SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended August 31, 2001
Commission File Number 0-3498  TAYLOR DEVICES, INC.(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)NEW YORK16-0797789(State or other Jurisdiction of incorporation ororganization)(I.R.S. Employer Identification Number)90 TAYLOR DRIVE, NORTH TONAWANDA, NEW YORK14120-0748Address of principal executive officesZip CodeRegistrant's Telephone Number, Including Area Code -- 716-694-0800
Indicate by check mark whether the registrant (1) has filed all annual, quarterly, and other reportsrequired to be filed with all the Commission and (2) has been subject to the filing requirements for atleast the past 90 days.
Yes    X         No         
Indicate the number of shares outstanding, of each of the Issuer's classes of common stock as of the closeof the period covered by this report.CLASSOutstanding at August 31, 2001Common Stock(2-1/2 cents par value)2,805,140
TAYLOR DEVICES, INC.**Index to Form 10-QSB**PART I FINANCIAL INFORMATION
PAGE NO.Item 1.Financial StatementsCondensed Consolidated Balance Sheets August 31, 2001, and May31, 20013Condensed Consolidated Statements of Income for three monthsended August 31, 2001 and August 31, 20004Condensed Consolidated Statements of Cash Flows for three monthsended August 31, 2001 and August 31, 20005Notes to Condensed Consolidated Financial Statements6Item 2.Management's Discussion and Analysis of the Financial Conditionand Results of Operations7PART II OTHER INFORMATIONItem 1.Legal Proceedings10Item 2.Changes in Securities10Item 3.Defaults upon Senior Securities10Item 4.Submission of Matters to Vote of Security Holders.10Item 5.Other Information.10Item 6.Exhibits and Reports on Form 8-K10ACCOUNTANTS' REVIEW REPORT11SIGNATURES12TAYLOR DEVICES, INC. AND SUBSIDIARY**Condensed Consolidated Balance Sheets**
**August 31,****2001**
May 31, 2001**Assets********Current assets:******Cash and cash equivalents**$    135,574**$      59,847 Short-term investments**251,764**251,764 Restricted funds held by Trustee**2,425**114,870 Accounts receivable**3,484,853**3,196,831 Inventory**4,601,406**3,784,824 Prepaid expenses**52,207**81,616 Costs and estimated earnings in excess of billings**4,769,011**3,096,325 Deferred income taxes**344,700**344,700**Total current assets****13,641,938**10,930,777****Property and equipment, net**4,074,752**3,689,345 Investment in affiliate, at equity**345,475**335,585 Other assets:Cash value of life insurance, net**259,247**259,247 Deferred financing costs, net**67,081**69,181 Goodwill, net**47,351**48,863**Total other assets****373,679**377,291**$18,435,844$15,332,998**Liabilities and Stockholders' Equity****Current liabilities:**Short-term borrowings**$ 3,863,686**$  1,830,000 Current portion of long-term debt**249,773**304,786 Payables - trade**897,457**1,525,432 Payables - affiliate**417,570**391,009 Accrued expenses**1,103,146**940,368****Accrued income taxes**194,920**59,820 Deferred revenue**38,000**41,729****Billings in excess of costs and estimated earnings**2,339,142**1,340,412**Total current liabilties****9,103,694**6,433,556Long-term debt**987,370**994,779****Deferred income taxes**56,500**56,500****Minority stockholder's interest**350,786**346,233 **Stockholders' Equity:**Common stock - authorized 8,000,000 shares $.025 par value, ****  issued 2,944,028 and 2,930,122 shares**73,601**73,253****Paid-in capital**2,986,029**2,938,818****Retained earnings**5,274,034**4,883,104******8,333,664**7,895,175****Treasury stock - 138,888 and 138,038 shares at cost**(396,170)**(393,245)**Total stockholders' equity****7,937,494**7,501,930**$18,345,844**$15,332,998*****See notes to condensed consolidated financial statements.*TAYLOR DEVICES, INC. AND SUBSIDIARY**Condensed Consolidated Statements of IncomeFor the three months ended August 31,
**2001**
2000Sales, net**$3,940,063**$2,613,416 Cost of sales**2,245,963**1,545,890**Gross profit**1,694,100**1,067,526 Selling, general and administrative expenses**1,055,332**802,222**Operating income****638,768**265,304 Other income (expense):Rental income - affiliate**3,000**3,667 Interest, net**(70,310)**(34,641)Miscellaneous**19,735**8,697**(47,575)**(22,277)Income before provision for income taxes, equity in    net income of affiliate and minority stockholder's interest**591,193**243,027 Provision for income taxes**205,600**82,000Income before equity in net income of affiliate   and minority stockholder's interest**385,593**161,027 Equity in net income of affiliate**9,890**4,100Income before minority stockholder's interest**395,483**165,127 Minority stockholder's interest**(4,553)**(6,741)**Net income****$   390,930**$  158,386Basic and diluted earnings per common share**$         0.14**$        0.06*See notes to condensed consolidated financial statements.*TAYLOR DEVICES, INC. AND SUBSIDIARY**Condensed Consolidated Statements of Cash Flows**For the three months ended August 31,
**2001**
2000**Cash flows from operating activities:**Net income**$   390,930**$   158,386 Adjustments to reconcile net income to net cash flows from  operating activities:Depreciation and amortization**73,693**71,171 Provision for losses on accounts receivable**6,000**- 0 - Equity in net income of affiliate**(9,890)**(4,100)Minority stockholder's interest**4,553**6,741 Changes in other current assets and current liabilities:Receivables**(294,022)**36,767 Inventory**(816,581)**(347,929)Prepaid expenses**29,410**28,621 Costs and estimated earnings in excess of billings**(1,672,686)**(106,948)Payables - trade**(627,975)**47,418 Payables - affiliate**26,561**(32,281)Accrued expenses**162,778**90,102 Accrued income taxes**135,100**(91,085)Deferred revenue**(3,729)**(276,828)Billings in excess of costs and estimated earnings**998,730**- 0 - Other**- 0 -**6,219**Net cash flows for operating activities****(1,597,128)**(413,746)**Cash flows from investing activities:Cash received from trustee**112,445**150,938 Cash remitted to trustee**- 0 -**(37,500)Acquisition of property and equipment**(455,488)**(78,591)**Net cash flows from (for) investing activities****(343,043)**34,847**Cash flows from financing activities:Net short-term borrowings**2,033,686**450,000 Repayments - long-term debt**(62,422)**(298,508)Proceeds from issuance of common stock- employee stock purchase plan**47,559**31,867 Acquisition of treasury stock**(2,925)**- 0 -**Net cash flows from financing activities****2,015,898**183,359Net increase (decrease) in cash and cash equivalents**75,727**(195,540)Cash and cash equivalents - beginning**59,847**552,804 Cash and cash equivalents - ending**$   135,574**$   357,264*See notes to condensed consolidated financial statements.TAYLOR DEVICES, INC. AND SUBSIDIARY**Notes to Condensed Consolidated Financial Statements**1.The accompanying unaudited condensed consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United States of America forinterim financial information and with the instructions to Form 10-QSB and Regulation S-B.Accordingly, they do not include all of the information and footnotes required by accountingprinciples generally accepted in the United States of America for complete financial statements.In the opinion of the Company, the accompanying unaudited condensed consolidated financialstatements contain all adjustments (consisting of only normal recurring accruals) necessary topresent fairly the financial position as of August 31, 2001 and 2000 and the results of operationsand cash flows for the three months then ended.  These financial statements should be read inconjunction with the audited financial statements and notes thereto contained in the Company'sAnnual Report to Shareholders for the year ended May 31, 2001.2.There is no provision nor shall there be any provisions for profit sharing, dividends, or any otherbenefits of any nature at any time for this fiscal year.3.For the three month period ended August 31, 2001, the profit was divided by 2,805,140, which isnet of the Treasury shares, to calculate the earnings per share.  For the three month period endedAugust 31, 2000, the profit was divided by 2,785,164 to calculate the earnings per share, whichis net of the Treasury shares.4.The results of operations for the three month period ended August 31, 2001 are not necessarilyindicative of the results to be expected for the full year.
TAYLOR DEVICES, INC.**Management's Discussion and Analysis of the F****inancial Condition********and Results of Operations**
**Cautionary Statement**
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-lookingstatements.  Certain matters discussed in this section and elsewhere in this report, which are not historicalfacts, are forward-looking statements.  Words such as "expects," "intends," "believes," "anticipates,""estimates," "assumes," and analogous expressions are intended to identify forward-looking statements.  Assuch, these statements involve risks and uncertainties including, but not limited to, economic conditions,product demand and industry capacity, competition, pricing pressures, the need for the Company to keeppace with customer needs and technological developments, and other factors, many or all of which may bebeyond the control of the Company.  The following is management's discussion and analysis of certainsignificant factors which have affected the Company's earnings during the periods included in theaccompanying condensed consolidated statements of income. 
A summary of the period to period changes in the principal items included in the consolidated statementsof income is shown below:Comparison of the three months endedAugust 31, 2001 and August 31, 2000Increase    (Decrease)Net sales1,326,647 Cost of sales700,073 Selling, general and administrative expenses253,110 Other income10,371 Interest expense35,669 Net profit before tax and minority shareholders' interest348,166 Provision for income tax123,600 Net profit before equity in earnings of affiliates224,566 Equity in earnings of affiliates5,790 Minority stockholders' interest(2,188)Net income232,544 
TAYLOR DEVICES, INC.**Management's Discussion (Continued)**
FOR THE THREE MONTHS ENDED AUGUST 31, 2001
The Company's strong performance in the fourth quarter of Fiscal Year 2001 continued into the first quarterof Fiscal Year 2002.  First quarter Revenues, Operating Income and Net Income represented record levelsfor any first quarter in the Company's history and the second best figure for any quarter.
In the first quarter of Fiscal Year 2002, the Company's Net Sales were $3,940,063, the second best in anyquarter as the Company continued to record progress billings against the efforts on several large seismicprotection sales orders and two defense/aerospace projects.  This figure represents a 50.8% increase over theNet Sales figure for FY01 of $2,613,416.  Gross Margin for FY02 was recorded at $1,694,100 and 43% ofsales compared to $1,067,526 and 40.8% for the comparable period in FY01.  This improvement representsthe net effects of product mix shifts and increased allowances for inventory obsolescence and facilitydepreciation.
Selling General and Administrative expenses totaled $1,055,332 in FY02, 26.8% of Net Sales.  The firstquarter figures for FY01 were $802,222 and 30.7% of Net Sales.  Of the $253,110 increase in SG& Aexpenditures, $231,220 was attributable to increased commission and royalty expenses.  Increases in otherSG&A areas reflective of sales and marketing efforts, such as travel and advertising expenses, wereessentially offset by reductions in other areas.  
Net Other Expenses were $47,575 in FY02, up from $22,277 in FY01 due entirely to the $35,669 increasein interest expense.  This increase represents the additional borrowing the Company has done to support thehigher inventory and accounts receivable levels now being experienced and as discussed subsequently in thisreport.  Operating Income for FY02 was $638,768 and 16.2% of Net Sales, an improvement of $373,464 and9.5% of Net Sales over FY01 figures.  The Provision for Taxes was established at $205,600, a 34.8% ratefor FY02, up slightly from the 33.7% rate used in FY01.  The impact of the Income from Affiliates and thecost of the Minority Shareholder's interest were a net income of $5,337 in FY02 as compared to a netexpense of $2,641 in FY01.
Net Income for the first quarter of FY02 was $390,930, 9.9% of sales and $.14 per share, a new record highfor a first quarter and the second best quarter ever.  This performance represents a 147% improvement overthe FY01 figures of $158,386, 6.1% and $.06 per share.
The Company's Balance Sheet profile continues to shift in response to the Company's operations.Receivables, as represented by three figures - Accounts Receivable, Costs in Excess of Billings and Billingsin Excess of Costs, totaled $5,914,722.  This figure, up from $4,952,744 on 5/31/01, reflects the substantialamount the Company has progressed billed on orders which contain no provisions for advance or progresspayments.  Inventory is also at an historic high figure of $4,601,406 as the Company has begun to build andreceive the parts to support two new lines of seismic products, intended for higher production rates.  Thegrowth in inventory is also attributable to the work in process on several seismic orders of relatively smallsize and short delivery schedules.  The growth in Receivables and Inventory has been funded by use of theLine of Credit supplied by the Company's primary lender, HSBC Bank USA.
The Company's prospects for continued good financial performance in the upcoming quarters of FY02remain good.  The backlog of firms orders remains near $15,000,000 and the Company continues to receivethe opportunity to bid on numerous orders in its seismic/civil engineering market and its aerospace/defensemarket.  The Company recently has taken steps to increase its sales/marketing presence in the Pacific Rimcountries and expects to be able to offer its lines of seismic products in QIII of FY02 at higher productionvolume than previously possible.
At this time, the Company has no plans to seek any additional outside sources of funding for any operationalor expansion purposes.
Based on the continuing high backlog, a continuing high rate of inquiries, and a continuing favorable successrate in obtaining new orders, Management believes Fiscal Year 2002 will post strong financial results whichcould parallel those of Fiscal Year 2001.TAYLOR DEVICES, INC.**Part II -****Other Information**PART II-OTHER INFORMATIONITEM 1Legal Proceedings:The Company is not currently engaged in any litigation.ITEM 2Changes in Securities: NoneITEM 3Defaults Upon Senior Securities:NoneITEM 4Submission of Matters to Vote of Securities Holders:NoneITEM 5Other Information:For the period 06/1/01 to 08/31/01, changes in the Company's outstandingshares are as follows:A.An increase of 13,906 shares, for purchases of Company stock byemployee's from the Employee's Stock Purchase Plan.B.An increase in Treasury shares of 850, which were returned to the treasuryfrom open market purchases by the Company for the period of 06/1/01 to08/31/01.  Treasury shares at 08/31/01 are 138,888.ITEM 6Exhibits and Reports on Form 8-K: None
**Accountants' Review Report**
The Board of Directors and StockholdersTaylor Devices, Inc.
We have reviewed the condensed consolidated balance sheet of Taylor Devices, Inc. and Subsidiary as ofAugust 31, 2001, and the related condensed consolidated statements of income and cash flows for the threemonths then ended.  These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American Institute of CertifiedPublic Accountants.  A review of interim financial information consists principally of applying analyticalprocedures to financial data and making inquiries of persons responsible for financial and accountingmatters.  It is substantially less in scope than an audit conducted in accordance with auditing standardsgenerally accepted in the United States of America, the objective of which is the expression of an opinionregarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the condensedconsolidated financial statements referred to above for them to be in conformity with accounting principlesgenerally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally accepted in the United Statesof America, the consolidated balance sheet as of May 31, 2001, and the related consolidated statements ofincome, changes in stockholders' equity, and cash flows for the year then ended (not presented herein); andin our report dated August 2, 2001, we expressed an unqualified opinion on those financial statements.  Inour opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May31, 2001 is fairly stated, in all material respects, in relation to the balance sheet from which it has beenderived.
Lumsden & McCormick, LLPBuffalo, New YorkOctober 5, 2001TAYLOR DEVICES, INC.**Signatures**
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.TAYLOR DEVICES, INC.(Registrant)By/s/Douglas P. Taylor           DateOctober 10, 2001Douglas P. TaylorPresidentChairman of the Board of Directors(Principal Executive Officer)AND***********