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, 1998

         [  ] 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,  1998,  were
$7,075,985.

         The aggregate  market value of the voting stock held by  non-affiliates
of  Registrant  as of March 31,  1998 was  approximately  $329,451  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, 1998, 500,970 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, 1998, 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
and manufacture of  computer-controlled  astronomical  simulation  equipment and
domed projection screens. Spitz, under a predecessor corporation, was founded in
1944.

Narrative Description of Business

Planetarium and Dome Equipment

Spitz is the world's leading producer of astronomical  simulation  equipment and
domed projection screens, which are proprietary to Spitz.

--Planetarium projector 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
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.

--New video projector systems

In  fiscal  1997  Spitz  introduced  ImmersaVision(TM),  its 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  which  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.  In fiscal 1997,
Spitz  sold the first  ElectricSky  system to the Town of  Watson  Lake,  Yukon,
Canada for a new theater for tourism.  In fiscal 1997,  Spitz also delivered the
first  ElectricHorizon  System,  for a temporary exhibit at the Carnegie Science
Center in Pittsburgh,  Pennsylvania. The Carnegie Science Center 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,


                                       3
<PAGE>

the  ElectricHorizon  components  were  dismantled  and  returned to the various
owners.  Spitz  has not yet sold  another  ImmersaVision  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.

--Domed Structures

Spitz also 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 1998,  revenues of $2,146,000 (30% 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  astronomical
simulation  equipment 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 expected for
ImmersaVision  from  existing  planetarium  competitors  and other  suppliers of
virtual reality display mediums but cannot yet be quantified. 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 are expected to 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  expects to attract  customers  who are  unwilling to take on such complex
tasks.  Also,  Spitz  plans  to  develop  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
$363,000 in fiscal 1998 and $415,000 in fiscal 1997.



Environmental Compliance

Spitz routinely  improves and maintains  various systems designed to control the


                                       5
<PAGE>

quality of air and water  discharged from its plant,  including dust control and
ventilation.  Spitz  anticipates  that it will continue to make similar  routine
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, 1998, the Company and Spitz had 48 permanent  employees,  of whom
41 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, 1998.

                                       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  1998 and 1997.  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.  

                                                  Fiscal 1998      Fiscal 1997
                                             -----------------------------------
                                                  High     Low     High    Low
                                             -----------------------------------
     First Quarter .........................   $   2.25$   1.50$   2.00$   2.00
     Second Quarter ........................       4.00    2.13    2.00    1.50
     Third Quarter .........................       6.50    3.75    1.50    1.50
     Fourth Quarter ........................       6.25    5.38    2.50    1.50


Holders

At March 31,  1998,  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, 1998,  accumulated but
undeclared and unpaid  dividends with respect to the 330  outstanding  shares of
Preferred B amounted to $65,794.  The  Preferred B shares may be redeemed by the
Company at $250 per share plus  accumulated  unpaid dividends of $199 per share.
The 330 shares of Series B Preferred  are  convertible  into 1,941 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, 1998.

                                                             Percentage
                                                               Change
                                  Percentage of Revenues        1998
                                  Year ended January 31,         vs.
                                     1998          1997          1997
                                   -----------------------------------
   Revenues                          100.0%    100.0%            3.4%
   Cost of sales                       71.6      69.2            6.9
   Gross margin                        28.4      30.8           (4.4)
   Selling expenses                     8.1       7.9            5.9
   Research and development             5.1       6.1          (12.5)
   General and administrative          10.9      10.8            4.3
   Operating income                     4.3       6.0          (25.5)
   Interest expense                     1.8       1.9           (5.3)
   Income before income taxes           2.6       4.1          (35.1)
   Income taxes                         0.2       0.1             *
   Income before extraordinary gain     2.4       4.0          (38.8)
   Extraordinary gain                   4.9       --              *
   Net Income                           7.2       4.0           87.5
-----------

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

Revenues in the year ended January 31, 1998 (1998) were  $7,076,000  compared to
$6,842,000  in the year ended  January 31, 1997 (1997),  an increase of $234,000
(3%).  Revenues from  ImmersaVision,  the Company's new line of video projection
products,  amounted  to $178,000  in 1998  compared  to  $250,000  in 1997.  The
ImmersaVision  revenue  was  attributable  to the first  sale of an  ElectricSky
system which was completed in May 1997. Several  ImmersaVision  sales prospects,
who were  expected to order in time to impact 1998  revenue,  have delayed order
placement  decisions.  This  lengthening  of the  sales  cycle has  delayed  the
expected revenue impact from ImmersaVision  until the later part of fiscal 1999.
Dome  revenues  were  $4,271,000  in 1998  compared to  $4,184,000  in 1997,  an
increase of $87,000 (2%).  Dome revenues from ride  simulation  attractions  and
military training simulators increased while dome revenue from film theaters and
planetariums decreased. Planetarium revenues were $2,627,000 in 1998 compared to
$2,408,000 in 1997, an increase of $219,000  (9%).  The increase in  planetarium
revenues was partially due to sales of refurbished  systems for the  educational
market  which offset lower  revenues  from the sale of new systems.  Planetarium
revenues  attributable to the sale of maintenance and parts also  contributed to


                                       8
<PAGE>

the  increase  with  $1,295,000  in 1998  compared to  $1,153,000  in 1997.  The
increase in maintenance and parts revenues resulted from preventive  maintenance
agreements as well as increased parts sales and paid service calls.

The  Company's  revenues  from  maintenance  service  and the sale of parts  are
expected to increase over time due to both inflationary  price increases and the
expansion  of the  Company's  customer  base  resulting  from  the  sale  of new
planetarium  systems.  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.  Presently  there is a high  level of sales  prospects  for new
planetarium  systems and ImmersaVision  systems which are expected to contribute
significantly to revenues in the second half of fiscal 1999 through fiscal 2000.
Revenues  from the various dome markets are expected to continue at 1998 levels.
The Company expects increasing revenue contributions from ImmersaVision products
in future years as the installed base grows and new  applications of the product
are discovered.  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  commercial
markets  over the next  several  years.  While sales  prospects  remain good and
bookings have improved,  uncertainty in the timing and delivery of new sales are
expected to cause revenue levels to continue to fluctuate in future quarters.

Gross margins decreased to 28.4% in 1998 from 30.8% in 1997. Lower gross margins
were attributable to lower profits on dome installation activity,  cost overruns
on  certain  planetarium  projects,  and lower  profits  on the first  sale of a
product which updates the  electronics  of an existing  planetarium  model.  The
lower  margins on dome  installation  activity  resulted  from the lower  profit
margins on change  orders to recover cost  overruns as dictated by  construction
contract terms  inherent in many of the Company's  customer  contracts.  Selling
expenses rose $32,000 (6%) in 1998 due to sales and proposal efforts for several
major  projects and the costs of  introducing  the new  ImmersaVision  products.
Selling expenses in fiscal 1999 are expected at current or increasing  levels as
marketing efforts on ImmersaVision  continue.  Research and development expenses
decreased  $52,000 (13%) in 1998 as higher levels of engineering  resources were
redirected to sales and proposal  efforts and invested in  capitalized  computer
software  production.  Research  and  development  activities  are  expected  to
increase in future years as efforts  continue in the  development of proprietary
programming  tools  for  software  content   development  and  other  commercial
applications for  ImmersaVision.  Research and development  activities will also
continue to improve  existing  planetarium  products  in order to  maintain  and
improve  market  share  among  advancing  competing  technologies.  General  and
administrative  expenses  increased  $32,000  (4%) in 1998 due to  increases  in
personnel costs and professional fees.

Reported  interest  expense amounted to $125,000 in 1998 compared to $132,000 in
1997.  The  $125,000  reported  in  1998  consisted  of  $154,000  paid  on debt
obligations  offset by  $29,000  of  interest  income  earned on cash  invested.
Reported  interest  expense was reduced in 1997 as a result of the accounting in
accordance with Statement of Financial  Accounting  Standards No. 15 (Accounting
by Debtors and  Creditors  for Troubled Debt  Restructuring)  by which  interest
payments  on  modified  debt  agreements  are not  expensed  but  applied to the
adjusted book value of the debt.  The $132,000 of interest  expense  reported in
1997 consisted of $167,000 paid on debt obligations,  reduced by $18,000 applied
against debt and offset by $17,000 of interest  income earned on cash  invested.
Unless new customers make advance payments,  net interest expense is expected to
increase in fiscal year 1999 as cash balances from  previous  customer  advances
have been  depleted  resulting in lower  interest  income from cash invested and
higher interest  expense from use of the revolving credit loan. The Company paid
no federal income taxes in 1998 or 1997 as federal  taxable income was offset by


                                       9
<PAGE>

the utilization of net operating loss carryforwards. State income taxes amounted
to $14,000 and $6,000 in 1998 and 1997,  respectively.  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 before  extraordinary
item of  $167,000 in 1998  compared  to net income of  $273,000 in 1997.  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  extraordinary  gain  increased net income to $512,000 in
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.

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
debt of approximately $345,000, net of related expenses,  recorded in the second
quarter  of  fiscal  1998.  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


                                       10
<PAGE>

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.

At January 31,  1998 there was a $600,000  balance on the new  revolving  credit
note compared to no balance  under the previous  revolving  credit  agreement at
January 31, 1997. At January 31, 1998 the unused  borrowing  capacity on the new
$800,000 revolving credit agreement was $200,000 compared to $371,000 at January
31, 1997 under the previous  $500,000  revolving  credit  agreement.  Additional
liquidity  was  provided by remaining  cash  balances of $471,000 at January 31,
1998 compared to $953,000 at January 31, 1997. The next sources of liquidity are
trade accounts  receivable and contracts in process.  Trade accounts  receivable
decreased to $737,000 at January 31, 1998  compared to $1,077,000 at January 31,
1997. The higher liquidity  available at January 31, 1997 from cash and accounts
receivable was  attributable  to advanced  funding from contracts in progress as
billings  exceeded  revenue recorded by $658,000 at January 31, 1997 compared to
revenue  recorded in excess of billings  of $372,000 at January 31,  1998.  This
represents a decrease in customer  financing of $1,030,000 and  illustrates  the
previous  discussion of effect of progress  payments on cash flow.  Contracts in
progress at January 31, 1998 will provide  liquidity as billings catch up to the
revenue  recorded through the completion of each project;  however,  the payment
terms on new contracts remain uncertain and will also affect liquidity.

The net cash used by operating  activities  was $49,000 in 1998  compared to net
cash provided of $1,185,000 in 1997, a decrease in cash provided from operations
of $1,234,000.  The decrease consists of a $1,197,000  decrease in cash provided
by changes in operating  assets and liabilities  and a $54,000  decrease in cash
generated from operating  income offset by $17,000 of lower net interest and tax
payments.  As discussed  previously,  the change in  operating  assets is mostly
attributable to progress payment terms on customer contracts.

In addition to the $49,000  used by  operating  activity in 1998,  $303,000  was
invested in capital expenditures and $130,000 was used by financing  activities.
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.

Of the  $1,185,000  provided by  operations  in 1997,  $121,000  was invested in
capital  additions  and  $450,000 was used by  financing  activities.  Financing
activities  included  net pay downs of $269,000 on the  revolving  credit  note,
payments of $25,000 on capital  leases,  and monthly  principal  payments on the
convertible  term note of  $156,000.  Non cash  financing  transactions  in 1997
consist of $65,000 of machinery and equipment acquired through capital leases.

Total debt at January 31, 1998 was  $1,599,000,  an increase of $78,000 from the
$1,521,000  at January 31, 1997. In summary,  the increase  resulted from normal
and recurring  transactions  combined with the refinancing of the Company's debt
agreements.  Normal and  recurring  transactions  contributing  to the  increase
consist of $171,000 of net borrowings on the new revolving credit note and a new


                                       11
<PAGE>

$235,000  capital  lease  obligation  offset by $132,000 of  scheduled  payments
applied  to  term  debt  and  $73,000  of  payments  applied  to  capital  lease
obligations. The refinancing transactions consist of proceeds of $820,000 from a
new term note and $429,000  from an initial  advance on a revolving  credit note
offset by $932,000 of a lump sum payment  applied to previous  debt balances and
$442,000 of debt forgiveness (before related expenses).

Capital  additions  consisting of the purchase and  fabrication of machinery and
equipment  and  the  development  of  computer  software  amounted  to  $538,000
($235,000 by capital lease) and $186,000 ($65,000 by capital lease), in 1998 and
1997, respectively.  When appropriate,  the Company will fund the acquisition of
capital assets through capital leases or equipment financing notes. In the first
quarter of fiscal 1998, the Company acquired approximately $235,000 of equipment
to create a research and  development  laboratory and an in house  demonstration
for ImmersaVision which it funded through a capital lease. In addition, in 1998,
$172,000 was invested in software to automate and integrate the control and show
production  process  of  ImmersaVision  into a theater  environment  with  other
products.  Future  opportunities  from  ImmersaVision  are  expected  to require
continual  investments  in hardware and software to take  advantage of advancing
technologies.  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 September 26, 1997 the Company offered holders of 1,744 outstanding shares of
the Company's  Series B Cumulative  Convertible  Preferred Stock  (Preferred) 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. The offer
expired on November 28, 1997.  Holders of 1,414 shares of Preferred accepted the
exchange offer. Accordingly,  in January 1998, the Company issued 176,750 of its
authorized Common in exchange for 1,414 shares of Preferred, which were retired.
The  holders of the  remaining  330 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 new 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.

Year 2000 Impact

The  Company  is  planning  to  replace  all  or  part  of  its   financial  and
manufacturing information systems,  including hardware and software prior to the
year  2000 in  order to  improve  the flow and  control  of  information  and to
accommodate changes in the Company's  business.  New systems under consideration
claim to be Year 2000 compliant.  Certain  components of the Company's  existing
information systems are not Year 2000 compliant. The Company has been advised by
software vendors and consultants that  modifications are in process to make such


                                       12
<PAGE>

components  Year  2000  compliant.  Consideration  will be  given  to Year  2000
compliance in the decision to keep or replace the components of the  information
systems. Although the final costs have not yet been determined,  the replacement
or  modification  of the  existing  systems is not expected to have a materially
adverse  impact on the  Company's  business.  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. It is possible,  however,  that
third party  software  products  are not Year 2000  compliant.  Also,  Year 2000
issues could impact the  Company's  customers  and  suppliers.  The Company will
continue to assess the Year 2000 issues with respect to other  parties but there
can be no assurance that other's  failures to timely address the issues will not
have an affect on the Company.

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.

                                       13
<PAGE>



                    ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS



                                      INDEX

                                                                      Page



         Report of Independent Auditors                                 15

         Consolidated Balance Sheets                                    16

         Consolidated Statements of Operations                          18

         Consolidated Statements of Changes in Stockholders' Equity     19

         Consolidated Statements of Cash Flows                          20

         Notes to Consolidated Financial Statements                     21





                                       14
<PAGE>

Report of Independent Auditors



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

We have audited the  accompanying  consolidated  balance sheet of  Transnational
Industries,  Inc. as of January 31, 1998 and 1997, 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.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our 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,  1998  and  1997,  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 & COMPANY, P.C
                                           -----------------------------------
                                                 STOCKTON BATES & COMPANY, P.C.





Philadelphia, Pennsylvania
April 2, 1998


                                       15
<PAGE>

                         Transnational Industries, Inc.

                           Consolidated Balance Sheets

                             (Dollars in thousands)

                                                            January 31,
                                                       ---------- ---------
                                                            1998      1997
                                                       ---------- ---------
Assets

Current Assets:
  Cash                                                  $    471  $    953
  Accounts receivable                                        737     1,077
  Inventories                                              1,412       983
  Other current assets                                       135       123
                                                       ---------- ---------

Total current assets                                       2,755     3,136



Machinery and equipment:
  Machinery and equipment                                $ 2,675   $ 2,308
  Less accumulated depreciation                            1,927     1,723
                                                       ---------- ---------

Net machinery and equipment                                  748       585



Other assets:
  Repair and maintenance inventories, less provision
    for obsolescence (1998--$1,101; 1997--$1,061)            165       190
  Computer software, less amortization                       322       187
  Excess of cost over net assets of business acquired,
    less amortization                                      1,893     1,961
                                                       ---------- ---------

Total other assets                                         2,380     2,338
                                                       ========== =========

Total assets                                            $  5,883  $  6,059
                                                       ========== =========

See notes to consolidated financial statements.

                                       16
<PAGE>

                                          Transnational Industries, Inc.

                                      Consolidated Balance Sheets (continued)

                                              (Dollars in thousands)

                                                             January 31,
                                                       ---------- ----------
                                                         1998       1997
                                                       ---------- ----------
Liabilities and stockholders' equity

Current liabilities:
  Accounts payable                                      $    468   $    228
  Deferred maintenance revenue                               641        574
  Accrued expenses                                           224        287
  Billings in excess of cost and estimated earnings          241        940
  Current portion of long-term debt                          215        542
                                                       ---------- ----------

Total current liabilities                                  1,789      2,571

Long-term debt, less current portion                       1,384        979


Stockholders' equity:
  Series B cumulative convertible preferred stock,
  $0.01 par value - authorized 100,000 shares;
  issued and outstanding 330 shares in 1998
  (liquidating value $148,294) 1,744 shares in
  1997 (liquidating value $735,750)                           76        399
  Common stock, $0.20 par value -authorized
    1,000,000 shares; issued and outstanding 500,970
    shares in 1998 and 324,220 shares in 1997                100         65
  Additional paid-in capital                               8,479      8,502
  Accumulated deficit                                     (5,945)    (6,457)
                                                       ---------- ----------

Total stockholders' equity                                 2,710      2,509
                                                       ---------- ----------

Total liabilities and stockholders' equity              $  5,883   $  6,059
                                                       ========== ==========


See notes to consolidated financial statements.


                                       17
<PAGE>

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

                                                     Year ended January 31,
                                                   ----------------------------
                                                           1998           1997
                                                   ------------- --------------

Revenues                                               $  7,076       $  6,842
Cost of sales                                             5,064          4,737
                                                   ------------- --------------
Gross margin                                              2,012          2,105

Selling expenses                                            575            543
Research and development                                    363            415
General and administrative expenses                         768            736
                                                   ------------- --------------
                                                          1,706          1,694
                                                   ------------- --------------
Operating Income                                            306            411

Interest expense net of income                              125            132
                                                   ------------- --------------
Income before income taxes                                  181            279

Provision for income taxes                                   14              6
                                                   ------------- --------------
Net Income before extraordinary item                        167            273

Extraordinary gain on elimination of debt                   345             --
                                                   ------------- --------------
Net income                                                  512            273

Preferred dividend requirement                               38             48
                                                   ============= ==============
Income applicable to common shares                      $   474     $      225
                                                   ============= ==============

Basic earnings per common share:
       Before extraordinary gain                       $    .34      $     .52
       Extraordinary gain on elimination of debt            .92             --
                                                    ------------- --------------
                                                       $   1.26            .52
                                                    ============= ==============
Diluted earnings per common share:                                           .
       Before extraordinary gain                       $    .33       $    .52
       Extraordinary gain on elimination of debt            .89             --
                                                    ------------- --------------
                                                          $1.22    $       .52
                                                    ============= ==============



See notes to consolidated financial statements.

                                       18
<PAGE>



                         Transnational Industries, Inc.

           Consolidated Statements of Changes in Stockholders' Equity

                                 (In thousands)



                                     Preferred            Additional
                                       Stock      Common   Paid in   Accumulated
                                      Series B     Stock   Capital      Deficit
                                      ------------------------------------------
Balance at January 31, 1996 ......    $   399     $    65    $ 8,502    $(6,730)

Net Income .......................        273
                                      ------------------------------------------
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)
                                      ==========================================







See notes to consolidated financial statements.


                                       19
<PAGE>


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

                                                           Year ended January 31
                                                           ----------- ---------
                                                                1998      1997
                                                             --------- ---------
                                                              
Operating activities
Net income                                                  $    512  $    273
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
    Extraordinary gain from elimination of debt                 (345)       --
    Depreciation and amortization                                309       264
    Provision for obsolescence                                    40        40
    Interest Payments applied to debt                                      (18)
    Compensation from stock options                                6
 Changes in operating assets and liabilities, net:
    Accounts receivable                                          340       101
    Inventories                                                 (113)        6
    Other current assets                                         (12)      (12)
    Cost and estimated earnings on contracts net of billings  (1,030)      683
    Accounts payable                                             240      (180)
    Accrued expenses                                               4        28
                                                             --------- ---------
Net cash provided (used) by operating activities                 (49)     1185
                                                             --------- ---------

Investing activities
Capital expenditures                                            (303)     (121)
                                                             --------- ---------
Net cash used by investing activities                           (303)     (121)
                                                             --------- ---------

Financing activities
Proceeds from revolving line of credit                           600     2,787
Payments on revolving line of credit                           (429)   (3,056)
Payments on capital leases                                      (73)      (25)
Scheduled payments on long term debt                           (132)     (156)
Payments related to refinancing                                 (77)
Payments related to conversion of preferred stock               (19)
                                                            --------- ---------
Net cash used by financing activities                          (130)     (450)
                                                            --------- ---------

Increase (decrease) in cash                                    (482)      614
Cash at beginning of year                                       953       339
                                                            --------- ---------
Cash at end of year                                          $  471   $   953
                                                            ========= =========


See notes to consolidated financial statements.

                                       20
<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) operates in one business  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. Recently, Spitz 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.  Certain  reclassifications  to
prior year amounts have been made to conform with the current year presentation.

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 are 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.

                                      21
<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 1998 and fiscal 1997.

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 $855,000 and $788,000 at January 31,
1998 and 1997, 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 (SFAS 128) which is a different method of computing
earnings per share than was required for prior reporting  periods.  Accordingly,
earnings  per share for the prior year have been  restated for  presentation  in
accordance  with SFAS 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.  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):


                                       22
<PAGE>

<TABLE>
<CAPTION>



                                                                                  Year ended January 31,
                                                                              ---------------------------
                                                                                      1998          1997
                                                                              ------------- -------------
<S>                                                                           <C>          <C>
Numerator (same for basic and dilutive):
       Net income before extraordinary gain                                      $      167   $      273
       Preferred dividend requirement                                                    38           48
                                                                              ------------- -------------
       Net   income   before   extraordinary   gain   available   to   common
       stockholders                                                                     129          225
       Extraordinary gain on elimination of debt                                        345           --
                                                                              ============= =============
       Net income available to common  stockholders                              $      474    $     225
                                                                              ============= =============
Denominator:
       Weighted   average  shares   outstanding  for  basic  earnings  per
       share                                                                        375,253      433,133
       Dilutive effect of employee stock options                                     12,301          --
                                                                              ============= =============
       Weighted     average     shares     outstanding     and     assumed
       conversions for dilutive earnings per share                                  387,554      433,133
                                                                              ============= =============

Basic earnings per share:
       Before extraordinary gain                                                $       .34    $     .52
       Extraordinary gain on elimination of debt                                        .92           --
                                                                              ============= =============
       Total                                                                    $      1.26     $    .52
                                                                              ============= =============

 Diluted earnings per share:
       Before extraordinary gain                                                $       .33      $    .52
       Extraordinary gain on elimination of debt                                        .89            --
                                                                              ------------- -------------
       Total                                                                    $      1.22      $    .52
                                                                              ============= =============
</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 9,566  shares in fiscal  year 1998 and  10,259  shares in
fiscal 1997.

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.


                                       23
<PAGE>


 2.   Inventories

Inventories consist of (in thousands):
<TABLE>
<CAPTION>

                                                                           January 31,
                                                                       --------------------
                                                                            1998       1997
                                                                       --------- -----------
<S>                                                                    <C>       <C>
Raw materials, parts, and subassemblies                                $     822     $  734
Work-in-process                                                              140        153
Finished                                                                       2          4
Cost and estimated earnings in excess of billings                            613        282
                                                                       --------- -----------
Total inventories                                                          1,577      1,173
Repairs and maintenance inventories recorded with other assets               165        190
                                                                       --------- ----------
Inventory recorded within current assets                                $  1,412  $     983
                                                                       ========= ===========
</TABLE>

3.  Costs and Estimated Earnings on Contracts in Progress

Costs and estimated earnings on contracts in progress consisted of:
<TABLE>
<CAPTION>

                                                                           January 31,
                                                                       --------- ----------
                                                                            1998    1997
                                                                       --------- ----------
<S>                                                                     <C>      <C>  
Costs incurred on contracts in progress                                 $ 1,830   $ 2,698
Estimated earnings                                                          779       953
                                                                        -------- ----------
Total costs and estimated earnings on contracts in progress               2,609     3,651
Less billings to date                                                    (2,237)   (4,309)
                                                                       --------- ----------
Total costs and estimated earnings on contracts in progress net of
billings                                                                  $ 372   $  (658)
                                                                       ========= ==========

</TABLE>

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

<TABLE>
<CAPTION>

                                                                          January 31,
                                                                       --------- ---------
                                                                            1998     1997
                                                                       --------- ---------
<S>                                                                       <C>       <C>   
Costs and estimated earnings in excess of billings recorded
with inventory                                                           $  613  $    282
Billings in excess of costs and estimated earnings recorded with
liabilities                                                                (241)     (940)
                                                                       --------- ---------
Total costs and estimated earnings on contracts in progress net of
billings                                                                 $  372  $   (658)
                                                                       ========= =========
</TABLE>

                                       24
<PAGE>


4.    Debt

Current and long term debt consists of (in thousands):
<TABLE>
<CAPTION>

                                                                                           January 31,
                                                                                  --------------- ---------------
                                                                                            1998            1997
                                                                                  --------------- ---------------
<S>                                                                                        <C>             <C>  

     Capitalized lease obligations (Note 6)                                               $  251          $   88

     Convertible  term note  payable to Comerica  Bank,  due August 1, 1997 with
     monthly installments of $13,000 ($20,000 effective June 1, 1997) plus
     interest at 2% over prime                                                                --           1,411

     Time note payable to Comerica Bank, due March 31, 2004 with no interest                  --              22

     Revolving  credit note payable to First Keystone  Federal Savings Bank, due
     July 1, 2002 with monthly interest at 2% over prime 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                                                                                 748

                                                                                  --------------- ---------------
     Total debt                                                                            1,599           1,521

     Less current portion                                                                    215             542
                                                                                  =============== ===============
     Long term debt, less current portion                                               $  1,384          $  979
                                                                                  =============== ===============
</TABLE>

The 1997  balance on the  convertible  term note  consists  of the  balance of a
$1,800,000  note  issued  to  the  Company's  previous  lender,   Comerica  Bank
(Comerica)  on April 1,  1994.  The note  represented  a  modification  of terms
pursuant  to  a  1994  debt  restructuring.  The  note  was  payable  by  Spitz,
originally, in monthly principal payments of $10,000 plus interest at prime plus
2%  commencing  on April 1, 1994 with the balance  maturing on February 1, 1996.
Subsequent amendments extended the maturity date to August 1, 1997 and increased
monthly  principal  payments to $13,000  effective  February 1, 1996 and $20,000
effective  June 1, 1997.  The amended terms also required  additional  principal
payments from excess cash balances determined by a formula based on unrestricted
cash balances and working capital. The terms allowed for the Bank to convert the
full remaining  principal  amount into common shares of the Company at a rate of
$10 per share  subject  to  limitations  protecting  the  Company's  ability  to
carryforward  its tax net  operating  losses.  The  $22,000  time note  required
mandatory  prepayments  in amounts  equal to the  warrant  price for shares that
could  have been  purchased  by the Bank under a Stock  Subscription  Warrant to
purchase  108,913  shares of common stock of the Company for $.20 per share.  On
June 12, 1987, the balance of both notes and the Stock Subscription Warrant were
extinguished by a lump sum payment under an agreement with Comerica (NOTE 14).

The 1998 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 new lender.  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


                                       25
<PAGE>

1998 balance on the revolving  credit note payable to First Keystone  represents
the balance due under a new $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
$200,000 at January 31, 1998.  The new 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).  The offer expired on November 28, 1997. Holders of 1,414
shares of Preferred accepted the exchange offer.  Accordingly,  in January 1998,
the Company issued 176,750 of its authorized Common in exchange for 1,414 shares
of  Preferred,  which were  retired.  The holders of the remaining 330 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  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,  1998,  accumulated  but  undeclared  and unpaid  dividends  with
respect to the 330  outstanding  shares of  Preferred  amounted to $65,794.  The
Preferred  shares  may be  redeemed  by the  Company  at  $250  per  share  plus
accumulated  unpaid dividends of $199 per share. The 330 shares of Preferred are
convertible,  at the option of the  holders  thereof,  into 1,941  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 $241,500 in each of fiscal years
1998 and 1997. On April 30, 1998, the current five year term will expire.  Spitz
has  exercised  the  renewal  option  under  the  lease  which  provides  for an
additional   five  years  rental  at  fair  market.   As  a  result  of  further
negotiations,  Spitz and the Lessor  have  agreed to an  amendment  to the lease
agreement  which will provide a new eight year extended term  commencing  May 1,
1998 with a renewal option for an additional eight years. In addition the lessor


                                       26
<PAGE>

agreed to make 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:
1999--$257,025; 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):
                                               January 31,
                                  ---------------------------------------
                                                 1998               1997
                                  -------------------- ------------------
Machinery and equipment                 $         353           $    131
Less accumulated depreciation                      74                 30
                                  -------------------- ------------------
Net book value                          $         279           $    101
                                  ==================== ==================


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
12.0% 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,
1998, are as follows (in thousands):


                                               Fiscal 1999       $      102
                                               Fiscal 2000               79
                                               Fiscal 2001               60
                                               Fiscal 2002               60
                                               Fiscal 2003               15
                                                              --------------
Total payments                                                          316
Less amount representing interest                                        65
                                                              --------------
Present value of capital lease obligations                              251
Less current portion                                                     74
                                                              --------------
Long term obligation                                              $     177
                                                              ==============

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.  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:


                                       27
<PAGE>

<TABLE>
<CAPTION>
                                                                        Fiscal year ended January 31,
                                                        -------------------------------------------------------
                                                                 1998                          1997
                                                         ------------------------------------------------------
                                                                      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              10,500     $ 2.25           --

    Options granted                                         39,500       2.50         10,500         $ 2.25
                                                        ==========                  ===========

    Options outstanding at end of period                    50,000     $ 2.45         10,500         $ 2.25
                                                        ==========                  ===========

    Options excercisable at end of period                    2,625     $ 2.25           --
                                                        ==========                  ===========
</TABLE>

 The weighted  average  remaining  contractual  life of the 50,000  outstanding
 stock options at January 31, 1998 is 9.2 years.

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.  No compensation  expense  resulted from
the options  granted in fiscal year ended 1997 since the options had an exercise
price equal to market value.  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 amounting to $6,296 was recorded
in fiscal year ended January 31, 1998 in accordance with APB 25.

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  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 8.43 and 7.22  years for the  options  granted in the
years ended January 31, 1997 and 1998,  respectively.  As a result, the weighted
average fair value of the options  granted in the year ended January 31, 1997 at
an  exercise  price  equal to market  was  estimated  at $1.29 and 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):


                                       28
<PAGE>


                                                        Year ended January 31,
                                                   -----------------------------
                                                           1998           1997
                                                   -----------------------------

    Net income                             As reported     $   512     $   273
                                           Pro forma           502         271

    Basic earnings per common share        As reported        1.26         .52
                                           Pro forma          1.24         .51

    Diluted earnings per common share      As reported        1.22         .52
                                           Pro forma          1.22         .51


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 $73,000 and $61,000 in fiscal 1998 and 1997, respectively.

9.  Income Taxes

Income tax expense for 1998 and 1997 consists of  applicable  state income taxes
on the income before taxes of Spitz. Federal income taxes for both 1998 and 1997
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, 1998 and 1997 are as follows: (in thousands)


                                                     1998            1997
                                           -------------- ----------------
    Net operating loss carryforwards           $    4,363     $     4,745
    Obsolescence reserve                              375             361
                                           -------------- ----------------
    Net deferred tax assets                         4,738           5,106
    Valuation allowance                            (4,738)         (5,106)
                                           -------------- ----------------
    Deferred income tax, net                 $          0 $             0
                                           ============== ================


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, 1998,  the Company had  investment  tax credit  carryforwards  of


                                       29
<PAGE>

$443,000 expiring in 1999 through 2002 and a net operating loss carryforward for
tax purposes of $12,833,000  expiring 2006 through 2009. For financial reporting
purposes,   the  net  operating  loss  carryforward  in  1998  is  approximately
$13,934,000.  The difference relates to the nondeductible  reserve for inventory
valuation not  recognized for tax purposes.  The net operating loss  carrforward
was reduced by approximately $686,000 and $430,000 from the utilization of a net
operating loss deduction in 1998 and 1997,  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
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 $235,000 and $65,000
 acquired through capital leases in fiscal 1998 and 1997, respectively.

Interest paid on debt including capital lease  obligations  amounted to $154,000
in Fiscal 1998 and $167,000 in Fiscal 1997.  The Company paid no federal  income
taxes in Fiscal 1998 and 1997.

12.  Significant Customers and Geographic Information

In fiscal year 1998,  no single  customer  accounted  for more than 10% of total
revenue.  In fiscal 1997, revenues of $769,000 (11.2%) were earned from a single
customer.  Export  revenues by  geographic  area for the years ended  January 31
consist of (in thousands):

                                       30
<PAGE>

                                                           1998        1997
                                                    ----------- -----------
         Canada                                          $  436      $  763
         Central America                                     79         129
         South America                                      169          47
         Europe                                             842         412
         Middle East                                         --          39
         Far East                                           301         761
                                                    =========== ===========
         Total export revenues                         $  1,827    $  2,151
                                                    =========== ===========

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,
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.  It is too early 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, 1998.

At January 31, 1997 there was an outstanding  standby letter of credit issued by
Spitz in the amount of $129,000  which was canceled in June 1997. At January 31,
1998, there were no outstanding  standby letters of credit issued by the Company
or Spitz.

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


                                       31
<PAGE>

$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.
Also, the  refinancing  eliminated the dilutive  affect on the Company's  common
stockholders resulting from the Stock Subscription Warrant which 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, 1998.

                         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,
1998.



                     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, 1998.



                 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, 1998.


                    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).

                                       33
<PAGE>

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).

4.6      Subordinated Debenture Purchase Agreement,  dated as of April 11, 1990,
         between  Registrant and the purchasers of  subordinated  debentures set
         forth therein,  including forms of Registrant's Subordinated Debentures
         and Warrant  Certificates issued on April 11, 1990, attached thereto as
         Exhibits B and C, respectively  (Exhibit 4.11 to Registrant's Form 10-K
         for  the  fiscal  year  ended   January  31,  1990  [the  "1990  10-K"]
         incorporated herein by reference).

4.7      Securities  Purchase  Agreement,  dated  January 5, 1994,  by and among
         William D. Witter,  First Aerospace,  Inc.,  Aaron  Hollander,  Michael
         Culver,  First Equity  Development  Incorporated  and  Interconnect  of
         Connecticut. (Exhibit 4.7 to Registrant's Form 10-K for the fiscal year
         ended January 31, 1994 ["1994 10-K"] incorporated herein by reference).

4.8      Stock Purchase and Restructuring Agreement,  dated as of June 30, 1994,
         between the Company, Slusser Associates,  Inc., the holders of $375,000
         principal  amount  of the  Company's  subordinated  debentures  and the
         purchasers of 3,000,000 shares of the Company's Common Stock.  (Exhibit
         4.8 to Registrant's 1994 10-K incorporated herein by reference).


                                       34
<PAGE>

10.1   Transnational  Industries  Inc.  1995 Stock  Option  and  Performance 
       Incentive Plan (Exhibit "A  to egistrant'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).

10.3   Employment  Agreemen  dated  May  1, 1995 between Paul Dailey and Spitz 
       Inc. (Exhibit  10.3  to Registrant's 1996 10-K  incorporate  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, 1997,  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, 1997 (the "7/97
       Form 10-QSB") incorporated herein by reference).

10.7   Line of Credit  Note,  dated June 12,  1997,  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, 1997, 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, 1997,  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, 1998.

                  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: May 1, 1998                         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               May 1, 1998




/s/  Charles H. Holmes, Jr                                          
--------------------------
Charles H. Holmes, Jr.          Director, President and
                                Chief Executive Officer             May 1, 1998


/s/  William D. Witter
------------------------ 
 William D. Witter              Vice Chairman of the Board          May 1, 1998



/s/  Michael S. Gostomski
-------------------------
Michael S. Gostomski            Director                            May 1, 1998


  
 /s/ Calvin A. Thompson
-------------------------
Calvin A. Thompson              Director                            May 1, 1998
  

                                       36
<PAGE>