U. S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                                   FORM 10-KSB

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

         For the fiscal year ended January 31, 1997

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

         For the transition period from to .

                  Commission File Number 0 - 14835

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





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


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




Issuer's telephone number (610) 459-5200

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

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

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

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

                                      (1)

<PAGE>


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

         The  Issuer's  revenues  for the fiscal  year  January 31,  1997,  were
$6,842,216.

         The aggregate  market value of the voting stock held by  non-affiliates
of  Registrant  as of April 30,  1997 was  approximately  $250,521  based on the
average of bid and asked price of these  shares.  Shares of Common Stock held by
each  executive  officer and  director and by each person who owns 5% or more of
the  outstanding  Common  Stock have been  excluded in that such  persons may be
deemed to be affiliates.

         As of April 30, 1997, 324,220 shares of Common Stock were outstanding.


                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None.

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

                                      (2)
<PAGE>


                                     PART I
                                ITEM 1. BUSINESS


General Development of Business

Transnational  Industries,  Inc.,  ("the Company"),  is a holding  company.  The
Company specializes through its subsidiary, Spitz, Inc. ("Spitz"), in the design
and manufacture of computer-controlled  astronomical  simulation equipment,  and
domed projection screens.

Spitz was  incorporated  in 1985 and,  in 1986,  acquired  94.5% of Spitz  Space
Systems, Inc. ("Space"), which had been founded in 1944. Space merged into Spitz
and became a wholly-owned subsidiary of the Company on September 30, 1986.

Narrative Description of Business

Planetarium and Dome Equipment

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

--Planetarium projector systems

Spitz designs,  manufactures,  installs, repairs, and maintains (under renewable
annual   contracts)   planetarium   projector   systems.   More  recent  systems
manufactured by Spitz emphasize computer controls, integrated sound and lighting
systems,  and peripheral  special effects such as video projection.  Systems are
designed to meet  individual  customer  preferences,  through the  selection  of
standardized  basic  systems and  various  add on  options.  Spitz is capable of
providing all of the interior  furnishings  and  equipment  for the  planetarium
theater as well as complete planetarium show productions.  Additionally, Spitz's
experience  enables  it to  advise  on  the  theater  design  and  architectural
integration of the planetarium  equipment.  Spitz believes that these skills and
capabilities  are  becoming  increasingly  important  to buyers  of  planetarium
systems.  The principal  customers for the  Company's  planetarium  business are
entities  in the  entertainment  and  educational  markets  such as museums  and
schools.

--New video projector systems

In  fiscal  1997  Spitz  introduced  ImmersaVision(TM),  its new  line of  video
projector  products.  ImmersaVision uses the latest advances in video projection
and desktop video graphics  combined with other  panoramic  visual  displays and
sound  effects  in  dome  theaters  to  create  an  immersive   virtual  reality
experience.  Markets targeted include existing and new planetarium  theaters and
various  other  applications  which  will  benefit  from  immersive  multi-media
displays  for  wide  audiences.   ElectricSky(TM)  is  an  ImmersaVision  system
configured for the Planetarium market.  ElectricHorizon(TM)  is an ImmersaVision
system configured for interactive virtual reality applications.  In fiscal 1997,
Spitz  sold the first  ElectricSky  system to the Town of  Watson  Lake,  Yukon,
Canada for a new theater for tourism.  In fiscal 1997,  Spitz also delivered the
first
                                      (3)
<PAGE>

ElectricHorizon  System, for an exhibit at the Carnegie Science Center in
Pittsburgh, Pennsylvania. The Carnegie Science Center ElectricHorizon exhibit is
owned and funded by Spitz and various  suppliers  of the  hardware  and software
content for the purpose of demonstration.

--Domed Structures

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

Materials and Supplies

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

Patents and Licenses

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

Principal Customers

During fiscal 1997,  revenues of $769,000 (11.2% of total revenues) were derived
from sales to one  customer.  Revenues of $1,709,000  (25.0% of total  revenues)
were derived from sales to the next largest four  customers.  Of these four,  no
individual  customer  exceeded 10% of total  revenues.  Users of Spitz  products
normally have not had the need for recurring  purchases  except for  maintenance
and parts. Accordingly,  Spitz relies on sales to new projects or replacement of
or enhancement to existing systems. Spitz domed projection screens are sometimes
sold to the suppliers of large format film projectors for inclusion with systems
sold to its  customers  as opposed to Spitz  selling  directly  to the end user.
Also, the large aerospace  companies typically buy domed projection screens from
Spitz for inclusion in military  training  systems sold to its customers.  While
this  creates a  competitive  strength for Spitz  because of its strong  support
capabilities and preference among the system  suppliers,  it will also result in
reliance on sales to a few system suppliers.

   
                                   (4)
<PAGE>

Competition

While Spitz is the world's leading producer of astronomical simulation equipment
and domed projection screens, its business is competitive.  Management estimates
that  there are one  domestic  and four  foreign  competitors  that  manufacture
competing  planetarium  systems.  Competition is expected for ImmersaVision from
existing planetarium  competitors and other suppliers of virtual reality display
mediums but cannot be quantified  yet. There are two known domestic  competitors
that manufacture domed projection  screens.  In addition,  construction or metal
fabrication  contractors  will  occasionally  supply domed  projection  screens,
particularly in foreign markets.  The many competitive  factors  influencing the
markets for Spitz's products include price,  performance,  customer preferences,
design and integration support, and service capabilities.

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

Competitors  selling  planetarium  projector systems have significantly  greater
financial  resources than the Company,  putting the Company at a 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.  The
strengthening  U.S.  dollar  will weaken  Spitz's  price  competitiveness  among
foreign competitors.  Also, future fluctuations and indirect economic effects of
the foreign currency markets remain uncertain.  The continued success of Spitz's
products  will depend on keeping pace with  competing  technologies  and selling
efforts while  maintaining price  competitiveness  and good  relationships  with
system suppliers in the large format film and military training markets.


Research and Development

Spitz conducts  research and  development  and the costs of such activities were
$415,000 in fiscal 1997 and $365,000 in fiscal 1996.

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,  or local

                                      (5)
<PAGE>

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, 1997, the Company and Spitz had 53 permanent  employees,  of whom
48 were employed full time.


                               ITEM 2. PROPERTIES


The  Company  and  Spitz  are  located  in  a  46,525  square-foot  building  on
approximately  16.7 acres on U.S. Route 1, Chadds Ford,  Pennsylvania,  which is
leased to Spitz by an unrelated  third party through April 1998,  with an option
to renew.  The building houses all of the companies  administrative  offices and
production facilities and is in good operating condition.

                            ITEM 3. LEGAL PROCEEDINGS

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

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

There  were no  matters  submitted  to a vote of  stockholders  during the three
months ended January 31, 1997.


                                      (6)
<PAGE>


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

Market Information for Common Stock

The principal  market on which the Company's  Common Stock is traded is the Over
the Counter  market.  Various  market  dealers make the market of the  Company's
stock and trades are made  through  the OTC  Bulletin  Board or what is commonly
known as the  "pink  sheets."  The  table  below  presents  the high and low bid
over-the-counter  market  quotations by quarter for fiscal 1997 and 1996. Prices
have been adjusted retroactively to reflect a one for twenty reverse stock split
effective in August  1995.  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 1997          Fiscal 1996
                                   -------------------------------------
                                      High      Low        High    Low
                                   -------------------------------------
         First Quarter                $2.00    $2.00       $3.20   $3.00
         Second Quarter                2.00     2.00        3.00    3.00
         Third Quarter                 2.00     1.50        3.00    2.50
         Fourth Quarter                1.63     1.25        2.63    2.00


Holders

At April 30,  1997,  there were  approximately  100  holders of record of common
stock.

Dividends

The Company has never paid cash  dividends on its common stock,  and the current
policy of its Board of Directors is to retain all earnings to provide  funds for
the growth of the Company. In addition,  covenants contained in the current loan
agreements of the Company and its subsidiary  with their primary lender prohibit
the  payment  of cash  dividends  by the  Company.  If the  Company's  financial
structure permitted the payment of cash dividends, it could not pay dividends on
its common stock until it paid to holders of the Company's  preferred  stock all
accrued and unpaid dividends thereon.

Preferred  Stock

The holders of the Series B Cumulative  Convertible  Preferred  Stock ("Series B
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, 1997,  accumulated but
undeclared and unpaid dividends with respect to the 1,744 outstanding  shares of
Series B Preferred  amounted to $299,750.  The Series B Preferred  shares may be
redeemed by the Company at $250 per share plus  accumulated  unpaid dividends of
$172 per share.  The 1,744  shares of Series B Preferred  are  convertible  into
10,259 shares of the Company's common stock.

                                      (7)
<PAGE>


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

Results of Operations

The following table presents for the periods  indicated (i) the percentage which
certain items in the  consolidated  financial  statements of the Company bear to
revenues and (ii) the percentage  change in the dollar amount of such items from
year to year in the two-year period ended January 31, 1997.

                               Percentage of Revenues       Percentage Change
                               Year ended January 31,             1997
                             -------------------------             vs.
                                1997            1996              1996
                             ---------------------------------------------------

Revenues                       100.0%          100.0%             19.1%
Cost of sales                   69.2            69.5              18.6
Gross margin                    30.8            30.5              20.3
Selling expenses                 7.9             7.6              24.3
Research and development         6.1             6.4              13.7
General and administrative      10.8            13.1              (1.9)
Operating income                 6.0             3.4             107.6
Interest expense (income)        1.9            (0.3)                *
Income before income taxes       4.1             3.8              29.2
Income taxes                     0.1               -                 *
Net Income                       4.0             3.8              26.3
-----------

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

Revenues in the year ended January 31, 1997 (1997) were  $6,842,000  compared to
$5,743,000 in the year ended January 31, 1996 (1996). The increase of $1,099,000
(19%)  resulted from higher  revenues from all of the  Company's  products.  The
first revenues from  ImmersaVision,  the Company's new line of video  projection
products,  amounted to $250,000 in 1997.  Dome revenues were  $4,184,000 in 1997
compared to $3,906,000 in 1996, an increase of $278,000 (7.1%).  The increase in
dome  revenues  was  attributable  to a higher  revenue  on domes  sold for film
theaters,  planetariums  and ride simulators which was partially offset by lower
revenues  from domes sold for military  simulation.  Planetarium  revenues  were
$2,408,000  in 1997  compared  to  $1,837,000  in 1996,  an increase of $571,000
(31.1%).  The increase in planetarium revenues was primarily due to sales of new
and refurbished systems for the educational market. Planetarium revenues include
amounts  attributable to the sale of maintenance and parts of $1,153,000 in 1997
compared to $1,101,000 in 1996. The increase in  maintenance  and parts revenues
was  primarily  due to the  timing  of  performance  on  preventive  maintenance
agreements.

The  Company's  revenues  from  maintenance  service  and the sale of parts  are
expected  to  increase  moderately  over  time  due to both  inflationary  price
increases and the expansion of the Company's  customer base  resulting  from the
sale of new planetarium systems. For the remaining (and predominant) portions of
its revenues, the Company must rely on the sale of systems, both as replacements
for existing systems and new  installations,  in all of the various markets that
the

                                      (8)
<PAGE>

Company  serves.  Sales orders and  prospects  for new film theater and ride
simulator  domes remain at a high level at the present  time.  Revenues from new
and  refurbished  planetarium  systems  are also  expected  to  continue at 1997
levels. In addition,  the Company expects the  ImmersaVision  products to impact
revenue at increasing levels in fiscal 1998 and beyond. Research and development
efforts will continue with the goal to create new applications for ImmersaVision
that will  enhance  existing  products  and  provide  entry into new  commercial
markets over the next several years.

Gross  margins  were  relatively  constant at 30.8% and 30.5 % in 1997 and 1996,
respectively.  Gross  margins on  planetarium  and dome  products  improved from
volume  related   efficiencies  but  were  offset  by  lower  gross  margins  on
introductory  pricing  on the sale of the first  ImmersaVision  system.  Selling
expenses rose  $106,000  (24%) in 1997 due to the  restoration  of selling staff
levels,  promotional  expenditures related to Spitz's fiftieth anniversary,  and
costs of introducing the new ImmersaVision products.  Selling expenses in fiscal
1998 are  expected  at  current or  increasing  levels as  marketing  efforts on
ImmersaVision  continue.  Research and development  expenses  increased  $50,000
(14%) in 1997 due to development efforts on ImmersaVision  products. The Company
expects  continuing  increases in research  and  development  activities  in the
following years to develop  proprietary  programming  tools and other commercial
applications  for  ImmersaVision.  Research and  development  efforts to improve
existing  planetarium  products  will also  continue  in order to  maintain  and
improve its market share among  advancing  competing  technologies.  General and
administrative  expenses  decreased  $14,000 (2%) in 1997 due to  reductions  in
professional fees and costs associated with the shareholders meeting and reverse
stock split in fiscal 1996.

Reported interest expense was reduced in 1997 and eliminated in 1996 as a result
of the accounting in accordance with Statement of Financial Accounting Standards
No. 15 (Accounting by Debtors and Creditors for Troubled Debt  Restructuring) by
which interest payments on modified debt agreements are not expensed but applied
to the adjusted  book value of the debt.  At January 31,  1996,  debt book value
included $18,000 of expected interest payments remaining from the estimate based
on the original  maturity  date of February 1, 1996.  Interest  paid on modified
debt  agreements  amounted  to  $162,000  in 1997 of which  $18,000  was applied
against the debt book value, reducing reported interest expense on modified debt
agreements to $144,000. Combined with interest paid on capital lease obligations
and reduced by interest income from temporary cash investments, this resulted in
net interest expense of $132,000 reported in 1997. In 1996, the entire amount of
$180,000 of interest paid on modified debt  agreements  was applied  against the
debt book value.  As a result,  interest  income net of interest paid on capital
lease  obligations  was  reported in the amount of $18,000 in 1996.  The Company
paid no  federal  income  taxes in 1997 or 1996 as  federal  taxable  income was
offset by the  utilization  of net operating  loss  carryforwards.  State income
taxes  amounted to $6,000 in 1997. In 1996, the Company was able to offset state
taxable  income  with  prior net  operating  losses.  Net  operating  losses are
expected  to  continue  to offset  federal  taxable  income for the  foreseeable
future. The Company does expect to incur state income taxes in future years.

As a result of the above,  the Company  reported  net income of $273,000 in 1997
compared to $216,000 in 1996

Liquidity and Capital Resources

The Company  funds its  continuing  operations  primarily by cash  provided from
operating activities. The Company also uses a revolving credit agreement to fund
its working capital requirements. The Company usually receives progress payments
under the terms of its customer

                                      (9)
<PAGE>

agreements.  Payments are typically based on the
completion of various  chronological,  production and  installation  milestones.
Timing and the level of progress  payments vary among agreements  depending upon
many factors. The cumulative progress payments can be more or less than the cost
and  estimated  earnings  recognized  on  an  agreement  during  the  period  of
performance. The nature and timing of progress payments can cause cash flow from
operations to fluctuate from period to period.  Some customer agreements require
the Company to provide standby letters of credit as performance security.

At January 31, 1997 there was no balance  under the revolving  credit  agreement
compared to a balance of $269,000 at January 31,  1996.  At January 31, 1997 and
1996 the $500,000  borrowing  limit under the  revolving  credit  agreement  was
reduced by  $129,000  for  standby  letters of credit.  This  resulted in unused
borrowing  capacity of  $371,000  at January  31,  1997  compared to $102,000 at
January 31, 1996.  Additional  standby  letters of credit  amounting to $138,000
were  collateralized  by cash at January  31,  1996.  Additional  liquidity  was
provided by remaining  cash balances of $953,000 at January 31, 1997 compared to
$201,000 at January 31, 1996. The increase in liquidity  available from the cash
balances was due  primarily to changes in operating  assets  resulting  from the
timing of progress payments on customer contracts. The next source of liquidity,
trade accounts receivable,  decreased to $1,077,000 at January 31, 1997 compared
to $1,178,000 at January 31, 1996.

The net cash provided by operating activities was $1,185,000 in 1997 compared to
net cash used of $299,000 in 1996, an increase in cash provided from  operations
of $1,484,000.  The increase  consists of a $201,000  increase in cash generated
from  operating  income,  $13,000 of lower  interest  payments  net of  interest
income,  and an increase of  $1,270,000 in cash provided by changes in operating
assets and liabilities.

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

In 1996,  the  $299,000  used by  operations  and  $155,000  invested in capital
additions was partially offset by $123,000  provided from financing  activities.
Financing  activities  included  borrowing of $269,000 on the  revolving  credit
agreement  less  payments of $23,000 on capital  leases,  and monthly  principal
payments on the  convertible  term note of $123,000.  The  activity  netted to a
$331,000  decrease in cash  balances to $339,000 at January 31,  1996.  Non cash
financing  transactions  in 1996 consist of $57,000 of machinery  and  equipment
acquired through capital leases.

Total debt at January 31, 1997 was  $1,521,000,  a decrease of $403,000 from the
$1,924,000 at January  31,1996.  In summary,  this decrease was achieved through
$269,000 of net  payments  applied to the  revolving  credit  note,  $174,000 of
payments  applied to term debt  (including  interest  payments of  $18,000)  and
$25,000 of payments  applied to capital lease  obligations  offset by $65,000 in
new capital lease obligations.

Capital  additions  consisting of the purchase and  fabrication of machinery and
equipment  and the  development  of  computer  software  amounted to of $186,000
($65,000 by capital lease) and $206,000  ($51,000 by capital lease), in 1997 and
1996, respectively.  When appropriate,  the Company will fund the acquisition of
capital assets through capital leases or equipment financing notes. In the first
quarter of fiscal 1998, the Company acquired approximately $240,000 of

                                      (10)
<PAGE>

equipment to create an in house  demonstration of ImmersaVision.  The Company is
exploring equipment  financing  alternatives for this purchase which will depend
on the  outcome  of the  extension  or  replacement  of its  existing  bank debt
agreements as well as the potential sale of the equipment to a customer.

The existing revolving credit agreement permits borrowing up to $500,000 subject
to a formula  based on  inventory  and accounts  receivable.  The note under the
revolving  credit  agreement is payable by Spitz with monthly  interest at prime
plus 2%. The Company is currently in discussions  with a new lender  regarding a
commitment  to replace the existing  debt  agreements.  In  anticipation  of the
replacement  of the debt  agreements,  the  existing  lender  has  extended  the
maturity of the current debt agreements from May 1, 1997 to August 1,1997. Under
the  extension,  the  monthly  payment on the term debt will be  increased  from
principal of $13,000 to $20,000 plus interest at prime plus 2% effective June 1,
1997.  It is  anticipated  that the  existing  lender  would extend the maturity
beyond one year under similar terms if the Company were unable to agree to terms
for the  replacement  of its  existing  debt  agreements  through a new  lender.
However, there are no absolute assurances that the existing lender will agree to
such an extension.

The  Company  believes  that  with  the  extension  or  replacement  of its debt
agreements under terms currently being discussed,  its cash flow from operations
and existing cash  balances  will be  sufficient  to meet its cash  requirements
through fiscal 1998.  Liquidity  beyond fiscal 1998 will depend on the Company's
ability to replace or further extend the existing debt agreements. The Company's
ability to expand and improve its existing products could be adversely  affected
by restrictive terms of new or extended debt agreements.

                                      (11)
<PAGE>


                    ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS



                                      INDEX

                                                                          Page



  Report of Independent Auditors                                           13

  Consolidated Balance Sheets                                              15

  Consolidated Statements of Operations                                    16

  Consolidated Statements of Changes in Stockholders' Equity               17

  Consolidated Statements of Cash Flows                                    18

  Notes to Consolidated Financial Statements                               19


                                      (12)


<PAGE>



Report of Independent Auditors



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

We have audited the  accompanying  consolidated  balance sheet of  Transnational
Industries,  Inc. as of January 31, 1997 and 1996, and the related  consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years then ended.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Transnational   Industries,   Inc.  at  January  31,  1997  and  1996,  and  the
consolidated  results  of its  operations  and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.



                                 /s/   STOCKTON BATES & COMPANY, P.C
                                       STOCKTON BATES & COMPANY, P.C.





Philadelphia, Pennsylvania
April 4, 1997

                                      (13)
<PAGE>


                         Transnational Industries, Inc.
                           Consolidated Balance Sheets
                             (Dollars in thousands)


                                                                  January 31,
                                                             -------------------
                                                               1997        1996
                                                             -------------------
Assets
Current Assets:
  Cash                                                       $  953      $  339
  Accounts receivable                                         1,077       1,178
  Inventories                                                   983       1,197
  Other current assets                                          123         111
                                                             -------------------
Total current assets                                          3,136       2,825

Machinery and equipment:
  Machinery and equipment, at cost                            2,308       2,147
  Less allowances for depreciation                            1,723       1,563
                                                             -------------------
Net machinery and equipment                                     585         584

Other assets:
  Repair and maintenance inventories, less provision
    for obsolescence (1997--$1,061; 1996--$1,021)               190         206
  Computer software, less amortization                          187         199
  Excess of cost over net assets of business acquired,
    less amortization                                         1,961       2,028
                                                             -------------------
Total other assets                                            2,338       2,433
                                                             -------------------
Total assets                                                 $6,059      $5,842
                                                             ===================
See notes to consolidated financial statements.

                                      (14)

<PAGE>


                         Transnational Industries, Inc.
                     Consolidated Balance Sheets (continued)
                             (Dollars in thousands)

                                                                  January 31,
                                                             -------------------
                                                               1997        1996
                                                             -------------------

Liabilities and stockholders' equity Current liabilities:
  Accounts payable                                           $  228      $  408
  Deferred maintenance revenue                                  574         536
  Other current liabilities                                     287         297
  Billings in excess of cost and estimated earnings             940         441
  Current portion of long-term debt                             542         190
                                                             -------------------
Total current liabilities                                     2,571       1,872

Long-term debt, less current portion                            979       1,734

Stockholders' equity:
  Series B  Cumulative  Convertible  Preferred  Stock,
    $0.01  par value - 1,744 shares authorized, issued
    and outstanding (liquidating value $735,750)                399         399
  Common Stock, $0.20 par value--authorized
    1,000,000 shares; issued and outstanding
    324,220 shares                                               65          65
  Additional paid-in capital                                  8,502       8,502
  Accumulated deficit                                        (6,457)     (6,730)
                                                             -------------------
Total stockholders' equity                                    2,509       2,236
                                                             -------------------
Total liabilities and stockholders' equity                   $6,059      $5,842
                                                             ===================
See notes to consolidated financial statements.

                                      (15)
<PAGE>


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

                                                          Year ended January 31,
                                                          ----------------------
                                                            1997          1996
                                                          ----------------------
Revenues                                                   $6,842       $5,743
Cost of sales                                               4,737        3,993
                                                          ----------------------
Gross margin                                                2,105        1,750

Selling expenses                                              543          437
Research and development                                      415          365
General and administrative expenses                           736          750
                                                          ----------------------
                                                            1,694        1,552
                                                          ----------------------
Operating Income                                              411          198

Interest expense (income)                                     132         (18)
                                                          ----------------------
Income before provision for income taxes                      279          216

Provision for income taxes                                      6            -
                                                          ----------------------
Net Income                                                    273          216

Preferred dividend requirement                                 48           48
                                                          ----------------------
Income applicable to common shares                            225          168
                                                          ----------------------
Net income per common share                               $   .51     $    .39
                                                          ----------------------
Weighted average number of common shares outstanding      440,133      433,133
                                                          ======================


See notes to consolidated financial statements.

                                      (16)
<PAGE>



                         Transnational Industries, Inc.
           Consolidated Statements of Changes in Stockholders' Equity
                                 (In thousands)

                                                  
                                                               
                                Preferred               Additional   Accumulated
                                  Stock        Common    Paid in       Deficit
                                Series B       Stock     Capital
                               -------------------------------------------------
 Balance at January 31, 1995    $   399        $   65    $ 8,502      $ (6,946)
 
 Net Income                                                                216
                               -------------------------------------------------
 Balance at January 31, 1996    $   399        $   65    $ 8,502      $ (6,730)

 Net Income                                                                273
                               -------------------------------------------------
 Balance at January 31, 1997    $   399        $   65    $ 8,502      $ (6,457)
                               =================================================

See notes to consolidated financial statements.

                                      (17)
<PAGE>


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

                                                         Year ended January 31,
                                                         ----------------------
                                                            1997        1996
                                                         ----------------------
                                                             in thousands

Operating activities
Net Income                                                 $   273       216
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
       Depreciation and amortization                           264       270
       Provisions for obsolescence                              40        40
       Interest payments applied to debt                       (18)     (181)
       Changes in operating assets and liabilities, net:
           (Increase) decrease in accounts receivable          101      (471)
           (Increase) decrease in inventories                    6       (88)
           (Increase) decrease in other current assets         (12)      (16)
           (Increase) decrease in net billings in 
            excess of  cost and estimated earnings on 
            customer contracts                                 683        22
           Increase (decrease) in accounts payable            (180)      166
           Increase (decrease) in accrued expenses
            and other liabilities, excluding debt               28      (257)
                                                         ----------------------
Net cash provided (used) by operating activities              1185      (299)
                                                         ----------------------

Investing activities
Capital expenditures                                          (121)     (155)
                                                         ----------------------

Net cash used by investing activities                         (121)     (155)
                                                         ----------------------

Financing activities
Proceeds from revolving line of credit                       2,787       603
Payments on revolving line of credit                        (3,056)     (334)
Payments on capital leases                                     (25)      (23)
Repayment of long term debt                                   (156)     (123)
                                                         ----------------------
Net cash (used) provided by financing activities              (450)      123
                                                         ----------------------

Increase (decrease) in cash                                    614      (331)
Cash at beginning of year                                      339       670
                                                         ----------------------
Cash at end of year                                        $   953   $   339
                                                         ======================

See notes to consolidated financial statements.



                                      (18)


<PAGE>


                         Transnational Industries, Inc.
                   Notes to Consolidated Financial Statements


1.  Summary of Significant Accounting Policies

Nature of Business

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

Consolidation and Basis of Presentation

The consolidated  financial  statements  include the accounts of the Company and
its  wholly  owned  subsidiary,  Spitz.  Upon  consolidation,   all  significant
intercompany  transactions have been eliminated.  Certain  reclassifications  to
prior year amounts have been made to conform with the current year presentation.

Revenue Recognition

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

Inventories

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

                                      (19)
<PAGE>


                         Transnational Industries, Inc.
             Notes to Consolidated Financial Statements (continued)

Machinery and Equipment

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

Computer Software

Computer  software  consists  of  costs  of  developing  software  products  for
automated control systems for astronomical  simulation  equipment held for sale.
Costs are  amortized  over the sale of units not to exceed a period of 10 years.
Amortization  of costs  related  to  computer  software  products  held for sale
amounted to $37,000 in fiscal 1997 and $54,000 in fiscal 1996.

Excess of Cost Over Net Assets of Business Acquired

The excess of cost over net assets of  business  acquired  is  amortized  on the
straight-line  basis over forty years.  The Company  continually  evaluates  the
carrying amount of this asset.  Accumulated  amortization of excess of cost over
net assets of business acquired amounted to $788,000 and $720,000 at January 31,
1997 and 1996, 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.

Net Income (Loss) Per Share

Net income (loss) per share  amounts have been computed  based upon the weighted
average  number of shares  outstanding  during the year.  Per share  amounts are
adjusted for Preferred Stock dividend  requirements.  Common  equivalent  shares
from warrants issued in June 1994 and incentive stock options issued in May 1996
have been considered outstanding in determining the weighted shares outstanding.

Estimates

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



                                      (20)


<PAGE>



2.  Inventories


Inventories consist of:
                                                              January 31,
                                                       -----------------------
                                                          1997          1996
                                                       -----------------------
                                                            (in thousands)
Raw materials, parts, and subassemblies                 $  734        $  735
Work-in-process                                            153           196
Finished                                                     4             6
Cost and estimated earnings in  excess of billings         282           466
                                                       -----------------------
Total inventories                                        1,173         1,403
Repairs and maintenance inventories recorded with 
other assets                                               190           206
                                                       -----------------------
Inventory recorded within current assets                $  983      $  1,197
                                                       =======================




3.  Costs and Estimated Earnings on Contracts in Progress


Costs and estimated earnings on contracts in progress consisted of:
 
                                                             January 31,
                                                       -----------------------
                                                          1997          1996
                                                       -----------------------
                                                            (in thousands)
Costs incurred on contracts in progress                 $2,698        $2,244
Estimated earnings                                         953         1,080
                                                       -----------------------
Total costs and estimated earnings on contracts 
  in progress                                            3,651         3,324
Less billings to date                                   (4,309)       (3,299)
                                                       -----------------------
Total costs and estimated earnings on contracts 
  in progress net of billings                           $ (658)       $   25
                                                       =======================


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

                                                             January 31,
                                                       -----------------------
                                                          1997          1996
                                                       -----------------------
                                                            (in thousands)
Costs and estimated earnings in excess of  billings 
  recorded with inventory                               $  282        $  466
Billings in excess of costs and estimated earnings 
  recorded with liabilities                               (940)         (441)
                                                       -----------------------
Total costs and estimated earnings on contracts in 
  progress net of billings                              $ (658)       $   25
                                                       ======================= 

                                      (21)
<PAGE>

                         Transnational Industries, Inc.
             Notes to Consolidated Financial Statements (continued)


4.    Debt
                                                               January 31,
                                                         -----------------------
                                                          1997            1996
                                                         -----------------------
                                                              (in thousands)
                                         


Capitalized lease obligations                             $   88        $   48

Revolving credit note payable to bank, due Aug 1, 1997
  with monthly interest of 2% over prime                       -           269

Convertible term note payable to bank, due Aug 1, 1997
  with monthly installments of $13,000 ($20,000 
  effective June 1, 1997)plus interest of 2% over prime    1,411         1,567

Time note payable to bank, due March 31, 2004 with 
  no interest                                                 22            22

Estimated future interest payments on modified debt 
  agreements                                                   -            18
                                                         -----------------------
Total debt                                                 1,521         1,924

Less current portion                                         542           190
                                                         -----------------------
Long term debt, less current portion                      $  979        $1,734
                                                         =======================



The January 31, 1996 balance on the revolving  credit note represents the amount
outstanding  under a $500,000  revolving  credit  agreement  with the  Company's
primary lender (the Bank) dated April 1, 1994. The note and the revolving credit
agreement  originally matured on February 1, 1996 but were extended to August 1,
1997 pursuant to subsequent  amendments.  The revolving credit agreement permits
borrowing  subject to a formula  based on  inventory  and  accounts  receivable.
Interest at prime plus 2% is payable monthly.  The $500,000 limit is reduced for
outstanding  standby letters of credit issued by Spitz.  The borrowing limit was
reduced by $129,104 for standby  letters of credit at January 31, 1997 and 1996.
Unused borrowing  capacity amounted to $370,896 and $101,927 at January 31, 1997
and 1996, respectively.

The convertible term note consists of the balance of a $1,800,000 note issued to
the Bank on April 1, 1994. The note  represents a modification of terms pursuant
to a 1994 debt  restructuring.  The note was  payable by Spitz,  originally,  in
monthly principal  payments of $10,000 plus interest at prime plus 2% commencing
on April 1, 1994 with the  balance  maturing  on  February  1, 1996.  Subsequent
amendments  extended the maturity date to August 1, 1997 and  increased  monthly
principal  payments to $13,000 effective  February 1, 1996 and $20,000 effective
June 1, 1997. The amended terms also

                                      (22)
<PAGE>

                         Transnational Industries, Inc.
             Notes to Consolidated Financial Statements (continued) 

require additional  principal payments from excess cash balances determined by a
formula based on unrestricted cash balances and working capital. The terms allow
for the Bank to convert the full remaining  principal  amount into common shares
of the  Company at an  original  rate of $.50 per share  subject to  limitations
protecting the Company's  ability to carryforward its tax net operating  losses.
As a result of the one-for-twenty reverse stock split in July 1995 (see Note 5),
the conversion rate was adjusted to $10 per share.

The $21,783  time note is payable by the Company and matures on March 31,  2004.
No interest is payable  under the time note.  The time note  requires  mandatory
prepayments  in  amounts  equal to the  warrant  price  for  shares  that may be
purchased  from time to time by the Bank under a Stock  Subscription  Warrant to
purchase  2,178,268 shares of common stock of the Company for $.01 per share. As
a result of the one-for-twenty  reverse stock split in August 1995 (see Note 5),
the shares  acquirable  under the stock  subscription  warrant  are  adjusted to
108,913 shares at $0.20 per share

The January 31, 1996 balance of estimated  future interest  payments on modified
debt  agreements  resulted  from  the  application  of  Statement  of  Financial
Accounting  Standards No. 15,  "Accounting for Troubled Debt  Restructurings  by
Debtors and Creditors " (SFAS No. 15), to 1994 debt restructuring  transactions.
Under SFAS No. 15, the  estimated  future  interest  payments on  modified  debt
agreements are included with the carrying value of the debt.  Interest  payments
of $18,000 and $181,000  were  applied to debt in the fiscal year ended  January
31, 1997 and 1996, respectively.

The debt  agreements  are  secured by  virtually  all of the  Company's  assets,
prohibit the payment of dividends on capital  stock and require the  maintenance
of  certain  financial  covenants.   The  debt  agreements  also  include  cross
guarantees by the Company and Spitz.

The Company is currently in the process of evaluating  refinancing  alternatives
for its various  debt  agreements.  The current  debt  maturity  dates have been
extended  to August 1, 1997 in order to  complete  the  evaluation.  The current
portion of the existing note balances  reflects  payments expected to be made in
the fiscal year ended January 31, 1998 under new debt agreements.

5.  Common and Preferred Stock

On July 14, 1995 the stockholders of the Company voted to authorize the Board of
Directors of the Company to adopt  amendments  to the Company's  certificate  of
incorporation  to  effect  a  reverse  stock  split on a  one-for-twenty  basis,
decrease  the  authorized  number of shares of common stock from  10,000,000  to
1,000,000  and  increase  the per  share  par value  from  $0.01 to  $0.20.  The
effective  date of the  amendment  was August 15, 1995.  All  references  in the
accompanying  financial  statements to the number of common shares and per share
amounts have been restated to reflect the amendments.

The holders of the Series B Cumulative  Convertible  Preferred  Stock  (Series B
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, 1997,  accumulated but
undeclared and unpaid dividends with respect to the 1,744 outstanding  shares of
Series B Preferred  amounted to $299,750.  The Series B Preferred  shares may be
redeemed by the Company at $250 per share plus  accumulated  unpaid dividends of
$172 per share.  The 1,744  shares of Series B Preferred  are  convertible  into
10,259  shares of the Company's  common stock,  and such common shares have been
reserved by the Company for issuance upon conversion.

                                      (23)
<PAGE>

                         Transnational Industries, Inc.
             Notes to Consolidated Financial Statements (continued) 


Upon  liquidation,  dissolution,  or  winding  up of  the  Company,  before  any
distribution  with  respect to the common  stock,  the  holders of shares of the
Series B  Preferred  are  entitled to receive an amount  equal to the  aggregate
liquidation value, which would include any accumulated and unpaid dividends. The
Series B 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 Series B Preferred and as required by law. In such instances, each holder
of  Preferred  Stock is  entitled  to the number of votes equal to the number of
shares of common stock that would be obtained  upon  conversion  of the Series B
Preferred.


6.  Leases

Total rent expense under an operating lease for office and production facilities
amounted to $241,500 in each of fiscal  years 1997 and 1996.  Spitz's  lease for
its  facility  contains a renewal  option for an  additional  five years at fair
market  value upon the  expiration  of the current  term in April  1998.  Future
minimum  rental  commitments  under the  operating  lease are as follows for the
fiscal years: 1998--$241,500; 1999--$60,400.

Spitz  finances  purchases of certain  machinery and equipment  through  capital
leases.  Assets under capital  lease  included in Machinery and Equipment are as
follows:
                                               January 31,
                                      ---------------------------
                                           1997          1996
                                      ---------------------------
Machinery and equipment, at cost        $ 131,106    $  80,071
Accumulated depreciation                   29,585       17,352
                                      ===========================
    Net book value                      $ 101,521    $  62,719
                                      ===========================




The asset and  liability  are recorded at the present value of the minimum lease
payments  based on the interest  rates  imputed in the leases which  approximate
12%.  Depreciation on the assets under capital lease is included in depreciation
expense.

Future  minimum  annual  rentals under  capital lease  agreements at January 31,
1997, are as follows:



                                                       1998    $ 43,743
                                                       1999      41,090
                                                       2000      18,715
                                                                -------
         Total Payments                                         103,548
         Less amount representing interest                       14,186
                                                                -------
         Present value of capital lease obligations              89,362
         Less current portion                                    34,803
                                                                -------
         Long term obligation                                  $ 54,559
                                                                =======
                                      (24)

<PAGE>

                        Transnational Industries, Inc.
             Notes to Consolidated Financial Statements (continued) 


7.  Stock Compensation Plan

Under the 1995 Stock  Option and  Performance  Incentive  Plan,  the Company may
grant stock options, stock appreciate rights or shares of up to 50,000 shares of
the  Company's  common stock to  employees of the Company and Spitz.  On May 20,
1996,  10,500 stock options were granted to certain  management  employees.  The
options are  excercisable at the market price (defined as the average of the bid
and asked price) on the date of grant for up to five years, and are subject to a
four year vesting schedule at the rate of 25 % per year from the date of grant.

The fair value of each option was estimated on the date of grant using a pricing
model  which  assumed a risk free  interest  rate of 8% and  volatility  of 25%.
Compensation  cost, which is determined by the fair value of each option and the
number of options that actually vest,  amounts to $706 for the fiscal year ended
January 31, 1997.


8.  Profit Sharing Plan

The  Company  has  a  funded  profit-sharing  plan  covering  substantially  all
employees.  The plan permits the Company to make discretionary  contributions to
the account 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  $61,000  and $63,000 in fiscal
1997 and 1996, respectively.

9.  Income Taxes

Income tax expense for 1997  consists of  applicable  state  income taxes on the
income before taxes of Spitz.  State income taxes for 1996 have been  eliminated
by the  utilization of a net operating loss  carryforward,  the balance of which
expired in 1996.  Federal  taxes for both 1997 and 1996 have been  eliminated by
the utilization of federal net operating loss carryforwards.

Deferred  income taxes result from temporary  differences in the financial bases
and tax bases of assets and liabilities. Significant components on the Company's
net deferred tax at January 31, 1997, are as follows (in thousands).


Net operating loss carry forwards                    $ 4,745
Obsolescence reserve                                     361
                                                    ----------
Net deferred tax assets                                5,106
Valuation allowance                                   (5,106)
                                                    ==========
Deferred income tax, net                             $     0
                                                    ==========


The  valuation  allowance is intended to represent the  corresponding  amount of
deferred tax assets  which may not be  realized.  The  Company's  provision  for
income taxes may be impacted by adjustments to the valuation allowance which may
be required if  circumstances  change  regarding the 

                                      (25)
<PAGE>

                        Transnational Industries, Inc.
             Notes to Consolidated Financial Statements (continued) 


utilization  of the  deferred  tax  assets  in  future  periods.  The  valuation
allowance remained equal to the net deferred tax asset for the years presented.

At January  31,  1997 the Company had  investment  tax credit  carryforwards  of
$591,000 expiring in 1998 through 2002 and a net operating loss carryforward for
tax  purposes  of  $13,529,000  expiring in 2005  through  2009.  For  financial
reporting purposes, the net operating loss carryforward in 1997 is approximately
$14,590,000.  The difference relates to the nondeductible reserves for inventory
valuation not recognized for tax purposes.  The net operating loss  carryforward
was reduced by approximately $430,000 and $187,000 from the utilization of a net
operating loss deduction in 1997 and 1996,  respectively.  The Internal  Revenue
Service has not examined  the Company tax returns  during the years in which the
net  operating  losses were  generated  or since that time.  The effects of such
examinations on the Company's tax loss  carryforwards,  if any, cannot currently
be determined.


10. Financial Instruments

Risk Management

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

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

Spitz customer contracts are generally payable in U.S.  currency.  Occasionally,
foreign  currency will be required to purchase goods and services related to the
installation of products at foreign  customers  sites.  Spitz generally does not
use  derivative  financial  instruments  with respect to such  foreign  currency
requirements  as their  amounts  are  generally  minor  relative  to the overall
contract costs.

Fair Value of Financial Instruments

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

11.  Supplemental Cash Flow Information

Non cash  financing  transactions  consist of  equipment  of $65,000 and $51,000
acquired through capital leases in fiscal 1997 and 1996, respectively.

Interest paid on debt including capital lease  obligations  amounted to $167,000
in 1997 and $184,000 in 1996.  The Company paid no federal  income taxes in 1997
and 1996.

                                      (26)
<PAGE>

                        Transnational Industries, Inc.
             Notes to Consolidated Financial Statements (continued) 

12.  Significant Customers and Geographic Information

In fiscal years 1997 and 1996 revenues of $769,000  (11.2%) and $948,000 (16.5%)
were earned from a single  customer.  Export revenues by geographic area for the
years ended January 31 consist of (in thousands):

                                                         1997        1996
                                                  ----------- -----------
                   Canada                              $  763      $  290
                   Central America                        129         335
                   South America                           47           -
                   Europe                                 412         662
                   Middle East                             39         222
                   Far East                               761         926
                                                  ----------- -----------
                   Total export revenues             $  2,151     $ 2,435
                                                  =========== ===========

13.  Contingencies and Commitments

In the fiscal year ended January 31, 1996, Spitz became involved in a dispute in
connection  with a public bid for the  supply of  planetarium  equipment  for an
expansion project at a public community college. Spitz's subcontract bid was the
lowest  submitted  and the general  contractor  for the project  allegedly  used
Spitz's  pricing in submitting its total contract bid to the college.  After the
total  contract was awarded to the general  contractor,  however,  the college's
architect   alleged  that  Spitz's   equipment   did  not  conform  to  the  bid
specifications.  The bid for the equipment  which the architect  deemed to be in
conformance with the specifications was allegedly  approximately $150,000 higher
than  Spitz's  bid.  Because the  Contractor  has been forced to supply the more
expensive equipment, it is attempting to recover the $150,000 price differential
plus alleged related amounts due to adverse impacts on the project schedule from
various  parties.  At various times, the Contractor has threatened to assert its
claim against Spitz because it has been  unsuccessful in its attempts to recover
its alleged  damages  from the College or other  involved  parties.  The Company
believes  the bid  specifications,  to the  extent  that they  excluded  Spitz's
equipment,  constituted  an improper  sole-source  of equipment  which  violates
competitive  bidding laws because the specifications  appear to have been copied
from a  competitor's  equipment.  The  Company  also  believes  that  the  Spitz
equipment   meets  all  of  the  valid   functional   requirements  in  the  bid
specifications.  No lawsuit has been filed  against Spitz or the Company and the
parties have discussed settling the matter. The Contractor has not threatened to
carry out its  assertion  nor has it  communicated  with the Company  since July
1996.  The Company  believes  that it is likely  that the parties  will reach an
agreement  to  resolve  the  dispute  short of  litigation.  It is too  early to
estimate a probable outcome and its effect,  if any, on Spitz.  Accordingly,  no
liability for the potential claim has been recorded at January 31, 1997.

The Company had  outstanding  standby letters of credit of $129,000 and $267,000
at January 31,  1997 and 1996,  respectively.  Cash of  $138,000  was pledged as
collateral  for  outstanding  standby  letters of credit at January 31, 1996. No
cash was pledged as collateral for the  outstanding  standby letter of credit at
January 31, 1997.

                                      (27)
<PAGE>

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

Not applicable.

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

Directors of the Company

Pursuant to the Registrant's  By-laws, the number of Directors of the Registrant
is determined by Board action, which is currently seven. There currently exists,
however, two vacancies.

The following  information is submitted with respect to the current directors of
the  Company.  All such  directors  were  elected as directors by the holders of
Common Stock at the Company's last annual meeting of stockholders. All directors
serve until the next annual meeting of shareholders  and until their  successors
have been duly elected and shall have qualified.

                                                              Director
                           Name                    Age         Since

                  Michael S. Gostomski(1)(2)        46          1986
                  Charles H. Holmes, Jr.            56          1994
                  Charles F. Huber(1)               67          1992
                  William D. Witter(1)              67          1977
                  Calvin A. Thompson(1)(2)          72          1994

(1)Member of Compensation Committee.

(2)Member of Audit Committee.

Michael S. Gostomski joined the Company in May 1986 as  Vice-President  Finance,
Treasurer,  and a director and became  Corporate  Secretary in March of 1988. In
October of 1989, he became Executive  Vice-President  of the Company.  On May 1,
1992,  he became  President  and Chief  Executive  Officer of the  Company.  Mr.
Gostomski resigned as an employee of the Company,  while remaining as a director
of the Company,  in  September,  1993,  at which time he became  Executive  Vice
President  of  Roller  Bearing  Company.  From  1980 to  1986,  he held  various
financial and management positions at Peabody  International  Corporation,  most
recently  as  a  Sector  Vice  President  in  charge  of  its   engineering  and
construction subsidiaries.  Mr. Gostomski, who is a Certified Public Accountant,
holds B.S. and MBA degrees from the University of Connecticut.

Charles H. Holmes,  Jr.,  became a director of the Company in 1994.  He has held
various  operating  and  management positions  at the  Company's  Spitz,  Inc.,
subsidiary since 1962. Mr. Holmes has been President of Spitz since 1988. He has
been President of the Company since  September,  1993. Mr. Holmes holds a degree
in Business Management from Goldey Beacom College.

Charles F. Huber  became a director  of the  Company  in  February  1992.  He is
currently a 

                                      (28)
<PAGE>


managing director of William D. Witter Associates, Inc. and Chairman
of the Board of Directors of Merrimax  Corporation.  He holds a B.A. degree from
Princeton University.

William D. Witter became a director of the Company in 1977 and  Vice-Chairman in
August of 1987. He has been President of William D. Witter,  Inc., an investment
management  concern,  since  1976.  Mr.  Witter  holds an A.B.  degree from Yale
University and an M.B.A. from Stanford Business School.

Calvin A. Thompson became a director of the Company in October 1994. He has been
a Managing  Director  of William D. Witter  Associates,  Inc.  since  1982.  Mr.
Thompson holds a B.S. degree in industrial engineering from Columbia University.
 .

Executive Officers of the Company

The executive officers of the Company are as follows:

         Name                       Position                        Age
Charles H. Holmes, Jr.     President and Chief Executive             56
                           Officer and President of Spitz, Inc.

Paul L. Dailey, Jr.        Chief Financial Officer and Vice          40
                           President-Finance of Spitz, Inc.

Information  with respect to Mr.  Holmes is set forth above in this Item 9. Paul
Dailey  joined  Spitz in September of 1983 as  Controller.  In June of 1986,  he
became  Vice  President  - Finance for Spitz.  In April  1993,  he become  Chief
Accounting  Officer of the Company.  In September 1993 he became Chief Financial
Officer  and  Secretary  of  the  Company.  Mr.  Dailey  is a  certified  public
accountant and holds a B.A. degree in accounting from Rutgers University.

Section 16 (a) Beneficial Ownership Reporting Compliance

Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended,  requires
directors,  executive officers and 10% beneficial owners of the Company's Common
Stock to file certain reports concerning their ownership of the Company's equity
securities.  Based solely upon a review of Forms 3 and 4 and amendments  thereto
furnished to the Company  during its most recently  completed  fiscal year,  and
Forms 5 and amendments thereto furnished to the Company with respect to its most
recently completed fiscal year, the directors, executive officers and beneficial
owners  of 10% or more of the  Company's  Common  Stock  who  failed to make the
requisite  filings on a timely basis are as follows:  Messrs.  Holmes and Dailey
failed to file Forms 5  reporting  the  granting  to them of  options  under the
Company's stock option plan to purchase 3000 and 2500,  respectively,  shares of
Common Stock.

                                      (29)

<PAGE>




                         ITEM 10. EXECUTIVE COMPENSATION

Management Remuneration

The following table sets forth the cash, as well as certain other  compensation,
paid to Charles H. Holmes,  Jr., the  President and Chief  Executive  Officer of
both the Company  and the  Company's  Spitz,  Inc.,  subsidiary.  Except for Mr.
Holmes, the Company did not have any executive officer whose total annual salary
and bonus exceeded $100,000 for the last completed fiscal year.


                                 Annual           Long Term
                           Compensation (a)      Compensation
                         --------------------   --------------
                                                Securities Under
           Name and                             Options Granted     All Other
      Principal Position   Year      Salary           (#)          Compensation
-------------------------------------------------------------------------------

Charles H. Holmes, Jr.     1997     $130,999        3,000            $4,480 (b)
President of Spitz, Inc.   1996      128,077            0             4,421 (b)
                           1995      110,914            0             3,867 (b)

------------

(a)  Other  annual  compensation  consisting  of  an  automobile  allowance  and
     supplemental  medical benefits  amounted to less than ten percent of salary
     and is therefore not reported in table.

(b)  Consists entirely of contributions to 401 (k) plan.


Stock Option and Performance Incentive Plan

On  July  14,  1995  the  stockholders  of the  Company  voted  to  approve  the
Transnational  Industries Inc. 1995 Stock Option and Performance  Incentive Plan
(Option  Plan)  adopted by the Board of  Directors  of the  Company on March 21,
1995. The purpose of the Option Plan is to attract and retain the best available
employees  for the Company and its  subsidiaries  and to  encourage  the highest
level of  performance  by such  employees,  thereby  enhancing  the value of the
Company for the benefit of its stockholders. The Option Plan is also intended to
motivate   employees  to  contribute   to  the   Company's   future  growth  and
profitability  and to reward their  performance  in a manner that  provides them
with means to increase  their holdings of Common Stock of the Company and aligns
their interest with the interest of the  stockholders of the Company.  Under the
Option Plan,  awards are granted to key  employees  whose  initiative  is deemed
valuable for the successful  conduct and development of the Company's  business.
The Option Plan provides for up to 50,000  shares of the Company's  Common Stock
to employees of the Company and its subsidiaries. Awards may be in various forms
of stock options,  stock appreciation rights, and shares of common stock. Awards
are  granted by the  Compensation  Committee  of the Board of  Directors  of the
Company.

                                      (30)

<PAGE>

The following table sets forth the information  relating to individual grants of
options to purchase common shares of the Company to Charles H. Holmes, Jr. under
the Option Plan during the fiscal year ended January 31, 1997.


               Option Grants in Fiscal Year ended January 31, 1997
--------------------------------------------------------------------------------
                        Securities    % of Total 
                          Under         Options  
Name                     Options      Granted to        Exercise     
                         Granted       Employees         Price      Expiration 
                           (#)       in Fiscal Year  ($ per share)     Date
--------------------------------------------------------------------------------

Charles H. Holmes, Jr.  3,000 (1)        28.6%           $2.25     May 20, 2001
------------

(1) Options vest over four years at a rate of 25% per year.


        Aggregated Option Exercises in Fiscal Year Ended January 31, 1997
                        and Fiscal Year End Option Values
--------------------------------------------------------------------------------
                                                      Unexercised in-the-money 
                         Unexercised Options (#)       Options at Fiscal Year 
                           at Fiscal Year End                  End ($)     
Name                   Exercisable / Unexercisable   Exercisable / Unexercisable
--------------------------------------------------------------------------------

Charles H. Holmes, Jr.           0 / 3,000                     0 / 0


Employment Agreements

The Company entered into an employment  agreement with Mr. Holmes  effective May
1,  1995.  Under the  agreement  Mr.  Holmes is paid an  annual  base  salary of
$130,000,  which may be increased  from time to time by the  Company's  Board of
Directors, plus certain fringe benefits including group insurance,  supplemental
medical benefits and an automobile  allowance.  Mr. Holmes may also receive,  at
the sole discretion of the Company's Board of Directors, additional compensation
in the  form of a cash  bonus  or  equity  securities  under  the  Transnational
Industries Inc. 1995 Stock Option and  Performance  Incentive Plan. The original
term of the agreement was one year, but the agreement  automatically  extends an
additional one year unless otherwise terminated by either party by October 31 of
an  existing  term.   Pursuant  to  such  provision,   Mr.   Holmes's   contract
automatically  renewed on May 1, 1997, for the period through April 30, 1998. In
the event that Mr. Holmes's  employment is terminated  without cause, he will be
entitled  to a lump sum  payment  equal to twice his annual  base salary and the
continuation  of his fringe benefits for a period of two years. A non renewal of
the contract term by the Company within six months prior to or three years after
a "Change in Control" will be treated as a termination  without cause. A "Change
in Control" is defined as (i) a change within twelve months of a majority of the
Company's  Board of Directors,  (ii) a change in control of fifty percent of the
Company's  voting  stock,  (iii) the sale of the  assets  of Spitz,  or (iv) any
merger or consolidation  of the Company's  business which results in a change in
ownership  of the  majority of the equity of the  Company.  The  agreement  also
includes a  restrictive  covenant  whereby Mr.  Holmes agrees not to engage in a
competing  business  of the Company for a period of (i) three years in the event
of a termination  for cause or (ii) one year in the event that his employment is
otherwise terminated.

                                      (31)
<PAGE>

Compensation of Directors

Commencing with the fourth  calendar  quarter of 1994, the Chairman of the Board
of Directors  began  earning a fee of $10,000 per annum,  and each other outside
director  began  earning a fee of $6,000  per annum.  Beginning  with the second
calendar  quarter of 1995,  these amounts were  increased to $50,000 and $10,000
per  annum,  respectively.  The  fee  paid  to the  Chairman  was  based  on the
Chairman's spending one-third of his working hours assisting the Company and its
subsidiary.

                     ITEM 11. SECURITY OWNERSHIP OF CERTAIN
                        BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

The following table sets forth certain  information as to the only persons known
to the Company to be the beneficial owners of more than five percent (5%) of the
outstanding Common Stock of the Company as of April 30, 1997 (except for William
D. Witter and Charles Huber, whose respective  beneficial ownership is disclosed
in the  immediately  following  table).  The Common Stock is the Company's  only
class of voting securities.


              Name and                   Amount and Nature        % of Common
              Address                 of Beneficial Ownership         Stock
-------------------------------------------------------------------------------

Comerica Bank, N. A.                        247,413(1)               43.3%(2)
500 Woodward Avenue
Detroit, MI  48226

Penfield Limited Partnership c/o             37,353(3)               11.4%(4)
William D. Witter, Inc.
153 East 53rd Street
New York, NY 10022
                                                                      
Estate of Alan Drew                          24,887(5)                7.6%(6)
421 Sable Palm Lane
Vero Beach, FL 32963



(1)  108,913 of such  shares  are  currently  acquirable  upon the  exercise  of
warrants to purchase  108,913 shares of the Company's Common Stock at a price of
$0.20 per share. The remaining  138,500 shares of the Company's Common Stock can
be acquired in exchange for $1,385,000 of the Company's indebtedness to Comerica
Bank,  N.A., at an exchange  rate equal to $10.00 per share,  subject to (i) the
availability  of a sufficient  number of authorized  but unissued and unreserved
shares of the  Company's  Common Stock to allow such  conversion,  and (ii) such
exercise not materially and adversely affecting the amount of, or the ability to
use, the Company's tax net operating loss carryforward.

(2) Assumes the issuance of the Company's  Common Stock pursuant to the exercise
and conversion of the derivative  securities  owned by Comerica Bank,  N.A., and
described in Footnote 1 above.

                                      (32)
<PAGE>

(3) 2,353 of such shares are  currently  acquirable  upon the  conversion of 400
shares of the Company's Series B Preferred Stock.

4 Assumes the issuance of 2,353 shares of the Company's Common Stock pursuant to
the conversion of the Series B Preferred Stock described in footnote 3 above.

5 Includes 1,176 shares of Common stock acquirable upon the conversion of Estate
of Mr. Drew's Series B Preferred.

6 Assumes the issuance of 1,176 shares of the Company's Common Stock pursuant to
the conversion of the Series B Preferred Stock described in footnote 5 above.


Security Ownership of Management

The following table sets forth, as of April 30, 1997 the number of shares of the
outstanding  Common  Stock  of the  Company  beneficially  owned  by each of the
current  directors and executive  officers for whom disclosure is required to be
made  under the  Summary  Compensation  Table  pursuant  to Item  402(a)  (2) of
Regulation  S-B  promulgated  under  the  Securities  Exchange  Act of 1934,  as
amended,  individually,  and by the directors  and the  executive  officers as a
group:

         Name                                  Shares Owned   % of Common Stock

         William D. Witter                         164,608(1)          50.3%(2)
         Charles Huber                              37,588(3)          11.6%(2)
         Michael S. Gostomski                        6,043(4)           1.9%(2)
         Charles H. Holmes, Jr.                        868(5)               *
         Calvin A. Thompson                          6,488(6)           2.0%(2)

         All current  Directors and executive      216,279(7)          65.4%(2)
         officers as a group (6 persons)
         ---------
         * Less than 1%
                                  ------------

(1) Includes 87,219 shares of Common Stock (of which 824 are acquirable upon the
conversion  of the  Company's  Series B Preferred  Stock) owned by Mr.  Witter's
spouse and  children,  (ii) 1083 shares of Common  Stock  owned by ADW Inc.  and
(iii) the 37,353 shares of Common Stock  beneficially  owned by Penfield Limited
Partnership and described in the immediately  preceding table.  This figure does
not include 1,541 shares of Common Stock (of which 941 are  acquirable  upon the
conversion  of the Company's  Series B Preferred  Stock) owned by the William D.
Witter,  Inc.,  Profit  Sharing  Fund,  of which Mr.  Witter  is one of  several
trustees.  Mr.  Witter  disclaims a beneficial  interest in the shares of Common
Stock owned by the profit sharing fund and by Mr. Witter's spouse and children.

(2) Assumes  the  issuance  by the  Company of all  securities  issuable to such
director or all directors and executive officers as a group, as the case may be,
upon the exercise and/or  conversion of any Preferred Stock owned by such person
or group.

                                      (33)
<PAGE>

(3) Includes 588 shares of Common Stock  acquirable  upon the  conversion of Mr.
Huber's Series B Preferred Stock.

(4) Includes 753 shares of Common Stock  acquirable  upon the  conversion of Mr.
Gostomski's Series B Preferred Stock.

(5) Consists of 118 shares of Common Stock acquirable upon the conversion of Mr.
Holmes' Series B Preferred Stock and 750 shares of Common Stock  acquirable upon
the exercise of stock options which vest and become exercisable on May 20,1997.

(6) Includes 588 shares of Common Stock  acquirable upon the conversation of Mr.
Thompson's  Series B Preferred  Stock and 2,500  shares of Common Stock owned by
Mr.  Thompson's  spouse.  Mr.  Thompson  disclaims a beneficial  interest in the
shares of Common Stock owned by his spouse.

(7)  Includes  a total of 5,283  shares  of  Common  Stock  acquirable  upon the
conversion of all Series B Preferred Stock owned by the Company's  directors and
executive officers.


                 ITEM 12. CERTAIN RELATIONSHIPS AND TRANSACTIONS

Not applicable.

                    ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

   (a)  Exhibits

Exhibit
 No.     Description of Document

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

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

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

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

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

                                      (34)
<PAGE>

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

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

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

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

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

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

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

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

4.9      Credit  Agreement,  dated as of April 1,  1994,  between  the  Company,
         Spitz, Inc., and Comerica Bank.  (Exhibit 4.9 to Registrant's 1994 10-K
         incorporated herein by reference).

4.10     Partial  Release  Agreement,  dated as of April 1,  1994,  between  the
         Company,  Spitz, Inc., and Comerica Bank. (Exhibit 4.10 to Registrant's
         1994 10-K incorporated herein by reference).

4.11     Agreement, dated as of June 30, 1994, between the Company, Spitz, Inc. 
         and Comerica Bank.(Exhibit 4.11 to Registrant's 1994 10-K incorporated 
         herein by reference).

4.12     Partial Release of Comerica Bank, dated as of June 30, 1994. (Exhibit 
         4.12 to  Registrant's  1994 10-K incorporated herein by reference).

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

                                      (35)
<PAGE>

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

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

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

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

21       Subsidiaries of Registrant (a Delaware corporation):

                                   Spitz, Inc.

27       Financial Data Schedules


   (b)   Reports on Form 8-K for the quarter ended January 31, 1997.

                  None

                                      (36)


<PAGE>


SIGNATURES


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


Dated: May 15, 1997                         Transnational Industries, Inc.

                                            By: /s/ Paul L. Dailey
                                                    Paul L. Dailey
                                                    Secretary - Treasurer
                                                    Chief Financial Officer


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


Signature                     Title                        Date

/s/  Charles F. Huber
---------------------------
     Charles F. Huber         Chairman of the Board        May 15, 1997

/s/  Charles H. Holmes, Jr.
---------------------------
     Charles H. Holmes, Jr.   Director, President and      May 15, 1997
                              Chief Executive Officer

/s/  William D. Witter
---------------------------
     William D. Witter        Vice Chairman of the Board   May 15, 1997


/s/  Michael S. Gostomski
---------------------------
     Michael S. Gostomski     Director                     May 15, 1997

 /s/ Calvin A. Thompson
---------------------------
     Calvin A. Thompson       Director                     May 15, 1997

                                      (37)
<PAGE>