TAYLOR DEVICES, INC.

Taylor Devices, Inc. designs, develops, manufactures, and markets shock absorption, rate control, and energy storage devices for use in various types of machinery, equipment, and structures. The Company's products are sold to three general groups of customers: industrial, structural, and aerospace/defense. Sales to structural customers who were seeking seismic/wind protection for either construction of new buildings and bridges or retrofitting existing buildings and bridges decreased 31% from the prior year, while sales to aerospace/defense increased 1% and sales to industrial applications decreased 11%. 87% of the Company's 2026 revenue was generated from sales to customers in the United States, 8% from Asia, and 5% from other countries. In 2025, 79% of revenue came from the U.S., 15% from Asia, and 6% from other regions.

The Company faces competition for hydraulic energy absorbers on mature aerospace and defense programs, with competing technologies not necessarily of similar design. For industrial products, several foreign companies and two U.S. companies are the main competitors in crane buffers and industrial shock absorbers. The Company competes directly against three other firms supplying structural damping devices in the U.S., and against several other firms, particularly in Japan and Taiwan, for structural applications outside the U.S. The Company also competes with numerous firms supplying alternative seismic protection technologies. Sales to five customers accounted for approximately 45% (11%, 11%, 10%, 8%, and 5%, respectively) of net sales for 2026, and sales to three customers accounted for approximately 42% (21%, 15%, and 6%, respectively) of net sales for 2025. Management believes the loss of any or all of these customers would have a material adverse effect on the Company.

The Company generates revenue by designing, developing, manufacturing, and marketing shock absorption, rate control, and energy storage devices. Revenue is recognized when control of promised products or services is transferred to a customer. For contracts where the product has no alternative use and the Company has enforceable rights to payment for progress completed inclusive of profit, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion. Other sales are recognized upon shipment. In the year ended May 31, 2026, 56% of revenue was recorded for contracts recognized over time while 44% was recognized at a point in time. In the prior year, 68% was recognized over time and 32% at a point in time. The Company uses a technical sales force of Company employees for U.S. sales and non-employee sales representatives for rest-of-world sales, with commissions typically at 5% to 10% of the product's net aggregate selling price. Zero non-employee commission expense was recorded for both years ended May 31, 2026 and 2025.

The Company manufactures and sells products in nine categories: Seismic Dampers, Fluidicshoks®, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs, Vibration Dampers, Machined Springs, Custom Shock and Vibration Isolators, and Custom Actuators. Seismic Dampers mitigate the effects of earthquakes on structures and represent a substantial portion of the Company's sales. Fluidicshoks® are small, compact shock absorbers with up to 19,200 inch-pound capacities in 12 standard sizes for defense, aerospace, and commercial industries. Crane and Industrial Buffers are larger versions with up to 10,890,000 inch-pound capacities in more than 50 standard sizes for industrial applications. Self-Adjusting Shock Absorbers automatically adjust to different impact conditions for high cycle applications in heavy industry. Liquid Die Springs are used in tools and dies manufacturing. Vibration Dampers control response of electronics and optical systems for aerospace and defense. Machined Springs are precisely controlled mechanical springs for aerospace applications. Custom Shock and Vibration Isolators include liquid springs, fluid dampers, elastomeric springs, and Pumpkin™ Mounts for defense. Custom Actuators are gas-charged with high pressure for special aerospace and defense applications. Management does not track or account for sales broken down by these nine categories. Sales to aerospace/defense customers were $27,522,079 ¹ in 2026 and $27,134,038 ² in 2025. Structural sales were $10,262,939 ³ in 2026 and $14,827,044 ⁴ in 2025. Industrial sales were $3,864,655 ⁵ in 2026 and $4,331,643 ⁶ in 2025.

The Company holds 24 patents expiring at different times until the year 2042. Research and development expenditures were $776,000 ⁷ in 2026 and $444,000 ⁸ in 2025. Government-funded research and development totaled $1,482,000 ⁹ in 2026 and $1,141,000 ¹⁰ in 2025. Customer-funded research and development totaled $90,000 ¹¹ in 2026 and $228,000 ¹² in 2025. As of May 31, 2026, the Company had 135 total employees, consisting of 134 full-time employees and one part-time employee. None of the Company's employees are covered by a collective bargaining agreement. The Company's production facilities occupy approximately six acres on Tonawanda Island in North Tonawanda, New York, totaling more than 54,000 square feet, with an additional remote test facility of 1,200 square feet. The Company also owns two additional industrial buildings on nine acres of land totaling 46,000 square feet located 1.4 miles from headquarters.

Capital expenditures for the year ended May 31, 2026 were $2,136,000 ¹³ compared to $2,602,000 ¹⁴ in the prior year. Current year capital expenditures included new manufacturing machinery, testing equipment, upgrades to technology equipment, and assembly/test facility improvements. The Company has commitments to make capital expenditures of approximately $1,770,000 ¹⁵ as of May 31, 2026, primarily for new manufacturing and testing equipment. The Company has a $10,000,000 ¹⁶ bank demand line of credit with M&T Bank, with interest payable at the Company's option of 30, 60, or 90 day SOFR rate plus 2.365% ¹⁷. There is no outstanding balance at May 31, 2026. The line is secured by a negative pledge of the Company's real and personal property and is subject to renewal annually. The Company does not pay a cash dividend and plans to retain cash in the foreseeable future to fund working capital needs.

Net revenue for the year ended May 31, 2026 was $41,649,673 ¹⁸, a decrease of 10% from $46,292,725 ¹⁹ in the prior year. Net income was $8,563,674 ²⁰ compared to $9,413,136 ²¹ in the prior year, a decrease of $849,000 ²². Gross profit was $18,347,116 ²³ in 2026 versus $21,478,144 ²⁴ in 2025, with gross margin of 44% ²⁵ compared to 46% ²⁶ in the prior year. Operating income was $7,342,956 ²⁷ for 2026, down 24% from $9,627,327 ²⁸ in 2025. The effective tax rate was 5% ²⁹ for 2026 compared to 15% ³⁰ for the prior year. Cash and cash equivalents were $904,823 ³¹ at May 31, 2026, down from $1,190,656 ³² at May 31, 2025. Short-term investments were $40,574,152 ³³ at May 31, 2026, up from $34,799,367 ³⁴ at May 31, 2025.

Aerospace and defense represent a significant growth vector, with sales to this customer group accounting for 66% ³⁵ of total net revenue in 2026, up from 59% ³⁶ in 2025. The backlog at May 31, 2026 includes a $19,000,000 ³⁷ non-project order with scheduled deliveries of $1,700,000 ³⁸ in fiscal year ending May 31, 2027, $5,000,000 ³⁹ in fiscal year ending May 31, 2028, $10,000,000 ⁴⁰ in fiscal year ending May 31, 2029, and $2,300,000 ⁴¹ in fiscal year ending May 31, 2030. 92% ⁴² of the sales value in the backlog is for aerospace/defense customers compared to 75% ⁴³ at the end of fiscal 2025. The Company continues to develop new and advanced technology products, with research and development costs increasing 75% ⁴⁴ from the prior year due to increased aerospace/defense activity.

The structural market represents a growth vector, though sales to structural customers decreased 31% ⁴⁵ from the prior year. The backlog at May 31, 2026 includes 5% ⁴⁶ from structural customers compared to 19% ⁴⁷ at May 31, 2025. The Company's Seismic Dampers are designed to mitigate the effects of earthquakes on structures and represent a substantial portion of the Company's sales. The Company competes directly against three other firms supplying structural damping devices in the U.S. and against several other firms internationally, particularly in Japan and Taiwan, as well as numerous firms supplying alternative seismic protection technologies.

Gross profit as a percentage of net revenue was 44% ⁴⁸ in the year ended May 31, 2026, two percentage points lower than the 46% ⁴⁹ in the prior year. Selling, general and administrative expenses decreased 10% ⁵⁰ from the prior year, primarily from lower employee incentive compensation accruals, and remained at 25% ⁵¹ of net revenue. Research and development costs increased 75% ⁵² from the prior year to $776,000 ⁵³, representing 1.9% ⁵⁴ of net revenue compared to 1.0% ⁵⁵ in the prior year.

The Company's production facilities occupy approximately six acres on Tonawanda Island in North Tonawanda, New York, totaling more than 54,000 square feet, with an additional remote test facility of 1,200 square feet. The Company also owns two additional industrial buildings on nine acres of land totaling 46,000 square feet located 1.4 miles from headquarters. Capital expenditures for the year ended May 31, 2026 were $2,136,000 ⁵⁶, and the Company has commitments to make capital expenditures of approximately $1,770,000 ⁵⁷ as of May 31, 2026, primarily for new manufacturing and testing equipment. The Company had 135 total employees as of May 31, 2026, consisting of 134 full-time employees and one part-time employee.

Research and development spending was $776,000 ⁵⁸ for the year ended May 31, 2026, compared to $444,000 ⁵⁹ in the prior year. Capital expenditures were $2,136,000 ⁶⁰ for 2026 versus $2,602,000 ⁶¹ in 2025. The Company has a $10,000,000 ⁶² bank demand line of credit with M&T Bank with no outstanding balance at May 31, 2026. The Company does not pay a cash dividend and plans to retain cash in the foreseeable future to fund working capital needs. The Company did not repurchase any shares under a publicly announced plan during the period; treasury stock increased due to shares received in connection with employee stock option exercises.

Revenue recorded for long-term projects in the year ended May 31, 2026 was 25% ⁶³ lower than the prior year level. The Company had 40 long-term projects in process during 2026 compared with 37 during the prior year. Revenue recorded for other than long-term projects (non-projects) was 22% ⁶⁴ higher than the prior year. Total sales to Asia decreased to $3,200,000 ⁶⁵ from $7,000,000 ⁶⁶ in the prior year, while sales to countries outside the U.S. and Asia decreased $700,000 ⁶⁷ from the prior year. The shift in domestic and international sales concentration is attributable to normal changes in structural project activity.

The Company faces risks from 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, and advances in technology that can reduce demand for the Company's products. Contracts between the Company and the federal government or its independent contractors are subject to termination at the election of the federal government, and if the federal government should limit defense spending, these contracts could be reduced or terminated, which management believes would have a materially adverse effect on the Company.

The Company faces material customer concentration risk, as sales to five customers accounted for approximately 45% of net sales in 2026, with the largest customer at 11%, and management believes the loss of any or all of these customers would have a material adverse effect. Government contract risk is significant because contracts with the federal government are subject to termination at the election of the government, and if defense spending were limited, these contracts could be reduced or terminated, which management believes would have a materially adverse effect. The Company's backlog of $52,800,000 ⁶⁸ at May 31, 2026 is heavily concentrated in aerospace/defense at 92%, creating exposure to shifts in defense spending. International sales concentration risk is evident as sales to Asia decreased to $3,200,000 ⁶⁹ from $7,000,000 ⁷⁰ in the prior year, a decline of approximately 54%, driven by normal changes in structural project activity. The Company's revenue recognition for long-term contracts involves significant estimates of costs to complete, and adjustments to cost estimates could result in lower margins when contracts are completed.

Management's discussion emphasizes that the Company's consolidated results of operations showed a 10% decrease in net revenue and a 15% decrease in net income for the year ended May 31, 2026. Management highlights that revenue recorded for long-term projects was 25% lower than the prior year, while non-project revenue was 22% higher. The Company saw a 31% decrease in sales to structural customers, a 1% increase in aerospace/defense sales, and an 11% decrease in industrial sales. Management notes that the backlog increased to $52,800,000 ⁷¹ at May 31, 2026 from $27,100,000 ⁷² at May 31, 2025, with 92% of the backlog for aerospace/defense customers. Management states that the Company expects to recognize revenue for the majority of the remaining backlog during the fiscal year ending May 31, 2027, with the balance during the fiscal year ending May 31, 2028. Management emphasizes that the Company continues to develop new and advanced technology products and that research and development costs increased 75% from the prior year due to increased aerospace/defense activity. 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.