mr.
             Joseph was a personal client of Jeffer, Mangels, Butler & Marmaro.
             The retainer agreement signed by Joseph has barred Orbit from
             filing a legal malpractice action.

         b)  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 1992 totalling $197,000 and additional
             loans made during 1995 totalling $600,000.

             In June of 1998, a tentative comprehensive settlement was reached
             by all parties. The financial terms of the tentative settlement
             include the conversion of all the Benveniste's debt to 5,745,000
             shares of common stock. Because the accord requires the surrender
             and cancellation of approximately 5 million shares of Orbit common
             stock issued by past officers and directors that Orbit contends are
             invalid, the net effect will be to essentially maintain the
             existing equity structure. The agreement also grants to the
             Benvenistes the option to purchase up to 1,100,000 shares at a
             price ranging from $0.23 to $0.75 per share, which depend on the
             period of time from the option grant date that the options are
             exercised. The settlement has several contingencies, which need to
             be resolved before the settlement is final.

                                      F-7
<PAGE>
 
                   ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


NOTE 3 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)

         Litigation/Disputes (Continued)
         -------------------            

         c)  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 for: (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 complying with the Court's
             requirements.

                                      F-8