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

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

         For the quarterly period ended October 31, 1997

         [  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
              EXCHANGE ACT

         For the transition period from __________ to __________ 

                  Commission File Number 0 - 14835

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

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

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

                                 (610) 459-5200
                           (Issuer's telephone number)

Check  whether the Issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the Securities Act during the past 12 months (which is the period
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

State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.

                          Common stock, $0.20 par value
                    Outstanding at November 20, 1997: 324,220

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

<PAGE>




                         TRANSNATIONAL INDUSTRIES, INC.

                                   INDEX PAGE


Part I.    FINANCIAL INFORMATION

  Item 1. Financial Statements

          Condensed consolidated balance sheets -- October 31, 1997,
          and January 31, 1997.                                            3-4

          Condensed  consolidated  statements  of  operations -- Three
          months ended October 31, 1997 and 1996; nine months ended
          October 31, 1997 and 1996.                                         5

          Condensed consolidated statements of cash flows -- Nine
          months ended October 31, 1997 and 1996.                            6

          Notes to condensed consolidated financial statements --
          October 31, 1997.                                                7-9

  Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations                            10-13


Part II.   OTHER INFORMATION

         Item 6.    Exhibits and Reports on Form 8-K                        14

SIGNATURES                                                                  14

                                      (2)
<PAGE>



I.       FINANCIAL INFORMATION

                         TRANSNATIONAL INDUSTRIES, INC.

                      Condensed Consolidated Balance Sheets

                             (Dollars in thousands)

                                                 October 31,          January 31
                                                     1997                 1997
                                               ---------------------------------
                                                 (Unaudited)           (Audited)
Assets

Current Assets
    Cash                                              $  932              $  953
    Accounts receivable                                  610               1,077
    Inventories                                        1,154                 983
    Other current assets                                 181                 123
                                               ---------------------------------
Total Current Assets                                   2,877               3,136
 

Machinery and Equipment
    Machinery and equipment, at cost                   2,619               2,308
    Less accumulated depreciation                      1,868               1,723
                                               ---------------------------------

Net Machinery and Equipment                              751                 585

Other Assets
    Repair and maintenance inventories, less
     provision for obsolescence                          190                 190
    Computer software, less amortization                 241                 187
    Excess of cost over net assets of business
     acquired, less amortization                       1,910               1,961
                                               ---------------------------------
Total Other Assets                                     2,341               2,338
                                               ---------------------------------
Total Assets                                          $5,969              $6,059
                                               =================================

See notes to condensed consolidated financial statements.

                                   (3)
<PAGE>

                         TRANSNATIONAL INDUSTRIES, INC.

                      Condensed Consolidated Balance Sheets

                             (Dollars in thousands)

                                                      October 31,    January 31,
                                                         1997           1997
                                                     ---------------------------
                                                      (Unaudited)     (Audited)
Liabilities and stockholders' equity

Current Liabilities:
     Accounts payable                                    $  229          $   228
     Deferred maintenance revenue                           661              574
     Other current liabilities                              220              287
     Billings in excess of cost and estimated earnings      590              940
     Current maturities of long-term debt                   198              542
                                                     ---------------------------
Total Current Liabilities                                 1,898            2,571

Long Term Debt, less current maturities                   1,267              979

Stockholders' Equity
     Series B Cumulative  Convertible  Preferred Stock,
     $0.01 par value - 1,744 shares authorized, issued
     and outstanding (liquidating value $771,720)           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                           8,204            8,502
     Accumulated deficit                                (5,864)          (6,457)
                                                     ---------------------------
Total stockholders' equity                                2,804            2,509
                                                     ---------------------------
Total liabilities and stockholders' equity               $5,969           $6,059
                                                     ===========================


See notes to condensed consolidated financial statements.

                                      (4)
<PAGE>


                         TRANSNATIONAL INDUSTRIES, INC.

                 Condensed Consolidated Statements of Operations

                                   (Unaudited)
                      (In thousands, except per share data)

                                        Three Months Ended     Nine Months Ended
                                            October 31,           October 31,
                                       --------------------    -----------------
                                          1997        1996         1997    1996
                                       --------------------    -----------------
Rvenues                                $  1,540   $  1,648   $  5,625   $  4,844
Cost of Sales                             1,061      1,096      3,978      3,282
                                       --------   --------   --------   --------
Gross Margin                                479        552      1,647      1,562

Selling expenses                            142        148        409        396
Research and development                     99         93        318        303
General and administrative expenses         186        190        563        552
                                       --------------------    -----------------
                                            427        431      1,290      1,251
                                       --------------------    -----------------
Operating income                             52        121        357        311

Interest expense                             35         36         95        101
                                       --------------------    -----------------
Income before income tax                     17         85        262        210

Provision for income taxes                   --         --         14          6
                                       --------------------    -----------------
Net income before extraordinary item         17         85        248        204

Extraordinary gain on elimination
 of debt                                     --         --        345        --
                                       --------------------    -----------------
Net income                                   17         85        593        204

Preferred dividend requirement               12         12         36         36
                                       --------------------    -----------------
Income applicable to common shares       $    5     $   73     $  557     $  168
                                       ====================    =================
Income per common share
   Before extraordinary item           $   0.02   $   0.17     $ 0.57     $ 0.39
   Extraordinary gain on eliminatio
   of debt                                   --         --       0.93        --
                                       --------------------    -----------------
Net income applicable to common shares $   0.02   $   0.17     $ 1.49     $ 0.39
                                       ====================    =================
Weighted average common and common
 equivalentshares outstanding           324,220    433,133     372,626   433,133
                                       ====================    =================

See notes to condensed consolidated financial statements.

                                      (5)
<PAGE>


                         TRANSNATIONAL INDUSTRIES, INC.

                        Condensed Consolidated Statements
                                  of Cash Flows

                                   (Unaudited)
                                 (In thousands)
                                                            Nine Months Ended
                                                                 October 31,
                                                           ---------------------
                                                            1997           1996
                                                           ---------------------
                                       


       Net cash provided (used) by operating activities    $ 380        $   604

       Net cash provided (used) by investing activities     (172)           (99)
                                                                                
       Net cash provided (used) for financing activities    (229)          (402)
                                                           ---------------------
       Increase (decrease) in cash                           (21)           103
       Cash at beginning of period                           953            339
                                                           ---------------------
       Cash at end of period                               $ 932        $   442
                                                           =====================
      

See notes to condensed consolidated financial statements.

                                      (6)
<PAGE>


                         TRANSNATIONAL INDUSTRIES, INC.

              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)

                                October 31, 1997



Note A -- BASIS OF PRESENTATION

        The accompanying  unaudited condensed  consolidated financial statements
have been prepared in accordance with generally accepted  accounting  principles
for interim  financial  information and with the instructions to Form 10-QSB and
Regulation  S-B.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  In the opinion of management,  all adjustments considered
necessary for a fair presentation  have been included.  All such adjustments are
of a normal  recurring  nature.  Operating  results for the three-month and nine
month  periods  ended October 31, 1997,  are not  necessarily  indicative of the
results to be expected for the fiscal year.  For further  information,  refer to
the consolidated  financial  statements and footnotes thereto for the year ended
January 31, 1997, contained in the Registrant's Annual Report on Form 10-KSB for
the year ended January 31, 1997.

Note B  -- REFINANCING

        On June 12, 1997,  the Company and Spitz executed a series of agreements
with a new lender,  whereby the proceeds from two new promissory notes were used
to  retire  all  existing  debt  and a Stock  Subscription  Warrant  held by the
Company's  previous  lender.  Under an agreement with the previous  lender,  all
existing  debt  amounting  to  $1,373,000  as of  June  12,  1997,  and a  Stock
Subscription  Warrant to purchase  108,913 shares of the Company's  Common Stock
for $0.20  per  share  were  retired  for a cash  payment  of  $1,230,000.  Debt
agreements  executed with the new lender consist of an $820,000 term loan and an
$800,000  Revolving Credit Agreement.  The term loan is payable with interest at
9.25% over five years in equal monthly  installments  of $17,122.  The Revolving
Credit Agreement permits borrowing,  subject to an asset based formula, of up to
$800,000  under a Revolving  Credit Note.  The  Revolving  Credit Note  requires
monthly  interest  payments at prime plus 2% and also matures in five years. The
new debt  agreements  are secured by virtually  all of the assets of the Company
and Spitz. Upon execution of the new debt agreements,  proceeds of $820,000 from
the term note and $429,000 from the revolving credit agreement were used to fund
the  $1,230,000  payment to the  previous  lender  and a portion of other  costs
related to the  refinancing  transactions.  The  initial  revolving  credit note
advance  remained  outstanding  at October 31, 1997 and is recorded as debt with
the new term note and balances due under capital lease obligations in accordance
with the new maturity dates.

                                      (7)
<PAGE>

        At October 31, 1997,  $429,000  remained  outstanding  on the  revolving
credit note,  resulting in unused borrowing  capacity of $371,0000 under the new
$800,000  Revolving Credit  Agreement.  At January 31, 1997, the borrowing limit
under the previous $500,000 Revolving Credit Agreement,  reduced by $129,000 for
an  outstanding  standby  letter of credit,  also  resulted in unused  borrowing
capacity  of  $371,0000.  The  $129,000  standby  letter  of  credit  served  as
collateral on outstanding  surety bonds required to guarantee the performance of
Spitz on certain customer contracts. In June 1997, the Surety Company determined
that the Company's  financial  strength was  sufficient for the level of bonding
outstanding and returned the standby letter of credit for cancellation.

        The  retirement  of  the  $1,373,000  balance  from  the  previous  debt
agreements and the Stock Subscription Warrant for cash of $1,230,000 resulted in
a second  quarter  recording  of a reduction  of  Additional  Paid in Capital of
$298,000 and an extraordinary gain from the forgiveness of debt of $345,000, net
of related expenses of $96,000.

        The retirement of the Stock Subscription Warrant also reduces the common
stock equivalents used in computing  earnings per share resulting in an increase
in per share earnings on a proforma basis of approximately thirty-three percent.

Note C  -- NEW CAPITAL LEASE

        In July,  1997,  a capital  lease  transaction  was  completed,  whereby
$235,496 of  equipment  acquired  over the  previous  four months was sold to be
leased back to Spitz over a period of five years.  The lease agreement  requires
sixty monthly  installments  of $5,032 with a one dollar  purchase option at the
end of the  term.  The  equipment  is used  in a  factory  demonstration  of the
Company's new  ImmersaVision(TM)  products.  The new capital lease obligation is
recorded as debt with other lease obligations and the new bank notes payable.


Note D  -- CONTINGENCIES

         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 in 1996, the Contractor  threatened to assert
its claim  against  Spitz  because it had been  unsuccessful  in its attempts to
recover its alleged  damages  from the College or other  involved  parties.  The
Company's  management 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's  management 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

                                      (8)
<PAGE>

Company and the parties had 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's  management  believes that it is likely
that the  parties  will reach an  agreement  to  resolve  the  dispute  short of
litigation. At this time, the outcome of a settlement and its effect, if any, on
Spitz can not be determined.  Accordingly,  no liability for the potential claim
has been recorded at October, 31 1997.

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

Note E  -- SERIES B PREFERRED CUMULATIVE CONVERTIBLE PREFERRED STOCK

        On  September  26,  1997 the  Company  offered  the holders of the 1,744
outstanding  shares of the Company's Series B Cumulative  Convertible  Preferred
Stock  (Preferred) to exchange each share of the Preferred for 125 shares of the
Company's Common Stock (Common). The offer expired on November 28, 1997. Holders
of 1,414 shares of Preferred have accepted the exchange offer. Accordingly,  the
Company  will be issuing  176,750 of its  authorized  Common in exchange for the
1,414 shares of Preferred,  which will be retired.  The holders of the remaining
330 shares of  Preferred  did not respond to the  solicitation  and their shares
will remain outstanding,  unless,  either (i) the Company redeems the Preferred,
in accordance with its terms, in the future or (ii) the holders of the Preferred
request and the Company  agrees to exchange their shares at a future time (which
neither  side is  obligated  to do and which,  if done,  would be at an exchange
ratio  to be  negotiated  in  conjunction  therewith).  Upon  completion  of the
exchange  of the  shares  tendered,  there  will be  500,970  shares  of  Common
outstanding.  The  current  redemption  value of the 330  remaining  outstanding
shares of Preferred  will be $146,025.  The  remaining  holders of the Preferred
will continue to be entitled to receive  dividends,  when and if declared by the
Company's Board of Directors,  at an annual per share amount of $27.50.  The new
total quarterly  preferred  dividend  requirement  will be $2,269.  The proforma
effect on the net income per common  share for the three and nine month  periods
ending October 31, 1997 are as follows:

                                         Three Months Ended   Nine Months Ended
                                           October 31, 1997    October 31, 1997
                                          ------------------  ------------------
                                          Reported  Proforma  Reported  Proforma
                                          ------------------  ------------------
Net income before extraordinary item            17       17       248        248
Extraordinary gain on elimination of debt       --       --       345        345
                                          ------------------  ------------------
Net income                                      17       17       593        593
Preferred dividend requirement                  12        2        36          7
                                          ------------------  ------------------
Income applicable to common shares           $   5    $  15    $  557     $  586
                                          ==================  ==================
Income per common share
 Before extraordinary item                  $ 0.02   $ 0.03   $  0.57     $ 0.44
 Extraordinary gain on elimination of debt      --        --     0.93       0.63
                                          ------------------  ------------------
 Net income applicable to common shares     $ 0.02   $ 0.03    $ 1.49     $ 1.07
                                          ==================  ==================
Weighted average common and common
equivalent shares outstanding              324,220  500,970   372,626    549,376
                                          ==================  ==================
                                      (9)
<PAGE>


                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Results of operations

Revenues  in the third  quarter  and  first  nine  months  of  fiscal  1998 were
$1,540,000  and  $5,625,000   compared  to  $1,648,000  and  $4,844,000  in  the
comparable periods of fiscal 1997. The decrease of $108,000 (7%) for the quarter
was  due  to  lower  dome  revenues,  which  were  partially  offset  by  higher
planetarium  revenues.  The increase of $781,000 (16%) for the nine month period
resulted from higher revenues from all of the Company's  products.  In the third
quarter of fiscal 1998,  there was no revenue recorded from  ImmersaVision,  the
Company's  new line of video  projection  products,  compared  to $15,000 in the
third quarter of fiscal 1997.  Revenues from ImmersaVision  amounted to $177,000
in the first nine months of fiscal  1998,  compared to $15,000 in the first nine
months of fiscal 1997. The  ImmersaVision  revenue was attributable to the first
sale of an  ElectricSky  system  which was  completed  in the second  quarter of
fiscal 1998.  Planetarium  revenues  were  $677,000 and  $2,126,000 in the third
quarter and first nine months of fiscal 1998 compared to $602,000 and $1,784,000
in the  comparable  periods of fiscal  1997,  an increase  of $75,000  (12%) and
$342,000  (19%),  respectively.  The increase in planetarium  revenues in fiscal
1998 was due to the  completion  of new and  refurbished  systems  in the  third
quarter  combined with higher revenue from  maintenance  and parts.  Planetarium
revenues  include  amounts  attributable to the sale of maintenance and parts of
$326,000  and  $1,028,000  in the third  quarter and first nine months of fiscal
1998 compared to $289,000 and $854,000 in the comparable periods of fiscal 1997,
an increase of $37,000 (13%) and $174,000 (20%),  respectively.  The increase in
maintenance  and parts  revenues  was due to an increase  in sales to  customers
without preventive  maintenance  agreements as well as the timing of performance
on preventive maintenance agreements. Dome revenues were $863,000 and $3,322,000
in the third quarter and first nine months of fiscal 1998 compared to $1,032,000
and $3,046,000 in the comparable  periods of fiscal 1997, a decrease of $169,000
(16%) and an increase of $276,000 (9%), respectively.  There was a high level of
dome  revenue  in the first half of fiscal  1998  attributable  to  installation
activity on a dome for a large ride simulator, exterior and interior domes for a
special museum, and a dome used for a special projection  application at a theme
retail  complex.  This  increase was largely  offset by lower  revenue from film
theater  domes,  which was higher than normal in the first nine months of fiscal
1997.  Revenue  levels were low in the third  quarter of fiscal 1998 compared to
the year's previous two quarters as the revenue backlog has been depleted by the
high volume of work completed in the prior months.  While sales prospects remain
good and bookings have  improved,  uncertainty in the timing and delivery of new
sales are expected to cause  revenue  levels to continue  fluctuating  in future
quarters.  Accordingly,  the revenue levels recorded in the first three quarters
of fiscal 1998 are not necessarily  indicative of the levels expected for future
quarters.

Gross margins were on the low side of historical  averages at 31.1% and 29.3% in
the third  quarter and first nine  months of fiscal  1998  compared to 33.5% and
32.2% in the comparable  periods of fiscal 1997. Gross margins in the first nine
months of fiscal 1998 improved from volume  related  efficiencies  in production
but were  offset by lower  gross  margins on dome  installation  activity,  cost
overruns on certain planetarium projects and introductory pricing on the sale of
the first  ImmersaVision  system. The low margins on dome installation  activity
resulted  from the lower  profit  margins  on change  orders  to  recover  costs
overruns as  dictated by  construction  contract  terms  inherent in many of the
Company's  customer  contracts.  Selling  expenses  decreased $6,000 (4%) in the

                                      (10)
<PAGE>

third quarter and increased $13,000 (3%) in the first nine months of fiscal 1998
compared  to the  comparable  periods of fiscal  1997.  The  decrease in selling
expense for the quarter is attributable  to the initial expense  associated with
the  introduction  of  ImmersaVision  in the third  quarter of fiscal 1997.  The
increase in selling  expenses for the nine month period is  attributable  to the
introduction of ImmersaVision  products and costs associated with the hosting by
Spitz of a  regional  planetarium  society  meeting.  Research  and  development
expenses  increased  $6,000 (6%) and $15,000 (5%) in the third quarter and first
nine months of fiscal 1998  compared to the  comparable  periods of fiscal 1997.
The  increase  in  the  third  quarter  was  due  to  increased  efforts  in the
development and enhancement of ImmersaVision and existing planetarium  products.
In addition to the increase in research and  development  expenses,  engineering
resources of $81,000 were invested in capitalized  computer software  production
in the first nine months of fiscal 1998.  Research and development  expenses are
expected to  continue  at  increased  levels in  subsequent  quarters as efforts
continue in the  development  and  enhancement  of  ImmersaVision  and  existing
planetarium  products.  General  and  administrative  expenses  were  relatively
constant,  decreasing  $4,000 (2%) in the third quarter and  increasing  $11,000
(2%) in first nine months of fiscal 1998 compared to the  comparable  periods of
fiscal 1997.

Reported  net  interest  expense  amounted  to $35,000  and $95,000 in the third
quarter and first nine months of fiscal 1998 compared to $36,000 and $101,000 in
the comparable  periods of fiscal 1997. The $35,000 and $95,000  reported in the
first  quarter  and first nine months of fiscal  1998  consisted  of $39,000 and
$116,000  paid on debt  obligations,  offset by $4,000 and  $21,000 of  interest
income earned on cash invested.  The $36,000 and $101,000  reported in the first
quarter and first nine months of fiscal 1997  consisted  of $41,000 and $129,000
(of which  $18,000 was applied  against the book value of debt and  $111,000 was
charged to expense)  paid on debt  obligations,  offset by $5,000 and $10,000 of
interest income earned on cash invested. The Company continues to pay no federal
income  taxes as  federal  taxable  income is offset by the  utilization  of net
operating loss  carryforwards.  The provision for income taxes consists of state
income taxes.

As a result of the above, the Company  reported net income before  extraordinary
item of $17,000  and  $248,000  in the third  quarter  and first nine  months of
fiscal 1998  compared to net income of $85,000 and $204,000  for the  comparable
periods of fiscal 1997. In the second  quarter of fiscal 1998, an  extraordinary
gain from the  elimination  of debt of $345,000  was recorded as a result of the
refinancing of the Company's debt agreements.  The extraordinary  gain increased
net income to  $593,000  for the first  nine  months of fiscal  1998.  As stated
above, revenue levels are expected to fluctuate in future quarters. Accordingly,
the profit recorded in the first nine months should not be considered indicative
of the results expected for the remaining portion of fiscal 1998.


Liquidity and Capital Resources

Net cash provided by operating  activities was $380,000 in the first nine months
of fiscal 1998 compared to $604,000  provided in the first nine months of fiscal
1997.  The $380,000  provided by  operations  in the first nine months of fiscal
1998  consisted of $501,000  provided from  earnings  offset by $121,000 used by
changes in operating assets and liabilities. The $604,000 provided by operations
in the first nine months of fiscal 1997  consisted  of  $429,000  provided  from
earnings  offset by  $18,000  of  interest  payments  booked  against  debt plus
$193,000 provided by changes in operating assets and liabilities.

                                      (11)
<PAGE>

The $380,000  provided by operations in the first nine months of fiscal 1998 was
offset by $152,000 of scheduled principal payments on debt obligations,  payment
of $77,000  of  expenses  related  to  refinancing  transactions,  and  $172,000
invested in capital assets.  Of the $604,000 provided by operations in the first
nine months of fiscal 1997,  $268,000 was used to make principal payments on the
revolving  credit  note,  $134,000 was used to make  principal  payments on debt
obligations  and $99,000 was  invested in capital  assets.  The net result was a
$21,000  decrease in cash  balances  during the first nine months of fiscal 1998
compared to a $103,000 increase during the first nine months of fiscal 1997.

In addition to $172,000  invested in capital  assets in the first nine months of
fiscal  1998,  the  Company  acquired  $235,000 of  equipment  which it financed
through a capital lease obligation. The equipment is used in an in-house demo of
the  Company's  ImmersaVision  products.  The  financing  alternatives  for  the
ImmersaVision  demo equipment were heavily  influenced by the outcome of efforts
to refinance the Company's bank debt  agreements.  Therefore,  the equipment was
purchased  for cash in the  first and  second  quarters  of fiscal  1998 and the
financing  was  deferred.  On June  12,  1997  the  bank  debt  agreements  were
refinanced.  In July, 1997, a capital lease  transaction was completed,  whereby
the $235,000 of  equipment  was sold to be leased back to Spitz over a period of
five years.  The lease agreement  requires sixty monthly  installments of $5,032
with a one dollar purchase option at the end of the term.

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

The initial  advance under the new revolving  credit  agreement also included an
additional amount to partially fund closing costs,  which increased the total to
$429,000.  This  resulted in unused  borrowing  capacity  under the new $800,000
revolving credit agreement of $371,000.  At January 31, 1997 the borrowing limit
under the previous $500,000 Revolving Credit Agreement,  reduced by $129,000 for
an  outstanding  standby  letter of credit,  also  resulted in unused  borrowing
capacity  of  $371,0000.  The  $129,000  standby  letter  of  credit  served  as
collateral on outstanding  surety bonds required to guarantee the performance of
Spitz on certain customer contracts. In June 1997, the Surety Company determined
that the Company's  financial  strength was  sufficient for the level of bonding
outstanding and returned the standby letter of credit for cancellation.

In addition to the unused borrowing capacity of $371,000,  liquidity is provided
by cash balances of $932,000 at October 31, 1997 compared to $953,000 at January

                                      (12)
<PAGE>

31, 1997.  The next  sources of  liquidity  are trade  accounts  receivable  and
contracts in process. Trade accounts receivable decreased to $610,000 at October
31,  1997  compared to  $1,077,000  at January 31,  1997.  The higher  liquidity
available at January 31, 1997 from cash and accounts receivable was attributable
to advances on customer contracts as reflected by net billings in excess of cost
and profit of $658,000  at January 31, 1997  compared to $186,000 at October 31,
1997.

The  retirement  of the  previous  debt  agreements  and the Stock  Subscription
Warrant for $1,230,000  resulted in a reduction of Additional Paid in Capital of
$298,000 and an extraordinary gain from the forgiveness of debt of approximately
$345,000,  net of related  expenses,  recorded  in the second  quarter of fiscal
1998. The retirement of the Stock Subscription  Warrant eliminated its effective
twenty-five percent dilution of common shareholders equity.

In summary,  as a result of the replacement of the debt  agreements,  total debt
was lowered by $124,000  while  maintaining  the same credit  capacity,  payment
schedules  were  favorably  adjusted,  near term maturity dates were extended to
five years, and the Company's common  shareholders  benefited by the return of a
beneficial ownership of twenty five percent of their equity in the Company.

The new debt  agreements,  combined  with  current  assets  and cash  flow  from
operations,  assuming reasonably  consistent revenue levels,  should provide the
Company with adequate  liquidity for the foreseeable  future.  The strengthening
financial  condition of the Company should also improve the Company's ability to
raise  additional  funds for  expansion of its products  through  other  capital
resources.

                                      (13)
<PAGE>


II.  OTHER INFORMATION

6.   Exhibits and Reports on Form 8-K

(a)  Exhibits

Exhibit
   No.   Description of Document

   27    Financial Data Schedules*

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

*filed electronically herewith

(b) The  Registrant did not file any reports on Form 8-K during the three months
ended October 31, 1997.



                                                             SIGNATURES

     In accordance  with the  requirements  of the Exchange Act, the  Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


 TRANSNATIONAL INDUSTRIES, INC.

                                               /s/   Paul L. Dailey, Jr.
                                               ----------------------------
 Date:  December 12, 1997                       Paul L. Dailey, Jr.
       --------------------
                                                Secretary-Treasurer

                                                Signing on Behalf of Registrant
                                                and as Chief Financial Officer

                                      (14)