Exhibit 13








                               ANNUAL REPORT 2007










                                   COVER PAGE


<PAGE>



INSIDE COVER







<PAGE>

<TABLE>
<CAPTION>

                                                       FINANCIAL SUMMARY

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

                                                                                                            06 to 07     05 to 06
As of or For Year Ended November 30                             2007             2006           2005        % Change     % Change
---------------------------------------------------------------------------------------------------------------------------------

Operations
---------------------------------------------------------------------------------------------------------------------------------

<S>                                                        <C>              <C>             <C>                <C>           <C>
Net revenues                                               $  8,022,852     $ 8,468,892     $ 8,431,656        (5.3)         0.4
Operating income                                           $ (1,050,133)    $   174,964     $   165,577           *          5.7
(Loss) income  before income taxes                         $ (1,126,295)    $   121,378     $   127,654           *         (4.9)
Net (loss) income                                          $ (1,126,295)    $   121,378     $   127,654           *         (4.9)
Weighted average common shares outstanding                    4,986,293       4,844,026       4,826,654         2.9          0.4

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

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

Net (loss) income                                          $ (.23)          $   .03         $   .03               *            -
Cash dividends                                             $    -           $     -         $     -               -            -
Stockholders' equity                                       $    -           $   .16         $   .13          (100.0)        23.1

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

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

Assets                                                     $ 2,787,620      $ 2,590,991     $ 3,017,929         7.6        (14.1)
Working capital                                            $   374,304      $   926,011     $   783,849       (59.6)        18.1
Property and equipment                                     $   211,598      $   128,654     $   133,569        64.5         (3.7)
Long-term debt, less current maturities and discount       $   623,894      $   306,799     $   309,355       103.4         (0.8)
Stockholders' equity                                       $     7,339      $   779,720     $   639,917       (99.1)        21.8

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

Number of employees                                              42               44             36
Number of stockholders                                      approx. 543      approx. 596     approx. 655

---------------------------------------------------------------------------------------------------------------------------------
*Because the data changes from a positive to a negative, the percentage change is not meaningful



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

                                                             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                                                                               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:

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

2007 proved to be a very difficult year for  Transbotics.  Lower than forecasted
sales due to delayed  order  releases and  softness in the economy  coupled with
significant  investments  in Research and  Development to introduce new products
and technology,  contributed to an  unprofitable  year. We will continue to work
aggressively to return to profitability.

In order to meet the challenges that we faced, major restructuring took place at
year-end.  Along with the  investment  in new product  development  of more than
$527,872 we are  prepared  with state of the art products as we enter into 2008.
In addition on November 30, 2007 significant additional investments were made by
some of our  accredited  investors  who are on our  Board  of  Directors,  which
strengthened our balance sheet. This investment constituted a vote of confidence
to our staff to continue  their  dedicated  commitment to the future  success of
Transbotics.  This should make a positive impact on our potential  customers and
partners as well.

In May, we purchased  AutoMotion  Systems,  a company that provides a lower cost
solution  for  simpler  material  handling  needs.  This  acquisition   provides
Transbotics  with a  fuller  complement  of AGV and AGC  products.  We are  also
excited about the prospects of a new sales  channel that the  AutoMotion  System
product range offers. For the first time,  distributors have been signed to take
a Transbotics  product to market,  giving  Transbotics more  representation  and
visibility in a broader  market.  As a result,  we expect to work with a greater
range of potential customers in 2008.

Although 2007 was difficult,  the Company  introduced  several new and promising
technologies.  We focused on making our product offerings easier to use with the
goal of a quicker  payback of the  customer's  initial  investment and achieving
greater  reliability and lower cost of maintenance over the product's  lifetime.
For  example,  we  introduced  (1)  better  vehicle  interfaces  with  on  board
diagnostics  for ease of use; (2) new designs for AGVS that can handle  multiple
loads at one time,  thereby  increasing  system  throughput  and the  customer's
return on investment;  (3) our Automatic  Trailer Loading System "ATLS" that can
be operated at a  customer's  docks as well as for normal  facility  operations,
giving the customer greater flexibility to better integrate its operations;  and
(4) new AC drive motor power  technology  that  requires  less  maintenance  and
energy over the life of the system. In addition,  our turnkey  palletizing robot
solution with integration  software has reduced  integration risks for customers
and  helped  improve  their  productivity.  We  continued  to  invest  in better
communication  tools and expanded our service  department  to lower our response
time to meet customer service requirements.  We at Transbotics are excited about
all  of  the  new  developments  that  were  accomplished   during  2007.  These
improvements  will  continue to address the needs of our current  customers  and
potential customers in a broader range of industries than we cover today.

Looking ahead to 2008, we will be working hard to develop new relationships with
distributors  and other suppliers of material  handling systems in the industry.
At the  same  time  we will  be  constantly  looking  for  business  combination
opportunities to strengthen our presence in the marketplace.

We at Transbotics  recognize the  uncertainties  in the market place and will be
cautious in our  activities.  We also recognize the need for more  automation in
industry in the United  States.  For our factories and  distribution  centers to
remain competitive in today's environment,  we believe that such industries must
embrace  automation.  We are excited  about our  potential  role in meeting this
tremendous need.


/s/ Charlie Robison

Charlie Robison
President and Chief Executive Officer


                                       2
<PAGE>

<TABLE>
<CAPTION>
<S>                                      <C>             <C>            <C>           <C>             <C>
                                             SELECTED FINANCIAL DATA

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

                                                           As of or For Year Ended November 30
                                         ------------------------------------------------------------------------

                                              2007          2006           2005          2004            2003
-----------------------------------------------------------------------------------------------------------------
Statements of Operations Data:
    Net revenues                         $  8,022,852    $8,468,892     $8,431,656    $6,634,964      $4,215,957
    Cost of goods
     sold                                   5,972,706     5,926,691      6,231,231     4,399,168       2,578,840
-----------------------------------------------------------------------------------------------------------------
       Gross profit                      $  2,050,146    $2,542,201     $2,200,425    $2,235,796      $1,637,117
-----------------------------------------------------------------------------------------------------------------

Operating expenses:
    Selling                              $    810,201    $  622,797     $  546,821    $  664,313      $  451,668
    General and administrative              1,762,206     1,432,268      1,206,658     1,186,729         817,686
    Research and development                  527,872       312,172        281,369       299,177         241,175
-----------------------------------------------------------------------------------------------------------------
                                         $  3,100,279    $2,367,237     $2,034,848    $2,150,219      $1,510,529
-----------------------------------------------------------------------------------------------------------------
       Operating (loss) income           $ (1,050,133)   $  174,964     $  165,577    $   85,577      $  126,588
-----------------------------------------------------------------------------------------------------------------

Interest expense                         $    (76,162)   $  (53,586)    $  (37,923)   $  (24,370)     $  (10,459)
-----------------------------------------------------------------------------------------------------------------

(Loss) Income before income
 taxes                                   $ (1,126,295)   $  121,378     $  127,654    $   61,207      $  116,129
Federal and state income taxes                      -             -              -             -               -
-----------------------------------------------------------------------------------------------------------------
       Net (loss)
        income                           $ (1,126,295)   $  121,378     $  127,654    $   61,207      $  116,129
=================================================================================================================

Weighted average number of
   common shares outstanding:
  Basic                                     4,986,293     4,844,026      4,826,654     4,806,807       3,810,013
=================================================================================================================
  Diluted                                   4,986,293     4,946,606      4,942,247     4,877,195       3,984,139
=================================================================================================================

Basic (loss) earnings per
 share                                   $       (.23)   $      .03     $      .03    $      .01      $      .03
=================================================================================================================
Diluted (loss) earnings per
 share                                   $       (.23)   $      .03     $      .03    $      .01      $      .03
=================================================================================================================

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

Balance Sheet Data:
Working capital                          $    374,304    $  926,011     $  783,849    $  658,391      $  593,907
Total
 assets                                  $  2,787,620    $2,590,991     $3,017,929    $2,956,478      $1,689,531
Total liabilities                        $  2,780,281    $1,811,271     $2,378,012    $2,444,800      $1,264,873

Subordinated LT debt, less current
 maturities                              $    903,894    $  306,799     $  309,355    $  300,000      $  300,000
Subordinated LT debt discount            $   (280,000)   $        -     $        -    $        -      $        -
Stockholders' Equity                     $      7,339    $  779,720     $  639,917    $  511,678      $  424,658
                                         ------------------------------------------------------------------------
                                         $    631,233    $1,086,519     $  949,272    $  811,678      $  724,658
                                         ========================================================================
</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
the current and 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 the net  revenue and  profitability  effects of large  projects  over
time,  such method  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 final system
acceptance.

     Notwithstanding  the receipt of cash  advances and periodic  payments  upon
reaching project milestones,  the Company requires external financing to finance
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  Original   Equipment
          Manufacturers  ("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.

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, 2007,  2006 and 2005,
respectively.

<TABLE>
<CAPTION>
<S>                                             <C>         <C>         <C>               <C>             <C>
                                                                                           Percentage of Change
                                                                                             Period to Period
                                                  Percentage of Net Revenues                (Decrease) Increase
----------------------------------------------------------------------------------------------------------------------
                                                                                       Year Ended       Year Ended
                                                        For year ended                November 30,      November 30,
                                                 2007        2006        2005         2006 to 2007     2005 to 2006
----------------------------------------------------------------------------------------------------------------------

Net revenues                                    100.0 %     100.0 %      100.0 %           (5.3) %          0.4  %
Cost of  goods sold                              74.5        70.0         73.9              0.8            (4.9)
----------------------------------------------------------------------------------------------------------------------

Gross profit                                      25.5        30.0         26.1            (19.4)            15.5

Operating expenses:
   Selling                                        10.1         7.3          6.5             30.1             13.9
   General and administrative                     21.9        16.9         14.3             23.0             18.7
   Research and development                        6.6         3.7          3.3             69.1             11.0
----------------------------------------------------------------------------------------------------------------------

                                                  38.6        27.9         24.1             31.0             16.3
----------------------------------------------------------------------------------------------------------------------

Operating (loss) income                          (13.1)        2.1          2.0               *               5.7
Net interest expense                              (1.0)       (0.7)        (0.5)            42.1             41.3
----------------------------------------------------------------------------------------------------------------------

(Loss) income before income
taxes                                           (14.1)         1.4          1.5                *              (4.9)
Income tax expense                                 -            -            -                 -                -
----------------------------------------------------------------------------------------------------------------------

Net (loss) income                               (14.1) %       1.4 %        1.5 %              *              (4.9)
======================================================================================================================
*Because the data changes from a positive to a negative, the percentage change is not meaningful
</TABLE>

                                       5
<PAGE>
                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

Fiscal Year Ended November 30, 2007 Compared To Fiscal Year Ended November 30,
2006

     Net revenues  decreased by $446,040 or 5.3% from  $8,468,892 for the fiscal
year ended  November 30, 2006 to $8,022,852  for the fiscal year ended  November
30, 2007.  Revenues decreased  primarily due to product revenues decreasing over
last year,  while  project  revenues  were  comparable  to the prior  year.  The
Company's  revenues during 2007 were primarily  derived from the printing,  food
and beverage and automotive industries.

     Cost of goods sold  increased from  $5,926,691 to $5,972,706,  or 0.8%, due
primarily to lower profit margins on equipment sold in projects. As a percentage
of net revenues,  cost of goods sold  increased  from 70.0% to 74.5% compared to
the prior year. The Company gross profit decreased by $492,055,  or 19.4%,  from
$2,542,201 to  $2,050,146.  Gross profit as a percentage  of revenues  decreased
from 30.0% to 25.5%.  Gross  profit  also  decreased  due to  project  overruns,
warranty cost and fixed engineering  salary cost that could not be reduced while
the backlog was low.

    Selling expenses increased from $622,797 to $810,201 or 30.1%, primarily due
to increased  personnel  travel expense  relating to the new AutoMotion  product
division in the current year  compared to the prior year. As a percentage of net
revenues,   selling  expenses   increased  from  7.3%  to  10.1%.   General  and
administrative  expenses  increased  by  $329,938  or  23%  from  $1,432,268  to
$1,762,206 compared to the prior year. The increase was primarily due to (1) the
hiring of the new CEO and related compensation equaling approximately  $154,700,
of which  approximately  $38,800 (Note 10) is a deferred expense and $7,000 is a
non-cash  stock  compensation   expense,   (2)  increased  costs  of  additional
administrative  personnel  of  approximately  $94,700,  (3) $30,000  towards the
standardization  of our  internal  engineering  training  program  (4)  expenses
relating  to  AutoMotion  and  (5)  other  general   increases  in  general  and
administrative  expenses.  The Company continued to invest in the development of
its products,  releasing a new  generation of controls in the current year,  new
AGV  and  automation   solutions  including  its  new  range  of  products  from
AutoMotion.  Research  and  development  expenses  increased  from  $312,172  to
$527,872 in the current year.

     Primarily as a result of the  foregoing,  the  Company's  operating  income
decreased by  $1,225,097  from an  operating  income of $174,964 to an operating
loss of $1,050,133 for the current year.

    Net interest expense increased from $53,586 to $76,162, an increase of 42.1%
due to higher banking and borrowing costs compared to the prior year relating to
an increase in borrowing.

      The  Company did not  recognize  any tax benefit in 2007 or tax expense in
2006  for  its  losses  or  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 considered to be more likely
than not.

     Primarily  due to an overall a decrease  in gross  profit and  increase  in
expenses in 2007, as described  above,  the  Company's  net income  decreased by
$1,247,673  from a net income of  $121,378 in the year ended 2006 to net loss of
$1,126,295 in the same period of 2007.

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, 2007,  the
Company had a backlog of approximately  $1,860,000  compared to $2,900,000 total
backlog one year earlier.  Substantial  fluctuations  in backlog are  considered
normal due to the size and volume of AGV system contracts.

                                       6
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

Fiscal Year Ended November 30, 2006 Compared To Fiscal Year Ended November 30,
2005

     Net  revenues  were  basically  flat  increasing  by  $37,236  or 0.4% from
$8,431,656  for the fiscal year ended  November 30, 2005 to  $8,468,892  for the
fiscal year ended November 30, 2006.  Engineering  revenues  increased over last
year,  but  product  sales  decreased  mainly due to the timing of orders by our
customers  compared  to last  year.  The  Company's  revenues  during  2006 were
primarily   derived  from  the  printing,   food  and  beverage  and  automotive
industries.

     Cost of goods sold decreased from $6,231,231 to $5,926,691,  or (4.9%), due
primarily to better profit margins and more efficient use of engineering  labor.
As a percentage  of net  revenues,  cost of goods sold  decreased  from 73.9% to
70.0%  primarily  due to better  margins  on  engineering  and  lower  equipment
revenues  compared to the prior year.  Gross profit  increased  by $341,776,  or
15.5%, from $2,200,425 to $2,542,201.

    Selling expenses increased from $546,821 to $622,797 or 13.9%, primarily due
to increased  personnel  expense in the current year compared to the prior year.
As a percentage of net revenues,  selling  expenses  increased from 6.5% to 7.3%
primarily  due to an  additional  allocation  of  engineering  labor to  selling
expense to provide more engineering input with salable customer  solutions early
in the bid process. General and administrative expenses increased by $225,610 or
18.7% from  $1,206,658  to $1,432,268  compared to the prior year.  The increase
came from additional  personnel costs including recruiting and moving costs. The
Company  continued  to  invest  in the  development  of new AGV  and  automation
solutions  to  expand  its  product  line  in the  current  year.  Research  and
development expenses increased from $281,369 to $312,172 in the current year.

     Primarily as a result of the  foregoing,  the  Company's  operating  income
increased by $9,387 from an operating  income of $165,577 to an operating income
of $174,964 for the current year.

    Net interest expense increased from $37,923 to $53,586, an increase of 41.3%
due to higher banking and borrowing costs compared to the prior year relating to
an increased borrowing line utilized to handle additional business expansion.

      The  Company  did not  recognize  any income tax  benefits in 2006 for its
losses or any income tax expense during 2006 for its earnings as the Company had
net operating loss  carryforwards.  Deferred tax assets have not been recognized
since utilization of operating loss  carryforwards is not considered more likely
than not.

     Primarily  due to an overall  increase in expenses  in 2006,  as  described
above,  the  Company's  net  income  decreased  by $6,276  from a net  income of
$127,654  in the year ended 2005 to net income of $121,378 in the same period of
2006.

                                       7
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

Liquidity and Capital Resources

The Company  experiences  needs for 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 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 and private offerings to satisfy
its external financing needs.

During the period ended November 30, 2007, net cash used in operating activities
was  $314,683.  The  Company's  cash  balance  was  negatively  affected  by the
Company's net loss of $1,126,295  which was partially  offset by an decrease "in
cost and  estimated  earnings in excess of billings on  uncompleted  contracts".
Cash used in investing  activities  significantly  increased in the current year
compared to the prior year due to the purchase of AutoMotion assets. The Company
issued $600,000 in  subordinated  notes to offset the net cash used in operating
activities and investing activities. The Company at year end had a cash position
of $615,904 but its working capital decreased to $374,304.

The Company  renewed its $750,000  bank line of credit (as further  described in
Note 4 to the financial  statements) and the bank increased  availability on the
line to $1,000,000 in March 2007.  The credit line is evidenced by a demand note
which is reviewed  annually unless called prior to the anniversary date of March
23, 2008.  Due to the net loss in 2007,  the Company can not be assured that the
bank will renew the line under the same  terms.

The Company spent approximately $240,000 for assets associated with the purchase
of AutoMotion  Systems  including  $160,000 of  inventory.  This was paid for by
using the line of credit.  It is the Company's plan to reduce  inventory  levels
going forward which should help reduce the line of credit.

As  discussed  above on  November  30,  2007,  the  Company  raised  $600,000 of
subordinated  debt (the "Notes") (see Notes 4, 9 and 11) to increase the working
capital  which has been  eroded by the  current  year's  losses.  The notes bear
interest  of 6% per  annum  and are  payable  quarterly  in  arrears  beginning
February 29, 2008.  Principal and unpaid  interest  shall be payable on November
30, 2017.

Each Note is subject to  prepayment in whole or in part, by the Company upon the
Company's  providing thirty (30) days prior written notice to the holder and its
payment of the principal of and accrued interest on the Note(s).  The Holders of
the Notes  have been  granted a limited  conditional  right of early  payment as
hereafter described. The holders may, by written notice delivered to the Company
at any time during the thirty (30) day period  following the reporting (as shown
in the  Company's  filing of the Form  10-KSB) of a Minimum  Net Income Year (as
defined  below),  demand a prepayment not to exceed,  respectively:  $87,500 for
John H. Robison  Irrevocable  Trust,  $50,000 for Curt  Kennington,  $50,000 for
Anthony  William  Packer  Rollover  IRA  and  $12,500  for  Stephen  B.  Robison
Irrevocable  Trust.  The holders of the notes may  exercise  such  demand  right
independently.

A Minimum  Net Income  Year shall  mean,  for any fiscal  year of the  Company's
operations  commencing  with the  Company's  November 30, 2008 fiscal year,  the
Company's  recording of at least Four Hundred Thousand Dollars ($400,000) of net
income (as reported in the Company's  Form 10-KSB or any  successor  report form
for such annual  period).  The  Holders of these Notes are  entitled to only one
such prepayment  during any single fiscal year of the Company during the term of
these Notes.  The payment(s)  shall be made no later than thirty (30) days after
Company's receipt of a timely notice from Holder(s).

On November 30, 2007,  the Company  issued four (4) Warrants to purchase  Common
Stock of Transbotics  Corporation  for a total of Two (2) Million  shares,  as a
condition  for the Company  issuing  subordinated  notes  described  above.  The
warrants  issued expire November 30, 2011 and the purchase price per share under
each of the warrants is $0.40.

                                       8
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

Liquidity and Capital Resources (Continued)

The Company  believes that its working  capital of $374,304 at November 30, 2007
is not adequate for its current  operations.  This raises  significant  concerns
about the  Company's  ability  to  continue  as a going  concern.
Customer orders or additional working capital are needed in the near future. Due
to the low backlog at November 30, 2007, the Company expects to incur a loss in
the first quarter of 2008. Further reductions of working capital would have a
serious impact on our ability to operate  effectively.  The Company will
continue to review its options to reduce expenses, raise additional working
capital and to explore possible business  combinations to secure its future. The
Company can not assure that it will be successful in raising additional funds to
meet its needs.

The following risk factors,  in addition to the other  information  contained in
this report,  should be  considered  in your  evaluation  of the Company and its
financial  condition.  Current  capital  requirements  could increase beyond the
amounts  available  on the  line of  credit,  and  there  is no  certainty  that
additional  capital whether debt or equity is available.  The Company's  backlog
has decreased to $1,860,000 at November 30, 2007 from $2,900,000 at November 30,
2006. Additionally,  borrowings on the line of credit have increased by $400,000
when  compared to November 30, 2006.  The Company  depends on backlog and future
contracts to remain profitable and depends on its line of credit to periodically
fund operations. If future contracts are not received as expected, the Company's
operations may suffer.

     The  Company  will,  from  time  to  time,  reexamine  the  possibility  or
feasibility  of going  private to reduce its operating  expenses.  The Company's
current  expenses  relating to being  publicly held are  approximately  $250,000
annually  and  are  presently  expected  to  increase  significantly  when  full
implementation  of the  Sarbanes-Oxley  section 404 becomes  effective for small
public  companies.  Such  expenses  are  significant  expenses  compared  to the
Company's net income.

Critical Accounting Policies:

Use of Estimates in Preparation of Condensed Financial Statements:

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 sale of  distribution  products  and
engineering services as shipments are made and/or services rendered.

The Company recognizes  revenues under AGV system 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  average  length of typical  AGV system  projects,  the large  dollar
amount of each  project,  and  inherent  difficulties  in  estimating  the total
component  costs,  the use of  different  estimates  and  assumptions  may  have
provided materially different results.

                                       9
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

Critical Accounting Policies (Continued):

Share base payments:

Statement  123(R),  Share Based  Payment,  (Statement 123 (R)) requires that the
compensation cost relating to share-based payment  transactions be recognized in
financial  statements.  The cost is  measured  based  on the  fair  value of the
instruments  issued.  Statement  123(R)  covers  a  wide  range  of  share-based
compensation  arrangements  including  share  options,  restricted  share plans,
performance-based  awards, share appreciation rights and employee share purchase
plans.  The  Company  adopted  Statement  123(R)  on  March 1,  2006,  requiring
compensation  cost to be recognized as expense for outstanding  unvested awards,
based on the  grant-date  fair value of those awards.  The adoption of Statement
123(R) did not have a material  impact on its financial  position as all options
granted  as of the  beginning  of the year  ended  November  30,  2007 are fully
vested.

For the year ending  November  30,  2005,  grants to  employees  under the stock
option plans were  accounted  for  following  the  recognition  and  measurement
provisions  of  APB  Opinion  No.  25  and  related  interpretations.   No  such
compensation cost was recognized during the year ended November 30, 2005.

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
period ending November 30, 2005.

At November 30, 2007 and November 30, 2006, options were outstanding to purchase
a total of 172,500 and 211,500 shares, respectively,  of Common Stock
of the  Company at  weighted-average  exercise  prices of varying  amounts.  All
outstanding options were vested and exercisable at November 30, 2007 and 2006.

During the year ending  November 30, 2007 the Company  issued  220,000 shares of
restricted common stock for services  rendered and recognized  compensation cost
in the financial statements of $73,914.  200,000 shares of the above shares were
issued to an employee and vest monthly equally over a one year period  beginning
in April 2007.

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.

                                       10
<PAGE>

Report of Independent Registered Public Accounting Firm

To the Board of Directors
Transbotics Corporation

We have audited the  accompanying  balance sheets of Transbotics  Corporation (a
Delaware  corporation)  as of  November  30,  2007  and  2006,  and the  related
statements of operations,  stockholders'  (deficit)  equity,  and cash flows for
each of the three years in the period ended November 30, 2007.  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 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.  The Company is not  required to
have,  nor were we  engaged to perform  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   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, 2007 and 2006, and the results of its operations and its cash flows
for each of the three years in the period ended  November 30, 2007 in conformity
with accounting principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been presented  assuming that the
Company will  continue as a going  concern.  As discussed in Note 1, the Company
incurred a net loss of approximately  $1,126,000  during the year ended November
30, 2007, and, as of that date, its total liabilities  exceeded its total assets
by approximately $33,000. These factors, among others, as discussed in Note 1 to
the financial statements, raise substantial doubt about the Company's ability to
continue as a going concern.  Management's plans in regards to these matters are
also  described  in  Note  1.  The  financial  statements  do  not  include  any
adjustments that might result from the outcome of this uncertainty.

/s/Grant Thornton
GRANT THORNTON LLP

Charlotte, North Carolina
February 29, 2008



                                       11
<PAGE>

<TABLE>
<CAPTION>
<S>                                                         <C>            <C>
                                     BALANCE SHEETS

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

                                                                     November 30,
                                                                2007           2006
----------------------------------------------------------------------------------------

      ASSETS

CURRENT ASSETS
     Cash                                                    $    615,904   $    282,118
     Accounts receivable, net (Notes 2, 4, 5 and 9)             1,208,068      1,096,421
     Inventories                                                  606,168        436,857
     Costs and estimated earnings in excess of
        billings on uncompleted contracts (Note 3)                 78,362        572,091
     Prepaid expenses and other assets                             22,189         42,996
----------------------------------------------------------------------------------------
         Total current assets                                $  2,530,691   $  2,430,483
----------------------------------------------------------------------------------------


NONCURRENT DEPOSITS AND OTHER ASSETS                         $     45,331   $     31,854
----------------------------------------------------------------------------------------

PROPERTY AND EQUIPMENT (Note 4)
      Amortizable assets                                     $      4,000   $          -
      Furniture, fixtures, and office equipment                   353,313        285,130
      Machinery and equipment                                     176,442        101,047
----------------------------------------------------------------------------------------
                                                             $    533,755   $    386,177
      Less accumulated depreciation and amortization              322,157        257,523

----------------------------------------------------------------------------------------
                                                             $    211,598   $    128,654

----------------------------------------------------------------------------------------
                                                             $  2,787,620   $  2,590,991
========================================================================================

See Notes to Financial Statements
</TABLE>

                                       12
<PAGE>

<TABLE>
<CAPTION>
<S>                                                         <C>              <C>
                                      BALANCE SHEETS

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

                                                                       November 30,
                                                                 2007             2006
--------------------------------------------------------------------------------------------

      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Note payable, bank (Note 4)                             $   1,000,000    $     600,000
     Current maturities long-term debt (Notes 4, 9 and 11)           2,905            2,556
     Accounts payable                                              648,399          649,601
     Accrued expenses and customer deposits                        207,625           70,503
     Billings in excess of costs and estimated
         earnings on uncompleted contracts (Note 3)                297,458          181,812

--------------------------------------------------------------------------------------------
         Total current
          liabilities                                        $   2,156,387    $   1,504,472
--------------------------------------------------------------------------------------------

SUBORDINATED LONG-TERM DEBT (Notes 4, 9,11 and 16)
    Subordinated long-term debt                              $     903,894    $     306,799
    Less Subordinated long-term debt discount                     (280,000)               -
--------------------------------------------------------------------------------------------
         Net Subordinated long-term debt                           623,894          306,799
--------------------------------------------------------------------------------------------


STOCKHOLDERS' EQUITY (Notes 11, 12 and 16)
       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 2007 and 2006;
             5,074,951 shares and 4,854,951 shares were
              issued and outstanding at 2007 and 2006,
              respectively                                          50,749           48,549
       Additional paid-in capital                                4,941,825        4,590,111
       Accumulated deficit                                      (4,985,235)      (3,858,940)
--------------------------------------------------------------------------------------------
                                                             $       7,339    $     779,720
--------------------------------------------------------------------------------------------
                                                             $   2,787,620    $   2,590,991
============================================================================================
</TABLE>

                                       13
<PAGE>

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                   STATEMENTS OF OPERATIONS

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

                                                             Years ended November 30,
                                                        2007           2006           2005
------------------------------------------------------------------------------------------------

Net revenues (Notes 5 and 9)                        $   8,022,852  $   8,468,892  $   8,431,656
Cost of goods sold (Note 9)                             5,972,706      5,926,691      6,231,231
------------------------------------------------------------------------------------------------
    Gross profit                                    $   2,050,146  $   2,542,201  $   2,200,425
------------------------------------------------------------------------------------------------

Operating expenses:
    Selling                                         $     810,201  $     622,797  $     546,821
    General and administrative (Notes 9, 10 and 12)     1,762,206      1,432,268      1,206,658
    Research and development                              527,872        312,172        281,369
------------------------------------------------------------------------------------------------
                                                    $   3,100,279  $   2,367,237  $   2,034,848
------------------------------------------------------------------------------------------------
Operating (loss) income                             $  (1,050,133) $     174,964  $     165,577
------------------------------------------------------------------------------------------------

Interest expense (Note 9):                          $     (76,162) $     (53,586) $     (37,923)
------------------------------------------------------------------------------------------------

(Loss) income before income taxes                   $  (1,126,295) $     121,378  $     127,654

Federal and state income taxes (Note 6)                         -              -              -
------------------------------------------------------------------------------------------------
    Net (loss) income                               $  (1,126,295) $     121,378  $     127,654
================================================================================================


Basic (loss) earnings per share (Note 7)            $        (.23) $         .03  $         .03
================================================================================================

Diluted (loss) earnings per share ( Note 7)         $        (.23) $         .03  $         .03
================================================================================================

Weighted average common shares outstanding (basic)      4,986,293      4,844,026      4,826,654
================================================================================================
Weighted average common shares outstanding
 (diluted)                                              4,986,293      4,946,606      4,942,247
================================================================================================


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

See Notes to Financial Statements
</TABLE>

                                       14
<PAGE>

<TABLE>
<CAPTION>
<S>                                  <C>          <C>         <C>       <C>           <C>      <C>
                              STATEMENTS OF STOCKHOLDERS' EQUITY

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


                                                           Years Ended November 30,
--------------------------------------------------------------------------------------------------------
                                               2007                  2006                  2005
                                         Amount     Shares     Amount     Shares     Amount     Shares
                                      ------------------------------------------------------------------
Common Stock:
        Balance, beginning            $    48,549  4,854,951$    48,274  4,827,451$    48,244  4,824,451
        Stock options exercised                 -          -          -          -         30      3,000
        Issuance of common stock for
         services (Note 11 )                2,200    220,000        275     27,500          -          -
--------------------------------------------------------------------------------------------------------
        Balance, ending               $    50,749  5,074,951$    48,549  4,854,951$    48,274  4,827,451
========================================================================================================

Additional Paid-in Capital:
       Balance, beginning             $ 4,590,111           $ 4,571,961           $ 4,571,406
       Warrants issued (Notes 4 and
        16)                           $   280,000                     -                     -
        Stock options exercised                 -                     -                   555
        Issuance of common stock for
         services (Note 11 )               71,714                18,150                     -
--------------------------------------------------------------------------------------------------------
       Balance, ending                $ 4,941,825           $ 4,590,111           $ 4,571,961
========================================================================================================

Accumulated Deficit:
       Beginning deficit              $(3,858,940)          $(3,980,318)          $(4,107,972)
       Net (loss) income               (1,126,295)              121,378               127,654
--------------------------------------------------------------------------------------------------------
       Ending deficit                 $(4,985,235)          $(3,858,940)          $(3,980,318)
========================================================================================================


--------------------------------------------------------------------------------------------------------
Stockholders' Equity at
 November 30                          $     7,339  5,074,951$   779,720  4,854,951$   639,917  4,827,451
========================================================================================================

See Notes to Financial Statements
</TABLE>

                                       15
<PAGE>

<TABLE>
<CAPTION>
<S>                                                       <C>           <C>           <C>
                                      STATEMENTS OF CASH FLOWS

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

                                                                   Years ended November 30,
                                                               2007          2006           2005
-----------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
    Net (loss) income                                      $ (1,126,295) $    121,378  $     127,654
    Adjustments to reconcile net income to net cash used
     in operating activities:
        Depreciation and amortization                            84,678        70,333         63,819
        Increase (decrease) in provision for doubtful
         accounts                                                 3,709        (7,880)        11,000
        Loss on sale of property and equipment                      272         2,011          1,132
        Loss on foreign currency exchange rate                   11,510        17,630          2,451
        Issuance of Common Stock for services                    73,914        18,425              -
    Change in assets and liabilities:
        (Increase) decrease in accounts receivable             (115,356)      857,785       (456,690)
        (Increase) decrease in inventories                       (1,707)       45,915        (70,047)
        Decrease (increase) in costs and estimated
         earnings in excess of billings on uncompleted
         contracts                                              493,729      (348,649)       387,020
        Decrease (increase) in prepaid expenses and other
         assets                                                  20,807       (20,056)        19,460
        Increase (decrease ) in accounts payable and
         accrued expenses                                       124,410      (564,558)       (66,086)
        Increase (decrease) in billings in excess of costs
         and estimated earnings on uncompleted contracts        115,646      (222,564)      (259,757)
-----------------------------------------------------------------------------------------------------
        NET CASH USED IN
            OPERATING ACTIVITIES                           $   (314,683) $    (30,230) $    (240,044)
-----------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of equipment                                  $   (109,473) $    (67,429) $     (63,817)
    Purchase of AutoMotion assets                          $   (239,502) $          -  $           -
-----------------------------------------------------------------------------------------------------
        NET CASH USED IN
            INVESTING ACTIVITIES                           $   (348,975) $    (67,429) $     (63,817)
-----------------------------------------------------------------------------------------------------

See Notes to Financial Statements
</TABLE>

                                       16
<PAGE>

<TABLE>
<CAPTION>
<S>                                                               <C>           <C>         <C>
                                        STATEMENTS OF CASH FLOWS

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

                                                                            Years ended November 30,
                                                                         2007         2006         2005
--------------------------------------------------------------    ---------------------------------------

CASH FLOW FROM FINANCING ACTIVITIES
        Borrowings on revolving credit agreement, net of
         repayments                                                $  400,000   $  205,000   $  245,000
        Net proceeds from exercise of stock options                         -            -          585
        Proceeds from long-term borrowings (Notes 4, 9 and 16)        600,000            -            -
        Principal payments on long-term borrowings,
         including capital lease obligations                           (2,556)      (2,249)      (1,666)
--------------------------------------------------------------    ---------------------------------------

           NET CASH PROVIDED BY
                FINANCING ACTIVITIES                               $  997,444   $  202,751   $  243,919
--------------------------------------------------------------    ---------------------------------------
       Increase (decrease) in
        cash                                                       $  333,786   $  105,092   $  (59,942)

      Cash:

           Beginning                                                  282,118      177,026      236,968
--------------------------------------------------------------    ---------------------------------------
           Ending                                                  $  615,904   $  282,118   $  177,026
==============================================================    =======================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
       Cash payments for :
           Interest                                                $   76,027   $   53,867   $   37,320

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
       Capital lease obligations incurred for use of equipment     $        -   $        -   $   13,270
       Issuance of Common Stock for services                       $   73,914   $   18,425   $        -
</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") and other related automation products.
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.

Going Concern

During 2007, the Company suffered  significant  operating losses,  especially in
the fourth quarter, as several anticipated orders were delayed or cancelled. Due
to the low backlog at November  30, 2007 the Company  anticipates  losses in the
first quarter of 2008. The impact of the losses on the Company's  balance sheet,
together  with the low backlog  raises  substantial  doubt  about the  Company's
ability to continue as a going concern.

These  problems  create an urgent  situation  in which  financing  options  were
limited.   Three  accredited  investors  from  the  Board  of  Directors  bought
additional subordinated debt on November 30, 2007 (see notes 4, 9, 14 and 16) to
address the immediate working capital  condition.  In addition,  in January 2008
the Company  entered into a contract  for  approximately  $1,900,000  with a new
customer.  These combined developments help mitigate but do not remove the doubt
about the Company's ability to continue as a going concern.

    Management  has taken and continues  the following  actions in an attempt to
increase revenues and minimize losses:

o   Reduce operating expenses
o   Establish and develop strategic alliances with selected customers
o   Explore possible business combinations
o   Pursue AGV system business in selected market niches
o   Expand the aftermarket sales business

The  Company  is also  reviewing  its  options  for going  private to reduce its
operating expenses.  The Company's current expenses relating to being public are
approximately $250,000 annually.

There can be no assurance that the Company can successfully  meet the objectives
of any such activities.

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

Revenue recognition:

    The Company recognizes  revenue from the sales of distribution  products and
engineering services as shipments are made and/or services rendered.

    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:

     Inventories  are  priced at the lower of cost or  market,  with cost  being
determined by the  weighted-average  method.  Inventories  consist  primarily of
parts to  manufacture  AGVs which include  control  components  from Danaher and
motors from Sauer  Danfoss.  At November  30, 2007  inventory  totaled  $606,168
comprised  as follows:  Parts:  $535,429,  work in process:  $8,993 and finished
goods:  $61,746.  At November 30, 2006 inventory  totaled $436,857  comprised as
follows: Parts: $310,947, work in process: $125,910 and finished goods: $0.


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.

(Loss) earnings per common share:

    Basic per share  amounts are  computed by dividing  net income 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, 2007 and 2006,  the Company had options  outstanding  to purchase a
total of 172,500 and 211,500 shares of Common Stock at weighted-average exercise
prices of varying  amounts.  Additionally,  the Company had  2,000,000  warrants
outstanding at an exercise price of $0.40 a share at November 30, 2007.

Advertising:

    The  Company  follows  the  policy of  charging  advertising  to  expense as
incurred.  Advertising expenses for the years ending November 30, 2007, 2006 and
2005 were $26,400, $21,400, and $25,434, respectively.

Stock options:

      Statement 123(R),  Share Based Payment,  (Statement 123 (R)) requires that
the compensation cost relating to share-based payment transactions be recognized
in  financial  statements.  The cost is measured  based on the fair value of the
instruments  issued.  Statement  123(R)  covers  a  wide  range  of  share-based
compensation  arrangements  including  share  options,  restricted  share plans,
performance-based  awards, share appreciation rights and employee share purchase
plans.  The  Company  adopted  Statement  123(R)  on  March 1,  2006,  requiring
compensation  cost to be recognized as expense for outstanding  unvested awards,
based on the  grant-date  fair value of those awards.  The adoption of Statement
123(R) did not have a material  impact on its financial  position as all options
granted at the time of adoption.

      For the year ending November 30, 2005, grants to employees under the stock
option plans were  accounted  for  following  the  recognition  and  measurement
provisions of APB Opinion No. 25 and related  interpretations.  No  compensation
cost was  recognized  during the year ended  November  30,  2005.  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 period
ending November 30, 2005.

     At November 30, 2007 and November 30,  2006,  options were  outstanding  to
purchase,  respectively a total of 172,500 and 211,500 shares of Common Stock of
the  Company  at  weighted-average  exercise  prices  of  varying  amounts.  All
outstanding options were vested and exercisable at November 30, 2007 and 2006.

                                       19
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

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

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

Recent Accounting Developments:

    In July 2006, FASB issued interpretation No. 48, "Accounting for Uncertainty
in Income taxes" ("FIN 48"),  which  clarifies the accounting for uncertainty in
income taxes  recognized  in the financial  statements  in accordance  with FASB
Statement No. 109,  "Accounting  for Income taxes ("SFAS 109").  FIN 48 provides
guidance  on the  financial  statements  recognition  and  measurement  of a tax
position  taken or expected to be taken in a tax  return.  FIN 48 also  provides
guidance on de-recognition,  classification,  interest and penalties, accounting
in interim periods,  disclosures, and transitions. FIN 48 is being recorded as a
reduction of  shareholders'  equity  during the first quarter of our fiscal year
2008.  Additionally,  in May 2007,  the FASB published FSP No. ("FSP FIN 48-1"),
"Definition  of  Settlement in FASB  Interpretation  No. 48". FSP FIN 48-1 is an
amendment to FIN 48. It clarifies how an enterprise  should determine  whether a
tax position is effectively  settled for the purposes of recognizing  previously
unrecognized tax benefits.  FSP FIN 49-1 is effective upon initial adaptation of
FIN 48, and therefore is effective our first quarter of fiscal 2008.  The actual
impact of the adoption of FIN 48 and FSP 48-1 on our results of  operations  and
financial  condition will depend on facts and  circumstances  that exists on the
date of adoption.  The Company is currently  evaluating the potential  impact of
FIN No. 48 and any impact on its financial position cannot be readily determined
at this time.

    In  September  2006,  the  FASB  issued   statement  No.  157,  "Fair  Value
Measurements",  (SFAS 157). SFAS 157 defines fair value, establishes a framework
for measuring  fair value in accordance  with  accounting  principles  generally
accepted  in the  United  States,  and  expands  disclosures  about  fair  value
measurements.  SFAS 157 is effective for fiscal years  beginning  after November
15, 2007,  with earlier  application  encouraged.  Any amounts  recognized  upon
adoption  as a  cumulative  effect  adjustment  will be  recorded to the opening
balance of retained  earnings in the year of  adoption.  The Company has not yet
determined the impact of this  Statement on its financial  condition and results
of operations.

    In February  2007,  the FASB issued SFAS No. 159, "The Fair value Option for
Financial  assets and  Financial  liabilities"  (SFAS  159").  SFAS 159  permits
entities to choose to measure certain  financial  assets and liabilities at fair
value.  Unrealized gains and losses on items for which the fair value option has
been elected are reported in earnings. SFAS 159 is effective for our fiscal year
beginning December 1, 2007, and is not expected to have a material impact on our
financial statements.


Note 2. Accounts Receivable

    Accounts  receivable consist of the following at November 30, 2007 and 2006,
respectively:
<TABLE>
<CAPTION>
<S>                                                                                 <C>                 <C>
                                                                                        2007               2006

----------------------------------------------------------------------------------------------------------------------
Trade and contract                                                                   $  1,213,800        $  1,097,380

Less: Allowance for doubtful accounts                                                      (6,829)             (3,120)
----------------------------------------------------------------------------------------------------------------------
                                                                                     $  1,206,971        $  1,094,260

Employees                                                                                   1,637               2,161
----------------------------------------------------------------------------------------------------------------------

                                                                                     $  1,208,608        $  1,096,421
======================================================================================================================
</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  receivable 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.

                                       20
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

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

Note 3.  Costs and Estimated Earnings on Uncompleted Contracts

       Costs and  estimated  earnings on  uncompleted  contracts  consist of the
following at November 30, 2007 and 2006, respectively:
<TABLE>
<CAPTION>
<S>                                                                             <C>                   <C>
                                                                                        2007                 2006

-------------------------------------------------------------------------------------------------------------------------
Total contracts in process                                                       $        3,396,498   $       6,708,046
=========================================================================================================================

Costs incurred on uncompleted contracts                                          $        1,721,498   $       3,064,272
Estimated earnings                                                                          142,507           1,632,703
-------------------------------------------------------------------------------------------------------------------------
                                                                                 $        1,864,005   $       4,696,975
Less billings to date                                                                    (2,083,101)         (4,306,696)
-------------------------------------------------------------------------------------------------------------------------

                                                                                 $         (219,096)  $         390,279
=========================================================================================================================

Included in the accompanying balance sheets under the following captions:

                                                                                        2007               2006

----------------------------------------------------------------------------------------------------------------------
Costs and estimated earnings in excess of billings
     on uncompleted contracts                                                          $    78,362       $    572,091
Billings in excess of costs and estimated earnings
     on uncompleted contracts                                                             (297,458)          (181,812)
----------------------------------------------------------------------------------------------------------------------

                                                                                   $      (219,096)      $    390,279
======================================================================================================================


Note 4.  Pledged Assets, Note Payable, Bank and Long-Term Debt

Current debt consists of the following:                                                   2007             2006

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

Note payable  agreement with a financial  institution that allows the Company to
borrow up to $1,000,000 and bears interest at LIBOR + 2.00%.  The line of credit
agreement  (signed March 2, 2007) is further secured by the Company's assets and
includes a maturity date of March 23, 2008.  Under the terms of the renegotiated
agreement, the obligation includes a "payable on demand" feature. The loan
agreement obligation is evidenced by a demand note. (1)(2)                              $  1,000,000        $ 600,000
----------------------------------------------------------------------------------------------------------------------

Long-term debt consists of the following :
----------------------------------------------------------------------------------------------------------------------

In September  2003, the Company issued  $300,000 of 6% convertible  subordinated
notes due  September  2013.  Interest  on the 6%  convertible  notes is  payable
quarterly on each February 28, May 31, August 31 and November 30 during the term
of the notes. The 6% convertible  notes were issued at 100% principal value, and
are convertible, in aggregate, into 750,000 shares of common stock at the option
of the holders at any time while the note is outstanding 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 after September 30, 2006 at 100% of the principal  amount.  To
date, no redemption has been made by the Company.

                                                                                           $ 300,000        $ 300,000
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       21
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

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

Note 4.  Pledged Assets, Note Payable, Bank and Long-Term Debt (continued)

--------------------------------------------------------------------------------
On November 30, 2007, the Company issued $600,000 of 6%  subordinated  notes due
November  30,  2017.  Interest  on the 6% notes  is  payable  quarterly  on each
February 28, May 31, August 31 and November 30 during the term of the notes. The
6% convertible notes were issued at 100% principal value.  2,000,000 warrants to
purchase  common stock were issued with the notes and are exercisable at a price
of $0.40 per share. (Note 16)

Each Note is subject to  prepayment in whole or in part, by the Company upon the
Company's  providing thirty (30) days prior written notice to the holder and its
payment of the principal of and accrued interest on the Note(s).  The Holders of
the Notes  have been  granted a limited  conditional  right of early  payment as
hereafter described, the holders may, by written notice delivered to the Company
at any time  during the thirty  (30) day period  following  the  occurrence  (as
evidenced  by the  Company's  filing of the Form  10-KSB or any other  successor
report  form)  of a  Minimum  Net  Income  Year  (as  defined  below),  demand a
prepayment not to exceed, respectively:  $87,500 for John H. Robison Irrevocable
Trust, $50,000 for Curt Kennington,  $50,000 for Anthony William Packer Rollover
IRA and $12,500 for Stephen B.  Robison  Irrevocable  Trust.  The holders of the
notes may exercise such demand right independently.

A Minimum  Net Income  Year shall  mean,  for any fiscal  year of the  Company's
operations  commencing  with the  Company's  November 30, 2008 fiscal year,  the
Company's  recording of at least Four Hundred Thousand Dollars ($400,000) of net
income (as reported in the Company's Form 10-KSB or any other  successor  report
form for such annual  period).  The Holders of these Notes are  entitled to only
one such prepayment during any single fiscal year of the Company during the term
of these  Notes.  The  payment(s)  shall be made no later than  thirty (30) days
after Company's receipt of a timely notice from Holder(s).

<TABLE>
<CAPTION>
<S>                                                                                  <C>              <C>

                                                                                      $      600,000   $           -
----------------------------------------------------------------------------------------------------------------------


Obligations under capital leases                                                               6,799            9,355
----------------------------------------------------------------------------------------------------------------------
                                                                                             906,799          309,355
Less current maturities:
----------------------------------------------------------------------------------------------------------------------
         Notes                                                                                     -                -
----------------------------------------------------------------------------------------------------------------------
         Obligations under capital leases                                                      2,905            2,556
----------------------------------------------------------------------------------------------------------------------
                                                                                      $      903,894   $      306,799
======================================================================================================================
(1) The Libor rate at November 30, 2007 was 5.23625%.
(2) The line of credit is secured by a first priority  security  interest in the Company's accounts receivable,
     inventory, software and intangibles.
</TABLE>

                                       22
<PAGE>



                          NOTES TO FINANCIAL STATEMENTS

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

Note 5.  Major Customers

       Net  revenues  and  accounts  receivable  as of and for the  years  ended
November 30, 2007, 2006, and 2005, 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>
<S>                                            <C>                <C>   <C>             <C>       <C>          <C>
                                                                       Amount of Net Revenues
                                                                       Year Ended November 30,

Customer                                             2007          %         2006         %         2005         %
----------------------------------------------------------------------------------------------------------------------
A                                               $     2,052,911    25.6  $  2,632,904    31.1      $ 899,438    10.7
B                                                     1,742,530    21.7             *       *              *       *
C                                                             *       *     1,179,108    13.9              *       *
D                                                             *       *             *       *      1,356,653    16.1
E                                                             *       *             *       *      1,034,957    12.3
F                                                             *       *             *       *      1,129,736    13.4



                                                                    Amount of Accounts Receivable
                                                                            November 30,

                                                     2007          %         2006         %         2005         %
----------------------------------------------------------------------------------------------------------------------
A                                                    $  220,625    18.3  $    415,146    37.8       $ 346,971   17.8
B                                                       176,015    14.6             *       *              *       *
C                                                             *       *        85,551     7.8              *       *
D                                                             *       *             *       *        300,944    15.4
E                                                             *       *             *       *        403,138    20.7
F                                                             *       *             *       *        258,442    13.3
*Not a major customer.
</TABLE>

 Note 6.   Income Taxes

    Income  taxes  consist  of the  following  components  for the  years  ended
November 30, 2007, 2006, and 2005, respectively:
<TABLE>
<CAPTION>
<S>                                                          <C>                <C>                 <C>
                                                                   2007                2006               2005
----------------------------------------------------------------------------------------------------------------------

Current                                                       $          -       $          -        $          -
Deferred                                                                 -                  -                   -
----------------------------------------------------------------------------------------------------------------------
                                                              $          -       $          -        $          -
======================================================================================================================
</TABLE>

    Net deferred tax assets  consist of the following  components as of November
30, 2007 and 2006, respectively:
<TABLE>
<CAPTION>
<S>                                                           <C>                <C>                 <C>
                                                                   2007               2006                2005
                                                             ---------------------------------------------------------
Deferred tax assets:
   Allowance for doubtful accounts                             $   2,633          $   1,203           $   4,241
   Inventory valuation reserves
                                                                   5,012              3,084               6,169
   Net operating loss carryforwards                            1,885,503          1,493,597           1,540,886
   General business credit carryforwards                          45,367             45,367              45,367
   Other                                                           9,528              8,594               3,113
Deferred tax liabilities:
   Depreciation                                                   (2,918)            (4,286)             (3,333)
   Other                                                             -                  -                   -
------------------------------------------------------------ ------------------ ------------------ -------------------
                                                                $ 1,945,125        $ 1,547,559        $ 1,596,443

   Less valuation allowance                                       1,945,125          1,547,559          1,596,443
----------------------------------------------------------------------------------------------------------------------

   Net deferred taxes                                           $    -             $    -             $     -
======================================================================================================================
</TABLE>

                                       23
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

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

Note 6.   Income Taxes (continued)

The changes in the valuation  allowance  for the years ended  November 30, 2007,
2006 and 2005 were $397,566, $(48,884) and $(42,418), respectively. The deferred
tax asset has been offset by a valuation  allowance  due to the  uncertainty  of
realization. The Company's net operating loss begins to expire as follows:
<TABLE>
<CAPTION>
<S>     <C>                                 <C>                  <C>
                                             Federal NOL         North Carolina NEL
        Year ending November 30              carryforward           carryforward
--------------------------------------------------------------------------------------
                 2009                        $              -     $           920,454
                 2010                               1,183,261               1,891,517
                 2011                                  39,630                  39,630
                 2012                                 984,312                 984,312
                 2013                                       -                 334,184
                 2015                                       -                 760,907
                 2017                                       -                 374,283
                 2018                                 334,184                       -
                 2020                                 760,907                       -
                 2022                                 374,283                       -
--------------------------------------------------------------------------------------
                 Total                           $  3,676,577           $   5,305,287
======================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
<S>                                  <C>            <C>         <C>            <C>           <C>          <C>
                                                                 Years Ended November 30,
                                               2007                        2006                       2005
----------------------------------------------------------------------------------------------------------------------
                                                      % of                        % of                       % of
                                       Dollar       Pre-tax        Dollar       Pre-tax        Dollar       Pre-tax
                                       Amount        Income        Amount        Income        Amount       Income
----------------------------------------------------------------------------------------------------------------------
Statutory federal income
  tax (benefit)                      $ (382,940)     (34.0)      $ 41,269        34.0         $ 43,402       34.0
Increase (decrease) in
taxes resulting from:
State income taxes                      (33,532)      (3.0)         4,391        3.6             3,056        2.4
Changes in valuation allowance          397,566       35.3        (48,884)     (40.3)          (42,418)     (33.2)
Other                                    18,906        1.7          3,224        2.7            (4,040)      (3.2)
----------------------------------------------------------------------------------------------------------------------
                                     $     -            -        $    -            -          $   -            -
======================================================================================================================
</TABLE>

                                       24
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

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


Note 7. (Loss) earnings per common share

The following table sets forth the comparison of basic and diluted  earnings per
share:
<TABLE>
<CAPTION>
<S>                                                             <C>                 <C>            <C>
                                                                     2007            2006           2005
                                                               ------------------------------------------------

BASIC (LOSS) INCOME  PER SHARE:
  Net (loss) income                                               $  (1,126,295)   $    121,378   $    127,654
  Weighted -average shares                                            4,986,293       4,844,026      4,826,654
                                                               ------------------------------------------------

                                                                  $       (0.23)   $       0.03   $      0.03
                                                               ================================================

DILUTED (LOSS) INCOME PER SHARE:
  Net (loss) income                                               $  (1,126,295)   $    121,378   $    127,654
                                                               ------------------------------------------------
  Weighted -average shares                                             4,986,293      4,844,026      4,826,654
  Plus effect of dilutive potential shares:
     Stock options                                                     -                102,580        115,593
                                                               ------------------------------------------------
                                                                       4,986,293      4,946,606      4,942,247
                                                               ------------------------------------------------
Diluted (loss) earnings per share                                 $       (0.23)   $       0.03   $       0.03
                                                               ================================================
</TABLE>


Common stock options and warrants  outstanding  excluded from the computation of
diluted earnings per share because the effect would have been  antidilutive were
2,172,500,  0 and 0 for the  years  ended  November  30,  2007,  2006 and  2005,
respectively.

Convertible  notes outstanding and warrants are excluded from the computation of
diluted  earnings per share because the effect would have been  antidilutive for
the years ended November 30, 2007, 2006 and 2005, respectively.

                                       25
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

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

Note 8.   401(k) Profit Sharing Plan

    The Company has a profit  sharing plan through an unrelated  human  resource
firm which administers the Company's employee benefits. Company contributions to
this plan 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,  2007,  2006 and 2005  amounted to $55,362,  $46,188,  and $35,824
respectively.

Note 9.   Related Party Transactions


     In 2003, Curt Kennington,  the general partner of Kennington Family Limited
LLC,  the  Company's  landlord,  became a related  party when he invested in the
Company by acquiring  shares and  convertible  debt (see note 11). The Company's
rent paid for the years  ended  November  30,  2007,  2006 and 2005  amounted to
$161,850, $161,850, and $158,491 respectively.  Mr. Kennington received interest
payments  from the  Company  of $4,500 on the  convertible  debt for each of the
years  ended  November  30,  2007,  2006 and  2005.  On  November  30,  2007 Mr.
Kennington  invested  $150,000 and received a subordinated note from the Company
paying 6% interest  annually as described  in Note 4, 11 and 16. Mr.  Kennington
received  500,000  warrants to purchase  common stock at $0.40 per share when he
made the investment.  Mr. Kennington was also appointed to the Board on July 24,
2007

    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 on the
convertible  debt for each of the years ended November 30, 2007,  2006 and 2005,
respectively.  On November 30, 2007 Mr. John Robison affiliates (John H. Robison
Irrevocable  Trust and Stephen B. Robison  Irrevocable  Trust) invested $300,000
and received a subordinated note from the Company paying 6% interest annually as
described in Note 4, 11 and 16. Mr. John Robison  affiliates  received 1,000,000
warrants  to  purchase  common  stock  at  $0.40  per  share  when he  made  the
investment.

     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  on the
convertible  debt for each of the years ended November 30, 2007,  2006 and 2005.
On November 30, 2007 Mr. Packer  invested  $150,000 and received a  subordinated
note from the Company paying 6% interest annually as described in Note 4, 11 and
16. Mr. Packer received  500,000  warrants to purchase common stock at $0.40 per
share when he made the investment. Mr. Packer was also appointed to the Board on
July 24, 2007.

                                       26
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

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

Note 10.  Commitments

    At November 30, 2007 and 2006, the Company had outstanding  forward exchange
contracts to purchase  EURO's and Swedish Krona totaling  approximately  $0, and
$49,000.  The fair value of these  contracts  as of  November  30, 2007 and 2006
totaled approximately $0 and $2,000, respectively. These contracts are purchased
as needed from time to time to hedge various foreign currency payable  inventory
purchase commitments.

    The Company leases property and equipment under long-term  operating  leases
expiring on various  dates  through  March 2008 and on a  month-to-month  basis.
Rental expense was $235,278, $208,666, and $189,553 for the years ended November
30, 2007, 2006, and 2005 respectively.

    Minimum rental commitments under long-term  operating leases at November 30,
2007 were as follows:

2008                  $       12,800
Thereafter                        -
                     -----------------
                      $       12,800
                     =================

    The Company  signed a  five-year  lease in  February  2008 for its  existing
building in Charlotte,  NC, which also  includes an  additional  new building of
approximately  12,000  square feet on the same  property.  Total lease cost will
approximate $245,500 for the first year of occupancy.

    The  Company  entered  into  an  employment  agreement  with  the  owner  of
AutoMotion Systems,  Inc. to become Vice President - AutoMotion Systems Division
on April 26, 2007.  The agreement is for a two-year  period.  The base salary is
$70,000 with potential  bonuses based upon reaching certain  operational  goals.
The Company also granted 200,000 shares of restricted common stock,  which vests
over a one-year service period. Restricted stock valued at $54,314 vested during
the period ending November 30, 2007 and $54,314 was charged to selling expense.

    The Company entered into an agreement with Charles W. Robison,  its new CEO,
on July 24, 2007. He began providing  services to the Company April 9, 2007. The
agreement  provides for  compensation  of $208,000  annually of which $60,000 is
deferred until the expiration or termination of the agreement. At that time, the
CEO will receive $2,500 bi-monthly of the deferred cash compensation until it is
fully paid out. The new CEO is entitled to receive restricted stock on an annual
basis. Each year over the next five years, the CEO will receive 50,000 shares of
stock  for a  maximum  of  250,000  shares  over  the  period.  If the  employee
identifies and the Board of Directors approves and engages his replacement prior
to the effective date of termination of his employment all remaining shares will
be 100% earned and vested upon  termination  of employment and will be issued at
the same  rate  and upon the same  schedule  as  before  the  effective  date of
termination,  20% (50,000 shares per year).  Shares valued at $7,000 were earned
through  November  30,  2007 and were  charged  to  general  and  administrative
expense.

    The Company has a one-year,  renewable  employment  contract with the former
CEO (now CFO) which provides for a minimum  annual base salary of $140,000.  The
base salary is subject to minimum annual  reviews.  The Contract renews on March
1, 2009 for a one year extension unless terminated in advance.

                                       27
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

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


Note 11.  Issuance of Common Stock and Subordinated 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 at the option of 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.

     During  2007  and  2006  the  Company  issued  20,000  and  27,500  shares,
respectively,  of  restricted  IRS Section 144 stock  shares to the  independent
directors who own less than 5% of the Company's  stock.  Expenses of $12,600 and
$18,425 were recognized in 2007 and 2006 respectively.

     As discussed in Note 15, the Company  issued  200,000  shares of restricted
common stock on April 26, 2007 to the previous owner of AutoMotion Systems, Inc.
as part of his employment contract.  The shares vest on a monthly basis over the
first 12 months of his employment. The total cost of the issuance is $93,110 and
is being amortized on a monthly basis.

     The Company  granted  250,000 shares of restricted  common stock to the new
CEO based upon his compensation agreement as described under Note 10. The shares
vest over 5 years at 20%  (50,000)  per year  starting on July 24,  2008.  As of
November 30, 2007, $7,000 of the restricted stock cost was expensed.

Note 12.  Stock Option Plans

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.

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  vested upon  achievement  by the  Company of certain  financial
performance targets set by the Board of Directors on an annual basis.

                                       28
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

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

Note 12.  Stock Option Plans (Continued)

    Transactions  involving  these plans for the years ended  November 30, 2007,
2006 and 2005 respectively, are summarized as follows:

STOCK OPTIONS                          2007*
------------------------------------------------------------------------
                                                      Weighted-
                                                       average
                                                       exercise
                         97 Plan  01 Plan    Total      price
                          --------------------------------------

Outstanding, December 1  36,500   175,000   211,500      $0.29
Granted                       -         -         -          -
Expired                  (33,000)       -  (33,000)       0.50
Forfeited                (3,500)  (2,500)   (6,000)       0.37
Reissued                      -         -         -          -
Exercised                     -         -         -          -
----------------------------------------------------------------

Outstanding, November 30      -   172,500   172,500      $0.25
===============================================================

Exercisable, November 30      -   172,500   172,500      $0.25
===============================================================

STOCK OPTIONS                          2006*
------------------------------------------------------------------------
                                                      Weighted-
                                                       average
                                                       exercise
                         97 Plan  01 Plan    Total      price
                          --------------------------------------

Outstanding, December 1   36,500  175,000   211,500      $0.29
Granted                        -        -         -          -
Expired                        -        -         -          -
Forfeited                      -        -         -          -
Reissued                                -         -          -
Exercised                      -        -         -          -
----------------------------------------------------------------

Outstanding, November 30  36,500   175,000   211,500      $0.29
===============================================================

Exercisable, November 30  36,500   175,000   211,500      $0.29
===============================================================


STOCK OPTIONS                          2005*
------------------------------------------------------------------------
                                                      Weighted-
                                                       average
                                                       exercise
                         97 Plan  01 Plan    Total      price
                          --------------------------------------

Outstanding, December 1   36,500   184,000   220,500      $0.29
Granted                        -         -         -          -
Expired                        -         -         -          -
Forfeited                      -   (6,000)   (6,000)       0.31
Reissued                       -         -         -          -
Exercised                      -   (3,000)   (3,000)       0.20
----------------------------------------------------------------

Outstanding, November 30  36,500   175,000   211,500      $0.29
===============================================================

Exercisable, November 30  36,500   175,000   211,500      $0.29
===============================================================

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

                                       29
<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) gain on foreign  currency  transactions  of
$(29,655),  $(41,678), and $26,866, for the three years ended November 30, 2007,
2006, and 2005, respectively.

Note 14.  Fair Value of Financial Instruments

     The carrying amounts of accounts receivable,  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 and  subordinated  notes at November 30, 2007, 2006 and 2005
are as follows:

                                         Carrying          Estimated
                                         Amount            Fair Value
------------------------------------------------------------------------
Convertible subordinated notes
and subordinated notes:
2007                                     $900,000          $566,665
2006                                     $300,000          $236,796
2005                                     $300,000          $248,793



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

Note 15. Acquisition

The Company entered into an asset purchase  agreement with  AutoMotion  Systems,
Inc.  to buy all of its  outstanding  assets  on  April  26,  2007.  Transbotics
acquired $167,604 of current assets, including inventory and work in process and
$71,898 of property and equipment for a total  purchase  price of $239,502.  The
purchase  price was paid in full on April 26, 2007 using the  Company's  line of
credit.

Note 16.  Issuance of Subordinated Debt and Warrants

On November 30, 2007, the Company issued $600,000 of Subordinated  Notes to four
accredited investors.  The Principal amounts and holders of the particular Notes
are as follows:  John H. Robison  Irrevocable  Trust  $262,500,  Curt Kennington
$150,000,  Anthony  William Packer  Rollover IRA $150,000 and Stephen B. Robison
Irrevocable Trust $37,500.  The Notes bear 6% per annum and payable quarterly in
arrears  beginning  February 29, 2008.  Principal and unpaid  interest  shall be
payable on November 30, 2017.

Each Note is subject to  prepayment in whole or in part, by the Company upon the
Company's  providing thirty (30) days prior written notice to the holder and its
payment of the principal of and accrued interest on the Note(s).  The Holders of
the Notes  have been  granted a limited  conditional  right of early  payment as
hereafter described, the holders may, by written notice delivered to the Company
at any time  during the thirty  (30) day period  following  the  occurrence  (as
evidenced by the  Company's  filing of the Form 10-KSB or any  successor  report
form) of a Minimum Net Income Year (as defined  below),  demand a prepayment not
to exceed,  respectively:  $87,500.00  for John H.  Robison  Irrevocable  Trust,
$50,000 for Curt Kennington, $50,000 for Anthony William Packer Rollover IRA and
$12,500 for Stephen B. Robison  Irrevocable  Trust. The holders of the notes may
exercise such demand right independently.

A Minimum  Net Income  Year shall  mean,  for any fiscal  year of the  Company's
operations  commencing  with the  Company's  November 30, 2008 fiscal year,  the
Company's  recording of at least Four Hundred Thousand Dollars ($400,000) of net
income (as reported in the Company's  Form 10-KSB or any  successor  report form
for such annual

                                       30
<PAGE>

                                           NOTES TO FINANCIAL STATEMENTS

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

Note 16.  Issuance of Subordinated Debt and Warrants (Continued)

period).  The  Holders of these Notes are  entitled to only one such  prepayment
during any single fiscal year of the Company during the term of these Notes. The
payment(s) shall be made no later than thirty (30) days after Company's  receipt
of a timely notice from Holder(s).

The net  proceeds to the Company  from the sale of these Notes is  approximately
$587,000 (after  deducting  related offering  expenses).  The Company intends to
apply such  proceeds  against its bank line of credit and apply the remainder of
such proceeds to working capital needs and other general corporate purposes.

On November 30, 2007,  the Company  issued four (4) Warrants to purchase  Common
Stock of Transbotics  Corporation  for a total of Two (2) Million  shares,  as a
condition  for the  Company  issuing  $600,000  of  Subordinated  Notes  to four
accredited  investors on November 30, 2007. The warrants  issued expire November
30, 2011 and the  purchase  price per share under each of the warrants is $0.40.
The table below  identifies the Holders and the number of shares  authorized for
the warrants issued:
<TABLE>
<CAPTION>
<S>                                                <C>                          <C>
----------------------------------------------------------------------------------------------------------------------
Common Stock Warrant No.                 Number of Unregistered Shares          Holder
----------------------------------------------------------------------------------------------------------------------
                   1                                875,000                     John H. Robison Irrevocable Trust
----------------------------------------------------------------------------------------------------------------------
                   2                                125,000                     Stephen B. Robison Irrevocable trust
----------------------------------------------------------------------------------------------------------------------
                   3                                500,000                     Curt Kennington
----------------------------------------------------------------------------------------------------------------------
                   4                                500,000                     Anthony William Packard Rollover IRA
----------------------------------------------------------------------------------------------------------------------
</TABLE>

The 2,000,000  warrants issued were  independently  valued after the transaction
was completed at $0.14 per share of common stock, for a total value of $280,000.
The warrants value or "Debt  discount" of $280,000 was recorded in the financial
statements as a reduction of  Subordinated  long-term debt.  The discount is
amortized over the life of the subordinated notes.



                                       31
<PAGE>

<TABLE>
<CAPTION>
<S>                                                     <C>
                                             SHAREHOLDER INFORMATION

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

ANNUAL MEETING                                           DIRECTORS
  The annual meeting will be held at 10:00 am, Friday,
  May 9, 2008, at Transbotics Corporate offices          D.Bruce Wise
  in Charlotte, North Carolina.                          Chairman of the Board of Directors

SHAREHOLDER RELATIONS                                    Charles W. Robison
  A copy of Transbotics Annual Report and form 10-KSB,   Vice Chairman, Director
  which is filed with the Securities and Exchange
  Commission, will be sent to any shareholder upon       Claude Imbleau
  written request to Manager-Investor Relations          Director
   Transbotics Corporation
  3400 Latrobe Drive                                     John H. Robison
  Charlotte, North Carolina 28211                        Director

CORPORATE OFFICES                                        Neville
                                                          Croft
  Transbotics Corporation                                Director
  3400 Latrobe Drive
  Charlotte, North Carolina 28211-4849                   Larrimore Wright
                                                         Director
   (704) 362-1115 Telephone
   (704) 364-4039 Facsimile                              Anthony William Packer
                                                         Director
STOCK EXCHANGE LISTINGS
  Over the Counter: OTC Bulletin Board                   Curt Kennington
  OTC Symbol: "TNSB"                                     Director

TRANSFER AGENT                                           OFFICERS
  First Citizens Bank
  Raleigh, North Carolina                                Charles W. Robison
                                                         Chief Executive Officer
LEGAL COUNSEL
  Shumaker, Loop and Kendrick, LLP                       Claude Imbleau
  Charlotte, North Carolina                              Chief Financial Officer

INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
  Grant Thornton LLP
  Charlotte, North Carolina
                                                         E. Thomas Watson
                                                         General Counsel, Secretary


=============================================================================================================
</TABLE>

<TABLE>
<CAPTION>
<S>                                                       <C>   <C>   <C>  <C>        <C>   <C>   <C>  <C>
COMMON STOCK DATA
                                                                        Market Price Per Share
                                                         ----------------------------------------------------
                                                                   2007                        2006
                                                         ------------------------    ------------------------
Quarter Ended                                                High        Low             High        Low
                                                          Bid   Ask   Bid   Ask       Bid   Ask   Bid   Ask
------------------------------------------------------   ------------------------    ------------------------
 February 28                                               0.56  0.59  0.25  0.47      0.82  1.05  0.48  0.55
 May 31                                                    0.61  0.67  0.40  0.53      0.65  0.70  0.51  0.58
 August 31                                                 0.61  0.70  0.45  0.50      0.58  0.70  0.51  0.55
 November 30                                               0.60  0.70  0.43  0.51      0.52  0.70  0.42  0.48
======================================================   ========================    ========================
</TABLE>

                                       32