10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended February 28, 2018

OR

o 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 þ      No o

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 þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth 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]
Emerging growth company [   ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

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

Yes o       No þ

As of April 12, 2018, there were outstanding 3,461,267 shares of the registrant’s common stock, par value $.025 per share.

TAYLOR DEVICES, INC.

Index to Form 10-Q

PART I	FINANCIAL INFORMATION		PAGE NO.
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of February 28, 2018 and May 31, 2017	3
		Condensed Consolidated Statements of Income for the three and nine months ended February 28, 2018 and 2017	4
		Condensed Consolidated Statements of Cash Flows for the nine months ended February 28, 2018 and 2017	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	15
	Item 1A.	Risk Factors	15
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
	Item 3.	Defaults Upon Senior Securities	16
	Item 4.	Mine Safety Disclosures	16
	Item 5.	Other Information	16
	Item 6.	Exhibits	16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			17
SIGNATURES			18

-2-

TAYLOR DEVICES, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets	(Unaudited)
	February 28,			May 31,
	2018			2017
Assets
Current assets:
Cash and cash equivalents	$	1,300,846		$	3,324,934
Short-term investments		1,033,329			1,022,326
Accounts receivable, net		5,342,276			2,545,773
Inventory		11,450,500			11,488,610
Costs and estimated earnings in excess of billings		8,047,216			6,868,393
Other current assets		359,885			427,478
Total current assets		27,534,052			25,677,514
Maintenance and other inventory, net		819,562			878,779
Property and equipment, net		9,977,285			9,994,716
Other assets		184,485			180,579
Deferred income taxes		265,115			429,115
	$	38,780,499		$	37,160,703
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,459,934		$	1,329,321
Accrued commissions		1,105,711			846,941
Billings in excess of costs and estimated earnings		1,999,427			1,295,989
Other current liabilities		842,021			832,060
Total current liabilities		5,407,093			4,304,311
Stockholders' Equity:
Common stock and additional paid-in capital		9,356,578			9,170,041
Retained earnings		26,846,187			26,515,710
		36,202,765			35,685,751
Treasury stock - at cost		(2,829,359	)		(2,829,359	)
Total stockholders’ equity		33,373,406			32,856,392
	$	38,780,499		$	37,160,703
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 February 28,					For the nine months ended February 28,
	2018			2017		2018		2017
Sales, net	$	6,573,658		$	5,672,720	$	17,953,152	$	19,235,898
Cost of goods sold		5,118,242			4,028,768		13,618,393		13,397,852
Gross profit		1,455,416			1,643,952		4,334,759		5,838,046
Selling, general and administrative expenses		1,318,787			1,178,310		3,752,962		3,734,010
Operating income		136,629			465,642		581,797		2,104,036
Other income, net		8,954			14,561		19,680		50,281
Income before provision for income taxes		145,583			480,203		601,477		2,154,317
Provision for income taxes		169,000			142,000		271,000		668,000
Net income (loss)	$	(23,417	)	$	338,203	$	330,477	$	1,486,317
Basic and diluted earnings per common share	$	(0.01	)	$	0.10	$	0.09	$	0.43
See notes to condensed consolidated financial statements.

-4-

TAYLOR DEVICES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
	(Unaudited)
	February 28,
For the nine months ended	2018			2017
Operating activities:
Net income	$	330,477		$	1,486,317
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation		767,726			687,577
Deferred income taxes		164,000			—
Stock options issued for services		56,497			78,789
Changes in other assets and liabilities:
Accounts receivable		(2,796,503	)		(194,837	)
Inventory		97,327			(1,826,596	)
Costs and estimated earnings in excess of billings		(1,178,823	)		(2,208,506	)
Other current assets		67,593			60,528
Accounts payable		130,613			(281,851	)
Accrued commissions		258,770			203,345
Billings in excess of costs and estimated earnings		703,438			17,632
Other current liabilities		9,961			(1,847,704	)
Net operating activities		(1,388,924	)		(3,825,306	)
Investing activities:
Acquisition of property and equipment		(750,295	)		(1,622,046	)
Other investing activities		(14,909	)		(20,302	)
Net investing activities		(765,204	)		(1,642,348	)
Financing activities:
Proceeds from issuance of common stock, net		130,040			156,820
Net change in cash and cash equivalents		(2,024,088	)		(5,310,834	)
Cash and cash equivalents - beginning		3,324,934			6,086,080
Cash and cash equivalents - ending	$	1,300,846		$	775,246
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 February 28, 2018 and May 31, 2017, the results of operations for the three and nine months ended February 28, 2018 and 2017, and cash flows for the nine months ended February 28, 2018 and 2017. 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, 2017.

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 nine month periods ended February 28, 2018 and 2017, the net income was divided by 3,451,348 and 3,424,192 respectively, which is net of the Treasury shares, to calculate the net income per share. For the three month periods ended February 28, 2018 and 2017, the net income was divided by 3,449,366 and 3,421,350 respectively, which is net of the Treasury shares, to calculate the net income per share.

5. The results of operations for the three and nine month periods ended February 28, 2018 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 completely determined the potential effects of the adoption of ASU 2014-09 on its Consolidated Financial Statements, however it will likely require the Company to slow the recognition of revenue for some contracts currently accounted for under the percentage-of-completion method.

Other recently issued Accounting Standards Codification (ASC) guidance has either been implemented or are not significant to the Company

7. Inventory:

	February 28, 2018		May 31, 2017
Raw materials	$	710,761	$	709,174
Work-in-process		10,078,954		10,071,179
Finished goods		760,785		808,257
		11,550,500		11,588,610
Less allowance for obsolescence		100,000		100,000
	$	11,450,500	$	11,488,610

-6-

8.       In December 2017, the Tax Cuts and Jobs Act (the 2017 Act) became law. It includes a broad range of tax reform proposals affecting businesses, including corporate tax rates, business deductions, and international tax provisions. Among the changes, the 2017 Act reduces the corporate rate from 34% to 21% for periods beginning after December 31, 2017. Because of the rate change, the Company recorded a non-cash write down of deferred tax assets and recognized incremental deferred tax expense of $164,000 during the quarter ended February 28, 2018.

-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 nine months ended February 28, 2018 and 2017
	Increase /
	(Decrease)
Sales, net	$	(1,283,000	)
Cost of goods sold	$	220,000
Selling, general and administrative expenses	$	19,000
Income before provision for income taxes	$	(1,553,000	)
Provision for income taxes	$	(397,000	)
Net income	$	(1,156,000	)

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 nine months ended February 28, 2018 (All figures discussed are for the nine months ended February 28, 2018 as compared to the nine months ended February 28, 2017).

	Nine months ended February 28						Change
	2018			2017			Amount			Percent
Net Revenue	$	17,953,000		$	19,236,000		$	(1,283,000	)		-7	%
Cost of sales		13,618,000			13,398,000			220,000			2	%
Gross profit	$	4,335,000		$	5,838,000		$	(1,503,000	)		-26	%
… as a percentage of net revenues		24	%		30	%

The Company's consolidated results of operations showed a 7% decrease in net revenues and a decrease in net income of 78%. Revenues recorded in the current period for long-term construction projects (“Project(s)”) were 16% less than the level recorded in the prior year. We had 46 Projects in process during the current period compared with 48 during the same period last year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were 12% more than the level recorded in the prior year. Total sales within the U.S. decreased 13% from the same period last year. Total sales to Asia increased 40% from the same period of the prior year. Sales decreases recorded over the same period last year to customers involved in construction of buildings and bridges (19%), were offset somewhat by increases in sales to industrial customers (31%) and to customers in aerospace / defense (8%). The significant reduction in sales to construction customers was the result of several factors including 1.) scheduling delays at customer construction sites, 2.) delays in receiving custom components from vendors, 3.) quality issues from a subcontractor, and 4.) testing bottlenecks caused by delays in getting a new test machine operating. These issues are resolved and management is optimistic that the sales volume will continue to improve. Please refer to the charts, below, which show the breakdown of sales. The gross profit as a percentage of net revenue of 24% in the current period is lower than the 30% recorded in the same period of the prior year. The reduction in gross profit as a percentage of revenue is primarily due to 1.) a lower total volume of product sales in the current period to cover non-variable manufacturing costs, and 2.) several projects in the current period that were very competitively bid.

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:

	Nine months ended February 28
	2018			2017
Industrial		8	%		5	%
Construction		51	%		59	%
Aerospace / Defense		41	%		36	%

At February 28, 2017, the Company had 119 open sales orders in our backlog with a total sales value of $19.5 million. At February 28, 2018, the Company has 37% more open sales orders in our backlog (163 orders), and the total sales value is $18.8 million.

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 nine month periods ended February 28, 2018 and 2017 is as follows:

	Nine months ended February 28
	2018			2017
USA		73	%		78	%
Asia		21	%		14	%
Other		6	%		8	%

-9-

Selling, General and Administrative Expenses

	Nine months ended February 28						Change
	2018			2017			Amount			Percent
Outside Commissions	$	977,000		$	1,035,000		$	(58,000	)		-6	%
Other SG&A		2,776,000			2,699,000			77,000			3	%
Total SG&A	$	3,753,000		$	3,734,000		$	19,000			1	%
… as a percentage of net revenues		21	%		19	%

Selling, general and administrative expenses increased by 1% from the prior year. Outside commission expense decreased by 6% from last year's level due to lower levels of commissionable sales. Other selling, general and administrative expenses increased 3% from last year to this.

The above factors resulted in operating income of $582,000 for the nine months ended February 28, 2018, 72% less than the $2,104,000 in the same period of the prior year.

Net income for the current period of $330,000 includes a $164,000 write down of deferred tax assets to reflect a lower future federal income tax rate under the recently enacted Tax Cuts and Jobs Act. The non-cash write down of the deferred tax asset increased the provision for income taxes by an equal amount. This resulted in a substantially higher effective income tax rate of 45% for the period as compared to 31% in the prior year. The lower federal income tax rate became effective in January 2018. The Company is expected to benefit from this lower rate for the remainder of the current fiscal year and in future years.

Summary comparison of the three months ended February 28, 2018 and 2017
	Increase /
	(Decrease)
Sales, net	$	900,000
Cost of goods sold	$	1,089,000
Selling, general and administrative expenses	$	140,000
Income before provision for income taxes	$	(335,000	)
Provision for income taxes	$	27,000
Net income	$	(362,000	)

For the three months ended February 28, 2018 (All figures discussed are for the three months ended February 28, 2018 as compared to the three months ended February 28, 2017).

	Three months ended February 28						Change
	2018			2017			Amount			Percent
Net Revenue	$	6,573,000		$	5,673,000		$	900,000			16	%
Cost of sales		5,118,000			4,029,000			1,089,000			27	%
Gross profit	$	1,455,000		$	1,644,000		$	(189,000	)		-11	%
… as a percentage of net revenues		22	%		29	%

-10-

The Company's consolidated results of operations showed a 16% increase in net revenues and a decrease in net income of 107%. Revenues recorded in the current period for long-term construction projects (“Project(s)”) were 3% less than the level recorded in the prior year. We had 37 Projects in process during the current period compared with 30 during the same period last year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were 65% more than the level recorded in the prior year. Total sales within the U.S. increased 1% from the same period last year. Total sales to Asia increased 212% from the same period of the prior year. Sales increases were recorded over the same period last year to customers involved in construction of buildings and bridges (12%), to industrial customers (32%) and to customers in aerospace / defense (19%). Please refer to the charts, below, which show the breakdown of sales. The gross profit as a percentage of net revenue of 22% in the current period is lower than the 29% recorded in the same period of the prior year. The reduction in gross profit as a percentage of revenue is primarily due to several projects in the current period that were very competitively bid.

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 February 28
	2018			2017
Industrial		7	%		6	%
Construction		52	%		54	%
Aerospace / Defense		41	%		40	%

Net revenue by geographic region, as a percentage of total net revenue for the three month periods ended February 28, 2018 and 2017 is as follows:

	Three months ended February 28
	2018			2017
USA		72	%		84	%
Asia		19	%		7	%
Other		9	%		9	%

Selling, General and Administrative Expenses

	Three months ended February 28						Change
	2018			2017			Amount		Percent
Outside Commissions	$	387,000		$	270,000		$	117,000		43	%
Other SG&A		931,000			908,000			23,000		3	%
Total SG&A	$	1,318,000		$	1,178,000		$	140,000		12	%
… as a percentage of net revenues		20	%		21	%

Selling, general and administrative expenses increased by 12% from the prior year. Outside commission expense increased by 43% from last year's level due to higher levels of commissionable sales combined with higher commission rates on some orders. Other selling, general and administrative expenses are slightly higher from last year to this.

The above factors resulted in operating income of $137,000 for the three months ended February 28, 2018, significantly less than the $466,000 in the same period of the prior year.

Net loss for the current period of $23,000 includes a $164,000 write down of deferred tax assets to reflect a lower future federal income tax rate under the recently enacted Tax Cuts and Jobs Act. The non-cash write down of the deferred tax asset increased the provision for income taxes by an equal amount. This resulted in a substantially higher effective income tax rate of 116% for the period as compared to 30% in the prior year. The lower federal income tax rate became effective in January 2018. The Company is expected to benefit from this lower rate for the remainder of the current fiscal year and in future years.

-11-

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 $56,000 and $79,000 of compensation cost for the nine month periods ended February 28, 2018 and 2017.

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 to estimate the fair market value of the Company's stock option grants:

	February 2018			February 2017
Risk-free interest rate:		2.250	%		1.625	%
Expected life of the options:		3.6 years			3.4 years
Expected share price volatility:		28	%		26	%
Expected dividends:		zero			zero
These assumptions resulted in estimated fair-market value per stock option:	$	3.01		$	4.04

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 nine month period ended February 28, 2018 is presented below:

			Weighted-
	Number of		Average
	Options		Exercise Price
Options outstanding and exercisable at May 31, 2017:		253,500	$	10.93
Options granted:		18,750	$	12.28
Options exercised:		14,750	$	7.66
Options expired:		750	$	19.26
Options outstanding and exercisable at February 28, 2018:		256,750	$	11.19
Closing value per share on NASDAQ at February 28, 2018:			$	11.02

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 nine months ended February 28, 2018 were $750,000 compared to $1,622,000 in the same period of the prior year. As of February 28, 2018, the Company has commitments for capital expenditures totaling $95,000 during the next twelve months. These costs are primarily related to acquisition of new equipment used to test the function of products prior to shipment to customers.

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

-12-

Effective August 30, 2017, the Company replaced its bank credit facility with a $10,000,000 bank demand line of credit, with interest payable at the Company's option of 30, 60 or 90 day LIBOR rate plus 2.25%. There is no balance outstanding as of February 28, 2018 or as of May 31, 2017. The line is unsecured and includes a negative pledge of substantially all of the Company’s 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.

Inventory and Maintenance Inventory

	February 28, 2018				May 31, 2017				Increase /(Decrease)
Raw materials	$	711,000			$	710,000			$	1,000		—
Work-in-process		10,079,000				10,071,000				8,000		—
Finished goods		660,000				708,000				(48,000	)	-7	%
Inventory		11,450,000	93	%		11,489,000	93	%		(39,000	)	—
Maintenance and other inventory		820,000	7	%		879,000	7	%		(59,000	)	-7	%
Total	$	12,270,000	100	%	$	12,368,000	100	%	$	98,000		-1	%
Inventory turnover		1.5				1.5

NOTE: Inventory turnover is annualized for the nine month period ended February 28, 2018.

Inventory, at $11,450,000 as of February 28, 2018, is $39,000 less than the prior year-end level of $11,489,000. Approximately 88% of the current inventory is work in process, 6% is finished goods, and 6% 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 $60,000 and $135,000 for the nine month periods ended February 28, 2018 and 2017. 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")

	February 28, 2018		May 31, 2017		Increase /(Decrease)
Accounts receivable	$	5,342,000	$	2,546,000	$	2,796,000	110	%
CIEB		8,047,000		6,868,000		1,179,000	17	%
Less: BIEC		1,999,000		1,296,000		703,000	54	%
Net	$	11,390,000	$	8,118,000	$	3,272,000	40	%
Number of an average day’s sales outstanding in accounts receivable		73		36

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 $5,342,000 as of February 28, 2018 includes approximately $824,000 of amounts retained by customers on Projects. 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. Accounts receivable also includes $110,000 of an allowance for doubtful accounts (“Allowance”). The accounts receivable balance as of May 31, 2017 of $2,546,000 included an Allowance of $110,000.

-13-

The number of an average day's sales outstanding in accounts receivable (“DSO”) increased from 36 days at May 31, 2017 to 73 at February 28, 2018. 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 third quarter of the current fiscal year is only slightly more than in the fourth quarter of the prior year. The level of accounts receivable at the end of the current fiscal quarter is slightly more than double the level at the end of the prior year. The significant increase in the level of accounts receivable caused the DSO to increase from last year end to this quarter-end. The primary reason for the increase in the level of accounts receivable from last year end to this quarter-end was significantly higher billings for Projects in February ($3.1 million) compared to last May ($0.5 million). 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, such provisions are often not possible. The $8,047,000 balance in this account at February 28, 2018 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. 23% of the CIEB balance as of the end of the last fiscal quarter, November 30, 2017, was billed to those customers in the current fiscal quarter ended February 28, 2018. 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:

	February 28, 2018		May 31, 2017
Costs	$	17,890,000	$	9,675,000
Estimated Earnings		6,207,000		3,757,000
Less: Billings to customers		16,050,000		6,564,000
CIEB	$	8,047,000	$	6,868,000
Number of Projects in progress		29		21

As noted above, BIEC represents billings to customers in excess of revenues recognized. The $1,999,000 balance in this account at February 28, 2018 is up 54% from the $1,296,000 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 balances in this account are comprised of the following components:

	February 28, 2018		May 31, 2017
Billings to customers	$	4,212,000	$	8,133,000
Less: Costs		1,189,000		4,522,000
Less: Estimated Earnings		1,024,000		2,315,000
BIEC	$	1,999,000	$	1,296,000
Number of Projects in progress		4		3

Summary of factors affecting the balances in CIEB and BIEC:

	February 28, 2018			May 31, 2017
Number of Projects in progress		33			24
Aggregate percent complete		74	%		66	%
Average total sales value of Projects in progress	$	1,077,000		$	1,289,000
Percentage of total value invoiced to customer		57	%		47	%

-14-

The Company's backlog of sales orders at February 28, 2018 is $18.8 million, slightly less than the $20.6 million at the end of the prior year. $9.2 million of the current backlog is on Projects already in progress.

Other Balance Sheet Items

Accounts payable, at $1,460,000 as of February 28, 2018, is 10% 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 February 28, 2018 are $1,106,000, up 31% from the $847,000 accrued at the prior year-end. This large increase is due to the increases in the accounts receivable and CIEB, discussed above. Other current liabilities increased slightly from the prior year-end, to $842,000. 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 February 28, 2018 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 February 28, 2018 that have materially affected, or are reasonably likely to materially affect, the Company's control over financial reporting.

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 February 28, 2018 that were not registered under the Securities Act.
	(b)	Use of proceeds following effectiveness of initial registration statement:
		Not Applicable

-15-

	(c)	Repurchases of Equity Securities – Quarter Ended February 28, 2018
		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
		December 1, 2017 -
		December 31, 2017		-	-	-	-
		January 1, 2018 -
		January 31, 2018		-	-	-	-
		February 1, 2018 -
		February 28, 2018		-	-	-	-
		Total		-	-	-	-
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, Spring 2018
	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

-16-

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 February 28, 2018, and the related condensed consolidated statements of income for the three and nine months ended February 28, 2018 and 2017 and cash flows for the nine months ended February 28, 2018 and 2017. 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, 2017, 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 4, 2017, 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, 2017 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

April 12, 2018

-17-

TAYLOR DEVICES, INC.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TAYLOR DEVICES, INC.

(Registrant)

Date:	April 12, 2018	/s/Douglas P. Taylor
		Douglas P. Taylor President Chairman of the Board of Directors (Principal Executive Officer)

Date:	April 12, 2018	/s/Mark V. McDonough
		Mark V. McDonough Chief Financial Officer

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: April 12, 2018	/s/ Douglas P. Taylor
	Douglas P. Taylor Chief Executive 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 February 28, 2018 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: April 12, 2018	By:	/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: April 12, 2018	/s/ Mark V. McDonough
	Mark V. McDonough Chief Financial 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 February 28, 2018 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: April 12, 2018	By:	/s/ Mark V. McDonough
		Mark V. McDonough, Chief Financial Officer

EX-20

Exhibit 20

NEWS FROM TAYLOR DEVICES, INC.

SHAREHOLDER LETTER, SPRING 2018

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 third quarter of its fiscal year on February 28, 2018. Comparative, unaudited, financial results for the third quarter and nine month periods are as follows:

THIRD QUARTER	F/Y 17-18	F/Y 16-17
SALES	$6,573,658	$5,672,720
NET INCOME	($23,417)*	$338,203
EARNINGS PER SHARE	($0.01)	$0.10
NINE MONTHS	F/Y 17-18	F/Y 16-17
SALES	$17,953,152	$19,235,898
NET INCOME	$330,477	$1,486,317
EARNINGS PER SHARE	$0.09	$0.43
AVERAGE NUMBER OF SHARES OUTSTANDING	3,451,348	3,424,192

*In December 2017, the Tax Cuts and Jobs Act (the 2017 Act) became law. It includes a broad range of tax reform proposals affecting businesses, including corporate tax rates, business deductions, and international tax provisions. Among the changes, the 2017 Act reduces the corporate rate from 34% to 21% for periods beginning after December 31, 2017. Because of the rate change, the Company was required to record a non-cash write down of deferred tax assets and recognized incremental deferred tax expense of $164,000 during the quarter ending February 28, 2018. This effectively eliminated the Company’s entire third quarter pre-tax income of $145,583, and resulted in a net loss for the quarter. This is a one-time adjustment required by the new tax law change, but the reduction in corporate tax rate should be a benefit in the future.

Taylor Devices sales continue to be affected by a slowdown in the U.S. construction business. Sales to this sector were down by 19% from the levels recorded in the previous year. In comparison, sales to industrial customers were up by 31%, and aerospace sales were up by 8%. The Company expects seismic and wind damper sales to improve when the U.S. construction business improves. It is also promising to note that construction product sales to Asian customers have increased by 40% for the year to date, and proposal activity to U.S. seismic customers is increasing.

Taylor Devices firm order backlog at the end of the third quarter was $18.8 million, compared to $19.5 million in the previous year.

ITEM: NEW ORDERS, AEROSPACE AND DEFENSE

The following major orders for Aerospace and Defense products were received in the third quarter:

¡ Unmanned Air Vehicle Landing Gears – The Company has received follow-on contracts adding additional aircraft requirements for both a U.S. and a European aircraft manufacturer.

¡ Submarine Deck Isolators – A follow-on contract was received from the U.S. Navy for the Company’s shock isolators to be used on the next two attack submarines of the Virginia Class.

¡ RAM Point Defense System – An order was received for 6 system sets of elevation axis shock absorbers for this shipboard defense missile system.

¡ KC-46 Aircraft – A follow-on contract was received adding additional aircraft requirements for the Company’s refueling boom shock absorbers on this next generation USAF tanker for mid-air refueling of combat aircraft.

¡ 40mm Automatic Grenade Launcher – An order was received for 40 sets of recoil and counter recoil shock absorbers for this U.S. Army weapon.

ITEM: NEW ORDERS, SEISMIC AND WIND

The following new orders for the Company’s Seismic and Wind Control Products were received during the third quarter:

¡ University of California, Los Angeles Franz Hall – Los Angeles, CA

¡ Loma Linda Hospital, Phase II B Additions – California

¡ 9665 South Wilshire Tower – Beverly Hills, CA

¡ Kit-Ayoma Building – Tokyo, Japan

¡ Electronic Plants #18-A and 18-B – Taiwan, ROC

¡ Huancayo Hospital – Peru

ITEM: NEW PATENT

U.S. Patent 9,896,836 was issued on February 20, 2018 to Taylor Devices and the Iowa State University Research Foundation. The patent is entitled: Apparatus, Method, and System for Hugh Capacity Band Brake Type Variable Friction Damping of Movement of Structures.

This invention falls into the category of applied research, as distinct from pure research or product improvement research. The primary intended use of this new technology is to augment the performance of structures already having fluid dampers to improve seismic or wind response, where additional damping forces are required under unusual circumstances, such as a tornado impinging on the building, or a tsunami wave impact. In these cases, the braking element has the ability to be rapidly activated to essentially lock the structure in place. The device is also controllable with only battery power, irrespective of its size. The Company believes there is a developing market for this product, especially on larger buildings which are becoming increasingly taller and more slender in profile.

A variant on the technology is being developed for the blast protection of buildings subject to terrorist attack. Initial testing has been promising; and a paper outlining the design and test results was accepted in February for publication in an upcoming issue of a major international engineering journal.

ITEM: NAVY ANNOUNCES NEW MISSION FOR ZUMWALT CLASS DESTROYERS

Taylor Devices 2017 Annual Report featured the newest U.S. Navy warship, the Zumwalt Class “Stealth” Destroyer, which uses literally hundreds of the Company’s Tension-Compression Liquid Spring-Dampers to protect weapons and critical systems on the vessel against battle damage.

The Navy has recently announced plans to change the missile load-out on these ships to use largely the extended range versions of the Navy’s “Standard Missile”, which are configured to destroy either an enemy’s ships or their ballistic missiles launched toward U.S. Allied Nations or the U.S. mainland. Thus, the Zumwalt’s mission is shifting from land attack to that of a long range surface strike platform. The three warships of the Zumwalt Class are now planned to be stationed in the Pacific Ocean.

All of the missiles in the U.S. Navy’s Standard Missile family use Taylor Devices’ Shock Isolators in each missile launch canister. Thus the change in the missile load-out should result in additional orders to the Company for the missile isolators.

By: /s/Douglas P. Taylor

Douglas P. Taylor

President

XML

Document and Entity Information - shares	9 Months Ended
	Feb. 28, 2018	Apr. 12, 2018
Document And Entity Information
Entity Registrant Name	Taylor Devices Inc
Entity Central Index Key	0000096536
Document Type	10-Q
Document Period End Date	Feb. 28, 2018
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		3,461,267
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3

XML

Condensed Consolidated Balance Sheets - USD ($)	Feb. 28, 2018	May 31, 2017
Current assets:
Cash and cash equivalents	$ 1,300,846	$ 3,324,934
Short-term investments	1,033,329	1,022,326
Accounts receivable, net	5,342,276	2,545,773
Inventory	11,450,500	11,488,610
Costs and estimated earnings in excess of billings	8,047,216	6,868,393
Other current assets	359,885	427,478
Total current assets	27,534,052	25,677,514
Maintenance and other inventory, net	819,562	878,779
Property and equipment, net	9,977,285	9,994,716
Other assets	184,485	180,579
Deferred income taxes	265,115	429,115
Total assets	38,780,499	37,160,703
Current liabilities:
Accounts payable	1,459,934	1,329,321
Accrued commissions	1,105,711	846,941
Billings in excess of costs and estimated earnings	1,999,427	1,295,989
Other current liabilities	842,021	832,060
Total current liabilities	5,407,093	4,304,311
Stockholders' Equity:
Common stock and additional paid-in capital	9,356,578	9,170,041
Retained earnings	26,846,187	26,515,710
Stockholders’ equity before treasury stock	36,202,765	35,685,751
Treasury stock - at cost	(2,829,359)	(2,829,359)
Total stockholders’ equity	33,373,406	32,856,392
Total liabilities and stockholders’ equity	$ 38,780,499	$ 37,160,703

XML

Condensed Consolidated Statements of Income - USD ($)	3 Months Ended		9 Months Ended
	Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017
Income Statement [Abstract]
Sales, net	$ 6,573,658	$ 5,672,720	$ 17,953,152	$ 19,235,898
Cost of goods sold	5,118,242	4,028,768	13,618,393	13,397,852
Gross profit	1,455,416	1,643,952	4,334,759	5,838,046
Selling, general and administrative expenses	1,318,787	1,178,310	3,752,962	3,734,010
Operating income	136,629	465,642	581,797	2,104,036
Other income, net	8,954	14,561	19,680	50,281
Income before provision for income taxes	145,583	480,203	601,477	2,154,317
Provision for income taxes	169,000	142,000	271,000	668,000
Net income (loss)	$ (23,417)	$ 338,203	$ 330,477	$ 1,486,317
Basic and diluted earnings per common share	$ (0.01)	$ 0.10	$ 0.09	$ 0.43

XML

Condensed Consolidated Statements of Cash Flow - USD ($)	9 Months Ended
	Feb. 28, 2018	Feb. 28, 2017
Operating activities:
Net income	$ 330,477	$ 1,486,317
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation	767,726	687,577
Deferred income taxes	164,000
Stock options issued for services	56,497	78,789
Changes in other assets and liabilities:
Accounts receivable	(2,796,503)	(194,837)
Inventory	97,327	(1,826,596)
Costs and estimated earnings in excess of billings	(1,178,823)	(2,208,506)
Other current assets	67,593	60,528
Accounts payable	130,613	(281,851)
Accrued commissions	258,770	203,345
Billings in excess of costs and estimated earnings	703,438	17,632
Other current liabilities	9,961	(1,847,704)
Net operating activities	(1,388,924)	(3,825,306)
Investing activities:
Acquisition of property and equipment	(750,295)	(1,622,046)
Other investing activities	(14,909)	(20,302)
Net investing activities	(765,204)	(1,642,348)
Financing activities:
Proceeds from issuance of common stock, net	130,040	156,820
Net change in cash and cash equivalents	(2,024,088)	(5,310,834)
Cash and cash equivalents - beginning	3,324,934	6,086,080
Cash and cash equivalents - ending	$ 1,300,846	$ 775,246

XML

Notes to Condensed Consolidated Financial Statements

9 Months Ended

Feb. 28, 2018

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 February 28, 2018 and May 31, 2017, the results of operations for the three and nine months ended February 28, 2018 and 2017, and cash flows for the nine months ended February 28, 2018 and 2017. 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, 2017.

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 nine month periods ended February 28, 2018 and 2017, the net income was divided by 3,451,348 and 3,424,192 respectively, which is net of the Treasury shares, to calculate the net income per share. For the three month periods ended February 28, 2018 and 2017, the net income was divided by 3,449,366 and 3,421,350 respectively, which is net of the Treasury shares, to calculate the net income per share.

5. The results of operations for the three and nine month periods ended February 28, 2018 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 completely determined the potential effects of the adoption of ASU 2014-09 on its Consolidated Financial Statements, however it will likely require the Company to slow the recognition of revenue for some contracts currently accounted for under the percentage-of-completion method.

Other recently issued Accounting Standards Codification (ASC) guidance has either been implemented or are not significant to the Company

7. Inventory:

	February 28, 2018		May 31, 2017
Raw materials	$	710,761	$	709,174
Work-in-process		10,078,954		10,071,179
Finished goods		760,785		808,257
		11,550,500		11,588,610
Less allowance for obsolescence		100,000		100,000
	$	11,450,500	$	11,488,610

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8.       In December 2017, the Tax Cuts and Jobs Act (the 2017 Act) became law. It includes a broad range of tax reform proposals affecting businesses, including corporate tax rates, business deductions, and international tax provisions. Among the changes, the 2017 Act reduces the corporate rate from 34% to 21% for periods beginning after December 31, 2017. Because of the rate change, the Company recorded a non-cash write down of deferred tax assets and recognized incremental deferred tax expense of $164,000 during the quarter ended February 28, 2018.

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Notes to Condensed Consolidated Financial Statements (Tables)

9 Months Ended

Feb. 28, 2018

Inventory Disclosure [Abstract]

Inventory

	February 28, 2018		May 31, 2017
Raw materials	$	710,761	$	709,174
Work-in-process		10,078,954		10,071,179
Finished goods		760,785		808,257
		11,550,500		11,588,610
Less allowance for obsolescence		100,000		100,000
	$	11,450,500	$	11,488,610

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Notes to Condensed Consolidated Financial Statements (Details Narrative) - shares	3 Months Ended		9 Months Ended
	Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Weighted Average Number of Shares Outstanding, Basic and Diluted	3,449,366	3,421,350	3,451,348	3,424,192

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Inventory (Details) - USD ($)	Feb. 28, 2018	May 31, 2017
Inventory Disclosure [Abstract]
Raw materials	$ 710,761	$ 709,174
Work-in-process	10,078,954	10,071,179
Finished goods	760,785	808,257
Gross inventory	11,550,500	11,588,610
Less allowance for obsolescence	100,000	100,000
Net inventory	$ 11,450,500	$ 11,488,610