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 August 31, 2006 [  ]  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)
    
    (I.R.S. Employer
      Identification Number)
  90 TAYLOR DRIVE,
      NORTH TONAWANDA, NEW YORK 14120-0748Address of principal
      executive offices
  716‐694‐0800 Issuer'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 checkmark 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
      October 13, 2006Common Stock(2‐1/2
      cents par value)
    
    3,143,591
    TAYLOR DEVICES, INC. Index to Form
10-QSB PART I
    FINANCIAL
      INFORMATION                                                                                                                                                           
      PAGE NO.Item 1.
    Financial
      StatementsCondensed Consolidated
      Balance Sheets August 31, 2006 and May 31, 2006
    3Condensed Consolidated
      Statements of Income for the three and three months ended August 31, 2006
      and August 31, 2005
    4Condensed Consolidated
      Statements of Cash Flows for the three months ended August 31, 2006 and
      August 31, 2005
    5Notes to Condensed
      Consolidated Financial Statements
    6Item 2.
    Management's Discussion
      and Analysis or Plan of Operation
    7Item 3.
    Controls and
      Procedures
    
    13PART II
    OTHER
      INFORMATIONItem 1.
    Legal
      Proceedings
    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
    15Item 5.
    Other
      Information
    15Item 6.
    Exhibits
    15REPORT OF INDEPENDENT
      REGISTERED PUBLIC ACCOUNTING FIRM
    16SIGNATURES
    
    17
   TAYLOR DEVICES, INC. AND
      SUBSIDIARYCondensed
      Consolidated Balance Sheets
    (Unaudited)February
      28,      2006
    May
      31,2006AssetsCurrent
      assets:Cash and cash
    equivalents
    $       
    292,039
    $        
    60,011Accounts receivable,
    net
    2,401,132
    2,423,428Inventory
    4,736,478
    4,216,633Costs and estimated earnings in
      excess of billings
    5,410,786
    5,062,294Other current assets
    1,102,891
    1,053,929Total current assets
    13,943,326
    12,816,295Maintenance and other inventory,
      net
    532,833
    543,057Property and equipment,
      net
    3,370,529
    3,419,404Investment in affiliate, at
      equity
    442,910
    440,378Intangible and other
      assets
    159,613
    165,571$ 
      18,449,211
    $  17,384,705Liabilities and
      Stockholders' EquityCurrent
      liabilities:Short-term borrowings and current
      portion of long-term debt
    $   
      4,014,787
    $  
    3,258,924Payables - trade
    1,191,665
    1,315,089Accrued commissions
    1,071,304
    982,741Billings in excess of costs and
      estimated earnings
    212,026
    95,421Other current
    liabilities
    485,995
    397,872Total current liabilities
    6,975,777
    6,050,047Long-term liabilities
    677,753
    760,988Payables - affiliate
    229,097
    253,307Minority stockholder's
      interest
    494,571
    483,895Stockholders'
      Equity:Common stock and additional paid-in
      capital
    4,776,477
    4,696,445Retained earnings
    6,351,618
    6,196,10511,128,095
    10,892,550Treasury stock - at
    cost
    (1,056,082)
    (1,056,082)Total stockholders' equity
    10,072,013
    9,836,468$ 
      18,449,211
    $ 
  17,384,705 See notes to condensed consolidated
financial statements.    TAYLOR DEVICES, INC. AND
      SUBSIDIARYCondensed
      Consolidated Statements of Income
    
    (Unaudited)For the three months
      ended August 31,2006
    2005Sales, net
    
    
    $ 
      3,997,502
    $ 3,110,099Cost of goods sold
    
    
    2,409,807
    2,134,790Gross
      profit
    
    
    1,587,695
    975,309Selling, general and administrative
      expenses
    
    
    1,245,525
    749,458Operating
      income
    
    
    342,170
    225,851Other expense, net
    
    
    (83,513)
    (32,062)Income before provision for income
      taxes, equity in netincome of affiliate
      and minority stockholder's interest
    
    
    258,657
    193,789Provision for income
      taxes
    
    
    95,000
    73,000Income before equity in net income
      of affiliateand minority
      stockholder's interest
    
    
    163,657
    120,789Equity in net income (loss) of
      affiliate
    
    
    2,532
    (4,250)Income before minority
      stockholder's interest
    
    
    166,189
    116,539Minority stockholder's
      interest
    
    
    (10,676)
    (7,224)Net
      income
    
    
    $   
      155,513
    $     
      109,315Basic and diluted
      earnings per common share
    
    
    $      0.05
    $       0.04 See notes to condensed consolidated
financial statements.    TAYLOR DEVICES, INC. AND
      SUBSIDIARYCondensed
      Consolidated Statements of Cash Flows(Unaudited)August 31,For the three months
      ended
    2006
    2005Cash flows from
      operating activities:Net income
    $     155,513
    $    
      109,315Adjustments to reconcile net income
      to net cash flows fromoperating
      activities:Depreciation and
      amortization
    88,532
    82,193Gain on sale of
    equipmentStock based compensation expense
      related to employee stock options
    76,368
    -Bad debts expense
    45,000
    24,000Equity in net (income) loss of
      affiliate
    (2,532)
    4,250Deferred income taxesMinority stockholder's
      interest
    10,676
    7,224Changes in other assets and
      liabilities:Accounts receivable
    (22,704)
    755,596Inventory
    (509,621)
    236,361Costs and estimated earnings in
      excess of billings
    (348,492)
    (257,100)Other current assets
    (71,455)
    45,828Payables - trade
    (123,424)
    (61,559)Accrued commissions
    88,563
    (60,744)Billings in excess of costs and
      estimated earnings
    116,605
    (288,003)Other current
    liabilities
    88,123
    72,316Net cash flows from
      (for) operating activities
    (408,848)
    669,677Cash flows from
      investing activities:Acquisition of property and
      equipment
    (32,352)
    (15,517)Other investing
      activities
    21,146
    21,142Net cash flows from
      (for) investing activities
    (11,206)
    5,625Cash flows from
      financing activities:Net short-term borrowings and
      repayments on long-term debt
    672,628
    (536,144)Payables - affiliate
    (24,210)
    (168,717)Proceeds from long-term
      debtProceeds from issuance of common
      stock
    3,664
    -Net cash flows from
      (for) financing activities
    652,082
    (704,861)Net increase (decrease) in cash and
      cash equivalents
    232,028
    (29,559)Cash and cash equivalents -
      beginning
    60,011
    63,397Cash and cash equivalents -
      ending
    $     292,039
    $   
      33,838 See notes to condensed consolidated
financial statements.    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 August 31, 2006 and May 31,
      2006, the results of operations for the three months ended August 31, 2006
      and August 31, 2005, and cash flows for the three months ended August 31,
      2006 and August 31, 2005. 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, 2006.  There have been no updates or changes to our
      audited financial statements for the year ended May 31,
      2006.2.
    There is no provision
      nor shall there be any provisions for profit sharing, dividends, or any
      other benefits of any nature at any time for this fiscal
    year.3.
    For the three month
      periods ended August 31, 2006 and 2005 the net income was divided by
      3,142,457 and 3,102,057, respectively, which is net of the Treasury
      shares, to calculate the net income per
    share.4.
    The results of
      operations for the three month period ended August 31, 2006 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 three months ended August
      31, 2006, Developments had revenues of $59,000 and net income of
      $45,000.  The carrying amount of the investment in Developments as of
      August 31, 2006 and May 31, 2006 was $443,000 and
      $440,000.6.
    Prior to June 1, 2006,
      the Company applied APB Opinion 25 Accounting for Stock Issued to
      Employees and related interpretations in accounting for its stock
      option plans.  Since the option price was the fair market value per
      share on the date the option was granted, no compensation cost had been
      recognized for its stock option plans in reporting periods prior to the
      three month period ending August 31, 2006.
      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 FAS 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 three month period ending
      August 31, 2006 includes compensation cost for all stock options granted
      subsequent to May 31, 2006, 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 three month period ending August 31, 2006 was approximately $76,000
      lower than if it had continued to be accounted for as share-based
      compensation under APB Opinion
25.
    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 three
      months ended August 31, 2006 and 2005Increase
    /(Decrease)Sales,
net
    
    $   
      887,000Cost of goods
      sold
    
    $   
      275,000Selling, general and
      administrative expenses
    
    $   
      496,000Other expense,
      net
    
    $     
      51,000Income before provision
      for income taxes, equity in net income of affiliate and minority
      stockholder's interest
    
    $     
      65,000Provision for income
      taxes
    
    $     
      22,000Income before equity in
      net income of affiliate and minority stockholder's
    interest
    
    $     
      43,000Equity in net income
      (loss) of affiliate
    
    $        7,000Net
income
    
    $     
      46,000
 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. For the three months ended
August 31, 2006(All figures being
discussed are for the three months ended August 31, 2006 as compared to the
three months ended August 31, 2005.) Three months ended
    ChangeAugust 31, 2006
    August 31, 2005
    Increase / (Decrease)
    Percent
      ChangeNet
      Revenue
    $  3,998,000
    $3,110,000
    $    888,000
    29%Cost of
      sales
    2,410,000
    2,135,000
    275,000
    13%Gross
      profit
    $ 
      1,588,000
    $  
      975,000
    $    613,000
    63%...as a percentage of net revenues
    40%
    31% The Company's consolidated
results of operations showed a 29% increase in net revenues and an increase in
net income of 42%. Gross profit increased by 63%.  Revenues recorded in the
current period for long-term construction projects increased by 49% over the
level recorded in the prior year.  The increase in revenue in the current
year is attributable to a 29% increase in the quantity of long-term construction
projects with activity in the current period compared to last year. 
Management has noticed an increase in the global level of construction activity
of structures requiring seismic protection.  This has resulted in an
increased number of inquiries and quotes for our products.  Many of our
bids to supply our products for these projects have been successful this
year.  These current year's projects contributed a gross profit margin of
39% as compared to 34% in the prior year's period.  The overall gross
profit as a percentage of net revenues for the current and prior year periods
was 40% and 31%.   Management is optimistic that the level of
construction activity of structures requiring seismic protection will remain
strong through the fiscal year.  Based on this and our current sales order
backlog of $13.1 million, management expects that the results achieved
year-to-date will continue through the end of the current fiscal
year. 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
    ChangeAugust 31, 2006
    August
      31, 2005
    Increase/ (Decrease)
    Percent
      ChangeOutside
      Commissions
    $    441,000
    $   124,000
    $   317,000
    256%Royalties
    19,000
    34,000
    (15,000)
    -44%Other
      SG&A
    786,000
    592,000
    194,000
    33%Total
      SG&A
    $1,246,000
    $   750,000
    $   496,000
    66%...as a percentage of net revenues
    31%
    24% Selling, general and
administrative expenses increased by 66% from the prior year.  Commission
expense increased by 256% over last year's level.  Outside commission
expense was higher in this period due to higher commission rates on a few large,
long-term construction projects in production, in addition to a higher volume of
sales subject to commission.  Royalty expense is $15,000 less than the
amount recorded in the prior year period.  There were fewer shipments that
were subject to royalty during the current year.  Other selling, general
and administrative expenses increased by 33% from last year to this primarily
due to increases in personnel related costs including the calculated value of
stock options granted during the quarter, inside sales commissions and salary
and wage adjustments . The above factors resulted in
operating income of $342,000 for the three months ended August 31, 2006, up 52%
from the $226,000 in the same period of the prior year. Other expense, net, of
$84,000 is primarily interest expense and is $51,000 more than in the prior
year.  The average level of use of the Company's operating line of credit
during the period increased significantly from $1.0 million last year to $3.7
million this year.  The interest rate on the operating line of credit
increased two percentage points from last year to this.  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 FAS 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 $76,000 of
compensation cost for the quarter ended August 31, 2006.  Results for prior
periods have not been restated. 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 from February 1, 2004 through August
1, 2006.  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: Risk-free interest rate:   
3%                                                          
Expected life of the options:    2.5
years                                                     
Expected share price volatility:   
152.96%                                                                       
Expected dividends:    zero These assumptions resulted in
an estimated fair-market value per stock option of $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 as of the three-month period ended August 31, 2006 is
presented below: Number of Options
    
    Weighted- AverageExercise
PriceOptions outstanding and exercisable at May 31,
      2006:
    
    85,250
    
    $ 4.054Options granted:
    
    13,250
    
    $ 6.170Options exercised:
    
    -
    
    -Options expired:
    
    35,000
    
    $ 3.038Options
      outstanding and exercisable at August 31, 2006:
    
    63,500
    
    $ 5.056 The Company previously
applied APB Opinion 25 "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock option plans.  Since the option
price was the fair market value per share on the date the option was granted, no
compensation cost had been recognized for its stock option plans in reporting
periods prior to the quarter ending August 31, 2006. Capital
Resources, Line of Credit and Long-Term Debt The Company's primary
liquidity is dependent upon the working capital needs.  These are primarily
inventory, accounts receivable, costs and estimated earnings in excess of
billings, accounts payable, accrued commissions, billings in excess of costs and
estimated earnings, and debt service.  The Company's primary sources of
liquidity have been operations and bank financing. Capital expenditures for the
three months ended August 31, 2006 were $32,000 compared to $16,000 in the same
period of the prior year.  The Company has commitments to pay $50,000 for
production machinery in the year ending May 31, 2007. The Company has a $5,000,000
line of credit with a bank.  There is a $3,766,000 principal balance
outstanding as of August 31, 2006, which is up from the $3,011,000 balance
outstanding as of May 31, 2006.  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: 2007 - $166,000; 2008 - $232,000; 2009 - $138,000;
2010 - $72,000; 2011 - $27,000; and 2012 - $27,000. Inventory and
      Maintenance Inventory August 31, 2006
    May 31, 2006
    Increase / (Decrease Raw
      Materials
    $  
      422,000
    
    $   413,000
    
    $      9,000
    2%Work in
      process
    3,927,000
    
    3,404,000
    
    523,000
    15%Finished
      goods
    388,000
    
    400,000
    
    (12,000)
    -3%Inventory
    4,737,000
    88%
    4,217,000
    88%
    520,000
    12%Maintenance
      and other inventory
    533,000
    12%
    543,000
    12%
    (10,000)
    -2%Total
    $5,270,000
    100%
    $4,760,000
    100%
    $  510,000
    11%Inventory turnover
    1.9
    
    2.0 NOTE: Inventory
      turnover is annualized for the three-month period ending August 31,
      2006. Inventory, at $4,737,000 as
of August 31, 2006, is 12% higher than the prior year-end.  Of this,
approximately 83% is work in process, 8% is finished goods, and 9% is raw
materials.  The work in process component of inventory increased by
15%.  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 represent 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 technical 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.  Management of the Company
has recorded an allowance for potential inventory obsolescence. The provision
for potential inventory obsolescence was $45,000 for the three-month periods
ended August 31, 2006 and 2005.  The Company continues to rework
slow-moving inventory, where applicable, to convert it to product to be used on
customer orders. Accounts Receivable,
      Costs and Estimated Earnings in Excess of Billings, and Billings in
      Excess of Costs and Estimated Earnings August
      31, 2006
    May 31, 2006
    Increase /(Decrease) Accounts
      receivable
    $2,401,000
    
    $2,423,000
    
    $       (22,000)
    -1% Costs and
      estimated earnings in excess of billings
    5,411,000
    
    5,062,000
    
    349,000
    7% Less:
      Billings in excess of costs and estimated earnings
    212,000
    
    95,000
    
    117,000
    123% Net
    $7,600,000
    
    $7,390,000
    
    $       210,000
    3% 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
$2,401,000 as of August 31, 2006 includes approximately $447,000 of amounts
retained by customers on long-term construction projects.  Management
expects this balance to increase significantly during the next three months as
progress billings on certain long-term construction projects increase as the
projects move closer to completion.  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
$5,411,000 balance in this account at August 31, 2006 is only a 7% increase from
the prior year-end.  Six of the smaller projects (average size of $150,000)
that were in process at the prior year-end have since been completed, shipped
and billed to the customers.  There are 20 open projects in process at
August 31, 2006 as compared to 25 at the prior year-end.  31% of the
aggregate order value of these open orders has been invoiced to the customers as
of August 31, 2006 compared to 19% at the prior year-end.  In the
aggregate, the projects in progress at August 31, 2006 are 65% complete at that
date while the projects in progress at May 31, 2006 were 53% complete at that
date.  The average total sales value of long-term construction projects in
process at the end of this period is 24% higher than at May 31, 2006. 
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 year-end balances in this
account are comprised of the following components: August 31, 2006
    
    May
      31, 2006Costs
    $
      5,220,000
    
    $
      4,792,000Estimated
      earnings
    3,262,000
    
    2,760,000Less:
      Billings to customers
    3,071,000
    
    2,490,000Costs and
      estimated earnings in excess of billings
    $
      5,411,000
    
    $
      5,062,000Number of
      projects in progress
    16
    
    23 As noted above, the current
liability, "billings in excess of costs and estimated earnings", represents
billings to customers in excess of revenues recognized.  The $212,000
balance in this account at August 31, 2006 is a $117,000 increase from the
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, 2006
    
    May
      31, 2006Billings to
      customers
    $
      1,358,000
    
    $
      254,000Less: 
      Costs
    762,000
    
    110,000Less:
      Estimated earnings
    384,000
    
    49,000Billings in
      excess of costs and estimated earnings
    $    212,000
    
    $    95,000Number of
      projects in progress
    4
    
    2 Summary of factors affecting
the year-end balances in the asset "costs and estimated earnings in excess of
billings", and the liability, "billings in excess of costs and estimated
earnings": August 31, 2006
    May
      31, 2006Number of
      projects in progress
    20
    25Aggregate
      percent complete
    65%
    53%Average
      total value of projects in progress
    $717,000
    $578,000Percentage
      of total value invoiced to customer
    31%
    19% The Company's backlog of
sales orders at August 31, 2006 is $13.1 million, up from the backlog at the end
of the prior year of $12.4 million.  $4.7 million of the current backlog is
on projects already in progress. Accounts payable, at
$1,192,000 as of August 31, 2006, is approximately 9% less than the prior
year-end. Commission expense on
applicable sales orders is recognized at the time revenue is recognized. 
The commission is paid following receipt of payment from the customers. 
Accrued commissions as of August 31, 2006 are $1,071,000.  This is 9%
higher than the $983,000 accrued at the prior year-end.  This increase is
primarily due to the increase in the current asset, "costs and estimated
earnings in excess of billings".  Commission expense related to the
long-term construction projects is recorded at the same time as revenue on the
projects is recorded. This liability will not decrease until progress billings
on the projects have been issued by the Company and are paid by our
customers.  The Company expects the current accrued amount to be paid
during the next twelve months.  Other current liabilities increased by only
$88,000 from the prior year-end, to $486,000. The Company paid $28,000 to
Developments during the three months ended August 31, 2006, reducing the
principal balance on the note payable to $214,000. 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.


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 August 31, 2006
and have concluded that as of the evaluation date, the disclosure controls and
procedures were effective to ensure that material information relating to the
Company was made known to the officers by others within the
Company.  (b)           Changes in
internal
controls. There
have been no changes in the Company's internal controls over financial reporting
that occurred during the fiscal quarter ended August 31, 2006 that have
materially affected, or are reasonably likely to materially affect, the
Company's control over financial reporting.   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, 2006 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
      orProgramsJune 1, 2006 -June 30, 2006
    -
    -
    -July 1, 2006 - 
      July 31, 2006
    -
    -
    -August 1, 2006 -  August
      28, 2006
    -
    -
    -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 August 31, 2006, under
      such definitions the Company's net working capital and tangible net worth
      were significantly in excess of such limits.ITEM
      3
    Defaults Upon Senior
      SecuritiesNoneITEM
      4
    Submission of Matters
      to Vote of Securities HoldersNoneITEM
      5
    Other
      Information(a)
    Information required to
      be disclosed in a Report on Form 8-K, but not
    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.
      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, 2006, the related condensed consolidated statements
of income for the three months ended August 31, 2006 and August 31, 2005 and
cash flows for the three months ended August 31, 2006 and August 31, 2005. 
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, 2006, 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 12, 2006, 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, 2006 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived. Lumsden & McCormick,
LLPBuffalo, New YorkSeptember 28, 2006    TAYLOR DEVICES, INC.  Signatures  Pursuant to the requirements
of the Exchange Act, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized. TAYLOR DEVICES,
      INC.(Registrant)  By:
    s/Douglas P.
      Taylor
    
    Date:
    October 13,
      2006Douglas P.
      TaylorPresidentChairman of the Board of Directors(Principal
      Executive Officer)
  AND
  By:
    s/Mark V.
      McDonough
    
    Date:
    October 13,
      2006Mark V.
      McDonoughChief Financial Officer