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, 1998

         [  ] 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 (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

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 30, 1998: 502,470

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, 1998,      
         and January 31, 1998.                                               3-4

         Condensed  consolidated  statements  of  operations -- Three
         months ended October 31, 1998 and 1997; nine months ended
         October 31, 1998 and 1997.                                            5

         Condensed consolidated statements of cash flows -- Nine
         months ended October 31, 1998 and 1997.                               6

         Notes to condensed consolidated financial statements --
         October 31, 1998.                                                   7-9

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                               10-14


Part II. OTHER INFORMATION

Item 6.    Exhibits and Reports on Form 8-K                                   15


SIGNATURES 

                                       2
<PAGE>



                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements


                         Transnational Industries, Inc.

                      Condensed Consolidated Balance Sheets

                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                          October 31   January 31,
                                                              1998         1998
                                                          ----------- -----------
Assets                                                    (Unaudited)   (Audited)
<S>                                                         <C>         <C>     

Current Assets:
  Cash                                                      $    466    $    471
  Accounts receivable                                          1,915         737
  Inventories                                                  1,152       1,412
  Other current assets                                           141         135
                                                          ----------- -----------

Total current assets                                           3,674       2,755



Machinery and equipment:
  Machinery and equipment                                      2,744       2,675
  Less accumulated depreciation                                2,109       1,927
                                                          ----------- -----------

Net machinery and equipment                                      635         748



Other assets:
  Repair and maintenance inventories, less provision
    for obsolescence                                             165         165
  Computer software, less amortization                           488         322
  Excess of cost over net assets of business acquired,
    less amortization                                          1,842       1,893
                                                          ----------- -----------

Total other assets                                             2,495       2,380
                                                          =========== ===========

Total assets                                                $  6,804    $  5,883
                                                          =========== ===========

</TABLE>


See notes to condensed consolidated financial statements.


                                       3
<PAGE>


                         Transnational Industries, Inc.

                Condensed Consolidated Balance Sheets (continued)

                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                          October 31   January 31,
                                                              1998         1998
                                                         ----------- -----------
Liabilities and stockholders' equity                     (Unaudited)   (Audited)
<S>                                                         <C>         <C>     

Current liabilities:
  Accounts payable                                          $    382    $    468
  Deferred maintenance revenue                                   787         641
  Accrued expenses                                               248         224
  Billings in excess of cost and estimated earnings            1,176         241
  Current portion of long-term debt                              229         215
                                                          ----------- -----------

Total current liabilities                                      2,822       1,789

Long-term debt, less current portion                           1,235       1,384

Stockholders' equity:
  Series B cumulativeconvertible preferred stock, 
  $0.01 par value - authorized 100,000 shares;
  issued and outstanding 318 shares (liquidating
  value$149,460)                                                  73          76
  Common stock, $0.20 par value -authorized
  1,000,000 shares; issued and outstanding 502,470  
  shares                                                         100         100
  Additional paid-in capital                                   8,491       8,479
  Accumulated deficit                                        (5,917)     (5,945)
                                                          ----------- -----------

Total stockholders' equity                                     2,747       2,710
                                                          ----------- -----------

Total liabilities and stockholders' equity                  $  6,804    $  5,883
                                                          =========== ===========

</TABLE>


See notes to condensed consolidated financial statements.

                                       4
<PAGE>


                         Transnational Industries, Inc.

                 Condensed Consolidated Statements of Operations

                                   (Unaudited)
                      (In thousands, except per share data)
<TABLE>
<CAPTION>

                                                Three Months Ended           Nine Months Ended
                                                    October 31                   October 31
                                              ------------------------    ------------------------
                                                    1998         1997             1998       1997
                                              ----------- ------------    ------------- ----------
<S>                                           <C>          <C>              <C>         <C>      
Revenues                                      $    2,064   $    1,540       $    5,431  $   5,625
Cost of Sales                                      1,461        1,061            3,772      3,978
                                              ----------- ------------    ------------- ----------
Gross Margin                                         603          479            1,659      1,647

Selling expenses                                     176          142              571        409
Research and development                             115           99              352        318
General and administrative expenses                  205          186              606        563
                                              ----------- ------------    ------------- ----------
                                                     496          427            1,529      1,290
                                              ----------- ------------    ------------- ----------
Operating income                                     107           52              130        357

Interest expense                                      26           35               96         95
                                              ----------- ------------    ------------- ----------
Income before income tax                              81           17               34        262

Provision for income taxes                             6            -                6         14
                                              ----------- ------------    ------------- ----------
Net income before extraordinary item                  75           17               28        248

Extraordinary gain on elimination of debt                                                     345
                                              ----------- ------------    ------------- ----------
Net income                                            75           17               28        593

Preferred dividend requirement                         2           12                6         36
                                              =========== ============    ============= ==========
Income applicable to common shares            $       73      $     5        $      22   $    557
                                              =========== ============    ============= ==========

Basic income per common share
   Before extraordinary item                  $     0.15    $    0.02         $   0.04   $   0.57
   Extraordinary gain on elimination of debt           -            -               --       0.92
                                              ----------- ------------    ----------- ------------    
                                              $     0.15    $    0.02         $   0.04   $   1.49
                                              =========== ============    ============= ==========

Diluted income per common share
   Before extraordinary item                  $     0.14    $    0.01         $   0.04   $   0.56
   Extraordinary gain on elimination of debt           -            -               --       0.90
                                              ----------- ------------    ------------- ----------
                                              $     0.14    $    0.01         $   0.04   $   1.46
                                              =========== ============    ============= ==========
</TABLE>

         See notes to condensed consolidated financial statements.

                                       5
<PAGE>

                         Transnational Industries, Inc.

                        Condensed Consolidated Statements
                                  of Cash Flows

                                   (Unaudited)
                                 (In thousands)
<TABLE>

                                                              Nine Months Ended
                                                                 October 31,
                                                            --------------------
                                                                 1998      1997
                                                            ---------- ---------
<S>                                                           <C>         <C>           
       Net cash provided (used) by operating activities      $    399    $  380

                                                                          
       Net cash provided (used) by investing activities          (237)     (172)

                                                                          
       Net cash provided (used) for financing activities         (167)     (229)
                                                            ---------- ---------
                                                                       
       Increase (decrease) in cash                                 (5)      (21)                                  
       Cash at beginning of period                                471       953
                                                            ---------- ---------
  
            Cash at end of period                              $  466     $ 932
                                                            ========== =========
       
</TABLE>

     See notes to condensed consolidated financial statements.


                                       6
<PAGE>



                         Transnational Industries, Inc.

              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)

                                October 31, 1998

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, 1998,  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, 1998,
contained in the  Registrant's  Annual  Report on Form 10-KSB for the year ended
January 31, 1998.

Note B - NEW ACCOUNTING PRONOUNCEMENTS.

SFAS No. 130,  Reporting  Comprehensive  Income,  establishes  standards for the
reporting and display of comprehensive income in financial statements.  SFAS No.
131,  Disclosures  about  Segments of an  Enterprise  and  Related  Information,
changes  the way  public  companies  report  segment  information  in  financial
statements.  The Statements  become  effective for all financial  statements for
fiscal years  beginning  after December 15, 1997. The Company has reviewed those
Statements  and does not  believe  that they will have a material  impact on its
financial statements and related disclosures.

Note C - COMMON AND PREFERRED STOCK

In August  1998 the  company  issued  1500  shares of its  authorized  Common in
exchange  for 12  shares  of  the  Company's  Series  B  Cumulative  Convertible
Preferred Stock (Preferred),  which were retired. The terms of the exchange were
the same as those offered to all the holders of the Preferred in September 1997.
There  remains  318  shares of  Preferred  outstanding  whose  holders  have not
responded to the solicitation and their shares will remain  outstanding,  unless
either (i) the shares are redeemed or converted in accordance  with the original
contractual  terms of the Preferred or (ii) the holders of the Preferred request
and the Company  agrees to exchange their shares at a future time (which neither
side is obligated to do and which, if done,  would be at an exchange ratio to be
negotiated in conjunction therewith).

                                       7
<PAGE>





Note D - EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share (dollars in thousands except per share data):
<TABLE>
<CAPTION>

                                                                    Three Months Ended              Nine Months Ended
                                                                        October 31                     October 31
                                                                 --------------------------     --------------------------
                                                                         1998         1997             1998          1997
                                                                 ------------- ------------     ------------ -------------
<S>                                                                   <C>          <C>              <C>           <C>    
Numerator (same for basic and dilutive):
Net income before extraordinary gain                                $      75    $      17       $       28     $     248
Preferred dividend requirement                                              2           12                6            36
                                                                 ------------- ------------     ------------ -------------
Net income before extraordinary gain
available to common stockholders                                           73            5               22           212
Extraordinary gain on elimination of debt                                  --                            --           345
                                                                 ============= ============     ============ =============

Net income available to common  stockholders                         $     73     $      5         $     22     $     557
                                                                 ============= ============     ============ =============

Denominator:
Weighted average shares outstanding for basic earnings per
share                                                                 502,470      324,220          501,470       372,626
Dilutive effect of employee stock options                               1,951       22,720            8,524         8,688
                                                                 ============= ============     ============ =============
Weighted average shares outstanding and assumed conversions
for dilutive earnings per share                                       504,421      346,940          509,994       381,314
                                                                 ============= ============     ============ =============

Basic income per share:
Before extraordinary gain                                            $    .15   $      .02       $      .04      $    .57
Extraordinary gain on elimination of debt                                  --           --               --           .92
                                                                 ============= ============     ============ =============
Total                                                                 $   .15    $     .02        $     .04      $   1.49
                                                                 ============= ============     ============ =============

Dilutive income per share:
Before extraordinary gain                                             $   .14   $      .01        $     .04      $    .56
Extraordinary gain on elimination of debt                                  --           --               --           .90
                                                                 ============= ============     ============ =============
Total                                                                 $   .14    $     .01        $     .04      $   1.46
                                                                 ============= ============     ============ =============
</TABLE>


Common shares  potentially  issuable under the contractual  conversion rights of
the Preferred B shares would have an  antidilutive  effect on earnings per share
and therefore have not been included in the above computations. Weighted average
common shares issuable under the contractual  conversion rights of the Preferred
B shares  amounted to 1,941 and 10,259 in each of periods ended October 31, 1998
and 1997, respectively.

                                       8
<PAGE>


Note E -- CONTINGENCIES

In 1995,  Spitz became involved in a dispute in connection with a public bid for
the  supply  of  planetarium  equipment  for an  expansion  project  at a public
community  college.  Spitz's  subcontract  bid was the lowest  submitted and the
general  contractor for the project allegedly used Spitz's pricing in submitting
its total  contract bid to the college.  After the total contract was awarded to
the general  contractor,  however,  the college's architect alleged that Spitz's
equipment did not conform to the bid  specifications.  The bid for the equipment
which the architect  deemed to be in  conformance  with the  specifications  was
allegedly approximately $150,000 higher than Spitz's bid. Because the Contractor
has been forced to supply the more  expensive  equipment,  it is  attempting  to
recover the $150,000  price  differential  plus alleged  related  amounts due to
adverse impacts on the project schedule from various parties.  At various times,
the  Contractor  has threatened to assert its claim against Spitz because it has
been  unsuccessful  in its  attempts  to recover its  alleged  damages  from the
College or other involved parties.  The Company believes the bid specifications,
to the extent that they  excluded  Spitz's  equipment,  constituted  an improper
sole-source  of equipment  which violates  competitive  bidding laws because the
specifications  appear to have been copied from a  competitor's  equipment.  The
Company also believes that the Spitz equipment meets all of the valid functional
requirements in the bid specifications.  No lawsuit has been filed against Spitz
or the  Company  and  the  parties  have  discussed  settling  the  matter.  The
Contractor has not communicated  any threats to carry out its assertion  against
Spitz since July 1996, but it has indicated to Spitz that  proceedings  continue
in an effort to recover  damages from the other  parties  involved.  The Company
believes that the parties will reach an agreement to resolve the dispute without
litigation  involving  Spitz. 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 October 31, 1998.


                                       9
<PAGE>


Item 2. 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  1999 were
$2,064,000  and  $5,431,000   compared  to  $1,540,000  and  $5,625,000  in  the
comparable  periods of fiscal  1998.  The  increase  of  $524,000  (34%) for the
quarter was due to higher  revenues from the sale of both domes and  planetarium
systems.  The decrease of $194,000 (3%) for the nine month period  resulted from
lower dome and ImmersaVision  revenues which more than offset higher planetarium
revenues. In the third quarter of fiscal 1999, work commenced on the second sale
of an ElectricSky  system resulting in ImmersaVision  revenue during fiscal 1999
of $13,000  compared to $177,000 for the first nine months of fiscal  1998.  The
ImmersaVision  revenue in fiscal 1998 was  attributable  to the first sale of an
ElectricSky  system which was completed in May 1997.  Planetarium  revenues were
$1,045,000  and  $2,229,000 in the third quarter and first nine months of fiscal
1999  compared to $677,000 and  $2,126,000 in the  comparable  periods of fiscal
1998,  an increase of $368,000  (54%) for the quarter and $103,000  (5%) for the
nine month period. The increase in planetarium  revenues for the quarter was due
to several new orders for new and refurbished systems for the educational market
booked in the  second  and third  quarters  of fiscal  1999.  For the first nine
months of fiscal 1999,  the second and third quarter  increases  were  partially
offset by low  planetarium  revenues  in the first  quarter  resulting  from the
winding down of work on previous  orders.  Planetarium  revenues include amounts
attributable  to the sale of  maintenance  and parts of $308,000 and $890,000 in
the third  quarter and first nine months of fiscal 1999 compared to $326,000 and
$1,028,000 in the comparable  periods of fiscal 1998, a decrease of $18,000 (5%)
and $138,000 (13%), respectively. The decrease in maintenance and parts revenues
was due to lower sales to customers without preventive maintenance agreements as
well as the timing of performance  on preventive  maintenance  agreements.  Dome
revenues  were  $1,006,000  and  $3,189,000  in the third quarter and first nine
months of fiscal 1999  compared to $863,000  and  $3,322,000  in the  comparable
periods of fiscal  1998,  an increase  of  $143,000  (17%) for the quarter and a
decrease of $133,000 (4%) for the nine month  period.  Higher 1999 dome revenues
from all of the  various  markets  were  offset  by  lower  revenues  from  ride
simulator domes.

New sales  order  bookings  have  increased  after a slow start in Fiscal  1999,
increasing the current backlog of unearned revenue to approximately $10,500,000.
About eighty  percent of the revenue  backlog is scheduled for delivery  through
the end of fiscal  2000.  Bookings  have been  strong  for all of the  Company's
products  and  include  two  ElectricSky   systems,   with  optical  planetarium
projectors  and domes,  for two new  visitor  attractions.  In  addition,  sales
prospects remain strong in all of the various markets.  The new orders and other
promising  sales  prospects  are expected to positively  impact  revenues in the
remainder  of fiscal  1999 and  beyond.  While  revenue  levels are  expected to
increase over the next year, uncertainty in the timing and delivery of new sales
are expected to cause revenue  levels to continue to fluctuate in future interim
periods.

Gross margins  decreased to 29.2% in the third quarter and increased to 30.5% in
the  first  nine  months  of  fiscal  1999  compared  to 31.1%  and 29.3% in the
comparable  periods of fiscal  1998.  In the first nine  months of fiscal  1999,
margin  improvements  resulting from  successful  efforts on most of the current
projects were  partially  offset by a lower margin on a project which required a


                                       10
<PAGE>

subcontract  to supply a special  device to rotate a large  film  theater  dome.
Gross  margins in the third  quarter  and first nine  months of fiscal 1998 were
weighted down by low gross margins on dome installation activity,  unanticipated
cost on certain planetarium  refurbishment  projects and introductory pricing on
the sale of the first ImmersaVision system. The low margins on dome installation
activity in fiscal 1998 resulted from the lower profit  margins on change orders
to recover additional costs as dictated by construction  contract terms. Selling
expenses  increased  $34,000  (24%) and $162,000  (40%) in the third quarter and
first nine months of fiscal 1999  compared to the  comparable  periods of fiscal
1998.  The  increase  in  selling  expenses  is due to  the  use of  engineering
resources in sales proposal efforts,  increased travel expense for foreign sales
presentations,  and the  introduction of  ImmersaVision  products.  Research and
development  expenses  increased  $16,000  (16%) and $34,000  (11%) in the third
quarter and first nine months of fiscal 1999 compared to the comparable  periods
of fiscal 1998.  Increases are due to research and  development  of  proprietary
programming   tools  for  software   content   development  for   ImmersaVision,
improvements  to   ImmersaVision   subsystems,   and   improvements  to  optical
planetarium products.  Research and development efforts are expected to continue
at increasing  levels in future  periods.  Fluctuating  research and development
expenses in the past have been  attributable  to the  deployment of  engineering
personnel  to work on selling  and  customer  contract  related  tasks.  Through
organizational  changes and a more constant volume of customer contract activity
the Company is  deploying a more  constant  level of  engineering  resources  to
research and  development  projects which will be necessary to maintain and grow
the business.  General and  administrative  expenses increased $19,000 (10%) and
$43,000  (8%) in the third  quarter  and the first  nine  months of fiscal  1999
compared to the  comparable  periods of fiscal 1998.  Increases  were due to new
employee  recruitment  costs and a $25,000  charge to account  for  questionable
accounts  receivable.   Otherwise,  general  and  administrative  expenses  were
relatively constant.

Net interest  expense  amounted to $26,000 and $96,000 in the third  quarter and
first  nine  months of fiscal  1999  compared  to  $35,000  and  $95,000  in the
comparable periods of fiscal 1998. The $26,000 and $96,000 reported in the first
quarter and first nine months of fiscal  1999  consisted  of $19,000 and $73,000
paid on bank debt  agreements  plus  $7,000 and  $23,000  paid on capital  lease
obligations.  The $35,000 and  $95,000  reported in the first  quarter and first
nine months of fiscal 1998  consisted of $31,000 and $100,000  paid on bank debt
agreements plus $8,000 and $17,000 paid on capital lease obligations,  offset by
$4,000 and  $22,000 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 on net income  reported  through the nine
month periods.

As a result of the above, the Company reported net income of $75,000 and $28,000
in the third quarter and first nine months of fiscal 1999 compared to net income
before  extraordinary item of $17,000 and $248,000 for the comparable periods of
fiscal 1998. 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 $593,000 for the first nine months of fiscal 1998.

Liquidity and Capital Resources

Net cash provided by operating  activities was $399,000 in the first nine months
of fiscal 1999 compared to $380,000  provided in the first nine months of fiscal
1998.  The $399,000  provided by  operations  in the first nine months of fiscal
1999  consisted of $334,000  provided from  earnings plus $65,000  provided from
changes in operating assets and liabilities. 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.

                                       11
<PAGE>

The $399,000  provided by operations in the first nine months of fiscal 1999 was
offset by $167,000 of  scheduled  principal  payments  on debt  obligations  and
$237,000 invested in capital assets.  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.  The net
result was a $5,000  decrease in cash  balances  during the first nine months of
fiscal  1999  compared  to a $21,000  decrease  during the first nine  months of
fiscal 1998.

The $237,000  invested in capital assets in the first nine months of fiscal 1999
consisted of $168,000 of computer  software and $69,000 of various machinery and
equipment  additions.  The $172,000 invested in capital assets in the first nine
months of fiscal 1998  consisted of $81,000 of computer  software and $91,000 of
various machinery and equipment additions. In addition,  $32,000 and $235,000 of
computer  hardware for the  development of  ImmersaVision  software was financed
through  capital leases in the first nine months of fiscal 1999 and fiscal 1998,
respectively.

At October  31,  1998 the  balance on the  revolving  credit  note  remained  at
$600,000 as it was at January 31,  1998.  The unused  borrowing  capacity on the
$800,000 revolving credit agreement was $200,000 at October 31, 1998 and January
31,  1998.  Additional  liquidity  was provided by  remaining  cash  balances of
$466,000 at October 31, 1998 compared to $471,000 at January 31, 1998.  The next
sources of liquidity  are trade  accounts  receivable  and contracts in process.
Trade accounts receivable increased $1,178,000 to $1,915,000 at October 31, 1998
compared  to  $737,000  at January 31,  1998.  The  increase  in trade  accounts
receivable  was  attributable  mostly to advances on  customer  contracts.  As a
result,  liquidity  available  from  contracts in process  decreased by $927,000
during the nine month period. At October 31, 1998, billings exceeded net revenue
by  $555,000  compared  to  $372,000  of net  revenues  in excess of billings at
January 31, 1998.

Total debt at October 31, 1998 was  $1,464,000,  a decrease of $135,000 from the
$1,599,000 at January 31, 1998. The decrease resulted from $167,000 of principal
payments  on debt and lease  obligations  offset by a new lease  obligation  for
$32,000.

The existing 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.

Year 2000 Impact

The Year  2000  Issue  is the  result  of  computer  programs  being  unable  to
distinguish  between  the year  1900 and  2000.  This  could  result in a system
failure or miscalculations causing disruptions of operations,  including,  among
other  things,  a  temporary  inability  to process  transactions,  or engage in
similar normal business activities.

The Company  currently uses a combination of mini computer  applications,  micro
computer  applications  and  manual  procedures  to  account  for and manage its
business processes.  The very unique nature of the Company's business, its small
size, and the variety of activities it is involved in, along with past financial
constraints,  have perpetuated the use of the current systems. The mini computer
applications are not currently Year 2000 compliant. Year 2000 corrections to the
mini  computer  applications  have been  proposed  by vendors  and  consultants;
however,  the Company  believes that such changes could be costly and uncertain.


                                       12
<PAGE>

Improvements  in the Company's  financial  condition,  the  availability of more
affordable  technology  solutions,  and anticipated increases in business volume
now justify major improvement to the Company's  information systems.  Therefore,
the  Company  has  concluded  that it would be better  served by an  alternative
solution.  As part of this wider objective to improve its  information  systems,
the Company is  evaluating  its overall data  processing  resources and plans to
make  substantial  changes within the next twelve months.  In this process,  the
Company plans to select new products that are Year 2000  Compliant.  The Company
has completed an analysis of its business  processes and requirements which were
matched to the capabilities of available enterprise software products. A list of
enterprise  software  products best suited for the  Company's  business has been
compiled  and a  determination  was made on the  basic  computer  infrastructure
required to run the list of software  products.  The computer  infrastructure is
expected  to be  installed  within the next three  months at an  estimated  cost
ranging  from  $63,000 to $87,000.  Software  evaluation  and  selection is also
planned over the next three months with installation and implementation over the
following  six  months.  Cost  of  the  enterprise  software,  installation  and
implementation  is  estimated to range from  $151,000 to  $265,000.  The cost is
expected to be capitalized and funded through operating cash flow and leasing of
computer hardware and software.

The  Company  is not  integrated  with and does not rely  heavily  on  vendors',
clients'  and other third  parties'  data  processing  systems.  The bulk of the
Company's  revenue  is  generated  from  new  public  or  commercial   projects.
Maintenance  and parts revenue comes from repeat  customers,  mainly museums and
schools.  As such,  revenue is  generally  not  dependent  upon repeat  sales to
commercial  customers'  inventory  management  systems  or  enterprise  resource
planning  systems the way many  businesses may be. The Company uses a network of
vendors  to  obtain  its  parts  and  supplies.  Many  parts  and  supplies  are
commodities  available from numerous  sources.  The effect of critical  vendors'
ability  to  continue  to  supply  the  Company  though  Year  2000 has not been
determined.  However,  the Company  believes that the lack of  integration  with
vendors systems and numerous available sources will provide adequate  protection
from vendors' Year 2000 potential problems.

The  Company's  products  rely on a number of widely used third  party  software
products  which claim to be Year 2000  compliant or do not perform date oriented
tasks.  Evaluation  and testing of the Year 2000 impact on software  used in the
Company's products is planned in conjunction with other research and development
efforts  over the next year.  Evaluation  and any required  corrections  are not
expected to have a material cost impact.

As a contingency  plan,  in the event that all of the necessary  changes are not
completed  by the Year 2000,  the portions of the  operations  that rely on date
sensitive data can be accommodated by manual  procedures and date adjustments to
existing  software  applications.  The Company believes this  contingency  plan,
although  not the most  efficient  solution,  could be  accomplished  without  a
material interruption to the Company's business.

In addition to the specific  anticipated costs described above, the Company will
incur additional costs as salaried  personnel utilize their time to work on Year
2000 matters. The Company does not anticipate that the use of internal personnel
will have a material  adverse effect upon the company's  operations or earnings;
however,  the  Company is not yet able to quantify  such costs and,  because the
Company has not  reserved  any amounts  therefor,  any amounts so expended  will
reduce the Company's earnings.  In addition,  in the event that the economy as a
whole is materially and adversely  effected by widespread  interruptions,  or by
failures of key  infrastructure  providers (such as banks and utilities),  it is
likely that the Company's financial condition and results of operations would be
materially adversely effected.

                                       13
<PAGE>


Forward-Looking Information

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

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


                                       14
<PAGE>




                              II. OTHER INFORMATION

6.   Exhibits and Reports on Form 8-K

(a)  Exhibits

Exhibit
   No.   Description of Document

   27    Financial Data Schedules


(b) The  Registrant did not file any reports on Form 8-K during the three months
ended October 31, 1998.



                                   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 15, 1998                  Paul L. Dailey, Jr.
                                               Secretary-Treasurer

                                               Signing on Behalf of Registrant
                                               and as Chief Financial Officer