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 ~~December 29, 2022,~~March 30, 2023, there were outstanding ~~3,502,546~~3,509,152 shares of the registrant’s common stock, par value ~~$.025~~$0.025 per share.

~~-2-~~ 2

~~Table of Contents~~

TAYLOR DEVICES, INC.

Index to Form 10-Q

PART I	FINANCIAL INFORMATION		PAGE NO.

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets as of ~~November 30, 2022~~February 28, 2023 and May 31, 2022	4

		Condensed Consolidated Statements of Income for the three and ~~six~~nine months ended ~~November 30,~~February 28, 2023 and 2022 ~~and 2021~~	5

		Condensed Consolidated Statements of Stockholders’ Equity for the three and ~~six~~nine months ended ~~November 30,~~February 28, 2023 and 2022 ~~and 2021~~	6

		Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~November 30,~~February 28, 2023 and 2022 ~~and 2021~~	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		17

	Item 4.	Controls and Procedures		17

PART II	OTHER INFORMATION
	Item 1.	Legal Proceedings	18
	Item 1A.	Risk Factors	18
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
	Item 3.	Defaults Upon Senior Securities	18
	Item 4.	Mine Safety Disclosures	18
	Item 5.	Other Information	18
	Item 6.	Exhibits	19

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			20
SIGNATURES			21

~~-3-~~

TAYLOR DEVICES, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets	(Unaudited)
	February 28,	May 31,
	2023	2022

Assets
Current assets:
Cash and cash equivalents	`$3,383,847`	`$22,517,038`
Short-term investments	`19,276,643`	`1,097,450`
Accounts and other receivables, net	`8,563,365`	`4,466,686`
Inventory	`5,680,215`	`5,854,935`
Costs and estimated earnings in excess of billings	`3,773,987`	`3,336,474`
Other current assets	`817,814`	`704,436`
Total current assets	`41,495,871`	`37,977,019`

Maintenance and other inventory, net	`867,889`	`1,107,309`
Property and equipment, net	`11,233,349`	`9,854,759`
Other assets	`208,983`	`205,359`
Deferred income taxes	`74,615`	`74,615`
	`$53,880,707`	`$49,219,061`
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	`$1,467,153`	`$1,426,830`
Billings in excess of costs and estimated earnings	`1,437,996`	`1,122,763`
Other current liabilities	`3,279,709`	`3,414,314`
Total current liabilities	`6,184,858`	`5,963,907`

Stockholders' Equity:
Common stock and additional paid-in capital	`10,603,892`	`10,329,258`
Retained earnings	`40,061,664`	`35,840,898`
	`50,665,556`	`46,170,156`
Treasury stock - at cost	`(2,969,707)`	`(2,915,002)`
Total stockholders’ equity	`47,695,849`	`43,255,154`
	`$53,880,707`	`$49,219,061`

~~Table of Contents~~

See notes to condensed consolidated financial statements.

TAYLOR DEVICES, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets (Unaudited)
November 30, May 31,
2022 2022

Assets
Current assets:
Cash and cash equivalents $ 21,013,144 $ 22,517,038
Short-term investments 1,097,450 1,097,450
Accounts and other receivables, net 5,940,731 4,466,686
Inventory 5,596,046 5,854,935
Costs and estimated earnings in excess of billings 5,295,376 3,336,474
Other current assets 890,506 704,436
Total current assets 39,833,253 37,977,019

Maintenance and other inventory, net 972,282 1,107,309
Property and equipment, net 10,610,010 9,854,759
Other assets 207,879 205,359
Deferred income taxes 74,615 74,615
Total assets $ 51,698,039 $ 49,219,061
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,537,181 $ 1,426,830
Billings in excess of costs and estimated earnings 1,089,884 1,122,763
Other current liabilities 3,087,615 3,414,314
Total current liabilities 5,714,680 5,963,907

Stockholders' Equity:
Common stock and additional paid-in capital 10,495,584 10,329,258
Retained earnings 38,402,777 35,840,898
Stockholders’ equity before treasury stock 48,898,361 46,170,156
Treasury stock - at cost (2,915,002 ) (2,915,002 )
Total stockholders’ equity 45,983,359 43,255,154
Total liabilities and stockholders’ equity $ 51,698,039 $ 49,219,061

See notes to condensed consolidated financial statements.

~~-4-~~

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,
	2023	2022	2023	2022


Sales, net	`$9,891,272`	`$6,143,329`	`$29,479,337`	`$21,209,052`

Cost of goods sold	`5,870,523`	`4,768,479`	`17,980,006`	`15,371,500`

Gross profit	`4,020,749`	`1,374,850`	`11,499,331`	`5,837,552`

Research and development costs	`190,688`	`201,277`	`881,335`	`684,494`
Selling, general and administrative expenses	`2,025,115`	`1,364,664`	`5,878,214`	`4,445,623`

Operating income	`1,804,946`	`(191,091)`	`4,739,782`	`707,435`

Other income, net	`239,941`	`4,798`	`432,984`	`75,953`

Income before provision for income taxes	`2,044,887`	`(186,293)`	`5,172,766`	`783,388`

Provision for income taxes	`386,000`	`(69,000)`	`952,000`	`59,000`

Net income	`$1,658,887`	`$(117,293)`	`$4,220,766`	`$724,388`

Basic and diluted earnings per common share	`$0.47`	`$(0.03)`	`$1.20`	`$0.21`

~~Table of Contents~~

TAYLOR DEVICES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Income (Unaudited) (Unaudited)
For the three months ended November 30, For the six months ended November 30,
2022 2021 2022 2021

Sales, net $ 10,497,366 $ 7,757,986 $ 19,588,065 $ 15,065,723

Cost of goods sold 6,403,541 5,167,463 12,109,483 10,603,021

     Gross profit 4,093,825 2,590,523 7,478,582 4,462,702

Research and development costs 315,301 201,277 690,647 483,217
Selling, general and administrative expenses 2,022,061 1,608,860 3,853,099 3,080,959

     Operating income 1,756,463 780,386 2,934,836 898,526

Other income, net 153,045 7,418 193,043 71,155

     Income before provision for income taxes 1,909,508 787,804 3,127,879 969,681

Provision for income taxes 350,000 128,000 566,000 128,000

     Net income $ 1,559,508 $ 659,804 $ 2,561,879 $ 841,681

Basic and diluted earnings per common share $ 0.45 $ 0.19 $ 0.73 $ 0.24

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

~~-5-~~

~~Table of Contents~~

TAYLOR DEVICES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited) (Unaudited)
For the three months ended November 30, For the six months ended November 30,
2022 2021 2022 2021

Common Stock
  Beginning of period $ 101,451 $ 101,313 $ 101,342 $ 101,305
  Issuance of shares for employee stock purchase plan 6 10 15 18
  Issuance of shares for employee stock option plan —   —   100 —
  End of period 101,457 101,323 101,457 101,323
Paid-in Capital
  Beginning of period 10,263,098 10,014,255 10,227,916 10,010,430
  Issuance of shares for employee stock purchase plan 2,592 4,256 5,654 8,081
  Issuance of shares for employee stock option plan —   —   32,120 —
  Stock options issued for services 128,437 125,764 128,437 125,764
  End of period 10,394,127 10,144,275 10,394,127 10,144,275
Retained Earnings
  Beginning of period 36,843,269 33,783,352 35,840,898 33,601,475
  Net income 1,559,508 659,804 2,561,879 841,681
  End of period 38,402,777 34,443,156 38,402,777 34,443,156
Treasury Stock
  Beginning and end of period (2,915,002 ) (2,915,002 ) (2,915,002 ) (2,915,002 )
Total stockholders' equity $ 45,983,359 $ 41,773,752 $ 45,983,359 $ 41,773,752

See notes to condensed consolidated financial statements.

~~-6-~~

~~Table of Contents~~

TAYLOR DEVICES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows
(Unaudited)
November 30,
For the six months ended 2022 2021

Operating activities:
Net income $ 2,561,879 $ 841,681
Adjustments to reconcile net income to net cash flows from operating activities:
   Depreciation 635,580 637,363
   Stock options issued for services 128,437 125,764
   Changes in other assets and liabilities:
      Accounts and other receivables, net (1,474,045 ) (189,316 )
      Inventory 393,916 88,563
      Costs and estimated earnings in excess of billings (1,958,902 ) (2,385,172 )
      Other current assets (186,070 ) 354,898
      Accounts payable 110,351 (284,608 )
      Billings in excess of costs and estimated earnings (32,879 ) (645,498 )
      Other current liabilities (326,699 ) 82,114
          Net operating activities (148,432 ) (1,374,211 )

Investing activities:
   Acquisition of property and equipment (1,390,831 ) (560,159 )
   Other investing activities (2,520 ) (7,249 )
          Net investing activities (1,393,351 ) (567,408 )

Financing activities:
   Proceeds from issuance of common stock, net 37,889 8,099

          Net change in cash and cash equivalents (1,503,894 ) (1,933,520 )

Cash and cash equivalents - beginning 22,517,038 20,581,604

          Cash and cash equivalents - ending $ 21,013,144 $ 18,648,084

See notes to condensed consolidated financial statements.

TAYLOR DEVICES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders’ Equity
	(Unaudited)		(Unaudited)
	For the three months ended February 28,		For the nine months ended February 28,
	2023	2022	2023	2022

Common Stock
Beginning of period	`$101,457`	`$101,323`	`$101,342`	`$101,305`
Issuance of shares for employee stock purchase plan	`5`	`9`	`20`	`27`
Issuance of shares for employee stock option plan	`244`	`-`	`344`	`-`
End of period	`101,706`	`101,332`	`101,706`	`101,332`
Paid-in Capital
Beginning of period	`10,394,127`	`10,144,275`	`10,227,916`	`10,010,430`
Issuance of shares for employee stock purchase plan	`2,429`	`4,227`	`8,083`	`12,308`
Issuance of shares for employee stock option plan	`105,630`	`-`	`137,750`	`-`
Stock options issued for services	`-`	`-`	`128,437`	`125,764`
End of period	`10,502,186`	`10,148,502`	`10,502,186`	`10,148,502`
Retained Earnings
Beginning of period	`38,402,777`	`34,443,156`	`35,840,898`	`33,601,475`
Net income	`1,658,887`	`(117,293)`	`4,220,766`	`724,388`
End of period	`40,061,664`	`34,325,863`	`40,061,664`	`34,325,863`
Treasury Stock
Beginning of period	`(2,915,002)`	`(2,915,002)`	`(2,915,002)`	`(2,915,002)`
Issuance of shares for employee stock option plan	`(54,705)`	`-`	`(54,705)`	`-`
End of period	`(2,969,707)`	`(2,915,002)`	`(2,969,707)`	`(2,915,002)`
Total stockholders' equity	`$47,695,849`	`$41,660,695`	`$47,695,849`	`$41,660,695`

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, 2023 and May 31, 2022, the results of operations for the three and nine months ended February 28, 2023 and 2022, and cash flows for the nine months ended February 28, 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, 2022.

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, 2023 and 2022, the net income was divided by 3,502,982 and 3,496,968 respectively, which is net of the Treasury shares, to calculate the net income per share. For the three-month periods ended February 28, 2023 and 2022, the net income was divided by 3,505,849 and 3,496,833 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, 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.

At times, the Company invests excess funds in liquid interest earning instruments. Short-term investments at February 28, 2023 and May 31, 2022 include “available for sale” US treasury securities and corporate bonds stated at fair value, which approximates cost. The short-term investments (23) mature on various dates during the period March 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.

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 ~~six~~nine months ended ~~November 30, 2022, 61%~~February 28, 2023, 62% of revenue was recorded for contracts in which revenue was recognized over time while ~~39%~~38% was recognized at a point in time. In the ~~six~~nine months ended ~~November 30, 2021, 67%~~February 28, 2022, 63% of revenue was recorded for contracts in which revenue was recognized over time while ~~33%~~37% 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 ~~November 30, 2022~~February 28, 2023 and May 31, 2022, 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 February 28, 2022 statement of income has been reclassified to conform with the presentation adopted for February 28, 2023.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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.

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

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.

For the ~~six~~nine months ended ~~November 30, 2022~~February 28, 2023 (All figures discussed are for the ~~six~~nine months ended ~~November 30, 2022~~February 28, 2023 as compared to the ~~six~~nine months ended ~~November 30, 2021)~~February 28, 2022).

The Company's consolidated results of operations showed a ~~30%~~39% increase in net revenues and an increase in net income of ~~204%~~483%. ~~Revenue for the first half of fiscal 2023 is higher than any half fiscal year period in the history of the Company.~~ Revenues recorded in the current period for long-term construction projects (“Project(s)”) were ~~18%~~36% more than the level recorded in the prior year. The Company had 3545 Projects in process during the current period as compared to 2834 during the same period last year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were ~~55%~~45% more than the level recorded in the prior year. Total sales within the U.S. increased ~~43%~~58% from the same period last year. Total sales to Asia decreased 4%10% 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 ~~(13%~~(29%) as well as to customers in aerospace / defense ~~(47%~~(44%) and to industrial customers (93%). The increase in ~~aerospace /defense~~aerospace/defense sales is due, in part, to a healthy combination of providing production hardware on several legacy programs and new development programs, along with receiving substantial contracts for the refurbishment of hardware on existing naval platforms. The ~~108%~~93% increase in sales to industrial customers is primarily due to some new domestic manufacturing facilities beginning operations which utilized the Company’s products.

In prior years, the Company reported research and development costs as part of cost of sales and therefore included in the gross profit. Management intends to continue to make significant investments in research and development in order to promote profitable growth of the Company. In order to more clearly distinguish these investments from the profitability of a period’s sales, effective with the first quarter of fiscal 2023, the Company is disclosing research and development costs separately on the Condensed Consolidated Statements of Income below the gross profit line. Prior period statements of income as well as disclosures in this document have been reclassified to conform with the presentation adopted for the current period.

The gross profit as a percentage of net revenue of ~~38%~~39% in the current period is ~~eight~~eleven percentage points greater than the same period of the prior year ~~(30%~~(28%). The Company has been able to increase sales prices to recover more of the increased costs for materials and labor that were incurred over the past year. Management continues to work with suppliers to obtain more visibility of conditions affecting their respective markets. These actions combined with benefits from the ~~increase in~~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:

At ~~November 30, 2021,~~February 28, 2022, the Company had ~~139~~140 open sales orders in our backlog with a total sales value of ~~$17.0~~$17.4 million. At ~~November 30, 2022,~~February 28, 2023, the Company has ~~139~~125 open sales orders in our backlog, and the total sales value is ~~$18.1~~$27.8 million.

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

Net revenue by geographic region, as a percentage of total net revenue for the ~~six-month~~nine-month periods ended ~~November 30,~~February 28, 2023 and February 28, 2022 ~~and~~ ~~November 30, 2021~~ is as follows:

Research and development costs stayed consistent as a percent of net revenues while increasing by ~~43%~~29% over the prior year.

Selling, general and administrative expenses increased by ~~25%~~32% 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 ~~$2,935,000~~$4,740,000 for the ~~six~~nine months ended ~~November 30, 2022, 227%~~February 28, 2023, 570% more than the ~~$899,000~~$707,000 in the same period of the prior year.

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

For the three months ended ~~November 30, 2022~~February 28, 2023 (All figures discussed are for the three months ended ~~November 30, 2022~~February 28, 2023 as compared to the three months ended ~~November 30, 2021)~~February 28, 2022).

The Company's consolidated results of operations showed a ~~35%~~61% increase in net revenues and an$1.8 million increase in net ~~income of 136%.~~income. Revenues recorded in the current period for Projects were ~~22%~~91% more than the level recorded in the prior year. The Company had 2829 Projects in process during the current period as compared to 2627 during the same period last year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were ~~64%~~28% more than the level recorded in the prior year. Total sales within the U.S. increased ~~41%~~98% from the same period last year. Total sales to Asia ~~increased 36%~~decreased 25% 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 ~~(10%~~(76%) as well as to customers in aerospace / defense ~~(59%~~(42%) and to industrial customers ~~(152%~~(69%). The ~~increase~~circumstances affecting the fluctuations in ~~aerospace /defense sales is due,~~revenue levels are as identified in ~~part, to a healthy combination of providing production hardware on several legacy programs and new development programs, along with receiving substantial contracts for~~ the refurbishment of hardware on existing naval platforms. The increase in sales to industrial customers is primarily due to some new domestic manufacturing facilities beginning operations which utilized the Company’s products.year-to-date comparisons, above.

The gross profit as a percentage of net revenue of ~~39%~~41% in the current period is ~~six~~nineteen percentage points higher than the same period of the prior year ~~(33%~~(22%). The Company has been able to increase sales prices to recover more of the increased costs for materials and labor that were incurred over the past year. Management continues to work with suppliers to obtain more visibility of conditions affecting their respective markets. These actions combined with benefits from the ~~increase in~~Company’s continuous improvement initiatives and increased volume have helped to improve the gross margin as a percentage of revenue over the prior year.

Net revenue by geographic region, as a percentage of total net revenue for the three-month periods ended ~~November 30,~~February 28, 2023 and February 28, 2022, ~~and~~ ~~November 30, 2021,~~ is as follows:

Total Research and development costs stayed consistent ~~as a percentage of net revenues while increasing by 57% over the~~with prior year.

Selling, general and administrative expenses increased ~~26%~~48% 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 ~~$1,756,000~~$1,805,000 for the three months ended ~~November 30, 2022, 125% more~~February 28, 2023, better than the ~~$780,000~~$191,000 loss in the same period of the prior year.

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 $128,000 and $126,000 of compensation cost for the ~~six-month~~nine-month periods ended ~~November 30, 2022~~February 28, 2023 and ~~2021.~~2022.

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:

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

A summary of changes in the stock options outstanding during the ~~six-month~~nine-month period ended ~~November 30, 2022~~February 28, 2023 is presented below:

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

Capital expenditures for the ~~six~~nine months ended ~~November 30, 2022~~February 28, 2023 were ~~$1,391,000~~$2,383,000 compared to ~~$560,000~~$722,000 in the same period of the prior year. As of ~~November 30, 2022,~~February 28, 2023, the Company has commitments for capital expenditures totaling ~~$1,800,000~~$900,000 during the next twelve months.

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

NOTE: Inventory turnover is annualized for the ~~six-month~~nine-month period ended ~~November 30, 2022.~~February 28, 2023.

Inventory, at ~~$5,596,000~~$5,680,000 as of ~~November 30, 2022,~~February 28, 2023, is ~~$259,000~~$175,000 less than the prior year-end level of $5,855,000. Approximately ~~88%~~85% of the current inventory is work in process, 2%3% is finished goods, and ~~10%~~12% 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 ~~zero~~$68,000 and ~~$90,000~~zero for the ~~six-month~~nine-month periods ended ~~November 30, 2022~~February 28, 2023 and ~~2021.~~2022. The Company continues to rework slow-moving inventory, where applicable, to convert it to product to be used on customer orders.

~~-15-~~ 15

~~Table of Contents~~

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

	November 30, 2022		May 31, 2022		Increase /(Decrease)					February 28, 2023	May 31, 2022	Increase /(Decrease)
Accounts receivable	$	5,941,000	$	4,467,000	$	1,474,000		33	%	$ 8,563,000	$ 4,467,000		$ 4,096,000	92%
CIEB		5,295,000		3,336,000		1,959,000		59	%	3,774,000	3,336,000		438,000	13%
Less: BIEC		1,090,000		1,123,000		(33,000	)	-3	%	1,438,000	1,123,000		315,000	28%
Net	$	10,146,000	$	6,680,000	$	3,466,000		52	%	$ 10,899,000	$ 6,680,000		$ 4,219,000	63%

Number of an average day’s sales outstanding in accounts receivable		51		42						78	42

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 ~~$5,941,000~~$8,563,000 as of ~~November 30, 2022~~February 28, 2023 includes ~~$6,000~~$29,000 of an allowance for doubtful accounts (“Allowance”). The accounts receivable balance as of May 31, 2022 of $4,467,000 included an Allowance of $16,000. The number of an average day's sales outstanding in accounts receivable (“DSO”) increased from 42 days at May 31, 2022 to 5178 at ~~November 30, 2022.~~ February 28, 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 level of sales for an average day in the second quarter of the current fiscal year is 9% more than in the fourth quarter of the prior year. The level of accounts receivable at the end of the current fiscal quarter is 33% more than the level at the end of the prior year. The increase in the level of accounts receivable off-set by the increase in the level of an average day’s sales caused the DSO to increase from last year end to this quarter-end. The Company expects to collect the net accounts receivable balance during the next twelve months. The level of accounts receivable is greater than at the end of the prior year primarily because of the ~~$1.2~~$0.6 million increase in the level of sales for the month of ~~November 2022~~February 2023 over the month of May 2022 and the $1.5 million reduction to CIEB from quarter ending November 30, 2022. 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 ~~$5,295,000~~$3,774,000 balance in this account at ~~November 30, 2022~~February 28, 2023 is ~~59%~~13% 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. ~~17%~~56% of the CIEB balance as of the end of the last fiscal quarter, ~~August 31,~~November 30, 2022, was billed to those customers in the current fiscal quarter ended ~~November 30, 2022.~~February 28, 2023. The remainder will be billed as the Projects progress, in accordance with the terms specified in the various contracts.

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

	November 30, 2022		May 31, 2022		February 28, 2023	May 31, 2022
Costs	$	3,380,000	$	3,250,000	$ 3,430,000	$ 3,250,000
Estimated Earnings		3,221,000		2,642,000	4,045,000	2,642,000
Less: Billings to customers		1,306,000		2,556,000	3,701,000	2,556,000
CIEB	$	5,295,000	$	3,336,000	$ 3,774,000	$ 3,336,000
Number of Projects in progress		16		11	15	11

As noted above, BIEC represents billings to customers in excess of revenues recognized. The ~~$1,090,000~~$1,438,000 balance in this account at ~~November 30, 2022~~February 28, 2023 is ~~down 3%~~up 28% from the $1,123,000 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.

~~-16-~~ 16

~~Table of Contents~~

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

	November 30, 2022		May 31, 2022		February 28, 2023	May 31, 2022
Billings to customers	$	2,037,000	$	2,711,000	$ 3,772,000	$ 2,711,000
Less: Costs		676,000		1,019,000	1,349,000	1,019,000
Less: Estimated Earnings		271,000		569,000	985,000	569,000
BIEC	$	1,090,000	$	1,123,000	$ 1,438,000	$ 1,123,000
Number of Projects in progress		4		8	7	8

Summary of factors affecting the balances in CIEB and BIEC:

November 30, 2022 May 31, 2022
Number of Projects in progress 20 19
Aggregate percent complete 54 % 47 %
Average total sales value of Projects in progress $ 657,000 $ 795,000
Percentage of total value invoiced to customer 25 % 35 %

	February 28, 2023	May 31, 2022
Number of Projects in progress	22	19
Aggregate percent complete	49%	47%
Average total sales value of Projects in progress	$844,000	$795,000
Percentage of total value invoiced to customer	41%	35%

The Company's backlog of sales orders at ~~November 30, 2022~~February 28, 2023 is ~~$18.1~~$27.8 million, ~~down~~up from the $23.7 million at the end of the prior year. ~~$5.6~~$10.3 million of the current backlog is on Projects already in progress. ~~While too late to be included in the backlog as of November 30, 2022, the Company recorded an additional $8.2 million of sales order bookings in the first half of December.~~

Other Balance Sheet Items

Accounts payable, at ~~$1,537,000~~$1,467,000 as of ~~November 30, 2022,~~February 28, 2023, is 8%3% more than the prior year-end. Other current liabilities ~~decreased 10%~~increased 9% from the prior year-end, to ~~$3,088,000.~~$3,733,000. 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 ~~November 30, 2022~~February 28, 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 communicated to our management, including our chief executive officer and chief financial officer to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting.

There have been no changes in the Company's internal controls over financial reporting that occurred during the fiscal quarter ended ~~November 30, 2022~~February 28, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's control over financial reporting.

~~-17-~~ 17

~~Table of Contents~~

Part II - Other Information

ITEM 1	Legal Proceedings

	There are no other legal proceedings except for routine litigation incidental to the business.

ITEM 1A	Risk Factors

	Smaller reporting companies are not required to provide the information called for by this item.

ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds

	(a)	The Company sold no equity securities during the fiscal quarter ended ~~November 30, 2022~~February 28, 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 ~~November 30, 2022~~February 28, 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

		~~September~~ December 1, 2022 -
		~~September 30,~~ December 31, 2022		-	-	-	-

		~~October~~ January 1, ~~2022~~2023 -
		~~October~~ January 31, ~~2022~~2023		-	-	-	-

		~~November~~ February 1, ~~2022~~2023 -
		~~November 30, 2022~~ February 28, 2023		-	-	-	-

		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

~~-18-~~ 18

~~Table of Contents~~


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

~~-19-~~

~~Table of Contents~~

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 ~~November 30, 2022,~~February 28, 2023, and the related condensed consolidated statements of income and stockholders’ equity for the three and ~~six~~nine months ended ~~November 30,~~February 28, 2023 and 2022, ~~and 2021,~~ and cash flows for the ~~six~~nine months ended ~~November 30,~~February 28, 2023 and 2022, ~~and 2021,~~ 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, 2022, 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 19, 2022, 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, 2022, 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

~~December 29, 2022~~March 30, 2023

~~-20-~~

~~Table of Contents~~

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.


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)

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated Filer☒	Smaller reporting company ☒
	Emerging growth company ☐

	1. February 28, 2023	The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of November 30, 2022 and	May 31, 2022 ~~the results of operations~~
Raw materials	`$684,006`		`$488,393`
Work-in-process	`4,807,814`		`5,166,271`
Finished goods	`288,395`		`300,271`
	`5,780,215`		`5,954,935`
Less allowance for the three and six months ended November 30, 2022 and 2021, and cash flows for the six months ended November 30, 2022 and 2021. 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, 2022.obsolescence	`100,000`		`100,000`
	`$5,680,215`		`$5,854,935`


	November 30, 2022		May 31, 2022
Raw materials	$	575,415	$	488,393
Work-in-process		4,900,432		5,166,271
Finished goods		220,199		300,271
Gross inventory		5,696,046		5,954,935
Less allowance for obsolescence		100,000		100,000
Net inventory	$	5,596,046	$	5,854,935

	~~10.~~ February 28, 2023	May 31, 2022
Customer deposits	`$332,227`	`$1,347,709`
Personnel costs	`2,397,755`	`1,587,271`
Other ~~current liabilities:~~	`549,727`	`479,334`
	`$3,279,709`	`$3,414,314`


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


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

Summary comparison of the six months ended November 30, 2022 and 2021
	Increase /
	(Decrease)
Sales, net	$	4,522,000
Cost of goods sold	$	1,506,000
Research and development costs	$	207,000
Selling, general and administrative expenses	$	772,000
Income before provision for income taxes	$	2,158,000
Provision for income taxes	$	438,000
Net income	$	1,720,000

Summary comparison of the nine months ended February 28, 2023 and 2022
		Increase /
		(Decrease)
Sales, net		$ 8,270,000
Cost of goods sold		$ 2,608,000
Research and development costs		$ 197,000
Selling, general and administrative expenses		$ 1,432,000
Income before provision for income taxes		$ 4,389,000
Provision for income taxes		$ 893,000
Net income		$ 3,496,000

	Six months ended November 30						Change					Nine months ended February 28		Change
	2022			2021			Amount		Percent			2023	2022	Amount	Percent
Net Revenue	$	19,588,000		$	15,066,000		$	4,522,000		30	%	$ 29,479,000	$ 21,209,000	$ 8,270,000	39%
Cost of sales		12,109,000			10,603,000			1,506,000		14	%	17,980,000	15,372,000	2,608,000	17%
Gross profit	$	7,479,000		$	4,463,000		$	3,016,000		68	%	$ 11,499,000	$ 5,837,000	$ 5,662,000	97%
… as a percentage of net revenues		38	%		30	%						39%	28%

Summary comparison of the three months ended November 30, 2022 and 2021
	Increase /
	(Decrease)
Sales, net	$	2,739,000
Cost of goods sold	$	1,236,000
Research and development costs	$	114,000
Selling, general and administrative expenses	$	413,000
Income before provision for income taxes	$	1,122,000
Provision for income taxes	$	222,000
Net income	$	900,000

	Three months ended November 30						Change					Three months ended February 28		Change
	2022			2021			Amount		Percent			2023	2022	Amount	Percent
Net Revenue	$	10,497,000		$	7,758,000		$	2,739,000		35	%	`$9,891,000`	`$6,143,000`	`$3,748,000`	61%
Cost of sales		6,403,000			5,167,000			1,236,000		24	%	`5,871,000`	`4,769,000`	`1,102,000`	23%
Gross profit	$	4,094,000		$	2,591,000		$	1,503,000		58	%	`$4,020,000`	`$1,374,000`	`$2,646,000`	192%
… as a percentage of net revenues		39	%		33	%						41%	22%

	November 2022			November 2021			February 2023	February 2022
Risk-free interest rate:		1.625	%		2.875	%	1.625%	2.875%
Expected life of the options:		4.1 years			4 years		4.1 years	4 years
Expected share price volatility:		30	%		32	%	30%	32%
Expected dividends:		zero			zero		zero	zero

These assumptions resulted in estimated fair-market value per stock option:	$	3.06		$	3.42		$3.06	$3.42

			Weighted-
	Number of		Average
	Options		Exercise Price
Options outstanding and exercisable at May 31, 2022:		283,000	$	11.43
Options granted:		42,000	$	11.45
Less: Options exercised:		4,000	$	8.06
Less: Options expired:		3,750		—
Options outstanding and exercisable at November 30, 2022:		317,250	$	11.49
Closing value per share on NASDAQ at November 30, 2022:			$	13.40