UNITED
STATESSECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C.
20549 FORM 10-Q (Mark One) [X]
    
    QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934
 For the quarterly period ended August 31,
2008 OR [  ]
    
    TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934
 For the transition period from

to  Commission File Number
0-3498  TAYLOR DEVICES,
INC.(Exact name
of registrant as specified in its charter) NEW
      YORK(State or Other Jurisdiction ofIncorporation or
      Organization)
    
    16-0797789(I.R.S. EmployerIdentification
      No.)90 Taylor Drive,
      North Tonawanda, New York(Address of Principal Executive
      Offices)
    
    14120-0748(Zip Code)
 716-694-0800(Registrant's telephone number, including area
code)   Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past
90 days.          Yes
[X]      No [   ] Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of "large accelerated
filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2
of the Exchange Act. (Check one): Large accelerated filer
      [  ]
    
    Accelerated filer [  ]
    
    Non-accelerated
      filer [  ]
    
    Smaller reporting
      company [X](Do not check if a
      smaller reporting company)
 Indicate by
check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange
Act).           Yes
[   ]      No [X]  As of October 1, 2008, there were
outstanding 3,219,923 shares of the registrant's common stock, par value $.025
per share.    TAYLOR DEVICES,
INC. Index to Form
10-Q  PART I
    FINANCIAL
      INFORMATION                                                                                                                                                        
        PAGE NO.Item 1.
    Financial
      StatementsCondensed Consolidated
      Balance Sheets August 31, 2008 and May 31, 2008
    3Condensed Consolidated
      Statements of Income for the three months ended August 31, 2008 and August
      31, 2007
    4Condensed Consolidated
      Statements of Cash Flows for the three months ended August 31, 2008 and
      August 31, 2007
    5Notes to Condensed
      Consolidated Financial Statements
    6Item 2.
    Management's Discussion
      and Analysis of Financial Condition and Results of
      Operation
    7Item 3.
    Quantitative and
      Qualitative Disclosures About Market Risk
    
    11Item 4T.
    Controls and
      Procedures
    
    12PART II
    OTHER
      INFORMATIONItem 1.
    Legal
      Proceedings
    13Item 1A.
    Risk
    Factors
    13Item 2.
    Unregistered Sales of
      Equity Securities and Use of Proceeds
    13Item 3.
    Defaults Upon Senior
      Securities
    14Item 4.
    Submission of Matters
      to a Vote of Security Holders
    14Item 5.
    Other
      Information
    14Item 6.
    Exhibits
    14REPORT OF INDEPENDENT
      REGISTERED PUBLIC ACCOUNTING FIRM
    15SIGNATURES
    
    16
  2    TAYLOR DEVICES, INC. AND
      SUBSIDIARYCondensed
      Consolidated Balance Sheets
    (Unaudited)August
      31,  2008
    May
      31,2008Assets
    .
    .Current
      assets:Cash and cash
    equivalents
    $        
      133,146
    $       110,720Accounts receivable,
    net
    3,412,844
    2,109,157Inventory
    6,722,439
    6,625,168Costs and estimated earnings in
      excess of billings
    2,759,750
    1,756,164Other current assets
    1,074,247
    1,360,736Total current assets
    14,102,426
    11,961,945Maintenance and other inventory,
      net
    861,465
    887,588Property and equipment,
      net
    3,452,552
    3,425,910Intangible and other
      assets
    138,477
    139,207$ 
      18,554,920
    $  16,414,650Liabilities and
      Stockholders' EquityCurrent
      liabilities:Short-term borrowings and current
      portion of long-term debt
    $   
      2,921,221
    $  
    1,016,621Payables - trade
    1,126,425
    1,186,249Accrued commissions
    527,174
    392,693Other current
    liabilities
    966,836
    934,514Total current liabilities
    5,541,656
    3,530,077Long-term liabilities
    283,819
    335,485Stockholders'
      Equity:Common stock and additional paid-in
      capital
    6,457,195
    6,425,490Retained earnings
    8,497,315
    8,348,66314,954,510
    14,774,153Treasury stock - at
    cost
    (2,225,065)
    (2,225,065)Total stockholders' equity
    12,729,445
    12,549,088$ 
      18,554,920
    $  16,414,650 See notes to condensed consolidated
financial statements. 3   TAYLOR DEVICES, INC. AND
      SUBSIDIARYCondensed
      Consolidated Statements of Income
    
    (Unaudited)For the three months
      endedAugust
      31,
    August
    31,2008
    2007Sales, net
    
    
    $
      4,803,502
    $ 4,408,185Cost of goods sold
    
    
    3,523,715
    2,719,114Gross
      profit
    
    
    1,279,787
    1,689,071Selling, general and administrative
      expenses
    
    
    1,042,982
    1,068,503Operating
      income
    
    
    236,805
    620,568Other expense, net
    
    
    (253)
    (45,529)Income before provision for income
      taxes, equity in netincome of affiliate
      and minority stockholder's interest
    
    
    236,552
    575,039Provision for income
      taxes
    
    
    87,900
    221,700Income before equity in net income
      of affiliateand minority
      stockholder's interest
    
    
    148,652
    353,339Equity in net income  of
      affiliate
    
    
    -
    4,589Income before minority
      stockholder's interest
    
    
    148,652
    357,928Minority stockholder's
      interest
    
    
    -
    (9,698)Net
      income
    
    
    $   
      148,652
    $     
      348,230Basic and diluted
      earnings per common share
    
    
    $      0.05
    $       0.11 See notes to condensed consolidated
financial statements. 4    TAYLOR DEVICES, INC. AND
      SUBSIDIARYCondensed
      Consolidated Statements of Cash Flows(Unaudited)August
      31,
    August
    31,For the three months
      ended
    2008
    2007Cash flows from
      operating activities:Net income
    $     148,652
    $    
      348,230Adjustments to reconcile net income
      to net cash flows fromoperating
      activities:Depreciation and
      amortization
    98,920
    88,477Gain of sale of
    equipment
    (320)
    (890)Stock options issued for
      services
    28,114
    37,741Equity in net income of
      affiliate
    -
    (4,589)Minority stockholder's
      interest
    -
    9,698Changes in other assets and
      liabilities:Accounts receivable
    (1,303,687)
    (293,544)Inventory
    (71,148)
    (915,556)Costs and estimated earnings in
      excess of billings
    (1,003,586)
    135,793Other current assets
    260,254
    (4,876)Payables - trade
    (59,824)
    267,187Accrued commissions
    134,481
    (8,796)Billings in excess of costs and
      estimated earnings
    -
    459,803Other current
    liabilities
    32,322
    (251,526)Net cash flows for
      operating activities
    (1,735,822)
    (132,848)Cash flows from
      investing activities:Acquisition of property and
      equipment
    (123,462)
    (207,883)Other investing
      activities
    25,185
    25,787Net cash flows for
      investing activities
    (98,277)
    (182,096)Cash flows from
      financing activities:Net short-term borrowings and
      repayments on long-term debt
    1,852,934
    587,425Payables - affiliate
    -
    (53,004)Proceeds from issuance of common
      stock
    3,591
    4,480Net cash flows from
      financing activities
    1,856,525
    538,901Net increase in cash and cash
      equivalents
    22,426
    223,957Cash and cash equivalents -
      beginning
    110,720
    22,748Cash and cash equivalents -
      ending
    $     133,146
    $   
      246,705  See notes to condensed consolidated
financial statements.  5     TAYLOR DEVICES, INC.  Notes to Condensed
Consolidated Financial Statements 1.
    The accompanying
      unaudited condensed consolidated financial statements have been prepared
      in accordance with accounting principles generally accepted in the United
      States of America for interim financial information and with the
      instructions to Form 10-Q.  Accordingly, they do not include all of
      the information and footnotes required by accounting principles generally
      accepted in the United States of America for complete financial
      statements. In the opinion of the Company, the accompanying unaudited
      condensed consolidated financial statements contain all adjustments
      (consisting of only normal recurring accruals) necessary to present fairly
      the financial position as of August 31, 2008 and May 31, 2008, the results
      of operations for the three months ended August 31, 2008 and August 31,
      2007, and cash flows for the three months ended August 31, 2008 and August
      31, 2007. These financial statements should be read in conjunction with
      the audited financial statements and notes thereto contained in the
      Company's Annual Report to Shareholders for the year ended May 31,
      2008.  There have been no updates or changes to our audited financial
      statements for the year ended May 31, 2008.2.
    There is no provision
      nor shall there be any provisions for profit sharing, dividends, or any
      other benefits of any nature at any time for this fiscal
      year.3.
    For the three month
      periods ended August 31, 2008 and August 31, 2007 the net income was
      divided by 3,219,490 and 3,152,525, respectively, which is net of the
      Treasury shares, to calculate the net income per
      share.4.
    The results of
      operations for the three month period ended August 31, 2008 are not
      necessarily indicative of the results to be expected for the full
      year.5.
    Effective April 1,
      2008, the Company merged with Tayco Developments, Inc. (Developments)
      following approval from shareholders of both companies. The Company is the
      surviving corporation.   Under the terms of the Plan of Merger,
      each share of Developments' common stock was converted into one share of
      the Company's common stock.  The Company had approximately a 23%
      equity investment in Developments prior to the
    merger.
  6    TAYLOR DEVICES, INC.  Item 2.  Management's
Discussion and Analysis of Financial Condition and Results of
Operations Cautionary
Statement The Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking
statements.  Information in this Item 2, "Management's Discussion of
Financial Condition and Results of Operations," and elsewhere in this 10-Q that
does not consist of historical facts, are "forward-looking statements." 
Statements accompanied or qualified by, or containing, words such as "may,"
"will," "should," "believes," "expects," "intends," "plans," "projects,"
"estimates," "predicts," "potential," "outlook," "forecast," "anticipates,"
"presume," and "assume" constitute forward-looking statements and, as such, are
not a guarantee of future performance.  The statements involve factors,
risks and uncertainties, the impact or occurrence of which can cause actual
results to differ materially from the expected results described in such
statements.  Risks and uncertainties can include, among others,
fluctuations in general business cycles and changing economic conditions;
changing product demand and industry capacity; increased competition and pricing
pressures; advances in technology that can reduce the demand for the Company's
products, as well as other factors, many or all of which may be beyond the
Company's control.  Consequently, investors should not place undue reliance
on forward-looking statements as predictive of future results.  The Company
disclaims any obligation to release publicly any updates or revisions to the
forward-looking statements herein to reflect any change in the Company's
expectations with regard thereto, or any changes in events, conditions or
circumstances on which any such statement is based. Results of
Operations A summary of the period to
period changes in the principal items included in the condensed consolidated
statements of income is shown below: Summary comparison of the three
      months ended August 31, 2008 and August 31, 2007Increase
    /(Decrease)Sales,
net
    
    $    
      395,000Cost of goods
      sold
    
    $    
      805,000Selling, general and
      administrative expenses
    
    $     
      (26,000)Other expense,
      net
    
    $     
      (45,000)Income before provision
      for income taxes, equity in net income of affiliate and minority
      stockholder's interest
    
    $   
      (338,000)Provision for income
      taxes
    
    $   
      (134,000)Net
income
    
    $   
      (200,000)
 Sales under certain
fixed-price contracts, requiring substantial performance over several periods
prior to commencement of deliveries, are accounted for under the
percentage-of-completion method of accounting whereby revenues are recognized
based on estimates of completion prepared on a ratio of cost to total estimated
cost basis.  Costs include all material and direct and indirect charges
related to specific contracts. Adjustments to cost estimates
are made periodically and any losses expected to be incurred on contracts in
progress are charged to operations in the period such losses are
determined.  However, any profits expected on contracts in progress are
recognized over the life of the contract. For financial statement
presentation purposes, the Company nets progress billings against the total
costs incurred on uncompleted contracts.  The asset, "costs and estimated
earnings in excess of billings," represents revenues recognized in excess of
amounts billed.  The liability, "billings in excess of costs and estimated
earnings," represents billings in excess of revenues recognized.  7  For the three months ended
August 31, 2008(All figures discussed
are for the three months ended August 31, 2008 as compared to the three months
ended August 31, 2007.) Three months ended
    ChangeAugust 31, 2008
    August 31, 2007
    Increase / (Decrease)
    Percent
      ChangeNet
      Revenue
    $ 
      4,803,000
    $
      4,408,000
    $    395,000
    9%Cost of
      sales
    3,524,000
    2,719,000
    805,000
    30%Gross
      profit
    $  1,279,000
    $
      1,689,000
    $  (410,000)
    -24%...as a percentage of net
revenues
    27%
    38% The Company's consolidated
results of operations showed a 9% increase in net revenues and a decrease in net
income of 57%.  Revenues recorded in the current period for long-term
construction projects were 19% less than the level recorded in the prior
year.  Revenues recorded in the current period for other-than long-term
construction projects (non-projects) were up approximately $839,000 or 41% over
the level recorded in the prior year.  This increase is primarily in sales
of products to customers in aerospace and defense related fields and industrial
customers.  Gross profit decreased by 24%.  The gross profit as a
percentage of net revenues for the current and prior year periods was 27% and
38%.  This fluctuation is attributable to a.) one large, domestic project
that has a very low margin and b.) a few of the bigger non-project shipments in
the quarter that helped increase sales for the quarter had low
margins. The Company's revenues and
net income fluctuate from period to period.  The fluctuations in comparing
the current period to the prior period are not necessarily representative of
future results. Selling, General and
      Administrative Expenses Three months ended
    Change August 31, 2008
    August 31, 2007
    Increase / (Decrease)
    Percent
      ChangeOutside
      Commissions
    $202,000
    $    250,000
    $  (48,000)
    -19%Other
      SG&A
    841,000
    819,000
    22,000
    3%Total
      SG&A
    $1,043,000
    $
      1,069,000
    $  (26,000)
    -2%...as a percentage of net
revenues
    22%
    24% Selling, general and
administrative expenses decreased by 2% from the prior year.  Outside
commission expense decreased by 19% from last year's level.  As a
percentage of sales, outside commissions were 4.2% compared with 5.7% last
year.  This fluctuation was primarily in the non-projects where there was a
higher than normal commission on an Asian order last year.  This year's
commissions are slightly lower than historical averages.  Other selling,
general and administrative expenses increased by only 3% from last year to
this. The above factors resulted in
operating income of $237,000 for the three months ended August 31, 2008, down
62% from the $621,000 in the same period of the prior year. Other expense, net, of less
than $1,000 is primarily interest expense and is $45,000 less than in the prior
year.   The average level of use of the Company's operating line of credit
during the period remained fairly constant as compared to the prior year
period.  The line of credit is used primarily to fund the production of
larger projects that do not allow for advance payments or progress
payments.  Long-term debt is just under half of what it was as of August
31, 2007.  Interest rates on the line of credit and most of the long-term
debt is 3.25 percentage points lower than the rates in effect at August 31,
2007.  These two factors combined to lower our interest expense for the
quarter.  8  Stock
Options The Company has a stock
option plan which provides for the granting of nonqualified or incentive stock
options to officers, key employees and non-employee directors.   Options
granted under the plan are exercisable over a ten year term.  Options not
exercised at the end of the term expire. The Company applies the stock
option expensing rules of Statement of Financial Accounting Standards (SFAS) No.
123R, "Share Based Payment," using the fair value recognition provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation."  The Company recognized
$28,000 and $38,000 of compensation cost for the three month periods ended
August 31, 2008 and August 31, 2007. The fair value of each stock
option grant has been determined using the Black-Scholes model.  The model
considers assumptions related to exercise price, expected volatility, risk-free
interest rate, and the weighted average expected term of the stock option
grants.  Expected volatility assumptions utilized in the model were based
on volatility of the Company's stock price for the thirty month period ending on
the date of grant.  The risk-free interest rate is derived from the U.S.
treasury yield.  The Company used a weighted average expected term. 
The following assumptions were used in the Black-Scholes model in estimating the
fair market value of the Company's stock option grants: August 31, 2008       August 31,
2007                                                                 
Risk-free interest
rate:             
5.000%                      
3.625%                                              
Expected life of the
options:            2.5
years                   
2.5
years                                         
Expected share price
volatility:             
44.62%                      
61.47%                                                           
Expected
dividends:               
zero                            
zero These assumptions resulted
in:               
Estimated fair-market value per stock option:
               
$1.94                          
$2.47 The ultimate value of the
options will depend on the future price of the Company's common stock, which
cannot be forecast with reasonable accuracy. A summary of changes in the
stock options outstanding during the three month period ended August 31, 2008 is
presented below: Weighted-Number
of              
Average                                                                                                                                
Options            
Exercise PriceOptions outstanding and exercisable at May 31,
2008:          
120,500                     
$ 5.30Options
granted:            
14,500                     
$
6.04                                                                                      
Options
exercised:              
none                              
-                                                                                          
Options
expired:              
none                              
-                               
                   
Options outstanding and exercisable at August 31,
2008:          
135,000                 
    $ 5.38 Capital Resources, Line of
Credit and Long-Term Debt The Company's primary
liquidity is dependent upon the working capital needs.  These are primarily
inventory, accounts receivable, costs and estimated earnings in excess of
billings, accounts payable, accrued commissions, billings in excess of costs and
estimated earnings, and debt service.  The Company's primary sources of
liquidity have been operations and bank financing. Capital expenditures for the
three months ended August 31, 2008 were $123,000 compared to $208,000 in the
same period of the prior year.  As of August 31, 2008, the Company has
commitments for capital expenditures totaling $250,000 during the next twelve
months. The Company has a $5,000,000
line of credit with a bank.  There is a $2,818,000 principal balance
outstanding as of August 31, 2008, compared to the $879,000 balance outstanding
as of May 31, 2008.  The outstanding balance on the line of credit will
fluctuate as the Company's various long-term projects progress.  The
Company is in compliance with restrictive covenants under the line of credit and
other financing arrangements, including Niagara County
Industrial Development Agency Bond financing.  9   Principal maturities of
long-term debt for the remainder of the current fiscal year and the subsequent
five years are as follows: 2009 - $51,000; 2010 - $72,000; 2011 - $27,000; 2012
- $27,000; and 2013 - $20,000. Inventory and
      Maintenance Inventory August 31, 2008
    May 31, 2008
    Increase / (Decrease) Raw
      Materials
    $  
      447,000
    
    $   436,000
    
    $      11,000
    3%Work in
      process
    5,955,000
    
    5,811,000
    
    144,000
    2%Finished
      goods
    320,000
    
    378,000
    
    (58,000)
    -15%Inventory
    6,722,000
    89%
    6,625,000
    88%
    97,000
    1%Maintenance
      and other inventory
    861,000
    11%
    888,000
    12%
    (27,000)
    -3%Total
    $7,583,000
    100%
    $7,513,000
    100%
    $     70,000
    1%Inventory
      turnover
    1.9
    
    1.9
 NOTE: Inventory
      turnover is annualized for the three month period ended August 31,
      2008. Inventory, at $6,722,000 as
of August 31, 2008, is 1% higher than the prior year-end.  Of this,
approximately 89% is work in process, 5% is finished goods, and 6% is raw
materials. Maintenance and other
inventory represent stock that is estimated to have a product life cycle in
excess of twelve months. This stock represents certain items the Company is
required to maintain for service of products sold and items that are generally
subject to spontaneous ordering.  This inventory is particularly sensitive
to technological obsolescence in the near term due to its use in industries
characterized by the continuous introduction of new product lines, rapid
technological advances and product obsolescence.  The maintenance inventory
decreased slightly since May 31, 2008.  Management of the Company has
recorded an allowance for potential inventory obsolescence. The provision for
potential inventory obsolescence was $45,000 for each of the three month periods
ended August 31, 2008 and 2007.  The Company continues to rework
slow-moving inventory, where applicable, to convert it to product to be used on
customer orders. Accounts Receivable,
      Costs and Estimated Earnings in Excess of Billings, and Billings in
      Excess of Costs and Estimated Earnings August 31, 2008
    May 31, 2008
    Increase /(Decrease)Accounts
      receivable
    
    $  3,413,000
    $ 
      2,109,000
    $ 
      1,304,000
    62%Costs and
      estimated earnings in excess of billings
    
    2,760,000
    1,756,000
    1,004,000
    57%Less:
      Billings in excess of costs and estimated earnings
    
    -
    -
    -Net
    
    $  6,173,000
    $   3,865,000
    $ 
      2,308,000
    60% The Company combines the
totals of accounts receivable, the asset "costs and estimated earnings in excess
of billings", and the liability, "billings in excess of costs and estimated
earnings", to determine how much cash the Company will eventually realize from
revenue recorded to date.  As the accounts receivable figure rises in
relation to the other two figures, the Company can anticipate increased cash
receipts within the ensuing 30-60 days. Accounts receivable of
$3,413,000 as of August 31, 2008 includes approximately $348,000 of amounts
retained by customers on long-term construction projects
("Project(s)").   The Company expects to collect all of these amounts,
including the retainage, during the next twelve months.  10  As noted above, the current
asset, "costs and estimated earnings in excess of billings," represents revenues
recognized in excess of amounts billed.  Whenever possible, the Company
negotiates a provision in sales contracts to allow the Company to bill, and
collect from the customer, payments in advance of shipments. 
Unfortunately, provisions such as this are often not possible.  The
$2,760,000 balance in this account at August 31, 2008 is 57% more than the prior
year-end.  Generally, if progress billings are permitted under the terms of
a Project sales agreement, the more complete the Project is, the more progress
billings will be permitted.  The Company expects to bill the entire amount
during the next twelve months. The balances in this account
are comprised of the following components: August 31, 2008
    
    May
      31, 2008Costs
    $
      3,000,000
    
    $
      1,711,000Estimated
      earnings
    773,000
    
    372,000Less:
      Billings to customers
    1,013,000
    
    327,000Costs and
      estimated earnings in excess of billings
    $
      2,760,000
    
    $
      1,756,000Number of
      Projects in progress
    10
    
    7 Summary of factors affecting
the year-end balances in the asset "costs and estimated earnings in excess of
billings", and the liability, "billings in excess of costs and estimated
earnings": August 31, 2008
    May
      31, 2008Number of
      Projects in progress
    10
    7Aggregate
      percent complete
    66%
    45%Average
      total sales value of Projects in progress
    $567,000
    $667,000Percentage
      of total value invoiced to customer
    18%
    7% Other Balance Sheet
Items The Company's backlog of
sales orders at August 31, 2008 is $9.5 million, down from the $11.4 million
backlog value at the end of the prior year.  $1.9 million of the current
backlog is on long-term construction projects already in
progress. Other current assets, which
is primarily comprised of deferred taxes and prepaid expenses, decreased by 21%
to $1,074,000.  This change is mostly due to a reduction in the prepaid
expenses as they are expensed in the normal course of business.  Accounts
payable, at $1,126,000 as of August 31, 2008, is approximately 5% less than the
prior year-end.  This balance will fluctuate as the requirement to purchase
goods and services fluctuates, which is driven in part by the level of long-term
construction project activity. Commission expense on
applicable sales orders is recognized at the time revenue is recognized. 
The commission is paid following receipt of payment from the customers. 
Accrued commissions as of August 31, 2008 are $527,000, up 34% from the $393,000
accrued at the prior year-end.  The Company expects the current accrued
amount to be paid during the next twelve months.  Other current liabilities
increased by $32,000 from the prior year-end, to $967,000.  Payments on
these liabilities will take place as scheduled within the next twelve
months. Management believes the
Company's cash flows from operations and borrowing capacity under the bank line
of credit is sufficient to fund ongoing operations, capital improvements and
share repurchases for the next twelve months. Item 3.  Quantitative
and Qualitative Disclosures About Market Risk Smaller reporting companies
are not required to provide the information called for by this
item.


11

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TAYLOR DEVICES,
INC. Item 4T.  Controls
and Procedures (a)
          Evaluation of
disclosure controls and procedures. The Company's principal
executive officer and principal financial officer have evaluated the Company's
disclosure controls and procedures as of August 31, 2008 and have concluded that
as of the evaluation date, the disclosure controls and procedures were effective
to ensure that material information relating to the Company was made known to
the officers by others within the Company.  (b)          
Changes in internal
controls. There have been no changes in
the Company's internal controls over financial reporting that occurred during
the fiscal quarter ended August 31, 2008 that have materially affected, or are
reasonably likely to materially affect, the Company's control over financial
reporting.   12   TAYLOR DEVICES,
INC. Part II - Other
Information ITEM 1
    Legal
      ProceedingsThe State of New York Workers
      Compensation Board ("Board") commenced a lawsuit against the Company and
      264 other entities in May 2008, seeking to recover funds allegedly owed in
      connection with the Company's participation in the Manufacturing
      Self-Insurance Trust ("Trust").  Among the Board's claims are that
      (i) the Trust provided workers compensation self-insurance to its
      participating members, including the Company, from April 22, 1997 to
      August 31, 2006; (ii) the Board has assumed control of the Trust;
      (iii)  the Trust's liabilities exceed its assets by approximately
      $29,000,000; and (iv)  the Company and the other participating
      members are jointly and severally liable for the alleged deficit. 
      The Board claims that it has calculated a rough estimate of each
      participating member's current share of the deficit, which, for the
      Company, is alleged to be in excess of $79,555.  The Board also
      claims, however, that the Company and the other 264 participating members
      could be jointly and severally responsible for sums substantially in
      excess of the Board's rough estimates.
      The Company denies the Board's
      claims that the Company owes the amounts sought.  The lawsuit was
      recently commenced, and the Company's investigation into the factual
      allegations of the lawsuit continues.  It appears that the Board is
      performing additional forensic audits regarding the Trust, in order to
      more accurately determine the amounts allegedly owed by the participating
      members.
      Management intends to vigorously
      defend the claim and has joined with other participating members in a
      joint defense against the lawsuit.  It is anticipated that the
      Company, together with other defendants, will conduct an independent
      forensic audit of the Trust's liabilities and assets.  It is also
      anticipated that the Company will challenge the legal and contractual
      basis for the Board's claims.
      There are no other legal
      proceedings except for routine litigation incidental to the
      business.ITEM 1A
    Risk
    FactorsSmaller reporting
      companies are not required to provide the information called for by this
      item.ITEM 2
    Unregistered Sales of
      Equity Securities and Use of Proceeds(a)
    The Company sold no
      equity securities during the fiscal quarter ended August 31, 2008 that
      were not registered under the Securities Act.(b)
    Use of proceeds
      following effectiveness of initial registration
      statement:Not
      Applicable
 13   (c)    
      Repurchase of Equity SecuritiesPeriod
    (a) Total  Number
      ofSharesPurchased
    (b)AveragePrice PaidPer
      Share
    (c) Total Numberof Shares Purchasedas Part
      ofPubliclyAnnounced Plansor Programs
    (d)
      MaximumNumber (orApproximate DollarValue) of Shares 
      that May YetBe Purchased Underthe Plans orProgramsJune 1, 2008 -June 30, 2008
    -
    -
    -
    .July 1, 2008 - 
      July 31, 2008
    -
    -
    -
    .August 1, 2008
      -  August 31, 2008
    -
    -
    -
    .Total
    -
    -
    -
    $160,802 (1) (1) In 1998, the Company initiated a plan to purchase shares of its
      outstanding common stock through open market purchases, with an initial
      deposit to the program of $225,000.  Additional deposits totaling
      $435,000 have been made to the plan, with expenditures of $499,198. 
      To date, a total of 164,696 shares have been purchased at an average price
      per share of $3.03.(d)     Under the terms of the Company's credit
      arrangements with its primary lender, the Company is prohibited from
      issuing cash dividends.  In addition, the credit arrangements require
      the Company to maintain net working capital of at least $2,000,000 and
      tangible net worth of at least $6,000,000, as such terms are defined in
      the credit documents.  On August 31, 2008, under such definitions the
      Company's net working capital and tangible net worth were significantly in
      excess of such limits.ITEM
      3         Defaults Upon Senior
      SecuritiesNoneITEM
      4
    Submission of Matters
      to Vote of Securities HoldersNoneITEM
      5
    Other
      Information(a)     Information required to be disclosed in
      a Report on Form 8-K, but not
      reported         
      None(b)     Material changes to the procedures by
      which Security Holders may recommend nominees to the Registrant's Board of
      DirectorsNoneITEM
      6        Exhibits31(i)    Rule 13a-14(a) Certification of Chief Executive
      Officer.31(ii)   Rule 13a-14(a) Certification of Chief Financial
      Officer.32(i)    Section 1350 Certification of Chief Executive
      Officer.32(ii)   Section 1350 Certification of Chief Financial
      Officer.
  14    Report of Independent
Registered Public Accounting Firm The Board of Directors and
StockholdersTaylor Devices, Inc. We have reviewed the
accompanying condensed consolidated balance sheet of Taylor Devices, Inc. and
Subsidiary as of August 31, 2008, the related condensed consolidated statements
of income for the three months ended August 31, 2008 and August 31, 2007 and
cash flows for the three months ended August 31, 2008 and August 31, 2007. 
These interim financial statements are the responsibility of the Company's
management. We conducted our reviews in
accordance with standards of the Public Company Accounting Oversight Board
(United States).  A review of interim financial information consists
principally of applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters.  It is substantially less
in scope than an audit conducted in accordance with standards of the Public
Company Accounting Oversight Board, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole. 
Accordingly, we do not express such an opinion. Based on our reviews, we are
not aware of any material modifications that should be made to the accompanying
interim condensed consolidated financial statements referred to above for them
to be in conformity with accounting principles generally accepted in the United
States of America. We have previously audited,
in accordance with standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheet as of May 31, 2008, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated August 1, 2008, we expressed an unqualified opinion on those financial
statements.  In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of May 31, 2008 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived. Lumsden & McCormick,
LLPBuffalo, New YorkOctober 1, 2008  15   TAYLOR DEVICES,
  INC. Signatures  In accordance with the
requirements of the Exchange Act, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.  TAYLOR DEVICES,
      INC.(Registrant)  Date:
    October 9, 2008
    
    
    s/Douglas P.
      TaylorDouglas P.
      TaylorPresidentChairman of the Board of Directors(Principal
      Executive Officer)
   Date:
    October 9, 2008
    
    
    s/Mark V.
      McDonoughMark V.
      McDonoughChief Financial Officer
  16