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 July 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 August 31, 1997: 324,220

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


                                      (1)

<PAGE>

                         TRANSNATIONAL INDUSTRIES, INC.

                                   INDEX                                    PAGE


Part I.    FINANCIAL INFORMATION

       Item 1. Financial Statements

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

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

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

               Notes to condensed consolidated financial statements --
               July 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)

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


Current Assets
    Cash                                            $   854              $   953
    Accounts receivable                                 873                1,077
    Inventories                                        1002                  983
    Other current assets                                177                  123
                                                 -------------------------------
Total Current Assets                                  2,906                3,136



Machinery and Equipment
    Machinery and equipment, at cost                  2,595                2,308
    Less accumulated depreciation                     1,812                1,723
                                                 -------------------------------
Net Machinery and Equipment                             783                  585

 
Other Assets
    Repair and maintenance inventories, less
     provision for obsolescence                         190                  190
    Computer software, less amortization                199                  187
    Excess of cost over net assets of business
     acquired, less amortization                      1,927                1,961
                                                 -------------------------------
Total Other Assets                                    2,316                2,338
                                                 -------------------------------
Total Assets                                         $6,005               $6,059
                                                 ===============================



See notes to condensed consolidated financial statements.

                                      (3)
<PAGE>


                         TRANSNATIONAL INDUSTRIES, INC.

                      Condensed Consolidated Balance Sheets

                             (Dollars in thousands)


                                                       July 31,      January 31,
                                                         1997            1997
                                                  ------------------------------
                                                    (Unaudited)        (Audited)

Liabilities and stockholders' equity

Current Liabilities:
     Accounts payable                                   $   230          $   228
     Deferred maintenance                                   589              574
     Other current liabilities                              295              287
     Billings in excess of cost and estimated earnings      584              940
     Current maturities of long-term debt                   199              542
                                                  ------------------------------
Total Current Liabilities                                 1,897            2,571

Long Term Debt, less current maturities                   1,321              979

Stockholders' Equity
     Series B Cumulative  Convertible  Preferred Stock,  
     $0.01 par value - 1,744 shares authorized, issued
     and outstanding (liquidating value $759,730)           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                                (5,881)          (6,457)
                                                  ------------------------------
Total stockholders' equity                                2,787            2,509
                                                  ------------------------------
Total liabilities and stockholders' equity               $6,005           $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      Six Months Ended
                                            July 31                July 31
                                       -------------------     -----------------
                                           1997       1996       1997       1996
                                       -------------------     -----------------
Revenues                               $  1,761   $  1,486   $  4,085   $  3,196
Cost of Sales                             1,208        979      2,917      2,186
                                       --------   --------   --------   --------
Gross Margin                                553        507      1,168      1,010


Selling expenses                            141        127        267        248
Research and development                    146        105        219        210
General and administrative expenses         191        179        377        362
                                       --------   --------   --------   --------
                                            478        411        863        820
                                       --------   --------   --------   --------
Operating income                             75         96        305        190


Interest expense                             32         42         60         65
                                       --------   --------   --------   --------
Income before income tax                     43         54        245        125


Provision for income taxes                    3         --         14          6
                                       --------   --------   --------   --------
Net income before extraordinary item         40         54        231        119

Extraordinary gain on elimination of        
debt                                        345         --        345         --
                                       --------   --------   --------   --------
Net income                                  385         54        576        119


Preferred dividend requirement               12         12         24         24
                                       --------   --------   --------   -------
Income applicable to common shares          373         42        552         95
                                       ========   ========   ========   ========

Income per common share
   Before extraordinary item               0.08       0.10       0.52       0.22
   Extraordinary gain on elimination of    
    debt                                   0.95         --       0.87         --
                                       --------   --------   --------   --------
   Net income applicable to common         1.03       0.10       1.39       0.22
    shares                             ========   ========   ========   ========

                                                       
Weighted average common shares          
outstanding                             360,524    433,133    396,829    433,133
                                       ========   ========   ========   ========



See notes to condensed consolidated financial statements.


                                      (5)
<PAGE>

                         TRANSNATIONAL INDUSTRIES, INC.

                        Condensed Consolidated Statements
                                  of Cash Flows

                                   (Unaudited)
                                 (In thousands)
                                                            Six months Ended
                                                                 July 31,
                                                           ---------------------
                                                            1997           1996
                                                           ---------------------
                                       


       Net cash provided (used) by operating activities      172         $   712

       Net cash provided (used) by investing activities    (174)            (62)
                                                                                
       Net cash provided (used) for financing activities    (97)           (356)
                                                           ---------------------
       Increase (decrease) in cash                          (99)             294
       Cash at beginning of period                           953             339
                                                           ---------------------
       Cash at end of period                               $ 854         $   633
                                                           =====================
      





     See notes to condensed consolidated financial statements.

                                      (6)
<PAGE>


                         TRANSNATIONAL INDUSTRIES, INC.

              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)

                                  July 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 six
month periods ended July 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 July 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.

        At July 31, 1997, $429,000 remained  outstanding on the revolving credit
                                      (7)
<PAGE>

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 redemption  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
Company and the parties had discussed  settling the matter.  The  Contractor has
                                      (8)
<PAGE>

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.  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 July, 31 1997.

        At July 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.


                                      (9)
<PAGE>


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


Results of operations

Revenues  in the  second  quarter  and  first six  months  of  fiscal  1998 were
$1,761,000  and  $4,085,000   compared  to  $1,486,000  and  $3,196,000  in  the
comparable  periods of fiscal  1997.  The  increase  of  $275,000  (19%) for the
quarter was due to higher dome  revenues  which were  partially  offset by lower
planetarium  revenues.  The increase of $889,000  (28%) for the six month period
resulted from higher revenues from all of the Company's products.  Revenues from
ImmersaVision,  the Company's new line of video projection products, amounted to
$22,000 and $177,000 in the second  quarter and first six months of fiscal 1998,
as the Company  successfully  completed its first  installation  of ElectricSky.
Planetarium  revenues  were $599,000 and  $1,449,000  in the second  quarter and
first six months of fiscal  1998  compared  to $706,000  and  $1,182,000  in the
comparable  periods of fiscal 1997, a decrease of $107,000 (15%) for the quarter
and an increase  of $267,000  (23%) for the six month  period.  The  decrease in
planetarium revenues for the quarter was due to a reduction in the sales backlog
of new and  refurbished  systems for the educational  market.  For the first six
months of fiscal 1998, the second  quarter  decrease was offset by high revenues
on new and  refurbished  systems  in the  first  quarter.  Planetarium  revenues
include  amounts  attributable  to the sale of maintenance and parts of $375,000
and $702,000 in the second  quarter and first six months of fiscal 1998 compared
to $284,000 and $565,000 in the  comparable  periods of fiscal 1997, an increase
of $91,000 (32%) and $137,000 (24%),  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 $1,140,000 and $2,459,000
in the second  quarter and first six months of fiscal 1998  compared to $780,000
and $2,014,000 in the comparable periods of fiscal 1997, an increase of $360,000
(46%) and $445,000 (22%), respectively. The high level of dome revenue in fiscal
1998 was  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 half of fiscal 1997.  Revenue levels in the first and second
quarters of fiscal 1998 are not  necessarily  indicative of the levels  expected
for future  quarters.  While  sales  prospects  remain  good and  bookings  have
improved,  the  revenue  backlog  has been  depleted  by the high volume of work
completed in the recent  months.  Uncertainty  in the timing and delivery of new
sales are expected to cause  revenue  levels to continue  fluctuating  in future
quarters.

Gross margins were on the low side of historical  averages at 31.4% and 28.6% in
the second  quarter  and first six months of fiscal  1998  compared to 34.1% and
31.6% in the comparable  periods of fiscal 1997.  Gross margins in the first six
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  increased  $14,000 (11%) and
$19,000 (8%) in the second  quarter and first six months of fiscal 1998 compared
to the comparable  periods of fiscal 1997.  The increase in selling  expenses is
attributable  to the  introduction  the new  ImmersaVision  products  and  costs
                                      (10)
<PAGE>

associated with the hosting by Spitz of a regional  planetarium society meeting.
Research and development expenses increased $41,000 (39%) and $9,000 (4%) in the
second  quarter and first six months of fiscal 1998  compared to the  comparable
periods of fiscal 1997.  The increase in the second quarter was due to increased
efforts  in the  development  and  enhancement  of  ImmersaVision  and  existing
planetarium products.  The second quarter increase was largely offset by a first
quarter  decrease  which  resulted  from the  high  utilization  of  engineering
resources  on  customer  contract   activities  and  a  $19,000   investment  of
engineering  resources in  capitalized  computer  software  production  early in
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  increased  $12,000 (7%) and $15,000 (4%) in the second
quarter  and the first six  months of fiscal  1998  compared  to the  comparable
periods of fiscal 1997 due to inflationary  increases and incentive compensation
awards recorded in fiscal 1998.

Reported  net  interest  expense  amounted  to $32,000 and $60,000 in the second
quarter and first six months of fiscal  1998  compared to $42,000 and $65,000 in
the comparable  periods of fiscal 1997. The $32,000 and $60,000  reported in the
first  quarter  and first six months of fiscal  1998  consisted  of $38,000  and
$77,000  paid on debt  obligations,  offset by $6,000 and  $17,000  of  interest
income earned on cash  invested.  The $42,000 and $65,000  reported in the first
quarter and first six months of fiscal 1997 consisted of $46,000 and $90,000 (of
which $18,000 was applied against the book value of debt and $72,000 was charged
to expense)  paid on debt  obligations,  offset by $4,000 and $7,000 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  $40,000  and  $231,000  in the second  quarter  and first six months of
fiscal 1998  compared to net income of $54,000 and $119,000  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 addition of the extraordinary
gain resulted in net income of $385,000 and $576,000 for the second  quarter and
first six months of fiscal 1998. As stated above, revenue levels are expected to
fluctuate in the future quarters.  Accordingly, the profit recorded in the first
six months should not be considered  indicative of the results  expected for the
remaining of fiscal 1998.


Liquidity and Capital Resources

Net cash provided by operating  activities  was $172,000 in the first six months
of fiscal 1998  compared to $712,000  provided in the first six months of fiscal
1997. The $172,000 provided by operations in the first six months of fiscal 1998
consisted of $392,000  provided from earnings offset by $220,000 used by changes
in operating assets and liabilities.  The $712,000 provided by operations in the
first six months of fiscal 1997  consisted of $267,000  provided  from  earnings
offset by  $18,000  of  interest  payments  booked  against  debt plus  $463,000
provided by changes in operating assets and liabilities.

The $172,000  provided by  operations in the first six months of fiscal 1998 was
offset by $97,000 of scheduled  principal payments on debt obligations,  payment
of $77,000 of expenses related to refinancing transactions, and $97,000 invested
in capital  assets.  Of the  $712,000  provided by  operations  in the first six
months of fiscal  1997,  $268,000  was used to make  principal  payments  on the
                                      (11)
<PAGE>

revolving  credit  note,  $88,000  was used to make  principal  payments on debt
obligations  and $62,000 was  invested in capital  assets.  The net result was a
$99,000  decrease  in cash  balances  during the first six months of fiscal 1998
compared to a $294,000 increase during the first six months of fiscal 1997.

In  addition to $97,000  invested  in capital  assets in the first six 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 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  $854,000 at July 31, 1997  compared to $953,000 at January
31, 1997. The next source of liquidity, trade accounts receivable,  decreased to
$873,000 at July 31, 1997 compared to $1,077,000 at January 31, 1997.

The  retirement  of the  previous  debt  agreements  and the Stock  Subscription
                                      (12)
<PAGE>

Warrant for $1,230,000 resulted in a redemption 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  the
corresponding 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  overall  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.


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<PAGE>


II.  OTHER INFORMATION

6.   Exhibits and Reports on Form 8-K

(a)  Exhibits

Exhibit
  No.Description of Document
----------------------------
10.1 Line of Credit  Agreement,  dated June 12,  1997,  between  First  Keystone
     Savings Bank, the Company, and Spitz, Inc.* 
10.2 Line of Credit Note, dated June 12, 1997, of the Company and Spitz,  Inc. 
     to First Keystone  Savings Bank.* 
10.3 Term Note, dated June 12, 1997, of the Company and Spitz, Inc. to First 
     Keystone Savings Bank.* 
10.4 Agreement, dated June 12, 1997 between the Company, Spitz,Inc.and Comerica 
     Bank. *

   27    Financial Data Schedules*

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

*filed electronically herewith

(b) The  Registrant did not file any reports on Form 8-K during the three months
ended July 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:  September 12, 1997                    Paul L. Dailey, Jr.
       ------------------
                                             Secretary-Treasurer

                                             Signing on Behalf of Registrant
                                             and as Chief Financial Officer


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