UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

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

      For the fiscal year ended January 31, 2004

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

      For the transition period from __________________ to __________________

      Commission File Number 000 - 14835

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

           Delaware                                             22-2328806
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                           Identification Number)

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

Issuer's telephone number (610) 459-5200

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

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

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

      Check if there is no disclosure of delinquent filers in response 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 ended January 31, 2004, were
$11,187,029.

      The aggregate market value of the common stock held by non-affiliates of
registrant as of


<PAGE>

March 31, 2004 was approximately $1,023,000 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. Such determination shall not, however, be deemed to be an admission
that any person is an "affiliate" as defined in Rule 405 under the Securities
Act of 1933.

      As of March 31, 2004, 456,760 shares of common stock were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

      The issuer's definitive proxy statement to be filed with the Securities
and Exchange Commission within 120 days after January 31, 2004, is incorporated
by reference into Part III of this Form 10-KSB.

      Transitional Small Business Disclosure Format (check one): YES |_| NO |X|


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<PAGE>

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

General Development of Business

Transnational Industries, Inc. (the "Company"), is a holding company. The
Company specializes through its subsidiary, Spitz, Inc. ("Spitz"), in the
design, manufacture and integration of computer-controlled immersive
visualization systems and domed projection screens. Spitz, under a predecessor
corporation, was founded in 1946.

Narrative Description of Business

Products

--Digital projection systems

Spitz digital projection systems use the latest advances in video projection and
computer graphics combined with other panoramic visual displays and sound
effects in dome theaters to create an immersive virtual reality experience.
Markets targeted include existing and new planetarium theaters and various other
applications that will benefit from immersive multi-media displays for wide
audiences. Spitz digital products can be configured for interactive virtual
reality applications.

ElectricSky(R) is a digital projection system configured for dome theaters in
the planetarium market and other special applications. As of January 31, 2004,
twelve ElectricSky(R) systems were installed and operating, and one more system
is expected to be installed later in calendar year 2004. The ElectricSky(R)
systems are being sold and marketed to both tourist attractions and science
museums. In 2002, Spitz introduced SciDome, a digital planetarium system for
smaller educational theaters. SciDome combines digital projection components
with Spitz proprietary software and other digital content provided by a third
party. The first SciDome system order was received in December 2003 and is
scheduled for installation in 2004. Spitz also produces digital content for
digital planetarium systems. Digital planetarium products are often combined
with mechanical optical planetarium products using Spitz proprietary software
and integration services.

The ImmersaVision(R) Theater, formally known as ElectricHorizon(R), is a digital
system configured to create an immersive multimedia experience using a wide
curved projection screen. The ImmersaVision(R) Theater takes advantage of
advanced digital projector technologies using a proprietary lens to immerse an
audience in a video production displayed on a partial domed screen. Spitz has
not yet sold an ImmersaVision(R) system. There are several sales prospects for
ImmersaVision(R) and efforts continue to target various visitor attractions.
Spitz is participating in a joint venture that plans to create an
ImmersaVision(R) theater for a tourist attraction. Difficulties in locating and
funding the development of an appropriate site for the theater has further
delayed


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<PAGE>

progress on the project, however, efforts continue to follow through as planned.

--Mechanical Optical Planetarium Systems

Spitz is a leading producer of mechanical optical planetarium systems. Spitz
designs, manufactures, installs, repairs, and maintains (under renewable annual
contracts) planetarium projector systems. Mechanical optical systems often
include computer control, integrated sound and lighting systems, and peripheral
special effects such as video projection. Sometimes mechanical optical products
are combined with digital planetarium products. 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 a 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. The Company believes that these skills and capabilities are important
to buyers of planetarium systems. The principal customers for the Company's
planetarium business are entities in the entertainment and educational markets
such as museums and schools.

--Domed Structures

Spitz is also the world's leading producer of domed projection screens. Spitz
designs, manufactures, and installs domed projection screens which are used in
planetarium theaters and a variety of other applications such as ride
simulators, special or large format film theaters, simulation training systems
and architectural treatments. 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. The Company 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, casinos, world
expositions, museums, schools, and military defense contractors.

Materials and Supplies

ImmersaVision(R) systems, planetarium 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.

Intellectual Property and Proprietary Rights

Spitz relies principally on a combination of contracts, trade secrets and
trademarks to protect its proprietary interests in its production processes and
its business. Spitz currently holds the trademarks ImmersaVision(R) and
ElectricSky(R), which have been registered with the United


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<PAGE>

States Patent and Trademark Office. Spitz has applied for patents for certain
new products and is licensing certain proprietary software from other parties.
As new products are developed, Spitz will continue to evaluate the feasibility
of patents and license agreements to protect its new inventions.

Principal Customers

During fiscal 2004, revenues of $3,837,433 (34% of total revenues) were derived
from sales to the five largest customers. One customer accounted for 20% of
total revenues. A second customer accounted for 11% of total revenue. Users of
Spitz's products generally have not had the need for recurring purchases except
for maintenance and parts. Accordingly, Spitz relies on sales of 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 their customers, as opposed to Spitz selling
directly to the end user. 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.

Competition

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

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


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<PAGE>

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 would 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
approximately $898,000 in fiscal year 2004 and approximately $932,000 in fiscal
year 2003.

Environmental Compliance

Spitz routinely improves and maintains various systems designed to control the
quality of air and water discharged from its plant, including dust control and
ventilation. Spitz anticipates that it will continue to make similar routine
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, 2004, the Company and Spitz had 65 employees, of whom 59 were
employed full time.

ITEM 2. DESCRIPTION OF PROPERTY

All of Company's administrative offices and production facilities are located in
an approximately 47,000 square-foot building on approximately 15.2 acres in
Chadds Ford, Pennsylvania, which was purchased by Spitz in January 2004 from an
unrelated third party for a purchase price of $3,200,000, all of which was
financed through a mortgage granted to First Keystone Bank. The mortgage
requires monthly payments of $22,647 (subject to adjustment upon an adjustment
of the interest rate) and accrues interest at the rate of 5.75% per annum,
subject to adjustment effective January 14, 2006 (and on the same day every
thirty-sixth month thereafter) to the greater of 5.75% or 3% over the three year
constant maturity treasury rate. The outstanding principal balance of the
mortgage and accrued interest thereon become due and payable on January 13,
2024. Prior to purchasing the property, Spitz and its predecessor corporations
occupied the property under various lease agreements since its construction in
1962. The building is in good operating condition.


                                       6
<PAGE>

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, 2004.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES

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 for the Company's
stock and trades are made through the OTC Bulletin Board. The table below
presents the high and low bid over-the-counter market quotations by quarter for
fiscal years 2004 and 2003. 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 Year 2004         Fiscal Year 2003
                         -------------------------------------------
                          High         Low         High         Low
                         -------------------------------------------
      First Quarter      $ 3.50      $ 2.75       $ 4.40      $ 4.30
      Second Quarter       3.75        3.10         4.50        4.00
      Third Quarter        4.75        3.00         3.00        3.00
      Fourth Quarter       5.05        4.75         3.00        2.00

Holders

At March 31, 2004, there were approximately 60 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 Cumulative Convertible Preferred Stock ("Preferred B")
prohibit 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.


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<PAGE>

Preferred Stock

The holders of the 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,
2004, accumulated but undeclared and unpaid dividends with respect to the 318
outstanding shares of Preferred B amounted to $115,871. The Preferred B shares
may be redeemed by the Company at $250 per share plus accumulated unpaid
dividends of $364 per share. The 318 shares of Preferred B are convertible into
1,871 shares of the Company's common stock.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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, 2004.

                                                                      Percentage
                                          Percentage of Revenues        Change
                                          Year ended January 31,         2004
                                          ----------------------          vs.
                                           2004            2003          2003
                                          --------------------------------------

      Revenues                             100.0%         100.0%         39.6%
      Cost of sales                         72.3           70.3          43.5
      Gross margin                          27.7           29.7          30.6
      Selling expenses                       8.0           11.8          (5.6)
      Research and development               8.0           11.6          (3.6)
      General and administrative             9.9           13.3           3.6
      Operating income                       1.8           (7.1)            *
      Interest expense                       1.0            1.4            --
      Income (loss) before income taxes      0.8           (8.5)            *
      Income taxes - current                 0.1             --            --
      Net Income (loss)                      0.7           (8.5)            *

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

                                   ----------

Revenues in the fiscal year ended January 31, 2004 (fiscal 2004) were
$11,187,000 compared to $8,011,000 in the fiscal year ended January 31, 2003
(fiscal 2003), an increase of $3,176,000 (40%). The increase was due to higher
revenue from all of the Company's products as a result of


                                       8
<PAGE>

work performed on the large volume of customer contracts booked in the first
half of fiscal 2004.

Digital products revenue for fiscal 2004 was $2,745,000 compared to $1,756,000
for fiscal 2003, an increase of $989,000. The increase in digital revenues was
attributable to work performed on a large ElectricSky(R) system ordered in
February 2003 and delivered to a science museum in Mexico in December 2003. This
compares to the completion of three systems in fiscal 2003 for which much of the
revenue was recognized prior to fiscal 2003. All of the ElectricSky(R) systems
delivered to date included a planetarium dome and all but two included an
optical planetarium system provided by the Company. There are currently no
ElectricSky(R) systems on the customer backlog; however, the Company has been
advised of one pending order of a system for delivery in fiscal 2005 and expects
at least one more order in the first half of fiscal 2005. In December 2003 the
Company received its first order for a SciDome system which is scheduled for
delivery in fiscal 2005. SciDome is a digital planetarium system for smaller
educational theaters that combines digital projection components with Spitz
proprietary software and other digital content provided by a third party.
SciDome is targeted for new educational planetarium theaters as well as a
replacement or supplement for the large number of installed Spitz mechanical
optical systems.

Dome revenues were $4,772,000 in fiscal 2004 compared to $3,596,000 in fiscal
2003, an increase of $1,176,000. The increase in dome revenues was attributable
to work on domes sold for all of the various markets served.

Mechanical-optical planetarium revenues were $3,670,000 in fiscal 2004 compared
to $2,659,000 in fiscal 2003, an increase of $1,011,000. Planetarium revenues
from new and refurbished optical systems were $2,143,000 in fiscal 2004 compared
to $1,402,000 in fiscal 2003, an increase of $741,000. The increase in
mechanical-optical planetarium revenues from system sales was attributable to
more activity in the educational market throughout the year. Included in
mechanical-optical planetarium revenue in fiscal 2004 is $336,000 of revenue
from the sale of another company's system, which was packaged with a Spitz dome,
computer controls and other peripherals at the request of the customer.
Mechanical-optical planetarium revenues also include amounts attributable to the
sale of maintenance and parts of $1,191,000 in fiscal 2004 compared to
$1,257,000 in fiscal 2003, a decrease of $66,000. Lower maintenance revenues
from the timing of performance on preventive maintenance agreements was
partially offset by increases in sales of spare parts and service to customers
without preventive maintenance agreements.

Future revenue will be influenced by several factors. Except for maintenance
sales and occasional upgrades, the Company's revenues do not come from
repetitive sales to an existing customer base. Most revenues come from the sale
of theater systems, both as replacements for existing systems and new
installations, or from a new construction project. The Company's products are
sometimes sold alone as components of an attraction or together as a complete
system. This capability leads to growth opportunities by providing each of the
Company's products with efficient direct access to a wide breadth of markets
that might otherwise be difficult to reach. The digital products generate more
sales opportunities for domes and optical planetarium systems since systems are
often sold with a dome and optical


                                       9
<PAGE>

planetarium system. It is expected that some future customers will prefer solely
the digital projection for their planetarium while others may still prefer to
integrate digital projection with a mechanical-optical planetarium system. Also
some customers may prefer certain components of competitors systems to be used
with components of the Company's products and the Company's integration
services. As a result, the Company expects future customer contracts for
integration services, peripheral equipment, and domes to be combined with other
companies' digital and mechanical-optical system components. In addition, the
digital products and their use in planetarium theaters could create new
opportunities beyond the Company's traditional markets. Dome sales can lead to
unique opportunities to present the Company's projection system products as a
solution among the various equipment configurations that a customer may be
considering. Research and development efforts are planned to continue with the
goal of promoting the creation of software content and new applications for
digital products that will enhance existing products and provide entry into new
entertainment and other commercial markets. While this strategy is expected to
achieve long-term revenue growth, uncertainty in the timing and delivery for new
customer projects will cause revenue levels to fluctuate. This was evident in
fiscal 2003 when sales bookings dropped. The drop in sales bookings was due more
to customer delays than to competition.

The backlog of unearned revenue as of January 31, 2004 was approximately
$5,900,000, most of which is scheduled for realization in fiscal 2005. Adding to
the backlog and scheduled for delivery in fiscal 2005 is approximately
$2,500,000 of new orders booked in February and March 2004. In addition, the
Company has been preliminarily notified of orders totaling approximately
$2,000,000, which it expects to book in May 2004. There are many additional
sales prospects for all of the Company's products. Many prospects are evaluating
the various planetarium products offered by the Company and its competitors and
some are considering combining certain components from each supplier. In
response to this demand, the Company is directing its efforts toward system
design and integration capabilities for using the various suppliers' products
together. Also, the Company has been conducting demonstrations of its
ImmersaVision(R) Theater at its plant. The ImmersaVision(R) Theater displays
digital cinema on a curved screen using a high performance digital projector and
a customized lens combined with surround sound. The ImmersaVision(R) Theater
creates an immersive visual and audio experience, which is being targeted as an
entertainment attraction for various visitor centers. The current backlog
supplemented by the new orders and sales prospects is expected to maintain
revenue at profitable levels through fiscal 2005.

Gross margins decreased to 27.7% in fiscal 2004 compared to 29.7% in fiscal
2003. Dome gross margins continued to be strong while planetarium margins
continued to lag. The decrease in the gross margin in fiscal 2004 was
attributable mainly to poorer margins on mechanical optical products. The poorer
mechanical-optical margins in fiscal 2004 resulted from pricing pressures on new
systems and some unexpected difficulties on some mechanical-optical
refurbishments in fiscal 2004 as compared to fiscal 2003. Selling expenses
decreased $53,000 (6%) in fiscal 2004 due to the absence of a large biannual
trade conference attended in fiscal 2003 and the reduced use of engineering
staff for sales proposals. Research and development expenses decreased


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$34,000 (3%) in fiscal 2004 as higher customer contract demands in fiscal 2004
reduced the use of technical resources for product development. Research and
development expenses are expected to remain level in fiscal 2004 as technical
resources are balanced between customer projects and product development.
General and administrative expenses increased $38,000 (4%) in fiscal 2004
primarily due to legal expenses related to intellectual property matters and
corporate governance.

Net interest expense amounted to $110,000 in both fiscal 2004 and fiscal 2003.
The $110,000 reported in fiscal 2004 consisted of $9,000 paid on a new mortgage
note, $53,000 paid on a bank revolving credit note plus $48,000 paid on capital
lease obligations. The $110,000 reported in fiscal 2003 consisted of $2,000 paid
on a bank term note, $53,000 paid on a bank revolving credit note plus $55,000
paid on capital lease obligations.

Income tax expense in fiscal 2004 consisted of estimated state income taxes.
There was no income tax expense in fiscal 2003 as the Company generated no
taxable income. At January 31, 2004 it was determined that the outlook for the
future utilization of the net operating loss carryforwards resulted in no change
to the $368,000 deferred tax asset. Therefore there was no deferred tax expense
or benefit recorded for fiscal 2004. Net operating losses are expected to
continue to offset federal taxable income for the foreseeable future resulting
in no payment of federal income taxes. However, deferred tax expense is expected
in future years as the net operating loss carryforwards are extinguished and the
deferred tax asset is reduced. The Company expects to incur state income taxes
in future years.

As a result of the above, the Company reported net income of $83,000 in fiscal
2004 compared to a net loss of $681,000 in fiscal 2003.

Liquidity and Capital Resources

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

Operating activities provided net cash of $1,372,000 in fiscal 2004, compared to
$998,000 of net cash used by operating activities in fiscal 2003. The $1,372,000
of net cash provided in fiscal 2004 was produced by $650,000 of cash provided by
changes in operating assets and liabilities and $722,000 in cash provided by the
$83,000 of net income after considering the effects of $639,000 of non-cash
charges. The $998,000 of net cash used by operating activities in fiscal


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<PAGE>

2003 resulted from $892,000 used by changes in operating assets and $106,000 in
cash absorbed by the $681,000 net loss after considering the effects of $575,000
in non cash charges. The change in operating assets from time to time is
primarily attributable to progress payment terms on particular customer
contracts, and the Company expects changes in operating assets from year to year
to remain both material and variable.

The $1,372,000 of cash provided by operations in fiscal 2004 was mostly consumed
by $406,000 of investing activities and $907,000 of financing activities. The
$998,000 of net cash used by operating activities in fiscal 2003 plus an
additional $332,000 used by investing activities in fiscal 2003 was partially
offset by $850,000 provided by financing activities. The net result was a
$59,000 increase in cash balances during fiscal 2004 compared to a decrease of
$480,000 during fiscal 2003.

Financing activities in fiscal 2004 consisted of payments of $257,000 on capital
leases and $650,000 of net payments on the bank revolving credit note. Non cash
financing transactions in fiscal 2004 consist of land and building acquired with
proceeds of a $3,200,000 mortgage note. Financing activities in fiscal 2003
consisted of net proceeds of $1,275,000 from the revolving credit note, less
payments of $331,000 on capital leases and the final scheduled principal
payments of $94,000 on the bank term note. Non cash financing transactions in
fiscal 2003 consisted of $426,000 of machinery and equipment acquired through
capital leases.

Total debt at January 31, 2004 was $4,786,000, an increase of $2,293,000 from
$2,493,000 at January 31, 2003. The increase resulted from net proceeds of
$3,200,000 from the mortgage note reduced by $650,000 of net payments on the
bank revolving credit note and $257,000 of payments applied to capital lease
obligations.

Investing activities in fiscal 2004 consisted of capital expenditures of
$235,000 for machinery and equipment, $76,000 toward the purchase of the
Company's plant and the development of computer software amounting to $95,000.
In addition, in fiscal 2004, the Company used the proceeds of a new $3,200,000
mortgage note to acquire the land and building comprising its plant. Investing
activities in fiscal 2003 consisted of capital expenditures of $120,000 for
machinery and equipment and the development of computer software amounting to
$212,000. In fiscal 2003, there were additional capital expenditures for
machinery and equipment amounting to $426,000 which were financed by capital
leases. Future opportunities are expected to require continual investments in
hardware and software in order to benefit from advancing technologies. When
appropriate, the Company will fund the acquisition of capital assets through
capital leases or equipment financing notes.

The balance on the Company's revolving credit note was $1,225,000 at January 31,
2004 compared to $1,875,000 at January 31, 2003. This resulted in unused
borrowing capacity of $1,775,000 under the amended $3,000,000 borrowing limit at
January 31, 2004 compared to $125,000 under the $2,000,000 limit at January 31,
2003. Cash balances of $135,000 provided additional liquidity at January 31,
2004 compared to $76,000 at January 31, 2003. The next source of liquidity,
accounts receivable, increased to $2,932,000 at January 31, 2004 compared to
$2,350,000 at January 31, 2003. This resulted in a $2,291,000 increase in
liquidity available from


                                       12
<PAGE>

cash, borrowing capacity and accounts receivable at January 31, 2004 compared to
January 31, 2003.

Contracts in progress contributed to the increase in liquidity available from
cash, borrowing capacity and accounts receivable by way of a $545,000 increase
in funding from advanced progress billings. The $545,000 additional funding is
measured by the $680,000 excess of billings over recorded revenue at January 31,
2004 compared to a $135,000 excess at January 31, 2003. With billings exceeding
recorded revenue by $680,000 at January 31, 2004, contracts in progress will use
liquidity in fiscal 2005. The timing of bookings and payments on customer
contracts will remain important to long term liquidity.

At January 31, 2004 the Company was contingently liable for approximately
$115,000 under standby letters of credit issued on its behalf by its bank. The
letters of credit were issued as security for performance on customer contracts.
The Company's bank underwrites letter of credit requirements on an individual
approval basis independent of its other bank agreements in order to make the
revolving credit agreement available for working capital requirements.

The Company's debt agreements, combined with current assets and cash flow from
operations, assuming reasonably consistent revenue levels, should provide the
Company with adequate liquidity for the foreseeable future. However, new growth
opportunities for the Company's business may require funding beyond the
capabilities of the Company's current capital structure.

Critical Accounting Policies and Estimates

The financial statements and related disclosures, which are prepared to conform
with accounting principles generally accepted in the United States of America,
require estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and accounts receivable and expenses during the period
reported. Also required is the disclosure of contingent assets and liabilities
at the date of the financial statements. Actual results in future periods could
differ from those estimates. Estimates and assumptions are reviewed
periodically, and the effects of revisions are reflected in the Consolidated
Financial Statements in the period they are determined. The Company considers
the following accounting policies significant to the financial statements and
may involve a higher degree of judgment and complexity.

Revenues from sales of domes, planetarium and ImmersaVision(R) systems are
recognized in accordance with the percentage of completion method. Under the
percentage of completion method, revenue is computed by measuring the percentage
of cost incurred to the estimated total cost for each customer contract. As
such, the amount of revenue and earnings recognized is affected by the estimate
of the cost to complete each customer contract. Contract billing terms do not
necessarily mirror the revenue recognized. Often, the timing of billings is
significantly different than the timing of the revenue recorded. Revenues
recognized but not yet billed are recorded with inventory as Cost and Estimated
Earnings in Excess of Billings. Conversely, billings in advance of revenue
recognized are recorded with current liabilities as Billings in Excess of Cost
and Estimated Earnings.


                                       13
<PAGE>

Forward-Looking Information

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

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


                                       14
<PAGE>

                    ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS

                                      INDEX

                                                                            Page

Report of Independent Auditors                                               16

Consolidated Balance Sheets                                                  17

Consolidated Statements of Operations                                        19

Consolidated Statements of Changes in Stockholders' Equity                   20

Consolidated Statements of Cash Flows                                        21

Notes to Consolidated Financial Statements                                   22


                                       15
<PAGE>

Report of Independent Auditors

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

We have audited the accompanying consolidated balance sheets of Transnational
Industries, Inc. as of January 31, 2004 and 2003, 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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide 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, 2004 and 2003, and the
consolidated results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.

                                                STOCKTON BATES, LLP

Philadelphia, Pennsylvania
April 22, 2004


                                       16
<PAGE>

                         Transnational Industries, Inc.

                           Consolidated Balance Sheets

                             (Dollars in thousands)

                                                               January 31,
                                                          ---------------------
                                                            2004         2003
                                                          ---------------------
Assets

Current Assets:
  Cash                                                    $    135     $     76
  Accounts receivable                                        2,932        2,350
  Inventories                                                1,970        2,227
  Deferred taxes                                               368          368
  Other current assets                                         157          202
                                                          ---------------------

Total current assets                                         5,562        5,223

Property, plant and equipment:
  Land                                                       1,092
  Building                                                   2,184
  Machinery and equipment                                    4,522        4,277
  Less accumulated depreciation                             (3,445)      (3,009)
                                                          ---------------------

Net property plant and equipment                             4,353        1,268

Other assets:
  Repair and maintenance inventories, less provision
    for obsolescence (2004--$767; 2003--$727)                  118           60
  Computer software, less amortization                         405          483
  Goodwill                                                   1,622        1,622
                                                          ---------------------

Total other assets                                           2,145        2,165
                                                          ---------------------

Total assets                                              $ 12,060     $  8,656
                                                          =====================

See notes to consolidated financial statements.


                                       17
<PAGE>

                         Transnational Industries, Inc.

                     Consolidated Balance Sheets (continued)

                             (Dollars in thousands)

                                                               January 31,
                                                          ---------------------
                                                            2004         2003
                                                          ---------------------
Liabilities and stockholders' equity

Current liabilities:
  Accounts payable                                        $  1,253     $    616
  Deferred maintenance revenue                                 569          599
  Accrued expenses                                             269          245
  Billings in excess of cost and estimated earnings          1,220          823
  Current portion of long-term debt                            330          257
                                                          ---------------------

Total current liabilities                                    3,641        2,540

Long-term debt, less current portion                         4,456        2,236

Stockholders' equity:
  Series B cumulative convertible preferred stock,
    $0.01 par value - authorized 100,000 shares;
    issued and outstanding 318 shares
    (liquidating value $195,371 at January 31, 2004)            73           73
 Common stock, $0.20 par value -authorized
    1,000,000 shares; issued and outstanding 456,760
    (excluding 45,710 shares held in treasury)                 100          100
 Additional paid-in capital                                  8,521        8,521
 Accumulated deficit                                        (4,594)      (4,677)
                                                          ---------------------
                                                             4,100        4,017
Less: Treasury stock (at cost)                                (137)        (137)
                                                          ---------------------
Total stockholders' equity                                   3,963        3,880
                                                          ---------------------

Total liabilities and stockholders' equity                $ 12,060     $  8,656
                                                          =====================

See notes to consolidated financial statements.


                                       18
<PAGE>

                      Consolidated Statements of Operations

                      (In thousands, except per share data)

                                                         Year ended January 31,
                                                         ----------------------
                                                           2004          2003
                                                         ----------------------

Revenues                                                 $ 11,187      $  8,011
Cost of sales                                               8,086         5,635
                                                         ----------------------
Gross margin                                                3,101         2,376

Selling expenses                                              896           949
Research and development                                      898           932
General and administrative expenses                         1,104         1,066
                                                         ----------------------
                                                            2,898         2,947
                                                         ----------------------
Operating income (loss)                                       203          (571)

Interest expense, net                                         110           110
                                                         ----------------------
Income (loss) before income taxes                              93          (681)

Income tax expense - current                                   10            --
                                                         ----------------------

Net income (loss)                                              83          (681)

Preferred dividend requirement                                  8             8
                                                         ----------------------
Income (loss) applicable to common shares                $     75      $   (689)
                                                         ======================

Basic earnings (loss) per common share                   $    .16      $  (1.51)
                                                         ======================
Diluted earnings (loss) per common share                      .16         (1.51)
                                                         ======================

See notes to consolidated financial statements.


                                       19
<PAGE>

                         Transnational Industries, Inc.

           Consolidated Statements of Changes in Stockholders' Equity

                                 (In thousands)

<TABLE>
<CAPTION>
                                 Preferred               Additional
                                   Stock        Common     Paid in    Treasury   Accumulated
                                  Series B      Stock      Capital     Stock       Deficit
                                 -----------------------------------------------------------
<S>                              <C>          <C>         <C>         <C>          <C>
Balance at January 31, 2002      $     73     $    100    $  8,521    $   (137)    $ (3,996)

Net loss                                                                               (681)
                                 ----------------------------------------------------------
Balance at January 31, 2003      $     73     $    100    $  8,521    $   (137)    $ (4,677)

Net income                                                                               83
                                 ----------------------------------------------------------
Balance at January 31, 2004      $     73     $    100    $  8,521    $   (137)    $ (4,594)
                                 ==========================================================
</TABLE>

See notes to consolidated financial statements.


                                       20
<PAGE>

                         Transnational Industries, Inc.

                      Consolidated Statements of Cash Flows

                                 (in thousands)

<TABLE>
<CAPTION>
                                                                      Year ended January 31,
                                                                      ----------------------
                                                                        2004          2003
                                                                      ----------------------
<S>                                                                   <C>           <C>
Operating activities
Net income (loss)                                                     $     83      $   (681)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
    Depreciation and amortization                                          599           535
    Provision for obsolescence                                              40            40
    Changes in operating assets and liabilities, net:
        Accounts receivable                                               (582)         (493)
        Inventories                                                         11          (180)
        Other current assets                                                45           139
        Billings net of cost and estimated earnings on contracts           545          (279)
        Accounts payable                                                   637           130
        Accrued expenses                                                    (6)         (209)
                                                                      ----------------------
Net cash provided (used) by operating activities                         1,372          (998)
                                                                      ----------------------

Investing activities
Capital expenditures                                                      (406)         (332)
                                                                      ----------------------
Net cash used by investing activities                                     (406)         (332)
                                                                      ----------------------

Financing activities
Proceeds from revolving line of credit                                   2,850         3,850
Payments on revolving line of credit                                    (3,500)       (2,575)
Payments on capital leases                                                (257)         (331)
Scheduled payments on long term debt                                        --           (94)
                                                                      ----------------------
Net cash provided (used) by financing activities                          (907)          850
                                                                      ----------------------

Increase (decrease) in cash                                                 59          (480)
Cash at beginning of year                                                   76           556
                                                                      ----------------------
Cash at end of year                                                   $    135      $     76
                                                                      ======================
</TABLE>

See notes to consolidated financial statements.


                                       21
<PAGE>

                         Transnational Industries, Inc.
                   Notes to Consolidated Financial Statements

1.    Summary of Significant Accounting Policies

Nature of Business

Transnational Industries, Inc. (the "Company") is a holding company. The
Company, through its subsidiary, Spitz, Inc. ("Spitz") manages its business as a
single operating segment, supplying visual immersion theaters with systems and
subsystems for simulation applications used in entertainment, education and
training. Founded in 1946, Spitz began manufacturing mechanical-optical
planetarium projectors. Around 1960 Spitz added the manufacturing of metal
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.
Through the years, Spitz added sound, special effects and other multimedia
components to its mechanical-optical planetarium projectors to be sold as
complex integrated systems controlled by Spitz proprietary computer software. In
1997, Spitz introduced digital projection products for planetarium theaters and
other applications for wide audiences. Spitz digital projection products are
custom configured systems of video, sound, computers and other multimedia
components, which are integrated by Spitz staff and controlled by Spitz
propriety software. Spitz also produces digital content for its projection
systems. Spitz services the products it sells under maintenance contracts, parts
sales and various service transactions. Principal customers are domestic and
international museums, schools, military defense contractors, theme parks and
other entities in the entertainment industry.

Consolidation and Basis of Presentation

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

Revenue Recognition

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


                                       22
<PAGE>

Accounts Receivable

Trade accounts receivable are stated at the amount management expects to collect
from outstanding balances. Management provides for probable uncollectible
amounts through a charge to earnings and a credit to a valuation allowance based
on its assessment of the current status of individual accounts. Balances that
are still outstanding after management has used reasonable collection efforts
are written off through a charge to the valuation allowance and credit to trade
accounts receivable. Changes in the valuation allowance have not been material
to the financial statements. The allowance for doubtful accounts totaled $30,000
as of January 31, 2004 and 2003.

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.

Property, Plant and Equipment

Property, plant 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, show production tools, and content software sold with
projection systems. Costs are amortized over the estimated sale of units not to
exceed a period of 3 years. Amortization of costs related to computer software
products held for sale amounted to $173,000 and $137,000 in fiscal 2004 and
fiscal 2003, 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.

Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. The percentage of completion
method of recording revenue utilized by


                                       23
<PAGE>

the Company is an example of the use of estimates. It is at least reasonably
probable that these estimates will change in the following year. Accordingly,
actual results could differ from those estimated.

Earnings Per Share

Earnings per share have been computed in accordance with Statement of Financial
Accounting Standards No. 128. Basic earnings per share reflect the amount of
income available for each share of common stock outstanding during the year.
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):

<TABLE>
<CAPTION>
                                                               Year ended January 31,
                                                              -----------------------
                                                                 2004          2003
                                                              -----------------------
<S>                                                           <C>           <C>
Numerator (same for basic and dilutive):
   Net income (loss)                                          $      83     $    (681)
   Preferred dividend requirement                                     8             8
                                                              -----------------------
   Net income (loss) available to common  stockholders        $      75     $    (689)
                                                              =======================
Denominator:
   Weighted average shares outstanding for basic earnings
     per share                                                  456,760       456,760
   Dilutive effect of employee stock options                     11,725            --
                                                              -----------------------
   Weighted average shares outstanding and assumed
     conversions for dilutive earnings per share                468,485       456,760
                                                              =======================

Basic earnings (loss) per share:                              $     .16     $   (1.51)
                                                              =======================
Diluted earnings (loss) per share:                            $     .16     $   (1.51)
                                                              =======================
</TABLE>

Common shares potentially issuable under the contractual conversion rights of
the Preferred B shares would have an antidilutive effect on earnings per share
and therefore have not been included in the above computations. Weighted average
common shares issuable under the contractual conversion rights of the Preferred
B shares amounted to 1,871 shares in fiscal year 2004 and fiscal 2003.

Classifications

Certain prior year amounts have been reclassified to conform to the current
year's presentation.


                                       24
<PAGE>

Goodwill

The Company adopted Statement of Financial Accounting Standards No. 142,
"Accounting for Goodwill and Intangible Assets" ("SFAS 142") effective February
1, 2003. Under SFAS 142, goodwill is no longer amortized but rather is tested
for impairment at least annually. Impairment of goodwill is tested using a
discounted cash flow approach. If the carrying amount of goodwill exceeds its
computed fair value, an impairment loss would be expensed in the statement of
operations. The Company completed the impairment tests of goodwill and has
determined there was no impairment of goodwill.

2.    Inventories

Inventories consist of (in thousands):

<TABLE>
<CAPTION>
                                                                        January 31,
                                                                   ---------------------
                                                                     2004         2003
                                                                   ---------------------
<S>                                                                <C>          <C>
Raw materials, parts, and subassemblies                            $  1,396     $  1,183
Work-in-process                                                         152          416
Cost and estimated earnings in excess of billings                       540          688
                                                                   ---------------------
Total inventories                                                     2,088        2,287
Repairs and maintenance inventories recorded with other assets          118           60
                                                                   ---------------------
Inventory recorded within current assets                           $  1,970     $  2,227
                                                                   =====================
</TABLE>

3.    Costs and Estimated Earnings on Contracts in Progress

Costs and estimated earnings on contracts in progress consist of (in thousands):

<TABLE>
<CAPTION>
                                                                        January 31,
                                                                   ---------------------
                                                                     2004         2003
                                                                   ---------------------
<S>                                                                <C>          <C>
Costs incurred on contracts in progress                            $  6,822     $  6,699
Estimated earnings                                                    2,901        2,094
                                                                   ---------------------
Total costs and estimated earnings on contracts in progress           9,723        8,793
Less billings to date                                               (10,403)      (8,928)
                                                                   ---------------------

Total billings net of costs and estimated earnings on contracts
in progress                                                        $   (680)    $   (135)
                                                                   =====================
</TABLE>


                                       25
<PAGE>

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

<TABLE>
<CAPTION>
                                                                               January 31,
                                                                          ---------------------
                                                                            2004         2003
                                                                          ---------------------
<S>                                                                       <C>          <C>
Costs and estimated earnings in excess of billings recorded
with inventory                                                            $    540     $    688
Billings in excess of costs and estimated earnings recorded with
liabilities                                                                 (1,220)        (823)
                                                                          ---------------------

Total billings net of costs and estimated earnings on contracts in
progress                                                                  $   (680)    $   (135)
                                                                          =====================
</TABLE>

4.    Debt

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

<TABLE>
<CAPTION>
                                                                               January 31,
                                                                          ---------------------
                                                                            2004         2003
                                                                          ---------------------

<S>                                                                       <C>          <C>
Capitalized lease obligations (Note 6)                                    $    361     $    618

Revolving credit note payable to First Keystone Bank, due December 15,
2008 with monthly interest at prime plus 0.5%  (4.50% at January 31,
2004)                                                                        1,225        1,875

Mortgage note payable to First Keystone Bank, payable in monthly
installments of $22,647 including interest at 5.75% (payment and rate
subject to adjustment every 3 years) through January 1, 2024                 3,200           --
                                                                          ---------------------
Total debt                                                                   4,786         2493

Less current portion                                                           330          257
                                                                          ---------------------
Long term debt, less current portion                                      $  4,456     $  2,236
                                                                          =====================
</TABLE>

On January 14, 2004 the Revolving Credit Agreement with First Keystone Bank
(First Keystone) originally executed on June 12, 1997 and amended in July 2000
and July 18, 2003 was modified again. Under the third modification the borrowing
limit was increased from $2,000,000 to $3,000,000 and the term was extended from
July 6, 2005 to December 15, 2008. All other terms of the Revolving Credit
Agreement remain unchanged.

The balance on the revolving credit note payable to First Keystone represents
the balance due under the $3,000,000 Revolving Credit Agreement. The Revolving
Credit Note is jointly payable by the Company and Spitz, requires monthly
interest payments at prime plus 0.5% and matures on December 15, 2008. The
Revolving Credit Agreement permits borrowing, subject to an asset based formula,
of up to $3,000,000 resulting in unused borrowing capacity of $1,775,000 at
January 31, 2004. The revolving credit note is secured by virtually all of the
Company's assets.


                                       26
<PAGE>

The mortgage note payable to First Keystone Bank (First Keystone) as of January
31, 2004 represents the balance on a $3,200,000 note issued on January 14, 2004.
The proceeds of the note were used by Spitz to purchase its facility and
adjacent land (Note 14). The mortgage note requires repayment in monthly
installments of principle and interest over twenty years. The monthly
installment for the first three years is $22,647 and includes interest at 5.75%
per annum. On January 14, 2007 and each third year thereafter, the interest rate
will be adjusted to the greater of 5.75% or 3% over the Three-Year Constant
Maturity Treasury Rate published by the United States Federal Reserve ("3YCMT").
The 3YCMT as of January 31, 2004 was 2.32%. The monthly installment will be
recalculated on the first month following a change in the interest rate. The
recalculated monthly installment will be equal to the monthly installment
sufficient to repay the principal balance, as of the date of the change in the
interest rate, over the remaining portion of the original twenty-year term. The
mortgage note payable is secured by the real property acquired with the proceeds
of the note pursuant to a Mortgage and Security Agreement.

The debt agreements with First Keystone contain cross default provisions and
require the maintenance of certain financial covenants.

5.    Preferred Stock

The holders of the Series B Cumulative Convertible Preferred Stock ("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, 2004, accumulated but
undeclared and unpaid dividends with respect to the 318 outstanding shares of
Preferred amounted to $115,871. The Preferred shares may be redeemed by the
Company at $250 per share plus accumulated unpaid dividends of $364 per share.
The 318 shares of Preferred are convertible, at the option of the holders
thereof, into 1,871 shares of the Company's common stock, and such common shares
have been reserved by the Company for issuance upon conversion.

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


                                       27
<PAGE>

6.    Leases

Spitz leased its office and production facilities under an operating lease until
January 14, 2004 when it purchased the property (Note 14). Total rent expense
under the lease amounted to $249,270 and $262,200 in fiscal years 2004 and 2003,
respectively.

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,
                                                            --------------------
                                                              2004         2003
                                                            --------------------
Machinery and equipment                                     $ 1,242      $ 1,242
Less accumulated depreciation                                   657          393
                                                            --------------------
Net book value                                              $   585      $   849
                                                            ====================

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
7.8% to 12.0%. Depreciation on the assets under capital lease is included in
depreciation expense.

Future minimum annual rentals under capital lease agreements at January 31,
2004, are as follows (in thousands):

                                                       Fiscal 2005           267
                                                       Fiscal 2006            75
                                                       Fiscal 2007            48
                                                       Fiscal 2008             4
                                                                         -------
Total payments                                                               394
Less amount representing interest                                             33
                                                                         -------
Present value of capital lease obligations                                   361
Less current portion                                                         244
                                                                         -------
Long term obligation                                                     $   117
                                                                         =======


                                       28
<PAGE>

7.    Stock Compensation Plan

Under the Amended and Restated 1995 Stock Option and Performance Incentive Plan,
the Company may grant stock options, stock appreciation rights or shares
aggregating up to 150,000 shares of the Company's common stock to employees of
the Company and Spitz. The following table summarizes the activity under the
plan:

<TABLE>
<CAPTION>
                                                     Fiscal year ended January 31,
                                             ---------------------------------------------
                                                     2004                     2003
                                             ---------------------------------------------
                                                         Weighted                 Weighted
                                                         Average                  Average
                                              Number     exercise     Number      exercise
                                             of shares    price      of shares     price
                                             ---------------------------------------------
<S>                                            <C>        <C>         <C>          <C>
Options outstanding at beginning of year       61,850     $ 3.25       50,000      $ 2.45

Options granted                                    --                  32,500        4.30

Options cancelled                                  --                 (20,650)       2.96
                                             --------                --------

Options outstanding at end of year             61,850       3.25       61,850        3.25
                                             ========                ========

Options exercisable at end of year             41,713       2.74       35,000        2.45
                                             ========                ========
</TABLE>

The weighted average remaining contractual life of the 61,850 outstanding stock
options at January 31, 2004 is 5.3 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. There was no compensation expense from
stock options, in accordance with APB 25, in fiscal 2004 or 2003.

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 3%; dividend yield 0%, expected volatility of 40%; and a weighted
average


                                       29
<PAGE>

expected life of 6.96 years. 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):

                                                          Year ended January 31,
                                                          ----------------------
                                                            2004          2003
                                                          ----------------------

Net income (loss)                          As reported     $   83       $  (681)
                                           Pro forma           70          (693)

Basic earnings (loss) per common share     As reported        .16         (1.51)
                                           Pro forma          .14         (1.53)

Diluted earnings (loss) per common share   As reported        .16         (1.51)
                                           Pro forma          .13         (1.53)

8.    Profit Sharing Plan

The Company has a funded 401k 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 $93,000 and $98,000 in fiscal 2004 and 2003, respectively.

9.    Income Taxes

Income tax expense for 2004 represents estimated state income taxes on taxable
income. There was no current income tax expense in 2003 because there was no
taxable income.

The Company recognizes a liability or asset for the deferred tax consequences of
temporary differences between the tax bases of assets or liabilities and their
reported amounts in the financial statements. These temporary differences will
result in taxable or deductible amounts in future years when the reported
amounts of the assets or liabilities are recovered or settled.

Significant components of the Company's deferred taxes at January 31, 2004 and
2003 are as follows: (in thousands)


                                       30
<PAGE>

                                                               January 31,
                                                         ----------------------
                                                           2004          2003
                                                         ----------------------

Net Operating Loss Carryforwards                         $  3,940      $  4,049
Obsolescence Reserve                                          261           247
                                                         ----------------------
                                                            4,201         4,296
Valuation Allowance                                        (3,833)       (3,928)
                                                         ----------------------
Deferred tax asset                                       $    368      $    368
                                                         ======================

The valuation allowance is intended to represent the corresponding amount of net
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 net
deferred tax assets in future periods. The valuation allowance was reduced in
2000 to reflect management's belief that it was more likely than not that a
certain amount of the deferred tax asset relating to the utilization of the net
operating loss carryforwards would be realized. This realization was measured by
the Company's then current backlog and management's belief that taxable income
would result as the then backlog was run out. Management continues to believe
that existing backlog at January 31, 2004, new orders booked in February and
March 2004, and the realization of other known sales prospects will more likely
than not result in future taxable income against which the existing recorded
deferred tax asset will be utilized. The decrease in the valuation allowance
from 2003 to 2004 reflects the increase in the inventory obsolescence reserve
offset by the utilization of federal and state net operating loss carryforwards.
The federal and state net operating loss created in 2003 approximates $583,000.

At January 31, 2004, the Company had net operating loss carryforwards for
federal tax purposes of $11,769,000 expiring 2012 through 2023. For financial
reporting purposes, the net operating loss carryforwards at January 31, 2004 was
approximately $12,536,000. The difference relates to the nondeductible reserve
for inventory valuation not recognized for tax purposes.

The Internal Revenue Service has not examined the Company's tax returns during
the years in which 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 often
arranged to secure payment from international customers.

The Company and its subsidiary maintain cash balances at three financial
institutions located in Maryland and Pennsylvania. Accounts are secured by the
Federal Deposit Insurance Corporation.


                                       31
<PAGE>

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.

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 land and building acquired with
proceeds of a $3,200,000 mortgage note in fiscal 2004 (Note 14) and machinery
and equipment of $426,000 acquired through capital lease in fiscal 2003.

Interest paid on debt including capital lease obligations amounted to $112,000
in fiscal 2004 and $109,000 in fiscal 2003. The Company paid no federal income
taxes in fiscal 2004 and 2003.

12.   Significant Customers and Geographic Information

In fiscal year 2004, one customer accounted for 20.0% of total revenue and
another customer accounted for 11.3% of total revenue. In fiscal year 2003, one
customer accounted for 16.7% of total revenue and another customer accounted for
11.6% of total revenue. Export revenues by geographic area for the years ended
January 31, 2004 and 2003 consist of (in thousands):

                                                          Year ended January 31,
                                                          ----------------------
                                                            2004           2003
                                                          ----------------------
Canada                                                    $     6        $     6
Mexico                                                      2,237             36
South America                                                 262
Europe                                                      1,706            468
Middle East                                                    52            244
Far East                                                    1,001            894
                                                          ----------------------
Total export revenues                                     $ 5,264        $ 1,648
                                                          ======================

13.   Commitments and contingencies

At January 31, 2004 the Company was contingently liable for approximately
$115,000 under standby


                                       32
<PAGE>

letters of credit issued on its behalf by its bank and correspondents of its
bank. The letters of credit were issued as security for performance on customer
contracts. The Company's bank underwrites the letter of credit requirements
independent of its other debt agreements.

14.   Purchase of Land and Building

On October 21, 2003, Spitz received notification pursuant to the lease agreement
for its facility, an approximately 47,000 square foot building, that there was
an offer ("the Offer") for the purchase of the building and the 15.2-acre lot it
resides on ("the Property"). The terms of the lease agreement provided Spitz
with a first right to purchase the leased premises on the same terms as any
written offer made during the lease term by giving written notice to the lessor
within thirty days of receipt of lessor's notice of an offer. On November 20,
2003, Spitz delivered written notice of its intention to exercise its right of
first purchase and, accordingly, executed an Agreement of Sale ("the
Agreement"), whereby it agreed to purchase the Property under the same terms as
the Offer. The terms of the Agreement required Spitz to purchase the Property
for $3,200,000 within ten days after a thirty day due diligence period. On
January 14, 2004 Spitz settled on a transaction to purchase the Property,
thereby terminating its lease agreement. Transaction costs consisting
principally of realty transfer tax and legal expenses amounted to approximately
$76,000, resulting in a total purchase cost of $3,276,000. Based on a property
appraisal, $1,092,000 of the purchase cost was allocated to the land and
$2,184,000 was allocated to the building. The purchase price was financed by a
$3,200,000 mortgage note to the Company's primary bank (Note 4).

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

Not applicable.

ITEM 8A. CONTROLS AND PROCEDURES

(a)   Evaluation of disclosure controls and procedures.

We carried out an evaluation, under the supervision and with the participation
of our management including our chief executive officer and chief financial
officer, of the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the
period covered by this report. Based on this evaluation, our chief executive
officer and chief financial officer have concluded that our disclosure controls
and procedures are effective as of the end of the period covered by this report.

(b)   Changes in internal control over financial reporting.

There was no change in our internal control over financial reporting that
occurred during the fourth quarter of fiscal year 2004 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.


                                       33
<PAGE>

                                    PART III

ITEM 9. DIRECTORS, 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", "Proposal No. 1 --
Election of Directors - Executive Officers of the Company", "Proposal No. 1 --
Election of Directors -- Section 16(a) Beneficial Ownership Reporting
Compliance" and "Code of Ethics" of the Company's Definitive Proxy Statement to
be filed with the Commission within 120 days after January 31, 2004.

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,
2004.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated herein by reference to the
sections entitled "Security Ownership of Certain Beneficial Owners and
Management" and "Equity Compensation Plan Information" of the Company's
Definitive Proxy Statement to be filed with the Commission within 120 days after
January 31, 2004.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED 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 Related Transactions" of the Company's Definitive Proxy
Statement to filed with the Commission within 120 days after January 31, 2004.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

Exhibit
  No.       Description of Document
-------     -----------------------

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

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

3.3         Certificate of Amendment to Certificate of Incorporation of
            Registrant filed August 1, 1995.


                                       34
<PAGE>

3.4         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).

3.5         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).

3.6         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 3.4 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 3.5
            above and incorporated herein by reference.

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

10.1        Transnational Industries Inc. Amended and Restated 1995 Stock Option
            and Performance Incentive Plan (Exhibit "A" to Registrant's Proxy
            Statement filed July 23, 1999 incorporated herein by reference).

10.2        Employment Agreement dated September 1, 2002 between Charles Holmes
            and Spitz Inc (Exhibit 10.2 to Registrant's Form 10-KSB for the
            fiscal year ended January 31, 2003 incorporated herein by
            reference).*

10.3        Employment Agreement dated September 1, 2002 between Paul Dailey and
            Spitz Inc. (Exhibit 10.3 to Registrant's Form 10-KSB for the fiscal
            year ended January 31, 2003 incorporated herein by reference).*

10.4        Employment Agreement dated September 1, 2002 between Jonathan Shaw
            and Spitz Inc. (Exhibit 10.4 to Registrant's Form 10-KSB for the
            fiscal year ended January 31, 2003 incorporated herein by
            reference).*

10.5        Employment Agreement dated May 1, 1995 between John Fogleman and
            Spitz Inc. (Exhibit 10.5 to Registrant's Form 10-KSB for the fiscal
            year ended January 31, 1996 incorporated herein by reference).*

10.6        Line of Credit Agreement, dated June 12, 1997, between First
            Keystone Savings Bank,


                                       35
<PAGE>

            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        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)

10.8        Goldbelt Electric Theater LLC Operating Agreement between Goldbelt,
            Incorporated and Spitz Inc. dated April 10, 2000 (Exhibit 10.2 to
            the Registrant's Form 10-QSB for the quarterly period ended April
            30, 2000 incorporated herein by reference).

10.9        Letter Agreement to Amend Revolving Line of Credit dated July 7,
            2000, between First Keystone Federal Savings Bank, Transnational
            Industries, Inc. and Spitz, Inc. (Exhibit 10.1 to Registrant's Form
            10-QSB for the quarterly period ended July 31, 2000 (the "7/2000
            Form 10-QSB") incorporated herein by reference).

10.10       Line of Credit Modification Agreement dated July 7, 2000, between
            First Keystone Federal Savings Bank, Transnational Industries Inc.
            and Spitz Inc. (Exhibit 10.2 to the 7/2000 Form 10-QSB incorporated
            herein by reference).

10.11       Line of Credit Second Modification Agreement dated July 18, 2002,
            between First Keystone Federal Savings Bank, Transnational
            Industries Inc. and Spitz Inc. (Exhibit 10.14 to the Registrant's
            Form 10-QSB for the quarterly period ended July 31, 2002
            incorporated herein by reference).

10.12       Amendment No. 1 dated September 15, 2003, to Second Renewal Line of
            Credit Note dated July 18, 2002, of Transnational Industries, Inc.,
            Spitz, Inc. and First Keystone Federal Savings Bank (Exhibit 10.17
            to the Registrant's Form 10-QSB for the quarterly period ended
            October 31, 2003 incorporated herein by reference).

10.13       Mortgage Note dated January 14, 2004, of Transnational Industries,
            Inc. and Spitz, Inc. to First Keystone Bank.

10.14       Open-End Mortgage and Security Agreement dated January 14, 2004,
            between Spitz, Inc. and First Keystone Bank.

10.15       Third Modification Agreement dated January 14, 2004, between First
            Keystone Bank, Transnational Industries, Inc. and Spitz, Inc.

10.16       Loan Agreement dated as January 14, 2004, between First Keystone
            Bank, Transnational Industries, Inc. and Spitz, Inc.

10.17       Third Renewal Line of Credit Note dated January 14, 2004, of
            Transnational Industries, Inc. and Spitz, Inc. to First Keystone
            Bank.

21          Subsidiaries of Registrant (a Delaware corporation):

                                   Spitz, Inc.

31.1        Certification of Principal Executive Officer pursuant to Rule
            13a-14(a) under the


                                       36
<PAGE>

            Securities Exchange Act of 1934.

31.2        Certification of Principal Financial Officer pursuant to Rule
            13a-14(a) under the Securities Exchange Act of 1934.

32.1        Certification of Chief Executive Officer pursuant to 18 U.S.C.
            Section 1350, as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.

32.2        Certification of Chief Financial Officer pursuant to 18 U.S.C.
            Section 1350, as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002

----------
*     Management contract or compensatory plan arrangement.

(b)   Reports on Form 8-K for the quarter ended January 31, 2004.

            None

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by the Item is incorporated herein by reference to the
section entitled "Independent Accountants" of the Company's Definitive Proxy
Statement to be filed with the Commission within 120 days after January 31,
2004.


                                       37
<PAGE>

SIGNATURES

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

Dated: April 28, 2004                       Transnational Industries, Inc.

By:  /s/ Jonathan A. Shaw              By:  /s/ Paul L. Dailey
     ---------------------------            --------------------------------
     Jonathan A. Shaw                       Paul L. Dailey
     President and                          Executive Vice President and
     Chief Executive Officer                Chief Financial Officer

In accordance with the 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.

<TABLE>
<CAPTION>
          Signature                   Title                                    Date
          ---------                   -----                                    ----
<S>                                   <C>                                      <C>


By:  /s/ Jonathan A. Shaw             Director, President and                  April 28, 2004
     ---------------------------      Chief Executive Officer
     Jonathan A. Shaw                 (Principal Executive Officer)


By:  /s/ Paul L. Dailey               Executive Vice President and             April 28, 2004
     ---------------------------      Chief Financial Officer
     Paul L. Dailey                   (Principal Financial Officer)
                                      (Principal Accounting Officer)


By:  /s/ Charles F. Huber             Chairman of the Board of Directors       April 28, 2004
     ---------------------------
     Charles F. Huber


By:  /s/ Michael S. Gostomski         Director                                 April 28, 2004
     ---------------------------
     Michael S. Gostomski


By:  /s/ Calvin A. Thompson           Director                                 April 28, 2004
     ---------------------------
     Calvin A. Thompson


By:  /s/ Mason Carter                 Director                                 April 28, 2004
     ---------------------------
     Mason Carter
</TABLE>


                                       38