10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2016

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 of incorporation or organization)	(I.R.S. Employer Identification 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 ☒      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 (§232.405 of this chapter) 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 ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐       No ☒

As of January 7, 2017, there were outstanding 3,431,312 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 Statements
		Condensed Consolidated Balance Sheets as of November 30, 2016 and May 31, 2016	3
		Condensed Consolidated Statements of Income for the three and six months ended November 30, 2016 and 2015	4
		Condensed Consolidated Statements of Cash Flows for the six months ended November 30, 2016 and 2015	5
		Notes to Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		15
	Item 4.	Controls and Procedures		15
PART II	OTHER INFORMATION
	Item 1.	Legal Proceedings	16
	Item 1A.	Risk Factors	16
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
	Item 3.	Defaults Upon Senior Securities	17
	Item 4.	Mine Safety Disclosures	17
	Item 5.	Other Information	17
	Item 6.	Exhibits	17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			18
SIGNATURES			19

2 

TAYLOR DEVICES, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets	(Unaudited)
	November 30,			May 31,
	2016			2016
Assets
Current assets:
Cash and cash equivalents	$	4,015,826		$	6,086,080
Short-term investments		1,014,246			1,000,000
Accounts receivable, net		3,783,449			3,992,214
Inventory		10,576,467			9,604,956
Costs and estimated earnings in excess of billings		6,424,624			5,500,771
Other current assets		1,273,040			1,437,381
Total current assets		27,087,652			27,621,402
Maintenance and other inventory, net		609,545			697,043
Property and equipment, net		9,777,753			8,994,504
Other assets		178,128			175,350
Total Assets	$	37,653,078		$	37,488,299
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	2,041,703		$	1,767,017
Accrued commissions		898,572			683,600
Billings in excess of costs and estimated earnings		838,417			1,463,621
Other current liabilities		1,656,329			2,733,847
Total current liabilities		5,435,021			6,648,085
Long-term liabilities		682,985			682,985
Stockholders' Equity:
Common stock and additional paid-in capital		9,003,309			8,628,280
Retained earnings		25,333,247			24,185,133
		34,336,556			32,813,413
Treasury stock -  at cost		(2,801,484	)		(2,656,184	)
Total stockholders’ equity		31,535,072			30,157,229
	$	37,653,078		$	37,488,299
See notes to condensed consolidated financial statements.

3 

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,
	2016		2015		2016		2015
Sales, net	$	7,807,465	$	8,819,548	$	13,563,178	$	18,292,962
Cost of goods sold		5,061,495		5,824,754		9,369,084		11,922,880
Gross profit		2,745,970		2,994,794		4,194,094		6,370,082
Selling, general and administrative expenses		1,373,726		1,576,225		2,555,700		3,403,214
Operating income		1,372,244		1,418,569		1,638,394		2,966,868
Other income,  net		26,036		6,089		35,720		9,439
Income before provision for income taxes		1,398,280		1,424,658		1,674,114		2,976,307
Provision for income taxes		460,000		500,000		526,000		1,042,000
Net income	$	938,280	$	924,658	$	1,148,114	$	1,934,307
Basic and diluted earnings per common share	$	0.27	$	0.27	$	0.34	$	0.57
See notes to condensed consolidated financial statements.

4 

TAYLOR DEVICES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
	(Unaudited)
	November 30,
For the six months ended	2016			2015
Operating activities:
Net income	$	1,148,114		$	1,934,307
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation		453,823			395,821
Stock options issued for services		78,789			60,719
Changes in other assets and liabilities:
Accounts receivable		208,765			(1,883,211	)
Inventory		(884,013	)		(936,101	)
Costs and estimated earnings in excess of billings		(923,853	)		201,945
Other current assets		164,341			98,549
Accounts payable		274,686			(726,125	)
Accrued commissions		214,972			(157,248	)
Billings in excess of costs and estimated earnings		(625,204	)		898,014
Other current liabilities		(1,077,518	)		307,625
Net operating activities		(967,098	)		194,295
Investing activities:
Acquisition of property and equipment		(1,237,072	)		(855,129	)
Other investing activities		(17,024	)		(2,847	)
Net investing activities		(1,254,096	)		(857,976	)
Financing activities:
Proceeds from issuance of common stock, net		150,940			266,021
Net change in cash and cash equivalents		(2,070,254	)		(397,660	)
Cash and cash equivalents - beginning		6,086,080			4,895,898
Cash and cash equivalents - ending	$	4,015,826		$	4,498,238
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, 2016 and May 31 2016, the results of operations for the three and six months ended November 30, 2016 and 2015, and cash flows for the six months ended November 30, 2016 and 2015. 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, 2016.

2.   The Company has evaluated events and transactions for potential recognition or disclosure in the financial statements through 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 six month periods ended November 30, 2016 and 2015, the net income was divided by 3,418,508 and 3,374,214 respectively, which is net of the Treasury shares, to calculate the net income per share. For the three month periods ended November 30, 2016 and 2015, the net income was divided by 3,415,683 and 3,370,018 respectively, which is net of the Treasury shares, to calculate the net income per share.

5.   The results of operations for the three and six month periods ended November 30, 2016 are not necessarily indicative of the results to be expected for the full year.

6.   In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09, as amended, is effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2017 (fiscal year 2019 for the Company). Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company has not yet determined the potential effects of the adoption of ASU 2014-09 on its Consolidated Financial Statements. Except as identified in Note 7, below, other recently issued Accounting Standards Codification (ASC) guidance has either been implemented or are not significant to the Company.

6 

7.    In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the presentation of deferred taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for public companies for annual reporting periods beginning after December 15, 2016 and interim periods within those fiscal years. The guidance may be adopted prospectively or retrospectively, and early adoption is permitted. Adoption of this guidance would affect the balance sheets as of November 30, 2016 and May 31, 2016 as follows:

Decrease in current assets   $ 965,100

Increase in noncurrent assets   $ 282,115

Decrease in noncurrent liabilities   $ 682,985  

8.   Inventory:

	November 30, 2016		May 31, 2016
Raw materials	$	522,315	$	511,530
Work-in-process		9,434,672		8,639,068
Finished goods		719,480		554,358
		10,676,467		9,704,956
Less allowance for obsolescence		100,000		100,000
	$	10,576,467	$	9,604,956

7 

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 and its Exhibits 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, 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; the kind, frequency and intensity of natural disasters that affect 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, 2016 and 2015
	Increase /(Decrease)
Sales, net	$	(4,730,000	)
Cost of goods sold	$	(2,554,000	)
Selling, general and administrative expenses	$	(848,000	)
Income before provision for income taxes	$	(1,302,000	)
Provision for income taxes	$	(516,000	)
Net income	$	(786,000	)

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.

8 

For the six months ended November 30, 2016 (All figures discussed are for the six months ended November 30, 2016 as compared to the six months ended November 30, 2015.)

	Six months ended November 30						Change
	2016			2015			Amount			Percent
Net Revenue	$	13,563,000		$	18,293,000		$	(4,730,000	)		-26	%
Cost of sales		9,369,000			11,923,000			(2,554,000	)		-21	%
Gross profit	$	4,194,000		$	6,370,000		$	(2,176,000	)		-34	%
… as a percentage of net revenues		31	%		35	%

The Company's consolidated results of operations showed a 26% decrease in net revenues and a decrease in net income of 41%. Revenues recorded in the current period for long-term construction projects (“Project(s)”) were 32% less than the level recorded in the prior year. We had 42 Projects in process during the current period compared with 49 during the same period last year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were 11% less than the level recorded in the prior year. Total sales within the U.S. decreased 20% from the same period last year. Total sales to Asia decreased 50% from the same period of the prior year. Sales decreases were recorded over the same period last year to customers involved in construction of buildings and bridges (25%), aerospace / defense (27%), as well as industrial customers (32%). Please refer to the charts, below, which show the breakdown of sales. The gross profit as a percentage of net revenue of 31% in the current period is four percentage points less than during the same period of the prior year. This difference is primarily due to a combination of a.) certain larger construction Projects in the prior year period for which the Company was able to negotiate higher than typical selling prices; b.) several smaller, aerospace / defense Projects in the prior year period that have margins higher than the Company’s average; c.) several export projects in the current period that were very competitively bid due to the unfavorable foreign exchange rates; and d.) lower total volume of product sales in the current period to cover non-variable manufacturing costs.

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:

	Six months ended November 30
	2016			2015
Industrial		5	%		6	%
Construction		61	%		60	%
Aerospace / Defense		34	%		34	%

At November 30, 2015, the Company had 131 open sales orders in our backlog with a total sales value of $23.6 million. At November 30, 2016, the Company has 26% fewer open sales orders in our backlog (97 orders), and the total sales value is $20.6 million or 13% less than the prior year value.

The Company's backlog, revenues, commission expense, gross margins, gross profits, and net income fluctuate from period to period. The changes in the current period, compared to the prior period, are not necessarily representative of future results.

Net revenue by geographic region, as a percentage of total net revenue for the six month periods ended November 30, 2016 and November 30, 2015 is as follows:

	Six months ended November 30
	2016			2015
USA		76	%		70	%
Asia		17	%		26	%
Other		7	%		4	%

9 

Selling, General and Administrative Expenses

	Six months ended November 30						Change
	2016			2015			Amount			Percent
Outside Commissions	$	765,000		$	1,096,000		$	(331,000	)		-30	%
Other SG&A		1,791,000			2,307,000			(516,000	)		-22	%
Total SG&A	$	2,556,000		$	3,403,000		$	(847,000	)		-25	%
… as a percentage of net revenues		19	%		19	%

Selling, general and administrative expenses decreased by 25% from the prior year. Outside commission expense decreased by 30% from last year's level. This fluctuation was primarily due to the significant decrease in commissionable sales in the current year. Other selling, general and administrative expenses decreased 22% from last year to this. This decrease is primarily due to a decrease in freight charges incurred in order to meet contractual obligations to deliver products on schedule along with a decrease in estimated incentive compensation expense in the current period related to the lower level of sales and operating results.

The above factors resulted in operating income of $1,638,000 for the six months ended November 30, 2016, 45% less than the $2,967,000 in the same period of the prior year.

Summary comparison of the three months ended November 30, 2016 and 2015
	Increase /(Decrease)
Sales, net	$	(1,012,000	)
Cost of goods sold	$	(763,000	)
Selling, general and administrative expenses	$	(202,000	)
Income before provision for income taxes	$	(26,000	)
Provision for income taxes	$	(40,000	)
Net income	$	14,000

For the three months ended November 30, 2016 (All figures discussed are for the three months ended November 30, 2016 as compared to the three months ended November 30, 2015.)

	Three months ended November 30						Change
	2016			2015			Amount			Percent
Net Revenue	$	7,807,000		$	8,819,000		$	(1,012,000	)		-11	%
Cost of sales		5,061,000			5,824,000			(763,000	)		-13	%
Gross profit	$	2,746,000		$	2,995,000		$	(249,000	)		-8	%
… as a percentage of net revenues		35	%		34	%

The Company's consolidated results of operations showed an 11% decrease in net revenues and an increase in net income of 1%. Revenues recorded in the current period for long-term construction projects (“Project(s)”) were 1% less than the level recorded in the prior year. We had 29 Projects in process during the current period compared with 42 during the same period last year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were 31% less than the level recorded in the prior year. Total sales within the U.S. decreased 4% from the same period last year. Total sales to Asia decreased 43% from the same period of the prior year. Sales decreases recorded over the same period last year to customers involved in sales to customers involved in aerospace / defense (30%), as well as industrial customers (42%) were slightly offset by an increase in sales to customers involved in construction of buildings and bridges (4%). Please refer to the charts, below, which show the breakdown of sales. The gross profit as a percentage of net revenue of 35% in the current period is slightly more than during the same period of the prior year.

10 

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:

	Three months ended November 30
	2016			2015
Industrial		4	%		6	%
Construction		66	%		56	%
Aerospace / Defense		30	%		38	%

Net revenue by geographic region, as a percentage of total net revenue for the three month periods ended November 30, 2016 and November 30, 2015 is as follows:

	Three months ended November 30
	2016			2015
USA		80	%		74	%
Asia		12	%		19	%
Other		8	%		7	%

Selling, General and Administrative Expenses

	Three months ended November 30						Change
	2016			2015			Amount			Percent
Outside Commissions	$	472,000		$	489,000		$	(17,000	)		-3	%
Other SG&A		902,000			1,087,000			(185,000	)		-17	%
Total SG&A	$	1,374,000		$	1,576,000		$	(202,000	)		-13	%
… as a percentage of net revenue		18	%		18	%

Selling, general and administrative expenses decreased by 13% from the prior year. Outside commission expense decreased by 3% from last year's level. Other selling, general and administrative expenses decreased 17% from last year to this. This decrease is primarily due to a decrease in freight charges incurred in order to meet contractual obligations to deliver products on schedule along with a decrease in estimated incentive compensation expense in the current period related to the lower level of sales and operating results.

The above factors resulted in operating income of $1,372,000 for the three months ended November 30, 2016, 3% less than the $1,419,000 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 FASB ASC. The Company recognized $79,000 and $61,000 of compensation cost for the six month periods ended November 30, 2016 and November 30, 2015.

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.

11 

The following assumptions were used in the Black-Scholes model to estimate the fair market value of the Company's stock option grants:

	November 2016	November 2015
Risk-free interest rate:	1.625%	1.500%
Expected life of the options:	3.4 years	3.3 years
Expected share price volatility:	26%	31%
Expected dividends:	zero	zero
These assumptions resulted in estimated fair‑market value per stock option:	$4.04	$3.11

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, 2016 is presented below:

		Weighted-
	Number of	Average
	Options	Exercise Price
Options outstanding and exercisable at May 31, 2016:	243,500	$9.530
Options granted:	19,500	$19.255
Options exercised:	29,500	$9.622
Options outstanding and exercisable at November 30, 2016:	233,500	$10.330
Closing value per share on NASDAQ at November 30, 2016:		$14.800

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, and billings in excess of costs and estimated earnings. The Company's primary source of liquidity has been operations.

Capital expenditures for the six months ended November 30, 2016 were $1,237,000 compared to $855,000 in the same period of the prior year. As of November 30, 2016, the Company has commitments for capital expenditures totaling $300,000 during the next twelve months. These costs are primarily related to a building expansion to allow the Company to assemble and test larger units used to provide seismic protection in buildings and bridges.

The Company believes it is carrying adequate insurance coverage on its facilities and their contents.

The Company has available 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 no balance outstanding as of November 30, 2016 or as of May 31, 2016. 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. The outstanding balance on the line of credit fluctuates as the Company's various long-term projects progress.

12 

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 of working capital	$3,000,000	$21,653,000	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.

Inventory and Maintenance Inventory

	November 30, 2016		May 31, 2016		Increase /(Decrease)
Raw materials	$522,000		$512,000		$10,000	2%
Work-in-process	9,435,000		8,639,000		796,000	9%
Finished goods	619,000		454,000		165,000	36%
Inventory	10,576,000	95%	9,605,000	93%	971,000	10%
Maintenance and other inventory	610,000	5%	697,000	7%	(87,000)	-12%
Total	$11,186,000	100%	$ 10,302,000	100%	$884,000	9%
Inventory turnover	1.7		2.3

NOTE: Inventory turnover is annualized for the six month period ended November 30, 2016.

Inventory, at $10,576,000 as of November 30, 2016, is $971,000, or 10%, more than the prior year-end level of $9,605,000. This increase is primarily due to advanced stages of work being completed on customer orders and pending customer orders. Approximately 89% of the current inventory is work in process, 6% is finished goods, and 5% 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. 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, 2016 and November 30, 2015. 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, 2016	May 31, 2016	Increase /(Decrease)
Accounts receivable	$3,783,000	$3,992,000	$(209,000)	-5%
CIEB	6,425,000	5,501,000	924,000	17%
Less: BIEC	838,000	1,464,000	(626,000)	-43%
Net	$9,370,000	$8,029,000	$1,341,000	17%
Number of an average day’s sales outstanding in accounts receivable	44	40

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.

13 

Accounts receivable of $3,783,000 as of November 30, 2016 includes approximately $765,000 of amounts retained by customers on Projects. It also includes $60,000 of an allowance for doubtful accounts (“Allowance”). The accounts receivable balance as of May 31, 2016 of $3,992,000 included an Allowance of $20,000. It is expected that amounts retained by customers under contracts will be released in the normal course of the business in accordance with the related contracts. The Company expects to collect the net accounts receivable balance, including the retainage, during the next twelve months. The number of an average day's sales outstanding in accounts receivable (“DSO”) increased slightly from 40 days at May 31, 2016 to 44 at November 30, 2016.

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, such provisions are often not possible. The $6,425,000 balance in this account at November 30, 2016 is 17% more than the prior year-end balance. This increase is the result of normal flow of the projects through production with billings to the customers as permitted in the related contracts. The Company expects to bill the entire amount during the next twelve months. 31% of the CIEB balance as of the end of the last fiscal quarter, August 31, 2016, was billed to those customers in the current fiscal quarter ended November 30, 2016. 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, 2016	May 31, 2016
Costs	$8,086,000	$8,080,000
Estimated Earnings	3,700,000	3,191,000
Less: Billings to customers	5,361,000	5,770,000
CIEB	$6,425,000	$5,501,000
Number of Projects in progress	21	19

As noted above, BIEC represents billings to customers in excess of revenues recognized. The $838,000 balance in this account at November 30, 2016 is down 43% from the $1,464,000 balance at the end of the prior year. This decrease is the result of normal flow of the projects through production with billings to the customers as permitted in the related contracts.

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 balances in this account are comprised of the following components:

	November 30, 2016	May 31, 2016
Billings to customers	$6,115,000	$5,886,000
Less: Costs	3,754,000	3,362,000
Less: Estimated Earnings	1,523,000	1,060,000
BIEC	$838,000	$1,464,000
Number of Projects in progress	3	6

Summary of factors affecting the balances in CIEB and BIEC:

	November 30, 2016	May 31, 2016
Number of Projects in progress	24	25
Aggregate percent complete	58%	59%
Average total sales value of Projects in progress	$1,248,000	$1,062,000
Percentage of total value invoiced to customer	38%	43%

14 

The Company's backlog of sales orders at November 30, 2016 is $20.6 million, down slightly from the $21.5 million at the end of the prior year. $12.9 million of the current backlog is on Projects already in progress.

Other Balance Sheet Items

Accounts payable, at $2,042,000 as of November 30, 2016, is 16% more 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 November 30, 2016 are $899,000, up 31% from the $684,000 accrued at the prior year-end. Other current liabilities decreased 39% from the prior year-end, to $1,656,000. This decrease is primarily due to a decrease in accrued incentive compensation. The Company expects the current accrued amounts to be paid during the next twelve months.

Management believes the Company's cash flows from operations and borrowing capacity under the bank line of credit are sufficient to fund ongoing operations and capital improvements 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, 2016 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, 2016 that have materially affected, or are reasonably likely to materially affect, the Company's control over financial reporting.

15 

Part II - Other Information

ITEM 1	Legal Proceedings
	There are no other legal proceedings except for routine litigation incidental to the business.
ITEM 1A	Risk Factors
	Smaller 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, 2016 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 – Quarter Ended November 30, 2016
		Period	(a) Total Number of Shares Purchased	(b) Average Price Paid Per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
		September 1, 2016 -
		September 30, 2016	-	-	-	-
		October1, 2016 -
		October 31, 2016	-	-	-	-
		November 1, 2016 -
		November 30, 2016	-	-	-	-
		Total	-	-	-	-
	(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, 2016, 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, Line of Credit and Long-Term Debt” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.

16 

ITEM 3	Defaults Upon Senior Securities
	None
ITEM 4	Mine Safety Disclosures
	Not applicable
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
		None
ITEM 6	Exhibits
	20	News from Taylor Devices, Inc. Shareholder Letter, Winter 2016-2017
	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.
	101.SCH	XBRL Taxonomy Extension Schema Document
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

17 

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Taylor Devices, Inc.

We have reviewed the accompanying condensed consolidated balance sheet of Taylor Devices, Inc. and Subsidiary as of November 30, 2016, and the related condensed consolidated statements of income for the three and six months ended November 30, 2016 and 2015 and cash flows for the six months ended November 30, 2016 and 2015. These interim financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with the 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 the standards of the Public Company Accounting Oversight Board (United States), 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 the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of May 31, 2016, 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 12, 2016, 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, 2016 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.

Lumsden & McCormick, LLP

Buffalo, New York

January 12, 2017

18 

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 12, 2017	/s/Douglas P. Taylor
		Douglas P. Taylor President Chairman of the Board of Directors (Principal Executive Officer)

Date:	January 12, 2017	/s/Mark V. McDonough
		Mark V. McDonough Chief Financial Officer

EX-20

Exhibit 20

NEWS FROM TAYLOR DEVICES, INC.

SHAREHOLDER LETTER, WINTER 2016-2017

THIS NEWSLETTER IS DIRECTED TO ALL SHAREHOLDERS OF TAYLOR DEVICES. WE HOPE THAT IT WILL GENERATE INTEREST IN THE COMPANY, PLUS PROVIDE CURRENT FINANCIAL AND PROJECT INFORMATION. COPIES OF THIS NEWSLETTER WILL ALSO BE CIRCULATED TO SHAREHOLDERS WHO HAVE SHARES IN BROKERAGE ACCOUNTS.

ITEM: FINANCIAL RESULTS

Taylor Devices completed the second quarter of its fiscal year on November 30, 2016. Comparative financial results for the first quarter, second quarter and six month periods are as follows:

FIRST QUARTER (8-31-16)	F/Y 16-17	F/Y 15-16
SALES	$5,755,713	$9,473,414
NET EARNINGS	$209,834	$1,009,649
AVERAGE NUMBER OF SHARES OUTSTANDING	3,412,858	3,365,821
EARNINGS PER SHARE	$0.06	$0.30
SECOND QUARTER (11-30-16)	F/Y 16-17	F/Y 15-16
SALES	$7,807,465	$8,819,548
NET EARNINGS	$938,280	$924,658
AVERAGE NUMBER OF SHARES OUTSTANDING	3,415,683	3,370,018
EARNINGS PER SHARE	$0.27	$0.27
SIX MONTHS (11-30-16)	F/Y 16-17	F/Y 15-16
SALES	$13,563,178	$18,292,962
NET EARNINGS	$1,148,114	$1,934,307
AVERAGE NUMBER OF SHARES OUTSTANDING	3,418,508	3,374,214
EARNINGS PER SHARE	$0.34	$0.57

Fiscal year 2017 is progressing at a slower pace than the previous record setting year. Shipments were down in the first quarter, because the Company had scheduled production on three large defense contracts for which we expected funding in April 2016, but which were delayed until November 2016. U.S. sales of our seismic dampers slowed due to delays in the U.S. construction markets which appear to be the result of building owners being uncertain about the 2017-2018 U.S. economy. This affected the Company’s second quarter sales, with funding delayed to mid-2017 on two major seismic damper orders which, previously, we had expected to be in production in the second quarter.

Our firm order backlog is $20.6 million, as compared to $21.5 million at the beginning of the fiscal year.

ITEM: ANNUAL MEETING SHAREHOLDER VOTING RESULTS

Our Annual Meeting of Shareholders was held on October 28, 2016. The total number of outstanding shares of Taylor Devices’ stock on the meeting record date was 3,425,307. A total of 2,578,577 shares were present in person or by proxy at the meeting, representing a 75% shareholder turnout.

Results Matters Submitted to a Vote of Security Holders:

The shareholders of Taylor Devices, Inc. common stock elected Douglas P. Taylor and Randall L. Clark as Class 3 directors, to serve a three-year term expiring in 2019.

1,658,005 votes were cast for Mr. Taylor and 51,839 votes were withheld. Broker non-votes were 868,733.

1,453,800 votes were cast for Mr. Clark and 256,044 votes were withheld. Broker non-votes were 868,733.

The second matter voted upon at the meeting was the ratification of the appointment of Lumsden & McCormick, LLP as the independent registered public accounting firm of the Company for the fiscal year ending May 31, 2017. 

2,423,960 votes were cast for Lumsden & McCormick, LLP, 147,727 votes were cast against and 6,890 votes abstained.

The third matter voted upon was the approval of the non-binding advisory resolution approving the compensation of the Company's named executive officers.

1,547,047 votes were cast for the non-binding advisory resolution, 99,413 votes were cast against and 63,384 votes abstained. Broker non-votes were 868,733.

The fourth matter voted upon was the frequency of future advisory votes on the compensation of the Company's named executive officers.

670,145 votes were cast for a frequency of 1 year, 21,185 votes were cast for a frequency of 2 years, 992,935 votes were cast for a frequency of 3 years and 25,579 votes abstained. Broker non-votes were 868,733.

The Company will hold advisory votes on the compensation of the Company's named executive officers every three years.

ITEM: ANNUAL MEETING OF THE SHAREHOLDERS

At the Annual Meeting, reports were given to the Shareholders in attendance by members of the Executive and Management staff. A brief summary of these reports follows:

¡ Douglas P. Taylor, President, presented an overview of the Company’s performance for the past three years, noting that F/Y 2016 was an exceptional year for Taylor Devices, with sales up 16% from 2015 and net income nearly double that of 2015. Future sales depend largely upon the construction and aerospace/defense market sectors. Mr. Taylor noted that a slowing of sales to Asia of seismic protection products was a concern, but is presently being countered by strong U.S. sales. In comparison, aerospace/defense sales are steady, with several potential new long-term programs on the horizon.

Mr. Taylor’s presentation included a discussion of the Company’s new Open Spaces Damping System, developed for simplified retrofit of buildings with a large window area on the first floor without blocking the view through the windows. Patents are pending on this new product, and full scale prototype tests at the State University of New York at Buffalo’s Earthquake Center were highly successful. Extensive reports are now being published on this new concept in seismic protection.

¡ Alan Klembczyk, Vice President of Sales and Engineering, provided an overview of the Company’s aerospace/defense programs, both current production programs and those in government funded development. These include mature programs for shock isolation of Navy missile systems, ship’s foundation mounted isolation systems, U.S.A.F. tanker aircraft, commercial aircraft, and the very successful drone aircraft landing gear programs.

¡ Bob Schneider and Craig Winters, Industrial and Seismic Sales Managers, gave presentations on several of Taylor Devices’ latest seismic damper projects. These included the retrofit of the Vincent Thomas Bridge at Long Beach, CA and the Dial International Airport at New Delhi, India. Featured in their presentation was the new 181 Fremont Tower in San Francisco, CA that was the cover story in Taylor Devices’ 2016 Annual Report. This building features seismic dampers installed into external mega-braces, essentially forming a protective exoskeleton for the building. The end result is a very survivable structure which is highly appealing in its presence on the San Francisco skyline.

¡ Richard Hill, Vice President, reported on the design features of the new assembly and test building that is now completed. He explained the need for a deep assembly pit at the center of the building to allow vertical assembly of seismic dampers in the 45-foot length range that are becoming popular as seismic codes are revised – requiring ever larger dampers.

Mr. Hill also discussed planned upgrade in Taylor Devices’ Buffalo Bolt Way machining facilities. These include upgraded and new machines to produce the larger size seismic dampers.

¡ Mark McDonough, Chief Financial Officer, reported on the Company’s comparative financial performance using charts plotting sales, expenses and profits over the past five years. In addition, charts were provided showing sales levels to the Company’s various groups of customers and geographical regions.

ITEM: NEW ORDERS, SEISMIC AND WIND

The following new orders for the Company’s Seismic and Wind Control Products were announced at the 2016 Annual Meeting of Shareholders:

¡ Chongqing Chaotianmen Bridge – China

¡ Tel Aviv Ichilov Hospital – Israel

¡ San Miguel Mall – Peru

¡ Farglory H101A and H103 Buildings – Taiwan, ROC

¡ Shengxing Nangung Building – Taiwan, ROC

¡ Christchurch Outpatients Building – New Zealand

¡ 3540 Wilshire Blvd. – Los Angeles, CA

¡ Naval Medical Center San Diego – Phase II – San Diego, CA

In addition, after the Shareholder meeting and prior to the end of the second quarter of F/Y 2017, additional orders received were:

¡ Gowanus (Hicks Street) Bridge – New York City

¡ 217 W57th Street Tower – New York City

¡ 111 Murray Street Tower – New York City

¡ Cristo Rey School – Sacramento, CA

¡ Henan Yinshang Bridge – China

ITEM: NEW ORDERS, AEROSPACE AND DEFENSE

Major new contracts received include:

¡ European Commercial Aircraft Program – An order was received for an additional 38 shipsets of custom actuators for this production program.

¡ Virginia Class Attack Submarine – A follow-on order was received for shock isolation systems for the next two ships in this class.

¡ Missile Canister Isolators – The U.S. Navy has placed an additional follow-on order for Taylor Devices’ Tension-Compression Shock Isolators for the SM-2 and SM-3 series of shipboard missiles. The new order is for 45 additional canister sets of isolators, added to a previous order for 100 sets.

¡ Ship’s Foundation Isolation Systems – A follow-on order was received for 120 large Taylor Devices’ Tension-Compression Shock Isolators to outfit the equipment rafts for the third ship in the Zumwalt class destroyer program.

¡ NASA Orion Program – A follow-on order was received which fully funds development, flight qualification, and low-rate initial production of isolators for a critical flight safety system on the manned Orion Space Vehicle.

ITEM: ASSEMBLY AND TEST AREAS EXPANSION

The 10,000 square feet addition to our current assembly and test facilities on Tonawanda Island is now complete, and equipment is being moved into the new building addition.

By: /s/Douglas P. Taylor

Douglas P. Taylor

President

EX-31

Exhibit 31(i)

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULE 13a - 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Douglas P. Taylor, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Taylor Devices, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 12, 2017	/s/ Douglas P. Taylor
	Douglas P. Taylor Chief Executive Officer

EX-31

Exhibit 31(ii)

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO RULE 13a - 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark V. McDonough, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Taylor Devices, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: January 12, 2017	/s/ Mark V. McDonough
	Mark V. McDonough Chief Financial Officer

EX-32

Exhibit 32(i)

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connect with the quarterly report of Taylor Devices, Inc. ("the Company") on Form 10-Q for the quarter ended November 30, 2016 to be filed with Securities and Exchange Commission on or about the date hereof (the
"Report"), I, Douglas P. Taylor, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.

It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934.

Date: January 12, 2017	By:	/s/ Douglas P. Taylor
		Douglas P. Taylor, Chief Executive Officer

EX-32

Exhibit 32(ii)

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connect with the quarterly report of Taylor Devices, Inc. (the "Company") on Form 10-Q for the quarter ended November 30, 2016 to be filed with Securities and Exchange Commission on or about the date hereof (the "Report"), I, Mark V. McDonough, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.

It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934.

Date: January 12, 2017	By:	/s/ Mark V. McDonough
		Mark V. McDonough, Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Nov. 30, 2016	Jan. 07, 2017
Document And Entity Information
Entity Registrant Name	Taylor Devices Inc
Entity Central Index Key	0000096536
Document Type	10-Q
Document Period End Date	Nov. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--05-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		3,431,312
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2017

XML

Balance Sheets (Unaudited) - USD ($)	Nov. 30, 2016	May 31, 2016
Current assets:
Cash and cash equivalents	$ 4,015,826	$ 6,086,080
Short-term investments	1,014,246	1,000,000
Accounts receivable, net	3,783,449	3,992,214
Inventory	10,576,467	9,604,956
Costs and estimated earnings in excess of billings	6,424,624	5,500,771
Other current assets	1,273,040	1,437,381
Total current assets	27,087,652	27,621,402
Maintenance and other inventory, net	609,545	697,043
Property and equipment, net	9,777,753	8,994,504
Other assets	178,128	175,350
Total Assets	37,653,078	37,488,299
Current liabilities:
Accounts payable	2,041,703	1,767,017
Accrued commissions	898,572	683,600
Billings in excess of costs and estimated earnings	838,417	1,463,621
Other current liabilities	1,656,329	2,733,847
Total current liabilities	5,435,021	6,648,085
Long-term liabilities	682,985	682,985
Stockholders' Equity:
Common stock and additional paid-in capital	9,003,309	8,628,280
Retained earnings	25,333,247	24,185,133
Treasury stock -  at cost	(2,801,484)	(2,656,184)
Total stockholders’ equity	31,535,072	30,157,229
Total liabilities and shareholders’ equity	$ 37,653,078	$ 37,488,299

XML

Statements of Operations (Unaudited) - USD ($)	4 Months Ended		6 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Income Statement [Abstract]
Sales, net	$ 7,807,465	$ 8,819,548	$ 13,563,178	$ 18,292,962
Cost of goods sold	5,061,495	5,824,754	9,369,084	11,922,880
Gross profit	2,745,970	2,994,794	4,194,094	6,370,082
Selling, general and administrative expenses	1,373,726	1,576,225	2,555,700	3,403,214
Operating income	1,372,244	1,418,569	1,638,394	2,966,868
Other income,  net	26,036	6,089	35,720	9,439
Income before provision for income taxes	1,398,280	1,424,658	1,674,114	2,976,307
Provision for income taxes	460,000	500,000	526,000	1,042,000
Net income	$ 938,280	$ 924,658	$ 1,148,114	$ 1,934,307
Basic and diluted earnings per common share	$ 0.27	$ 0.27	$ 0.34	$ 0.57

XML

Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Nov. 30, 2016	Nov. 30, 2015
Operating activities:
Net income	$ 1,148,114	$ 1,934,307
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation	453,823	395,821
Stock options issued for services	78,789	60,719
Changes in other assets and liabilities:
Accounts receivable	208,765	(1,883,211)
Inventory	(884,013)	(936,101)
Costs and estimated earnings in excess of billings	(923,853)	201,945
Other current assets	164,341	98,549
Accounts payable	274,686	(726,125)
Accrued commissions	214,972	(157,248)
Billings in excess of costs and estimated earnings	(625,204)	898,014
Other current liabilities	(1,077,518)	307,625
Net operating activities	(967,098)	194,295
Investing activities:
Acquisition of property and equipment	(1,237,072)	(855,129)
Other investing activities	(17,024)	(2,847)
Net investing activities	(1,254,096)	(857,976)
Financing activities:
Proceeds from issuance of common stock, net	150,940	266,021
Net change in cash and cash equivalents	(2,070,254)	(397,660)
Cash and cash equivalents - beginning	6,086,080	4,895,898
Cash and cash equivalents - ending	$ 4,015,826	$ 4,498,238

XML

Notes to Condensed Consolidated Financial Statements

6 Months Ended

Nov. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Notes to Condensed Consolidated Financial Statements

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, 2016 and May 31 2016, the results of operations for the three and six months ended November 30, 2016 and 2015, and cash flows for the six months ended November 30, 2016 and 2015. 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, 2016.

2.   The Company has evaluated events and transactions for potential recognition or disclosure in the financial statements through 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 six month periods ended November 30, 2016 and 2015, the net income was divided by 3,418,508 and 3,374,214 respectively, which is net of the Treasury shares, to calculate the net income per share. For the three month periods ended November 30, 2016 and 2015, the net income was divided by 3,415,683 and 3,370,018 respectively, which is net of the Treasury shares, to calculate the net income per share.

5.   The results of operations for the three and six month periods ended November 30, 2016 are not necessarily indicative of the results to be expected for the full year.

6.   In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09, as amended, is effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2017 (fiscal year 2019 for the Company). Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company has not yet determined the potential effects of the adoption of ASU 2014-09 on its Consolidated Financial Statements. Except as identified in Note 7, below, other recently issued Accounting Standards Codification (ASC) guidance has either been implemented or are not significant to the Company.

6 

7.    In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the presentation of deferred taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for public companies for annual reporting periods beginning after December 15, 2016 and interim periods within those fiscal years. The guidance may be adopted prospectively or retrospectively, and early adoption is permitted. Adoption of this guidance would affect the balance sheets as of November 30, 2016 and May 31, 2016 as follows:

Decrease in current assets   $ 965,100

Increase in noncurrent assets   $ 282,115

Decrease in noncurrent liabilities   $ 682,985  

XML

Inventory

6 Months Ended

Nov. 30, 2016

Inventory Disclosure [Abstract]

Inventory

8.   Inventory:

	November 30, 2016		May 31, 2016
Raw materials	$	522,315	$	511,530
Work-in-process		9,434,672		8,639,068
Finished goods		719,480		554,358
		10,676,467		9,704,956
Less allowance for obsolescence		100,000		100,000
	$	10,576,467	$	9,604,956

XML

Inventory (Tables)

6 Months Ended

Nov. 30, 2016

Inventory Disclosure [Abstract]

Inventory

	November 30, 2016		May 31, 2016
Raw materials	$	522,315	$	511,530
Work-in-process		9,434,672		8,639,068
Finished goods		719,480		554,358
		10,676,467		9,704,956
Less allowance for obsolescence		100,000		100,000
	$	10,576,467	$	9,604,956

XML

Notes to Condensed Consolidated Financial Statements (Details Narrative) - shares	4 Months Ended		6 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Weighted Average Number of Shares Outstanding, Basic and Diluted	3,415,683	3,370,018	3,418,508	3,374,214

XML

Inventory (Details) - USD ($)	Nov. 30, 2016	May 31, 2016
Inventory, net
Raw materials	$ 522,315	$ 511,530
Work-in-process	9,434,672	8,639,068
Finished goods	719,480	554,358
Gross Inventory	10,676,467	9,704,956
Less allowance for obsolescence	(100,000)	(100,000)
Net Inventory	$ 10,576,467	$ 9,604,956