UNITED
STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-Q (Mark One) [ X ]
    
    QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934
 For the quarterly period ended November
30, 2009 OR [    ]
    
    TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934
 For the transition period from

to  Commission File Number
0-3498 TAYLOR DEVICES,
INC.
 (Exact name of registrant as specified in its
charter) NEW YORK
    
    16-0797789(State or Other
      Jurisdiction ofIncorporation or Organization)
    
    (I.R.S.
      EmployerIdentification No.)90 Taylor Drive, North
      Tonawanda, New York
    
    14120-0748(Address of Principal
      Executive Offices)
    
    (Zip
    Code)
 716-694-0800
 (Registrant's telephone
number, including area code) Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X
]   No [    ] Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of "large accelerated
filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2
of the Exchange Act. (Check one): Large accelerated filer
      [    ]
    
    Accelerated filer [    ]
    
    Non-accelerated
      filer [    ]
    
    Smaller reporting
      company [ X ](Do not check if a
      smaller reporting company)
 Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes [    ]   No [ X ] As of January 14, 2010, there were
outstanding 3,223,903 shares of the registrant's common stock, par value $.025
per share.   1   TAYLOR DEVICES,
INC. Index to Form
10-Q  PART I
    FINANCIAL
      INFORMATION                                                                                                                                       
      PAGE NO.Item 1.
    Financial
      StatementsCondensed Consolidated
      Balance Sheets as of November 30, 2009 and May 31,
      2009
    3Condensed Consolidated
      Statements of Income for the three and six months ended November 30, 2009
      and November 30, 2008
    4Condensed Consolidated
      Statements of Cash Flows for the six months ended November 30, 2009 and
      November 30, 2008
    5Notes to Condensed
      Consolidated Financial Statements
    6Item 2.
    Management's Discussion
      and Analysis of Financial Condition and Results of
      Operations
    7Item 3.
    Quantitative and
      Qualitative Disclosures About Market Risk
    
    14Item 4T.
    Controls and
      Procedures
    
    14PART II
    OTHER
      INFORMATIONItem 1.
    Legal
      Proceedings
    15Item 1A.
    Risk
      Factors
    15Item 2.
    Unregistered Sales of
      Equity Securities and Use of Proceeds
    15Item 3.
    Defaults Upon Senior
      Securities
    16Item 4.
    Submission of Matters
      to a Vote of Security Holders
    16Item 5.
    Other
      Information
    17Item 6.
    Exhibits
    17REPORT OF INDEPENDENT
      REGISTERED PUBLIC ACCOUNTING FIRM
    18SIGNATURES
    
    19
   2    TAYLOR DEVICES, INC. AND
      SUBSIDIARYCondensed
      Consolidated Balance Sheets
    (Unaudited)November
      30,      2009
    May
      31,2009AssetsCurrent
      assets:Cash and cash
    equivalents
    $
              59,404
    $        
    45,297Accounts receivable,
    net
    1,240,835
    2,691,032Inventory
    7,140,917
    6,721,821Costs and estimated earnings in
      excess of billings
    3,785,913
    1,957,149Other current assets
    1,347,639
    1,382,907Total current assets
    13,574,708
    12,798,206Maintenance and other inventory,
      net
    749,340
    808,537Property and equipment,
      net
    3,591,333
    3,687,637Other assets
    139,707
    136,747$ 
      18,055,088
    $  17,431,127Liabilities and
      Stockholders' EquityCurrent
      liabilities:Short-term borrowings and current
      portion of long-term debt
    $       444,485
    $  
    1,094,151Accounts payable
    745,844
    886,963Accrued commissions
    662,810
    598,287Billings in excess of costs and
      estimated earnings
    218,818
    126,017Other current
    liabilities
    1,630,602
    1,146,631Total current liabilities
    3,702,559
    3,852,049Long-term liabilities
    319,169
    395,245Stockholders'
      Equity:Common stock and additional paid-in
      capital
    6,521,399
    6,494,497Retained earnings
    9,743,245
    8,920,55716,264,644
    15,415,054Treasury stock - at
    cost
    (2,231,284)
    (2,231,221)Total stockholders' equity
    14,033,360
    13,183,833$ 
      18,055,088
    $  17,431,127   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 30,2009
    2008
    2009
    2008Sales, net
    $
      3,488,797
    $  3,757,731
    $
      8,502,470
    $ 8,561,233Cost of goods sold
    2,073,929
    2,803,564
    5,355,756
    6,327,279Gross
      profit
    1,414,868
    954,167
    3,146,714
    2,233,954Selling, general and administrative
      expenses
    1,132,084
    845,187
    2,312,422
    1,888,169Operating
      income
    282,784
    108,980
    834,292
    345,785Other income (expense),
      net
    7,107
    (23,115)
    2,396
    (23,368)Income before provision for income
      taxes
    289,891
    85,865
    836,688
    322,417Provision for income taxes
      (benefit)
    (212,000)
    30,500
    14,000
    118,400Net
      income
    $     501,891
    $   
      55,365
    $   
      822,688
    $  
  204,017Basic and diluted
      earnings per common share
    $     
      0.16
    $    0.02
    $      0.26
    $     0.06   See notes to condensed consolidated
financial statements.  4   TAYLOR DEVICES, INC. AND
      SUBSIDIARYCondensed
      Consolidated Statements of Cash Flows(Unaudited)November
      30,
    November
    30,For the six months
    ended
    2009
    2008Cash flows from
      operating activities:Net income
    $     822,688
    $    
      204,017Adjustments to reconcile net income
      to net cash flows fromoperating
      activities:Depreciation and
      amortization
    225,363
    200,105Gain of sale of
    equipment
    -
    (350)Stock options issued for
      services
    19,851
    28,114Deferred income taxes
    -
    300Changes in other assets and
      liabilities:Accounts receivable
    1,450,197
    (951,708)Inventory
    (359,899)
    (389,674)Costs and estimated earnings in
      excess of billings
    (1,828,764)
    (394,473)Other current assets
    (2,663)
    168,250Accounts payable
    (141,119)
    12,893Accrued commissions
    64,523
    484,183Billings in excess of costs and
      estimated earnings
    92,801
    45,585Other current
    liabilities
    483,971
    (91,082)Net cash flows from
      (for) operating activities
    826,949
    (683,840)Cash flows from
      investing activities:Acquisition of property and
      equipment
    (129,059)
    (335,415)Other investing
      activities
    34,971
    12,307Net cash flows for
      investing activities
    (94,088)
    (323,108)Cash flows from
      financing activities:Net short-term borrowings and
      repayments on long-term debt
    (725,742)
    899,713Proceeds from issuance of common
      stock
    6,988
    7,110Net cash flows from
      (for) financing activities
    (718,754)
    906,823Net increase (decrease) in cash and
      cash equivalents
    14,107
    (100,125)Cash and cash equivalents -
      beginning
    45,297
    110,720Cash and cash equivalents
      - ending
    $   
      59,404
    $  
  10,595   See notes to condensed consolidated
financial statements.   5    TAYLOR DEVICES,
INC.  Notes to Condensed Consolidated
Financial Statements 1.
    The accompanying
      unaudited condensed consolidated financial statements have been prepared
      in accordance with accounting principles generally accepted in the United
      States of America for interim financial information and with the
      instructions to Form 10-Q.  Accordingly, they do not include all of
      the information and footnotes required by accounting principles generally
      accepted in the United States of America for complete financial
      statements. In the opinion of the Company, the accompanying unaudited
      condensed consolidated financial statements contain all adjustments
      (consisting of only normal recurring accruals) necessary to present fairly
      the financial position as of November 30, 2009 and May 31, 2009, the
      results of operations for the three and six months ended November 30, 2009
      and November 30, 2008, and cash flows for the six months ended November
      30, 2009 and November 30, 2008. These financial statements should be read
      in conjunction with the audited financial statements and notes thereto
      contained in the Company's Annual Report to Shareholders for the year
      ended May 31, 2009.  There have been no updates or changes to our
      audited financial statements for the year ended May 31,
      2009.2.
    The Company has evaluated events and transactions for potential
      recognition or disclosure in the financial statements through January 14,
      2010 (the date the financial statements were
  issued).3.
    There is no provision
      nor shall there be any provisions for profit sharing, dividends, or any
      other benefits of any nature at any time for this fiscal
      year.4.
    For the three and six
      month periods ended November 30, 2009 and November 30, 2008, the net
      income was divided by 3,222,943 and 3,219,784, respectively, which is net
      of the Treasury shares, to calculate the net income per
      share.5.
    The results of
      operations for the six month period ended November 30, 2009 are not
      necessarily indicative of the results to be expected for the full
      year.6.
    Effective September 1,
      2009, the Company adopted the Financial Accounting Standards Board
      ("FASB") Accounting Standards Codification ("ASC") regarding Generally
      Accepted Accounting Principles ("GAAP").  The guidance establishes
      the FASB ASC as the source of authoritative accounting principles
      recognized by the FASB to be applied by nongovernmental entities in the
      preparation of financial statements in conformity with GAAP for SEC
      registrants.  All guidance contained in the FASB ASC carries an equal
      level of authority.  The FASB ASC supersedes all existing non-SEC
      accounting and reporting standards.  The FASB will now issue new
      standards in the form of Accounting Standards Updates ("ASUs").  The
      FASB will not consider ASUs as authoritative in their own right. 
      ASUs will serve only to update the FASB ASC, provide background
      information about the guidance and provide the basis for conclusions on
      the changes in the FASB ASC.  References made to FASB guidance have
      been updated for the FASB ASC throughout this document.
      Effective June 1, 2009,
      the Company adopted guidance issued by the FASB that requires disclosure
      about the fair value of financial instruments for interim financial
      statements of publicly traded companies.  The adoption did not have
      an impact on our consolidated results of operations or financial
      condition.
      Effective June 1, 2008,
      the Company adopted the FASB ASC "Fair Value Measurements and Disclosures"
      guidance with respect to recurring financial assets and liabilities. 
      Effective June 1, 2009, the Company adopted the FASB ASC "Fair Value
      Measurements and Disclosures" guidance as it relates to nonrecurring fair
      value measurement requirements for nonfinancial assets and
      liabilities.  The ASC guidance defines fair value, establishes a
      framework for measuring fair value in GAAP, and expands disclosure about
      fair value measurements.  The adoption of the standard had no impact
      on our consolidated financial results.
      Other recently
      issued ASC guidance has either been implemented or are not significant to
      the Company.
   6   Item 2. 
Management's Discussion and Analysis of Financial Condition and Results of
Operations Cautionary
Statement The Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking
statements.  Information in this Item 2, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in
this 10-Q that does not consist of historical facts, are "forward-looking
statements."  Statements accompanied or qualified by, or containing, words
such as "may," "will," "should," "believes," "expects," "intends," "plans,"
"projects," "estimates," "predicts," "potential," "outlook," "forecast,"
"anticipates," "presume," and "assume" constitute forward-looking statements
and, as such, are not a guarantee of future performance.  The statements
involve factors, risks and uncertainties, the impact or occurrence of which can
cause actual results to differ materially from the expected results described in
such statements.  Risks and uncertainties can include, among others,
uncertainty regarding how long the worldwide economic recession will continue
and whether the recession will deepen; reductions in capital budgets by our
customers and potential customers; changing product demand and industry
capacity; increased competition and pricing pressures; advances in technology
that can reduce the demand for the Company's products; and other factors, many
or all of which are beyond the Company's control.  Consequently, investors
should not place undue reliance on forward-looking statements as predictive of
future results.  The Company disclaims any obligation to release publicly
any updates or revisions to the forward-looking statements herein to reflect any
change in the Company's expectations with regard thereto, or any changes in
events, conditions or circumstances on which any such statement is
based. Results of
Operations A summary of the period to
period changes in the principal items included in the condensed consolidated
statements of income is shown below: Summary comparison of the six
      months ended November 30, 2009 and November 30, 2008Increase
    /(Decrease)Sales,
net
    
    $ 
          (59,000)Cost of goods
      sold
    
    $   
    (972,000)Selling, general and
      administrative expenses
    
    $      
      424,000Income before provision
      for income taxes
    
    $      
      514,000Provision for income
      taxes
    
    $   
      (105,000)Net
income
    
    $      
      619,000
 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, 2009(All figures
discussed are for the six months ended November 30, 2009 as compared to the six
months ended November 30, 2008.) Six months ended
    ChangeNovember 30, 2009
    November 30, 2008
    Increase / (Decrease)
    Percent
      ChangeNet
      Revenue
    $  8,502,000
    $  
      8,561,000
    $   
         (59,000)
    -1%Cost of
      sales
    5,355,000
    6,327,000
    (972,000)
    -15%Gross
      profit
    $  3,147,000
    $
      2,234,000
    $       913,000
    41%...as a percentage of net
revenues
    37%
    26% The Company's consolidated
results of operations showed a 1% decrease in net revenues and an increase in
net income of 303%.  Revenues recorded in the current period for long-term
construction projects were 46% higher than the level recorded in the prior
year.  Revenues recorded in the current period for other-than long-term
construction projects (non-projects) were down 34% from the level recorded in
the prior year.  The gross profit as a percentage of net revenues for the
current and prior year periods was 37% and 26%.  This fluctuation is
attributable primarily to a.) one large, domestic project in process last year
that had a very low margin, b.) a few of the bigger non-project shipments last
year had low margins, c.) three large export projects in the current year have
higher than average margins, and d.) three large projects in the current year
with aerospace / defense customers that have higher margins than average
projects for construction customers. While the overall sales
figures showed only a slight decrease from the prior year, the mix of customers
buying our products changed.  Sales of the Company's products are made to
three general groups of customers: industrial, construction and aerospace /
defense.  The negative effect of the continued slow global construction
market has been offset by an increase in our global sales to customers in the
aerospace and defense markets.  A breakdown of sales to the three general
groups of customers is as follows: First Half -
      Fiscal 2010
    
    First Half -
      Fiscal 2009Industrial
    8%
    
    Industrial
    13%Construction
    41%
    
    Construction
    51%Aerospace / Defense
    51%
    
    Aerospace / Defense
    36% At November 30, 2008, we had
99 open sales orders in our backlog with a total sales value of $10.1
million.  At November 30, 2009, we have 15% more open sales orders in our
backlog (115 orders) and the total sales value is $11.4 million or approximately
13% higher than the prior year. The Company's revenues and
net income fluctuate from period to period.  The fluctuations in comparing
the current period to the prior period are not necessarily representative of
future results.   8  Selling,
      General and Administrative Expenses Six months ended
    ChangeNovember 30, 2009
    November 30, 2008
    Increase / (Decrease)
    Percent
      ChangeOutside
      Commissions
    $475,000
    $     364,000
    $      111,000
    30%Other
      SG&A
    1,837,000
    1,524,000
    313,000
    21%Total
      SG&A
    $2,312,000
    $ 
      1,888,000
    $      424,000
    22%...as a percentage of net
revenues
    27%
    22% Selling, general and
administrative expenses increased by 22% from the prior year.   Outside
commission expense increased by 30% from last year's level.  This
fluctuation was primarily due to a single, high value, non-project,
commissionable sales order recorded this year as well as two Projects in Asia
that included higher than average commissions in the current year.  Other
selling, general and administrative expenses increased 21% from last year to
this.  This increase is primarily due to increased professional fees
related to the completion of a tax credit study that resulted in the recording
of $325,000 in tax credits in the current period, as well as increased incentive
compensation expense related to the improved operating results and increased
aerospace sales.  The tax credits are included in the current year
consolidated statements of income as a benefit within the provision for income
taxes. The above factors resulted in
operating income of $834,000 for the six months ended November 30, 2009, up 141%
from the $346,000 in the same period of the prior year. For the three months ended
November 30, 2009(All figures
discussed are for the three months ended November 30, 2009 as compared to the
three months ended November 30, 2008.) Three months ended
    ChangeNovember 30, 2009
    November 30, 2008
    Increase / (Decrease)
    Percent
      ChangeNet
      Revenue
    $  3,489,000
    $ 
      3,758,000
    $  
      (269,000)
    -7%Cost of
      sales
    2,074,000
    2,804,000
    (730,000)
    -26%Gross
      profit
    $  1,415,000
    $
         954,000
    $     461,000
    48%...as a percentage of net
      revenues
    41%
    25%  The Company's consolidated
results of operations showed a 7% decrease in net revenues and an increase in
net income of 807%.  Revenues recorded in the current period for long-term
construction projects were 23% higher than the level recorded in the prior
year.  Revenues recorded in the current period for other-than long-term
construction projects (non-projects) were down 30% from the level recorded in
the prior year.  The gross profit as a percentage of net revenues for the
current and prior year periods was 41% and 25%.  This fluctuation is
attributable primarily to a.) one large, domestic project in process last year
that had a very low margin, b.) two large export projects in the current year
have higher than average margins, and c.) three large projects in the current
year with aerospace / defense customers that have higher margins than average
projects for construction customers.   9   A breakdown of sales to the
three general groups of customers is as follows: Second Quarter -
      Fiscal 2010
    
    Second Quarter -
      Fiscal 2009Industrial
    12%
    
    Industrial
    12%Construction
    42%
    
    Construction
    52%Aerospace / Defense
    46%
    
    Aerospace / Defense
    36% The Company's revenues and
net income fluctuate from period to period.  The fluctuations in comparing
the current period to the prior period are not necessarily representative of
future results. Selling, General and
      Administrative Expenses Three  months ended
    ChangeNovember 30, 2009
    November 30, 2008
    Increase / (Decrease)
    Percent
      ChangeOutside
      Commissions
    $   
      198,000
    $  
      162,000
    $       36,000
    22%Other
      SG&A
    934,000
    683,000
    251,000
    37%Total
      SG&A
    $1,132,000
    $  845,000
    $     287,000
    34%...as a percentage of net
revenues
    32%
    22% Selling, general and
administrative expenses increased by 34% from the prior year.  Outside
commission expense increased by 22% from last year's level.  This
fluctuation was primarily due to a higher level of Project sales in the current
year which generally have a higher percentage of outside commissions. As noted
above, a few of the Projects have high gross margins.  Some of these
projects also have higher than average commissions.  Other selling, general
and administrative expenses increased from last year to this for the same
reasons as noted above for the six month period. The above factors resulted in
operating income of $283,000 for the three months ended November 30, 2009, up
160% from the $109,000 in the same period of the prior year. Stock
Options The Company has a stock
option plan which provides for the granting of nonqualified or incentive stock
options to officers, key employees and non-employee directors.  Options
granted under the plan are exercisable over a ten year term.  Options not
exercised at the end of the term expire. The Company expenses stock
options using the fair value recognition provisions of the ASC.  The
Company recognized $20,000 and $28,000 of compensation cost for the six month
periods ended November 30, 2009 and November 30, 2008.   10  The fair value of each stock
option grant has been determined using the Black-Scholes model.  The model
considers assumptions related to exercise price, expected volatility, risk-free
interest rate, and the weighted average expected term of the stock option
grants.  Expected volatility assumptions used in the model were based on
volatility of the Company's stock price for the thirty month period ending on
the date of grant.  The risk-free interest rate is derived from the U.S.
treasury yield.  The Company used a weighted average expected term. 
The following assumptions were used in the Black-Scholes model in estimating the
fair market value of the Company's stock option grants: 2009                           
2008                                                           
Risk-free interest
rate:             
4.875%                      
5.000%                                              
Expected life of the
options:            2.5
years                   
2.5
years                                         
Expected share price
volatility:             
57.57%                      
44.62%                                                           
Expected
dividends:               
zero                            
zeroThese
assumptions resulted
in:               
Estimated fair-market value per stock option:
               
$1.37                          
$1.94 The ultimate value of the
options will depend on the future price of the Company's common stock, which
cannot be forecast with reasonable accuracy. A summary of changes in the
stock options outstanding during the six month period ended November 30, 2009 is
presented below: Weighted-                                                                                                                              
Number
of              
Average                                                                                                                                
Options            
Exercise PriceOptions outstanding and exercisable at May 31,
2009:          
160,000                     
$ 4.98Options
granted:            
14,500                     
$
3.51             
   Options outstanding and exercisable at November 30,
2009:         
174,500                     
$ 4.86 Closing value per share on NASDAQ at November 30,
2009:                                             
$ 4.49 Capital Resources, Line of
Credit and Long-Term Debt The Company's primary
liquidity is dependent upon the working capital needs.  These are mainly
inventory, accounts receivable, costs and estimated earnings in excess of
billings, accounts payable, accrued commissions, billings in excess of costs and
estimated earnings, and debt service.  The Company's primary sources of
liquidity have been operations and bank financing. Capital expenditures for the
six months ended November 30, 2009 were $129,000 compared to $335,000 in the
same period of the prior year.  As of November 30, 2009, the Company has no
commitments for capital expenditures during the next twelve months. Effective August 7, 2009, the
Company replaced its bank credit facility with a $6,000,000 bank demand line of
credit, with interest payable at the Company's option of 30, 60, 90 or 180 day
LIBOR rate plus 2.5% or the bank's prime rate less .25%.  There is an
interest rate floor of 3.5%.  The line is secured by accounts receivable,
equipment, inventory, and general intangibles, and a negative pledge of the
Company's real property.  This line of credit is subject to the usual terms
and conditions applied by the bank, is subject to renewal annually, and is not
subject to an express requirement on the bank's part to lend.  There is a
$439,000 principal balance outstanding as of November 30, 2009, compared to the
$1,017,000 balance outstanding on the line of credit in place as of May 31,
2009.  The outstanding balance on the line of credit fluctuates as the
Company's various long-term projects progress.  The Company is in
compliance with restrictive covenants under the line of credit.  In these
covenants, the Company agrees to maintain the following minimum levels of the
stated item: Covenant                                  
Minimum per
Covenant          Current
Actual   When
Measured           
Minimum level working
capital                        
$3,000,000                         
$9,872,000              
Quarterly           
Minimum debt service coverage
ratio                 
1.5:1                                    
n/a              
Fiscal Year-end All of the $5,561,000 unused
portion of our line of credit is available without violating any of our debt
covenants.   11  Principal maturities of
long-term debt for the remainder of the current fiscal year and the subsequent
five years are as follows: 2010 - $3,000; 2011 - $5,000; 2012 - $5,000; and 2013
- $4,000.  Inventory and
      Maintenance Inventory November 30, 2009
    May 31, 2009
    Increase / (Decrease) Raw
      Materials
    $  
      473,000
    
    $   524,000
    
    $  
         (51,000)
    -10%Work in
      process
    6,040,000
    
    5,688,000
    
    352,000
    6%Finished
      goods
    628,000
    
    510,000
    
    118,000
    23%Inventory
    7,141,000
    91%
    6,722,000
    89%
    419,000
    6%Maintenance
      and other inventory
    749,000
    9%
    809,000
    11%
    (60,000)
    - 7%Total
    $7,890,000
    100%
    $7,531,000
    100%
    $     359,000
    5%Inventory turnover
    1.4
    
    1.6
 NOTE: Inventory
      turnover is annualized for the six month period ended November 30,
      2009. Inventory, at $7,141,000 as
of November 30, 2009, is $419,000 or six percent higher than the prior year-end
level of $6,722,000.  Of this, approximately 84% is work in process, 9% is
finished goods, and 7% is raw materials.  The inventory turnover is
calculated by dividing the annualized cost of sales by the average inventory
level, including maintenance and other inventory.  The annualized cost of
sales for the current period is $10.7 million, which is almost $1.4 million less
than last year's level for the full year.  This is the primary reason for
the decrease in the inventory turnover rate.  The average level of
inventory for the six months ended November 30, 2009 was $7.7 million. 
This is slightly greater than 2% more than the average level for the fiscal year
ended May 31, 2009. Maintenance and other
inventory represent stock that is estimated to have a product life cycle in
excess of twelve months. This stock represents certain items the Company is
required to maintain for service of products sold and items that are generally
subject to spontaneous ordering.  This inventory is particularly sensitive
to technological obsolescence in the near term due to its use in industries
characterized by the continuous introduction of new product lines, rapid
technological advances and product obsolescence.  The maintenance inventory
decreased slightly since May 31, 2009.  Management of the Company has
recorded an allowance for potential inventory obsolescence. The provision for
potential inventory obsolescence was $90,000 for each of the six month periods
ended November 30, 2009 and November 30, 2008.  The Company continues to
rework slow-moving inventory, where applicable, to convert it to product to be
used on customer orders. Accounts Receivable,
      Costs and Estimated Earnings in Excess of Billings
    ("CIEB"),and Billings in
      Excess of Costs and Estimated Earnings ("BIEC")  November 30, 2009
    May 31,
      2009
    Increase /(Decrease) Accounts
      receivable
    $ 
      1,241,000
    
    $ 
      2,691,000
    
    $(1,450,000)
    
    -54%CIEB
    3,786,000
    
    1,957,000
    
    1,829,000
    
    93%Less:
      BIEC
    219,000
    
    126,000
    
    93,000
    
    74%Net
    $ 
      4,808,000
    
    $ 
      4,522,000
    
    $        
      286,000
    
    6% Number
      of an average day's sales outstanding in accounts
      receivable
    32
    54 The Company combines the
totals of accounts receivable, the current asset CIEB, and the current
liability, BIEC, to determine how much cash the Company will eventually realize
from revenue recorded to date.  As the accounts receivable figure rises in
relation to the other two figures, the Company can anticipate increased cash
receipts within the ensuing 30-60 days. Accounts receivable of
$1,241,000 as of November 30, 2009 includes approximately $64,000 of amounts
retained by customers on long-term construction projects ("Project(s)"). 
It also includes $42,000 of an allowance for doubtful accounts
("Allowance").   The accounts receivable balance as of May 31, 2009 of
$2,691,000 included an Allowance of $42,000.  The 54% decrease in the
balance of accounts receivable from the prior year end to November 30, 2009 is
primarily attributable to the increase in CIEB during the same period.  The
Company expects to collect the net accounts receivable balance, including the
retainage, during the next twelve months.  The number of an average day's
sales outstanding in accounts receivable (DSO) decreased from 54 days at May 31,
2009 to 32 days at November 30, 2009.  The DSO is affected by the level of
CIEB, which represents sales recorded for which the customer has not yet been
billed.  Since the customer has not been billed, the amount would not be
included in accounts receivable.  The reduction in DSO is primarily
attributable to the increase in CIEB for the period.   12   As noted above, CIEB
represents revenues recognized in excess of amounts billed.  Whenever
possible, the Company negotiates a provision in sales contracts to allow the
Company to bill, and collect from the customer, payments in advance of
shipments.  Unfortunately, provisions such as this are often not possible.
  The $3,786,000 balance in this account at November 30, 2009 is 93% more
than the prior year-end.  This significant increase is primarily due to
four projects in progress that have an aggregate sales value of $3.9 million
and, in accordance with the terms of each of the contracts, do not have any
billings to the customers as of November 30, 2009.  In the aggregate, these
four projects are slightly more than 75% completed. Generally, if progress
billings are permitted under the terms of a Project sales agreement, the more
complete the Project is, the more progress billings will be permitted.  The
Company expects to bill the entire amount during the next twelve months. 
24% of the CIEB balance as of the end of the last fiscal quarter, August 31,
2009, was billed to those customers in the current fiscal quarter ended November
30, 2009.  The remainder will be billed as the projects progress, in
accordance with the terms specified in the various contracts. The balances in this account
are comprised of the following components: November 30, 2009
    
    May
      31, 2009Costs
    $
      4,686,000
    
    $
      3,303,000Estimated
      earnings
    2,140,000
    
    1,048,000Less:
      Billings to customers
    3,040,000
    
    2,394,000CIEB
    $
      3,786,000
    
    $
      1,957,000Number of
      Projects in progress
    12
    
    10 As noted above, BIEC
represents billings to customers in excess of revenues recognized.  The
$219,000 balance in this account at November 30, 2009 is up from the $126,000
balance at the end of the prior year.  The balance in this account
fluctuates in the same manner and for the same reasons as the account "costs and
estimated earnings in excess of billings", discussed above.   Final
delivery of product under these contracts is expected to occur during the next
twelve months. The year-end balances in this
account are comprised of the following components: November 30, 2009
    
    May
      31, 2009Billings to
      customers
    $   1,354,000
    
    $   956,000Less: 
      Costs
    838,000
    
    548,000Less:
      Estimated earnings
    297,000
    
    282,000BIEC
    $   219,000
    
    $   126,000Number of
      projects in progress
    4
    
    4 Summary of factors affecting
the balances in CIEB and BIEC: November 30, 2009
    
    May
      31, 2009Number of
      Projects in progress
    16
    
    14Aggregate
      percent complete
    74%
    
    58%Average
      total sales value of Projects in progress
    $684,000
    
    $661,000Percentage
      of total value invoiced to customer
    40%
    
    36% The Company's backlog of
sales orders at November 30, 2009 is $11.4 million, down from the $13.1 million
backlog value at the end of the prior year.  $2.8 million of the current
backlog is on long-term construction projects already in
progress.   13   Other Balance Sheet
Items Accounts payable, at $746,000
as of November 30, 2009, is approximately $141,000 lower than the prior
year-end.  There is no specific reason for this fluctuation other than the
normal payment cycle of vendor invoices. Commission expense on
applicable sales orders is recognized at the time revenue is recognized. 
The commission is paid following receipt of payment from the customers. 
Accrued commissions as of November 30, 2009 are $663,000, up 11% from the
$598,000 accrued at the prior year-end.  This increase is primarily due to
more Projects in process at November 30, 2009, at a later stage of completion
plus a few export Projects with higher than average rates.  The Company
expects the current accrued amount to be paid during the next twelve
months.  Other current liabilities increased 42% from the prior year-end,
to $1,631,000 primarily due to customer advance deposits.  Payments on
these liabilities will take place as scheduled within the next twelve
months. Management believes the
Company's cash flows from operations and borrowing capacity under the bank line
of credit is sufficient to fund ongoing operations, capital improvements and
share repurchases for the next twelve months. Item 3.  Quantitative
and Qualitative Disclosures About Market Risk Smaller reporting companies
are not required to provide the information called for by this item. Item 4T.  Controls
and Procedures (a)           Evaluation of
disclosure controls and procedures. The Company's principal
executive officer and principal financial officer have evaluated the Company's
disclosure controls and procedures as of November 30, 2009 and have concluded
that as of the evaluation date, the disclosure controls and procedures were
effective to ensure that information required to be disclosed in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Commission's rules and
forms and that information required to be disclosed in the reports we file or
submit under the Exchange Act is accumulated and communicated to our management,
including our chief executive officer and chief financial officer to allow
timely decisions regarding required disclosure. (b)           Changes in
internal
controls. There have been no changes in
the Company's internal controls over financial reporting that occurred during
the fiscal quarter ended November 30, 2009 that have materially affected, or are
reasonably likely to materially affect, the Company's control over financial
reporting.   14   Part II - Other
Information ITEM 1
    Legal
      Proceedings
      The State of New York Workers'
      Compensation Board ("Board") commenced a lawsuit against the Company and
      264 other entities in May 2008, seeking to recover funds allegedly owed in
      connection with the Company's participation in the Manufacturing
      Self-Insurance Trust ("Trust").  Among the Board's claims are that
      (i) the Trust provided workers' compensation self-insurance to its
      participating members, including the Company, from April 22, 1997 to
      August 31, 2006; (ii) the Board has assumed control of the Trust; (iii)
      the Trust's liabilities exceed its assets by approximately $29,000,000;
      and (iv) the Company and the other participating members are jointly and
      severally liable for the alleged deficit.  The lawsuit proceeds
      slowly.
      The Board has performed forensic
      audits of the Trust to determine the amounts allegedly owed by the
      participating members, and has calculated an estimate of each
      participating member's share of the deficit, which, for the Company, is
      alleged to be in excess of $118,626.  The Board also claims that the
      Company and the other 264 participating members could be jointly and
      severally responsible for sums substantially in excess of the Board's
      estimates.  The Company denies the Board's claims that the Company
      owes the amounts sought, and continues its investigation into the factual
      allegations of the lawsuit.
      Management is vigorously defending
      the claim and has joined with other participating members in a joint
      defense against the lawsuit.  The defendants will be conducting an
      independent forensic audit of the Trust's liabilities and  will
      continue to challenge the legal and contractual bases for the Board's
      claims.
      There are no other legal
      proceedings except for routine litigation incidental to the
      business.ITEM 1A
    Risk
      FactorsSmaller reporting
      companies are not required to provide the information called for by this
      item.ITEM 2
    Unregistered Sales of
      Equity Securities and Use of Proceeds(a)
    The Company sold no
      equity securities during the fiscal quarter ended November 30, 2009 that
      were not registered under the Securities Act.(b)
    Use of proceeds
      following effectiveness of initial registration
      statement:Not
      Applicable
   15  (c)   Repurchases of Equity Securities Period
    (a) Total  Number
      ofSharesPurchased
    (b)AveragePrice PaidPer
      Share
    (c) Total Numberof Shares Purchasedas Part
      ofPubliclyAnnounced Plansor Programs
    (d)
      MaximumNumber (orApproximate DollarValue) of Shares 
      that May YetBe Purchased Underthe Plans
      orProgramsSeptember 1, 2009
      -  September 30, 2009
    -
    -
    -
    .October 1, 2009
      -  October 31, 2009
    -
    -
    -
    .November 1, 2009
      -  November 30, 2009
    -
    -
    -
    .Total
    -
    -
    -
    $160,802 (1)(1) In 1998, the
      Company initiated a plan to purchase shares of its outstanding common
      stock through open market purchases, with an initial deposit to the
      program of $225,000.  Additional deposits totaling $435,000 have been
      made to the plan, with expenditures of $499,198.  To date, a total of
      164,696 shares have been purchased at an average price per share of
      $3.03. (d)
    Under the terms of the
      Company's credit arrangements with its primary lender, the Company is
      required to maintain net working capital of at least $3,000,000, as such
      term is defined in the credit documents.  On November 30, 2009, under
      such definition the Company's net working capital was significantly in
      excess of such limit.  Additional information regarding the Company's
      line of credit and restrictive covenants appears under the caption
      "Capital Resources, Lines of Credit and Long-Term Debt" in the
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations.ITEM
      3
    Defaults Upon Senior
      SecuritiesNoneITEM
      4
    Submission of Matters
      to Vote of Securities Holders
      The Annual Meeting of
      Shareholders was held on November 6, 2009.  The total outstanding
      number of shares on the meeting record date of September 25, 2009 was
      3,222,329.  A total of 2,851,635 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.
      Two Class 2 Directors
      of the Company, Richard G. Hill and John Burgess, were elected to serve a
      three-year term expiring in 2012.  2,823,822 shares were voted
      for Mr. Hill and 27,813 were withheld.  2,826,230
      shares were voted for Mr. Burgess and 25,405 were
      withheld.  Directors whose term of office continued after the
      meeting were Mssrs. Taylor, Newman and Clark.
   16   ITEM
      5
    Other
      Information(a)
    Information required to
      be disclosed in a Report on Form 8-K, but not
      reportedNone(b)
    Material changes to the
      procedures by which Security Holders may recommend nominees to the
      Registrant's Board of Directors
      NoneITEM
      6
    Exhibits20
    News from Taylor
      Devices, Inc. Shareholder Letter, Winter
  2009-2010.31(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.
   17    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, 2009, the related condensed consolidated
statements of income for the three and six months ended November 30, 2009 and
November 30, 2008 and cash flows for the six months ended November 30, 2009 and
November 30, 2008.  These interim financial statements are the
responsibility of the Company's management. We conducted our reviews in
accordance with standards of the Public Company Accounting Oversight Board
(United States).  A review of interim financial information consists
principally of applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters.  It is substantially less
in scope than an audit conducted in accordance with standards of the Public
Company Accounting Oversight Board, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole. 
Accordingly, we do not express such an opinion. Based on our reviews, we are
not aware of any material modifications that should be made to the accompanying
interim condensed consolidated financial statements referred to above for them
to be in conformity with accounting principles generally accepted in the United
States of America. We have previously audited,
in accordance with standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheet as of May 31, 2009, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated August 7, 2009, we expressed an unqualified opinion on those financial
statements.  In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of May 31, 2009 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived. Lumsden & McCormick,
LLPBuffalo, New YorkJanuary 14, 2010   18    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 14,
      2010
    
    
    /s/Douglas P.
      TaylorDouglas P.
      TaylorPresidentChairman of the Board of Directors(Principal
      Executive Officer)
     Date:
    January 14,
      2010
    
    
    /s/Mark V.
      McDonoughMark V.
      McDonoughChief Financial Officer
   19