UNITED
STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM
10‐QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 2007 [  ]  TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT For the transition period from __________ to __________ Commission File Number 0‐3498 TAYLOR DEVICES,
      INC.(Exact name of small
      business issuer as specified in its
charter)
  NEW
      YORK
    
    16‐0797789(State or other jurisdiction of
      incorporation or organization)
    
    (IRS Employer
      Identification Number)
  90 TAYLOR DRIVE,
      NORTH TONAWANDA, NEW YORK 14120-0748Address of principal
      executive offices
 716-694-0800Issuer's Telephone
  Number Check whether the issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 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 shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
    
    No
    X State the number of shares outstanding of
each of the issuer's classes of common equity, as of the latest practicable
date: Class
    
    Outstanding at
      January 4, 2008Common Stock(2‐1/2
      cents par value)
    
    3,156,061
  Transitional Small Business
      Disclosure Format (Check one):
    Yes
    
    No
    X   TAYLOR DEVICES, INC.   Index to Form
10-QSB PART I
    FINANCIAL
      INFORMATION
    PAGE NO.Item 1.
    Financial
      StatementsCondensed Consolidated
      Balance Sheets November 30, 2007 and May 31, 2007
    3Condensed Consolidated
      Statements of Income for the three and six months ended November 30, 2007
      and November 30, 2006
    4Condensed Consolidated
      Statements of Cash Flows for the six months ended November 30, 2007 and
      November 30, 2006
    5Notes to Condensed
      Consolidated Financial Statements
    6Item 2.
    Management's Discussion
      and Analysis or Plan of Operation
    7Item 3.
    Controls and
      Procedures
    
    14PART II
    OTHER
      INFORMATIONItem 1.
    Legal
      Proceedings
    15Item 2.
    Unregistered Sales of
      Equity Securities and Use of Proceeds
    15Item 3.
    Defaults upon Senior
      Securities
    15Item 4.
    Submission of Matters
      to a Vote of Security Holders
    16Item 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,      2007
    May
      31,2007AssetsCurrent
      assets:Cash and cash
    equivalents
    $        
      135,118
    $        
    22,748Accounts receivable,
    net
    2,308,317
    3,893,793Inventory
    6,214,115
    5,093,146Costs and estimated earnings in
      excess of billings
    1,442,417
    1,991,183Other current assets
    1,173,545
    954,358Total current assets
    11,273,512
    11,955,228Maintenance and other inventory,
      net
    943,996
    753,825Property and equipment,
      net
    3,544,953
    3,349,810Investment in affiliate, at
      equity
    455,327
    451,520Intangible and other
      assets
    140,729
    142,007$ 
      16,358,517
    $  16,652,390Liabilities and
      Stockholders' EquityCurrent
      liabilities:Short-term borrowings and current
      portion of long-term debt
    $   
      1,115,296
    $  
    1,866,066Payables - trade
    1,405,387
    994,057Accrued commissions
    573,953
    666,323Billings in excess of costs and
      estimated earnings
    130,600
    18,002Other current
    liabilities
    952,074
    1,258,783Total current liabilities
    4,177,310
    4,803,231Long-term liabilities
    439,919
    564,207Payables - affiliate
    102,764
    174,609Minority stockholder's
      interest
    540,465
    520,504Stockholders'
      Equity:Common stock and additional paid-in
      capital
    4,877,224
    4,830,543Retained earnings
    7,276,917
    6,815,37812,154,141
    11,645,921Treasury stock - at
    cost
    (1,056,082)
    (1,056,082)Total stockholders' equity
    11,098,059
    10,589,839$ 
      16,358,517
    $  16,652,390 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 30,2007
          2006
          2007
          2006Sales, net
          $ 4,276,406
          $ 3,826,975
          $ 8,684,591
          $ 7,824,477Cost of goods sold
          3,011,531
          2,497,338
          5,730,645
          4,907,145Gross profit
          1,264,875
          1,329,637
          2,953,946
          2,917,332Selling, general and
            administrative expenses
          1,056,093
          1,008,048
          2,124,596
          2,253,573Operating
            income
          208,782
          321,589
          829,350
          663,759Other expense, net
          (10,428)
          (90,165)
          (55,957)
          (173,678)Income before provision for
            income taxes, equity in netincome of
            affiliate and minority stockholder's interest
          198,354
          231,424
          773,393
          490,081Provision for income taxes
          74,000
          88,200
          295,700
          183,200Income before equity in net
            income of affiliateand minority
            stockholder's interest
          124,354
          143,224
          477,693
          306,881Equity in net income (loss)
            of affiliate
          (782)
          1,971
          3,807
          4,503Income before minority
            stockholder's interest
          123,572
          145,195
          481,500
          311,384Minority stockholder's
            interest
          (10,263)
          (6,421)
          (19,961)
          (17,097)Net income
          $113,309
          $   138,774
          $461,539
          $   294,287Basic and diluted earnings
            per common share
          $      
            0.04
          $        
            0.04
          $       0.15
          $        
            0.09 See notes to condensed
consolidated financial statements 4   1204:
  TAYLOR DEVICES, INC. AND
      SUBSIDIARYCondensed
      Consolidated Statements of Cash Flows(Unaudited)November 30,For the six months
    ended
    2007
    2006Cash flows from
      operating activities:Net income
    $     461,539
    $    
      294,287Adjustments to reconcile net income
      to net cash flows fromoperating
      activities:Depreciation and
      amortization
    179,323
    178,625Gain of sale of
    equipment
    (890)
    -Stock based compensation expense
      related to employee stock options
    37,741
    76,368Bad debts expense
    (68,105)
    45,000Equity in net (income) loss of
      affiliate
    (3,807)
    (4,503)Minority stockholder's
      interest
    19,961
    17,097Changes in other assets and
      liabilities:Accounts receivable
    1,653,581
    (915,010)Inventory
    (1,311,140)
    (871,521)Costs and estimated earnings in
      excess of billings
    548,766
    884,857Other current assets
    (236,548)
    142,656Payables - trade
    411,330
    (366,113)Accrued commissions
    (92,370)
    263,245Billings in excess of costs and
      estimated earnings
    112,598
    33,600Other current
    liabilities
    (306,709)
    203,167Net cash flows from
      (for) operating activities
    1,405,270
    (18,245)Cash flows from
      investing activities:Acquisition of property and
      equipment
    (370,266)
    (135,868)Other investing
      activities
    15,329
    10,695Net cash flows for
      investing activities
    (354,937)
    (125,173)Cash flows from
      financing activities:Net short-term borrowings and
      repayments on long-term debt
    (875,058)
    146,486Payables - affiliate
    (71,845)
    (27,774)Proceeds from issuance of common
      stock
    8,940
    6,965Net cash flows from
      (for) financing activities
    (937,963)
    125,677Net increase (decrease) in cash and
      cash equivalents
    112,370
    (17,741)Cash and cash equivalents -
      beginning
    22,748
    60,011Cash and cash equivalents
      - ending
    $     135,118
    $   
      42,270 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-QSB and Regulation S-B.  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, 2007 and May 31,
      2007, the results of operations for the three and six months ended
      November 30, 2007 and November 30, 2006, and cash flows for the six months
      ended November 30, 2007 and November 30, 2006. 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, 2007.  There have been no updates or changes
      to our audited financial statements for the year ended May 31,
      2007.2.
    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, 2007 and 2006 the net income was divided
      by 3,145,692 and 3,142,778, 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, 2007 are not
      necessarily indicative of the results to be expected for the full
      year.5.
    Significant Equity
      Investee: The Company owns approximately a 23% equity investment in Tayco
      Developments, Inc. (Developments).  For the six months ended November
      30, 2007, Developments had revenues of $144,000 and net income of
      $118,000.  The carrying amount of the investment in Developments as
      of November 30, 2007 and May 31, 2007 was $455,000 and
      $452,000.6.
    Effective June 1, 2006,
      the Company adopted 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 utilized
      the modified prospective approach of adoption under SFAS No. 123R. 
      Accordingly, compensation cost recognized in the six month period ended
      November 30, 2007 includes compensation cost for all stock options granted
      subsequent to May 31, 2007, based on the grant-date fair value estimated
      in accordance with the provisions of SFAS 123R.
      As a result of adopting
      SFAS 123R on June 1, 2006, the Company's earnings before income taxes for
      the six month periods ended November 30, 2007 and 2006 was approximately
      $38,000 and $76,000 lower than if it had continued to be accounted for as
      share-based compensation under APB Opinion
  25.
  6   TAYLOR DEVICES,
      INC. Item 2.  Management's
Discussion and Analysis or Plan of Operation 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 or Plan of Operation," and elsewhere in this 10-QSB 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, 2007 and 2006Increase
    /(Decrease)Sales,
net
    
    $   
      860,000Cost of goods
      sold
    
    $   
      824,000Selling, general and
      administrative expenses
    
    $  
    (129,000)Other expense,
      net
    
    $  
    (118,000)Income before provision
      for income taxes, equity in net income of affiliate and minority
      stockholder's interest
    
    $   
      283,000Provision for income
      taxes
    
    $   
      113,000Income before equity in
      net income of affiliate and minority stockholder's interest
    
    $   
      171,000Equity in net income of
      affiliate
    
    $       (1,000)Net
income
    
    $   
      167,000
 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 six months ended
November 30, 2007(All figures being
discussed are for the six months ended November 30, 2007 as compared to the six
months ended November 30, 2006.) Six months ended
    ChangeNovember 30, 2007
    November 30, 2006
    Increase / (Decrease)
    Percent
      ChangeNet
      Revenue
    $  8,685,000
    $
      7,824,000
    $ 
      861,000
    11%Cost of
      sales
    5,731,000
    4,907,000
    824,000
    17%Gross
      profit
    $  2,954,000
    $
      2,917,000
    $    37,000
    1%..as a percentage of net
      revenues
    34%
    37% The Company's consolidated
results of operations showed a 11% increase in net revenues and an increase in
net income of 57%. Revenues recorded in the current period for long-term
construction projects were slightly less (12%) than the level recorded in the
prior year.  Revenues recorded in the current period for other-than
long-term construction projects (non-projects) were up approximately $1,441,000
or 51% over the level recorded in the prior year.  This increase is
primarily in sales of products to customers in aerospace and defense related
fields.  Gross profit increased by 1%.  The gross profit as a
percentage of net revenues for the current and prior year periods was 34% and
37%. The Company's revenues and
net income fluctuate from period to period.  The increases in the current
period, compared to the prior period, are not necessarily representative of
future results. Selling, General and
      Administrative Expenses Six months ended
    Change 2052:
  November 30, 2007
    November 30, 2006
    Increase / (Decrease)
    Percent ChangeOutside
      Commissions
    $   593,000
    $   781,000
    $(188,000)
    -24%Other
      SG&A
    1,532,000
    1,473,000
    59,000
    4%Total
      SG&A
    $2,125,000
    $2,254,000
    $(129,000)
    -6%..as a percentage of net
      revenues
    24%
    29% Selling, general and
administrative expenses decreased by 6% from the prior year.  Outside
commission expense decreased by 24% over last year's level.  Outside
commission expense was lower in this period due to higher commission rates on
two large, long-term construction projects in production last year, offset
slightly by a higher volume of sales subject to commission in the current
year.  Other selling, general and administrative expenses increased by only
4% from last year to this. The above factors resulted in
operating income of $829,000 for the six months ended November 30, 2007, up 25%
from the $664,000 in the same period of the prior year. Other expense, net, of
$56,000 is primarily interest expense and is $118,000 less than in the prior
year.  The average level of use of the Company's operating line of credit
during the period decreased significantly from $3.6 million last year to $1.7
million this year.    The line of credit is used primarily to
fund the production of larger projects that do not allow for advance payments or
progress payments. 8   Summary comparison of the three
      months ended November 30, 2007 and 2006Increase
    /(Decrease)Sales,
net
    
    $   
      449,000Cost of goods
      sold
    
    $   
      514,000Selling, general and
      administrative expenses
    
    $     
      48,000Other expense,
      net
    
    $   
      (80,000)Income before provision
      for income taxes, equity in net income of affiliate and minority
      stockholder's interest
    
    $   
      (33,000)Provision for income
      taxes
    
    $   
      (14,000)Income before equity in
      net income of affiliate and minority stockholder's interest
    
    $   
      (19,000)Equity in net income of
      affiliate
    
    $     
      (3,000)Net
income
    
    $   
      (25,000)
 For the three months ended
November 30, 2007(All figures being
discussed are for the three months ended November 30, 2007 as compared to the
three months ended November 30, 2006.) Three months ended
    ChangeNovember 30, 2007
    November 30, 2006
    Increase / (Decrease)
    PercentChangeNet
      Revenue
    $  4,276,000
    $
      3,827,000
    $ 
      449,000
    12%Cost of
      sales
    3,011,000
    2,497,000
    514,000
    21%Gross
      profit
    $  1,265,000
    $
      1,330,000
    $  (65,000)
    -5%..as a percentage of net revenues
    30%
    35% The Company's consolidated
results of operations showed a 12% increase in net revenues and a decrease in
net income of 18%. Revenues recorded in the current period for long-term
construction projects were slightly less (6%) than the level recorded in the
prior year.  Revenues recorded in the current period for other-than
long-term construction projects (non-projects) were up approximately $589,000 or
36% over the level recorded in the prior year.  This increase is primarily
in sales of products to customers in aerospace and defense related fields. 
Gross profit decreased by 5%.  The gross profit as a percentage of net
revenues for the current and prior year periods was 30% and 35%.  The gross
profit is lower primarily because of nine long-term construction projects in
Asia that were negotiated in a very competitive market. The Company's revenues and
net income fluctuate from period to period.  The increases in the current
period, compared to the prior period, are not necessarily representative of
future results. Selling, General and
      Administrative Expenses Three months ended
    Change November 30, 2007
    November 30, 2006
    Increase / (Decrease)
    Percent
      ChangeOutside
      Commissions
    $   343,000
    $   340,000
    $     
    3,000
    1%Other
      SG&A
    713,000
    668,000
    45,000
    7%Total
      SG&A
    $1,056,000
    $1,008,000
    $    48,000
    5%..as a percentage of net revenues
    25%
    26% Selling, general and
administrative expenses increased by 5% from the prior year.  Outside
commission expense increased by 1% over last year's level.  Outside
commission expense was slightly higher in this period due to a higher commission
accrued on one long-term construction project in Asia, combined with a higher
volume of sales subject to commission in the current year.   
Other selling, general and administrative expenses increased by only 7% from
last year to this. 9  The above factors resulted in
operating income of $209,000 for the three months ended November 30, 2007, down
35% from the $322,000 in the same period of the prior year. Other expense, net, of
$10,000 is primarily interest expense and is $80,000 less than in the prior
year.  The average level of use of the Company's operating line of credit
during the period decreased significantly from $3.6 million last year to $1.2
million this year.    The line of credit is used primarily to
fund the production of larger projects that do not allow for advance payments or
progress payments. 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. On June 1, 2006, the Company
adopted 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 utilized the modified prospective approach of
adoption under SFAS No. 123R which resulted in the recognition of $38,000 and
$76,000 of compensation cost for the six month periods ended November 30, 2007
and 2006. 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: November 30, 2007   November 30,
2006 Risk-free interest
rate:             
3.625%                          
3%                                              
Expected life of the
options:            2.5
years                   
2.5
Years                                         
Expected share price
volatility:             
61.47%                     
152.96%                                                           
Expected
dividends:               
zero                            
zero These assumptions resulted
in:               
Estimated fair-market value per stock option:
               
$2.47                          
$4.82 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, 2007 is
presented below: Number of Options
    Weighted-AverageExercise PriceOptions
      outstanding and exercisable at May 31, 2007:
    
    87,500
    $
      5.200Options granted:
    
    15,250
    $
      6.170Options exercised:
    
    -
    -Options expired:
    
    -
    -Options outstanding and exercisable at November 30,
      2007:
    
    102,750
    $ 5.342  10   Capital Resources, Line of
Credit and Long-Term Debt The Company's primary
liquidity is dependent upon the working capital needs.  These are primarily
inventory, accounts receivable, costs and estimated earnings in excess of
billings, accounts payable, accrued commissions, billings in excess of costs and
estimated earnings, and debt service.  The Company's primary sources of
liquidity have been operations and bank financing. Capital expenditures for the
six months ended November 30, 2007 were $370,000 compared to $136,000 in the
same period of the prior year.  There are no material commitments for
capital expenditures as of November 30, 2007. The Company has a $5,000,000
line of credit with a bank.  There is a $891,000 principal balance
outstanding as of November 30, 2007, which is down from the $1,628,000 balance
outstanding as of May 31, 2007.  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: 2008 - $100,000; 2009 - $138,000; 2010 - $72,000;
2011 - $27,000; 2012 - $27,000; and 2013 - $20,000. Inventory and
      Maintenance Inventory November 30, 2007
    May 31, 2007
    Increase / (Decrease) Raw
      Materials
    $  
      427,000
    
    $   425,000
    
    $       2,000
    -Work in
      process
    5,392,000
    
    4,221,000
    
    1,171,000
    28%Finished
      goods
    395,000
    
    447,000
    
    (52,000)
    -12%Inventory
    6,214,000
    87%
    5,093,000
    87%
    1,121,000
    22%Maintenance
      and other inventory
    944,000
    13%
    754,000
    13%
    190,000
    25%Total
    $7,158,000
    100%
    $5,847,000
    100%
    $1,311,000
    22%Inventory turnover
    1.8
    
    2.0
 NOTE: Inventory
      turnover is annualized for the six month period ended November 30,
      2007. Inventory, at $6,214,000 as
of November 30, 2007, is 22% higher than the prior year-end.  Of this,
approximately 87% is work in process, 6% is finished goods, and 7% is raw
materials.  The work in process component of inventory increased by
28%.  This change is the result of increased production activity on sales
orders not accounted for using the percentage of completion method of
accounting. Maintenance and other
inventory represents stock that is estimated to have a product life cycle in
excess of twelve months. This stock represents certain items that 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
increased by 25% since May 31, 2007.  This significant increase is
primarily due to the reclassification, from current inventory, of a group of
components used in the manufacture of a certain unit used in the aerospace
field.  There are no orders in the sales backlog for these products at
November 30, 2007.  These components will be used when units in the field
are sent to the Company for repair or replacement.  Management of the
Company has recorded an allowance for potential inventory obsolescence. The
provision for potential inventory obsolescence was $90,000 and $75,000 for the
six month periods ended November 30, 2007 and 2006.  The Company continues
to rework slow-moving inventory, where applicable, to convert it to product to
be used on customer orders. 11  Accounts Receivable,
      Costs and Estimated Earnings in Excess of Billings, and Billings in
      Excess of Costs and Estimated Earnings November 30, 2007
    May 31, 2007
    Increase /(Decrease) Accounts
      receivable
    $ 
      2,308,000
    
    $  3,894,000
    
    $         
      (1,586,000)
    -41% Costs and
      estimated earnings in excess of billings
    1,442,000
    
    1,991,000
    
    (549,000)
    -28% Less:
      Billings in excess of costs and estimated earnings
    131,000
    
    
    18,000
    
    113,000
    628% Net
    $  3,619,000
    
    $ 5,867,000
    
    $       
      (2,248,000)
    -38% The Company combines the
totals of accounts receivable, the asset "costs and estimated earnings in excess
of billings", and the liability, "billings in excess of costs and estimated
earnings", to determine how much cash the Company will eventually realize from
revenue recorded to date.  As the accounts receivable figure rises in
relation to the other two figures, the Company can anticipate increased cash
receipts within the ensuing 30-60 days. Accounts receivable of
$2,308,000 as of November 30, 2007 includes approximately $456,000 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
$1,442,000 balance in this account at November 30, 2007 is 28% less 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, 2007
    
    May
      31, 2007Costs
    $
      2,166,000
    
    $
      3,218,000Estimated
      earnings
    1,105,000
    
    1,787,000Less:
      Billings to customers
    1,829,000
    
    3,014,000Costs and
      estimated earnings in excess of billings
    $
      1,442,000
    
    $
      1,991,000Number of
      Projects in progress
    14
    
    17 As noted above, the current
liability, "billings in excess of costs and estimated earnings", represents
billings to customers in excess of revenues recognized.  The $131,000
balance in this account at November 30, 2007 is a $113,000 increase from the
balance at the end of the prior year.  Included in this balance at November
30, 2007 is $28,000 in advance billings on a long-term construction project that
is not yet in progress.  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 balances in this account
are comprised of the following components: November 30, 2007
    
    May
      31, 2007Billings to
      customers
    $    626,000
    
    $    72,000Less: 
      Costs
    382,000
    
    39,000Less:
      Estimated earnings
    1,139,000
    
    15,000Billings in
      excess of costs and estimated earnings
    $    131,000
    
    $    18,000Number of
      Projects in progress
    3
    
    1Number of
      Projects not in progress, with billings
    1
    
    - 12  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, 2007
    May
      31, 2007Number of
      Projects in progress
    17
    18Aggregate
      percent complete
    71%
    70%Average
      total sales value of Projects in progress
    $340,000
    $408,000Percentage
      of total value invoiced to customer
    51%
    42% Other Balance Sheet
Items The Company's backlog of
sales orders at November 30, 2007 is $13.3 million, up slightly from the $12.5
million backlog value at the end of the prior year.  $1.5 million of the
current backlog is on long-term construction projects already in
progress. Accounts payable, at
$1,405,000 as of November 30, 2007, is approximately 41% more than the prior
year-end.  This balance will fluctuate as the requirement to purchase goods
and services fluctuates which is driven in part by the level of long-term
construction project activity.  As work progresses on Projects in our sales
order backlog, more purchases will occur and the accounts payable balance will
rise.  Requirements to purchase goods and services to support sales orders
that are not long-term construction projects have increased as well. 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, 2007 are $574,000, down slightly from the
$666,000 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 by $307,000 from the prior year-end, to $952,000. 
Most of this decrease is due to payments made in the current period against
income tax liabilities.  Payments on these liabilities will take place as
scheduled within the next twelve months. The Company paid $56,000 to
Developments during the six months ended November 30, 2007, reducing the
principal balance on the note payable to $88,000. Management believes that the
Company's cash flows from operations and borrowing capacity under the bank line
of credit will be sufficient to fund ongoing operations, capital improvements
and share repurchases for the next twelve months.


13

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TAYLOR DEVICES, INC.   Item 3.  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,
2007 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, 2007 that have
materially affected, or are reasonably likely to materially affect, the
Company's control over financial reporting. 14  TAYLOR DEVICES, INC.     Part II - Other
Information ITEM 1
    Legal
      ProceedingsNone.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, 2007 that were not registered under the Securities
  Act.(b)   Use of
      proceeds following effectiveness of initial registration
      statement:Not
    Applicable(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, 2007 -September30, 2007
    -
    -
    -
    .October 1, 2007
      -  October 31, 2007
    -
    -
    -
    .November 1, 2007
      -  November 30, 2007
    -
    -
    -
    .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 last $6,000,000, as such
      terms are defined in the credit documents.  On November 30, 2007,
      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 SecuritiesNone15ITEM
      4
    Submission of Matters
      to Vote of Securities HoldersThe Annual Meeting of Shareholders
      was held on November 2, 2007.  The total outstanding number of shares
      on the meeting record date of September 25, 2007 was 3,146,609.  A
      total of 2,850,682 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 2 Director of the Company,
      John Burgess, was elected to serve the remaining two years of a three-year
      term expiring in 2009.  2,845,725 shares were voted forthe nominee and 4,957 were
      .
      Two Class 3 Directors of the
      Company, Douglas P. Taylor and Randall L. Clark, were elected to serve a
      three-year term expiring in 2010.  2,815,027 shares were voted
      forMr. Taylor and 35,655
      were withheld. 
      2,815,405 shares were voted forMr. Clark and 35,277 were withheld.  Directors whose term
      of office continued after the meeting were Richard G. Hill and Reginald B.
      Newman II.
      The
      shareholders approved and ratified the form of Indemnification Agreement
      between the Company and its directors and designated
      officers.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 DirectorsNoneITEM
      6
    Exhibits31(i)   
      Rule 13a-14(a) Certification of Chief Executive Officer.31(ii)    Rule 13a-14(a) Certification of Chief
      Financial Officer.32(i)   
      Section 1350 Certification of Chief Executive Officer.32(ii)    Section 1350 Certification of Chief
      Financial  Officer. 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, 2007, the related condensed consolidated
statements of income for the three and six months ended November 30, 2007 and
November 30, 2006 and cash flows for the six months ended November 30, 2007 and
November 30, 2006.  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, 2007, 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 July 19, 2007, 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, 2007 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived. Lumsden & McCormick,
LLPBuffalo, New YorkDecember 28, 2007 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, 2008
    
    
    /s/Douglas P.
      TaylorDouglas P.
      TaylorPresidentChairman of the Board of Directors(Principal
      Executive Officer)
   Date:
    January 4, 2008
    
    
    /s/Mark V.
  McDonoughMark V.
      McDonoughChief Financial Officer
 18