Taylor Devices, Inc - Condensed Consolidated Statements of Income...

Taylor Devices, Inc - Recent Material Event

Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets November 30, 2007 and May 31, 2007	3
		Condensed Consolidated Statements of Income for the three and six months ended November 30, 2007 and November 30, 2006	4
		Condensed Consolidated Statements of Cash Flows for the six months ended November 30, 2007 and November 30, 2006	5
		Notes to Condensed Consolidated Financial Statements	6

	Item 2.	Management's Discussion and Analysis or Plan of Operation	7
	Item 3.	Controls and Procedures		14
PART II	OTHER INFORMATION
	Item 1.	Legal Proceedings	15
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
	Item 3.	Defaults upon Senior Securities	15
	Item 4.	Submission of Matters to a Vote of Security Holders	16
	Item 5.	Other Information	16
	Item 6.	Exhibits	16

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			17
SIGNATURES			18

TAYLOR DEVICES, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets		(Unaudited)
		November 30, 2007	May 31, 2007
		November 30, 2007	May 31, 2007

Assets
Current assets:
	Cash and cash equivalents	$ 135,118	$ 22,748
	Accounts receivable, net	2,308,317	3,893,793
	Inventory	6,214,115	5,093,146
	Costs and estimated earnings in excess of billings	1,442,417	1,991,183
	Other current assets	1,173,545	954,358
	Total current assets	11,273,512	11,955,228

Maintenance and other inventory, net		943,996	753,825
Property and equipment, net		3,544,953	3,349,810
Investment in affiliate, at equity		455,327	451,520
Intangible and other assets		140,729	142,007
		$ 16,358,517	$ 16,652,390
Liabilities and Stockholders' Equity
Current liabilities:
	Short-term borrowings and current portion of long-term debt	$ 1,115,296	$ 1,866,066
	Payables - trade	1,405,387	994,057
	Accrued commissions	573,953	666,323
	Billings in excess of costs and estimated earnings	130,600	18,002
	Other current liabilities	952,074	1,258,783
	Total current liabilities	4,177,310	4,803,231

Long-term liabilities		439,919	564,207
Payables - affiliate		102,764	174,609
Minority stockholder's interest		540,465	520,504

Stockholders' Equity:
	Common stock and additional paid-in capital	4,877,224	4,830,543
	Retained earnings	7,276,917	6,815,378
		12,154,141	11,645,921
	Treasury stock - at cost	(1,056,082)	(1,056,082)
	Total stockholders' equity	11,098,059	10,589,839

		$ 16,358,517	$ 16,652,390

See notes to condensed consolidated financial statements.

TAYLOR DEVICES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Income		(Unaudited)		(Unaudited)
		For the three months ended November 30,		For the six months ended November 30,
		2007	2006	2007	2006


Sales, net		$ 4,276,406	$ 3,826,975	$ 8,684,591	$ 7,824,477

Cost of goods sold		3,011,531	2,497,338	5,730,645	4,907,145

	Gross profit	1,264,875	1,329,637	2,953,946	2,917,332

Selling, general and administrative expenses		1,056,093	1,008,048	2,124,596	2,253,573

	Operating income	208,782	321,589	829,350	663,759

Other expense, net		(10,428)	(90,165)	(55,957)	(173,678)

	Income before provision for income taxes, equity in net
	income of affiliate and minority stockholder's interest	198,354	231,424	773,393	490,081

Provision for income taxes		74,000	88,200	295,700	183,200

	Income before equity in net income of affiliate
	and minority stockholder's interest	124,354	143,224	477,693	306,881

Equity in net income (loss) of affiliate		(782)	1,971	3,807	4,503

	Income before minority stockholder's interest	123,572	145,195	481,500	311,384

Minority stockholder's interest		(10,263)	(6,421)	(19,961)	(17,097)

	Net income	$113,309	$ 138,774	$461,539	$ 294,287
	Basic and diluted earnings per common share	$ 0.04	$ 0.04	$ 0.15	$ 0.09

See notes to condensed consolidated financial statements

1204:

TAYLOR DEVICES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows
					(Unaudited) November 30,
For the six months ended					2007	2006

Cash flows from operating activities:
	Net income				$ 461,539	$ 294,287
	Adjustments to reconcile net income to net cash flows from
	operating activities:
		Depreciation and amortization			179,323	178,625
		Gain of sale of equipment			(890)	-
		Stock based compensation expense related to employee stock options			37,741	76,368
		Bad debts expense			(68,105)	45,000
		Equity in net (income) loss of affiliate			(3,807)	(4,503)
		Minority stockholder's interest			19,961	17,097
		Changes in other assets and liabilities:
			Accounts receivable		1,653,581	(915,010)
			Inventory		(1,311,140)	(871,521)
			Costs and estimated earnings in excess of billings		548,766	884,857
			Other current assets		(236,548)	142,656
			Payables - trade		411,330	(366,113)
			Accrued commissions		(92,370)	263,245
			Billings in excess of costs and estimated earnings		112,598	33,600
			Other current liabilities		(306,709)	203,167
				Net cash flows from (for) operating activities	1,405,270	(18,245)

Cash flows from investing activities:
	Acquisition of property and equipment				(370,266)	(135,868)
	Other investing activities				15,329	10,695
				Net cash flows for investing activities	(354,937)	(125,173)

Cash flows from financing activities:
	Net short-term borrowings and repayments on long-term debt				(875,058)	146,486
	Payables - affiliate				(71,845)	(27,774)
	Proceeds from issuance of common stock				8,940	6,965
				Net cash flows from (for) financing activities	(937,963)	125,677

				Net increase (decrease) in cash and cash equivalents	112,370	(17,741)

Cash and cash equivalents - beginning					22,748	60,011

				Cash and cash equivalents - ending	$ 135,118	$ 42,270

See notes to condensed consolidated financial statements.

TAYLOR DEVICES, INC.

Notes to Condensed Consolidated Financial Statements

1.	The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of November 30, 2007 and May 31, 2007, the results of operations for the three and six months ended November 30, 2007 and November 30, 2006, and cash flows for the six months ended November 30, 2007 and November 30, 2006. These financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company's Annual Report to Shareholders for the year ended May 31, 2007. There have been no updates or changes to our audited financial statements for the year ended May 31, 2007.

2.	There is no provision nor shall there be any provisions for profit sharing, dividends, or any other benefits of any nature at any time for this fiscal year.

3.	For the three and six month periods ended November 30, 2007 and 2006 the net income was divided by 3,145,692 and 3,142,778, respectively, which is net of the Treasury shares, to calculate the net income per share.

4.	The results of operations for the six month period ended November 30, 2007 are not necessarily indicative of the results to be expected for the full year.

5.	Significant Equity Investee: The Company owns approximately a 23% equity investment in Tayco Developments, Inc. (Developments). For the six months ended November 30, 2007, Developments had revenues of $144,000 and net income of $118,000. The carrying amount of the investment in Developments as of November 30, 2007 and May 31, 2007 was $455,000 and $452,000.

6.	Effective June 1, 2006, the Company adopted the stock option expensing rules of Statement of Financial Accounting Standards (SFAS) No. 123R, Share Based Payment, using the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation. The Company utilized the modified prospective approach of adoption under SFAS No. 123R. Accordingly, compensation cost recognized in the six month period ended November 30, 2007 includes compensation cost for all stock options granted subsequent to May 31, 2007, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. As a result of adopting SFAS 123R on June 1, 2006, the Company's earnings before income taxes for the six month periods ended November 30, 2007 and 2006 was approximately $38,000 and $76,000 lower than if it had continued to be accounted for as share-based compensation under APB Opinion 25.

TAYLOR DEVICES, INC.

Item 2. Management's Discussion and Analysis or Plan of Operation

Cautionary Statement

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Information in this Item 2, "Management's Discussion and Analysis or Plan of Operation," and elsewhere in this 10-QSB that does not consist of historical facts, are "forward-looking statements." Statements accompanied or qualified by, or containing, words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements and, as such, are not a guarantee of future performance. The statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products, as well as other factors, many or all of which may be beyond the Company's control. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. The Company disclaims any obligation to release publicly any updates or revisions to the forward-looking statements herein to reflect any change in the Company's expectations with regard thereto, or any changes in events, conditions or circumstances on which any such statement is based.

Results of Operations

A summary of the period to period changes in the principal items included in the condensed consolidated statements of income is shown below:

Summary comparison of the six months ended November 30, 2007 and 2006
		Increase /
		(Decrease)
Sales, net		$ 860,000
Cost of goods sold		$ 824,000
Selling, general and administrative expenses		$ (129,000)
Other expense, net		$ (118,000)
Income before provision for income taxes, equity in net income of affiliate and minority stockholder's interest		$ 283,000
Provision for income taxes		$ 113,000
Income before equity in net income of affiliate and minority stockholder's interest		$ 171,000
Equity in net income of affiliate		$ (1,000)
Net income		$ 167,000

Sales under certain fixed-price contracts, requiring substantial performance over several periods prior to commencement of deliveries, are accounted for under the percentage-of-completion method of accounting whereby revenues are recognized based on estimates of completion prepared on a ratio of cost to total estimated cost basis. Costs include all material and direct and indirect charges related to specific contracts.

Adjustments to cost estimates are made periodically and any losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined. However, any profits expected on contracts in progress are recognized over the life of the contract.

For financial statement presentation purposes, the Company nets progress billings against the total costs incurred on uncompleted contracts. The asset, "costs and estimated earnings in excess of billings," represents revenues recognized in excess of amounts billed. The liability, "billings in excess of costs and estimated earnings," represents billings in excess of revenues recognized.

For the six months ended November 30, 2007 (All figures being discussed are for the six months ended November 30, 2007 as compared to the six months ended November 30, 2006.)

	Six months ended		Change
	November 30, 2007	November 30, 2006	Increase / (Decrease)	Percent Change
Net Revenue	$ 8,685,000	$ 7,824,000	$ 861,000	11%
Cost of sales	5,731,000	4,907,000	824,000	17%
Gross profit	$ 2,954,000	$ 2,917,000	$ 37,000	1%
..as a percentage of net revenues	34%	37%

The Company's consolidated results of operations showed a 11% increase in net revenues and an increase in net income of 57%. Revenues recorded in the current period for long-term construction projects were slightly less (12%) than the level recorded in the prior year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were up approximately $1,441,000 or 51% over the level recorded in the prior year. This increase is primarily in sales of products to customers in aerospace and defense related fields. Gross profit increased by 1%. The gross profit as a percentage of net revenues for the current and prior year periods was 34% and 37%.

The Company's revenues and net income fluctuate from period to period. The increases in the current period, compared to the prior period, are not necessarily representative of future results.

Selling, General and Administrative Expenses

Six months ended

Change

2052:

	November 30, 2007	November 30, 2006	Increase / (Decrease)	Percent Change
Outside Commissions	$ 593,000	$ 781,000	$(188,000)	-24%
Other SG&A	1,532,000	1,473,000	59,000	4%
Total SG&A	$2,125,000	$2,254,000	$(129,000)	-6%
..as a percentage of net revenues	24%	29%

Selling, general and administrative expenses decreased by 6% from the prior year. Outside commission expense decreased by 24% over last year's level. Outside commission expense was lower in this period due to higher commission rates on two large, long-term construction projects in production last year, offset slightly by a higher volume of sales subject to commission in the current year. Other selling, general and administrative expenses increased by only 4% from last year to this.

The above factors resulted in operating income of $829,000 for the six months ended November 30, 2007, up 25% from the $664,000 in the same period of the prior year.

Other expense, net, of $56,000 is primarily interest expense and is $118,000 less than in the prior year. The average level of use of the Company's operating line of credit during the period decreased significantly from $3.6 million last year to $1.7 million this year. The line of credit is used primarily to fund the production of larger projects that do not allow for advance payments or progress payments.

Summary comparison of the three months ended November 30, 2007 and 2006
		Increase /
		(Decrease)
Sales, net		$ 449,000
Cost of goods sold		$ 514,000
Selling, general and administrative expenses		$ 48,000
Other expense, net		$ (80,000)
Income before provision for income taxes, equity in net income of affiliate and minority stockholder's interest		$ (33,000)
Provision for income taxes		$ (14,000)
Income before equity in net income of affiliate and minority stockholder's interest		$ (19,000)
Equity in net income of affiliate		$ (3,000)
Net income		$ (25,000)

For the three months ended November 30, 2007 (All figures being discussed are for the three months ended November 30, 2007 as compared to the three months ended November 30, 2006.)

	Three months ended		Change
	November 30, 2007	November 30, 2006	Increase / (Decrease)	Percent Change
Net Revenue	$ 4,276,000	$ 3,827,000	$ 449,000	12%
Cost of sales	3,011,000	2,497,000	514,000	21%
Gross profit	$ 1,265,000	$ 1,330,000	$ (65,000)	-5%
..as a percentage of net revenues	30%	35%

The Company's consolidated results of operations showed a 12% increase in net revenues and a decrease in net income of 18%. Revenues recorded in the current period for long-term construction projects were slightly less (6%) than the level recorded in the prior year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were up approximately $589,000 or 36% over the level recorded in the prior year. This increase is primarily in sales of products to customers in aerospace and defense related fields. Gross profit decreased by 5%. The gross profit as a percentage of net revenues for the current and prior year periods was 30% and 35%. The gross profit is lower primarily because of nine long-term construction projects in Asia that were negotiated in a very competitive market.

The Company's revenues and net income fluctuate from period to period. The increases in the current period, compared to the prior period, are not necessarily representative of future results.

Selling, General and Administrative Expenses

Three months ended

Change

	November 30, 2007	November 30, 2006		Increase / (Decrease)	Percent Change
Outside Commissions	$ 343,000	$ 340,000		$ 3,000	1%
Other SG&A	713,000	668,000		45,000	7%
Total SG&A	$1,056,000	$1,008,000		$ 48,000	5%
..as a percentage of net revenues	25%		26%

Selling, general and administrative expenses increased by 5% from the prior year. Outside commission expense increased by 1% over last year's level. Outside commission expense was slightly higher in this period due to a higher commission accrued on one long-term construction project in Asia, combined with a higher volume of sales subject to commission in the current year. Other selling, general and administrative expenses increased by only 7% from last year to this.

The above factors resulted in operating income of $209,000 for the three months ended November 30, 2007, down 35% from the $322,000 in the same period of the prior year.

Other expense, net, of $10,000 is primarily interest expense and is $80,000 less than in the prior year. The average level of use of the Company's operating line of credit during the period decreased significantly from $3.6 million last year to $1.2 million this year. The line of credit is used primarily to fund the production of larger projects that do not allow for advance payments or progress payments.

Stock Options

The Company has a stock option plan which provides for the granting of nonqualified or incentive stock options to officers, key employees and non-employee directors. Options granted under the plan are exercisable over a ten year term. Options not exercised at the end of the term expire.

On June 1, 2006, the Company adopted the stock option expensing rules of Statement of Financial Accounting Standards (SFAS) No. 123R, "Share Based Payment," using the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." The Company utilized the modified prospective approach of adoption under SFAS No. 123R which resulted in the recognition of $38,000 and $76,000 of compensation cost for the six month periods ended November 30, 2007 and 2006.

The fair value of each stock option grant has been determined using the Black-Scholes model. The model considers assumptions related to exercise price, expected volatility, risk-free interest rate, and the weighted average expected term of the stock option grants. Expected volatility assumptions utilized in the model were based on volatility of the Company's stock price for the thirty month period ending on the date of grant. The risk-free interest rate is derived from the U.S. treasury yield. The Company used a weighted average expected term. The following assumptions were used in the Black-Scholes model in estimating the fair market value of the Company's stock option grants:

November 30, 2007 November 30, 2006

                                                         Risk-free interest rate:              3.625%                           3%
                                               Expected life of the options:            2.5 years                    2.5 Years
                                          Expected share price volatility:              61.47%                      152.96%
                                                            Expected dividends:                zero                             zero

These assumptions resulted in:
Estimated fair-market value per stock option: $2.47 $4.82

The ultimate value of the options will depend on the future price of the Company's common stock, which cannot be forecast with reasonable accuracy.

A summary of changes in the stock options outstanding during the six month period ended November 30, 2007 is presented below:

	Number of Options	Weighted- Average Exercise Price
Options outstanding and exercisable at May 31, 2007:	87,500	$ 5.200
Options granted:	15,250	$ 6.170
Options exercised:	-	-
Options expired:	-	-

Options outstanding and exercisable at November 30, 2007:	102,750	$ 5.342

Capital Resources, Line of Credit and Long-Term Debt

The Company's primary liquidity is dependent upon the working capital needs. These are primarily inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts payable, accrued commissions, billings in excess of costs and estimated earnings, and debt service. The Company's primary sources of liquidity have been operations and bank financing.

Capital expenditures for the six months ended November 30, 2007 were $370,000 compared to $136,000 in the same period of the prior year. There are no material commitments for capital expenditures as of November 30, 2007.

The Company has a $5,000,000 line of credit with a bank. There is a $891,000 principal balance outstanding as of November 30, 2007, which is down from the $1,628,000 balance outstanding as of May 31, 2007. The outstanding balance on the line of credit will fluctuate as the Company's various long-term projects progress. The Company is in compliance with restrictive covenants under the line of credit and other financing arrangements, including Niagara County Industrial Development Agency Bond financing.

Principal maturities of long-term debt for the remainder of the current fiscal year and the subsequent five years are as follows: 2008 - $100,000; 2009 - $138,000; 2010 - $72,000; 2011 - $27,000; 2012 - $27,000; and 2013 - $20,000.

Inventory and Maintenance Inventory

November 30, 2007

May 31, 2007