UNITED
STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 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 November
30, 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
    
    16-0797789(State or Other
      Jurisdiction ofIncorporation or Organization)
    
    (I.R.S.
      EmployerIdentification No.)90 Taylor Drive, North
      Tonawanda, New York
    
    14120-0748(Address of Principal
      Executive Offices)
    
    (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 January 1, 2009, there were
outstanding 3,222,095 shares of the registrant's common stock, par value $.025
per share. 1    TAYLOR DEVICES,
INC.   Index to Form
10-Q    PART I
    FINANCIAL
      INFORMATION                                                                                                                                                                                  PAGE
      NO.Item 1.
    Financial
      StatementsCondensed Consolidated
      Balance Sheets November 30, 2008 and May 31, 2008
    3Condensed Consolidated
      Statements of Income for the three and six months ended November 30, 2008
      and November 30, 2007
    4Condensed Consolidated
      Statements of Cash Flows for the six months ended November 30, 2008 and
      November 30, 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
    
    12Item 4T.
    Controls and
      Procedures
    
    13PART II
    OTHER
      INFORMATIONItem 1.
    Legal
      Proceedings
    14Item 1A.
    Risk
      Factors
    14Item 2.
    Unregistered Sales of
      Equity Securities and Use of Proceeds
    14Item 3.
    Defaults Upon Senior
      Securities
    15Item 4.
    Submission of Matters
      to a Vote of Security Holders
    15Item 5.
    Other
      Information
    16Item 6.
    Exhibits
    16REPORT OF INDEPENDENT
      REGISTERED PUBLIC ACCOUNTING FIRM
    17SIGNATURES
    
    18
 2    TAYLOR DEVICES, INC. AND
      SUBSIDIARYCondensed
      Consolidated Balance Sheets
    (Unaudited)November
      30,      2008
    May
      31,2008AssetsCurrent
      assets:Cash and cash
    equivalents
    $        
      10,595
    $       110,720Accounts receivable,
    net
    3,060,865
    2,109,157Inventory
    7,057,806
    6,625,168Costs and estimated earnings in
      excess of billings
    2,150,637
    1,756,164Other current assets
    1,177,579
    1,360,736Total current assets
    13,457,482
    11,961,945Maintenance and other inventory,
      net
    844,624
    887,588Property and equipment,
      net
    3,565,420
    3,425,910Intangible and other
      assets
    137,957
    139,207$ 
      18,005,483
    $  16,414,650Liabilities and
      Stockholders' EquityCurrent
      liabilities:Short-term borrowings and current
      portion of long-term debt
    $   
      1,974,667
    $  
    1,016,621Payables - trade
    1,199,142
    1,186,249Accrued commissions
    876,876
    392,693Billings in excess of costs and
      estimated earnings
    45,585
    -Other current
    liabilities
    843,432
    934,514Total current liabilities
    4,939,702
    3,530,077Long-term liabilities
    277,452
    335,485Stockholders'
      Equity:Common stock and additional paid-in
      capital
    6,460,714
    6,425,490Retained earnings
    8,552,680
    8,348,66315,013,394
    14,774,153Treasury stock - at
    cost
    (2,225,065)
    (2,225,065)Total stockholders' equity
    12,788,329
    12,549,088$ 
      18,005,483
    $  16,414,650 See notes to condensed consolidated
financial statements.  3    TAYLOR DEVICES, INC. AND
      SUBSIDIARYCondensed
      Consolidated Statements of Income
    (Unaudited)
    (Unaudited).
    For the three months
      ended November 30,
    For the six months
      ended November 30,2008
    2007
    2008
    2007Sales, net
    $
      3,757,731
    $  4,276,406
    $
      8,561,233
    $ 8,684,591Cost of goods sold
    2,803,564
    3,011,531
    6,327,279
    5,730,645Gross
      profit
    954,167
    1,264,875
    2,233,954
    2,953,946Selling, general and administrative
      expenses
    845,187
    1,056,093
    1,888,169
    2,124,596Operating
      income
    108,980
    208,782
    345,785
    829,350Other expense, net
    (23,115)
    (10,428)
    (23,368)
    (55,957)Income before provision for income
      taxes, equity in netincome (loss) of
      affiliate and minority stockholder's interest
    85,865
    198,354
    322,417
    773,393Provision for income
      taxes
    30,500
    74,000
    118,400
    295,700Income before equity in net income
      (loss) of affiliateand minority
      stockholder's interest
    55,365
    124,354
    204,017
    477,693Equity in net income (loss) of
      affiliate
    -
    (782)
    -
    3,807Income before minority
      stockholder's interest
    55,365
    123,572
    204,017
    481,500Minority stockholder's
      interest
    -
    (10,263)
    -
    (19,961)Net
      income
    $     55,365
    $   
      113,309
    $   
      204,017
    $  
  461,539Basic and diluted
      earnings per common share
    $     
      0.02
    $    0.04
    $     
      0.06
    $    
    0.15  See notes to condensed
consolidated financial statements.  4   TAYLOR DEVICES, INC. AND
      SUBSIDIARYCondensed
      Consolidated Statements of Cash Flows(Unaudited)November
      30,
    November
    30,For the six months
    ended
    2008
    2007Cash flows from
      operating activities:Net income
    $     204,017
    $    
      461,539Adjustments to reconcile net income
      to net cash flows fromoperating
      activities:Depreciation and
      amortization
    200,105
    179,323Gain of sale of
    equipment
    (350)
    (890)Stock options issued for
      services
    28,114
    37,741Bad debts expense
    (250,000)
    (68,105)Equity in net (income) loss of
      affiliate
    -
    (3,807)Deferred income taxes
    300
    -Minority stockholder's
      interest
    -
    19,961Changes in other assets and
      liabilities:Accounts receivable
    (701,708)
    1,653,581Inventory
    (389,674)
    (1,311,140)Costs and estimated earnings in
      excess of billings
    (394,473)
    548,766Other current assets
    168,250
    (236,548)Payables - trade
    12,893
    411,330Accrued commissions
    484,183
    (92,370)Billings in excess of costs and
      estimated earnings
    45,585
    112,598Other current
    liabilities
    (91,082)
    (306,709)Net cash flows from
      (for) operating activities
    (683,840)
    1,405,270Cash flows from
      investing activities:Acquisition of property and
      equipment
    (335,415)
    (370,266)Other investing
      activities
    12,307
    15,329Net cash flows for
      investing activities
    (323,108)
    (354,937)Cash flows from
      financing activities:Net short-term borrowings and
      repayments on long-term debt
    899,713
    (875,058)Payables - affiliate
    -
    (71,845)Proceeds from issuance of common
      stock
    7,110
    8,940Net cash flows from
      (for) financing activities
    906,823
    (937,963)Net increase (decrease) in cash and
      cash equivalents
    (100,125)
    112,370Cash and cash equivalents -
      beginning
    110,720
    22,748Cash and cash equivalents
      - ending
    $     10,595
    $  
  135,118 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 November 30, 2008 and May 31, 2008, the
      results of operations for the three and six months ended November 30, 2008
      and November 30, 2007, and cash flows for the six months ended November
      30, 2008 and November 30, 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 and six
      month periods ended November 30, 2008 and November 30, 2007 the net income
      was divided by 3,219,784 and 3,145,692, respectively, which is net of the
      Treasury shares, to calculate the net income per
      share.4.
    The results of
      operations for the six month period ended November 30, 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.
    In September 2006, the FASB issued SFAS No. 157 "Fair
      Value Measurements," to define fair value, establish a framework for
      measuring fair value in accordance with generally accepted accounting
      principles, and expand disclosures about fair value measurements. 
      SFAS No. 157 is effective for fiscal years beginning after November 15,
      2007 and for interim periods within those years.  The FASB issued
      FASB Staff Positions (FSP) 157-1 and 157-2 and 157-3.  FSP 157-1
      amends SFAS 157 to exclude SFAS No. 13, "Accounting for Leases," and its
      related interpretive accounting pronouncements that address leasing
      transactions, while FSP 157-2 delays the effective date of the application
      for SFAS No. 157 to fiscal years beginning after November 15, 2008 for all
      nonfinancial assets that are recognized or disclosed at fair value in the
      consolidated financial statements on a nonrecurring basis.  FSP 157-3
      addresses considerations in determining fair value of a financial asset
      when the market for that asset is not active.  The Company adopted
      SFAS No. 157 as of June 1, 2008 with the exception of the application of
      the statement to nonfinancial assets and liabilities.  The Company
      does not believe that the adoption of SFAS No. 157 for its nonfinancial
      assets and liabilities, effective June 1, 2009, will have a material
      impact on its consolidated financial statements.  The impact of
      adopting SFAS No. 157 on our consolidated financial statements was not
      significant.In February 2007, the FASB issued SFAS No. 159 "The
      Fair Value Option for Financial Assets and Financial Liabilities -- an
      Amendment of SFAS No. 115."  This statement permits entities to
      choose to measure many financial instruments and certain other items at
      fair value.  The objective is to improve financial reporting by
      mitigating volatility in reporting earnings caused by measuring related
      assets and liabilities differently without having to apply complex hedge
      accounting provisions.  SFAS No. 159 is effective for fiscal years
      beginning after November 15, 2007 and interim periods within those
      years.  The Company adopted SFAS No. 159 as of June 1, 2008 and
      elected not to measure any additional financial instruments and other
      items at fair value, therefore, the adoption of SFAS No. 159 had no effect
      on our consolidated financial statements.Other recently issued
      FASB Statements or Interpretations, SEC Staff Accounting Bulletins, and
      AICPA Emerging Issue Task Force Consensuses have either been implemented
      or are not significant to the Company.
 6   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 and
Analysis 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 six
      months ended November 30, 2008 and November 30, 2007Increase
    /(Decrease)Sales,
net
    
    $  
    (123,000)Cost of goods
      sold
    
    $     
      597,000Selling, general and
      administrative expenses
    
    $  
    (236,000)Other expense,
      net
    
    $   
          33,000Income before provision
      for income taxes, equity in net income (loss) of affiliate and
      minority stockholder's interest
    
    $   
      (451,000)Provision for income
      taxes
    
    $   
      (177,000)Net
income
    
    $   
      (258,000)
 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.  7   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. For the six months ended
November 30, 2008(All figures
discussed are for the six months ended November 30, 2008 as compared to the six
months ended November 30, 2007.) Six months ended
    ChangeNovember 30, 2008
    November 30, 2007
    Increase / (Decrease)
    Percent ChangeNet
      Revenue
    $  8,561,000
    $
      8,684,000
    $   (123,000)
    -1%Cost of
      sales
    6,327,000
    5,730,000
    597,000
    10%Gross
      profit
    $  2,234,000
    $
      2,954,000
    $  (720,000)
    -24%...as a percentage of net revenues
    26%
    34% The Company's consolidated
results of operations showed a 1% decrease in net revenues and a decrease in net
income of 56%.  Revenues recorded in the current period for long-term
construction projects were 20% 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 18% over the level recorded in the
prior year.  The gross profit as a percentage of net revenues for the
current and prior year periods was 26% and 34%.  This fluctuation is
attributable to a.) one large, domestic current year project that has a very low
margin and b.) a few of the bigger non-project shipments in the current period
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 Six months ended
    ChangeNovember 30, 2008
    November 30, 2007
    Increase / (Decrease)
    Percent ChangeOutside
      Commissions
    $   364,000
    $   593,000
    $  (229,000)
    -39%Other
      SG&A
    1,524,000
    1,531,000
    (7,000)
    -Total
      SG&A
    $1,888,000
    $2,124,000
    $  (236,000)
    -11%...as a percentage of net revenues
    22%
    24% Selling, general and
administrative expenses decreased by 11% from the prior year.  Outside
commission expense decreased by 39% from last year's level.  As a
percentage of sales, outside commissions were 4.3% compared with 6.8% last
year.  This fluctuation was primarily due to 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 remained relatively constant from last year to
this. The above factors resulted in
operating income of $346,000 for the six months ended November 30, 2008, down
58% from the $829,000 in the same period of the prior year. Other expense, net, of
$23,000 is primarily interest expense and is $33,000 less than in the prior
year.  The average level of use of the Company's operating line of credit
during the period increased by about $500,000 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 November
30, 2007.  Interest rates on the line of credit and most of the long-term
debt is 3.5 percentage points lower than the rates in effect at November 30,
2007.  These factors combined to lower our interest expense for the
quarter.  8    Summary comparison of the three
      months ended November 30, 2008 and November 30, 2007Increase
    /(Decrease)Sales,
net
    
    $   
      (519,000)Cost of goods
      sold
    
    $   
      (208,000)Selling, general and
      administrative expenses
    
    $   
      (211,000)Other expense,
      net
    
    $     
      (13,000)Income before provision
      for income taxes, equity in net income (loss) of affiliate and
      minority stockholder's interest
    
    $   
      (112,000)Provision for income
      taxes
    
    $  
         (44,000)Net
income
    
    $     
      (58,000)
   For the three months ended
November 30, 2008(All figures
discussed are for the three months ended November 30, 2008 as compared to the
three months ended November 30, 2007.) Three months ended
    ChangeNovember 30, 2008
    November 30, 2007
    Increase / (Decrease)
    Percent
      ChangeNet
      Revenue
    $  3,758,000
    $
      4,277,000
    $   (519,000)
    -12%Cost of
      sales
    2,804,000
    3,012,000
    (208,000)
    -7%Gross
      profit
    $     954,000
    $
      1,265,000
    $   (311,000)
    -25%...as a percentage of net
revenues
    25%
    30% The Company's consolidated
results of operations showed a 12% decrease in net revenues and a decrease in
net income of 51%.  Revenues recorded in the current period for long-term
construction projects were 22% 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 lower by 3% over the level recorded in
the prior year.  Gross profit decreased by 25%.  The gross profit as a
percentage of net revenues for the current and prior year periods was 25% and
30%.  This fluctuation is attributable to a.) one large, domestic project
that has a very low margin in the current period, b.) a few of the bigger
projects in the same period last year had higher than normal margins and c.) a
few of the bigger non-project shipments in 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
    ChangeNovember 30, 2008
    November 30, 2007
    Increase / (Decrease)
    Percent
      ChangeOutside
      Commissions
    $  
      162,000
    $   343,000
    $  (181,000)
    -53%Other
      SG&A
    683,000
    713,000
    (30,000)
    -4%Total
      SG&A
    $   845,000
    $1,056,000
    $  (211,000)
    -20%...as a percentage of net
revenues
    22%
    25% Selling, general and
administrative expenses decreased by 20% from the prior year.  Outside
commission expense decreased by 53% from last year's level.  As a
percentage of sales, outside commissions were 4.3% compared with 8% last
year.  This fluctuation was primarily due to 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 are slightly lower from last year to this.  9   The above factors resulted in
operating income of $109,000 for the three months ended November 30, 2008, down
48% from the $209,000 in the same period of the prior year. Other expense, net, of
$23,000 is primarily interest expense and is $13,000 more than in the prior
year. 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 six month periods ended
November 30, 2008 and November 30, 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: 2008                           
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 six month period ended November 30, 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 November 30,
2008:          
135,000                   
   $ 5.38 Closing value per share
on NASDAQ at November 30,
2008:                                              
$2.25 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.  10   Capital expenditures for the
six months ended November 30, 2008 were $335,000 compared to $370,000 in the
same period of the prior year.  As of November 30, 2008, the Company has
commitments for capital expenditures totaling $150,000 during the next twelve
months. The Company has a $5,000,000
line of credit with a bank.  There is a $1,903,000 principal balance
outstanding as of November 30, 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.  Principal maturities of
long-term debt for the remainder of the current fiscal year and the subsequent
five years are as follows: 2009 - $13,000; 2010 - $72,000; 2011 - $27,000; 2012
- $27,000; and 2013 - $20,000. Inventory and Maintenance
Inventory November 30, 2008
    May 31, 2008
    Increase / (Decrease) Raw
      Materials
    $  
      521,000
    
    $   436,000
    
    $      85,000
    19%Work in
      process
    6,146,000
    
    5,811,000
    
    335,000
    6%Finished
      goods
    391,000
    
    378,000
    
    13,000
    3%Inventory
    7,058,000
    89%
    6,625,000
    88%
    433,000
    7%Maintenance
      and other inventory
    845,000
    11%
    888,000
    12%
    (43,000)
    -5%Total
    $7,903,000
    100%
    $7,513,000
    100%
    $    390,000
    5%Inventory
      turnover
    1.6
    
    1.9
 NOTE: Inventory turnover
is annualized for the six month period ended November 30, 2008 Inventory, at $7,058,000 as
of November 30, 2008, is 7% higher than the prior year-end.  Of this,
approximately 87% is work in process, 6% is finished goods, and 7% 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 $90,000 for each of the six month periods
ended November 30, 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 November 30, 2008
    May 31, 2008
    Increase /(Decrease) Accounts receivable
    $  3,061,000
    $ 
2,109,000
    $      952,000
    45%Costs and
      estimated earnings in excess of billings
    2,151,000
    1,756,000
    395,000
    22%Less:
      Billings in excess of costs and estimated earnings
    46,000
    -
    46,000Net
    $ 
      5,166,000
    $ 
    3,865,000
    $ 
      1,301,000
    34% 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.  11   Accounts receivable of
$3,061,000 as of November 30, 2008 includes approximately $371,000 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. 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
$2,151,000 balance in this account at November 30, 2008 is 22% 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: November 30,
      2008
    
    May
      31, 2008Costs
    $
      3,076,000
    
    $
      1,711,000Estimated
      earnings
    494,000
    
    372,000Less:
      Billings to customers
    1,419,000
    
    327,000Costs and
      estimated earnings in excess of billings
    $
      2,151,000
    
    $
      1,756,000Number of
      Projects in progress
    9
    
    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": November 30, 2008
    May
      31, 2008Number of
      Projects in progress
    9
    7Aggregate
      percent complete
    77%
    45%Average
      total sales value of Projects in progress
    $538,000
    $667,000Percentage
      of total value invoiced to customer
    29%
    7% Other Balance Sheet
Items The Company's backlog of
sales orders at November 30, 2008 is $10.1 million, down from the $11.4 million
backlog value at the end of the prior year.  $1.3 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 13%
to $1,178,000.  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 $1,199,000 as of November 30, 2008, is only slightly higher than the
prior year-end. 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 November 30, 2008 are $877,000, up 123% 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 decreased slightly from the prior year-end, to $843,000. 
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.


12

---

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 November 30, 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 November 30, 2008 that have materially affected, or are
reasonably likely to materially affect, the Company's control over financial
reporting.  13     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
      November 30, 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 is
      proceeding slowly, 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 November 30, 2008 that
      were not registered under the Securities Act.(b)
    Use of proceeds
      following effectiveness of initial registration
statement:Not
      Applicable
  14    (c)     Repurchases 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
      orProgramsSeptember 1, 2008
      - September 30, 2008
    -
    -
    -
    .October 1, 2008
      - October 31, 2008
    -
    -
    -
    .November 1, 2008 - 
      November 30, 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
      November 30, 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
    SecuritiesNoneITEM4
    Submission of Matters to Vote of
      Securities Holders
      The Annual Meeting of Shareholders was held on November 7,
      2008.  The total outstanding number of shares on the meeting record
      date of September 25, 2008 was 3,170,746.     
      total of 2,883,979 shares were present in person or by proxy at the
      meeting.  The following are the election results for the slate of
      directors presented by management.
      One Class 1 Director of the Company, Reginald B. Newman II, was
      elected to serve a three-year term expiring in 2011.  2,684,930
      shares were voted for Mr. Newman and 199,049 were
      withheld.  Directors whose term of office continued after the
      meeting were Mssrs. Taylor, Hill, Clark and Burgess.
      The shareholders approved the adoption of the 2008 Taylor Devices,
      Inc. Stock Option Plan and the reservation of 140,000 shares of the
      Company's common stock for grant of options under the Plan. 
      1,317,900 shares were voted for, 276,659 shares were voted against and
      77,028 were voted abstain, with regard to the 2008 Stock Option
      Plan.  There were no broker non-votes as to this
  matter.
  15   ITEM 5
    Other Information(a)
    Information required to be disclosed in a Report on Form 8-K, but
      not reportedNone(b)
    Material changes to the procedures by which Security Holders may
      recommend nominees to the Registrant's Board of Directors
      NoneITEM 6
    Exhibits20
    News from
      Taylor Devices, Inc. Shareholder Letter, Winter 2008-200931(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.  16   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 November 30, 2008, the related condensed consolidated
statements of income for the three and six months ended November 30, 2008 and
November 30, 2007 and cash flows for the six months ended November 30, 2008 and
November 30, 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 YorkDecember 29, 2008  17   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:
    January 4, 2009
    
    
    /s/Douglas P.
      TaylorDouglas P.
      TaylorPresidentChairman of the Board of Directors(Principal
      Executive Officer)
   Date:
    January 4, 2009
    
    
    /s/Mark V.
      McDonoughMark V.
      McDonoughChief Financial Officer
  18