U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

         [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934

         For the fiscal year ended January 31, 1999

         [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934

         For the transition period from to .

                  Commission File Number 0 - 14835

                         TRANSNATIONAL INDUSTRIES, INC.
                 (Name of small business issuer in its charter)

            Delaware                                    22-2328806
      (State or Other Jurisdiction                   (I.R.S. Employer
       of Incorporation or Organization)           Identification Number)



          Post Office Box 198                            19317
               U.S. Route 1                            (Zip Code)
        Chadds Ford, Pennsylvania
         (Address of principal
           executive offices)

Issuer's telephone number (610) 459-5200

Securities Registered Pursuant to Section 12(b) of the Exchange Act:   None

Securities Registered Pursuant to Section 12(g) of the Exchange Act:

                                  Common Stock
                           ($0.20 par value per share)
                                (Title of class)

         Check whether the Issuer (1) has filed all reports required to be filed
by  Section  13 or 15(d)  of the  Securities  Exchange  Act of 1934  during  the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days.
YES     X        NO          


<PAGE>

         Check if there is no disclosure of delinquent  filers  pursuant to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ( )

         The  Issuer's  revenues  for the fiscal  year  January 31,  1999,  were
$7,509,312.

         The aggregate  market value of the voting stock held by  non-affiliates
of  Registrant  as of March 31,  1999 was  approximately  $221,489  based on the
average of bid and asked price of these  shares.  Shares of Common Stock held by
each  executive  officer and  director and by each person who owns 5% or more of
the  outstanding  Common  Stock have been  excluded in that such  persons may be
deemed to be affiliates.

         As of March 31, 1999, 502,470 shares of Common Stock were outstanding.


                      DOCUMENTS INCORPORATED BY REFERENCE:

The issuer's definitive proxy statement to be filed with the Securities Exchange
Commission  within 120 days after January 31, 1999, is incorporated by reference
into Part III of this Form 10-KSB.

     Transitional small business disclosure format (check one) YES    NO X


                                       2
<PAGE>







                                     PART I
                                ITEM 1. BUSINESS


GENERAL DEVELOPMENT OF BUSINESS

Transnational  Industries,  Inc.  (the  "Company"),  is a holding  company.  The
Company  specializes  through its  subsidiary,  Spitz,  Inc.  ("Spitz"),  in the
design,   manufacture   and   integration   of   computer-controlled   immersive
visualization  systems and domed projection screens.  Spitz, under a predecessor
corporation, was founded in 1944.

NARRATIVE DESCRIPTION OF BUSINESS

Products
--------

--Video projector systems

In 1997  Spitz  introduced  ImmersaVision(TM),  a new  line of  video  projector
products. ImmersaVision uses the latest advances in video projection and desktop
video graphics  combined with other panoramic  visual displays and sound effects
in dome  theaters to create an immersive  virtual  reality  experience.  Markets
targeted  include  existing  and new  planetarium  theaters  and  various  other
applications  that will benefit  from  immersive  multi-media  displays for wide
audiences.  ElectricSky(TM)  is  an  ImmersaVision  system  configured  for  the
Planetarium market.  ElectricHorizon(TM)  is an ImmersaVision  system configured
for interactive virtual reality  applications.  Spitz has sold three ElectricSky
systems.  The first was sold to the Town of Watson Lake, Yukon, Canada for a new
theater for tourism,  which opened in May 1997.  The second two were sold to new
science and technology  visitor centers in the United States and England and are
expected to be delivered later in 1999, and in mid 2000, respectively.  In 1997,
Spitz also delivered the first  ElectricHorizon  System, for a temporary exhibit
at a domestic science museum.  The temporary  ElectricHorizon  exhibit was owned
and funded by Spitz and various  suppliers of the hardware and software  content
for the purpose of demonstration. At the end of the exhibit, the ElectricHorizon
components were dismantled and returned to the various owners. Spitz has not yet
sold another  ElectricHorizon  system but there are several sales  prospects for
ElectricSky and ElectricHorizon that are expected to make order decisions within
the next year. It is not unusual in the markets  targeted by Spitz for the sales
cycle from planning through vender selection to take a year or more.

--Planetarium projector systems

Spitz is the world's  leading  producer of planetarium  systems.  Spitz designs,
manufactures,   installs,   repairs,   and  maintains  (under  renewable  annual
contracts)  planetarium  projector  systems.  Systems  currently  sold by  Spitz
emphasize  computer  controls,   integrated  sound  and  lighting  systems,  and
peripheral  special  effects such as video  projection.  Systems are designed to
meet  individual  customer  preferences,  through the selection of  standardized
basic  systems and various add on options.  Spitz is capable of providing all of


                                       3
<PAGE>

the interior  furnishings and equipment for the  planetarium  theater as well as
complete planetarium show productions.  Additionally, Spitz's experience enables
it to  advise  on  the  theater  design  and  architectural  integration  of the
planetarium  equipment.  Spitz believes that these skills and  capabilities  are
important to buyers of  planetarium  systems.  The  principal  customers for the
Company's planetarium business are entities in the entertainment and educational
markets such as museums and schools.

--Domed Structures

Spitz is also the world's leading  producer of domed projection  screens.  Spitz
designs,  manufactures,  and installs domed projection screens which are used in
planetarium   theaters  and  a  variety  of  other  applications  such  as  ride
simulators,  special or large  format film  theaters,  and  simulation  training
systems.   Spitz's   experience  enables  it  to  advise  on  the  architectural
integration  of domed  projection  screens and solve  complex  optical  problems
involving reflectivity and image distortion on compoundly curved surfaces. Spitz
believes that these skills are important to buyers of domed projection  screens.
The   principal   customers  in  Spitz's  dome  business  are  entities  in  the
entertainment,  educational  and  commercial  and military  simulation  markets.
Customers include major theme parks, world expositions,  museums,  schools,  and
military defense contractors.

Materials and Supplies
----------------------

Planetarium  systems,  ImmersaVision  systems  and  domes are  manufactured  and
assembled  from standard  metal  materials,  complex  electronic  components and
computer  controls.  The  majority of the  components  are standard but some are
custom made by vendors at the direction of Spitz. The components, as well as the
metal materials, are readily available from numerous supply sources.

Patents and Licenses
--------------------

Spitz relies  principally  on a  combination  of contracts  and trade secrets to
protect its proprietary  interests in its production processes and its business.
None of the  products  sold by Spitz are  subject to patents  and Spitz does not
believe its success depends on the ownership of patents.

Principal Customers
-------------------

During fiscal 1999,  revenues of $2,351,000 (31% of total revenues) were derived
from sales to the five largest customers. No individual customer exceeded 10% of
total  revenues.  Users of  Spitz  products  normally  have not had the need for
recurring purchases except for maintenance and parts. Accordingly,  Spitz relies
on sales to new projects or replacement  of or enhancement to existing  systems.
Spitz domed  projection  screens are  sometimes  sold to the  suppliers of large
format film  projectors  for  inclusion  with systems  sold to its  customers as
opposed to Spitz selling  directly to the end user.  Also,  the large  aerospace
companies  typically  buy domed  projection  screens from Spitz for inclusion in
military  training  systems  sold to  their  customers.  While  this  creates  a
competitive  strength for Spitz because of its strong support  capabilities  and
preference among the system suppliers,  it will also result in reliance on sales
to a few system suppliers. 

                                       4
<PAGE>

Competition
-----------

While Spitz believes it is the world's leading  producer of planetarium  systems
and domed projection screens, its business is competitive.  Management estimates
that  there are one  domestic  and four  foreign  competitors  that  manufacture
competing  planetarium  systems.  Competition is evolving for ImmersaVision from
existing planetarium  competitors and other suppliers of virtual reality display
mediums resulting in two known domestic and one known foreign competitor.  There
is currently one known domestic  competitor that  manufactures  domed projection
screens.  In  addition,  construction  or  metal  fabrication  contractors  will
occasionally supply domed projection  screens,  particularly in foreign markets.
The many  competitive  factors  influencing  the markets  for  Spitz's  products
include  price,  performance,   customer  preferences,  design  and  integration
support, and service capabilities.

Spitz is unique among its  competitors  by virtue of its  capability as a single
source  that can  directly  supply and  integrate  all of the  equipment  in the
planetarium theater including the projection system, sound,  lighting,  computer
control system and domed projection  screen.  Years of involvement in the design
of  domed  theater  systems  for many  different  applications  and dome  market
distribution channels provide Spitz competitive strength in the markets targeted
by  ImmersaVision.  As a  single  source,  capable  of  integrating  all  of the
equipment in the theater from the screen through show production, Spitz attracts
customers  who are  unwilling  to take on such  complex  tasks.  Also,  Spitz is
developing proprietary  programming tools while maintaining strong compatibility
with various formats to keep a competitive  advantage in ImmersaVision  markets.
The Company  believes  that Spitz's long history and proven  performance  as the
supplier of the vast majority of the world's domed  projection  screens are also
competitive strengths.

Competitors  selling  planetarium  projector systems have significantly  greater
financial  resources  than the  Company,  putting  the  Company  at a  potential
disadvantage in new system development and sales promotion.  Competitors selling
domed projection screens continue to provide strong price  competition.  Foreign
currency fluctuations affect Spitz's pricing against its foreign competitors.  A
strengthening  U.S.  dollar  will weaken  Spitz's  price  competitiveness  among
foreign competitors.  Also, future fluctuations and indirect economic effects of
the foreign currency markets remain uncertain.  The continued success of Spitz's
products  will depend on keeping pace with  competing  technologies  and selling
efforts while  maintaining price  competitiveness  and good  relationships  with
system suppliers in the large format film and military training markets.

Research and Development
------------------------

Spitz conducts  research and  development  and the costs of such activities were
$521,000 in fiscal 1999 and $363,000 in fiscal 1998.

Environmental Compliance
------------------------

Spitz routinely  improves and maintains  various systems designed to control the
quality of air and water  discharged from its plant,  including dust control and
ventilation.  Spitz  anticipates  that it will continue to make similar  routine


                                       5
<PAGE>

expenditures  to comply with current  federal,  state,  and local  environmental
regulations.  The Company does not believe, however, that such expenditures will
be significant or materially affect its earnings or competitive position.

Employees
---------

At January 31, 1999, the Company and Spitz had 58 permanent  employees,  of whom
51 were employed full time.

                               ITEM 2. PROPERTIES

The  Company  and  Spitz  are  located  in  a  46,525  square-foot  building  on
approximately  16.7 acres on U.S. Route 1, Chadds Ford,  Pennsylvania,  which is
leased to Spitz by an unrelated  third party through April 2006,  with an option
to  renew  for  an  additional  eight  years.  The  building  houses  all of the
companies'  administrative  offices  and  production  facilities  and is in good
operating condition.


                            ITEM 3. LEGAL PROCEEDINGS

There was no material litigation pending at the date of this filing.

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

There  were no  matters  submitted  to a vote of  stockholders  during the three
months ended January 31, 1999.

                                       6
<PAGE>


                                     PART II
            ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
                               STOCKHOLDER MATTERS

Market Information for Common Stock

The principal  market on which the Company's  Common Stock is traded is the Over
the Counter  market.  Various  market  dealers make the market of the  Company's
stock and trades are made  through  the OTC  Bulletin  Board or what is commonly
known as the  "pink  sheets."  The  table  below  presents  the high and low bid
over-the-counter  market  quotations  by quarter for fiscal  1999 and 1998.  The
quotations,  obtained from OTC Bulletin Board statistics,  reflect  inter-dealer
prices, without retail mark-up, mark-down, or commission and may not necessarily
represent  actual  transactions.  

<TABLE>
<CAPTION>

                               Fiscal 1999           Fiscal   1998
                         --------------------- ---------------------

                              High       Low        High        Low
                         ---------- ---------- ---------- ----------

        <S>              <C>        <C>        <C>         <C>  
         First Quarter       $5.75      $2.88      $2.25       $1.50
         Second Quarter       4.38       3.00       4.00        2.13
         Third Quarter        3.05       1.75       6.50        3.75
         Fourth Quarter       1.75       1.50       6.25        5.38
</TABLE>


Holders

At March 31,  1999,  there were  approximately  100  holders of record of common
stock.

Dividends

The Company has never paid cash  dividends on its common stock,  and the current
policy of its Board of Directors is to retain all earnings to provide  funds for
the growth of the Company.  In addition,  the loan agreements of the Company and
its subsidiary prohibit the payment of cash dividends,  except and to the extent
that the Company satisfies certain financial covenants.  In addition,  the terms
of the  Company's  Series B Preferred  Stock  prohibits  the Company from paying
dividends  on its  common  stock  until  it pays  to  holders  of the  Company's
preferred stock all accrued and unpaid dividends thereon.

Preferred  Stock

The holders of the Series B Cumulative  Convertible  Preferred Stock ("Preferred
B") are  entitled to receive  quarterly  dividends,  when and if declared by the
Company's  Board of  Directors,  at an annual per share  amount of  $27.50.  The
payment of such dividends would be prior and in preference to the payment of any
dividends on the Company's  common stock.  At January 31, 1999,  accumulated but
undeclared and unpaid  dividends with respect to the 318  outstanding  shares of
Preferred B amounted to $72,146.  The  Preferred B shares may be redeemed by the
Company at $250 per share plus  accumulated  unpaid dividends of $227 per share.
The 318 shares of Series B Preferred  are  convertible  into 1,871 shares of the
Company's common stock.


                                       7
<PAGE>


            ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

Results of Operations

The following table presents for the periods  indicated (i) the percentage which
certain items in the  consolidated  financial  statements of the Company bear to
revenues and (ii) the percentage  change in the dollar amount of such items from
year to year in the two-year period ended January 31, 1999.

<TABLE>
<CAPTION>

                                                                    Percentage
                                           Percentage of Revenues     Change
                                           Year ended January 31,      1999
                                        --------------------------      vs.   
                                               1999        1998        1998
                                        -------------   ----------  ------------
      <S>                               <C>             <C>         <C> 
      Revenues                                 100.0%     100.0%         6.1%
      Cost of sales                              69.2       71.6          2.6
      Gross margin                               30.8       28.4         15.0
      Selling expenses                            9.9        8.1         29.9
      Research and development                    6.9        5.1         43.5
      General and administrative                 10.7       10.9          4.2
      Operating income                            3.3        4.3       (19.6)
      Interest expense                            1.6        1.8        (1.6)
      Income before income taxes                  1.6        2.6       (32.0)
      Income taxes                                0.2        0.2            *
      Income before extraordinary gain            1.5        2.4       (34.7)
      Extraordinary gain                            -        4.9            *
      Net Income                                  1.5        7.2       (78.7)

</TABLE>

-----------

* Not meaningful
                                                    -----------

Revenues  in the year ended  January  31,  1999  (fiscal  1999) were  $7,509,000
compared to  $7,076,000  in the year ended  January 31, 1998 (fiscal  1998),  an
increase of $433,000  (6%). In the last half of fiscal 1999,  work  commenced on
two new sales of  ElectricSky  systems  resulting  in  ImmersaVision  revenue of
$273,000 for fiscal 1999 compared to $178,000 for fiscal 1998. The ImmersaVision
revenue in fiscal  1998 was  attributable  to the first  sale of an  ElectricSky
system,  which  was  completed  in  May  1997.  More  significant  revenue  from
ImmersaVision  is  expected in fiscal  2000 as work  intensifies  on the two new
sales as well as other  anticipated new sales.  Dome revenues were $4,259,000 in
1999  compared to $4,271,000 in 1998, a decrease of $12,000 due to lower revenue
from ride simulation  attractions.  Otherwise,  dome revenues from planetariums,
military  training  simulators,  special  projects and film theaters  increased.
Planetarium  revenues were $2,977,000 in 1999 compared to $2,627,000 in 1998, an


                                       8
<PAGE>

increase of $350,000  (13%).  The  increase in  planetarium  revenues was due to
several new orders for new and refurbished  systems for the  educational  market
booked in the second and third  quarters of fiscal  1999.  Planetarium  revenues
include amounts  attributable to the sale of maintenance and parts of $1,207,000
in 1999 compared to $1,295,000 in 1998, a decrease of $88,000 (7%). The decrease
in  maintenance  and parts  revenues  was due mostly to lower sales of parts and
paid  service  visits,  and to a lesser  degree,  the timing of  performance  on
preventive maintenance agreements.

The Company's revenues from maintenance and parts are recurring and are expected
to remain  steady or increase  over time due to the  expansion of the  Company's
customer base  resulting  from new sales.  For the remaining  (and  predominant)
portions of its revenues,  the Company must rely on the sale of systems, both as
replacements for existing systems and new  installations,  in all of the various
markets that the Company serves.  The Company's products are often sold together
as components of a complete system. In addition to a competitive advantage, this
provides each of the Company's  products with efficient  direct access to a wide
breadth of markets that might  otherwise be difficult to reach. By being sold as
a complete system,  ImmersaVision  products provide new sales  opportunities for
domes and planetarium  systems.  More  importantly,  ImmersaVision  products and
their use in  planetarium  theaters are creating  new  opportunities  beyond the
Company's traditional markets.

New sales  order  bookings  have been  significant  in the second half of fiscal
1999, increasing the backlog of unearned revenue to approximately  $9,800,000 as
of January 31, 1999. About ninety percent of the revenue backlog is scheduled to
be earned  through the end of fiscal 2000.  Bookings have been strong for all of
the  Company's  products  and  include two  ElectricSky  systems,  with  optical
planetarium  projectors and domes, for two new visitor attractions.  The Company
expects increasing revenue  contributions from ImmersaVision  products in future
years as the  installed  base  grows and new  applications  of the  product  are
developed.  Research  and  development  efforts will  continue  with the goal to
promote the creation of software content and new applications for  ImmersaVision
that will enhance existing products and provide entry into new entertainment and
other commercial markets. While revenue levels are expected to increase over the
next year,  uncertainty  in the timing and delivery of new sales are expected to
cause revenue levels to continue to fluctuate in interim periods.

Gross margins increased to 30.8% in 1999 from 28.4% in 1998.  Successful efforts
in 1999 on many dome projects  resulted in gross margin  improvements  that were
weighted  down by expected  lower  margins on  subcontracted  work for a special
device to rotate a large film theater dome and the large ImmersaVision projects.
Unanticipated cost on certain planetarium  refurbishment  projects also weighted
down strong 1999 gross margins.  Selling  expenses  increased  $172,000 (30%) in
1999 as more  labor  resources  were  directed  to sales and  marketing  efforts
through  reassignment  of  personnel,  a sales  staff  addition,  and the use of
engineering  resources  in sales  proposal  efforts.  Also  contributing  to the
increased  selling  expenses were travel costs for foreign sales  presentations.
Selling  expenses  in fiscal 2000 are  expected  to be at current or  increasing
levels as  marketing  efforts on  ImmersaVision  continue to demand  significant
resource commitments. Research and development expenses increased $158,000 (44%)
in 1999 due to research and  development  of proprietary  programming  tools for
software content  development for  ImmersaVision,  improvements to ImmersaVision
subsystems,  and  improvements  to optical  planetarium  products.  Research and
development  efforts are  expected to  continue at  increasing  levels in future
periods.  Fluctuating  research and  development  expenses in the past have been
attributable  to the deployment of engineering  personnel to work on selling and
customer  contract  related  tasks.  Through   organizational   changes,   staff
additions,  and a more constant volume of customer contract activity the Company
is  deploying a more  constant  level of  engineering  resources to research and
development  projects which will be necessary to maintain and grow the business.
General and  administrative  expenses  increased $32,000 (4%) in 1999 due to new


                                       9
<PAGE>

employee  recruitment  costs and a $25,000  charge to  account  for  potentially
uncollectible accounts receivable.

Net interest  expense amounted to $123,000 in 1999 compared to $125,000 in 1998.
The  $123,000  reported  in 1999  consisted  of  $93,000  paid on bank debt plus
$31,000 paid on capital lease  obligations  offset by $1,000 of interest  income
earned on cash  invested.  The $125,000  reported in 1998  consisted of $124,000
paid on bank debt plus  $30,000  paid on  capital  lease  obligations  offset by
$29,000 of interest income earned on cash invested.  The Company paid no federal
income  taxes  in 1999 or 1998 as  federal  taxable  income  was  offset  by the
utilization of net operating loss carryforwards.  State income taxes amounted to
$14,000 in 1999 and 1998.  Net  operating  losses are  expected  to  continue to
offset  federal  taxable  income for the  foreseeable  future.  The Company does
expect to incur state income taxes in future years.

As a result of the above,  the Company  reported  net income of $109,000 in 1999
compared to net income  before  extraordinary  item of $167,000 in 1998.  In the
second  quarter of fiscal 1998, an  extraordinary  gain from the  elimination of
debt of $345,000 was recorded as a result of the  refinancing  of the  Company's
debt agreements.  The addition of the extraordinary  gain resulted in net income
of $512,000 for fiscal 1998.

Liquidity and Capital Resources

The Company  funds its  continuing  operations  primarily by cash  provided from
operating activities. The Company also uses a revolving credit agreement to fund
its working capital requirements. The Company usually receives progress payments
under the terms of its customer agreements.  Payments are typically based on the
completion of various  chronological,  production and  installation  milestones.
Timing and the level of progress  payments vary among agreements  depending upon
many factors. The cumulative progress payments can be more or less than the cost
and  estimated  earnings  recognized  on  an  agreement  during  the  period  of
performance. The nature and timing of progress payments can cause cash flow from
operations to fluctuate from period to period.  Some customer agreements require
the Company to provide standby letters of credit as performance security.

At January 31, 1999 there was a $150,000  balance on the  revolving  credit note
compared  to $600,000 at January 31,  1998.  This  resulted in unused  borrowing
capacity of  $650,000  at January  31, 1999  compared to $200,000 at January 31,
1998.  Cash balances of $455,000  provided  additional  liquidity at January 31,
1999 compared to $471,000 at January 31, 1998. The next sources of liquidity are
trade accounts  receivable and contracts in process.  Trade accounts  receivable
increased to  $1,712,000 at January 31, 1999 compared to $737,000 at January 31,
1998. The higher liquidity available at January 31, 1999 from borrowing capacity
and accounts  receivable was  attributable to advanced funding from contracts in
progress as billings  exceeded  revenue recorded by $763,000 at January 31, 1999
compared  to revenue  recorded  in excess of billings of $372,000 at January 31,
1998.  This  represents  an increase in customer  financing  of  $1,135,000  and
illustrates the previous  discussion of the effect of progress  payments on cash
flow.  Contracts  in progress at January 31, 1999 will use the other  sources of
liquidity as  performance  catches up to the billings  through the completion of
each project.  The payment terms on new contracts remain uncertain and will also
affect liquidity.

The net cash provided by operating  activities  was $956,000 in 1999 compared to
net cash used of $49,000 in 1998, an increase in cash  provided from  operations
of $1,005,000.  The increase consists of a $1,000,000  increase in cash provided


                                       10
<PAGE>

by changes in operating  assets and  liabilities  and a $5,000  increase in cash
generated from earnings. As discussed previously, the change in operating assets
is mostly attributable to progress payment terms on customer contracts.

Of the $956,000 provided by operations in 1999, $310,000 was invested in capital
additions and financing activities used $662,000.  Financing activities included
net pay downs of $450,000 on the revolving  credit note,  payments of $83,000 on
capital  leases,  and  monthly  principal  payments  on the  bank  term  note of
$129,000. Non cash financing transactions in 1999 consist of $32,000 of computer
equipment acquired through capital leases.

In addition to the $49,000  used by  operating  activity in 1998,  $303,000  was
invested in capital additions and financing activities used $130,000.  Financing
activities in 1998 included net  borrowings of $171,000 on the revolving  credit
agreement  (after the initial  advance to fund the payoff of the previous debt),
payments of $73,000 on capital  leases,  and  payments of $132,000 on term debt.
Remaining financing  activities required cash payments of $77,000 related to the
refinancing of debt  agreements and $19,000  related to an exchange of preferred
stock for common  stock.  Non cash  financing  transactions  in 1998  consist of
$235,000 of equipment acquired through a capital lease.

Total  debt at January  31,  1999 was  $969,000,  a decrease  of  $630,000  from
$1,599,000 at January 31, 1998. In summary,  the decrease resulted from $450,000
of net pay downs on the revolving  credit note,  $129,000 of scheduled  payments
applied  to  term  debt  and  $83,000  of  payments  applied  to  capital  lease
obligations, offset by a new $32,000 capital lease obligation.

Capital  additions  consisting of the purchase and  fabrication of machinery and
equipment and the development of computer software amounted to $342,000 ($32,000
by capital lease) and $538,000  ($235,000 by capital  lease),  in 1999 and 1998,
respectively.  Cost of computer software developed to automate and integrate the
control and show production process of ImmersaVision into a theater  environment
with  other  products  amounted  to  $233,000  and  $172,000  in 1999 and  1998,
respectively.  Future  opportunities  from ImmersaVision are expected to require
continual  investments  in hardware and software to take  advantage of advancing
technologies. When appropriate, the Company will fund the acquisition of capital
assets through  capital leases or equipment  financing  notes.  The Company will
continue to finance  capital  investments  through  operations and external debt
sources.  In addition,  opportunities  may require new equity  investment in the
Company.

On June 12, 1997, the Company  entered into a series of debt  agreements  with a
new lender,  a commercial  bank,  whereby proceeds from two new promissory notes
payable to the new  lender  were used to retire  previous  bank debt and a Stock
Subscription  Warrant.  The prior debt  agreements  were  scheduled to mature in
August  1997 and  carried  a balance  due at June 12,  1997 of  $1,373,000.  The
previous  lender  agreed  to  accept  $1,230,000  in full  satisfaction  for all
existing  debt  and for the  surrender  of the  Stock  Subscription  Warrant  to
purchase 108,913 shares of the Company's Common Stock for $0.20 per share.  Debt
agreements  executed with the new lender consist of an $820,000 term loan and an
$800,000  Revolving Credit Agreement.  The term loan is payable with interest at
9.25% over five years in equal monthly  installments  of $17,122.  The Revolving
Credit Agreement permits borrowing,  subject to an asset based formula, of up to
$800,000  under a Revolving  Credit Note.  The  Revolving  Credit Note  requires
monthly interest  payments at prime plus 2% and also matures in five years. Upon
execution of the new debt  agreements,  proceeds of $820,000  from the term note
and  $410,000  from  the  revolving  credit  agreement  were  used to  fund  the
$1,230,000  payment  to the  previous  lender.  Annual  principal  and  interest
payments on the initial advances under the new loan agreements are approximately
$40,000 lower than the annual  payments  required in the previous year under the
old loan  agreements.  The  retirement of the previous debt  agreements  and the
Stock Subscription  Warrant for $1,230,000 resulted in a reduction of Additional
Paid in Capital of $298,000 and an  extraordinary  gain from the  forgiveness of


                                       11
<PAGE>

debt of approximately $345,000, net of related expenses,  recorded in the second
quarter  of  fiscal  1999.  The  retirement  of the Stock  Subscription  Warrant
eliminated its effective  twenty-five  percent  dilution of common  shareholders
equity.  The initial  advance  under the new  revolving  credit  agreement  also
included an additional  amount to partially fund closing costs,  which increased
the total to $429,000.  This resulted in unused borrowing capacity under the new
$800,000 revolving credit agreement of $371,000. At the time of the refinancing,
the borrowing  limit under the previous  $500,000  Revolving  Credit  Agreement,
reduced by $129,000 for an outstanding  standby letter of credit,  also resulted
in unused borrowing capacity of $371,0000. The $129,000 standby letter of credit
served as  collateral  on  outstanding  surety bonds  required to guarantee  the
performance  of Spitz on certain  customer  contracts.  In June 1997, the Surety
Company determined that the Company's  financial strength was sufficient for the
level of bonding  outstanding  and  returned  the  standby  letter of credit for
cancellation. In summary, as a result of the replacement of the debt agreements,
total debt was lowered by $124,000 while  maintaining the same credit  capacity,
payment  schedules  were  favorably  adjusted,  near term  maturity  dates  were
extended to five years, and the Company's common  shareholders  benefited by the
return of a  beneficial  ownership of twenty five percent of their equity in the
Company.

On September 26, 1997 the Company offered holders of 1,744 outstanding shares of
the Company's Series B Cumulative  Convertible  Preferred Stock  (Preferred) the
right to exchange  each share of the  Preferred  for 125 shares of the Company's
common stock  (Common).  By exchanging the Preferred for Common,  the Company is
hoping to simplify its capital structure and eliminate the accumulating dividend
burden.  In  addition,  by  increasing  the number of Common  shares that can be
publicly traded,  the Company hopes to enhance the  marketability of its Common.
Holders of 1,414 shares of Preferred accepted the exchange offer by November 28,
1997, the expiration  date of the original  offer. In fiscal 1999 a holder of 12
shares of Preferred requested,  and the Company agreed, to exchange shares under
the same terms.  Accordingly,  in January and August  1998,  the Company  issued
176,750 and 1,500 shares of its  authorized  Common in exchange for 1,414 and 12
shares of  Preferred,  respectively.  The holders of the remaining 318 shares of
Preferred  did not  respond to the  solicitation  and their  shares  will remain
outstanding,  unless  either  (i)  the  shares  are  redeemed  or  converted  in
accordance  with the  original  contractual  terms of the  Preferred or (ii) the
holders of the Preferred request and the Company agrees to exchange their shares
at a future time (which  neither  side is  obligated  to do and which,  if done,
would be at an exchange ratio to be negotiated in conjunction therewith).

The Company's debt  agreements,  combined with current assets and cash flow from
operations,  assuming reasonably  consistent revenue levels,  should provide the
Company with adequate liquidity for the foreseeable future.  However, new growth
opportunities  for  the  Company's  business  may  require  funding  beyond  the
capabilities of the Company's current capital structure.  The Company's improved
financial  condition and capital  structure  should improve its ability to raise
additional funds for growth through other capital resources.


                                       12
<PAGE>
Year 2000 Impact

The Year  2000  Issue  is the  result  of  computer  programs  being  unable  to
distinguish  between  the year  1900 and  2000.  This  could  result in a system
failure or miscalculations causing disruptions of operations,  including,  among
other  things,  a  temporary  inability  to process  transactions,  or engage in
similar normal business activities.

The  Company  currently  uses  a  combination  of  mini  computer  applications,
microcomputer  applications and manual  procedures to account for and manage its
business processes.  The very unique nature of the Company's business, its small
size, and the variety of activities it is involved in, along with past financial
constraints,  have perpetuated the use of the current systems. The mini computer
applications are not currently Year 2000 compliant. Year 2000 corrections to the
mini  computer  applications  have been  proposed  by vendors  and  consultants;
however,  the Company  believes that such changes could be costly and uncertain.
Improvements  in the Company's  financial  condition,  the  availability of more
affordable  technology  solutions,  and anticipated increases in business volume
now justify major improvement to the Company's  information systems.  Therefore,
the  Company  has  concluded  that it would be better  served by an  alternative
solution.  As part of this wider objective to improve its  information  systems,
the Company has  evaluated  its overall data  processing  resources and plans to
make  substantial  changes in the fiscal year ended  January 31,  2000.  In this
process, the Company will select new products that are Year 2000 Compliant.  The
Company has completed an analysis of its business  processes  and  requirements,
which  were  matched  to  the  capabilities  of  available  enterprise  software
products.  A list of enterprise  software products best suited for the Company's
business  was  compiled  and a  determination  was  made on the  basic  computer
infrastructure  required  to run the list of  software  products.  The  computer
infrastructure  has been installed in the first quarter of fiscal 2000 at a cost
of  approximately  $85,000.  Several  enterprise  software  products  have  been
evaluated and the list has been narrowed  down to two products.  Final  software
selection is planned in May 1999, with installation and implementation  over the
following  six  months.  Cost  of  the  enterprise  software,  installation  and
implementation  is  estimated to range from  $151,000 to  $265,000.  The cost is
expected to be capitalized and funded through operating cash flow and leasing of
computer hardware and software.

The  Company  is not  integrated  with and does not rely  heavily  on  vendors',
clients'  and other third  parties'  data  processing  systems.  The bulk of the
Company's  revenue  is  generated  from  new  public  or  commercial   projects.
Maintenance  and parts revenue comes from repeat  customers,  mainly museums and
schools.  As such,  revenue is  generally  not  dependent  upon repeat  sales to
commercial  customers'  inventory  management  systems  or  enterprise  resource
planning  systems the way many  businesses may be. The Company uses a network of
vendors  to  obtain  its  parts  and  supplies.  Many  parts  and  supplies  are
commodities  available from numerous  sources.  The effect of critical  vendors'
ability  to  continue  to  supply  the  Company  though  Year  2000 has not been
determined.  However,  the Company  believes that the lack of  integration  with
vendors  systems  and  numerous  available  sources  will  reduce  the risk from
vendors' Year 2000 potential problems.

The  Company's  products  rely on a number of widely used third  party  software
products,  which claim to be Year 2000 compliant or do not perform date-oriented
tasks.  Evaluation  and testing of the Year 2000 impact on software  used in the
Company's products is planned in conjunction with other research and development


                                       13
<PAGE>

efforts  over the next year.  Evaluation  and any required  corrections  are not
expected to have a material cost impact.

As a contingency  plan,  in the event that all of the necessary  changes are not
completed  by the Year 2000,  the portions of the  operations  that rely on date
sensitive data can be accommodated by manual  procedures and date adjustments to
existing  software  applications.  The Company believes this  contingency  plan,
although  not the most  efficient  solution,  could be  accomplished  without  a
material interruption to the Company's business.

In addition to the specific  anticipated costs described above, the Company will
incur additional costs as salaried  personnel utilize their time to work on Year
2000 matters. The Company does not anticipate that the use of internal personnel
will have a material  adverse effect upon the Company's  operations or earnings;
however,  the  Company is not yet able to quantify  such costs and,  because the
Company has not reserved  any amounts  therefore,  any amounts so expended  will
reduce the Company's earnings.  In addition,  in the event that the economy as a
whole is materially and adversely  effected by widespread  interruptions,  or by
failures of key  infrastructure  providers (such as banks and utilities),  it is
likely that the Company's financial condition and results of operations would be
materially adversely effected.

Forward-Looking Information

The  statements in this Annual Report on Form 10-KSB that are not  statements of
historical fact constitute  "forward-looking  statements." Said  forward-looking
statements  involve risks and uncertainties  which may cause the actual results,
performance or achievements  of the Company to be materially  different from any
future results, performances or achievements,  expressly predicted or implied by
such forward-looking statements. These forward-looking statements are identified
by  their  use of forms of such  terms  and  phrases  as  "expects,"  "intends,"
"goals," "estimates,"  "projects," "plans,"  "anticipates,"  "should," "future,"
"believes," and "scheduled."

The  important  factors  which  may cause  actual  results  to  differ  from the
forward-looking statements contained herein include, but are not limited to, the
following:  general economic and business  conditions;  competition;  success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence  or absence of adverse  publicity;  changes in  business  strategy  or
development plans; the ability to retain key management; availability, terms and
deployment   of  capital;   business   abilities   and  judgment  of  personnel;
availability  of  qualified   personnel;   labor  and  employee  benefit  costs;
availability and costs of raw materials and supplies; and changes in, or failure
to comply with, government  regulations.  Although the Company believes that the
assumptions  underlying  the  forward-looking  statements  contained  herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this filing will
prove to be accurate. In light of the significant  uncertainties inherent in the
forward-looking  statements  included herein,  the inclusion of such information
should not be regarded as a  representation  by the Company or any other  person
that the objectives and expectations of the Company will be achieved.


                                       14
<PAGE>


                    ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS



                                      INDEX


                                                                       Page


Report of Independent Auditors                                          16      

Consolidated Balance Sheets                                             17

Consolidated Statements of Operations                                   19

Consolidated Statements of Changes in Stockholders' Equity              20

Consolidated Statements of Cash Flows                                   21

Notes to Consolidated Financial Statements                              22





                                       15
<PAGE>


Report of Independent Auditors



To the Stockholders and
the Board of Directors
Transnational Industries, Inc.
Chadds Ford, Pennsylvania

We have audited the  accompanying  consolidated  balance sheet of  Transnational
Industries,  Inc. as of January 31, 1999 and 1998, and the related  consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years then ended.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
These standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Transnational   Industries,   Inc.  at  January  31,  1999  and  1998,  and  the
consolidated  results  of its  operations  and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.



                                           /s/   STOCKTON BATES, LLP
                                           --------------------------
                                                 STOCKTON BATES, LLP

Philadelphia, Pennsylvania
April 7, 1999


                                       16
<PAGE>


                         Transnational Industries, Inc.

                           Consolidated Balance Sheets

                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                            January 31,
                                                       ---------------------
                                                           1999       1998
                                                      ---------- ----------
<S>                                                   <C>        <C>            
Assets

Current Assets:
  Cash                                                     $ 455      $ 471
  Accounts receivable                                      1,712        737
  Inventories                                              1,281      1,412
  Other current assets                                        85        135
                                                       ---------- ----------

Total current assets                                       3,533      2,755



Machinery and equipment:
  Machinery and equipment                                $ 2,784    $ 2,675
  Less accumulated depreciation                            2,172      1,927
                                                       ---------- ----------

Net machinery and equipment                                  612        748



Other assets:
  Repair and maintenance inventories, less provision
    for obsolescence (1999--$1,141; 1998--$1,101)            165        165
  Computer software, less amortization                       501        322
  Excess of cost over net assets of business acquired,
    less amortization                                      1,825      1,893
                                                       ---------- ----------

Total other assets                                         2,491      2,380
                                                       ========== ==========

Total assets                                              $6,636     $5,883
                                                       ========== ==========
</TABLE>

See notes to consolidated financial statements.


                                       17
<PAGE>

                         Transnational Industries, Inc.

                     Consolidated Balance Sheets (continued)

                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                            January 31,
                                                       ---------------------
                                                            1999       1998
                                                       ---------- ----------
<S>                                                   <C>        <C>                                                         
Liabilities and stockholders' equity

Current liabilities:
  Accounts payable                                         $ 366      $ 468
  Deferred maintenance revenue                               686        641
  Accrued expenses                                           338        224
  Billings in excess of cost and estimated earnings        1,447        241
  Current portion of long-term debt                          238        215
                                                       ---------- ----------

Total current liabilities                                  3,075      1,789

Long-term debt, less current portion                         731      1,384


Stockholders' equity:
  Series B cumulative  convertible preferred stock,
    $0.01 par value - authorized 100,000 shares;
    issued and outstanding 318 shares in 1999
    (liquidating value $151,646) 330 shares in
    1998 (liquidating value $148,294)                         73         76
  Common stock, $0.20 par value -authorized
    1,000,000 shares; issued and outstanding 502,470  
    shares in 1999 and 500,970 shares in 1998                100        100
  Additional paid-in capital                               8,493      8,479
  Accumulated deficit                                     (5,836)    (5,945)
                                                       ---------- ----------

Total stockholders' equity                                 2,830      2,710
                                                       ---------- ----------

Total liabilities and stockholders' equity                $6,636     $5,883
                                                       ========== ==========

</TABLE>

See notes to consolidated financial statements.

                                       18
<PAGE>


                         Transnational Industries, Inc.
                      Consolidated Statements of Operations
                      (In thousands, except per share data)

<TABLE>

                                                    Year ended January 31,
                                                   -----------------------
                                                         1999        1998
                                                   ----------- -----------
<S>                                                <C>         <C>                                                         
Revenues                                               $7,509      $7,076
Cost of sales                                           5,195       5,064
                                                   ----------- -----------
Gross margin                                            2,314       2,012

Selling expenses                                          747         575
Research and development                                  521         363
General and administrative expenses                       800         768
                                                   ----------- -----------
                                                        2,068       1,706
                                                   ----------- -----------
Operating Income                                          246         306

Interest expense net of income                            123         125
                                                   ----------- -----------
Income before income taxes                                123         181

Provision for income taxes                                 14          14
                                                   ----------- -----------
Net Income before extraordinary item                      109         167

Extraordinary gain on elimination of debt                             345
                                                   ----------- -----------
Net income                                                109         512

Preferred dividend requirement                              8          38
                                                   =========== ===========
Income applicable to common shares                   $    101    $    474
                                                   =========== ===========

Basic earnings per common share:
       Before extraordinary gain                     $    .20    $    .34
       Extraordinary gain on elimination of debt           --         .92
                                                   ----------- -----------
                                                     $    .20    $   1.26
                                                   =========== ===========
Diluted earnings per common share:                             
       Before extraordinary gain                     $    .20    $    .33
       Extraordinary gain on elimination of debt           --         .89
                                                   =========== ===========
                                                     $    .20    $   1.22
                                                   =========== ===========
</TABLE>

See notes to consolidated financial statements.


                                       19
<PAGE>


                         Transnational Industries, Inc.

           Consolidated Statements of Changes in Stockholders' Equity

                                 (In thousands)


<TABLE>
<CAPTION>


                                 Preferred               Additional            
                                   Stock        Common     Paid in   Accumulated
                                  Series B       Stock     Capital     Deficit
                                 ---------- ---------- ------------ ------------
<S>                              <C>        <C>        <C>          <C>       
Balance at January 31, 1997          $ 399      $  65      $ 8,502    $  (6,457)

Retirement of stock warrants                                  (298)

Conversion of Preferred
Stock to Common Stock                 (323)        35          269

Compensation from stock options                                  6

Net Income                                                                 512
                                 ---------- ---------- ------------ ------------
Balance at January 31, 1998           $ 76      $ 100      $ 8,479     $ (5,945)

Conversion of Preferred
Stock to Common Stock                   (3)         -            3

Compensation from stock options                                 11

Net Income                                                                 109
                                 ---------- ---------- ------------- -----------
Balance at January 31, 1999           $ 73      $ 100      $ 8,493     $ (5,836)
                                 ========== ========== ============ ============

</TABLE>






See notes to consolidated financial statements.


                                       20
<PAGE>


                         Transnational Industries, Inc.
                      Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>

                                                           Year ended January 31
                                                           ---------------------
                                                                  1999      1998
                                                            ---------- ---------
<S>                                                         <C>        <C>                                                         

Operating activities
Net income                                                      $ 109     $ 512
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
    Extraordinary gain from elimination of debt                            (345)
    Depreciation and amortization                                 367       309
    Provision for obsolescence                                     40        40
    Compensation from stock options                                11         6
 Changes in operating assets and liabilities, net:
    Accounts receivable                                          (975)      340
    Inventories                                                   162      (113)
    Other current assets                                           50       (12)
    Cost and estimated earnings on contracts net of billings    1,135    (1,030)
    Accounts payable                                             (102)      240
    Accrued expenses                                              159         4
                                                            ---------- ---------
Net cash provided (used) by operating activities                   956      (49)
                                                            ---------- ---------

Investing activities
Capital expenditures                                             (310)     (303)
                                                            ---------- ---------
Net cash used by investing activities                            (310)     (303)
                                                            ---------- ---------

Financing activities
Proceeds from revolving line of credit                            200       600
Payments on revolving line of credit                             (650)     (429)
Payments on capital leases                                        (83)      (73)
Scheduled payments on long term debt                             (129)     (132)
Payments related to refinancing                                             (77)
Payments related to conversion of preferred stock                           (19)
                                                            ---------- ---------
Net cash used by financing activities                            (662)     (130)
                                                            ---------- ---------

Increase (decrease) in cash                                       (16)     (482)
Cash at beginning of year                                         471       953
                                                            ---------- ---------
Cash at end of year                                             $ 455     $ 471
                                                            ========== =========

</TABLE>

See notes to consolidated financial statements.


                                       21
<PAGE>


                         Transnational Industries, Inc.
                   Notes to Consolidated Financial Statements


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Transnational Industries,  Inc. (the Company) is a holding company. The Company,
through its  subsidiary,  Spitz,  Inc.  (Spitz) manages its business as a single
operating  segment,   supplying  visual  immersion  theaters  with  systems  and
subsystems  for simulation  applications  used in  entertainment,  education and
training.  In its fifty-two year history,  Spitz has predominantly  manufactured
astronomical  simulation  systems  (planetariums),  projection  domes, and other
curved projection  screens.  Projection domes and curved projection  screens are
used for various  applications  including  large  format film  theaters  such as
Omnimax theaters and various simulation systems. It also services the systems it
sells under  maintenance  contracts.  In recent years,  Spitz has introduced new
video and computer  graphics  projection  products for planetarium  theaters and
other  applications  using  immersive  multimedia  displays for wide  audiences.
Principal customers are domestic and international  museums,  schools,  military
defense  contractors,  theme  parks  and  other  entities  in the  entertainment
industry.

Consolidation and Basis of Presentation

The consolidated  financial  statements  include the accounts of the Company and
its  wholly  owned  subsidiary,  Spitz.  Upon  consolidation,   all  significant
intercompany transactions have been eliminated.

Revenue Recognition

Revenues from sales of equipment are  recognized on the percentage of completion
method,  measured by the percentage of cost incurred to estimated total cost for
each contract.  Estimated  losses under the percentage of completion  method are
charged  to  operations   immediately.   Revenues  from  maintenance   contracts
representing  the  estimated  portion for  preventive  service  (40% of contract
value) are recognized upon completion of the preventive service.  The balance of
revenues from maintenance contracts  representing covered services is recognized
over the one-year term of the contract.  Revenues from parts and other  services
are recognized upon shipment or completion of the service, respectively.

Inventories

Inventories  are  stated  at the  lower  of  cost,  determined  by the  first-in
first-out  method, or market value.  Certain repair and maintenance  inventories
having  realization  cycles  longer  than  one  year  have  been  classified  as
long-term.  Inventories  include  amounts  related  to long  term  contracts  as
determined by the percentage of completion method of accounting.


                                       22
<PAGE>

Machinery and Equipment

Machinery  and  equipment  are stated at cost,  which is  depreciated  using the
straight-line method over the estimated useful lives of the assets.

Computer Software

Computer  software  consists  of  costs  of  developing  software  products  for
automated  control  systems  and show  production  tools  sold  with  projection
systems.  Costs are amortized  over the estimated  sale of units not to exceed a
period of 10 years.  Amortization of costs related to computer software products
held for sale amounted to $37,000 in each of fiscal 1999 and fiscal 1998.

Excess of Cost Over Net Assets of Business Acquired

The excess of cost over net assets of  business  acquired  is  amortized  on the
straight-line  basis over forty years.  The Company  continually  evaluates  the
carrying amount of this asset.  Accumulated  amortization of excess of cost over
net assets of business acquired amounted to $924,000 and $855,000 at January 31,
1999 and 1998, respectively.

Income Taxes

Income taxes are accounted for by the asset and liability approach in accordance
with Statement of Financial  Accounting  Standard No. 109 "Accounting for Income
Taxes".  Deferred  taxes will  arise,  subject to a  valuation  allowance,  from
differences  between  the  financial  reporting  and tax  bases  of  assets  and
liabilities  and are adjusted for changes in the tax laws when those changes are
enacted.

Earnings  Per Share

Earnings per share have been computed in accordance  with Statement of Financial
Accounting  Standards  No. 128.  Basic  earnings per share reflect the amount of
income  available  for each share of common stock  outstanding  during the year.
Shares used in computing  basic earnings per share include  shares  contingently
issuable for nominal cash consideration.  As such, shares issuable under a Stock
Subscription  Warrant  to  purchase  108,913  shares  at  $0.20  per  share  are
considered  common shares  outstanding in the  computation of basic earnings per
share for the year ended January 31, 1998.  Diluted  earnings per share reflects
the amount of income available for each share of common stock outstanding during
the year assuming the issuance of all dilutive potential shares.

The following table sets forth the computation of basic and diluted earnings per
share (dollars in thousands except per share data):


                                       23
<PAGE>

<TABLE>
<CAPTION>

                                                                   Year ended January 31,
                                                                 -----------------------
                                                                        1999        1998
                                                                 ----------- -----------
<S>                                                              <C>         <C>    

Numerator (same for basic and dilutive):
        Net income before extraordinary gain                          $  109      $  167
        Preferred dividend requirement                                     8          38
                                                                 ----------- -----------
        Net income before extraordinary gain available
          to common stockholders                                         101         129
        Extraordinary gain on elimination of debt                                    345
                                                                 ----------- -----------
        Net income available to common stockholders                   $  101      $  474
                                                                 =========== ===========
Denominator:
        Weighted average shares outstanding for basic earnings
          per share                                                  501,720     375,253
        Dilutive effect of employee stock options                      6,393      12,301
                                                                 ----------- -----------
        Weighted average shares outstanding and assumed
          conversions for dilutive earnings per share                508,113     387,554
                                                                 =========== ===========

Basic earnings per share:
        Before extraordinary gain                                     $  .20      $  .34
        Extraordinary gain on elimination of debt                         --         .92
                                                                 ----------- -----------
        Total                                                         $  .20      $ 1.26
                                                                 =========== ===========

Diluted earnings per share:
        Before extraordinary gain                                     $  .20      $  .33
        Extraordinary gain on elimination of debt                         --         .89
                                                                 ----------- -----------
        Total                                                         $  .20      $ 1.22
                                                                 =========== ===========
</TABLE>

Common shares  potentially  issuable under the contractual  conversion rights of
the Preferred B shares would have an  antidilutive  effect on earnings per share
and therefore have not been included in the above computations. Weighted average
common shares issuable under the contractual  conversion rights of the Preferred
B shares amounted to 1,906 shares in fiscal year 1999 and 9,566 shares in fiscal
1998.

Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles require management to make estimates and assumptions that
affect certain  reported amounts and  disclosures.  Accordingly,  actual results
could differ from those estimated.


                                       24
<PAGE>



2. INVENTORIES

Inventories consist of (in thousands):

<TABLE>
<CAPTION>

                                                                               January 31,
                                                                         -----------------------
                                                                               1999        1998
                                                                         ----------- -----------
<S>                                                                      <C>          <C>     
Raw materials, parts, and subassemblies                                    $    735    $    822
Work-in-process                                                                  27         140
Finished                                                                          -           2
Cost and estimated earnings in excess of billings                               684         613
                                                                         ----------- -----------
Total inventories                                                             1,446       1,577
Repairs and maintenance inventories recorded with other assets                  165         165
                                                                         =========== ===========
Inventory recorded within current assets                                  $   1,281    $  1,412
                                                                         =========== ===========
</TABLE>


3.  COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS

Costs and estimated earnings on contracts in progress consisted of:

<TABLE>
<CAPTION>

                                                                               January 31,
                                                                         -----------------------
                                                                               1999        1998
                                                                         ----------- -----------
<S>                                                                      <C>          <C>     
Costs incurred on contracts in progress                                     $ 3,358     $ 1,830
Estimated earnings                                                            1,408         779
                                                                         ----------- -----------
Total costs and estimated earnings on contracts in progress                   4,766       2,609
Less billings to date                                                        (5,529)     (2,237)
                                                                         ----------- -----------
Total costs and estimated earnings on contracts in progress net of
 billings                                                                    $ (763)       $ 372
                                                                         =========== ===========
</TABLE>


Included in the  accompanying  balance  sheet or footnotes  under the  following
captions:

<TABLE>
<CAPTION>

                                                                                 January 31,
                                                                          -----------------------
                                                                                1999        1998
                                                                          ----------- -----------
<S>                                                                      <C>          <C>     
Costs and estimated earnings in excess of billings recorded
with inventory                                                             $    684    $    613
Billings in excess of costs and estimated earnings recorded with
Liabilities                                                                  (1,447)       (241)
                                                                          ----------- -----------
Total costs and estimated earnings on contracts in progress net of
Billings                                                                   $    763    $    372
                                                                          =========== ===========
</TABLE>


                                       25
<PAGE>

4. DEBT

Current and long term debt consists of (in thousands):

<TABLE>
<CAPTION>

                                                                                     January 31,
                                                                               -----------------------
                                                                                     1999        1998
                                                                               ----------- -----------
<S>                                                                            <C>         <C>      
Capitalized lease obligations (Note 6)                                          $     200   $     251

Revolving credit note payable to First Keystone Federal Savings Bank,
due July 1, 2002 with monthly interest at 2% over prime                               150         600

Term note payable to First Keystone  Federal  Savings Bank, payable
in equal monthly installments of $17,122 including interest at
9.25% through July 1, 2002                                                            619         748

                                                                               ----------- -----------
Total debt                                                                            969       1,599

Less current portion                                                                  238         215
                                                                                ----------- -----------
Long term debt, less current portion                                             $    731    $  1,384
                                                                               =========== ===========
</TABLE>


The 1999 balance on the term note payable to First Keystone Federal Savings Bank
(First  Keystone)  represents  the balance due on an $820,000 note issued to the
Company's  primary lender on June 12, 1997.  The note is payable  jointly by the
Company  and Spitz  with  interest  at 9.25%  over five  years in equal  monthly
installments  of $17,122.  The balance on the  revolving  credit note payable to
First  Keystone  represents the balance due under an $800,000  Revolving  Credit
Agreement  executed on June 12, 1997. The Revolving  Credit Note is also jointly
payable by the Company and Spitz,  requires monthly  interest  payments at prime
plus 2% and matures on July 1, 2002.  The  Revolving  Credit  Agreement  permits
borrowing,  subject to an asset based  formula,  of up to $800,000  resulting in
unused  borrowing  capacity of $650,000 at January 31, 1999. The debt agreements
with First  Keystone are secured by virtually  all of the  Company's  assets and
require the maintenance of certain financial covenants.

5.  COMMON AND PREFERRED STOCK

On September 26, 1997 the Company offered holders of 1,744 outstanding shares of
the Company's Series B Cumulative  Convertible  Preferred Stock  (Preferred) the
right to exchange  each share of the  Preferred  for 125 shares of the Company's
Common  Stock  (Common).  Holders  of 1,414  shares of  Preferred  accepted  the
exchange offer by November 28, 1997, the expiration  date of the original offer.
In fiscal  1999 a holder of 12 shares of  Preferred  requested,  and the Company
agreed,  to exchange  shares under the same terms.  Accordingly,  in January and
August  1998,  the Company  issued  176,750 and 1,500  shares of its  authorized
Common in  exchange  for 1,414 and 12  shares of  Preferred,  respectively.  The
holders  of the  remaining  318  shares  of  Preferred  did not  respond  to the
solicitation  and their shares will remain  outstanding,  unless  either (i) the


                                       26
<PAGE>

shares are  redeemed or converted in  accordance  with the original  contractual
terms of the  Preferred  or (ii) the  holders of the  Preferred  request and the
Company  agrees to exchange their shares at a future time (which neither side is
obligated  to do and  which,  if  done,  would  be at an  exchange  ratio  to be
negotiated in conjunction therewith).

The  holders of the  remaining  Preferred  are  entitled  to  receive  quarterly
dividends,  when and if  declared by the  Company's  Board of  Directors,  at an
annual per share amount of $27.50.  The payment of such dividends would be prior
and in preference to the payment of any dividends on the Company's common stock.
At January 31,  1999,  accumulated  but  undeclared  and unpaid  dividends  with
respect to the 318  outstanding  shares of  Preferred  amounted to $72,146.  The
Preferred  shares  may be  redeemed  by the  Company  at  $250  per  share  plus
accumulated  unpaid dividends of $227 per share. The 318 shares of Preferred are
convertible,  at the option of the  holders  thereof,  into 1,871  shares of the
Company's common stock, and such common shares have been reserved by the Company
for issuance upon conversion.

Upon  liquidation,  dissolution,  or  winding  up of  the  Company,  before  any
distribution  with  respect to the common  stock,  the  holders of shares of the
Preferred are entitled to receive an amount equal to the  aggregate  liquidation
value,  which would include any accumulated and unpaid dividends.  The Preferred
has no voting  rights except as to any change in the  Company's  Certificate  of
Incorporation  adversely  affecting  the  preferences  of  the  holders  of  the
Preferred and as required by law. In such instances, each holder of Preferred is
entitled  to the number of votes  equal to the number of shares of common  stock
that would be obtained upon conversion of the Preferred.

6.  LEASES

Spitz leases its office and  production  facilities  under an  operating  lease.
Total rent expense  under the lease  amounted to $257,025 and $241,500 in fiscal
years 1999 and 1998, respectively.  The previous lease term expired on April 30,
1998. As a result of negotiations  under an option to extend the term, the lease
was amended to provide a new  eight-year  extended term  commencing  May 1, 1998
with a renewal option for an additional eight years. In addition the lessor made
certain  modifications  and  improvements  to the facility.  Under the new lease
amendment,  annual  rent will be  $262,200  for the first  five years of the new
eight-year  term.  Rent for the remaining  three years and the optional  renewal
term  will be  escalated  based on the  Consumer  Price  Index.  Minimum  rental
commitments under the operating lease are as follows for the fiscal years ended:
2000 through 2006 -- $262,200; 2007 $65,550.

Spitz  finances  purchases of certain  machinery and equipment  through  capital
leases.  Assets under capital  lease  included in Machinery and Equipment are as
follows (in thousands):

<TABLE>
<CAPTION>
                                         January 31,
                                    -----------------------
                                          1999        1998
                                    ----------- -----------
<S>                                 <C>         <C>    
Machinery and equipment                $   357     $   353
Less accumulated depreciation              143          74
                                    ----------- -----------
Net book value                         $   214     $   279
                                    =========== ===========
</TABLE>

The asset and  liability  are recorded at the present value of the minimum lease
payments based on the interest rates imputed in the leases at rates ranging from


                                       27
<PAGE>

11.8% to 12.8%.  Depreciation  on the assets under  capital lease is included in
depreciation expense.

Future  minimum  annual  rentals under  capital lease  agreements at January 31,
1999, are as follows (in thousands):


                                             Fiscal 2000       $  91
                                             Fiscal 2001          73
                                             Fiscal 2002          61
                                             Fiscal 2003          15
                                             Fiscal 2004           -
                                                           ----------
Total payments                                                   240
Less amount representing interest                                 40
                                                           ----------
Present value of capital lease obligations                       200
Less current portion                                              71
                                                           ----------
Long term obligation                                           $ 129
                                                           ==========

7.  STOCK COMPENSATION PLAN

Under the 1995 Stock  Option and  Performance  Incentive  Plan,  the Company may
grant stock options,  stock appreciate rights or shares aggregating up to 50,000
shares of the Company's  common stock to employees of the Company and Spitz.  In
April 1999,  the  Company's  Board of Directors  voted,  subject to  shareholder
approval,  to increase the number of awards  available under the plan by 100,000
shares. On May 20, 1996, 10,500 stock options were granted to certain management
employees  at an  exercise  price of $2.25,  the market  price of the  Company's
common  stock on the grant date.  On July 8, 1997,  39,500  stock  options  were
granted to certain management and other employees at an exercise price of $2.50.
The market price of the  Company's  common stock on July 8, 1997 was $3.63.  The
options vest ratably over four years from the date of grant and expire ten years
from the date of grant. The following table summarizes the activity:

<TABLE>
<CAPTION>

                                                                      Fiscal year ended January 31,
                                                       ------------------------------------------------------------
                                                                1999                            1998
                                                       -----------------------------  -----------------------------
                                                                         Weighted                       Weighted
                                                           Number        Average          Number        Average
                                                         Of shares    exercise price     of shares   exercise price
                                                       -------------- --------------  -------------- --------------
<S>                                                    <C>            <C>             <C>            <C>   
Options outstanding at beginning of period                     50,000     $ 2.45             10,500      $ 2.25

Options granted                                                    --                        39,500      $ 2.50
                                                       --------------                 --------------

Options outstanding at end of period                           50,000     $ 2.45             50,000      $ 2.45
                                                       ==============                 ==============

Options exercisable at end of period                           15,125     $ 2.41              2,625      $ 2.25
                                                       ==============                 ==============
</TABLE>

The weighted average remaining  contractual life of the 50,000 outstanding stock
options at January 31, 1999 is 8.2 years.

                                       28
<PAGE>

The Company has elected to follow  Accounting  Principles  Board  Opinion No. 25
(APB 25) in accounting  for its employee stock options  because the  alternative
fair value  accounting  provided  under  Financial  Accounting  Standards  Board
Statement No. 123 (FAS 123) requires the use of option valuation models that, in
management's opinion, do not necessarily provide a reliable measure of the value
of its employee stock options.  Under APB 25, compensation is measured under the
intrinsic  value method at the grant date and recorded  ratably over the vesting
period.  Intrinsic  value is  measured  by the  difference  between  the  option
exercise  price and the market price of the  underlying  stock at the grant date
for the options granted by the Company. The options granted in fiscal year ended
1998 had an exercise price ($2.50) below market value ($3.63) at the grant date.
As a result, compensation expense from stock options, in accordance with APB 25,
amounted to $11,102 and $6,296 in fiscal years 1999 and 1998, respectively.

Pro forma  information  regarding  net income and earnings per share is required
under FAS 123 and has been  determined  as if the Company had  accounted for its
employee stock options under the fair value method of that  statement.  The fair
value for the options granted in the fiscal year ended 1998 was estimated at the
grant  date  using a  Black-Scholes  option  pricing  model  with the  following
assumptions:  risk free interest rate 6%; dividend yield 0%, expected volatility
of 40%; and a weighted  average  expected life of 7.22 years.  As a result,  the
weighted average fair value of the options granted in the year ended January 31,
1998 at an exercise price below market was estimated at $2.32. Under FAS 123 the
estimated  fair value of the options is  amortized  to expense  over the vesting
period. The following pro forma information reflects net income and earnings per
share had the Company accounted for the employee stock options under FAS 123 (in
thousands except per share data):

<TABLE>
<CAPTION>

                                                       Year ended January 31,
                                                      -----------------------
                                                          1999        1998
                                                      ----------- -----------
<S>                                                   <C>         <C>  
Net income                               As reported     $ 109       $ 512
                                         Pro forma          94         502

Basic earnings per common share          As reported       .20        1.26
                                         Pro forma         .17        1.24

Diluted earnings per common share        As reported       .20        1.22
                                         Pro forma         .17        1.22
</TABLE>

8.  PROFIT SHARING PLAN

The  Company  has  a  funded  profit-sharing  plan  covering  substantially  all
employees.  The plan permits the Company to make discretionary  contributions to
the  accounts  of  participants.  Under the plan,  the  Company  makes a partial
matching  contribution to each participant's  account equal to 50 percent of the
participant's   contribution,   subject  to  a  maximum  of  3  percent  of  the
participant's  total  cash  compensation  and  subject  to  certain  limitations
contained in the Internal  Revenue Code.  Profit-sharing  expense related to the
plan was $71,000 and $73,000 in fiscal 1999 and 1998, respectively.

                                       29
<PAGE>

9. INCOME TAXES

Income tax expense for 1999 and 1998 consists of  applicable  state income taxes
on the income before taxes of Spitz. Federal income taxes for both 1999 and 1998
have  been   eliminated  by  the  utilization  of  federal  net  operating  loss
carryforwards.

Deferred  income taxes result from temporary  differences in the financial bases
and tax bases of assets and liabilities. Significant components of the Company's
net deferred tax at January 31, 1999 and 1998 are as follows: (in thousands)

<TABLE>
<CAPTION>

                                                    January 31,
                                              -----------------------
                                                   1999       1998
                                              ----------- -----------
<S>                                           <C>         <C>    
 Net operating loss carryforwards                $ 4,477     $ 4,590
 Obsolescence reserve                                388         375
                                              ----------- -----------
 Net deferred tax assets                            4865       4,965
 Valuation allowance                               (4865)     (4,965)
                                              ----------- -----------
 Deferred income tax, net                         $    0     $     0
                                              =========== ===========
</TABLE>


The  valuation  allowance is intended to represent the  corresponding  amount of
deferred tax assets  which may not be  realized.  The  Company's  provision  for
income taxes may be impacted by adjustments to the valuation allowance which may
be required if  circumstances  change  regarding the utilization of the deferred
tax assets in future periods.  The valuation allowance remained equal to the net
deferred tax asset for the years presented.

At January 31, 1999,  the Company had  investment  tax credit  carryforwards  of
$126,000 expiring in 1999 through 2002 and a net operating loss carryforward for
tax purposes of $13,167,000  expiring 2006 through 2009. For financial reporting
purposes,   the  net  operating  loss  carryforward  in  1999  is  approximately
$14,308,000.  The difference relates to the nondeductible  reserve for inventory
valuation not  recognized for tax purposes.  The net operating loss  carrforward
was reduced by approximately $334,000 and $458,000 from the utilization of a net
operating loss deduction in 1999 and 1998,  respectively.  The Internal  Revenue
Service has not examined  the Company tax returns  during the years in which the
net  operating  losses were  generated  or since that time.  The effects of such
examinations on the Company's tax loss  carryforwards,  if any, cannot currently
be determined.

10. FINANCIAL INSTRUMENTS

Risk Management

Spitz's  financial  instruments  subject  to  credit  risk are  primarily  trade
accounts  receivable  and cash.  Credit is granted to  customers in the ordinary
course of business but the Company usually receives  progress payments under the
terms of its  customer  contracts.  Additionally,  letters of credit are usually
arranged to secure payment from international customers.

The  Company  and  its  subsidiary  maintain  cash  balances  at  two  financial
institutions  located in Michigan and Pennsylvania.  Accounts are secured by the
Federal  Deposit  Insurance  Corporation.  During the normal course of business,
balances may exceed the insured amount.

Spitz customer contracts are generally payable in U.S.  currency.  Occasionally,
foreign  currency will be required to purchase goods and services related to the

                                       30
<PAGE>

installation of products at foreign  customers  sites.  Spitz generally does not
use  derivative  financial  instruments  with respect to such  foreign  currency
requirements  as their  amounts  are  generally  minor  relative  to the overall
contract costs.

Fair Value of Financial Instruments

SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",  requires
disclosures about the fair value of certain  financial  instruments for which it
is practicable  to estimate that value.  For purposes of such  disclosures,  the
fair value of a financial instrument is the amount at which the instrument could
be exchanged in a current transaction  between willing parties,  other than in a
forced  sale or  liquidation.  Management  believes  that the fair  value of its
financial instruments is generally equal to its book value.

11.  SUPPLEMENTAL CASH FLOW INFORMATION

Non cash  financing  transactions  consist of  equipment of $32,000 and $235,000
acquired through capital leases in fiscal 1999 and 1998, respectively.

Interest paid on debt including capital lease  obligations  amounted to $124,000
in Fiscal 1999 and $154,000 in Fiscal 1998.  The Company paid no federal  income
taxes in Fiscal 1999 and 1998.

12.  Significant Customers and Geographic Information

In fiscal year 1999 and fiscal year 1998, no single customer  accounted for more
than 10% of total  revenue.  Export  revenues by  geographic  area for the years
ended January 31 consist of (in thousands):

<TABLE>
<CAPTION>
                                      Year ended January 31,
                                     -----------------------
                                           1999        1998
                                     ----------- -----------
       <S>                           <C>         <C>   
         Canada                        $      3  $      436
         Central America                      -          79
         South America                       43         169
         Europe                             942         842
         Middle East                         22          --
         Far East                           263         301
                                     ----------- -----------
         Total export revenues         $   1,273  $    1,827
                                     =========== ===========
</TABLE>

13.  CONTINGENCIES AND COMMITMENTS

In 1995,  Spitz became involved in a dispute in connection with a public bid for
the  supply  of  planetarium  equipment  for an  expansion  project  at a public
community  college.  Spitz's  subcontract  bid was the lowest  submitted and the
general  contractor for the project allegedly used Spitz's pricing in submitting
its total  contract bid to the college.  After the total contract was awarded to
the general  contractor,  however,  the college's architect alleged that Spitz's
equipment did not conform to the bid  specifications.  The bid for the equipment
which the architect  deemed to be in  conformance  with the  specifications  was
allegedly approximately $150,000 higher than Spitz's bid. Because the Contractor
has been forced to supply the more  expensive  equipment,  it is  attempting  to
recover the $150,000  price  differential  plus alleged  related  amounts due to
adverse impacts on the project schedule from various parties.  At various times,
the  Contractor  has threatened to assert its claim against Spitz because it has
been  unsuccessful  in its  attempts  to recover its  alleged  damages  from the
college or other involved parties.  The Company believes the bid specifications,


                                       31
<PAGE>

to the extent that they  excluded  Spitz's  equipment,  constituted  an improper
sole-source  of equipment  which violates  competitive  bidding laws because the
specifications  appear to have been copied from a  competitor's  equipment.  The
Company also believes that the Spitz equipment meets all of the valid functional
requirements in the bid specifications.  No lawsuit has been filed against Spitz
or the  Company  and  the  parties  have  discussed  settling  the  matter.  The
Contractor has not communicated  any threats to carry out its assertion  against
Spitz since July 1996, but it has indicated to Spitz that  proceedings  continue
in an effort to recover  damages from the other  parties  involved.  The Company
believes  that it is likely that the parties  will reach an agreement to resolve
the dispute  short of  litigation.  The Company is unable to estimate a probable
outcome and its effect,  if any, on Spitz.  Accordingly,  no  liability  for the
potential claim has been recorded at January 31, 1999.


14.  REFINANCING AND DEBT FORGIVENESS

On June 12, 1997, the Company and Spitz  executed a series of agreements  with a
new lender,  First Keystone  Federal Savings Bank (First  Keystone)  whereby the
proceeds from two new promissory notes were used to retire all existing debt and
a Stock  Subscription  Warrant held by the Company's  previous lender,  Comerica
Bank (Comerica).  Under an agreement with Comerica,  all existing debt amounting
to $1,373,000 as of June 12, 1997, and a Stock Subscription  Warrant to purchase
108,913  shares of the  Company's  Common Stock for $0.20 per share were retired
for a cash payment of $1,230,000.  Debt agreements  executed with First Keystone
consisted of an $820,000 term loan and an $800,000  Revolving Credit  Agreement.
Upon  execution of the new debt  agreements,  proceeds of $820,000 from the term
note and $429,000  from the  revolving  credit  agreement  were used to fund the
$1,230,000  payment to the previous  lender and a portion of other costs related
to the refinancing transactions.

The  initial  advance of  $429,000  resulted  in unused  borrowing  capacity  of
$371,0000 under the new $800,000 Revolving Credit Agreement.  Immediately before
the  refinancing,  the  borrowing  limit under the previous  $500,000  Revolving
Credit  Agreement,  reduced by $129,000  for an  outstanding  standby  letter of
credit,  also resulted in unused borrowing  capacity of $371,0000.  The $129,000
standby  letter of credit  served as  collateral  on  outstanding  surety  bonds
required to guarantee the performance of Spitz on certain customer contracts. In
June 1997, the Surety Company  determined that the Company's  financial strength
was  sufficient  for the level of bonding  outstanding  and returned the standby
letter of credit for cancellation.

The retirement of the $1,373,000  balance from the previous debt  agreements and
the Stock Subscription Warrant for cash of $1,230,000 resulted in a reduction of
Additional  Paid in  Capital  of  $298,000  and an  extraordinary  gain from the
forgiveness of debt of $345,000,  net of related expenses of $96,000,  in fiscal
year 1998. Also, the refinancing eliminated the dilutive affect on the Company's
common  stockholders   resulting  from  the  Stock  Subscription   Warrant  that
represented 25% of the common stock upon its conversion.

                                       32
<PAGE>


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

Not applicable.


                                    PART III

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

The information required by this Item is incorporated herein by reference to the
sections entitled  "Proposal No. 1 -- Election of Directors - Executive Officers
of the Company" and "-- Section 16(a) Beneficial Ownership Reporting Compliance"
of the  Company's  Definitive  Proxy  Statement to be filed with the  Commission
within 120 days after January 31, 1999.

                         ITEM 10. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to the
sections  entitled  "Proposal No. 1 -- Election of Directors --  Compensation of
Directors" and "-- Executive  Compensation"  of the Company's  Definitive  Proxy
Statement  to be filed with the  Commission  within 120 days after  January  31,
1999.



                     ITEM 11. SECURITY OWNERSHIP OF CERTAIN
                        BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated herein by reference to the
section  entitled   "Security   Ownership  of  Certain   Beneficial  Owners  and
Management"  of the Company's  Definitive  Proxy  Statement to be filed with the
Commission within 120 days after January 31, 1999.



                 ITEM 12. CERTAIN RELATIONSHIPS AND TRANSACTIONS

The information required by this Item is incorporated herein by reference to the
section   entitled   "Proposal  No.  1  --  Election  of  Directors  --  Certain
Relationships and  Transactions" of the Company's  Definitive Proxy Statement to
filed with the Commission within 120 days after January 31, 1999.

                                       33
<PAGE>


                    ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)            Exhibits

Exhibit
 No.     Description of Document

3.1      Certificate of Incorporation of Registrant,  as amended (Exhibit 3.1 to
         Registrant's   Registration   Statement   No.   33-6826   on  Form  S-1
         incorporated herein by reference).

3.2      Certificate of Amendment of Certificate of Incorporation of Registrant,
         filed August 31, 1990  (Exhibit 3.2 to  Registrant's  Form 10-K for the
         fiscal  year ended  January  31,  1991 (the "1991  10-K")  incorporated
         herein by reference).


3.3      Certificate of  Designations,  Preferences  and Rights of the Preferred
         Stock  (Exhibit  4(b) to  Registrant's  1989  Form 8-K  filed  with the
         Securities  and  Exchange  Commission  on February 15, 1989 ["1989 Form
         8-K"] incorporated herein by reference).

3.4      Certificate  of  Designations,  Rights  and  Preferences  of  Series  B
         Convertible  Preferred  Stock of  Registrant,  filed  September 5, 1990
         (Exhibit 3.4 to the 1991 10-K, incorporated herein by reference).

3.5      By-laws of Registrant,  as amended  (Exhibit 3.3 to  Registrant's  Form
         10-K  for  the  fiscal  year  ended  January  31,  1989  ["1989  10-K"]
         incorporated herein by reference).

4.1      Certificate  of  Incorporation  of Registrant,  as amended,  listed as
         Exhibit 3.1 above and incorporated herein by reference.

4.2      Certificate   of  Amendment  of  Certificate   of   Incorporation   of
         Registrant,  listed as Exhibit  3.2 above and  incorporated  herein by
         reference.

4.3      Certificate of  Designations,  Preferences and Rights of the Preferred
         Stock,  listed  as  Exhibit  3.3  above  and  incorporated  herein  by
         reference.

4.4      Certificate  of  Designations,  Rights  and  Preferences  of  Series  B
         Convertible Preferred Stock of Registrant,  listed as Exhibit 3.4 above
         and incorporated herein by reference.

4.5      Convertible  Subordinated  Debenture  Purchase  Agreement,  dated as of
         November 22, 1989, between Registrant and the purchasers of convertible
         subordinated debentures set forth therein (Exhibit 4(a) to Registrant's
         Quarterly  Report on Form 10-Q for the quarter  ended  October 31, 1989
         [the "10/31/89 10-Q"] incorporated herein by reference).

10.1     Transnational   Industries  Inc.  1995  Stock  Option  and  Performance
         Incentive Plan (Exhibit "A" to Registrant's  Proxy Statement dated June
         16, 1995 incorporated herein by reference).

10.2     Employment Agreement dated May 1, 1995 between Charles Holmes and Spitz
         Inc (Exhibit  10.2 to  Registrant's  1996 10-K  incorporated  herein by
         reference).

                                       34
<PAGE>

10.3     Employment  Agreement  dated May 1, 1995  between Paul Dailey and Spitz
         Inc.  (Exhibit 10.3 to Registrant's  1996 10-K  incorporated  herein by
         reference).

10.4     Employment  Agreement dated May 1, 1995 between Jonathan Shaw and Spitz
         Inc.  (Exhibit 10.4 to Registrant's  1996 10-K  incorporated  herein by
         reference).

10.5     Employment  Agreement dated May 1, 1995 between John Fogleman and Spitz
         Inc.  (Exhibit 10.5 to Registrant's  1996 10-K  incorporated  herein by
         reference).

10.6     Line of Credit Agreement,  dated June 12, 1998,  between First Keystone
         Savings Bank, the Company and Spitz, Inc. (Exhibit 10.1 to Registrant's
         Form  10-QSB for the  quarterly  period  ended July 31, 1998 (the "7/97
         Form 10-QSB") incorporated herein by reference).

10.7     Line of Credit  Note,  dated June 12,  1998,  of the Company and Spitz,
         Inc. to First  Keystone  Savings  Bank  (Exhibit  10.2 to the 7/97 Form
         10-QSB incorporated herein by reference).

10.8     Term Note, dated June 12, 1998, of the Company and Spitz, Inc. to First
         Keystone   Savings  Bank   (Exhibit   10.3  to  the  7/97  Form  10-QSB
         incorporated herein by reference).

10.9     Agreement,  dated June 12, 1998,  between the Company,  Spitz, Inc. and
         Comerica Bank (Exhibit 10.4 to the 7/97 Form 10-QSB incorporated herein
         by reference).


21       Subsidiaries of Registrant (a Delaware corporation):

                                            Spitz, Inc.

27       Financial Data Schedules*

         *Filed electronically herewith

(b) Reports on Form 8-K for the quarter ended January 31, 1999.

                  None


                                       35
<PAGE>


SIGNATURES


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


Dated: April 30, 1999                           Transnational Industries, Inc.
                                                   By:  /s/  Paul L. Dailey   
                                                   ----------------------------
                                                        Paul L. Dailey
                                                        Secretary - Treasurer
                                                        Chief Financial Officer


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


Signature                       Title                        Date
-------------------             ----------------------       -----------------

/s/  Charles F. Huber
-------------------------       
     Charles F. Huber           Chairman of the Board         April 30, 1999


/s/  Charles H. Holmes, Jr                                    
--------------------------
     Charles H. Holmes, Jr.     Chief Executive Officer
                                Director, President and       April 30, 1999   

/s/  William D. Witter
--------------------------
     William D. Witter          Vice Chairman of the Board    April 30, 1999

/s/  Michael S. Gostomski
--------------------------
     Michael S. Gostomski       Director                      April 30, 1999

 /s/ Calvin A. Thompson
--------------------------
     Calvin A. Thompson         Director                      April 30, 1999