Item 1A. Risk Factors.
Smaller reporting companies are not required to provide the information
required by this item.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
The Company's production facilities occupy approximately
six acres on Tonawanda Island in North Tonawanda, New York and are comprised of four interconnected buildings and two adjacent buildings.
The production facilities consist of a small parts plant (approximately 4,400 square feet), a large parts plant (approximately 13,500
square feet), and include a facility of approximately 7,000 square feet comprised of a test facility, storage area, pump area and the
Company's general offices. One adjacent building is a 27,000 square foot seismic assembly and test facility. This building contains overhead
traveling cranes to allow dampers to be built up to 45 ft. in length. It is also the site of two long bed damper test machines where seismic
dampers Taylor Devices manufactures will be tested at maximum force to satisfy customer specifications. Another adjacent building (approximately
2,000 square feet) is used as a training facility. These facilities total more than 54,000 square feet. Adjacent to these facilities,
the Company has a remote test facility used for shock testing. This state-of-the-art test facility is 1,200 square feet. The Company owns
two additional industrial buildings on nine acres of land in the City of North Tonawanda located 1.4 miles from the Company’s headquarters
on Tonawanda Island. Total area of the two buildings is 46,000 square feet. One building includes a machine shop containing custom-built
machinery for boring, deep-hole drilling and turning of parts. Another is used for painting and packaging parts and completed units.
The Company's real properties are subject to a negative
pledge agreement with its lender, M&T Bank. The Company has agreed with the lender that, for so long as the credit facilities with
the lender are outstanding, the Company will not sell, lease or mortgage any of its real properties. Additional information regarding
the Company's agreement with M&T Bank is contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations, at "Capital Resources, Line of Credit and Long-Term Debt."
The Company believes it carries adequate insurance
coverage on its facilities and their contents.
Item 3. Legal Proceedings.
There are no legal proceedings at present.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases Of Equity Securities.
Market Information
The Company's Common
Stock trades on the NASDAQ Capital Market of the National Association of Securities Dealers Automated Quotation ("NASDAQ") stock
market under the symbol TAYD. The high and low sales information noted below for the quarters of fiscal year 2021 and fiscal year 2020
were obtained from NASDAQ.
High Low High Low
Holders
As of August 27,
2021, the number of issued and outstanding shares of Common Stock was 3,496,765 and the approximate number of record holders of the Company's
Common Stock was 456. Due to a substantial number of shares of the Company's Common Stock held in street name, the Company believes that
the total number of beneficial owners of its Common Stock is less than 1,300.
Dividends
No cash or stock dividends have been declared during
the last two fiscal years. The Company plans to retain cash in the foreseeable future to fund working capital needs.
Rights Plan
As of September 25, 2018, the Company's Board of Directors
adopted a shareholder rights plan designed to deter coercive or unfair takeover tactics and prevent an acquirer from gaining control of
the Company without offering a fair price to shareholders. Under the plan, certain rights ("Rights") were distributed as a dividend
on each share of Common Stock (one Right for each share of Common Stock) held as of the close of business on October 2, 2018. Each whole
Right entitles the holder, under certain defined conditions, to buy one two-thousandths (1/2000) of a newly issued share of the Company's
Series A Junior Participating Preferred Stock ("Series A Preferred Stock") at a purchase price of $5.00 per unit of one two-thousandths
of a share. Rights attach to and trade with the shares of Common Stock, without being evidenced by a separate certificate. No separate
Rights certificates will be issued unless and until the Rights detach from Common Stock and become exercisable for shares of the Series
A Preferred Stock.
The Rights become exercisable to purchase shares of
Preferred Stock (or, in certain circumstances, Common Stock) only if (i) a person acquired 15% or more of the Company's Common Stock,
or (ii) a person commenced a tender or exchange offer for 10% or more of the Company's Common Stock, or (iii) the Board of Directors determined
that the beneficial owner of at least 10% of the Company's Common Stock intended to cause the Company to take certain actions adverse
to it and its shareholders or that such ownership would have a material adverse effect on the Company. The Rights Plan will expire on
October 5, 2028.
Issuer Purchases
of Equity Securities
A share repurchase agreement with a major broker-dealer,
under which the Company repurchased shares of its common stock on the open market, has been terminated by the Company. No shares have
been purchased since August 2011.
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Equity Compensation Plan Information
The following table sets forth information regarding
equity compensation plans of the Company as of May 31, 2021.
Equity Compensation Plan Information
Equity compensation plans approved by security holders:
Equity compensation plans not approved by security holders:
Item 6. Selected
Financial Data.
The Company qualifies
as a smaller reporting company, as defined by 17 CFR §229.10(f)(1), and is not required to provide the information required by this
Item.
Item 7. 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 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and elsewhere in this 10-K 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," "assume" and
"optimistic" constitute forward-looking statements and, as such, are not a guarantee of future performance. The statements involve
factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results
described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing
economic conditions; variations in timing and amount of customer orders; changing product demand and industry capacity; increased competition
and pricing pressures; advances in technology that can reduce the demand for the Company's products, as well as other factors, many or
all of which may be beyond the Company's control. Consequently, investors should not place undue reliance on forward-looking statements
as predictive of future results. The Company disclaims any obligation to release publicly any updates or revisions to the forward-looking
statements herein to reflect any change in the Company's expectations with regard thereto, or any changes in events, conditions or circumstances
on which any such statement is based.
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Application of Critical Accounting Policies and
Estimates
The Company's consolidated financial statements and
accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. The preparation of the Company's financial
statements requires management to make estimates, assumptions and judgments that affect the amounts reported. These estimates, assumptions
and judgments are affected by management's application of accounting policies, which are discussed in Note 1, "Summary of Significant
Accounting Policies", and elsewhere in the accompanying consolidated financial statements. As discussed below, our financial position
or results of operations may be materially affected when reported under different conditions or when using different assumptions in the
application of such policies. In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in
subsequent periods to reflect more current information. Management believes the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of the Company's financial statements.
Accounts Receivable
Our ability to collect outstanding receivables from
our customers is critical to our operating performance and cash flows. Accounts receivable are stated at an amount management expects
to collect from outstanding balances. Management provides for probable uncollectible accounts through a charge to earnings and a credit
to a valuation allowance based on its assessment of the current status of individual accounts after considering the age of each receivable
and communications with the customers involved. Balances that are collected, for which a credit to a valuation allowance had previously
been recorded, result in a current-period reversal of the earlier transaction charging earnings and crediting a valuation allowance. Balances
that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance
and a credit to accounts receivable in the current period. The actual amount of accounts written off over the five year period ended May
31, 2021 equaled less than 0.3% of sales for that period. The balance of the valuation allowance has decreased to $7,000 at May 31, 2021
from $211,000 at May 31, 2020. Management does not expect the valuation allowance to materially change in the next twelve months for the
current accounts receivable balance.
Inventory
Inventory is stated at the lower of average cost or
net realizable value. Average cost approximates first-in, first-out cost.
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 technical
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. Therefore, management of the Company has recorded an allowance for potential inventory obsolescence.
Based on certain assumptions and judgments made from the information available at that time, we determine the amount in the inventory
allowance. If these estimates and related assumptions or the market changes, we may be required to record additional reserves. Historically,
actual results have not varied materially from the Company's estimates.
During fiscal 2021, the Company began a thorough review
of the facilities including the flow of inventory through the factory and warehouse areas to determine the most efficient utilization
of available space. Inventory purchasing practices and stocking levels were also evaluated and it was determined that a significant portion
of the older items would be disposed of while the allowance for potential inventory obsolescence would be increased as more items are
identified for disposal. $1,101,000 of inventory was disposed of during the year. The provision for potential inventory obsolescence was
$1,500,000 and $180,000 for the years ended May 31, 2021 and 2020.
Revenue Recognition
Revenue is recognized 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.
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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 cost represents work performed, which corresponds with, and thereby best depicts,
the transfer of control to the customer. Contract costs include labor, material and overhead. Total estimated costs for each of the contracts
are estimated based on a combination of historical costs of manufacturing similar products and estimates or quotes from vendors for supplying
parts or services towards the completion of the manufacturing process. Adjustments to cost and profit estimates are made periodically
due to changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements.
These changes may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Any
losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined. If total costs
calculated upon completion of the manufacturing process in the current period for a contract are more than the estimated total costs at
completion used to calculate revenue in a prior period, then the profits in the current period will be lower than if the estimated costs
used in the prior period calculation were equal to the actual total costs upon completion. Historically, actual results have not varied
materially from the Company's estimates. Other sales to customers are recognized upon shipment to the customer based on contract prices
and terms. In the year ended May 31, 2021, 43% of revenue was recorded for contracts in which revenue was recognized over time while 57%
was recognized at a point in time. In the year ended May 31, 2020, 57% of revenue was recorded for contracts in which revenue was recognized
over time while 43% was recognized at a point in time.
For financial statement presentation purposes, the
Company nets progress billings against the total costs incurred on uncompleted contracts. The asset, "costs and estimated earnings
in excess of billings," represents revenues recognized in excess of amounts billed. The liability, "billings in excess of costs
and estimated earnings," represents billings in excess of revenues recognized.
Income Taxes
The provision for income taxes provides for the tax
effects of transactions reported in the financial statements regardless of when such taxes are payable. Deferred tax assets and liabilities
are recognized for the expected future tax consequences of temporary differences between the tax and financial statement basis of assets
and liabilities. The deferred tax assets relate principally to asset valuation allowances such as inventory obsolescence reserves and
bad debt reserves and also to liabilities including warranty reserves, accrued vacation, accrued commissions and others. The deferred
tax liabilities relate primarily to differences between financial statement and tax depreciation. Deferred taxes are based on tax laws
currently enacted with tax rates expected to be in effect when the taxes are actually paid or recovered.
Realization of the deferred tax assets is dependent
on generating sufficient taxable income at the time temporary differences become deductible. The Company provides a valuation allowance
to the extent that deferred tax assets may not be realized. A valuation allowance has not been recorded against the deferred tax assets
since management believes it is more likely than not that the deferred tax assets are recoverable. The Company considers future taxable
income and potential tax planning strategies in assessing the need for a potential valuation allowance. In future years the Company will
need to generate approximately $3.9 million of taxable income in order to realize our deferred tax assets recorded as of May 31, 2021
of $815,000. This deferred tax asset balance is 2% ($15,000) less than at the end of the prior year. The amount of the deferred tax assets
considered realizable however, could be reduced in the near term if estimates of future taxable income are reduced. If actual results
differ from estimated results or if the Company adjusts these assumptions, the Company may need to adjust its deferred tax assets or liabilities,
which could impact its effective tax rate.
The Company's practice is to recognize interest related
to income tax matters in interest income / expense and to recognize penalties in selling, general and administrative expenses.
The Company and its subsidiary file consolidated Federal
and State income tax returns. As of May 31, 2021, the Company had State investment tax credit carryforwards of approximately $368,000
expiring through May 2026.
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Results of Operations
A summary of the period to period changes in the principal items included
in the consolidated statements of income is shown below:
Summary comparison of the years ended May 31, 2021 and 2020
Increase /
(Decrease)
Selling, general and administrative expenses $ (407,000 )
Income before provision for income taxes $ (2,734,000 )
Provision for income taxes $ (767,000 )
For the year ended May 31, 2021 (All figures
being discussed are for the year ended May 31, 2021 as compared to the year ended May 31, 2020.)
Year ended May 31 Change
... as a percentage of net revenues 14 % 33 %
The Company's consolidated results of operations showed
a 21% decrease in net revenues and a decrease in net income of 65%. Revenues recorded in the current period for long-term construction
projects (“Project(s)”) were 41% lower than the level recorded in the prior year. We had 41 Projects in process during the
current period compared with 41 during the same period last year. Revenues recorded in the current period for other-than long-term construction
projects (non-projects) were 7% more than the level recorded in the prior year. The number of Projects in-process fluctuates from period
to period. The changes from the prior period to the current period are not necessarily representative of future results.
Sales of the Company's products are made to three
general groups of customers: industrial, structural and aerospace / defense. The Company saw a 35% decrease from last year’s level
in sales to structural customers who were seeking seismic / wind protection for either construction of new buildings and bridges or retrofitting
existing buildings and bridges along with a 5% decrease in sales to customers in aerospace / defense offset by a 10% increase in sales
to customers using our products in industrial applications. The significant decrease in sales to structural customers is primarily from
domestic customers. Many prospective customers in the construction field had been delaying orders for several months as they considered
the potential effects of the current COVID pandemic on the economy. Slightly more than half of the sales order bookings to structural
customers were recorded in the final four months of the fiscal year, including $6.4 million in the fourth quarter. All of these will be
deliverable in fiscal 2022.
A breakdown of sales to these three general groups
of customers, as a percentage of total net revenue for fiscal years ended May 31, 2021 and 2020 is as follows:
Year ended May 31
Industrial 10 % 7 %
Aerospace / Defense 45 % 38 %
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Total sales within North America decreased 34% from
last year. Total sales to Asia increased 52% from the prior year. Net revenue by geographic region, as a percentage of total net revenue
for fiscal years ended May 31, 2021 and 2020 is as follows:
Year ended May 31
North America 70 % 85 %
The gross profit as a percentage of net revenue of
14% in the current period is less than the 33% recorded in the same period of the prior year. The significant decrease in gross profit
as a percentage of revenue is primarily due to the significant reduction in domestic sales to structural customers along with the 58%
increase in research and development costs incurred as discussed above.
At May 31, 2020, we had 102 open sales orders in our
backlog with a total sales value of $9.8 million. At May 31, 2021, we had 132 open sales orders in our backlog with a total sales value
of $22.0 million. $9.3 million of the current backlog is on Projects already in progress. $2.2 million of the $9.8 million sales order
backlog at May 31, 2020 was in progress at that date. 43% of the sales value in the backlog is for aerospace / defense customers compared
to 63% at the end of fiscal 2020. As a percentage of the total sales order backlog, orders from structural customers accounted for 55%
at May 31, 2021 and 32% at May 31, 2020.
The Company's backlog,
revenues, commission expense, gross margins, gross profits, and net income fluctuate from period
to period. Total sales in the current period and the changes in the current period compared to the prior period, are not necessarily representative
of future results.
Selling, General and Administrative Expenses
Year ended May 31 Change
... as a percentage of net revenues 25 % 21 %
Selling, general and administrative expenses decreased
slightly from the prior year. Outside commission expense decreased 33% from last year's level due to the significant decrease in the level
of commissionable sales recorded in the current period as compared to the prior period. Other selling, general and administrative expenses
decreased only slightly from last year.
The above factors resulted in operating loss of $2,352,000
for the year ended May 31, 2021, down significantly from the $3,303,000 operating income in the prior year.
Other income during the period includes $2,972,000
of financial assistance provided by the U.S. federal government as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act
and the Consolidated Appropriations Act of 2021 (CAA), discussed below: a.) $1,462,000 of income due to the forgiveness of the loan by
the Small Business Administration (SBA) under the Paycheck Protection Program (PPP), and b.) $1,510,000 of Employee Retention Credit income.
The Company's effective tax rate (ETR) is calculated
based upon current assumptions relating to the year's operating results and various tax related items. The ETR for the fiscal year ended
May 31, 2021 is -56%, compared to the ETR for the prior year of 11%.
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A reconciliation of provision for income taxes at
the statutory rate to income tax provision at the Company's effective rate is as follows:
Computed tax provision at the expected statutory rate $ 143,000 $ 718,000
Tax effect of permanent differences:
Foreign-derived intangible income deduction — (100,000 )
U.S. Government PPP loan forgiven (307,000 ) —
The foreign-derived intangible income deduction
is a tax deduction provided to corporations that sell goods or services to foreign customers. It became available through Public Law 115-97,
known as the Tax Cuts and Jobs Act. The legislation that created the PPP and permitted the SBA to forgive loans made through the PPP also
directed that the forgiven loan would not be taxable income to the recipient.
Stock Options
The Company has stock option plans which provide for
the granting of nonqualified or incentive stock options to officers, key employees and non-employee directors. Options granted under the
plans are exercisable over a ten year term. Options not exercised by the end of the term expire.
The Company measures compensation cost arising from
the grant of share-based payments to employees at fair value and recognizes such cost in income over the period during which the employee
is required to provide service in exchange for the award. The Company recognized $154,000 and $143,000 of compensation cost for the years
ended May 31, 2021 and 2020.
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. The Company used a weighted average expected term. Expected volatility
assumptions used in the model were based on volatility of the Company's stock price for the thirty-month period immediately preceding
the granting of the options. The Company issued stock options in August 2020 and April 2021. The risk-free interest rate is derived from
the U.S. treasury yield.
The following assumptions were used in the Black-Scholes
model in estimating the fair market value of the Company's stock option grants:
Expected life of the options: 3.9 years 4.0 years
Expected share price volatility: 34 % 32 %
Expected dividends: zero zero
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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 year ended May 31, 2021 is presented below.
Weighted-
Number of Average
Options Exercise Price
Closing value per share on NASDAQ at May 31, 2021: $ 11.85
Capital Resources, Line of Credit and Long-Term Debt
The Company's primary liquidity is dependent upon
its working capital needs. These are primarily inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts
payable, accrued commissions, billings in excess of costs and estimated earnings, and debt service. The Company's primary sources of liquidity
have been operations and bank financing.
Capital expenditures for the year ended May 31, 2021
were $1,622,000 compared to $1,231,000 in the prior year. Current year capital expenditures included new manufacturing machinery, testing
equipment, paint booths system, upgrades to technology equipment and assembly / test facility improvements. The Company has commitments
to make capital expenditures of approximately $400,000 as of May 31, 2021.
During fiscal 2020, the Company received a loan totaling
$1,462,000 from the SBA under the Paycheck Protection Program of the CARES Act, in response to the Coronavirus pandemic described below.
The total amount of the loan was forgiven during fiscal 2021 under provisions of the CARES Act.
The Company has a $10,000,000 demand line of credit
from a bank, with interest payable at the Company's option of 30, 60 or 90 day LIBOR rate plus 2.25%. There is no outstanding balance
at May 31, 2021 or May 31, 2020. The outstanding balance on the line of credit fluctuates as the Company's various long-term projects
progress. The line is secured by a negative pledge of the Company's real and personal property. This line of credit is subject to the
usual terms and conditions applied by the bank and is subject to renewal annually.
The bank is not committed to make loans under this
line of credit and no commitment fee is charged.
Inventory and Maintenance Inventory
Inventory turnover 2.1 1.7
Inventory, at $5,835,000 as of May 31, 2021, is 42%
less than the prior year-end. Of this, approximately 87% is work in process, 4% is finished goods, and 9% is raw materials. All of the
current inventory is expected to be consumed or sold within twelve months. The level of inventory will fluctuate from time to time due
to the stage of completion of the non-project sales orders in progress at the time.
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The Company continues to rework slow-moving inventory,
where applicable, to convert it to product to be used on customer orders. During fiscal 2021, the Company began a thorough review of the
inventory to identify and dispose of items that had not been used for several years and were unlikely to be used in the foreseeable future.
The Company disposed of approximately $1,101,000 and $46,000 of obsolete inventory during the years ended May 31, 2021 and 2020, respectively.
Accounts Receivable, Costs and Estimated Earnings in Excess of Billings
(“CIEB”) and Billings in Excess of Costs and Estimated Earnings (“BIEC”)
Number of an average day’s sales outstanding in accounts receivable (DSO) 42 68
The Company combines the totals of accounts receivable,
the asset CIEB, and the 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 $3,380,000 as of May 31, 2021
includes approximately $201,000 of amounts retained by customers on long-term construction projects. The Company expects to collect all
of these amounts, including the retained amounts, during the next twelve months. The number of an average day's sales outstanding in accounts
receivable (DSO) decreased to 42 days at May 31, 2021 from 68 days as of May 31, 2020. 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 fourth quarter of the current fiscal year is only 6% less than in
the fourth quarter of the prior year. The level of accounts receivable at the end of the current fiscal year is 42% less than the level
at the end of the prior year. The level of accounts receivable at the end of the current year is significantly less that last year due
to 1.) the collection in the current year of amounts owed on some larger Projects that had been completed in the prior year and 2.) the
lower level of sales in the current year. The combination of the decrease in the level of an average day’s sales along with the
decrease in the level of accounts receivable caused the DSO to decrease by 26 days from last year-end to this year-end. The Company expects
to collect the net accounts receivable balance, including the retainage, during the next twelve months.
Other receivable is an amount of Employee Retention
Credit claimed by the Company for the second calendar quarter of 2021 and is expected to be received in the third calendar quarter of
2021.
The status of the projects in-progress at the end
of the current and prior fiscal years have changed in the factors affecting the year-end balances in the asset CIEB, and the liability
BIEC:
Number of projects in progress at year-end 14 15
Aggregate percent complete at year-end 32 % 80 %
Average total value of projects in progress at year-end $ 963,000 $ 830,000
Percentage of total value invoiced to customer 30 % 74 %
There is one fewer project in-process at the end of
the current fiscal year as compared with the prior year end and the average value of those projects has increased by 16% between those
two dates.
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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, provisions such as this are often not possible. The $1,500,000
balance in this account at May 31, 2021 is a 15% decrease from the prior year-end. This decrease reflects the lower aggregate level of
the percentage of completion of these Projects as of the current year end as compared with the Projects in process at the prior year end.
Generally, if progress billings are permitted under the terms of a project sales agreement, then the more complete the project is, the
more progress billings will be permitted. The Company expects to bill the entire amount during the next twelve months. 42% of the CIEB
balance as of the end of the last fiscal quarter, February 28, 2021, was billed to those customers in the current fiscal quarter ended
May 31, 2021. The remainder will be billed as the projects progress, in accordance with the terms specified in the various contracts.
The year-end balances in the CIEB account are comprised
of the following components:
Number of projects in progress 9 10
As noted above, BIEC represents billings to customers
in excess of revenues recognized. The $1,362,000 balance in this account at May 31, 2021 is in comparison to a $737,000 balance at the
end of the prior year. The balance in this account fluctuates in the same manner and for the same reasons as the account "costs and
estimated earnings in excess of billings," discussed above. Final delivery of product under these contracts is expected to occur
during the next twelve months.
The year-end balances in this account are comprised
of the following components:
Number of projects in progress 5 5
Accounts payable, at $1,787,000 as of May 31, 2021,
is 30% more than the prior year-end. This significant increase is due to the increase in customer orders received during the final months
of the current fiscal year that will be manufactured and shipped to the customers in the coming months. The Company expects the current
accounts payable amount to be paid during the next twelve months.
Commission expense on applicable sales orders is recognized
at the time revenue is recognized. The commission is paid following receipt of payment from the customers. Accrued commissions as of May
31, 2021 are $269,000. This is 12% less than the $306,000 accrued at the prior year-end. This decrease is generally due to the decrease
in the level of sales, discussed above. The Company expects the current accrued amount to be paid during the next twelve months.
Other accrued expenses of $1,715,000 increased slightly
from the prior year level of $1,664,000.
Management believes that the Company's cash on hand,
cash flows from operations, and borrowing capacity under the bank line of credit will be sufficient to fund ongoing operations, capital
improvements and share repurchases (if any) for the next twelve months.
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Coronavirus Pandemic
On January 31, 2020, the United States Secretary of
Health and Human Services (HHS) declared a public health emergency related to the global spread of coronavirus COVID-19, and a pandemic
was declared by the World Health Organization in February 2020. Efforts to fight the widespread disease included limiting or closing many
businesses and resulted in a severe disruption of operations for many organizations. Financial markets also fluctuated significantly during
this time. The extent of the impact of COVID-19 on the Company’s operational and financial performance was significant in fiscal
2021. While the use of vaccinations world-wide have apparently slowed spread of the disease, the extent of the impact of COVID-19 on the
Company’s operational and financial performance in fiscal 2022 will depend on further developments, including the duration and spread
of the outbreak, impact on customers, employees, and vendors, all of which cannot be predicted.
Company management currently does not have reason
to believe that the COVID-19 pandemic will adversely affect our ability to meet our obligations to our customers. Our top priorities continue
to be the health and safety of our employees and their families along with supporting our customers. Thanks to the careful adherence
to our COVID-19 safety measures by our workforce as well as our customers and suppliers, we remain in a strong position with respect to
being able to process existing orders and we are quite prepared to process new orders as they are secured. Our high-spirited, healthy
workforce continues to adjust their work schedules as the needs arise.
The majority of our customers remain open to continue
to receive shipments from us and issue new purchase orders to us. Many of our domestic structural customers froze operations while they
attempted to determine the extent and impact of the pandemic on their projects. We noticed a thawing in this domestic market during the
final four months of the fiscal year as customers appeared to gain confidence in the future of our economy. This has resulted in an increase
in the volume of domestic sales orders. While these new orders had very little impact on the 2021 fiscal year, they have provided a strong
base for the next fiscal year.
The liquidity of the Company remains strong at this
time. However, the pandemic is not over and the economy has not fully recovered yet. Management remains concerned about variants of the
virus as well as the uncertainty of the when or how the virus may affect some of our customers’ purchasing plans. The economic downturn
did have a negative impact on our operations and for this reason, we have applied for and have received assistance from the federal government
under various provisions of the CARES Act and CAA, as discussed above.
Our Supply Chain Management team is in communication
with our partners around the globe so that we can be updated on any delays that may occur. Increases in global demand for materials such
as steel have caused sharp cost increases as the various economies improve around the world. We have faced longer lead times to procure
some materials. Management is monitoring this situation and adjusting our sourcing as necessary.
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Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.
Smaller reporting companies are not required to provide the information
required by this item.
Item 8. Financial Statements and Supplementary
Data.
The financial statements
and supplementary data required pursuant to this Item 8 are included in this Form 10-K as a separate section commencing on page 25 and
are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
There have been no disagreements between
the Company and its accountants as to matters which require disclosure.
Item 9A. 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 May 31, 2021 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 the Company files or submits 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 the Company files or
submits 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) Management's
report on internal control over financial reporting.
The Company's management, with
the participation of the Company's principal executive officer and principal financial officer, is responsible for establishing and maintaining
adequate internal control over financial reporting. The Company's management has assessed the effectiveness of the Company's internal
control over financial reporting as of May 31, 2021. In making this assessment, management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -- Integrated Framework, updated in 2013. Based on this
assessment management has concluded that, as of May 31, 2021, the Company's internal control over financial reporting is effective based
on those criteria.
(c) 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 year ended May 31, 2021
that have materially affected, or are reasonably likely to materially affect, the Company's control over financial reporting.
Item 9B. Other Information.
None.
PART III
The information
required by Items 10, 11, 12, 13 and 14 of this part will be presented in the Company's Proxy Statement to be issued in connection with
the Annual Meeting of Shareholders to be held on October 22, 2021, which information is hereby incorporated by reference into this Annual
Report. The proxy materials, including the Proxy Statement and form of proxy, will be filed within 120 days after the Company's fiscal
year end.
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
DOCUMENTS FILED AS PART OF THIS REPORT:
Index to Financial Statements:
(i) Report of Independent Registered Public Accounting Firm
(ii) Consolidated Balance Sheets as of May 31, 2021 and 2020
(vi) Notes to Consolidated Financial Statements - May 31, 2021 and 2020
EXHIBITS:
3 Articles of incorporation and by-laws
4 Instruments defining rights of security holders, including indentures
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10 Material Contracts
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11 Statement regarding computation of per share earnings
REG. 228.601(A)(11) Statement regarding computation of per share earnings
Weighted average common stock outstanding 3,490,213
Weighted average common stock outstanding assuming dilution 3,491,887
Weighted average common stock (2) 3,490,213
Basic income per common share (1) divided by (2) $ 0.30
Weighted average common stock outstanding assuming dilution (4) 3,491,887
Diluted income per common share (3) divided by (4) $ 0.30
Weighted average common stock outstanding 3,481,128
Weighted average common stock outstanding assuming dilution 3,489,791
Weighted average common stock (2) 3,481,128
Basic income per common share (1) divided by (2) $ 0.87
Weighted average common stock outstanding assuming dilution (4) 3,489,791
Diluted income per common share (3) divided by (4) $ 0.87
21 Subsidiaries of the registrant
31 Officer Certifications
(i) Rule 13a-14(a) Certification of Chief Executive Officer.
(ii) Rule 13a-14(a) Certification of Chief Financial Officer.
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32 Officer Certifications
(i) Section 1350 Certification of Chief Executive Officer.
(ii) Section 1350 Certification of Chief Financial Officer.
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
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SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) 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)
By: /s/Timothy J. Sopko Date: August 27, 2021
Timothy J. Sopko
Chief Executive Officer
(Principal Executive Officer)
and
By: /s/Mark V. McDonough Date: August 27, 2021
Mark V. McDonough
Chief Financial Officer
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By: /s/John Burgess By: /s/Robert M. Carey
John Burgess, Director Robert M. Carey, Director
By: /s/F. Eric Armenat By: /s/Alan R. Klembczyk
F. Eric Armenat, Director Alan R. Klembczyk, President and Director
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[Lumsden & McCormick, LLP Letterhead]
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors of
Taylor Devices, Inc.
Gentlemen:
We hereby consent
to the incorporation by reference in this Annual Report on Form 10-K (Commission File Number 0-3498) of Taylor Devices, Inc. of our report
dated August 27, 2021 and any reference thereto in the Annual Report to Shareholders for the fiscal year ended May 31, 2021.
We also consent
to such incorporation by reference in Registration Statement Nos. 333-114085, 333-133340, 333-155284, 333-184809, 333-210660, and 333-232121
of Taylor Devices, Inc. on Form S-8 of our report dated August 27, 2021.
/s/Lumsden & McCormick, LLP
Lumsden & McCormick, LLP
Buffalo, New York
August 27, 2021
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TAYLOR DEVICES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2021
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[Lumsden & McCormick, LLP Letterhead]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Stockholders
Taylor Devices, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance
sheets of Taylor Devices, Inc. and Subsidiary (the Company) as of May 31, 2021 and 2020, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively
referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial condition of the Company as of May 31, 2021 and 2020, and the results of its operations and its cash flows for
the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted