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 August 31, 2023

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
(Address of principal executive offices)	(Zip Code)

716-694-0800

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
None	None	None

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 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, 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 ☒	Smaller reporting company ☒
	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 ☐ No ☒

As of September 29, 2023, there were outstanding 3,521,377 shares of the registrant’s common stock, par value $0.025 per share.

2

TAYLOR DEVICES, INC.

Index to Form 10-Q

PART I	FINANCIAL INFORMATION		PAGE NO.
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of August 31, 2023 and May 31, 2023	4
		Condensed Consolidated Statements of Income for the three months ended August 31, 2023 and 2022	5
		Condensed Consolidated Statements of Stockholders’ Equity for the three months ended August 31, 2023 and 2022	6
		Condensed Consolidated Statements of Cash Flows for the three months ended August 31, 2023 and 2022	7
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
	Item 4.	Controls and Procedures	14
PART II	OTHER INFORMATION
	Item 1.	Legal Proceedings	15
	Item 1A.	Risk Factors	16
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
	Item 3.	Defaults Upon Senior Securities	16
	Item 4.	Mine Safety Disclosures	16
	Item 5.	Other Information	17
	Item 6.	Exhibits	17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			18
SIGNATURES		19

TAYLOR DEVICES, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets	(Unaudited)
	August 31,	May 31,
	2023	2023
Assets
Current assets:
Cash and cash equivalents	$2,889,459	$3,575,219
Short-term investments	27,812,740	24,514,757
Accounts and other receivables, net	5,403,750	5,553,504
Inventory	6,830,311	5,941,304
Costs and estimated earnings in excess of billings	3,388,971	4,124,182
Other current assets	439,021	668,554
Total current assets	46,764,252	44,377,520
Maintenance and other inventory, net	1,032,640	1,003,140
Property and equipment, net	11,693,958	11,721,784
Other assets	211,248	210,120
Deferred income taxes	568,615	568,615
	$60,270,713	$57,881,179
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$1,051,457	$1,717,657
Accrued expenses	2,462,747	4,078,322
Billings in excess of costs and estimated earnings	4,813,033	1,992,470
Total current liabilities	8,327,237	7,788,449
Stockholders' Equity:
Common stock and additional paid-in capital	11,067,898	11,049,216
Retained earnings	43,976,119	42,128,256
	55,044,017	53,177,472
Treasury stock - at cost	(3,100,541)	(3,084,742)
Total stockholders’ equity	51,943,476	50,092,730
	$60,270,713	$57,881,179

See notes to condensed consolidated financial statements.

4

TAYLOR DEVICES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income	(Unaudited)
	For the three months ended August 31,
	2023	2022
Sales, net	$9,923,628	$9,090,699
Cost of goods sold	5,539,052	5,598,942
Gross profit	4,384,576	3,491,757
Research and development costs	129,074	375,346
Selling, general and administrative expenses	2,335,957	1,938,038
Operating income	1,919,545	1,178,373
Other income, net	361,318	39,998
Income before provision for income taxes	2,280,863	1,218,371
Provision for income taxes	433,000	216,000
Net income	$1,847,863	$1,002,371
Basic and diluted earnings per common share	$0.52	$0.29

See notes to condensed consolidated financial statements.

5

TAYLOR DEVICES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders’ Equity
	(Unaudited)
	For the three months ended August 31,
	2023	2022
Common Stock
Beginning of period	$102,127	$101,342
Issuance of shares for employee stock purchase plan	3	9
Issuance of shares for employee stock option plan	38	100
End of period	102,168	101,451
Paid-in Capital
Beginning of period	10,947,089	10,227,916
Issuance of shares for employee stock purchase plan	2,880	3,062
Issuance of shares for employee stock option plan	15,761	32,120
End of period	10,965,730	10,263,098
Retained Earnings
Beginning of period	42,128,256	35,840,898
Net income	1,847,863	1,002,371
End of period	43,976,119	36,843,269
Treasury Stock
Beginning of period	(3,084,742)	(2,915,002)
Issuance of shares for employee stock option plan	(15,799)	-
End of period	(3,100,541)	(2,915,002)
Total stockholders' equity	$51,943,476	$44,292,816

See notes to condensed consolidated financial statements.

6

TAYLOR DEVICES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
	(Unaudited)
	August 31,
For the three months ended	2023	2022
Operating activities:
Net income	$1,847,863	$1,002,371
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation	455,478	317,790
Changes in other assets and liabilities:
Accounts and other receivables, net	149,754	(1,365,612)
Inventory	(918,507)	57,869
Costs and estimated earnings in excess of billings	735,211	503,936
Other current assets	229,533	285,883
Accounts payable	(666,200)	22,114
Accrued Expenses	(1,615,575)	(1,346,571)
Billings in excess of costs and estimated earnings	2,820,563	491,334
Net operating activities	3,038,120	(30,886)
Investing activities:
Acquisition of property and equipment	(427,652)	(833,464)
Purchase of short-term investments	(3,297,983)	-
Other investing activities	(1,128)	(1,140)
Net investing activities	(3,726,763)	(834,604)
Financing activities:
Proceeds from issuance of common stock, net	18,682	35,291
Acquisition of treasury stock	(15,799)	-
Net financing activities	2,883	35,291
Net change in cash and cash equivalents	(685,760)	(830,199)
Cash and cash equivalents - beginning	3,575,219	22,517,038
Cash and cash equivalents - ending	$2,889,459	$21,686,839

See notes to condensed consolidated financial statements.

7

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 the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of August 31, 2023 and May 31, 2023, the results of operations for the three months ended August 31, 2023 and 2022, and cash flows for the three months ended August 31, 2023 and 2022. 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, 2023.  

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 three-month periods ended August 31, 2023 and 2022, the net income was divided by 3,520,910 and 3,499,023 respectively, which is net of the Treasury shares, to calculate the net income per share.  

5.The results of operations for the three-month period ended August 31, 2023 are not necessarily indicative of the results to be expected for the full year. 

6.Recently issued Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) guidance has either been implemented or is not significant to the Company. 

7.Short-term Investments: 

At times, the Company invests excess funds in liquid interest earning instruments. Short-term investments at August 31, 2023 and May 31, 2023 include “available for sale” money market funds, US treasury securities and corporate bonds stated at fair value, which approximates cost. The short-term investments (22) mature on various dates during the period September 2023 to November 2026. Unrealized holding gains and losses would be presented as a separate component of accumulated other comprehensive income, net of deferred income taxes. Realized gains and losses on the sale of investments are determined using the specific identification method.

The short-term investments are valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings.

8.Inventory: 

	August 31, 2023	May 31, 2023
Raw materials	$854,115	$673,453
Work-in-process	5,750,443	5,005,416
Finished goods	286,753	330,435
	6,891,311	6,009,304
Less allowance for obsolescence	61,000	68,000
	$6,830,311	$5,941,304

9.Revenue Recognition: 

Revenue is recognized (generally at fixed prices) when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue

8

when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct. Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations.

For contracts with customers in which the Company satisfies a promise to the customer to provide a product that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time (generally less than one year) using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material and overhead. Adjustments to cost estimates are made periodically, and losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined. Other sales to customers are recognized upon shipment to the customer based on contract prices and terms. In the three months ended August 31, 2023, 55% of revenue was recorded for contracts in which revenue was recognized over time while 45% was recognized at a point in time. In the three months ended August 31, 2022, 61% of revenue was recorded for contracts in which revenue was recognized over time while 39% was recognized at a point in time.

Progress payments are typically negotiated for longer term projects. Payments are otherwise due once performance obligations are complete (generally at shipment and transfer of title). For financial statement presentation purposes, the Company nets progress billings against the total costs incurred and estimated earnings recognized 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.

If applicable, the Company recognizes an asset for the incremental, material costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year and the costs are expected to be recovered. As of August 31, 2023 and May 31, 2023, the Company does not have material incremental costs on any open contracts with an original expected duration of greater than one year, and therefore such costs are expensed as incurred. These incremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer.

10.The August 31, 2022 statement of income has been reclassified to conform with the presentation adopted for August 31, 2023. 

11.Accrued Expenses:  

	August 31, 2023	May 31, 2023
Customer deposits	$367,902	$367,902
Personnel costs	1,403,744	3,023,501
Other	691,101	686,919
	$2,462,747	$4,078,322

9

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 three months ended August 31, 2023 and 2022
	Increase /
	(Decrease)
Sales, net	$833,000
Cost of goods sold	$(60,000)
Research and development costs	$(246,000)
Selling, general and administrative expenses	$398,000
Other income (expense)	$321,000
Income before provision for income taxes	$1,062,000
Provision for income taxes	$217,000
Net income	$845,000

Sales under certain fixed-price contracts, in which the product has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date, inclusive of profit, 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 and estimated earnings recognized 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.

10

For the three months ended August 31, 2023 (All figures discussed are for the three months ended August 31, 2023 as compared to the three months ended August 31, 2022).

	Three months ended August 31		Change
	2023	2022	Amount	Percent
Net Revenue	$ 9,924,000	$ 9,091,000	$ 833,000	9%
Cost of sales	5,539,000	5,599,000	(60,000)	-1%
Gross profit	$ 4,385,000	$ 3,492,000	$ 893,000	26%
… as a percentage of net revenues	44%	38%

The Company's consolidated results of operations showed a 9% increase in net revenues and an increase in net income of 84%. Revenues recorded in the current period for long-term projects (“Project(s)”) were 1% less than the level recorded in the prior year. The Company had 22 Projects in process during the current period as compared to 33 during the same period last year. Revenues recorded in the current period for other-than long-term projects (non-projects) were 26% more than the level recorded in the prior year. Total sales within the U.S. increased 9% from the same period last year. Total sales to Asia increased 38% from the same period of the prior year. Sales increases were recorded over the same period last year to customers in aerospace / defense (75%) with decreases to customers involved in construction of buildings and bridges (-31%) and to industrial customers (-6%). The increase in aerospace/defense sales is due, in part, to a combination of providing production hardware on several legacy programs and new development programs.

The gross profit as a percentage of net revenue of 44% in the current period is six percentage points greater than the same period of the prior year (38%). Management continues to work with suppliers to obtain more visibility of conditions affecting their respective markets. These actions combined with benefits from the Company’s continuous improvement initiatives and increased volume have helped to improve the gross margin as a percentage of revenue over the prior year.

Sales of the Company’s products are made to three general groups of customers: industrial, structural and aerospace / defense. A breakdown of sales to the three general groups of customers is as follows:

	Three months ended August 31
	2023	2022
Industrial	7%	8%
Structural	35%	56%
Aerospace / Defense	58%	36%

At August 31, 2022, the Company had 146 open sales orders in our backlog with a total sales value of $23.0 million. At August 31, 2023, the Company has 131 open sales orders in our backlog, and the total sales value is $28.3 million. The Company expects to recognize revenue for the majority of the backlog during the current fiscal year, with the remainder during the fiscal year ending May 31, 2025.

The Company's backlog, revenues, 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 three-month periods ended August 31, 2023 and August 31, 2022, is as follows:

	Three months ended August 31
	2023	2022
USA	83%	82%
Asia	12%	10%
Other	5%	8%

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Research and Development Costs

	Three months ended August 31		Change
	2023	2022	Amount	Percent
R & D	$ 129,000	$ 375,000	$ (246,000)	-66%
… as a percentage of net revenues	1.3%	4.1%

Research and development costs declined 66% from the prior year due to the completion of the Taylor Damped Moment Frame project.

Selling, General and Administrative Expenses

	Three months ended August 31		Change
	2023	2022	Amount	Percent
S G & A	$ 2,336,000	$ 1,938,000	$ 398,000	21%
… as a percentage of net revenues	24%	21%

Selling, general and administrative expenses increased by 21% from the prior year. This increase is primarily due to increased employee compensation costs including incentive compensation.

The above factors resulted in an operating income of $1,920,000 for the three months ended August 31, 2023, 63% more than the $1,178,000 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.

A summary of changes in the stock options outstanding during the three-month period ended August 31, 2023 is presented below:

		Weighted-
	Number of	Average
	Options	Exercise Price
Options outstanding and exercisable at May 31, 2023:	333,000	$ 12.70
Options granted:	-	-
Less: Options exercised:	1,500	$ 10.53
Less: Options expired:	750	-
Options outstanding and exercisable at August 31, 2023:	330,750	$ 12.72
Closing value per share on NASDAQ at August 31, 2023:		$ 22.48

Capital Resources and Long-Term Debt

The Company's primary liquidity is dependent upon its working capital needs. These are primarily short-term investments, inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts payable, accrued expenses and billings in excess of costs and estimated earnings. The Company's primary source of liquidity has been operations.

Capital expenditures for the three months ended August 31, 2023 were $428,000 compared to $833,000 in the same period of the prior year. As of August 31, 2023, the Company has commitments for capital expenditures totaling $30,000 during the next twelve months. The Board of Directors is evaluating additional capital expenditure to expand capacity.

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

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Inventory and Maintenance Inventory

	August 31, 2023		May 31, 2023		Increase /(Decrease)
Raw materials	$ 854,000		$ 674,000		$ 180,000		27%
Work-in-process	5,750,000		5,005,000		745,000		15%
Finished goods	226,000		262,000		(36,000	)	-14%
Inventory	6,830,000	87%	5,941,000	86%	889,000		15%
Maintenance and other inventory	1,033,000	13%	1,003,000	14%	30,000		3%
Total	$ 7,863,000	100%	$ 6,944,000	100%	$ 919,000		13%
Inventory turnover	3.0		3.5

NOTE: Inventory turnover is annualized for the three-month period ended August 31, 2023.

Inventory, at $6,830,000 as of August 31, 2023, is $889,000 more than the prior year-end level of $5,941,000. Approximately 84% of the current inventory is work in process, 3% is finished goods, and 13% 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 $144,000 and zero for the three-month periods ended August 31, 2023 and 2022.

Accounts Receivable, Costs and Estimated Earnings in Excess of Billings (“CIEB"), and Billings in Excess of Costs and Estimated Earnings ("BIEC")

	August 31, 2023	May 31, 2023	Increase /(Decrease)
Accounts receivable	$ 5,404,000	$ 5,554,000	$ (150,000	)	-3%
CIEB	3,389,000	4,124,000	(735,000	)	-18%
Less: BIEC	4,813,000	1,992,000	2,821,000		142%
Net	$ 3,980,000	$ 7,686,000	$ (3,706,000	)	-48%
Number of an average day’s sales outstanding in accounts receivable	49	47

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 $5,404,000 as of August 31, 2023 includes $29,000 of an allowance for doubtful accounts (“Allowance”). The accounts receivable balance as of May 31, 2023 of $5,554,000 included an Allowance of $29,000. The number of an average day's sales outstanding in accounts receivable (“DSO”) increased from 47 days at May 31, 2023 to 49 at August 31, 2023. 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 Company expects to collect the net accounts receivable balance 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 $3,389,000 balance in this account at August 31, 2023 is 18% less than the prior year-end balance. 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 Company expects to bill the entire amount during the next twelve months. 63% of the CIEB balance as of the end of the last fiscal quarter, May 31, 2023, was billed to those customers in the current fiscal quarter ended August 31, 2023. The remainder will be billed as the Projects progress, in accordance with the terms specified in the various contracts.

13

The balances in this account are comprised of the following components:

	August 31, 2023	May 31, 2023
Costs	$ 4,605,000	$ 3,006,000
Estimated Earnings	2,345,000	2,648,000
Less: Billings to customers	3,561,000	1,530,000
CIEB	$ 3,389,000	$ 4,124,000
Number of Projects in progress	8	12

As noted above, BIEC represents billings to customers in excess of revenues recognized. The $4,813,000 balance in this account at August 31, 2023 is up 142% from the $1,992,000 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 CIEB, 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:

	August 31, 2023	May 31, 2023
Billings to customers	$ 7,260,000	$ 6,538,000
Less: Costs	1,183,000	2,343,000
Less: Estimated Earnings	1,264,000	2,203,000
BIEC	$ 4,813,000	$ 1,992,000
Number of Projects in progress	7	10

Summary of factors affecting the balances in CIEB and BIEC:

	August 31, 2023	May 31, 2023
Number of Projects in progress	15	22
Aggregate percent complete	43%	33%
Average total sales value of Projects in progress	$1,549,000	$1,285,000
Percentage of total value invoiced to customer	47%	29%

The Company's backlog of sales orders at August 31, 2023 is $28.3 million, down from $32.5 million at the end of the prior year. $13.8 million of the current backlog is on Projects already in progress.

Other Balance Sheet Items

Accounts payable, at $1,051,000 as of August 31, 2023, is 39% less than the prior year-end. Accrued expenses decreased 40% from the prior year-end, to $2,463,000. The Company expects the current accrued amounts to be paid or applied during the next twelve months.

Management believes the Company's cash flows from operations 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 August 31, 2023 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

14

communicated to our management, including our chief executive officer and chief financial officer to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting.  

There have been no changes in the Company's internal controls over financial reporting that occurred during the fiscal quarter ended August 31, 2023 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                                                                                                                                                    Taylor Devices Inc. (the “Company”) has been named as a Third-Party Defendant in an action captioned Board of Managers of the 432 Park Condominium, et al. v. 56th and Park (NY) Owner LLC, et al. Index No. 655617/2021 (S.Ct. N.Y. Co.) (the “Action”). The Action was filed on or about September 23, 2021. In an amended Complaint dated April 29, 2022, the Board of Managers of 432 Park Condominium (the “Owner”), a condominium association for a high-rise condominium building (the “Building”) located at 432 Park Avenue in New York, N.Y., has asserted a claim against the condominium sponsor, 56th and Park (NY) Owner LLC (the “Sponsor”). The Owner alleges “over 1500 identified construction and design defects to the common elements of” residential and commercial units at the Building, based upon a report generated by a consultant (SBI Consultants Inc.) retained by the Owner. The alleged defects include, but are not limited to, allegedly-excessive noise and vibration, water leaks and elevator failures. The SBI report allegedly identified defects in the Building’s: (a) structural/envelope system; (b) mechanical/electrical & plumbing systems; (c) architectural/interiors; and (d) elevators/vertical systems. On March 14, 2022, the Sponsor filed a Third-Party Complaint against LendLease Construction (US) LMB (“LendLease”), as well as the architects of record on the project (SLCE Architects), the lead structural engineer (Cantor ESA) and the head mechanical engineer (Flack + Kurtz) involved in the Building’s design. As to LendLease, the Third-Party Complaint alleges breach of a Construction Management Contract between LendLease and Sponsor and negligence arising from purported failure to perform under the contract. On March 22, 2023, LendLease initiated a Third-Party action against various entities with whom LendLease had contracted for the supply of materials and services in connection with construction of the Building. The Third-Party defendants include the suppliers of products and services relating to the automatic sprinkler system, structural steel, mechanical systems, electrical systems, sheet metal, component assembly, roofing, the building exterior, plumbing, concrete, curtain walls, custom machine work and elevators. The Third-Party Complaint also names the Company as a Third-Party Defendant, based upon a contract between the Company and LendLease to supply 16 Viscous Damping Devices (“VDDs”) that were incorporated into a Tuned Mass Damper (“TMD”) system designed by another company to limit accelerations of the Building during wind events. On July 5, 2023, the Company timely filed and served an Answer to LendLease’s Third-Party Complaint. Additional third-party actions have been filed by parties named as defendants in the Third-Party Complaint. Presently, seven third-party actions are pending. The Progress of the Matter to Date. The matter, and all of the related third-party actions, are pending in the Commercial Division of the Supreme Court, New York County before Justice Melissa A. Crane. Justice Crane has appointed Hon. Andrew J. Peck, a retired justice of the Supreme Court, as Special Master to hear and determine disputes regarding all or any part of any discovery issue.   On August 8, 2023, the Court entered into a Second Amended Scheduling Order. Among the directives in the Second Amended Scheduling Order is a requirement that: (a) recently-added third-party defendants (including the Company) respond to discovery demands by November 30, 2023 and complete document productions by January 11, 2024; (b) all parties complete fact depositions and fact discovery by June 17, 2024; and (c) all parties complete expert discovery by November 28, 2024.  

15

	Management Response. Management of the Company vigorously disputes the allegations in the Third-Party Complaint. Based upon the information currently available, there is a credible argument that: (a) the Company met the contractual requirements of the 2013 Purchase Order for Viscous Damping Devices (VDDs) that were incorporated into the Tuned Mass Damper (TMD) system; and (b) the VDDs that were delivered were successfully tested to the applicable specification and met the technical requirements of that specification. The Owner has not itemized the damages it seeks to recover from Sponsor, but the Amended Complaint contains an ad damnum clause demanding $125 million plus punitive damages. Sponsor has not itemized the damages it seeks to recover from LendLease or the other third-party defendants, but the claim for relief in the Third-Party Complaint includes a demand for full indemnification of any amounts the Sponsor is required to pay plaintiff. In turn, LendLease does not itemize the damages it seeks to recover from the several Third-Party defendants (including the Company), but its demand for relief in the Third-Party Complaint includes a demand for full indemnification of any amounts LendLease is required to pay to Sponsor. The Company anticipates that the pending actions would provide opportunities for Sponsor, LendLease and the Company to allocate some or all of any liability to one or more co-defendants or third parties. In view of the limited discovery to date, it is not practical to quantify likely damages to the Company in the event of an unfavorable outcome on liability.
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 August 31, 2023 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 August 31, 2023
		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
		June 1, 2023 -
		June 30, 2023	-	-	-	-
		July 1, 2023 -
		July 31, 2023	-	-	-	-
		August 1, 2023 -
		August 31, 2023	-	-	-	-
		Total	-	-	-	-
ITEM 3	Defaults Upon Senior Securities
	None
ITEM 4	Mine Safety Disclosures
	Not applicable

16

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
	3(v)	By-laws – filed on January 6, 2023 with Form 10-Q for the period ending November 30, 2022, and incorporated herein by reference.
	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
	104	Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document and are contained within Exhibit 101

17

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Taylor Devices, Inc.

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated balance sheet of Taylor Devices, Inc. and Subsidiary (the Company) as of August 31, 2023, and the related condensed consolidated statements of income, stockholders’ equity, and cash flows for the three months ended August 31, 2023 and 2022, and the related notes (collectively referred to as the interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the 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) (PCAOB), the consolidated balance sheet of the Company as of May 31, 2023, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated August 15, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May 31, 2023, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company's management. We conducted our review in accordance with the standards of the PCAOB. 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 PCAOB, 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.

Lumsden & McCormick, LLP

Buffalo, New York

September 29, 2023

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:	September 29, 2023	/s/Timothy J. Sopko
		Timothy J. Sopko Chief Executive Officer (Principal Executive Officer)

Date:	September 29, 2023	/s/Paul Heary
		Paul Heary Chief Financial Officer

19

EX-31.1

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, Timothy J. Sopko, 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: September 29, 2023	/s/ Timothy J. Sopko
	Timothy J. Sopko Chief Executive Officer

EX-31.2

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, Paul Heary, 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: September 29, 2023	/s/ Paul Heary
	Paul Heary Chief Financial Officer

EX-32.1

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 connection with the quarterly report of Taylor Devices, Inc. ("the Company") on Form 10-Q for the quarter ended August 31, 2023 to be filed with Securities and Exchange Commission on or about the date hereof (the
"Report"), I, Timothy J. Sopko 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: September 29, 2023	By:	/s/ Timothy J. Sopko
		Timothy J. Sopko Chief Executive Officer

EX-32.2

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 connection with the quarterly report of Taylor Devices, Inc. (the "Company") on Form 10-Q for the quarter ended August 31, 2023 to be filed with Securities and Exchange Commission on or about the date hereof (the "Report"), I, Paul Heary, 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: September 29, 2023	By:	/s/ Paul Heary
		Paul Heary Chief Financial Officer

XML

Document and Entity Information - $ / shares	3 Months Ended
	Aug. 31, 2023	Sep. 29, 2023
Details
Registrant CIK	0000096536
Fiscal Year End	--05-31
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Aug. 31, 2023
Document Transition Report	false
Entity File Number	0-3498
Entity Registrant Name	TAYLOR DEVICES INC
Entity Incorporation, State or Country Code	NY
Entity Tax Identification Number	16-0797789
Entity Address, Address Line One	90 Taylor Drive
Entity Address, City or Town	North Tonawanda
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	14120
Entity Address, Address Description	Address of principal executive offices
City Area Code	716
Local Phone Number	694-0800
Phone Fax Number Description	Registrant’s telephone number, including area code
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		3,521,377
Entity Listing, Par Value Per Share	$ 0.025
Amendment Flag	false
Document Fiscal Year Focus	2024
Document Fiscal Period Focus	Q1

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Aug. 31, 2023	May 31, 2023
Current assets
Cash and cash equivalents	$ 2,889,459	$ 3,575,219
Short-term investments	27,812,740	24,514,757
Accounts and other receivables, net	5,403,750	5,553,504
Inventory	6,830,311	5,941,304
Costs and estimated earnings in excess of billings	3,388,971	4,124,182
Other current assets	439,021	668,554
Total current assets	46,764,252	44,377,520
Maintenance and other inventory, net	1,032,640	1,003,140
Property and equipment, net	11,693,958	11,721,784
Other assets	211,248	210,120
Deferred income taxes	568,615	568,615
Assets	60,270,713	57,881,179
Current liabilities
Accounts payable	1,051,457	1,717,657
Accrued expenses	2,462,747	4,078,322
Billings in excess of costs and estimated earnings	4,813,033	1,992,470
Total current liabilities	8,327,237	7,788,449
Stockholders' Equity
Common stock and additional paid-in capital	11,067,898	11,049,216
Retained earnings	43,976,119	42,128,256
Treasury stock - at cost	(3,100,541)	(3,084,742)
Total stockholders' equity	51,943,476	50,092,730
Liabilities and Equity	$ 60,270,713	$ 57,881,179

XML

Condensed Consolidated Statements of Income (unaudited) - USD ($)	3 Months Ended
	Aug. 31, 2023	Aug. 31, 2022
Condensed Consolidated Statements of Income (unaudited)
Sales, net	$ 9,923,628	$ 9,090,699
Cost of goods sold	5,539,052	5,598,942
Gross profit	4,384,576	3,491,757
Research and development costs	129,074	375,346
Selling, general and administrative expenses	2,335,957	1,938,038
Operating income	1,919,545	1,178,373
Other income, net	361,318	39,998
Income before provision for income taxes	2,280,863	1,218,371
Provision for income taxes	433,000	216,000
Net income	$ 1,847,863	$ 1,002,371
Basic and diluted earnings per common share	$ 0.52	$ 0.29

XML

Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock, Common
Equity, Attributable to Parent, Beginning Balance at May. 31, 2022		$ 101,342	$ 10,227,916	$ 35,840,898	$ (2,915,002)
Issuance of shares for employee stock purchase plan		9	3,062
Issuance of shares for employee stock option plan		100	32,120		0
Equity, Attributable to Parent, Ending Balance at Aug. 31, 2022	$ 44,292,816	101,451	10,263,098	36,843,269	(2,915,002)
Net income	1,002,371			1,002,371
Equity, Attributable to Parent, Beginning Balance at May. 31, 2023	50,092,730	102,127	10,947,089	42,128,256	(3,084,742)
Issuance of shares for employee stock purchase plan		3	2,880
Issuance of shares for employee stock option plan		38	15,761		(15,799)
Equity, Attributable to Parent, Ending Balance at Aug. 31, 2023	51,943,476	$ 102,168	$ 10,965,730	43,976,119	$ (3,100,541)
Net income	$ 1,847,863			$ 1,847,863

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Aug. 31, 2023	Aug. 31, 2022
Operating activities
Net income	$ 1,847,863	$ 1,002,371
Adjustments to reconcile net income to net cash flows from operating activities
Depreciation	455,478	317,790
Changes in other assets and liabilities
Accounts and other receivables, net	149,754	(1,365,612)
Inventory	(918,507)	57,869
Costs and estimated earnings in excess of billings	735,211	503,936
Other current assets	229,533	285,883
Accounts payable	(666,200)	22,114
Accrued Expenses	(1,615,575)	(1,346,571)
Billings in excess of costs and estimated earnings	2,820,563	491,334
Net operating activities	3,038,120	(30,886)
Investing activities
Acquisition of property and equipment	(427,652)	(833,464)
Purchase of short-term investments	(3,297,983)	0
Other investing activities	(1,128)	(1,140)
Net investing activities	(3,726,763)	(834,604)
Financing activities
Proceeds from issuance of common stock, net	18,682	35,291
Acquisition of treasury stock	(15,799)	0
Net financing activities	2,883	35,291
Net change in cash and cash equivalents	(685,760)	(830,199)
Cash and cash equivalents - beginning	3,575,219	22,517,038
Cash and cash equivalents - ending	$ 2,889,459	$ 21,686,839

XML

Condensed Financial Statements

3 Months Ended

Aug. 31, 2023

Notes

Condensed 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 the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of August 31, 2023 and May 31, 2023, the results of operations for the three months ended August 31, 2023 and 2022, and cash flows for the three months ended August 31, 2023 and 2022. 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, 2023.  

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 three-month periods ended August 31, 2023 and 2022, the net income was divided by 3,520,910 and 3,499,023 respectively, which is net of the Treasury shares, to calculate the net income per share.  

5.The results of operations for the three-month period ended August 31, 2023 are not necessarily indicative of the results to be expected for the full year. 

6.Recently issued Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) guidance has either been implemented or is not significant to the Company. 

7.Short-term Investments: 

At times, the Company invests excess funds in liquid interest earning instruments. Short-term investments at August 31, 2023 and May 31, 2023 include “available for sale” money market funds, US treasury securities and corporate bonds stated at fair value, which approximates cost. The short-term investments (22) mature on various dates during the period September 2023 to November 2026. Unrealized holding gains and losses would be presented as a separate component of accumulated other comprehensive income, net of deferred income taxes. Realized gains and losses on the sale of investments are determined using the specific identification method.

The short-term investments are valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings.

8.Inventory: 

	August 31, 2023	May 31, 2023
Raw materials	$854,115	$673,453
Work-in-process	5,750,443	5,005,416
Finished goods	286,753	330,435
	6,891,311	6,009,304
Less allowance for obsolescence	61,000	68,000
	$6,830,311	$5,941,304

9.Revenue Recognition: 

Revenue is recognized (generally at fixed prices) when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue

when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct. Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations.

For contracts with customers in which the Company satisfies a promise to the customer to provide a product that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time (generally less than one year) using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material and overhead. Adjustments to cost estimates are made periodically, and losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined. Other sales to customers are recognized upon shipment to the customer based on contract prices and terms. In the three months ended August 31, 2023, 55% of revenue was recorded for contracts in which revenue was recognized over time while 45% was recognized at a point in time. In the three months ended August 31, 2022, 61% of revenue was recorded for contracts in which revenue was recognized over time while 39% was recognized at a point in time.

Progress payments are typically negotiated for longer term projects. Payments are otherwise due once performance obligations are complete (generally at shipment and transfer of title). For financial statement presentation purposes, the Company nets progress billings against the total costs incurred and estimated earnings recognized 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.

If applicable, the Company recognizes an asset for the incremental, material costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year and the costs are expected to be recovered. As of August 31, 2023 and May 31, 2023, the Company does not have material incremental costs on any open contracts with an original expected duration of greater than one year, and therefore such costs are expensed as incurred. These incremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer.

10.The August 31, 2022 statement of income has been reclassified to conform with the presentation adopted for August 31, 2023. 

11.Accrued Expenses:  

	August 31, 2023	May 31, 2023
Customer deposits	$367,902	$367,902
Personnel costs	1,403,744	3,023,501
Other	691,101	686,919
	$2,462,747	$4,078,322

XML

Condensed Financial Statements: Schedule of Inventory, Current (Tables)

3 Months Ended

Aug. 31, 2023

Tables/Schedules

Schedule of Inventory, Current

	August 31, 2023	May 31, 2023
Raw materials	$854,115	$673,453
Work-in-process	5,750,443	5,005,416
Finished goods	286,753	330,435
	6,891,311	6,009,304
Less allowance for obsolescence	61,000	68,000
	$6,830,311	$5,941,304

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Condensed Financial Statements: Schedule of Accrued Expenses (Tables)

3 Months Ended

Aug. 31, 2023

Tables/Schedules

Schedule of Accrued Expenses

	August 31, 2023	May 31, 2023
Customer deposits	$367,902	$367,902
Personnel costs	1,403,744	3,023,501
Other	691,101	686,919
	$2,462,747	$4,078,322

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Condensed Financial Statements (Details) - shares	3 Months Ended
	Aug. 31, 2023	Aug. 31, 2022
Details
Weighted Average Number of Shares Outstanding, Basic	3,520,910	3,499,023

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Condensed Financial Statements: Schedule of Inventory, Current (Details) - USD ($)	Aug. 31, 2023	May 31, 2023
Details
Raw materials	$ 854,115	$ 673,453
Work-in-process	5,750,443	5,005,416
Finished goods	286,753	330,435
Inventory, Gross	6,891,311	6,009,304
Less allowance for obsolescence	61,000	68,000
Inventory, Net	$ 6,830,311	$ 5,941,304

XML

Condensed Financial Statements: Schedule of Accrued Expenses (Details) - USD ($)	Aug. 31, 2023	May 31, 2023
Details
Customer deposits	$ 367,902	$ 367,902
Personnel costs	1,403,744	3,023,501
Other	691,101	686,919
Accrued Liabilities and Other Liabilities	$ 2,462,747	$ 4,078,322