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
August 31, 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 October 13, 2010, there were
outstanding 3,231,671 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 August 31, 2010 and May 31,
    2010
    3Condensed Consolidated
      Statements of Income for the three months ended August 31, 2010 and August
      31, 2009
    4Condensed Consolidated
      Statements of Cash Flows for the three months ended August 31, 2010 and
      August 31, 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
    
    13Item 4.
    Controls and
      Procedures
    
    13PART II
    OTHER
      INFORMATIONItem 1.
    Legal
      Proceedings
    14Item 1A.
    Risk
      Factors
    14Item 2.
    Unregistered Sales of
      Equity Securities and Use of Proceeds
    14Item 3.
    Defaults Upon Senior
      Securities
    14Item 4.
    (Removed and
      Reserved)
    14Item 5.
    Other
      Information
    14Item 6.
    Exhibits
    15REPORT OF INDEPENDENT
      REGISTERED PUBLIC ACCOUNTING FIRM
    16SIGNATURES
    
    17
 2  TAYLOR DEVICES, INC. AND
      SUBSIDIARY
    
    
    .Condensed
      Consolidated Balance Sheets
    (Unaudited)August
      31,      2010
    May
      31,2010AssetsCurrent
      assets:Cash and cash
    equivalents
    $  
      2,347,948
    $        197,587Accounts receivable,
    net
    2,357,765
    5,033,395Inventory
    6,613,689
    6,474,148Costs and estimated earnings in
      excess of billings
    1,040,754
    1,051,354Other current assets
    1,387,497
    1,485,015Total current assets
    13,747,653
    14,241,499Maintenance and other inventory,
      net
    752,234
    718,749Property and equipment,
      net
    3,434,677
    3,497,800Other assets
    143,713
    142,355$ 
      18,078,277
    $  18,600,403Liabilities and
      Stockholders' EquityCurrent
      liabilities:Short-term borrowings and current
      portion of long-term debt
    $          
      5,485
    $           
      5,485Accounts payable
    1,069,232
    1,096,289Accrued commissions
    196,774
    380,448Billings in excess of costs and
      estimated earnings
    357,175
    367,764Other current
    liabilities
    1,030,445
    1,548,655Total current liabilities
    2,659,111
    3,398,641Long-term liabilities
    312,255
    313,626Stockholders'
      Equity:Common stock and additional paid-in
      capital
    6,646,043
    6,611,906Retained earnings
    10,692,152
    10,507,51417,338,195
    17,119,420Treasury stock - at
    cost
    (2,231,284)
    (2,231,284)Total stockholders' equity
    15,106,911
    14,888,136$ 
      18,078,277
    $  18,600,403 See notes to condensed consolidated
financial statements. 3  TAYLOR DEVICES,
      INC. AND SUBSIDIARYCondensed
      Consolidated Statements of Income(Unaudited)August
      31,
    August
    31,For the three months
      ended
    2010
    2009Sales, net
    $
      4,276,823
    $ 5,013,673Cost of goods sold
    3,136,086
    3,281,827Gross
      profit
    1,140,737
    1,731,846Selling, general and
      administrative expenses
    878,936
    1,180,338Operating
      income
    261,801
    551,508Other income (expense), net
    28,337
    (4,711)Income before provision for income
      taxes
    290,138
    546,797Provision for income taxes
    105,500
    226,000Net income
    
    $    184,638
    $  
         320,797Basic and diluted earnings
      per common share
    
    $    0.06
    $    0.10 See notes to condensed consolidated
financial statements. 4   TAYLOR DEVICES, INC. AND
      SUBSIDIARYCondensed
      Consolidated Statements of Cash Flows(Unaudited)August
      31,
    August
    31,For the three months
      ended
    2010
    2009Cash flows from
      operating activities:Net income
    $   
      184,638
    $    
      320,797Adjustments to reconcile net income
      to net cash flows fromoperating
      activities:Depreciation and
      amortization
    116,503
    110,556Stock options issued for
      services
    30,463
    19,851Changes in other assets and
      liabilities:Accounts receivable
    2,675,630
    138,349Inventory
    (173,026)
    210,962Costs and estimated earnings in
      excess of billings
    10,600
    (1,296,269)Other current assets
    97,518
    94,052Accounts payable
    (27,057)
    349,066Accrued commissions
    (183,674)
    138,577Billings in excess of costs and
      estimated earnings
    (10,589)
    74,884Other current
    liabilities
    (518,210)
    456,959Net cash flows from
      operating activities
    2,202,796
    617,784Cash flows from
      investing activities:Acquisition of property and
      equipment
    (53,380)
    (79,281)Other investing
      activities
    (1,358)
    36,581Net cash flows for
      investing activities
    (54,738)
    (42,700)Cash flows from
      financing activities:Net short-term borrowings and
      repayments on long-term debt
    (1,371)
    (590,475)Proceeds from issuance of common
      stock, net
    3,674
    3,351Net cash flows from
      (for) financing activities
    2,303
    (587,124)Net increase (decrease) in cash and
      cash equivalents
    2,150,361
    (12,040)Cash and cash equivalents -
      beginning
    197,587
    45,297Cash and cash equivalents
      - ending
    $
      2,347,948
    $      
  33,257 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 August 31, 2010 and May 31, 2010, the results
      of operations for the three months ended August 31, 2010 and August 31,
      2009, and cash flows for the three months ended August 31, 2010 and August
      31, 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 October 13, 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 month
      periods ended August 31, 2010 and August 31, 2009, the net income was
      divided by 3,230,965 and 3,222,327, respectively, which is net of the
      Treasury shares, to calculate the net income per
      share.5.
    The results of
      operations for the three month period ended August 31, 2010 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 now issues 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 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 three
      months ended August 31, 2010 and August 31, 2009Increase
    /(Decrease)Sales,
net
    
    $     (737,000)Cost of goods
      sold
    
    $    
      (146,000)Selling, general and
      administrative expenses
    
    $    
      (301,000)Income before provision
      for income taxes
    
    $    
      (257,000)Provision for income
      taxes
    
    $     (121,000)Net
income
    
    $    
      (136,000)
 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 three
months ended August 31, 2010(All
figures discussed are for the three months ended August 31, 2010 as compared to
the three months ended August 31, 2009.) Three months ended
    ChangeAugust 31, 2010
    August 31, 2009
    Increase / (Decrease)
    Percent
      ChangeNet
      Revenue
    $  4,277,000
    $
      5,014,000
    $  
      (737,000)
    -15%Cost of
      sales
    3,136,000
    3,282,000
    (146,000)
    -4%Gross
      profit
    $  1,141,000
    $
      1,732,000
    $   (591,000)
    -34%...as a percentage of net revenues
    27%
    35% The Company's
consolidated results of operations showed a 15% decrease in net revenues and a
decrease in net income of 42%.  Revenues recorded in the current period for
long-term construction projects were 32% 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 27% and 35%.  This
fluctuation is attributable primarily to a.) three large export projects in the
prior year period had higher than average margins, b.) one large project in the
prior year with an aerospace / defense customer that had higher margin 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 Quarter 
      Fiscal Year 2011
    First Quarter 
      Fiscal Year 2010Industrial
    7%
    6%Construction
    49%
    40%Aerospace / Defense
    44%
    54% At August 31, 2009, we had
110 open sales orders in our backlog with a total sales value of $11.3
million.  At August 31, 2010, we have 11% fewer open sales orders in our
backlog (98 orders) but the total sales value is $13.5 million or approximately
19% 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 Three months ended
    Change August 31, 2010
    August 31, 2009
    Increase / (Decrease)
    Percent ChangeOutside
      Commissions
    $   105,000
    $   276,000
    $  (171,000)
    -62%Other
      SG&A
    774,000
    904,000
    (130,000)
    -14%Total
      SG&A
    $   879,000
    $1,180,000
    $  (301,000)
    -26%...as a percentage of net revenues
    21%
    24% Selling,
general and administrative expenses decreased by 26% from the prior year. 
Outside commission expense decreased by 62% 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 17 Projects in process during the
quarter ended August 31, 2010, only three had related outside commissions
recorded.  This compares with 10 of 17 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 14% from last year to
this.  This decrease is primarily due to a  decrease in incentive
compensation expense in the current period related to the lower level of
operating results and lower level of aerospace sales. The above factors resulted in
operating income of $262,000 for the three months ended August 31, 2010, down
53% from the $552,000 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 $30,000 and $20,000 of compensation cost for
the three month periods ended August 31, 2010 and August 31, 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                           
2009                                                           
Risk-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. 9   A summary of changes in the
stock options outstanding during the three month period ended August 31, 2010 is
presented below: Weighted-                                                                                                                              
Number
of              
Average                                                                                                                                
Options            
Exercise Price Options outstanding and exercisable at May 31,
2010:          
193,750                     
$ 5.11Options
granted:            
15,250             
        $
5.15                       
Options outstanding and exercisable at August 31,
2010:          
209,000                 
    $
5.11 Closing value per share on NASDAQ at August 31,
2010:                                             
$ 4.88 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 three months ended August 31, 2010 were $53,000 compared to
$79,000 in the same period of the prior year.  As of August 31, 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 express requirement on the bank's
part to lend.  There is no balance outstanding as of August 31, 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                        
$11,089,000             
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
five years are as follows: 2011 - $4,000; 2012 - $5,000; and 2013 -
$4,000. Inventory and
      Maintenance Inventory  August 31, 2010
    May 31, 2010
    Increase / (Decrease) Raw
      Materials
    $  
      551,000
    
    $   569,000
    
    $     (18,000)
    -3%Work in
      process
    5,290,000
    
    5,247,000
    
    43,000
    1%Finished
      goods
    773,000
    
    658,000
    
    115,000
    17%Inventory
    6,614,000
    91%
    6,474,000
    90%
    140,000
    2%Maintenance
      and other inventory
    752,000
    9%
    719,000
    10%
    33,000
    5%Total
    $7,366,000
    100%
    $7,193,000
    100%
    $    173,000
    2%Inventory turnover
    1.7
    
    1.6
 NOTE: Inventory
      turnover is annualized for the three month period ended August 31,
      2010. Inventory, at $6,614,000 as
of August 31, 2010, is $140,000 or two percent higher than the prior year-end
level of $6,474,000.  Of this, approximately 80% is work in process, 12% is
finished goods, and 8% is raw materials. 10   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 slightly since May 31, 2010.  Management of the Company has
recorded an allowance for potential inventory obsolescence. The provision for
potential inventory obsolescence was $45,000 for each of the three month periods
ended August 31, 2010 and August 31, 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") August 31,
      2010
    May 31,
      2010
    Increase /(Decrease)Accounts
      receivable
    $ 
      2,358,000
    
    $ 
      5,033,000
    
    $ 
      (2,675,000
    )
    -53%CIEB
    1,041,000
    
    1,051,000
    
    (10,000
    )
    -1%Less:
      BIEC
    357,000
    
    368,000
    
    (11,000
    )
    -3%Net
    $ 
      3,042,000
    
    $ 
      5,716,000
    
    $ 
      (2,674,000
    )
    -47% Number
      of an average day's sales outstanding in accounts receivable
    50
    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. Accounts receivable of
$2,358,000 as of August 31, 2010 includes approximately $342,000 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, 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 50 at August 31, 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 first
quarter of the current year is slightly lower than in the fourth quarter of the
prior year.  This is consistent with the overall decrease in revenue during
the current year to date.  The level of accounts receivable at the end of
the current fiscal quarter is 53% 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 $1,041,000 balance in this account at August 31, 2010 is
only slightly less than the prior year-end.  The Company expects to bill
the entire amount during the next twelve months.  71% of the CIEB balance
as of the end of the last fiscal quarter, May 31, 2010, was billed to those
customers in the current fiscal quarter ended August 31, 2010.  The
remainder will be billed as the projects progress, in accordance with the terms
specified in the various contracts. 11  The balances in this
account are comprised of the following components: August 31, 2010
    
    May
      31, 2010Costs
    $
      1,280,000
    
    $    984,000Estimated
      earnings
    217,000
    
    223,000Less:
      Billings to customers
    456,000
    
    156,000CIEB
    $
      1,041,000
    
    $
      1,051,000Number of
      Projects in progress
    9
    
    7 As noted above, BIEC
represents billings to customers in excess of revenues recognized.  The
$357,000 balance in this account at August 31, 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: August 31, 2010
    
    May
      31, 2010Billings to
      customers
    $ 
      1,205,000
    
    $
      1,085,000Less: 
      Costs
    752,000
    
    673,000Less:
      Estimated earnings
    96,000
    
    44,000BIEC
    $     357,000
    
    $    368,000Number of
      projects in progress
    2
    
    3 Summary of factors affecting
the balances in CIEB and BIEC: August 31, 2010
    
    May
      31, 2010Number of
      Projects in progress
    11
    
    10Aggregate
      percent complete
    35%
    
    37%Average
      total sales value of Projects in progress
    $606,000
    
    $507,000Percentage
      of total value invoiced to customer
    25%
    
    24% The Company's backlog of
sales orders at August 31, 2010 is $13.5 million, up slightly from the $13
million backlog value at the end of the prior year.  $4.3 million of the
current backlog is on long-term construction projects already in
progress. Other Balance Sheet
Items Accounts payable, at
$1,069,000 as of August 31, 2010, is only slightly less than the prior
year-end.  Commission expense on applicable sales orders is recognized at
the time revenue is recognized.  The commission is paid following receipt
of payment from the customers.  Accrued commissions as of August 31, 2010
are $197,000, down 48% from the $380,000 accrued at the prior year-end. 
This decrease is primarily due to the collection of accounts receivables (see
53% 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 33% from the prior year-end, to $1,030,000 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. 12   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 August 31, 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 August 31, 2010 that have materially affected, or are
reasonably likely to materially affect, the Company's control over financial
reporting. 13   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 August 31, 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
      None(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 August 31, 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
      reportedNone 14    (b)
    Material changes to the
      procedures by which Security Holders may recommend nominees to the
      Registrant's Board of Directors
      NoneITEM 6
    Exhibits31(i)
    Rule 13a-14(a) Certification of Chief Executive
      Officer.31(ii)
    Rule 13a-14(a) Certification of Chief Financial
      Officer.32(i)
    Section 1350 Certification of Chief Executive
      Officer.32(ii)
    Section 1350 Certification of Chief Financial
      Officer.
 15    Report of Independent
Registered Public Accounting Firm The Board of Directors and
StockholdersTaylor Devices, Inc. We have reviewed the
accompanying condensed consolidated balance sheet of Taylor Devices, Inc. and
Subsidiary as of August 31, 2010, the related condensed consolidated statements
of income for the three months ended August 31, 2010 and August 31, 2009 and
cash flows for the three months ended August 31, 2010 and August 31, 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 YorkOctober 13, 2010 16   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:
    October 13,
      2010
    
    
    /s/Douglas P.
      TaylorDouglas P.
      TaylorPresidentChairman of the Board of Directors(Principal
      Executive Officer)
  Date:
    October 13,
      2010
    
    
    /s/Mark V.
      McDonoughMark V.
      McDonoughChief Financial Officer
 17