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 2022 and fiscal year 2021
were obtained from NASDAQ.
High Low High Low
Holders
As of May 31, 2022,
the number of issued and outstanding shares of Common Stock was 3,497,937 and the number of record holders of the Company's Common Stock
was 461. A substantial number of shares of the Company's Common Stock are 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, 2022.
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, 2022 equaled less than 0.3% of sales for that period. The balance of the valuation allowance has increased to $16,000 at May 31, 2022
from $7,000 at May 31, 2021. 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. This review continued through fiscal 2022. 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. There was $772,000 and $1,101,000 of inventory disposed of during the years
ended May 31, 2022 and 2021. The provision for potential inventory obsolescence was zero and $1,500,000 for the years ended May 31, 2022
and 2021.
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, 2022, 60% of revenue was recorded for contracts in which revenue was recognized over time while 40%
was recognized at a point in time. 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.
For financial statement presentation purposes, the
Company nets progress billings against the total costs incurred and estimated earnings 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 $4.2 million of taxable income in order to realize our deferred tax assets recorded as of May 31, 2022
of $876,000. This deferred tax asset balance is 7% ($61,000) more 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, 2022, the Company had State investment tax credit carryforwards of approximately $389,000
expiring through May 2027.
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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, 2022 and 2021
Increase /
(Decrease)
Selling, general and administrative expenses $ 628,000
Income before provision for income taxes $ 1,875,000
Provision for income taxes $ 698,000
For the year ended May 31, 2022 (All figures
being discussed are for the year ended May 31, 2022 as compared to the year ended May 31, 2021.)
Year ended May 31 Change
... as a percentage of net revenues 28 % 14 %
The Company's consolidated results of operations showed
a 37% increase in net revenues and an increase in net income of 110%. Revenues recorded in the current period for long-term construction
projects (“Project(s)”) were 92% more than the level recorded in the prior year. We had 45 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 4% less 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 60% increase 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 22% increase in sales to customers in aerospace / defense and a 1% decrease in sales to customers
using our products in industrial applications. The significant increase in sales to structural customers is primarily from domestic customers.
A breakdown of sales to these three general groups
of customers, as a percentage of total net revenue for fiscal years ended May 31, 2022 and 2021 is as follows:
Year ended May 31
Industrial 7 % 10 %
Aerospace / Defense 40 % 45 %
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Total sales within North America increased 52% from
last year. Total sales to Asia decreased 5% from the prior year. Net revenue by geographic region, as a percentage of total net revenue
for fiscal years ended May 31, 2022 and 2021 is as follows:
Year ended May 31
North America 78 % 70 %
The gross profit as a percentage of net revenue of
28% in the current period is double the 14% recorded in the same period of the prior year. The significant increase in gross profit as
a percentage of revenue is primarily due to the increase in domestic sales to structural customers. The prior year results were adversely
affected by the pandemic.
At May 31, 2021, we had 132 open sales orders in our
backlog with a total sales value of $22.0 million. At May 31, 2022, we had 135 open sales orders in our backlog with a total sales value
of $23.7 million. $7.6 million of the current backlog is on Projects already in progress. $9.3 million of the $22.0 million sales order
backlog at May 31, 2021 was in progress at that date. 41% of the sales value in the backlog is for aerospace / defense customers compared
to 43% at the end of fiscal 2021. As a percentage of the total sales order backlog, orders from structural customers accounted for 50%
at May 31, 2022 and 55% at May 31, 2021.
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 20 % 25 %
Selling, general and administrative expenses increased
11% from the prior year. Outside commission expense decreased 31% 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
increased 18% from last year. The Company reduced its reliance on outside manufacturers’ representatives in FY22 and increased its
internal sales force in an effort to increase profitable sales. This is the primary reason that the level of commissionable sales has
decreased while the other SG&A expenses have increased.
The above factors resulted in operating income of
$2,473,000 for the year ended May 31, 2022, showing significant improvement from the $2,352,000 operating loss in the prior year.
Other income during the prior 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): 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 (ERC) income. Other
income during the current period includes ERC income of $54,000.
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, 2022 is 12%, compared to the ETR for the prior year of -56%.
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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 $ 538,000 $ 143,000
Tax effect of permanent differences:
Foreign-derived intangible income deduction (12,000 ) —
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 $201,000 and $154,000 of compensation cost for the years
ended May 31, 2022 and 2021.
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 2021 and April 2022. 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:
Risk-free interest rate: 2.875 % 2.25 %
Expected life of the options: 4 years 4 years
Expected share price volatility: 32 % 29 %
Expected dividends: zero zero
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, 2022 is presented below.
Weighted-
Number of Average
Options Exercise Price
Less: Options expired: 51,500 —
Closing value per share on NASDAQ at May 31, 2022: $ 9.30
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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, 2022
were $1,392,000 compared to $1,622,000 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 $1,600,000 as of May 31, 2022. These capital expenditures will be primarily for new manufacturing
and testing equipment.
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, 2022 or May 31, 2021. 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 3.1 2.1
Inventory, at $5,854,000 as of May 31, 2022, is only
slightly higher than at the prior year-end. Of this, approximately 88% is work in process, 4% is finished goods, and 8% 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.
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 $772,000 and $1,101,000 of obsolete inventory during the years ended May 31, 2022 and 2021, 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 42
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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 $4,467,000 as of May 31, 2022
includes approximately $190,000 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) was 42 days at May 31, 2022 and May 31, 2021. The Company expects to collect the net accounts receivable balance, including
the retainage, during the next twelve months.
Other receivable is an amount of ERC claimed by the
Company for the second calendar quarter of 2021 and was 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 19 14
Aggregate percent complete at year-end 47 % 32 %
Average total value of projects in progress at year-end $ 795,000 $ 963,000
Percentage of total value invoiced to customer 35 % 30 %
There are 5 more projects 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 decreased by 17% between those
two dates.
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 $3,336,000
balance in this account at May 31, 2022 is a 122% increase from the prior year-end. This increase reflects the higher 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. 58% of the
CIEB balance as of the end of the last fiscal quarter, February 28, 2022, was billed to those customers in the current fiscal quarter
ended May 31, 2022. 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 11 9
As noted above, BIEC represents billings to customers
in excess of revenues recognized. The $1,123,000 balance in this account at May 31, 2022 is in comparison to a $1,362,000 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.
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The year-end balances in this account are comprised
of the following components:
Number of projects in progress 8 5
Accounts payable, at $1,427,000 as of May 31, 2022,
is 20% less than the prior year-end. This decrease is normal fluctuation of this account and is not considered to be unusual. 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, 2022 are $85,000. This is 68% less than the $269,000 accrued at the prior year-end. This decrease is generally due to the decrease
in the level of commissionable sales, discussed above. The Company expects the current accrued amount to be paid during the next twelve
months.
Other accrued expenses of $3,329,000 increased 94%
from the prior year level of $1,715,000. This increase is due to increases in customer prepayments on projects not yet started along with
an increase in accrued incentive compensation resulting from increased earnings and sales order bookings.
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 and capital
improvements for the next twelve months.
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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, 2022 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, 2022. 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, 2022, 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, 2022
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 21, 2022, 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 (PCAOB ID: 130)
(ii) Consolidated Balance Sheets as of May 31, 2022 and 2021
(vi) Notes to Consolidated Financial Statements - May 31, 2022 and 2021
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 3,497,345
Weighted average common stock outstanding assuming dilution 3,499,553
Weighted average common stock (2) 3,497,345
Basic income per common share (1) divided by (2) $ 0.64
Weighted average common stock outstanding assuming dilution (4) 3,499,553
Diluted income per common share (3) divided by (4) $ 0.64
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
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 19, 2022
Timothy J. Sopko
Chief Executive Officer
(Principal Executive Officer)
and
By: /s/Mark V. McDonough Date: August 19, 2022
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 19, 2022 and any reference thereto in the Annual Report to Shareholders for the fiscal year ended May 31, 2022.
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 19, 2022.
/s/Lumsden & McCormick, LLP
Lumsden & McCormick, LLP
Buffalo, New York
August 19, 2022
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TAYLOR DEVICES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2022
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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, 2022 and 2021, 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, 2022 and 2021, 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
our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are
matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated
to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and
(2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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Cost Estimates for Long-Term Contracts and Related
Revenue Recognition
Description of the Matter
As more fully described in Note 1 to the consolidated
financial statements, the Company recognizes revenue over time for long-term contracts as goods are produced. The Company uses costs incurred
as the method to determine progress, and revenue is recognized based on costs incurred to date plus an estimate of margin at completion.
The process of estimating margin at completion involves estimating the costs to complete production of goods and comparing those costs
to the estimated final revenue amount. Long-term contracts are inherently uncertain in that revenue is fixed while the estimates of costs
required to complete these contracts are subject to significant variability. Due to the technical performance requirements in many of
these contracts, changes to cost estimates could occur, resulting in higher or lower margins when the contracts are completed.
Given the inherent uncertainty and significant judgments
necessary to estimate future costs at completion, auditing these estimates involved a focused audit effort and a high degree of auditor
judgment.
How We Addressed the Matter in Our Audit
Our auditing procedures related to the cost estimates
for long-term contracts and related revenue recognition included the following, among others:
We evaluated the appropriateness and consistency of management’s methods
used to develop its estimates.
We evaluated the reasonableness of judgments made and significant assumptions