UNITED
STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549 FORM 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, 2010 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)  (Former name, former
      address and former fiscal year, if changed since last
  report)  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 has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).                                                                            
Yes[    ]     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. Large accelerated filer
      [    ]
    
    
    
    Accelerated filer [    ]Non-accelerated filer [    ] (Do not check if a
      smaller reporting company)
    Smaller reporting company
      [ X ]
 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, 2011, there were
outstanding 3,229,159 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, 2010 and May 31,
      2010
    3Condensed Consolidated
      Statements of Income for the three and six months ended November 30, 2010
      and November 30, 2009
    4Condensed Consolidated
      Statements of Cash Flows for the six months ended November 30, 2010 and
      November 30, 2009
    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 4.
    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.
    (Removed and
      Reserved)
    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,      2010
    May
      31,2010AssetsCurrent
      assets:Cash and cash
    equivalents
    $  
      2,172,593
    $        197,587Accounts receivable,
    net
    1,535,212
    5,033,395Inventory
    6,169,118
    6,474,148Costs and estimated earnings in
      excess of billings
    2,307,695
    1,051,354Other current assets
    1,490,708
    1,485,015Total current assets
    13,675,326
    14,241,499Maintenance and other inventory,
      net
    835,437
    718,749Property and equipment,
      net
    3,396,042
    3,497,800Other assets
    145,320
    142,355$ 
      18,052,125
    $  18,600,403Liabilities and
      Stockholders' EquityCurrent
      liabilities:Short-term borrowings and current
      portion of long-term debt
    $           
      5,485
    $          
      5,485Accounts payable
    964,661
    1,096,289Accrued commissions
    254,047
    380,448Billings in excess of costs and
      estimated earnings
    340,238
    367,764Other current
    liabilities
    951,453
    1,548,655Total current liabilities
    2,515,884
    3,398,641Long-term liabilities
    310,884
    313,626Stockholders'
      Equity:Common stock and additional paid-in
      capital
    6,649,554
    6,611,906Retained earnings
    10,815,127
    10,507,51417,464,681
    17,119,420Treasury stock - at
    cost
    (2,239,324)
    (2,231,284)Total stockholders' equity
    15,225,357
    14,888,136$ 
      18,052,125
    $  18,600,403 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 30,2010
    2009
    2010
    2009Sales, net
    $
      4,525,002
    $  3,488,797
    $
      8,801,825
    $ 8,502,470Cost of goods sold
    3,487,175
    2,073,929
    6,623,261
    5,355,756Gross
      profit
    1,037,827
    1,414,868
    2,178,564
    3,146,714Selling, general and administrative
      expenses
    877,872
    1,132,084
    1,756,808
    2,312,422Operating
      income
    159,955
    282,784
    421,756
    834,292Other income, net
    32,520
    7,107
    60,857
    2,396Income before provision for income
      taxes
    192,475
    289,891
    482,613
    836,688Provision for income taxes
      (benefit)
    69,500
    (212,000)
    175,000
    14,000Net
      income
    $     122,975
    $   
      501,891
    $   
      307,613
    $  
  822,688Basic and diluted earnings per
      common share
    $      0.04
    $    0.16
    $      0.10
    $     0.26  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
    2010
    2009Operating
      activities:Net income
    $  
      307,613
    $    
      822,688Adjustments to reconcile net income
      to net cash flows fromoperating
      activities:Depreciation and
      amortization
    233,854
    225,363Stock options issued for
      services
    30,463
    19,851Changes in other assets and
      liabilities:Accounts receivable
    3,498,183
    1,450,197Inventory
    188,342
    (359,899)Costs and estimated earnings in
      excess of billings
    (1,256,341)
    (1,828,764)Other current assets
    (5,693)
    (2,663)Accounts payable
    (131,628)
    (141,119)Accrued commissions
    (126,401)
    64,523Billings in excess of costs and
      estimated earnings
    (27,526)
    92,801Other current
    liabilities
    (597,202)
    483,971Net operating
      activities
    2,113,664
    826,949Investing
      activities:Acquisition of property and
      equipment
    (132,096)
    (129,059)Other investing
      activities
    (2,965)
    34,971Net investing
      activities
    (135,061)
    (94,088)Financing
      activities:Net short-term borrowings and
      repayments on long-term debt
    (2,742)
    (725,742)Proceeds from issuance of common
      stock, net
    7,185
    7,050Acquisition of treasury
      stock
    (8,040)
    (62)Net financing
      activities
    (3,597)
    (718,754)Net change in cash and cash
      equivalents
    1,975,006
    14,107Cash and cash equivalents -
      beginning
    197,587
    45,297Cash and cash equivalents
      - ending
    $
      2,172,593
    $   
          59,404 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, 2010 and May 31, 2010, the
      results of operations for the three and six months ended November 30, 2010
      and November 30, 2009, and cash flows for the six months ended November
      30, 2010 and November 30, 2009. 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, 2010.  There have been no updates or changes to our
      audited financial statements for the year ended May 31,
      2010.2.
    The Company has evaluated events and transactions for
      potential recognition or disclosure in the financial statements through
      January 14, 2011 (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, 2010 and November 30, 2009, the net
      income was divided by 3,230,221 and 3,222,943, 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, 2010 are not
      necessarily indicative of the results to be expected for the full
      year.6.
    Recently issued
      Financial Accounting Standards Board Accounting Standards Codification
      guidance has either been implemented or is 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, 2010 and November 30, 2009Increase
    /(Decrease)Sales,
net
    
    $       
      299,000Cost of goods
      sold
    
    $   
       1,267,000Selling, general and
      administrative expenses
    
    $     
      (556,000)Income before provision
      for income taxes
    
    $     
      (354,000)Provision for income
      taxes
    
    $       
      161,000Net
income
    
    $     
      (515,000)
 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, 2010(All figures
discussed are for the six months ended November 30, 2010 as compared to the six
months ended November 30, 2009.) Six months ended
    ChangeNovember 30, 2010
    November 30, 2009
    Increase / (Decrease)
    Percent
      ChangeNet
      Revenue
    $  8,802,000
    $ 8,503,000
    $   299,000
    4%Cost of
      sales
    6,623,000
    5,356,000
    1,267,000
    24%Gross
      profit
    $  2,179,000
    $ 3,147,000
    $  (968,000)
    -31%...as a percentage of net revenues
    25%
    37% The Company's consolidated
results of operations showed a 4% increase in net revenues and a decrease in net
income of 63%.  Revenues recorded in the current period for long-term
construction projects ("Project(s)") were 5% lower than the level recorded in
the prior year.  Revenues recorded in the current period for other-than
long-term construction projects (non-projects) were higher by 17% 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 25% and 37%.  This
fluctuation is attributable primarily to a.) three large export Projects in the
prior year period had higher than average margins, b.) three large Projects in
the prior year with aerospace / defense customers that had higher margins than
average Projects for construction customers, and c.) in the current period,
there were more Projects sold directly to representatives in two different Asian
countries, net of their normal commission.  This resulted in lower sales,
gross margins and commission expense. Sales of the Company's
products are made to three general groups of customers: industrial, construction
and aerospace / defense.    A breakdown of sales to the three
general groups of customers is as follows: First Half 
      Fiscal 2011
    First HalfFiscal
      2010Industrial
    9%
    8%Construction
    58%
    41%Aerospace / Defense
    33%
    51% At November 30, 2009, we had
115 open sales orders in our backlog with a total sales value of $11.4
million.  At November 30, 2010, we have 13% fewer open sales orders in our
backlog (100 orders) but the total sales value is $13 million or approximately
14% 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
    Change November 30, 2010
    November 30, 2009
    Increase / (Decrease)
    Percent ChangeOutside
      Commissions
    $   284,000
    $   475,000
    $  (191,000)
    -40%Other
      SG&A
    1,473,000
    1,837,000
    (364,000)
    -20%Total
      SG&A
    $1,757,000
    $2,312,000
    $  (555,000)
    -24%...as a percentage of net revenues
    20%                         
      27% Selling, general and
administrative expenses decreased by 24% from the prior year.  Outside
commission expense decreased by 40% from last year's level.  This
fluctuation was primarily due to a single, high value, non-project,
commissionable sales order recorded in the prior year period, as well as three
Projects in an Asian country that included higher than average commissions in
the prior year period.   Additionally, of the 23 Projects in process during
the six months ended November 30, 2010, only seven had related outside
commissions recorded.  This compares with 11 of 22 Projects having related
outside commissions recorded in the prior year period.  The primary reason
for this is, in the current period, there were more Projects sold to
representatives in two different Asian countries net of their normal
commission.  Other selling, general and administrative expenses decreased
20% from last year to this.  This decrease is primarily due to a.) a
decrease in estimated incentive compensation expense in the current period
related to the lower level of operating results and lower level of aerospace
sales, and b.) a decrease in professional fees in the current period related to
the research tax credit study completed last year and the workers' compensation
suit discussed, below, in Part II, Item 1. The above factors resulted in
operating income of $422,000 for the six months ended November 30, 2010, down
49% from the $834,000 in the same period of the prior year. For the three months ended
November 30, 2010(All figures
discussed are for the three months ended November 30, 2010 as compared to the
three months ended November 30, 2009.) Summary comparison of the three
      months ended November 30, 2010 and November 30, 2009Increase
    /(Decrease)Sales,
net
    
    $   
      1,036,000Cost of goods
      sold
    
    $   
      1,413,000Selling, general and
      administrative expenses
    
    $    
      (254,000)Income before provision
      for income taxes
    
    $       (97,000)Provision for income
      taxes
    
    $       282,000Net
income
    
    $    
      (379,000)
  Three months ended
    ChangeNovember 30, 2010
    November 30, 2009
    Increase / (Decrease)
    Percent
      ChangeNet
      Revenue
    $  4,525,000
    $ 
      3,489,000
    $
      1,036,000
    30%Cost of
      sales
    3,487,000
    2,074,000
    1,413,000
    68%Gross
      profit
    $  1,038,000
    $
      1,415,000
    $  (377,000)
    -27%...as a percentage of net revenues
    23%
    41% The Company's consolidated
results of operations showed a 30% increase in net revenues and a decrease in
net income of 75%.  Revenues recorded in the current period for long-term
construction projects were 39% higher than 9  the
level recorded in the prior year.  Revenues recorded in the current period
for other-than long-term construction projects (non-projects) were up 18% 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 23% and 41%.  This
fluctuation is attributable primarily to a.) two large export Projects in the
prior year period had higher than average margins, b.) three large Projects in
the prior year with aerospace / defense customers that had higher margins than
average Projects for construction customers, and c.) in the current period,
there were more Projects sold directly to representatives in two different Asian
countries, net of their normal commission.  This resulted in lower sales,
gross margins and commission expense. A breakdown of sales to the
three general groups of customers is as follows: Second Quarter 
      Fiscal 2011
    Second Quarter 
      Fiscal 2010Industrial
    11%
    12%Construction
    66%
    42%Aerospace / Defense
    23%
    46%  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
    Change November 30, 2010
    November 30, 2009
    Increase / (Decrease)
    Percent ChangeOutside
      Commissions
    $   179,000
    $   198,000
    $    (19,000)
    -10%Other
      SG&A
    699,000
    934,000
    (235,000)
    -25%Total
      SG&A
    $   878,000
    $1,132,000
    $  (254,000)
    -22%...as a percentage of net
      revenues
    19%                       
      32% Selling, general and
administrative expenses decreased by 22% from the prior year.  Outside
commission expense decreased by 10% from last year's level despite the 30%
increase in Net Revenue.  This fluctuation was primarily due to a.) two
Projects in an Asian country last year that included commissions significantly
higher than average, and b.) seven Projects in two other Asian countries, in the
current year, that had no outside commissions.  Other selling, general and
administrative expenses decreased 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 $160,000 for the three months ended November 30, 2010, down
43% from the $283,000 in the same period of the prior year. 10  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 $30,000 and $20,000 of compensation cost for the six month
periods ended November 30, 2010 and November 30, 2009. 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: 2010                           
2009Risk-free interest
rate:              
2.75%                       
4.875%Expected life of the
options:            2.5
years                   
2.5
years                                         
Expected share price
volatility:             
60.27%                      
57.57%                                                           
Expected
dividends:               
zero                            
zero These assumptions resulted
in:               
Estimated fair-market value per stock option:
               
$2.00                          
$1.37 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, 2010 is
presented below: Weighted-                                                                                                                              
Number
of              
Average                                                                                                                                
Options            
Exercise PriceOptions outstanding and exercisable at May 31,
2010:          
193,750                     
$ 5.11Options
granted:            
15,250             
        $
5.15                                               
                         
Options outstanding and exercisable at November 30,
2010:          
209,000                     
$ 5.11 Closing value per share on NASDAQ at November 30,
2010:                                             
$ 4.60 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, 2010 were $132,000 compared to $129,000 in the
same period of the prior year.  As of November 30, 2010, 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 11  express requirement on
the bank's part to lend.  There is no balance outstanding as of November
30, 2010 or as of May 31, 2010.  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                        
$11,159,000             
Quarterly           
Minimum debt service coverage
ratio                 
1.5:1                                    
n/a              
Fiscal Year-end All of the $6,000,000 unused
portion of our line of credit is available without violating any of our debt
covenants. Principal maturities of
long-term debt for the remainder of the current fiscal year and the subsequent
years are as follows: 2011 - $3,000; 2012 - $5,000; and 2013 -
$4,000. Inventory and
      Maintenance Inventory  November 30, 2010
    May 31, 2010
    Increase / (Decrease) Raw
      Materials
    $  
      590,000
    
    $   569,000
    
    $     21,000
    4%Work in
      process
    4,842,000
    
    5,247,000
    
    (405,000)
    -8%Finished
      goods
    737,000
    
    658,000
    
    79,000
    12%Inventory
    6,169,000
    88%
    6,474,000
    90%
    (305,000)
    -5%Maintenance
      and other inventory
    835,000
    12%
    719,000
    10%
    116,000
    16%Total
    $7,004,000
    100%
    $7,193,000
    100%
    $  (189,000)
    -3%Inventory turnover
    1.9
    
    1.6
 NOTE: Inventory
      turnover is annualized for the six month period ended November 30,
      2010. Inventory, at $6,169,000 as
of November 30, 2010, is $305,000 or five percent lower than the prior year-end
level of $6,474,000.  Of this, approximately 79% is work in process, 12% is
finished goods, and 9% is raw materials. 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
increased 16% since May 31, 2010.  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, 2010 and November 30, 2009.  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, 2010
    May
      31,  2010
    Increase /(Decrease)Accounts
      receivable
    $ 
      1,535,000
    
    $ 
      5,033,000
    
    $ 
      (3,498,000
    )
    -
    69%CIEB
    2,307,000
    
    1,051,000
    
    1,256,000
    
    120%Less:
      BIEC
    340,000
    
    368,000
    
    (28,000
    )
    -8%Net
    $ 
      3,502,000
    
    $ 
      5,716,000
    
    $ 
      (2,214,000
    )
    -39% Number
      of an average day's sales outstanding in accounts
      receivable
    31
    99  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. 12  Accounts receivable of
$1,535,000 as of November 30, 2010 includes approximately $145,000 of amounts
retained by customers on Projects.  It also includes $42,000 of an
allowance for doubtful accounts ("Allowance").   The accounts
receivable balance as of May 31, 2010 of $5,033,000 included an Allowance of
$42,000.  The number of an average day's sales outstanding in accounts
receivable ("DSO") decreased from 99 days at May 31, 2010 to 31 at November 30,
2010.  The DSO is a function of 1.) the level of sales for an average day
(for example, total sales for the past three months divided by 90 days) and 2.)
the level of accounts receivable at the balance sheet date.  The level of
sales for an average day in the second quarter of the current year is only
slightly lower than in the fourth quarter of the prior year.   The level of
accounts receivable at the end of the current fiscal quarter is 69% lower than
at the end of the prior year.  The combination of these two factors caused
the DSO to decrease from last year end to this.  78% of the high level of
accounts receivable at the end of last year was due from five customers and was
collected subsequent to year-end.  The Company expects to collect the net
accounts receivable balance, including the retainage, during the next twelve
months. 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 $2,307,000 balance in this account at November 30, 2010 is
120% more than the prior year-end.  The Company expects to bill the entire
amount during the next twelve months.  20% of the CIEB balance as of the
end of the last fiscal quarter, August 31, 2010, was billed to those customers
in the current fiscal quarter ended November 30, 2010.  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, 2010
    
    May
      31, 2010Costs
    $
      2,894,000
    
    $    984,000Estimated
      earnings
    395,000
    
    223,000Less:
      Billings to customers
    982,000
    
    156,000CIEB
    $
      2,307,000
    
    $
      1,051,000Number of
      Projects in progress
    13
    
    7 As noted above, BIEC
represents billings to customers in excess of revenues recognized.  The
$340,000 balance in this account at November 30, 2010 is down slightly from the
$368,000 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, 2010
    
    May
      31, 2010Billings to
      customers
    $ 
      1,815,000
    
    $
      1,085,000Less: 
      Costs
    1,026,000
    
    673,000Less:
      Estimated earnings
    449,000
    
    44,000BIEC
    $     340,000
    
    $    368,000Number of
      Projects in progress
    2
    
    3 Summary of factors affecting
the balances in CIEB and BIEC: November 30, 2010
    
    May
      31, 2010Number of
      Projects in progress
    15
    
    10Aggregate
      percent complete
    50%
    
    37%Average
      total sales value of Projects in progress
    $649,000
    
    $507,000Percentage
      of total value invoiced to customer
    29%
    
    24% 13  The Company's backlog of
sales orders at November 30, 2010 is $13 million, as it was at the end of the
prior year.  $5 million of the current backlog is on Projects already in
progress. Other Balance Sheet
Items Accounts payable, at $965,000
as of November 30, 2010, is 12% less 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, 2010 are $254,000, down 33% from the $380,000 accrued at the prior
year-end.  This decrease is primarily due to the collection of accounts
receivables (see 69% decrease in accounts receivable balance discussed above)
and subsequent payment of the related commissions.  The Company expects the
current accrued amount to be paid during the next twelve months.  Other
current liabilities decreased 39% from the prior year-end, to $951,000 primarily
due to accrued employee compensation at the prior year-end that was paid in the
current period.  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 4.  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, 2010 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 control over financial
reporting. There have been no changes in
the Company's internal controls over financial reporting that occurred during
the fiscal quarter ended November 30, 2010 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
      As previously
      disclosed, in May 2010 the Company settled the lawsuit brought by the
      State of New York Workers' Compensation Board.  The lawsuit claimed
      that the Company and 264 other entities, which had participated in the
      Manufacturing Self-Insurance Trust (the "Trust"), were jointly and
      severally liable for an alleged deficit in the Trust's assets of
      approximately $29,000,000.  While many of the Trust members settled,
      others have not.  This resulted in the settling members being exposed
      to cross-claims by the non- settling members.  By Decision and Order
      filed October 1, 2010, the New York Supreme Court in Albany County granted
      the motions of various parties and dismissed all cross-claims asserted
      against the settling members, including cross-claims asserted by the
      non-settling members.  That Decision and Order is subject to
      appeal.
      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, 2010 that
      were not registered under the Securities Act.(b)
    Use of proceeds
      following effectiveness of initial registration
      statement:Not
      Applicable(c)
    Repurchases of Equity
      Securities
  Period
    (a) Total  Number
      ofSharesPurchased
    (b) AveragePrice PaidPer
      Share
    (c)
      Total Numberof Shares Purchasedas Part
      ofPubliclyAnnounced Plansor Programs
    (d)
      MaximumNumber (orApproximate DollarValue) of Shares 
      that May YetBe Purchased Underthe Plans
      orProgramsSeptember 1, 2010
      -  September 30, 2010
    -
    -
    -
    .October 1, 2010
      -  October 31, 2010
    -
    -
    -
    .November 1, 2010 - 
      November 30, 2010
    1,700
    $4.73
    1,700
    .Total
    1,700
    $4.73
    1,700
    $492,000 (1)(1) On November 5,
      2010, the Board of Directors voted unanimously to enter into a share
      repurchase agreement through open market purchases. The initial amount
      allocable to the program is $500,000.  To date, a total of 1,700
      shares have been purchased at an average price per share of
      $4.73. 15    (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, 2010, 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
    (Removed and
      Reserved)ITEM
      5
    Other
      Information(a)
    Information required to
      be disclosed in a Report on Form 8-K, but not reported
      None(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
2010-2011.31(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.
 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, 2010, the related condensed consolidated
statements of income for the three and six months ended November 30, 2010 and
November 30, 2009 and cash flows for the six months ended November 30, 2010 and
November 30, 2009.  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, 2010, 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, 2010, 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, 2010 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, 2011 17   TAYLOR DEVICES,
  INC. Signatures Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized. TAYLOR
      DEVICES, INC.(Registrant)  Date:
    January 14,
      2011
    
    
    /s/Douglas P.
      TaylorDouglas P.
      TaylorPresidentChairman of the Board of Directors(Principal
      Executive Officer)
  Date:
    January 14,
      2011
    
    
    /s/Mark V.
      McDonoughMark V.
      McDonoughChief Financial Officer
 18