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 August 31,
2009 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 October 14, 2009, there were
outstanding 3,223,174 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 as of August 31, 2009 and May 31,
    2009
    3Condensed Consolidated
      Statements of Income for the three months ended August 31, 2009 and August
      31, 2008
    4Condensed Consolidated
      Statements of Cash Flows for the three months ended August 31, 2009 and
      August 31, 2008
    5Notes to Condensed
      Consolidated Financial Statements
    6Item 2.
    Management's Discussion
      and Analysis of Financial Condition and Results of
      Operations
    7Item 3.
    Quantitative and
      Qualitative Disclosures About Market Risk
    
    13Item 4T.
    Controls and
      Procedures
    
    13PART II
    OTHER
      INFORMATIONItem 1.
    Legal
      Proceedings
    13Item 1A.
    Risk
      Factors
    14Item 2.
    Unregistered Sales of
      Equity Securities and Use of Proceeds
    14Item 3.
    Defaults Upon Senior
      Securities
    14Item 4.
    Submission of Matters
      to a Vote of Security Holders
    14Item 5.
    Other
      Information
    15Item 6.
    Exhibits
    15REPORT OF INDEPENDENT
      REGISTERED PUBLIC ACCOUNTING FIRM
    16SIGNATURES
    
    17
   2   TAYLOR DEVICES, INC. AND
      SUBSIDIARYCondensed
      Consolidated Balance Sheets
    (Unaudited)August
      31,      2009
    May
      31,2009AssetsCurrent
      assets:Cash and cash
    equivalents
    $        
      33,257
    $        
    45,297Accounts receivable,
    net
    2,552,683
    2,691,032Inventory
    6,587,117
    6,721,821Costs and estimated earnings in
      excess of billings
    3,253,418
    1,957,149Other current assets
    1,250,924
    1,382,907Total current assets
    13,677,399
    12,798,206Maintenance and other inventory,
      net
    732,279
    808,537Property and equipment,
      net
    3,656,362
    3,687,637Other assets
    138,097
    136,747$ 
      18,204,137
    $  17,431,127Liabilities and
      Stockholders' EquityCurrent
      liabilities:Short-term borrowings and current
      portion of long-term debt
    $       578,381
    $  
    1,094,151Payables - trade
    1,236,029
    886,963Accrued commissions
    736,864
    598,287Billings in excess of costs and
      estimated earnings
    200,901
    126,017Other current
    liabilities
    1,603,590
    1,146,631Total current liabilities
    4,355,765
    3,852,049Long-term liabilities
    320,540
    395,245Stockholders'
      Equity:Common stock and additional paid-in
      capital
    6,517,699
    6,494,497Retained earnings
    9,241,354
    8,920,55715,759,053
    15,415,054Treasury stock - at
    cost
    (2,231,221)
    (2,231,221)Total stockholders' equity
    13,527,832
    13,183,833$ 
      18,204,137
    $  17,431,127   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
  312009
    2008Sales, net
    $
      5,013,673
    $ 4,803,502Cost of goods sold
    3,281,827
    3,523,715Gross
      profit
    1,731,846
    1,279,787Selling, general and administrative
      expenses
    1,180,338
    1,042,982Operating
      income
    551,508
    236,805Other expense, net
    4,711
    253Income before provision for income
      taxes
    546,797
    236,552Provision for income
      taxes
    226,000
    87,900Net
      income
    $   
      320,797
    $  
  148,652Basic and diluted
      earnings per common share
    $      0.10
    $     0.05   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
    2009
    2008Cash flows from
      operating activities:Net income
    $     320,797
    $    
      148,652Adjustments to reconcile net income
      to net cash flows fromoperating
      activities:Depreciation and
      amortization
    110,556
    98,920Gain of sale of
    equipment
    -
    (320)Stock options issued for
      services
    19,851
    28,114Changes in other assets and
      liabilities:Accounts receivable
    138,349
    (1,303,687)Inventory
    210,962
    (71,148)Costs and estimated earnings in
      excess of billings
    (1,296,269)
    (1,003,586)Other current assets
    94,052
    260,254Payables - trade
    349,066
    (59,824)Accrued commissions
    138,577
    134,481Billings in excess of costs and
      estimated earnings
    74,884
    -Other current
    liabilities
    456,959
    32,322Net cash flows from
      (for) operating activities
    617,784
    (1,735,822)Cash flows from
      investing activities:Acquisition of property and
      equipment
    (79,281)
    (123,462)Other investing
      activities
    36,581
    25,185Net cash flows for
      investing activities
    (42,700)
    (98,277)Cash flows from
      financing activities:Net short-term borrowings and
      repayments on long-term debt
    (590,475)
    1,852,934Proceeds from issuance of common
      stock
    3,351
    3,591Net cash flows from
      (for) financing activities
    (587,124)
    1,856,525Net increase (decrease) in cash and
      cash equivalents
    (12,040)
    22,426Cash and cash equivalents -
      beginning
    45,297
    110,720Cash and cash
      equivalents - ending
    $     33,257
    $   
  133,146   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, 2009 and May 31, 2009, the results
      of operations for the three months ended August 31, 2009 and August 31,
      2008, and cash flows for the three months ended August 31, 2009 and August
      31, 2008. 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,
      2009.  There have been no updates or changes to our audited financial
      statements for the year ended May 31, 2009.2.
    The Company has evaluated events and transactions for
      potential recognition or disclosure in the financial statements through
      October 14, 2009 (the date on which the financial statements were
      issued).3.
    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.4.
    For the three month
      periods ended August 31, 2009 and August 31, 2008 the net income was
      divided by 3,222,327 and 3,219,490, respectively, which is net of the
      Treasury shares, to calculate the net income per
      share.5.
    The results of
      operations for the three month period ended August 31, 2009 are not
      necessarily indicative of the results to be expected for the full
      year.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's
      adoption of SFAS No. 157 does not have a material impact on its
      consolidated financial statements.
      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,
uncertainty regarding how long the worldwide economic recession will continue
and whether the recession will deepen; reductions in capital budgets by our
customers and potential customers; changing product demand and industry
capacity; increased competition and pricing pressures; advances in technology
that can reduce the demand for the Company's products; and other factors, many
or all of which are 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, 2009 and August 31, 2008Increase
    /(Decrease)Sales,
net
    
    $    
      210,000Cost of goods
      sold
    
    $  
    (242,000)Selling, general and
      administrative expenses
    
    $    
      137,000Income before provision
      for income taxes
    
    $    
      310,000Provision for income
      taxes
    
    $    
      138,000Net
income
    
    $    
      172,000
 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, 2009(All figures discussed
are for the three months ended August 31, 2009 as compared to the three months
ended August 31, 2008.) Three months ended
    ChangeAugust 31, 2009
    August 31, 2008
    Increase / (Decrease)
    Percent ChangeNet
      Revenue
    $  5,014,000
    $ 
      4,804,000
    $    210,000
    4%Cost of
      sales
    3,282,000
    3,524,000
    (242,000)
    -7%Gross
      profit
    $  1,732,000
    $ 1,280,000
    $    452,000
    35%...as a percentage of net
      revenues
    35%
    27% The Company's consolidated
results of operations showed a 4% increase in net revenues and an increase in
net income of 116%.  Revenues recorded in the current period for long-term
construction projects were 66% higher than the level recorded in the prior
year.  Revenues recorded in the current period for other-than long-term
construction projects (non-projects) were down 37% from the level recorded in
the prior year.  The gross profit as a percentage of net revenues for the
current and prior year periods was 35% and 27%.  This fluctuation is
attributable primarily to a.) one large, domestic project in process last year
that had a very low margin, b.) a few of the bigger non-project shipments in the
first quarter last year had low margins, and c.) three large export projects
have higher than average margins. While the overall sales
figures showed only a modest gain over the prior year, the mix of customers
buying our products changed.  Sales of the Company's products are made to
three general groups of customers: industrial, construction and aerospace /
defense.  The negative effect of the continued slow global construction
market has been offset by an increase in our global sales to customers in the
aerospace and defense markets.  A breakdown of sales to the three general
groups of customers is as follows: First Quarter - Fiscal
      2010
    
    First
      Quarter - Fiscal 2009Industrial
    6%
    
    Industrial
    13%Construction
    40%
    
    Construction
    50%Aerospace / Defense
    54%
    
    Aerospace / Defense
    37% At August 31, 2008, we had
119 open sales orders in our backlog with a total sales value of $9.5
million.  At August 31, 2009, we have 8% fewer open sales orders in our
backlog (110 orders) but the total sales value is $11.3 million or approximately
19% higher than the prior year. 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.  8   Selling, General and
      Administrative Expenses Three months ended
    Change August 31, 2009
    August 31, 2008
    Increase / (Decrease)
    Percent ChangeOutside
      Commissions
    $   276,000
    $   202,000
    $     74,000
    37%Other
      SG&A
    904,000
    841,000
    63,000
    7%Total
      SG&A
    $1,180,000
    $1,043,000
    $   137,000
    13%...as a percentage of net
revenues
    24%
    22% Selling, general and
administrative expenses increased by 13% from the prior year.  Outside
commission expense increased by 37% from last year's level.  As a
percentage of sales, outside commissions were 5.5% compared with 4.2% last
year.  This fluctuation was primarily due to a single, high value,
non-project, commissionable sales order recorded during the quarter as well as a
higher level of Project sales in the current year. As noted above, a few of the
Projects have high gross margins.  These projects also have higher than
average commissions.  Other selling, general and administrative expenses
increased only slightly from last year to this. The above factors resulted in
operating income of $552,000 for the three months ended August 31, 2009, up 133%
from the $237,000 in the same period of 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
$20,000 and $28,000 of compensation cost for the three month periods ended
August 31, 2009 and August 31, 2008. 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 used 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: 2009                           
2008                                                           
Risk-free interest
rate:             
4.875%                      
5.000%                                              
Expected life of the
options:            2.5
years                   
2.5
years                                         
Expected share price
volatility:             
57.57%                      
44.62%                                                           
Expected
dividends:               
zero                            
zero These assumptions resulted
in:               
Estimated fair-market value per stock option:
               
$1.37                          
$1.94 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.    9    A summary of changes in the
stock options outstanding during the three month period ended August 31, 2009 is
presented below: Weighted-                                                                                                                              
Number
of              
Average                                                                                                                                
Options            
Exercise PriceOptions outstanding and exercisable at May 31,
2009:          
160,000                     
$ 4.98Options
granted:            
14,500                     
$
3.51                 
  Options outstanding and exercisable at August 31,
2009:           
174,500                  
   $
4.86Closing value per share on NASDAQ at August 31,
2009:                                             
$ 3.59 Capital Resources, Line of
Credit and Long-Term Debt The Company's primary
liquidity is dependent upon the working capital needs.  These are mainly
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, 2009 were $79,000 compared to $123,000 in the same
period of the prior year.  As of August 31, 2009, the Company has no
commitments for capital expenditures during the next twelve months. Effective August 7, 2009, the
Company replaced its bank credit facility with a $6,000,000 demand line of
credit from a bank, with interest payable at the Company's option of 30, 60, 90
or 180 day LIBOR rate plus 2.5% or the bank's prime rate less .25%.  There
is an interest rate floor of 3.5%.  The line is secured by accounts
receivable, equipment, inventory, and general intangibles, and a negative pledge
of the Company's real property.  This line of credit is subject to the
usual terms and conditions applied by the bank and is subject to renewal
annually.  There is a $573,000 principal balance outstanding as of August
31, 2009, compared to the $1,017,000 balance outstanding on the line of credit
in place as of May 31, 2009.  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.  In these covenants, the Company agrees to maintain the following
minimum levels of the stated item: Covenant                                  
Minimum per
Covenant          Current
Actual   When
Measured           
Minimum level working
capital                        
$3,000,000                         
$9,322,000              
Quarterly           
Minimum debt service coverage
ratio                 
1.5:1                                    
n/a              
Fiscal Year-end All of the $5,427,000 unused
portion of our line of credit is available without violating any of our debt
covenants. Principal maturities of
long-term debt for the remainder of the current fiscal year and the subsequent
five years are as follows: 2010 - $4,000; 2011 - $5,000; 2012 - $6,000; and 2013
- $4,000. Inventory and
      Maintenance Inventory August 31, 2009
    May 31, 2009
    Increase / (Decrease) Raw
      Materials
    $  
      464,000
    
    $   524,000
    
    $    (60,000)
    -11%Work in
      process
    5,448,000
    
    5,688,000
    
    (240,000)
    -4%Finished
      goods
    675,000
    
    510,000
    
    165,000
    32%Inventory
    6,587,000
    90%
    6,722,000
    89%
    (135,000)
    -2%Maintenance
      and other inventory
    732,000
    10%
    809,000
    11%
    (77,000)
    -10%Total
    $7,319,000
    100%
    $7,531,000
    100%
    $  (212,000)
    -3%Inventory turnover
    1.8
    
    1.6
 NOTE: Inventory
      turnover is annualized for the three month period ended August 31,
      2009. Inventory, at $6,587,000 as
of August 31, 2009, is $135,000 or two percent lower than the prior year-end
level of $6,722,000.  Of this, approximately 83% is work in process, 10% is
finished goods, and 7% is raw materials.    While this decrease
is not significant, it is one factor in the increase in the inventory turnover
rate.  The inventory turnover is calculated by dividing the annualized cost
of sales by the average inventory level.  The annualized cost of sales for
the current period is $13,128,000, which is slightly over $1 million more than
last year's level for the full year.  This is the primary reason for the
increase in the inventory turnover rate.  The average level of inventory
for the three months ended August 31, 2009 was $7,425,000.  This is only
$97,000 lower than the average level for the fiscal year ended May 31,
2009.   10    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, 2009.  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, 2009 and August 31, 2008.  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
    ("CIEB"), and Billings in
      Excess of Costs and Estimated Earnings ("BIEC")  August 31,
    2009
    May 31,
      2009
    Increase /(Decrease)Accounts
      receivable
    $ 
      2,553,000
    
    $ 
      2,691,000
    
    $     (138,000
    )
    -5%CIEB
    3,253,000
    
    1,957,000
    
    1,296,000
    
    66%Less:
      BIEC
    201,000
    
    126,000
    
    75,000
    
    60%Net
    $ 
      5,605,000
    
    $ 
      4,522,000
    
    $    1,083,000
    
    24% Number
      of an average day's sales outstanding in accounts
      receivable
    46
    54 The Company combines the
totals of accounts receivable, the current asset CIEB, and the current
liability, BIEC, 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
$2,553,000 as of August 31, 2009 includes approximately $99,000 of amounts
retained by customers on long-term construction projects ("Project(s)"). 
It also includes $42,000 of an allowance for doubtful accounts
("Allowance").   The accounts receivable balance as of May 31, 2009 of
$2,691,000 included an Allowance of $42,000.  The Company expects to
collect the net accounts receivable balance, including the retainage, during the
next twelve months.  The number of an average day's sales outstanding in
accounts receivable (DSO) decreased from 54 days at May 31, 2009 to 46 days at
August 31, 2009.  Although the accounts receivable balance decreased by
only five percent, this measurement of DSO shows a 15% decrease.  The DSO
is affected by the level of CIEB, which represents sales recorded for which the
customer has not yet been billed.  Since the customer has not been billed,
the amount would not be included in accounts receivable.   The reduction in
DSO is primarily attributable to the increase in CIEB for the period. As noted above, CIEB
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 $3,253,000 balance in this account at August 31, 2009 is 66%
more than the prior year-end.  This significant increase is primarily due
to five projects in progress that have an aggregate sales value of $4.6 million
and, in accordance with the terms of each of the contracts, do not have any
billings to the customers.  In the aggregate, these five projects are
slightly more than half completed. 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.  47% of the CIEB balance
as of the end of the last fiscal quarter, May 31, 2009, was billed to those
customers in the current fiscal quarter ended August 31, 2009.  The
remainder will be billed as the projects progress, in accordance with the terms
specified in the various contracts.   11   The balances in this account
are comprised of the following components: August 31, 2009
    
    May
      31, 2009Costs
    
    $
      4,238,000
    
    $
      3,303,000Estimated
      earnings
    
    1,338,000
    
    1,048,000Less:
      Billings to customers
    
    2,323,000
    
    2,394,000CIEB
    
    $
      3,253,000
    
    $
      1,957,000Number of
      Projects in progress
    
    9
    
    10 As noted above, BIEC
represents billings to customers in excess of revenues recognized.  The
$201,000 balance in this account at August 31, 2009 is up from the $126,000
balance at the end of the prior year.  The balance in this account
fluctuates in the same manner and for the same reasons as the account "costs and
estimated earnings in excess of billings", discussed above.   Final
delivery of product under these contracts is expected to occur during the next
twelve months. The year-end balances in this
account are comprised of the following components: August 31, 2009
    
    May
      31, 2009Billings to
      customers
    
    $   2,410,000
    
    $   956,000Less: 
      Costs
    
    1,390,000
    
    548,000Less:
      Estimated earnings
    
    819,000
    
    282,000BIEC
    
    $   201,000
    
    $   126,000Number of
      projects in progress
    
    8
    
    4 Summary of factors affecting
the balances in CIEB and BIEC: August 31, 2009
    
    May
      31, 2009Number of
      Projects in progress
    17
    
    14Aggregate
      percent complete
    71%
    
    58%Average
      total sales value of Projects in progress
    $666,000
    
    $661,000Percentage
      of total value invoiced to customer
    42%
    
    36% The Company's backlog of
sales orders at August 31, 2009 is $11.3 million, down from the $13.1 million
backlog value at the end of the prior year.  $3.5 million of the current
backlog is on long-term construction projects already in
progress. Other Balance Sheet
Items Other current assets, which
is primarily comprised of deferred taxes and prepaid expenses, decreased by 10%
to $1,251,000.  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 $1,236,000 as of August 31, 2009, is approximately $349,000 higher
than the prior year-end.  There is no specific reason for this fluctuation
other than the normal payment cycle of vendor invoices. 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, 2009 are $737,000, up 23% from the $598,000
accrued at the prior year-end.  This increase is primarily due to more
Projects in process at August 31, 2009, at a later stage of completion plus a
few export Projects with higher than average rates.  The Company expects
the current accrued amount to be paid during the next twelve months.  Other
current liabilities increased 40% from the prior year-end, to $1,604,000
primarily due to higher income tax accruals and customer advance deposits. 
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.   12   Item 3.  Quantitative
and Qualitative Disclosures About Market Risk Smaller reporting companies
are not required to provide the information called for by this item. 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, 2009 and have concluded that
as of the evaluation date, the disclosure controls and procedures were effective
to ensure that information required to be disclosed in the reports that we file
or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and forms
and that information required to be disclosed in the reports we file or submit
under the Exchange Act is accumulated and communicated to our management,
including our chief executive officer and chief financial officer to allow
timely decisions regarding required disclosure. (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, 2009 that have materially affected, or are
reasonably likely to materially affect, the Company's control over financial
reporting. 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 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.   13   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, 2009 that were not registered
      under the Securities Act.(b)     Use of proceeds following effectiveness
      of initial registration statement:Not
      Applicable(c)     Repurchases of Equity
      Securities Period
    (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, 2009 - 
      June 30, 2009
    -
    -
    -
    .July 1, 2009 - 
      July 31, 2009
    -
    -
    -
    .August 1, 2009 -  August
      31, 2009
    -
    -
    -
    .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 required to maintain net working capital of at
      least $3,000,000. as such term is defined in the credit documents. 
      On August 31, 2009, under such definition the Company's net working
      capital was significantly in excess of such limit.  Additional
      information regarding the Company's line of credit and restrictive
      covenants appears under the caption "Capital Resources, Lines of Credit
      and Long-Term Debt" in the Management's Discussion and Analysis of
      Financial Condition and Results of Operations.ITEM
      3    Defaults Upon Senior
SecuritiesNoneITEM
      4    Submission of Matters to Vote of Securities
      Holders                
      None   14   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     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.
   15   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, 2009, the related condensed consolidated statements
of income for the three months ended August 31, 2009 and August 31, 2008 and
cash flows for the three months ended August 31, 2009 and August 31, 2008. 
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, 2009, 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 7, 2009, 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, 2009 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived. Lumsden & McCormick,
LLPBuffalo, New YorkOctober 14, 2009   16   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 14, 2009
    
    
    s/Douglas P.
      TaylorDouglas P.
      TaylorPresidentChairman of the Board of Directors(Principal
      Executive Officer)
   Date:
    October 14, 2009
    
    
    s/Mark V.
      McDonoughMark V.
      McDonoughChief Financial Officer
   17