Exhibit 13




                               ANNUAL REPORT 2004






                                   COVER PAGE



<PAGE>

                                  INSIDE COVER



<PAGE>

<TABLE>
<CAPTION>

                                      FINANCIAL SUMMARY

======================================================================================================================

                                                                                                 03 to 04     02 to 03
As of or For Year Ended November 30                         2004           2003           2002   % Change     % Change
----------------------------------------------------------------------------------------------------------------------

Operations
----------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>            <C>            <C>               <C>          <C>
Net revenues                                         $ 6,634,964    $ 4,215,957    $ 4,317,258       57.4         (2.3)
Operating income (loss)                              $    85,577    $   126,588    $  (262,359)     (32.4)           *
Income (loss) before income taxes (benefit)          $    61,207    $   116,129    $  (276,112)     (47.3)           *
Net income (loss)                                    $    61,207    $   116,129    $  (276,112)     (47.3)           *
Weighted average common shares outstanding             4,806,807      3,810,013      3,586,451       26.2          6.2

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

Per Share Data^
----------------------------------------------------------------------------------------------------------------------

Net income (loss)                                    $       .01    $       .03    $      (.08)     (66.7)           *
Cash dividends                                       $         -    $         -    $         -          -            -
Stockholders' equity                                 $       .11    $       .09    $       .00       22.2            *

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

Financial Position
----------------------------------------------------------------------------------------------------------------------

Assets                                               $ 2,956,478    $ 1,689,531    $ 1,160,746         75.0       45.6
Working capital (deficit)                            $   658,391    $   593,907    $  (126,195)        10.9          *
Property and equipment                               $   121,433    $    97,991    $   104,227         23.9      (6.0)
Long-term debt, less current maturities              $   300,000    $   300,000    $         -            -          *
Stockholders' equity                                 $   511,678    $   424,658    $    10,792         20.5    3,834.9

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

Number of employees                                      30             25             24
Number of stockholders                               approx. 650    approx. 641    approx. 660

----------------------------------------------------------------------------------------------------------------------
 * Because the data changes from negative to positive, the percentage of change is not meaningful.
 ^ Earnings (loss) per share, assuming full dilution, are equivalent to earnings (loss) per share.


======================================================================================================================

                                                          INDEX
Financial Summary                                                                                         1
Letter to Shareholders                                                                                    2
Selected Financial Data                                                                                   3
Management's Discussion and Analysis of Financial Condition and Results of Operation                      4
Report of Independent Registered Public Accounting Firm                                                  11
Balance Sheets                                                                                           12
Statements of Operations                                                                                 14
Statements of Stockholders' Equity (Deficit)                                                             15
Statements of Cash Flows                                                                                 16
Notes to the Financial Statements                                                                        18
Shareholder Information                                                                                  32
Directors and Officers                                                                                   32

</TABLE>



                                       1
<PAGE>

                            DEAR FELLOW SHAREHOLDER:

================================================================================

The current year was successful for us despite a decrease in net income
compared to 2003. The additional equity that we received in the last quarter of
2003 not only allowed us to have adequate working capital to meet our current
needs, but it also allowed us to invest for 2004. We began the year by expanding
our sales and research effort by hiring key individuals. We met our current
customer target goals while expanding our Automatic Guided Vehicle product line
with 5 new models that can readily be adapted or tailor made to meet our
customer specific and unique automation needs.

While the financial results were poor in the first three quarters, the above
investments were beginning to have clear long term benefits. We are steadily
improving our backlog, engineering capabilities, product line and our
manufacturing capabilities. I can best express some of these highlights as
percentage increases compared to 2003.

               -------------------------------------------------------------
               Business area                              % Increase from
                                                            2003 to 2004
               -------------------------------------------------------------
               New sales bookings                               83%
               -------------------------------------------------------------
               Revenues                                         57%
               -------------------------------------------------------------
               Number of AGV manufactured                       84%
               -------------------------------------------------------------
               Backlog                                          115%
               -------------------------------------------------------------
               Employment                                       20%
               -------------------------------------------------------------

The fourth quarter of 2004 also requires a special mention as we recognized
approximately $2.6 million of revenue and realized net income of over $400,000
on such revenues. This shows our potential for profitability should we be able
to sustain such revenues and margins and control expenses.

I also want to bring your attention to the impact that the new Sarbanes-Oxley
law is having on our Company. In 2004 we had to spend significant amounts of
time and money to meet the new regulations. Such expenses could potentially
double in 2005. In the opinion of management, prior year audit work, opinions
and procedures as well as auditors review of our internal controls gave our
shareholders the needed assurances that the Company's financial statements were
prepared effectively and accurately.

The certification of our internal controls by management to the Company's
shareholders is appropriate, but full verification and certification by our
auditors of these new rules seems excessive. Sarbanes-Oxley creates an
environment which causes companies to produce excessive documentation to prove
they have good accounting internal controls. Small companies have very different
controls and needs due to their size compared to larger corporations and the
actual real benefits being brought to the Company and its shareholders are
highly questionable versus the cost. These extra costs threaten our ability to
stay public as they significantly impact our bottom line.

We believe that auditor's certification of Internal Controls should be dictated
by the unique needs of each company. It is my opinion that a company's Board of
Directors, Audit Committee and their Shareholders should make decisions on the
scope and certifications required for their company before any monies are spent,
rather than being forced by a law that may be more theoretical than practical at
this time. We will continue our communication efforts, as modest as they might
be, to modify the law to more realistically meet the needs of small public
companies like ourselves. We urge all our shareholders to contact their
legislative representative to request that changes be made to the law on behalf
of small companies like Transbotics.

We look to forward to 2005 with optimism as we continue to release new
automation solutions for our target industries.

On behalf of the Board of Directors and our employees, I thank you for your
valued interest and continued support.

February 2005

Sincerely yours,



Claude Imbleau
CEO & President



                                       2
<PAGE>

<TABLE>
<CAPTION>

                                  SELECTED FINANCIAL DATA

=======================================================================================================

                                                     As of or For Year Ended November 30
                                       ----------------------------------------------------------------
<S>                                     <C>         <C>          <C>         <C>            <C>
                                              2004        2003         2002        2001           2000
-------------------------------------------------------------------------------------------------------
Statements of Operations Data:
    Net revenues                        $6,634,964  $4,215,957   $4,317,258  $6,015,214     $4,849,528
    Cost of goods sold                   4,399,168   2,578,840    2,844,282   3,959,246      3,320,829
-------------------------------------------------------------------------------------------------------
       Gross profit                     $2,235,796  $1,637,117   $1,472,976  $2,055,968     $1,528,699
-------------------------------------------------------------------------------------------------------

Net gain on sale of real property               $-          $-           $-    $581,023             $-
-------------------------------------------------------------------------------------------------------

Operating expenses:
    Selling                               $664,313    $451,668     $527,450    $673,671       $710,944
    General and administrative           1,186,729     817,686    1,074,520   1,226,321      1,317,182
    Research and development               299,177     241,175      133,365      80,562         53,086
-------------------------------------------------------------------------------------------------------
                                        $2,150,219  $1,510,529   $1,735,335  $1,980,554     $2,081,212
-------------------------------------------------------------------------------------------------------
       Operating income (loss)             $85,577    $126,588    $(262,359)   $656,437      $(552,513)
-------------------------------------------------------------------------------------------------------

Interest expense                          $(24,370)   $(10,459)    $(13,753)   $(72,566)     $(192,452)
-------------------------------------------------------------------------------------------------------

Income (loss) before income taxes
 (benefit)                                 $61,207    $116,129    $(276,112)   $583,871      $(744,965)
Federal and state income taxes                   -           -            -       3,053              -
-------------------------------------------------------------------------------------------------------
       Net income (loss)                   $61,207    $116,129    $(276,112)   $580,818      $(744,965)
=======================================================================================================

Weighted average number of
   common shares outstanding
  Basic                                  4,806,807   3,810,013    3,586,451   3,586,451      3,586,451
=======================================================================================================
  Diluted                                4,877,195   3,984,139    3,586,451   3,586,451      3,586,451
=======================================================================================================

Basic earnings (loss) per share               $.01        $.03        $(.08)       $.16          $(.21)
=======================================================================================================
Diluted earnings (loss) per share             $.01        $.03        $(.08)       $.16          $(.21)
=======================================================================================================

Cash dividend declared per common share         $-          $-           $-          $-             $-
=======================================================================================================

Balance Sheet Data:
Working capital (Deficit)                 $658,391    $593,907    $(126,195)   $124,511      $(340,372)
Total assets                            $2,956,478  $1,689,531   $1,160,746  $1,984,837     $2,304,110
Long-term debt, less current maturities   $300,000    $300,000           $-          $-       $988,702
Total liabilities                       $2,444,800  $1,264,873   $1,149,954  $1,697,933     $2,598,024
Stockholders' equity (Deficit)            $511,678    $424,658      $10,792    $286,904      $(293,914)

</TABLE>



                                       3
<PAGE>

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

================================================================================

     The following  discussion and analysis  should be read in conjunction  with
the financial  statements  (including  the notes  thereto)  presented  elsewhere
herein.

Overview

     The  Company  derives  virtually  all of its  revenues  from  the  sale  of
hardware,   software  and  engineering  services  in  connection  with  projects
incorporating its licensed Automated Guided Vehicle (AGV) control technology. In
prior years the Company's net revenues from AGV systems, vehicles and technology
were  derived  primarily  from sales to  customers  serving a limited  number of
industries - automotive,  food and paper, textiles and newspaper publishing. The
Company's   results  of  operations  can  be  expected  to  continue  to  depend
substantially  upon the capital  expenditure  levels in those  industries and in
other industries that the Company may enter.

     Due to the long sales cycle involved,  uncertainties in timing of projects,
and the large dollar amount of a typical  project,  the Company has experienced,
and can be expected to continue to experience,  substantial  fluctuations in its
quarterly and annual results of operations.

     The  Company  sells  its  products  and  services  primarily  in two  ways.
Vehicles,  technology and other products and services may be sold in a "project"
that  becomes  an  integrated  AGV  system.  The other way is to sell  hardware,
software  and services as standard  items or spare parts for  existing  systems,
with less  involvement  by the  Company in overall  system  design.  The Company
generally  would  recognize  lower net revenue but would  realize a higher gross
profit margin percentage in selling standard items, in each case compared to the
sale of a  project,  due to the  inclusion  in project  sales of other  vendors'
products  and services  with  margins  generally  lower than the  Company's  own
products and services.  Between any given accounting periods,  the levels of and
mixture of standard item sales and project sales can cause considerable variance
in net revenues,  gross profit,  gross profit margin,  operating  income and net
income.

     Revenues from  standard  item sales are  recognized  upon  shipment,  while
revenues from project sales are recognized  under the "percentage of completion"
method.  Under this method,  with respect to any particular  customer  contract,
revenues are recognized as costs are incurred  relative to each major  component
of the project.  Although the  percentage of completion  method will  ordinarily
smooth  out  over  time  the net  revenue  and  profitability  effects  of large
projects,  such method nevertheless subjects the Company's results of operations
to  substantial  fluctuations  dependent  upon the  progress  of work on project
components.  Such  components can differ markedly from one another in amount and
in gross profit margin.

     Project  contracts are billed upon attainment of certain  "milestones." The
Company grants payment terms of 30 days to its customers.  It typically receives
a cash advance ranging from 20% to 30% of the total contract  amount.  Bills are
thereafter  delivered as milestones  are reached.  Upon delivery of the project,
the  customer  typically  reserves a  "retainage"  of 10% to 20% pending  system
acceptance.

     Notwithstanding  the receipt by the Company of cash  advances  and periodic
payments  upon  reaching  project  milestones,  the  Company  requires  external
financing  for its costs  and  estimated  earnings  in  excess  of  billings  on
uncompleted contracts, inventories, receivables and other assets.

     The  Company's  backlog  consists of all amounts  contracted  to be paid by
customers but not yet recognized as net revenues by the Company.



                                       4
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

================================================================================

     Forward-looking  statements: This report (including information included or
incorporated by reference  herein) contains certain  forward-looking  statements
with  respect  to  the  financial  condition,   results  of  operation,   plans,
objectives, future performance and business of the Company.

     These  forward-looking  statements involve certain risks and uncertainties.
Factors  that  may  cause  actual  results  to  differ   materially  from  those
contemplated  by such  forward-looking  statements  include,  among others,  the
following possibilities:

     o    Revenues from end user systems  sales,  new OEMs and new niches may be
          lower than expected or delayed.

     o    General economic or business  conditions,  either nationally or in the
          markets in which the Company is doing business,  may be less favorable
          than expected  resulting in, among other things,  a  deterioration  of
          market share or reduced demand for its products.



                                       5
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

================================================================================

RESULTS OF OPERATIONS

     The table below shows the relationship of income and expense items relative
to net revenues for the fiscal years ended November 30, 2004, 2003 and 2002,
respectively.

<TABLE>
<CAPTION>

                                                                                           Percentage of Change
                                                                                             Period to Period
                                                  Percentage of Net Revenues                Increase (Decrease)
----------------------------------------------------------------------------------------------------------------------
                                                                                     Year Ended       Year Ended
                                                        For year Ended               November 30,    November 30,
                                               2004        2003        2002         2003 to 2004     2002 to 2003
----------------------------------------------------------------------------------------------------------------------
<S>                                           <C>         <C>         <C>                <C>             <C>
Net revenues                                  100.0 %     100.0 %     100.0 %            57.4 %          (2.3) %
Cost of  goods sold                            66.3        61.2        65.9              70.6            (9.3)
----------------------------------------------------------------------------------------------------------------------

Gross profit                                   33.7        38.8        34.1              36.6             11.1

Operating expenses:
   Selling                                     10.0        10.7        12.2              47.1            (14.4)
   General and administrative                  17.9        19.4        24.9              45.1            (23.9)
   Research and development                     4.5         5.7         3.1              24.1             80.8
----------------------------------------------------------------------------------------------------------------------

                                               32.4        35.8        40.2              42.4            (12.9)
----------------------------------------------------------------------------------------------------------------------

Operating income (loss)                         1.3         3.0        (6.1)            (32.4)               *
Net interest expense                           (0.4)       (0.2)       (0.3)            133.0            (24.0)
----------------------------------------------------------------------------------------------------------------------

Income   (loss)  before  income
taxes (benefit)                                 0.9         2.8        (6.4)            (47.3)               *
Income tax expense                               -           -           -                 -                 -
----------------------------------------------------------------------------------------------------------------------

Net income (loss)                               0.9  %      2.8  %     (6.4) %          (47.3) %             * %
======================================================================================================================
*   Because the data changes from negative to positive, or from positive to negative, the percentage of change
    is not meaningful.

</TABLE>



                                       6
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

================================================================================

Fiscal Year Ended  November 30, 2004 Compared To Fiscal Year Ended  November 30,
2003.

     Net  revenues  increased by  $2,419,007  or 57.4% from  $4,215,957  for the
fiscal  year ended  November  30, 2003 to  $6,634,964  for the fiscal year ended
November 30, 2004. The increase is primarily due to a recovering economy and the
Company's  increased  project AGV system sales to new  customers.  The Company's
revenues  during  2004 were  primarily  derived  from the  automotive,  food and
beverage and printing industries.

     Cost of goods sold increased from $2,578,840 to $4,399,168,  or 70.6%,  due
primarily  to  increased  revenues  and  higher  cost of AGVs  and  third  party
equipment in the current year compared to the prior year. As a percentage of net
revenues,  cost of goods sold  increased  from 61.2% to 66.3%  primarily  due to
lower  margins on equipment  revenues  compared to the prior year.  Gross profit
increased by $598,679, or 36.6%, from $1,637,117 to $2,235,796.

     Selling  expenses  increased from $451,668 to $664,313 or 47.1%,  primarily
due to increased  personnel  expense in the current  year  compared to the prior
year.  General and  administrative  expenses increased by $369,043 or 45.1% from
$817,686 to $1,186,729 compared to the prior year. The increase is primarily due
to increases in personnel,  professional  fees relating to  Sarbanes-Oxley,  and
other  expenses.  The  Company  also  incurred,  in the first  quarter of 2004 a
$18,403  noncash  stock option  compensation  expense as part of its general and
administrative  expenses due to the  Company's  stock price rising in 2004.  The
same expense in 2003 was $38,893 (see note 12). The Company  continued to invest
in the development of new AGV products to expand its product line in the current
year. Research and development  expenses were up 24.0% from $241,175 to $299,178
in the current year.

     Primarily as a result of the  foregoing,  the  Company's  operating  income
decreased by $41,011 from an operating income of $126,588 to an operating income
of $85,577 for the current year.

     Net interest  expense  increased  from  $10,459 to $24,370,  an increase of
133.0% due to higher banking and borrowing costs compared to the prior year.

     The Company  did not  recognize  any tax  expense in 2004 and 2003 for its
current earnings, as the Company had net operating loss carryforwards.  Deferred
tax  assets  have  not been  recognized  since  utilization  of  operating  loss
carryforwards in the future is not assured.

     Primarily due to the lower gross profit and  increased  expense in 2004, as
described above, the Company's net income decreased by $54,922 from a net income
of  $116,129  in the year ended 2003 to net income of $61,207 in the same period
of 2004.

Backlog

     Backlog consists of all amounts  contracted to be paid by customers but not
yet recognized as net revenues by the Company. At November 30, 2004, the Company
had a backlog of approximately  $3,330,000  compared to $1,550,000 total backlog
one year earlier.  Substantial fluctuations in backlog are considered normal due
to the size of AGV system contracts.



                                       7
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

================================================================================

Fiscal Year Ended  November 30, 2003 Compared To Fiscal Year Ended  November 30,
2002.

     Net revenues  decreased by $101,301 or 2.3% from  $4,317,258 for the fiscal
year ended  November 30, 2002 to $4,215,957  for the fiscal year ended  November
30,  2003.  The  decrease is primarily  due to a continued  slow  economy  which
resulted in decreased project AGV system sales and aftermarket  revenues for the
Company  compared to the prior year.  The  Company's  revenues  during 2003 were
primarily derived from the automotive, packaging, food and beverage and aviation
industries.

     Cost of goods sold  decreased from  $2,844,282 to $2,578,840,  or 9.3%, due
primarily  to the lower  engineering  cost in the current  year  compared to the
prior year. As a percentage of net revenues,  cost of goods sold  decreased from
65.9% to 61.2% primarily due to better margins in engineering  revenues compared
to the prior year. Gross profit increased by $164,141, or 11.1%, from $1,472,976
to $1,637,117.

     Selling expenses decreased from $527,450 to $451,668,  or 14.4%,  primarily
due to lower travel costs,  marketing  and show  expenses  compared to the prior
year. General and administrative  expenses decreased by $256,834 from $1,074,520
to $817,686, or 23.9%. The decrease compared to the prior year was primarily due
to the  reductions  in  personnel  cost  as  well  as  other  across  the  board
reductions.  The  Company  incurred,  in the fourth  quarter of 2003,  a $38,893
noncash  stock  option   compensation   expense  as  part  of  its  general  and
administrative expenses due to the Company's stock price rising in 2003. No such
compensation expenses were incurred in 2002 (see note 12). The Company continued
to invest in the  development of new AGV products and increased its research and
development  expenditures  by 80.8% or  $107,810  in the 2003  compared  to 2002
expenditures.

     Primarily as a result of the  foregoing,  the  Company's  operating  income
increased by $388,947 from an operating loss of $262,359 to an operating  income
of $126,588 for the current year.

     Net interest expense decreased from $13,753 to $10,459, a decrease of 24.0%
due to lower banking costs compared to the prior year.

     The  Company  did not  recognize  any tax  benefits in 2002 for its current
losses or any income tax expense in 2003 for its earnings as the Company had net
operating loss carryforwards. Deferred tax assets have not been recognized since
utilization of operating loss carryforwards in the future is not assured .

     Primarily  due to the higher  gross  profit and lower  expense in 2003,  as
described  above, the Company's net income increased by $392,241 from a net loss
of  $276,112 in the year ended 2002 to net income of $116,129 in the same period
of 2003.



                                       8
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

================================================================================

Liquidity and Capital Resources

     From time to time,  the Company  needs  external  sources of  financing  to
support its working capital,  capital expenditures and acquisition  requirements
when  such  requirements  exceed  its  cash  generated  from  operations  in any
particular  fiscal  period.   The  amount  and  timing  of  external   financing
requirements  depend  significantly upon the nature,  size, number and timing of
projects and contractual billing arrangements with customers relating to project
milestones. The Company has relied upon bank financing under a revolving working
capital facility,  long term debt,  capital leases and proceeds of its public or
private offerings to satisfy its external financing needs.

     During  the year  ended  November  30,  2004,  net cash  used by  operating
activities was $386,833.  The use in cash primarily occurred in the last quarter
of 2004 as receivables increased significantly due to increased business volume.
Such  receivables  created  significant cash as they were collected in the first
quarter of 2005 for the Company to meet its current  obligations.  The Company's
working capital grew from $593,907 in 2003 to $658,391 in 2004.

     On September 23, 2003,  the Company issued  1,200,000  shares of its common
stock,  par value $.01 per share (the "Private  Offering  shares") for cash. The
price for the Private  Offering  shares was $0.25 per share  resulting  in gross
proceeds of $300,000.  The shares are subject  initially to the restrictions set
forth under Rule 144  promulgated  under the Securities Act of 1933. The Company
agreed to  register  the  Private  Offering  shares  for resale  pursuant  to an
Investor Rights  Agreement dated  September 23, 2003.  Under the Agreement,  the
Company has filed a registration  statement for the Private  Offering shares (as
well as shares held by two Company officers and/or affiliates of such officers).

     On  September  23,  2003,  in  conjunction  with the new equity the Company
issued $300,000 worth of convertible  subordinated  promissory  notes. The notes
bear  interest  at 6.0%  with  interest  payable  quarterly.  The  notes  mature
September 30, 2013 and are callable by the Company after September 30, 2008. The
Notes can be  converted  to common  shares at any time at an  exercise  price of
$0.40 a share. No debt was converted in 2004 and all interest payments were made
in a timely manner.

     The Company  obtained its  $150,000  line of credit from a bank on November
13, 2003 which was renewed until March 31,2005,  as further described in note 4.
As of January 15, 2004, $150,000 was outstanding.

     The Company  believes that its working  capital of $658,391 at November 30,
2004 is adequate for its current operations.

     The Company will is also reviewing the  possibility or feasibility of going
private  to  reduce  its  operating  expenses  relating  to  new  Sarbanes-Oxley
compliance.  The Company's  current expenses relating to being publicly held are
approximately $250,000 annually,  which is a significant expense compared to the
Company's net income.



                                       9
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

================================================================================

Critical Accounting Policies:

     The  preparation  of financial  statements  in conformity  with  accounting
     principles  generally  accepted  in the United  States of America  requires
     management  to make  estimates  and  assumptions  that affect the  reported
     amounts of assets and liabilities  and the disclosure of contingent  assets
     and  liabilities  at the date of the financial  statements and the reported
     amounts of  revenues  and  expenses  during the  reporting  period.  Actual
     results could differ from these estimates.

Revenue recognition:

     The Company  recognizes  revenue from the sales of  commercial  products as
     shipments are made.

     The Company recognizes revenues under long-term contracts on the percentage
     of completion  method,  measured by the  percentage of each  component cost
     incurred  to date to  estimated  total  component  contract  costs for each
     component in the contract.  Component costs include material, direct labor,
     subcontracts,  engineering,  overhead, and miscellaneous costs.  Provisions
     for  estimated  losses are made in the  period in which  they first  become
     determinable.

     "Costs  and  estimated  earnings  in  excess  of  billings  on  uncompleted
     contracts"  represent  revenue  recognized  in  excess of  amounts  billed.
     "Billings  in  excess  of  costs  and  estimated  earnings  on  uncompleted
     contracts" represent billings in excess of revenues recognized.

     Due to the length of the projects, the large dollar amount of each project,
     and inherent  difficulties in estimating the total component costs, the use
     of different  estimates  and  assumptions  could have  provided  materially
     different results.

Stock options:

     Grants to employees under the stock option plans are accounted for
     following the recognition and measurement provisions of APB Opinion No. 25
     and related interpretations. Compensation Cost under APB 25 was $18,403 and
     $38,893 for the years ended November 30, 2004 and 2003, respectively.

     The impact on reported net income and earnings per share of using the fair
     value method of accounting for stock-based compensation was not significant
     for the years ended November 30, 2004 and 2003.

     At November 30, 2004 and November  30, 2003  options  were  outstanding  to
     purchase a total of  220,500,  and  227,500  shares of common  stock of the
     Company,  respectively,  at  weighted-average  exercise  prices of  varying
     amounts.  At November 30, 2004 all 220,500  outstanding options were vested
     and exercisable  while 227,500 options at November 30, 2003 were vested and
     exercisable.



                                       10
<PAGE>

             Report of Independent Registered Public Accounting Firm

To the Board of Directors
Transbotics Corporation

We have audited the accompanying balance sheet of Transbotics Corporation (a
Delaware corporation) as of November 30, 2004, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Transbotics Corporation as of
November 30, 2004, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.

/s/ Grant Thornton LLP
----------------------

Charlotte, North Carolina
January 27, 2005


                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Transbotics Corporation
Charlotte, North Carolina

We have audited the accompanying balance sheets of Transbotics Corporation
as of November 30, 2003 and the related statements of operations, stockholders'
equity , and cash flows for each of the two years in the period then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Transbotics Corporation as of
November 30, 2003, and the results of its operations and its cash flows for each
of the two years in the period then ended in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 to the 2003
financial statements, there is substantial doubt about the Company's ability to
continue as a going concern. Management's plan in regard to these matters are
also described in Note 15 to the 2003 financial statements. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.


                                                /s/McGLADREY & PULLEN, LLP

Charlotte, North Carolina
January 9, 2004



                                       11
<PAGE>

<TABLE>
<CAPTION>

                                     BALANCE SHEETS

============================================================================================


                                                                     November 30,
                                                                   2004                2003
--------------------------------------------------------------------------------------------

      ASSETS
<S>                                                            <C>                 <C>
CURRENT ASSETS
     Cash                                                      $236,968            $545,193
     Accounts receivable, net (Notes 2,
      4, 5 and 9)                                             1,500,636             683,654
     Inventories                                                412,725             301,038
     Costs and estimated earnings in
      excess of billings on uncompleted
      contracts (Note 3)                                        610,462              12,916
     Prepaid expenses and other assets                           42,400              15,979
--------------------------------------------------------------------------------------------
         Total current assets                                $2,803,191          $1,558,780
--------------------------------------------------------------------------------------------

NONCURRENT DEPOSITS                                             $31,854             $32,760
--------------------------------------------------------------------------------------------

PROPERTY AND EQUIPMENT (Note 4)
      Furniture, fixtures, and office
       equipment                                               $195,054            $172,824
      Machinery and equipment                                    78,960              61,307
--------------------------------------------------------------------------------------------
                                                               $274,014            $234,131
       Less accumulated
        depreciation                                            152,581             136,140

--------------------------------------------------------------------------------------------
                                                               $121,433             $97,991

--------------------------------------------------------------------------------------------
                                                             $2,956,478          $1,689,531
============================================================================================

See Notes to Financial Statements
</TABLE>



                                       12

<PAGE>

<TABLE>
<CAPTION>

                                BALANCE SHEETS

===========================================================================================

                                                                       November 30,
                                                                    2004          2003
-------------------------------------------------------------------------------------------
<S>                           <C>                               <C>                 <C>
      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Note payable, bank (Note 4)                                $150,000            $-
     Accounts payable                                          1,105,983       353,215
     Accrued expenses and customer deposits                      224,684        92,878
     Billings in excess of costs and estimated
       earnings on uncompleted contracts (Note 3)                664,133       518,780
-------------------------------------------------------------------------------------------
         Total current liabilities                            $2,144,800      $964,873
-------------------------------------------------------------------------------------------

LONG-TERM DEBT (Notes 4, 9 and 11)                              $300,000      $300,000
-------------------------------------------------------------------------------------------

COMMITMENTS  (Note 10)

STOCKHOLDERS' EQUITY  (Notes 11 and 12)
   Preferred stock, par value $.01 per share
        authorized 1,000,000 shares; no shares issued                 $-            $-
   Common stock, par value $.01 per share;
        11,000,000 shares authorized at 2004
        and 2003; 4,824,451 shares and 4,786,451 shares
        were issued and outstanding at 2004 and 2003,
        respectively                                              48,244        47,864
   Additional paid-in capital                                  4,571,406     4,545,973
   Accumulated deficit                                        (4,107,972)   (4,169,179)
-------------------------------------------------------------------------------------------
                                                                $511,678      $424,658
-------------------------------------------------------------------------------------------
                                                              $2,956,478    $1,689,531
==========================================================================================

</TABLE>



                                       13
<PAGE>

<TABLE>
<CAPTION>

                            STATEMENTS OF OPERATIONS

========================================================================================================================

                                                                                        Years ended November 30,
                                                                                    2004          2003             2002
------------------------------------------------------------------------------------------------------------------------
<S>                 <C>   <C>                                                 <C>           <C>              <C>
Net revenues (Notes 5 and 9)                                                  $6,634,964    $4,215,957       $4,317,258
Cost of goods sold (Note 9)                                                    4,399,168     2,578,840        2,844,282
------------------------------------------------------------------------------------------------------------------------
    Gross profit                                                              $2,235,796    $1,637,117       $1,472,976
------------------------------------------------------------------------------------------------------------------------

Operating expenses:
      Selling                                                                   $664,313      $451,668         $527,450
      General and administrative (Notes 9, 10 and 12)                          1,186,729       817,686        1,074,520
      Research and development                                                   299,177       241,175          133,365
------------------------------------------------------------------------------------------------------------------------
                                                                              $2,150,219    $1,510,529       $1,735,335
------------------------------------------------------------------------------------------------------------------------
            Operating income (loss)                                              $85,577      $126,588        $(262,359)
------------------------------------------------------------------------------------------------------------------------

Interest expense (Note 9):                                                      $(24,370)     $(10,459)        $(13,753)
------------------------------------------------------------------------------------------------------------------------

Income (loss) before income taxes                                                $61,207      $116,129        $(276,112)

Federal and state income taxes  (Note 6)                                               -             -                -
------------------------------------------------------------------------------------------------------------------------
           Net income (loss)                                                     $61,207      $116,129        $(276,112)
========================================================================================================================

Basic earnings (loss) per share (Note 7)                                            $.01          $.03            $(.08)
========================================================================================================================
Diluted earnings (loss) per share ( Note 7)                                         $.01          $.03            $(.08)
========================================================================================================================

Weighted average common shares outstanding (basic)                             4,806,807     3,810,013        3,586,451
========================================================================================================================
Weighted average common shares outstanding (diluted)                           4,877,195     3,984,139        3,586,451
========================================================================================================================

Dividends per common share                                                            $-            $-               $-
========================================================================================================================

See Notes to Financial Statements

</TABLE>



                                       14
<PAGE>

<TABLE>
<CAPTION>

                                           STATEMENTS OF STOCKHOLDERS' EQUITY

========================================================================================================================


                                                                          Years Ended November 30,
------------------------------------------------------------------------------------------------------------------------
                                                           2004                  2003                   2002
                                                       Amount     Shares     Amount     Shares      Amount     Shares
                                                    --------------------------------------------------------------------
<S>                                                     <C>     <C>           <C>      <C>           <C>      <C>
Common Stock:
        Balance, beginning                              $47,864 4,786,451     $35,864  3,586,451     $35,864  3,586,451
        Stock options exercised                            $380    38,000
        Issuance of common stock (Note 11 )                   -         -     $12,000  1,200,000          $-          -
------------------------------------------------------------------------------------------------------------------------
        Balance, ending                                 $48,244 4,824,451     $47,864 $4,786,451     $35,864 $3,586,451
========================================================================================================================

Additional Paid-in Capital:
       Balance, beginning                            $4,545,973            $4,260,236             $4,260,236
        Stock options exercised                          $7,030
        Stock options-compensation (Note 12)             18,403                38,893                      -
        Issuance of common stock (Note 11 )                   -               246,844                      -
------------------------------------------------------------------------------------------------------------------------
       Balance, ending                               $4,571,406            $4,545,973             $4,260,236
========================================================================================================================

Accumulated Deficit:
       Beginning deficit                            $(4,169,179)          $(4,285,308)           $(4,009,196)
       Net income (loss)                                 61,207               116,129               (276,112)
------------------------------------------------------------------------------------------------------------------------
       Ending deficit                               $(4,107,972)          $(4,169,179)           $(4,285,308)
========================================================================================================================

------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity  at November 30                   $511,678 4,824,451    $424,658  4,786,451     $10,792  3,586,451
========================================================================================================================

See Notes to Financial Statements

</TABLE>



                                       15
<PAGE>

<TABLE>
<CAPTION>

                                    STATEMENTS OF CASH FLOWS

=================================================================================================

                                                                  Years ended November 30,
                                                                   2004        2003         2002
-------------------------------------------------------------------------------------------------
<S>                                                             <C>        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income (loss)                                          $61,207    $116,129    $(276,112)
     Adjustments to reconcile net income (loss) to  net
      cash provided by (used in) operating activities:
        Depreciation                                             55,360      50,821       50,268
        Increase (decrease) in provision for doubtful
         accounts                                               (15,000)     (5,000)     (64,000)
        Gain  on sale of property and equipment                       -        (400)        (450)
        (Gain) loss on foreign currency exchange rate            16,106      (3,455)      25,661
        Stock  option noncash compensation                       18,403      38,893            -
     Change in assets and liabilities:
        (Increase) decrease in accounts receivable             (801,982)     35,220      209,111
        (Increase) in inventories                              (111,687)    (32,636)      (5,860)
        (Increase) decrease in costs and estimated earnings
         in excess of billings on uncompleted contracts        (597,546)      5,355      229,803
        (Increase) decrease in prepaid expenses and
         other assets                                           (25,515)     (1,132)       6,802
        Increase (decrease) in accounts payable
         and accrued expenses                                   868,468    (248,535)    (490,703)
        Increase  in billings in excess of costs and
         estimated earnings on uncompleted contracts            145,353      93,960       68,751
-------------------------------------------------------------------------------------------------
        NET CASH PROVIDED BY (USED IN)
            OPERATING ACTIVITIES                              $(386,833)    $49,220    $(246,729)
-------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
        Proceeds from the sale of property and equipment             $-        $400         $450
        Purchase of  equipment                                  (78,801)    (44,585)     (20,956)
-------------------------------------------------------------------------------------------------
        NET CASH USED IN
          INVESTING ACTIVITIES                                 $(78,801)   $(44,185)    $(20,506)
-------------------------------------------------------------------------------------------------

See Notes to Financial Statements

</TABLE>



                                       16
<PAGE>

<TABLE>
<CAPTION>

                                 STATEMENTS OF CASH FLOWS

==========================================================================================

                                                               Years ended November 30,
                                                              2004       2003        2002
------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>         <C>
CASH FLOW FROM FINANCING ACTIVITIES
        Borrowings on revolving credit agreement           $150,000         $-          $-
        Proceeds from long-term borrowings                       -     300,000           -
        Net proceeds from exercise of stock options          7,410
        Net proceeds from common stock issued                    -     258,844
        Principal payments on long-term borrowings               -     (27,051)   (151,688)
------------------------------------------------------------------------------------------

           NET CASH PROVIDED BY (USED IN)
                FINANCING ACTIVITIES                      $157,410   $531,793   $(151,688)
------------------------------------------------------------------------------------------
       Increase (decrease) in cash                       $(308,224)  $536,828   $(418,923)

      Cash:
           Beginning                                       545,193      8,365     427,288
------------------------------------------------------------------------------------------
           Ending                                         $236,968   $545,193      $8,365
==========================================================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
       Cash payments for :
           Interest                                        $24,370    $10,459     $13,753

</TABLE>



                                       17
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 1.  Nature of Business and Significant Accounting Policies

Nature of business:

     The Company  was formed to acquire,  develop,  market,  and sell  hardware,
software and engineering services that are incorporated into and used to control
automatic guided vehicle systems ("AGVS").  The Company markets its products and
services to end users of automation systems,  designers of integrated automation
systems,  and  original  equipment  manufacturers  primarily  within  the  North
American continent.

     A summary of the Company's significant accounting policies follows:

Revenue recognition:

     The Company  recognizes  revenue from the sales of  commercial  products as
shipments are made.

     The Company recognizes revenues under long-term contracts on the percentage
of completion method, measured by the percentage of each component cost incurred
to date to estimated  total  component  contract costs for each component in the
contract.   Component  costs  include  material,  direct  labor,   subcontracts,
engineering,  overhead, and miscellaneous costs. Provisions for estimated losses
are made in the period in which they first become determinable.

     "Costs  and  estimated  earnings  in  excess  of  billings  on  uncompleted
contracts"  represent revenue recognized in excess of amounts billed.  "Billings
in excess of costs and estimated  earnings on uncompleted  contracts"  represent
billings in excess of revenues recognized.

Estimates:

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities  and the disclosure of contingent  assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from these
estimates.

Inventories:

     The Inventories are priced at the lower of cost or market,  with cost being
determined by the  weighted-average  method.  Inventories  consist  primarily of
parts  for  computerized  material  handling  systems  purchased  from  Danaher,
formerly Netzler & Dahlgren, and motor-in-wheel drive units purchased from Sauer
Danfoss, formerly Schabmuller GMBH.

Property and equipment:

     Property  and  equipment  is  stated  at cost.  Depreciation  is  primarily
computed using the straight-line method over the following useful lives:

                                                                Years
                                                                -----

          Furniture, fixtures and office equipment               4-10
          Machinery and equipment                                3-5



                                       18
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 1.  Nature of Business and Significant Accounting Policies (Continued)

Foreign currency transactions:

     Payables to foreign  companies that are  denominated in foreign  currencies
are adjusted to year-end foreign  exchange rates.  Resultant gains or losses are
reflected in cost of goods sold.  The costs of items of foreign origin which are
included in inventory have been recorded at historical exchange rates prevailing
at the date of acquisition.

Income taxes:

     Provisions  for income taxes are provided on an asset and liability  method
whereby deferred tax assets are recognized for deductible temporary differences,
operating losses, and tax credit carryforwards, and deferred tax liabilities are
recognized for taxable  temporary  differences.  Temporary  differences  are the
differences between the reported amounts of assets and liabilities and their tax
bases.  Deferred tax assets are reduced by a valuation  allowance  when,  in the
opinion of  management,  it is more likely than not that some  portion or all of
the  deferred  tax  assets  will  not  be  realized.  Deferred  tax  assets  and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.

Earnings (losses) per common share:

Basic per share amounts are computed, by dividing net income or loss by the
weighted-average number of common shares outstanding. Diluted per share amounts
assume the conversion, exercise, or issuance of all potential common stock
instruments unless the effect is antidilutive. As described in Note 12, at
November 30, 2004, 2003 and 2002, the Company had options outstanding to
purchase a total of 220,500, 227,500, and 279,000 shares of common stock,
respectively, at weighted-average exercise prices of varying amounts.

Advertising:

     The  Company  follows  the  policy of  charging  advertising  to expense as
incurred.  Advertising expenses for the years ending November 30, 2004, 2003 and
2002 were $24,093, $20,755 and $14,860, respectively.

Stock options:

     Grants to employees under the stock option plans are accounted for
following the recognition and measurement provisions of APB Opinion No. 25 and
related interpretations. Compensation cost under APB 25 was $18,403 and $38,893
for the years ended November 30, 2004 and 2003, respectively.



                                       19
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 2. Accounts Receivable

     Accounts receivable consist of the following at November 30, 2004 and 2003,
respectively:

<TABLE>
<CAPTION>

                                                                   2004               2003

-------------------------------------------------------------------------------------------------
<S>                                                              <C>                   <C>
Trade and contract                                               $  1,499,476          $  698,404
Less: Allowance for doubtful accounts                                       -             (15,000)
-------------------------------------------------------------------------------------------------
                                                                 $  1,499,476            $683,404
Employees                                                               1,160                 250
-------------------------------------------------------------------------------------------------
                                                                 $  1,500,636          $  683,654
=================================================================================================

</TABLE>

     Accounts  receivable  are  recognized  when  bills are  rendered.  Accounts
receivable  are considered  past due or delinquent  when payment is not received
within the credit  terms  extended to the  customer.  An  allowance  for loss on
accounts receivables is provided based on a review of the accounts along with an
analysis of historical  losses and recoveries.  Receivables are written off when
deemed to be uncollectible.

Note 3.  Costs and Estimated Earnings on Uncompleted Contracts

     Costs and  estimated  earnings  on  uncompleted  contracts  consist  of the
following at November 30, 2004 and 2003, respectively:

<TABLE>
<CAPTION>

<S>                                                              <C>                   <C>
                                                                    2004              2003
-------------------------------------------------------------------------------------------------
Total contracts in process                                       $ 6,705,397           $2,384,511
=================================================================================================
Costs incurred on uncompleted contracts                          $ 2,644,223           $  783,354
Estimated earnings                                               $ 1,246,122           $  414,518
-------------------------------------------------------------------------------------------------
                                                                 $ 3,890,345           $1,197,872
Less billings to date                                             (3,944,016)          (1,703,736)
-------------------------------------------------------------------------------------------------
                                                                 $   (53,671)          $ (505,864)
=================================================================================================

    Included in the accompanying balance sheets under the following captions:

                                                                    2004              2003

-------------------------------------------------------------------------------------------------
Costs and estimated earnings in excess of billings
     on uncompleted contracts                                    $   610,462           $   12,916
Billings in excess of costs and estimated earnings
     on uncompleted contracts                                       (664,133)            (518,780)
-------------------------------------------------------------------------------------------------
                                                                 $   (53,671)          $ (505,864)
=================================================================================================

The above are based on managements' best estimates.

</TABLE>



                                       20
<PAGE>


<TABLE>
<CAPTION>

NOTES TO FINANCIAL STATEMENTS

============================================================================================================================
<S>                                                                    <C> <C>     <C>       <C>
Note 4.  Pledged Assets, Note Payable, Bank and Long-Term Debt
                                                                                                  2004                  2003
                                                                                                  ----                  ----

Note payable, bank agreement that allows the Company to borrow up to $150,000
and bears interest at the lender's prime rate plus 1.50% per annum. The loan
agreement is further secured by the Company's assets and expires March 31, 2005.(1)(2)       $  150,000                    -
----------------------------------------------------------------------------------------------------------------------------
Long-term debt consists of the following :
----------------------------------------------------------------------------------------------------------------------------

In  September  2003,  the  Company  issued  $300,000   principal  amount  of  6%
convertible   subordinated  notes  due  September  2013.   Interest  on  the  6%
convertible  notes is payable  quarterly on February 28th, May 31st, August 31st
and November 30th. The 6% convertible notes were issued at 100% principal value,
and are  convertible  into  750,000  shares of common stock at the option of the
holder at any time at a price of $0.40 per share.  The 6% convertible  notes may
be redeemed,  in whole or in part, at the Company's option on or after September
30, 2006 at 100% of the principal amount.                                                    $  300,000            $ 300,000

Less current maturities:                                                                              -                    -
----------------------------------------------------------------------------------------------------------------------------
                                                                                             $  300,000            $ 300,000
============================================================================================================================
(1) The prime rate at November 30, 2004 was 5.0% .
(2) The line of credit is secured by a first priority security interest in the Company's accounts receivable,
    inventory, software and intangibles.

</TABLE>



                                       21
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 5.  Major Customers

     Net revenues and accounts receivable as of and for the years ended November
30, 2004,  2003, and 2002,  respectively,  include sales to the following  major
customers  (each of which accounted for 10% or more of the total net revenues of
the Company for the years indicated):

<TABLE>
<CAPTION>

                                                                       Amount of Net Revenues
                                                                       Year Ended November 30,

Customer                                             2004          %         2003         %         2002         %
----------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>         <C>                     <C>
A                                                   $ 1,517,596    22.9        $     *       *         $    *       *

B                                                     1,137,955    17.1              *       *              *       *
C                                                             *       *        754,481    17.8        427,131    10.0
D                                                             *       *        412,799     9.8              *       *


                                                                         Accounts Receivable
                                                                            November 30,

                                                     2004          %         2003         %         2002         %
----------------------------------------------------------------------------------------------------------------------

A                                                     $ 456,688    30.4        $     *       *         $    *        *

B                                                        70,800     4.7              *       *              *       *
C                                                             *       *              -       -         31,217     4.4
D                                                             *       *              -       -              *       *


*Not a major customer.

</TABLE>



                                       22
<PAGE>

<TABLE>
<CAPTION>

                          NOTES TO FINANCIAL STATEMENTS

======================================================================================================================

Note 6.   Income Taxes

     Income  taxes  consist  of the  following  components  for the years  ended
November 30, 2004, 2003, and 2002, respectively:

                                                                   2004                2003               2002
----------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>                     <C>
Current                                                       $     -           $      -                $       -
Deferred                                                            -                  -                        -
----------------------------------------------------------------------------------------------------------------------
                                                              $     -           $      -                $       -
======================================================================================================================

    Net deferred tax assets consist of the following components as of November
30, 2004 and 2003, respectively:
                                                                                       2004               2003
                                                                                 -------------------------------------
Deferred tax assets:
   Allowance for doubtful accounts                                                $     -               $       5,783
   Inventory valuation reserves                                                     11,566                      7,325
   Net operating loss carryforward                                               1,573,830                  1,612,698
   General business credit carryforwards                                            45,367                     45,367
   Other                                                                             2,038                      4,181
Deferred tax liabilities:
   Depreciation                                                                       (150)                    (4,158)
   Other                                                                             6,210                     (1,332)
----------------------------------------------------------------------------------------------------------------------
                                                                               $ 1,638,861                  1,669,864
   Less valuation allowance                                                      1,638,861                  1,669,864
----------------------------------------------------------------------------------------------------------------------
   Net deferred taxes                                                             $     -               $           -
======================================================================================================================

</TABLE>

The changes in the valuation allowance for the years ended November 30, 2004,
2003 and 2002 were $(31,003), $(72,771) and $133,556, respectively. The deferred
tax asset has been offset by a valuation allowance due to the uncertainty of
realizing future benefit. The Company's net operating loss begins to expire
November 30, 2015.

     A  reconciliation  of the  statutory  income tax to the income tax  expense
included in the statements of operations is as follows:

<TABLE>
<CAPTION>

                                                                 Years Ended November 30,
                                               2004                        2003                       2002
----------------------------------------------------------------------------------------------------------------------
                                                      % of                        % of                       % of
                                       Dollar       Pre-tax        Dollar       Pre-tax        Dollar       Pre-tax
                                       Amount        Income        Amount        Income        Amount       Income
----------------------------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>         <C>             <C>        <C>            <C>
Statutory federal income
  tax (benefit)                        $ 20,814       34.0        $ 39,484        34.0       $(93,878)      (34.0)
Increase (decrease) in
taxes resulting from:
State income taxes                         7,481      12.2          11,476         9.9        (13,806)      ( 5.0)
Changes in valuation allowance          (31,003)     (50.6)        (72,771)      (62.7)       133,556        48.4
Other                                     2,708       4.4           21,811        18.8        (25,872)       (9.4)
----------------------------------------------------------------------------------------------------------------------
                                          $   -        -          $  -             -          $  -             -
======================================================================================================================

</TABLE>



                                       23
<PAGE>

<TABLE>
<CAPTION>

                          NOTES TO FINANCIAL STATEMENTS

===================================================================================================================


Note 7. Earnings (losses) per common share

The following table sets forth the comparison of basic and diluted earnings
(loss) per share:

                                                                     2004            2003           2002
                                                               ------------------------------------------------
<S>                                                                    <C>           <C>           <C>
BASIC INCOME (LOSS) PER SHARE:
  Net income (loss)                                                    $  61,207     $  116,129    $ (276,112)
  Weighted -average shares                                             4,806,807      3,810,013     3,586,451
                                                               ------------------------------------------------

  Basic earnings (loss) per share                                       $   0.01      $    0.03    $    (0.08)
                                                               ================================================

DILUTED INCOME (LOSS) PER SHARE:
  Net income (loss)                                                    $  61,207     $  116,129    $ (276,112)
  Plus impact of assumed conversions:
    Interest on 6% convertible notes, net of related tax effect                -          3,450             -
                                                               ------------------------------------------------
                                                                        $ 61,207      $ 119,579    $ (276,112)
                                                               ------------------------------------------------
Weighted average shares                                                4,806,807      3,810,013     3,586,451
  Plus effect of dilutive potential shares:
     Stock options                                                        70,388         34,016             -
     Convertible notes                                                         -        140,110             -
                                                               ------------------------------------------------
                                                                       4,877,195      3,984,139     3,586,451
                                                               ------------------------------------------------
Diluted earnings (loss) per share                                      $    0.01      $    0.03     $   (0.08)
                                                               ================================================

</TABLE>

Common  stock  options  outstanding  excluded  from the  computation  of diluted
earnings (loss) per share because the effect would have been  antidilutive  were
78,500, 36,500 and 279,000 for the years ended November 30, 2004, 2003 and 2002,
respectively.

Convertible notes outstanding  excluded from the computation of diluted earnings
(loss) per share  because the effect would have been  antidilutive  were 750,000
and 0 for the years ended November 30, 2004 and 2003, respectively.



                                       24
<PAGE>



                          NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 8.   401(k) Profit Sharing Plan

     The Company has a profit  sharing plan through a human  resource firm which
administers the Company's  employees  benefits,  the  contributions to which are
discretionary.

     The 401(k)  profit  sharing  plan  allows  both the  Company  and  eligible
employees to contribute.  The Company may, at its  discretion,  match 50% of the
participant's  contribution,  up to a maximum of 6% of the employee's  salary or
the maximum allowed by the IRS. The Company's  contribution  for the years ended
November  30,  2004,  2003  and  2002  amounted  to  $20,908,  $0,  and  $14,749
respectively.

Note 9.   Related Party Transactions

     In 2003, the Company's  landlord,  Curt Kennington,  became a related party
when he invested in the Company by acquiring  shares and  convertible  debt (see
note 11). The Company's  rent expense for the years ended  November 30, 2004 and
2003 amounted to $153,785,  and $24,205  respectively.  Mr. Kennington  received
interest  payments from the Company of $4,500 and $862 on the  convertible  debt
for the years ended November 30, 2004 and 2003, respectively.

     In 2003,  Mr. John  Robison  became a Director  and  related  party when he
invested in the Company by acquiring  shares and convertible debt (see note 11).
Mr. Robison received  interest payments from the Company of $9,000 and $1,724 on
the  convertible   debt  for  the  years  ended  November  30,  2004  and  2003,
respectively.

     In 2003, Mr. Anthony Packer became a shareholder  and related party when he
invested in the Company by acquiring  shares and convertible debt (see note 11).
Mr. Packer received interest payments from the Company of $4,500 and $862 on the
convertible debt for the years ended November 30, 2004 and 2003, respectively.

     The Company's  Executive Vice  President,  Tommy  Hessler,  owns 50% of NDC
Technologies Australia PTY Ltd ("NDCTA") which is an AGV supplier for Australia.
Revenues  from sales to NDCTA were $2,559,  $0 and $0 for years ending  November
30, 2004, 2003 and 2002, respectively.



                                       25
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 10.  Commitments

     At  November  30,  2004,  the  Company  had  outstanding  forward  exchange
contracts to purchase the equivalent  approximately US$180,000 in Swedish Krona.
The fair value of these contracts as of November 30, 2004 totaled  approximately
$18,000.  These  contracts  are  purchased  as needed from time to time to hedge
various foreign currency payable inventory  purchase  commitments.  No contracts
were outstanding in 2003 and 2002.

     The Company leases property and equipment under long-term  operating leases
expiring on various  dates  through  March 2006 and on a  month-to-month  basis.
Rental expense was $185,861, $152,572, and $167,998 for the years ended November
30, 2004, 2003, and 2002 respectively.

     Minimum rental commitments under long-term operating leases at November 30,
2004 were as follows:

2005                  $       183,302
2006                           71,375
                     -----------------
                      $       254,677
                     =================


     The Company has an employment  contract with the President  which  provides
for a minimum  annual  base  salary of  $130,000.  The base salary is subject to
annual  reviews.  The contract  renews on March 1, 2005 for a one year extension
unless terminated in advance.

     On July  23,  2004 the  Company  entered  into an  Equipment  Purchase  and
Installation Contract with a major customer for approximately $1,450,000 for two
AGV systems.  The first system's  contract amount is approximately  $450,000 and
was delivered and accepted in the fourth  quarter of 2004.  The second  system's
contract  amount is  approximately  $1,000,000  and was  delivered in the fourth
quarter of 2004 and is  scheduled  for  acceptance  towards the end of the first
quarter of 2005.  Customer  acceptance  of these  systems is  determined  by the
Company meeting the agreed functional  specifications of each specific system as
specified by the contract. The contract has a performance guarantee clause which
grants the customer the right to cancel the contract  should  acceptance  of the
system not occur  within six (6) months after  delivery,  due to no fault of the
customer.  The customer may elect to have the equipment removed at no expense to
the customer, and all monies paid to date refunded.

Note 11.  Issuance of Common Stock and Convertible Debt

On  September  23,  2003,  in a  private  placement  pursuant  to  Regulation  D
promulgated  by the  Securities  and  Exchange  Commission,  the Company 1) sold
1,200,000 shares of its common stock, par value $0.01 per share ("common stock")
at $0.25 a share, and 2) issued $300,000 of Convertible  Subordinated Notes. The
interest  rate on the Notes is 6% per annum and is payable  quarterly  beginning
November 30, 2003.  Principal and unpaid  interest shall be payable on September
30, 2013. For as long as these Notes are outstanding,  any of these Notes may be
converted in whole,  but not in part, at the option of the holder into shares of
common stock of the Company at a conversion  price of $0.40 per share. The Notes
are subject to  redemption in whole or in part, by the Company at any time after
September  30,  2006.  The Company  has agreed to register  the shares of common
stock and any new shares  issued upon  conversion  of the notes for resale under
the Securities Act of 1933, as amended, pursuant to an investor rights agreement
dated  September  23,  2003.  Under  the  agreement,  the  Company  has  filed a
registration statement for these shares, as well as 1,208,214 shares held by two
Company officers and/or affiliates of such officers.

The net  proceeds  to the  Company  from the sale of these  shares and Notes was
approximately  $559,000  (deducting  related  offering  expenses).  The  Company
applied  such  proceeds  to bring  payables  to  vendors  current  and apply the
remainder of such proceeds to working capital needs and other general  corporate
purposes.



                                       26
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 12.  Stock Option Plans

     Grants to employees under the stock option plans are accounted for
following the recognition and measurement provisions of APB Opinion No. 25 and
related interpretations. Due to the fact the plans provided for performance
conditions in order for employees to be able to exercise their awards, the stock
options are accounted for as variable awards. In 2004, noncash compensation
expense of $18,403 was recognized with a corresponding credit to additional
paid-in capital to record the difference between the market price of the stock
when the options became exercisable less the amounts the employees are required
to pay to exercise the options. In 2003 the noncash compensation expense of
$38,893 was recognized.

     Statement of Financial Accounting Standards (`SFAS') No. 123, Accounting
for Stock-Based Compensation requires pro forma disclosures for options grants
when accounting for stock-based compensation plans in accordance with APB 25.
The pro forma effects are determined as if the compensation costs are recognized
using a fair value based method which measures compensation cost at the grant
date based upon the value of the awards, which is then recognized over the
vesting period. The accounting requirements of the statement apply to awards to
employees entered into fiscal years that begin after December 15, 1995 and to
transactions with non-employees entered into after December 15, 1995.

1990 and 1993 Stock Option Plans:

     On October 10, 1990, the  Compensation  Committee of the Board of Directors
adopted the NDC  Automation,  Inc.  1990 Stock Option Plan ("the 90 Plan"),  the
adoption of which was ratified by the shareholders at the annual meeting held on
April 10, 1991. In September  1992, the Company  registered up to 178,613 shares
of common stock for issuance. On October 23, 1993, the Compensation Committee of
the Board of Directors  adopted the NDC Automation,  Inc. 1993 Stock Option Plan
("the 93 Plan"),  the adoption of which was ratified by the  shareholders at the
annual meeting held on May 5, 1994.

     Options to purchase 174,375 shares of common stock were granted pursuant to
the 90 Plan and were  available for exercise upon  achievement by the Company of
certain financial performance targets set by the Board of Directors on an annual
basis. The options were  exercisable for a term of ten years,  commencing on the
date of the grant at an exercise price of $.7917 to $1.56 for new employees. The
93 Plan  authorized  100,000  options to purchase common stock, of which 100,000
were granted and are available for exercise upon  achievement  by the Company of
certain financial performance targets set by the Board of Directors on an annual
basis.  On October 24, 1994,  the 93 Plan options were repriced with approval by
the Compensation Committee at an exercise price of $1.56.

     Of  the  274,375  total  shares  of  common  stock  options  granted,   the
Compensation  Committee  granted to the Company's  current and former  executive
officers options to purchase 120,375 shares of common stock at an exercise price
of $.7917 for the 90 Plan,  and 18,000 shares of common stock for the 93 Plan at
an exercise price of $1.56.  The exercise price of the options  granted is based
on the average fair market value of the common stock for the five  business days
preceding the date of the grant.

    As of November 30, 2003, all unexercised options expired.

1997 Stock Option Plan:

     On December 7, 1996 , the Compensation  Committee of the Board of Directors
adopted The NDC  Automation,  Inc.  1997 Stock Option Plan ("the 97 Plan"),  the
adoption of which was ratified by the  shareholders  at the annual  meeting held
April 25,  1997.  The 97 Plan  authorized  225,000  options to all  officers and
employees in the form of incentive stock options,  of which 210,000 were granted
in January 1997 at an exercise price of $0.50 per share.  The shares vested upon
achievement by the Company of certain financial  performance  targets set by the
Board of Directors on an annual basis.



                                       27
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 12.  Stock Option Plans ( continued)

2001 Stock Option Plan:

     On May 10,  2001,  the  Compensation  Committee  of the Board of  Directors
adopted The NDC  Automation,  Inc.  2001 Stock Option Plan ("the 01 Plan"),  the
adoption of which was ratified by the  shareholders  at the annual  meeting held
May 10,  2002.  The 01 Plan  authorized  225,000  options  to all  officers  and
employees in the form of incentive stock options,  of which 194,000 were granted
in May 2001 and June 2002 at an exercise price of $0.195 per share and the final
31,000 were granted in January 2004 at an exercise price of $0.43 per share. The
granted  shares  vest upon  achievement  by the  Company  of  certain  financial
performance  targets set by the Board of  Directors  on an annual  basis.  As of
February  19, 2004  performance  targets  were met and all  granted  shares were
vested.  Forfeited  options  for  terminated  employees  are  reissued  to other
employees  with  exercise  prices not less than fair market value at the date of
reissuance.

     Transactions  involving  these plans for the years ended November 30, 2004,
2003 and 2002 respectively, are summarized as follows:


STOCK OPTIONS                          2004*
-------------------------------------------------------------------------------
                         93 Plan 97 Plan  01 Plan    Total    Weighted-average
                                                              exercise price
                         ------- -------- --------- --------- ----------------

Outstanding, December 1       -   36,500   191,000   227,500      $0.24
Granted                       -        -    31,000    31,000       0.43
Expired                       -        -         -         -          -
Forfeited                     -        -  (11,000)  (11,000)       0.20
Reissued                                    11,000    11,000       0.43
Exercised                     -        -  (38,000)  (38,000)       0.20
-------------------------------------------------------------------------------
Outstanding, November 30,     -   36,500   184,000   220,500      $0.29
===============================================================================
Exercisable, November 30,     -   36,500   184,000   220,500      $0.29
===============================================================================


STOCK OPTIONS                          2003*
-------------------------------------------------------------------------------
                         93 Plan 97 Plan  01 Plan    Total    Weighted-average
                                                              exercise price
                         ------- -------- --------- --------- ----------------

Outstanding, December 1  48,500   36,500  194,,000  279,000      $0.47
Granted                       -        -         -        -          -
Expired                  (48,500)      -         -  (48,500)      1.56
Forfeited                     -        -  (28,000)  (28,000)      0.20
Reissued                                    25,000   25,000       0.20
Exercised                     -        -         -        -          -
------------------------ ------- -------- --------- -------- ----------
Outstanding, November 30      -   36,500   191,000  227,500      $0.24
===============================================================================
Exercisable, November 30      -   36,500   191,000  227,500      $0.24
===============================================================================


STOCK OPTIONS                          2002*
-------------------------------------------------------------------------------
                         93 Plan 97 Plan  01 Plan    Total    Weighted-average
                                                              exercise price
                         ------- -------- --------- --------- ----------------

Outstanding, December 1  49,000   44,500         -   93,500     $ 1.06
Granted                       -        -   194,000  194,000       0.20
Forfeited                 (500)  (8,000)  (41,500)  (50,000)      0.26
Reissued                      -        -    41,500   41,500       0.20
Exercised                     -        -         -        -          -
===============================================================================

Outstanding, November 30 48,500   36,500   194,000  279,000     $ 0.47
===============================================================================
Exercisable, November 30 48,500   36,500    33,500  118,500     $ 0.85
===============================================================================

* The weighted-average exercise price per share of options outstanding, granted,
canceled,  exercised,  or exercisable for the 93 Plan is $1.56 , for the 97 Plan
is $0.50 and for the 01 Plan is $0.245.



                                       28
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

================================================================================

Note 13.  Foreign Currency Contracts

     The Company  purchases  foreign-currency  exchange  contracts  to hedge and
settle its  international  commitments and debts.  The Company will purchase and
settle these  contracts on the same day or may hedge against future  liabilities
with forward contracts. Any gains and losses on the foreign-currency-denominated
debts or forward  contracts are recorded as  transaction  adjustments in current
earnings.  The Company had a loss on foreign currency transactions of $(54,662),
$(48,701), and $(53,197), for the three years ended November 30, 2004, 2003, and
2002, respectively.


Note 14.  Fair Value of Financial Instruments

The carrying amounts of accounts receivables, accounts payable and the line of
credit approximate fair values due to the short-term maturities of these
instruments.  The forward exchange contracts are valued at fair value. The
carrying amount and estimated fair value of the Company's convertible
subordinated notes at November 30, 2004 and 2003 are as follows:

<TABLE>
<CAPTION>

                                          2004                           2003
                                ---------------------------------------------------------
                                Carrying        Estimated       Carrying       Estimated
                                Amount          Fair Value      Amount         Fair Value
-----------------------------------------------------------------------------------------
<S>                             <C>             <C>             <C>             <C>
Convertible
 subordinated notes             $300,000        $279,595        $300,000        $300,000
-----------------------------------------------------------------------------------------
</TABLE>

The fair value of the convertible subordinated notes was estimated by
discounting the future cash flows using rates believed to be currently available
for debt of similar terms and maturity.

                                       29
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

================================================================================







                                       30