UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





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


For
the fiscal year ended December 31, 2008





£ TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For
the transition period from __________ to __________





Commission
File Number 0-25844





TAITRON
COMPONENTS INCORPORATED


(Exact
name of registrant as specified in its charter)





California
              
              95-4249240(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)





28040
      West Harrison Parkway, Valencia, California
              91355(Address
      of principal executive offices)
              (Zip
      Code)





Registrant’s
telephone number, including area code:  (661) 257-6060





Securities
registered under Section 12(b) of the Act:


Title of Each Class
                Name of Exchange on which
      RegisteredClass
      A common stock, par value $.001 per share
                The
      NASDAQ Capital Stock
Market





Securities
registered under Section 12(g) of the
Act:      None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  ̈   No
x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes  ̈   No
x





Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.


Yes
x   No   ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  x




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer or a smaller reporting
company.  See the definitions of “larger accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):





Large accelerated filer   ̈
                    Accelerated filer   ̈
                    
                    Non-accelerated filer   ̈
                    Smaller reporting company  x(Do
      not check if a smaller reporting company)





Indicate
by check mark if the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).      Yes  ̈     No
x





The
aggregate market value of the common stock held by non-affiliates of the
registrant as of June 30, 2008 (based on the closing price of $1.02 per
share) was approximately $3,800,000.





Number of
shares outstanding of each of the issuer’s classes of common stock, as of the
latest practicable date:





Class
                  Outstanding on March 2,
  2009Class
      A common stock, $.001 par value
                  4,777,144Class
      B common stock, $.001 par value
                  762,612





DOCUMENTS
INCORPORATED BY REFERENCE


Certain
information required by Part III of Form 10-K is incorporated by reference to
the Registrant’s proxy statement for the 2009 Annual Stockholders Meeting, which
will be filed with the Securities and Exchange Commission.







- 1
-





TAITRON COMPONENTS INCORPORATED





2008
FORM 10-K ANNUAL REPORT





TABLE
OF CONTENTS





PagePART
      IItem
      1.
                        Business
                        3Item
      1A.
                        Risk Factors
                        10Item
      1B.
                        Unresolved Staff Comments
                        10Item
      2.
                        Properties
                        10Item
      3.
                        Legal Proceedings
                        11Item
      4.
                        Submission of Matters to Vote of Security
      Holders
                        11PART
      IIItem
      5.
                        Market for the Registrant’s Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity
      Securities
                        11Item
      6.
                        Selected Financial Data
                        12Item
      7.
                        Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                        12Item
      7A.
                        Quantitative and Qualitative Disclosures About Market
      Risk
                        16Item
      8.
                        Financial Statements and Supplementary
    Data
                        16Item
      9.
                        Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
                        31Item
      9A.
                        Controls and Procedures
                        31Item
      9B.
                        Other Information
                        32PART
      IIIItem
      10.
                        Directors, Executive Officer and Corporate
      Governance
                        32Item
      11.
                        Executive Compensation
                        32Item
      12.
                        Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
                        32Item
      13.
                        Certain Relationships, Related Transactions and Director
      Independence
                        32Item
      14.
                        Principal Accounting Fees and Services
                        33PART
      IVItem
      15.
                        Exhibits and Financial Statement
    Schedules
                        33Signatures
                        34





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CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS





This document, press releases and
certain information provided periodically in writing or orally by the Company’s
officers or its agents may contain statements which constitute “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
involve a number of risks and uncertainties.  Forward-looking
statements are usually denoted by words or phrases such as “believes,”
“expects,” “thinks,” “projects,” “estimates,” “anticipates,” “will likely
result,” or similar expressions.  We wish to caution readers that all
forward-looking statements are necessarily speculative and not to place undue
reliance on forward-looking statements, which speak only as of the date made,
and to advise readers that actual results could vary due to a variety of risks
and uncertainties.  Factors associated with the forward-looking
statements that could cause the forward-looking statements to be inaccurate and
could otherwise impact our future results are set forth in detail in this
document.





References to “Taitron,” “the Company,”
“we,” “our” and “us” refer to Taitron Components Incorporated and its
majority-owned subsidiary, unless the context otherwise requires.





PART
I





ITEM 1.  BUSINESS.





General





We are a national distributor of brand
name electronic components and supplier of original designed and manufactured
(ODM) electronic components (“ODM Components”), with our product offerings
ranging from discrete semiconductors through small electronic
devices.  Prior to 2003, we were primarily focused on the distribution
of transistors, diodes and other discrete semiconductors, optoelectronic devices
and passive components.  Commencing in 2003, we implemented a strategy
to expand our business into value-added engineering and turn-key services,
focusing on providing existing contract electronic manufacturers (CEMs) and
original equipment manufacturers (OEMs) with original design and manufacturing
(ODM) services for their multi-year turn-key projects.  Our ODM
services, and the distribution of products manufactured to specifications
developed as a result of our ODM services (“ODM Products”) accounted for 11% of
our revenue during our fiscal year ended December 31, 2008.





We have developed a reputation for
maintaining in-depth inventories and knowledge of the products in our
markets.  Our “superstore” strategy consists of carrying a large
quantity and variety of components in inventory to meet the rapid delivery
requirements of our customers.  To differentiate from other
distributors, we also offer ODM Components, which are manufactured electronic
components based on our own engineering specifications under the private label
brands “TCI” or “PSD” through outsourcing.  At December 31, 2008, our
inventory consisted of over 14,000 different products manufactured by more than
100 different suppliers.  In 2008, we offered approximately 25 that
are ODM Products to specifications developed as a result of our ODM
services.  We are incorporated in California, and were originally
formed in 1989.  We maintain a majority-owned subsidiary in Mexico and
three divisions in each of Taiwan, Brazil and China.  Our Mexico and
Brazil locations are for regional distribution, sales and marketing purposes and
our Taiwan and China locations are for supporting inventory sourcing and
purchases and coordinating the manufacture of our ODM Components and ODM
Products.  Our China location also serves as the engineering center
responsible for making component datasheets and test specifications, arranging
pre-production and mass production at our outsourced manufacturers, preparing
samples, monitoring quality of shipments, performing failure analysis reports,
and designing circuits with partners for ODM projects.





Discrete semiconductors are basic
electronic building blocks.  One or more different types of discrete
semiconductors generally are found in the electronic or power supply circuitry
of products as diverse as automobiles, televisions, radios, telephones,
computers, medical equipment, airplanes, industrial robotics and household
appliances.  The term “discrete” is used to differentiate those single
function semiconductor products which are packaged alone, such as transistors or
diodes, from those which are “integrated” into microchips and other integrated
circuit devices.





The U.S. electronics distribution
industry is composed of national distributors (and international distributors),
as well as regional and local distributors.  Electronics distributors
market numerous products, including active components (such as transistors,
microprocessors and integrated circuits), passive components (such as capacitors
and resistors) and electromechanical, interconnect and computer
products.  We focus our distribution efforts almost exclusively on
discrete semiconductors, optoelectronic devices and passive components, a small
subset of the electronic components market.





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We continue to be impacted by the
severe decline in demand for discrete semiconductors from the U.S. market, which
began in late 2000.  As a result, we have experienced declining sales
in such components since early 2001.  In response to this declining
demand, we placed emphasis on increasing our sales to existing customers through
further expansion of the number of different types of discrete components and
other integrated circuits in our inventory and by attracting additional contract
electronic manufacturers (CEMs), original equipment manufacturers (OEMs) and
electronics distributor customers.  In addition, over the last four
years we have developed our ODM service capabilities and added products
developed through partnership agreements with offshore solution providers (OEMs
and CEMs).  We also offer commodity integrated circuits (ICs) as an
extension of our current discrete semiconductor lines since 2008.





Discrete
Semiconductors and Commodity Integrated Circuits





Semiconductors can be broadly divided
into two categories - discrete
semiconductors, including transistors, diodes, rectifiers and bridges,
which are packaged individually to perform a single or limited function, and
integrated circuits,
such as microprocessors and other “chips,” which can contain from a few to
several million transistors and other elements in a single package, and usually
are designed to perform complex tasks.  However, the commodity ICs, a
combination of a limited number of discrete and passive components in one
package, are far less sophisticated than other integrated circuits and perform
simple tasks in circuits similar to discrete components.





While other integrated circuits may
garner more public exposure, discrete semiconductors and commodity ICs, the
ancestral root of today’s complicated integrated circuits, have been a core
element of electric equipment for more than 30 years.  Discrete
semiconductors and commodity ICs are found in most consumer, computer,
communication, automotive, instrumentation, medical, industrial and military
electrical and electronic applications.





Discrete semiconductors and commodity
ICs represent only a small subset of the different types of semiconductors
currently available.  Discrete semiconductors and commodity ICs are
generally more mature products with a more predictable demand, more stable
pricing and more constant sourcing than other products in the semiconductor
industry, and are thus less susceptible to technological obsolescence than
other, more complex, integrated circuits.





Optoelectronic
Devices and Passive Components





In addition to discrete semiconductors,
we offer optoelectronic devices such as LED’s, infrared sensors and opto
couplers, along with passive devices, such as resistors, capacitors and
inductors which are electronic components manufactured with non-semiconductor
materials.  We market these optoelectronic devices and passive
components through the same channels, as the discrete
semiconductors.  Sales of these optoelectronic devices and passive
components were 44% and  46% of our total sales for the years ended
December 31, 2008 and 2007, respectively.  During 2008, we purchased
$2,100,000 of inventory for these components, to facilitate our market for these
products.





Electronics
Distribution Channels





Electronic component manufacturers,
which we refer to as suppliers, sell components directly to CEMs and OEMs, as
well as to distributors.  The practice among the major suppliers is
generally to focus their direct selling efforts on larger volume customers,
while utilizing distributors to reach small and medium-sized CEMs and OEMs, as
well as smaller distributors.  Many suppliers consider electronic
distributors to be an integral part of their businesses.  As a
stocking, marketing and financial intermediary, the distributor relieves its
suppliers of a portion of their costs and personnel associated with stocking and
selling products, including otherwise sizable investments in finished goods
inventories and accounts receivable.  By having geographically
dispersed selling and delivery capabilities, distributors are often able to
serve small and medium-sized companies more effectively and economically than
can the supplier.





Electronic distributors are also
important to CEMs and OEMs.  CEMs and OEMs frequently place orders
which are of insufficient size to be placed directly with the suppliers or
require delivery schedules not available from suppliers.  Distributors
offer product availability, selection and more rapid and flexible delivery
schedules keyed to meet the requirements of their CEM and OEM
customers.  Also, they often rely upon electronic distributors to
provide timely, knowledgeable access to electronic components.





There is also pressure on the
suppliers, CEMs and OEMs to maintain small inventories.  Inventory is
costly to maintain and thus suppliers desire to ship finished goods as soon as
the goods are manufactured.  CEMs and OEMs typically demand “just in
time” delivery -- receipt of their requirements immediately prior to the time
when the components are to be used.  Distributors fill this
niche.





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ODM
Service Industry





ODM service providers have experienced
rapid change and growth over most of the past decade as an increasing number of
OEMs outsourced their manufacturing requirements.  In mid-2001, the
domestic market of this industry's revenue declined as a result of significant
cut backs in its customers' production requirements, which was consistent with
the overall global economic downturn.  Nonetheless, OEMs have
continued to turn to outsourcing in order to reduce product cost; achieve
accelerated time-to-market and time-to-volume production; access advanced design
and manufacturing technologies; improve inventory management and purchasing
power; and reduce their capital investment in manufacturing resources. This
enables OEMs to concentrate on what they believe to be their core strengths,
such as new product definition, design, marketing and sales.  We
believe further growth opportunities exist for ODM providers to penetrate the
worldwide electronics.  By designing private brand products to ODM
customers in the US, we are able to expand export sales to overseas CEM
customers.





“Superstore”
Strategy





Since
1997, we have marketed ourselves as the “discrete components superstore,” with
an in-depth focus on discrete semiconductors, passive and optoelectronic
components and extensive inventory of a wide variety of these
products.  In creating the “superstore” strategy, we have attempted to
develop a more efficient link between suppliers and the small and medium-sized
customers which generally do not have direct access to large suppliers and must
purchase exclusively through distributors.  The primary aspects of our
“superstore” strategy include:





Reliable One Stop Shopping: Large
Inventory.  We believe that our most important competitive
advantage is the depth of our inventory.  Unlike other distributors
who carry only the best-selling discrete components, we offer a large selection
of different name-brand discrete semiconductors, optoelectronic devices and
passive components.  Because of its large inventory, we often can fill
a significant portion, or all, of a customer’s order from
stock.  Also, we have been able to fill most of our customers’ orders
within 24 hours and in compliance with their requested delivery
schedules.   However, we are also focusing on lowering our
inventory levels to balance the weakened demand we have experienced for our
products over the past several years.  With immediate availability of
a wide selection of products and brands, we believe that sales may grow if the
market rebounds.  See Part II, Item 7 – “Management’s Discussion and
Analysis - Liquidity and Capital Resources”.





Private Brands and Custom Made
Parts.To assure the best quality of the product with the most
competitive price, we choose the best product lines among existing suppliers and
market it under the “TCI” or “PSD” brand.  These private label
products, or ODM Components, are manufactured according to our specifications
under a special contract agreement with outsourcing partners.  Custom
made parts are also available by following either customer’s specification or
specially made engineering specification.  We believe the ODM
Components business is more stable and profitable than the traditional commodity
type business.  The export sales are driven primarily from private
brand products designed in the US by OEMs who later outsource the production to
their overseas CEMs.





Support Small Distributors, CEMs and
OEMs.  We focus our marketing efforts on small contract
manufacturers, distributors, CEMs and OEMs who generally do not have direct
access to suppliers because of their limited purchasing volumes and, therefore,
usually have to purchase their requirements from large distributors, often with
substantial markups.





Web Order Entry (WOE) and Customer
Drop Shipment (CDS).  The demand of web purchasing from buyers
around the world is growing rapidly.  We have developed a web order
entry system for existing customers to access our inventory and to place
purchase orders in real time.  Not only they will get the sales order
and shipment confirmation on the same day, but also be able to assign the drop
shipments to their customers directly.  We believe this is a new trend
to many local distributors and brokers who want to serve their customers more
effectively and efficiently without material handling costs.





Master
Distributor.  We distribute electronic components to other
distributors, including nationwide distributors, when their inventory cannot
fulfill immediate customer orders.  With its higher volume, lower cost
inventory, we act as a master distributor for certain of its component
suppliers.  We estimate that approximately 38% of our sales are a
direct result of being a master distributor.





Preferred
Distributors.  We developed a Preferred Distributor Agreement
with certain selective distributor customers to promote a much stronger business
relationship.  Under these agreements, our preferred distributors are
required to provide point of sales (POS) reports which identify the
distributor’s customers and we provide these preferred distributors with limited
price protection, limited stock rotations and return privileges among other
benefits.  As of the date of this Report, we maintain Preferred
Distributor Agreements with 9 selective distributors.  We intend to
maintain only a few preferred distributors in each geographical
region.





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Relationships with
Suppliers.  Stock rotation and price protection privileges are
beneficial to distributors because they enable distributors to reduce inventory
cost or rotate inventory they are unable to sell, thus reducing the risks and
costs associated with over-purchasing or obsolescence.  Price
protection mitigates the risks of falling prices of components held in
inventory.  We believe that we have been able to gain a competitive
advantage over other distributors by sometimes foregoing or not demanding these
privileges (and thus assuming the risk for over-purchasing, product obsolescence
and price fluctuations) in order to obtain better pricing.





Vendor managed Inventory
(VMI).  As a part of our warehouse management system, VMI not
only allocates the forecasted inventory by the contract but also guarantees the
same day shipment for customers who frequently change their shipping schedule
driven by MRP demand.  The VMI system is fully operational from the
web by VMI managers who could either be our sales representatives, customers or
employees.





Service
Strategy and ODM Products





We have
historically offered our customers a limited range of value–added services such
as cutting and forming, quality monitoring and product source
tracing.  Beginning in 2003, we significantly expanded our value-added
services by offering our existing OEM and CEM customers outsourced product
design and manufacturing assembly services.  Our ODM Products were
$788,000 and $422,000 in 2008 and 2007, respectively.  In order to
support our ODM Components and ODM Products, we opened an engineering design
center in Shanghai, China in 2005.  Strategic allies such as Princeton
Technology Corporation, a company controlled by one of our directors, and
Teamforce Co. Ltd., both Taiwan–based companies, assist us with this
program.  As a franchise distributor of Princeton Technology
Corporation in the US, we receive engineering support using their products in
our ODM projects in order to lower costs and to shorten the design
cycle.  Our goal is to have 50% component sales and 50% ODM Products
sales by the end of 2012.





Offering
application engineering service to current customers, we were often involved in
reviewing their bill of materials (BOMs) and circuit diagrams.  Based
upon their credit history, type of the products, production volume,
profitability of the industry and circuit schematics, we offer different
solutions for quality improvement, additional functions and cost
savings  through the re-design processes such as component
replacement, digital circuit instead of analog circuit, microprocessor instead
of logic circuit, integrated circuit instead of discrete
components.   Our preference is to target at low but increasing
volume, high margin, stable demand, profitable and specialty products and
financially stable customers who know how to market their products. Our
strengths are microprocessor programming, power supply, power management, LED
message sign, RF transmission and receiving, encoder and decoder, remote
controller, DC motor control and power amplifier.  In many cases, we
were able to take the advantage of our component distribution capability by
using current stock to reduce lead time and choosing the low cost components we
currently sell. We depend on our outsourcing partners in mold design, plastic
injection, metal stamping, wire hardness and final assembly.  We ask
between 15% to 30% down payment before accepting a purchasing order and offer
customers 30 to 60 days payment terms.  All purchasing orders must
have a firm delivery schedule under a non-cancelable and non-returnable (NCNR)
agreement.  To reduce the manufacturing and handling cost, we arrange
production of the same model once a year and keep product in our warehouse to be
released according to the predetermined schedule.





We
utilize our existing inventory management system and established distribution
relationships to facilitate the manufacturing and distribution of such
products.  Our ODM Service complements our “Superstore” strategy and
facilitates additional utilization of electronic components for the manufacture
of our ODM Products.





Products





Electronic Components –
Discrete





We market a wide variety of discrete
semiconductors, including rectifiers (or power diodes), diodes, transistors,
optoelectronic devices and passive components, to other electronic distributors,
contract electronic manufacturers and original equipment manufacturers, who
incorporate them in their products.  At December 31, 2008, our
inventory consisted of over 14,000 different products manufactured by more than
100 different suppliers.





In 2008, we purchased electronic
component products from approximately 40 suppliers, including Everlight
Electronics Co, Ltd., Samsung Electro-Mechanics Co., Vishay Americas Inc. and
Zowie Technology Corporation.





Discrete
semiconductors are categorized based on various factors, including current
handling capacity, construction, packaging, fabrication and
function.  The products we sell include:





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Rectifiers.  Rectifiers
generally are utilized in power supply and other high power applications to
convert alternating current to direct current.  We sell a wide variety
of rectifiers, including silicon rectifiers, fast efficient rectifiers, Schottky
rectifiers, glass passivated rectifiers, fast efficient glass passivated
rectifiers, silicon bridge rectifiers, fast recovery, glass passivated bridge
rectifiers and controlled avalanche bridge rectifiers.





Diodes.  Diodes are
two-lead semiconductors that only allow electric current to flow in one
direction.  They are used in a variety of electronic applications,
including signal processing and direction of current.  Diodes sold by
us include switching diodes, varistors, germanium diodes and zener
diodes.





Transistors.  Transistors
are used in, among other applications, the processing or amplification of
electric current and electronic signals, including data, television, sound and
power.  We currently sell many types of transistors, including small
signal transistors, power transistors and power MOSFETS.





Optoelectronic
Devices.  Optoelectronic devices are solid state products which
provide light displays (such as LEDs), optical links and fiber-optic signal
coupling.  Applications vary from digital displays on consumer video
equipment to fiber optic transmission of computer signals to pattern sensing for
regulation, such as is found in automobile cruise
controls.  Optoelectronic devices generally are not classified as
discrete semiconductors or integrated circuits, although they incorporate
semiconductor materials.





Passive
Components.  Passive components are a type of electronic
component manufactured with non-semiconductor materials.  Passive
components such as resistors, capacitors and inductors are used in electronic
circuitry but they do not provide amplification.  Passive components
are basic electronic components found in virtually all electronic
products.





The
products distributed by us are mature products that are used in a wide range of
commercial and industrial products and industries.  We believe that a
majority of the products we distribute are used in applications where integrated
circuits are not viable alternatives.  However, we cannot assure you
that over time the functions for which our discrete electronic components are
used will not eventually be displaced by integrated circuits.





We
purchase products from reliable manufacturers who provide warranties for their
products that are common in the industry and therefore we conduct limited
quality monitoring of our products.  We are certified according to the
International Standardization Organization (ISO) and we maintain our certificate
under the quality standard ISO 9001:2000.





Our
distribution of electronic components originates from our 50,000 square-foot
facility located in Valencia, California.  We utilize a computerized
inventory control/tracking system which enables us to quickly access inventory
levels and trace product shipments.  See Item 2 -
“Properties.”





ODM
Products





ODM Products are custom made and are
marketed in specific industries such as wild animal feeders, timers for DC
motor, public street light controllers, battery testers, universal remote
control devices and battery chargers.





Our
distribution of ODM Products originates from our 50,000 square-foot facility
located in Valencia, California.  We utilize a computerized inventory
control/tracking system which enables us to quickly access inventory levels and
trace product shipments.  See Item 2 - “Properties.”





Customers





We market our products to distributors,
CEMs and OEMs, and our ODM Services to CEMs and OEMs. We believe that our
strategic purchasing policies allow us to provide smaller and medium-sized
distributors, CEMs and OEMs competitive prices on discrete electronic components
while maintaining an adequate profit margin. As a rule, we do not impose minimum
order limitations, which enable customers to avoid the cost of carrying large
inventories. See “Business - Strategy.”





During 2008, we distributed our
discrete electronic component products to approximately 550 customers. Two
customers accounted for 11% and 8% of net sales during 2008 and 8% and 6% of net
sales during 2007.





In 2008, sales of brand name electronic
component products and our ODM Components together represented approximately 89%
of our net sales, while sales of our ODM Products represented the remaining 11%
of our net sales. Distributors represented approximately 30% and both CEMs and
OEMs together represented approximately 47% of our net sales of electronic
component products. The remaining 23% of our electronic component sales were
made to other exporters and overseas customers.





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We historically have not required our
distributor customers to provide any point of sale reporting and therefore we do
not know the different industries in which our products are sold by our
distributor customers.  However, based on our sales to CEMs and OEMs,
we believe that no any single industry accounted for a majority of the
applications of our discrete electronic component products sold in 2008 or
2007.





We offer customers inventory support
which includes carrying inventory for their specific needs and providing free
samples of our products.  We also offer customers a limited range of
value-added services, such as lead cutting and bending for specific
applications, enhanced quality monitoring and product source tracing, but, to
date, these value-added services have not been material to our business or
results of operations.





We believe that exceptional customer
service and customer relations are key elements of our success, and train our
sales force to provide prompt, efficient and courteous service to all
customers.  See “Business - Sales and Marketing
Channels.”  We have the ability to ship most orders the same day they
are placed and, historically, most of our customers’ orders have been shipped
within the requested delivery schedule.





As our customers grow in size, we may
lose our larger customers to our own discrete electronic components suppliers
and as the electronics distribution industry consolidates, some of our customers
may be acquired by competitors.





Sales
and Marketing Channels





As of March 2, 2009, our sales and
marketing department consisted of 10 employees.  We have centralized
our sales order processing and customer service department into our headquarters
at Valencia, California.  However, we retained outside sales account
managers in the states of Massachusetts and Georgia.  Our inside sales
and customer service departments are divided into regional sales territories
throughout North America.  The outside sales account managers are also
responsible for developing new CEM and OEM accounts, as well as working locally
with our independent sales representatives and preferred
distributors.





We have sales channels into Central
America through our majority-owned subsidiary in Mexico City,
Mexico.  Central American sales were $1,173,000 and $994,000 in 2008
and 2007, respectively.





We have sales channels into Asia
through our branch offices in Shanghai, China and Taipei,
Taiwan.  Sales to Asian customers were $447,000 and $624,000 in 2008
and 2007, respectively.





We also have sales channels into South
America through our branch office in Sao Paulo, Brazil.  South
American sales were $ 368,000 and $512,000 in 2008 and 2007,
respectively.





Independent sales representatives have
played an important role in developing our client base, especially with respect
to OEMs.  Many OEMs want their suppliers to have a local presence and
our network of independent sales representatives is responsive to those
needs.  Independent sales representatives are primarily responsible
for face-to-face meetings with our customers, and for developing new
customers.  Independent sales representatives are each given
responsibility for a specific geographic territory.  Typically, sales
representatives are only compensated for sales made to CEMs, OEMs and preferred
distributors.  We believe that this commission policy directs
independent sales representatives’ attention to those end users with potential
to increase market share.  Along with our independent sales
representatives, we jointly advertise and participate in trade
shows.  We utilized seven independent sales representatives during
2008.





We provide customers with catalogs that
are specially designed to aid them to quickly find the types and brands of
discrete semiconductors and passive and optoelectronic devices that they
need.





Suppliers





We believe that it’s important to
develop and maintain good relationships with our discrete electronic component
suppliers.  We do not typically enter into long-term supply,
distribution or franchise agreements with our suppliers, but instead cultivate
strong working relationships with each of our suppliers.  However, we
have entered into franchise agreements with some of our
suppliers.  The franchise agreements have terms from one to two years
with inventory and price protection programs.





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In order to facilitate good
relationships with our suppliers, we typically will carry a complete line of
each supplier’s discrete products.  We also support our suppliers by
increasing their visibility through advertising and participation in regional
and national trade shows.  We generally order components far in
advance, helping suppliers plan their production.  Outstanding
commitments to purchase inventory from suppliers as of March 2, 2009 were
approximately $612,000.  In addition, we have distribution agreements
with certain suppliers which provide stock-rotation, price protection and stock
buy back terms.





In 2008, we purchased components from
approximately 40 different suppliers, including Samsung Electro-Mechanics Co.,
Everlight Electronics Co, Ltd., Princeton Technology, Vishay Americas Inc. and
Zowie Technology Corporation.  While we are continually attempting to
build relationships with suppliers and from time to time add new suppliers in an
attempt to provide our customers with a better product mix, the possibility
exists that our relationship with a supplier may be terminated.





For the year ended December 31, 2008,
the following name brands, Samsung Electro-Mechanics Co., Princeton Technology,
Everlight Electronics Co, Ltd. and Vishay Americas Inc. accounted for
approximately 49% of our net purchases for name brand distributed
components.  However, we do not regard any one supplier as essential
to our operations, since equivalent replacements for most of the products we
market are either available from one or more of our other suppliers or are
available from various other sources at competitive prices.  We
believe that, even if we lose a direct relationship with a supplier, there exist
alternative sources for another supplier’s products.





In connection with our ODM services, we
have built special partnership agreements with few selected system integration
companies in China.  These agreements ensure the quality of the
products and services and also provide a warranty on the finished
products.  Most of the projects involve multiple years of cooperation
among components suppliers, overseas partners and the end customers in the US,
and therefore, increase business stability and reduce the financial risk of
excess inventory.





Competition





We operate our discrete electronic
components business in a highly competitive environment and face competition
from numerous local, regional and national distributors (both in purchasing and
selling inventory) and electronic component manufacturers, including some of our
own suppliers.  Many of our competitors are more established and have
greater name recognition and financial and marketing resources than
us.  We believe that competition in the electronic industry is based
on breadth of product lines, product availability, choice of brand name,
customer service, response time, competitive pricing and product knowledge, as
well as value-added services.  We believe we compete effectively with
respect to breadth and availability of inventory, response time, pricing and
product knowledge.  Generally, large component manufacturers and large
distributors do not focus their internal selling efforts on small and
medium-sized OEMs and distributors, which constitute the vast majority of our
customers.  However, should our customers increase in size, component
manufacturers may find it cost effective to focus direct sales efforts on those
customers, which could result in the loss of customers or decreased selling
prices.





The ODM
services we provide are available from many independent sources as well as from
the in-house manufacturing capabilities of current and potential customers. Our
competitors may be more established in the industry and have substantially
greater financial, manufacturing, or marketing resources than we
do.  We believe that the principal competitive factors in our targeted
markets are engineering capabilities, product quality, flexibility, cost and
timeliness in responding to design and schedule changes, reliability in meeting
product delivery schedules, pricing, technological sophistication and geographic
location. In addition, in recent years, original design manufacturers that
provide design and manufacturing services to OEMs have significantly increased
their share of outsourced manufacturing services provided to OEMs in the
consumer electronic product market. Competition from ODMs may increase if our
business in these markets grows or if ODMs expand further into these
markets.





Management
Information Systems





We have made a significant investment
in computer hardware, software and personnel.  The Management
Information Systems (MIS) department is responsible for software and hardware
upgrades, maintenance of current software and related databases, and designing
custom systems.  We believe that our MIS department is crucial to our
success and believe in continually upgrading our hardware and
software.  We also developed a vendor management inventory software
program which allows participating customers to access and manage their own
inventory through the internet.  The web site also provides users with
other current information about us.





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Warehouse
Management System





We
utilize a wireless, fully bar-coded warehouse tracking system that greatly
enhances the processing speed, accuracy of product quantity and location control
within the warehouse.  It also reduces potential errors and
accelerates the delivery of components to our customers.  We
continuously improve our warehouse management system with custom programming
features.





Foreign
Trade Regulation





A large portion of the products we
distribute are manufactured in Asia, including Taiwan, Hong Kong, Japan, China,
South Korea, Thailand and the Philippines.  The purchase of goods
manufactured in foreign countries is subject to a number of risks, including
economic disruptions, transportation delays and interruptions, foreign exchange
rate fluctuations, imposition of tariffs and import and export controls, and
changes in governmental policies, any of which could have a material adverse
effect on our business and results of operations.





Sales to Asian customers were 6.2% and
6.4% of our total sales in 2008 and 2007, respectively.





From time to time, protectionist
pressures have influenced U.S. trade policy concerning the imposition of
significant duties or other trade restrictions upon foreign
products.  We cannot predict whether additional U.S. customs quotas,
duties, taxes or other charges or restrictions will be imposed upon the
importation of foreign components in the future or what effect any of these
actions would have on our business, financial condition or results of
operations.





The ability to remain competitive with
respect to the pricing of imported components could be adversely affected by
increases in tariffs or duties, changes in trade treaties, strikes in air or sea
transportation, and possible future U.S. legislation with respect to pricing and
import quotas on products from foreign countries.  For example, it is
possible that political or economic developments in China, or with respect to
the United States’ relationship with China, could have an adverse effect on our
business.  Our ability to remain competitive also could be affected by
other governmental actions related to, among other things, anti-dumping
legislation and international currency fluctuations.  While we do not
believe that any of these factors adversely impact our business at present, we
cannot assure you that these factors will not materially adversely affect us in
the future.  Any significant disruption in the delivery of merchandise
from our suppliers, substantially all of whom are foreign, could have a material
adverse impact on our business and results of operations.





Employees





At March 2, 2009, we had 26 employees,
all of whom are employed on a full time basis.  None of our employees
are covered by a collective bargaining agreement and we consider our relations
with employees to be good.





Website
Availability of Our Reports Filed with the Securities and Exchange
Commission





We maintain a website with the address
www.taitroncomponents.com.  We are not including the information
contained on this website as a part of, or incorporating it by reference into,
this annual report on Form 10-K.  We make available free of charge
through this website our annual reports, quarterly reports and current reports
on Form 8-K, and amendments to these reports, as soon as reasonably practicable
after it electronically files that material with, or furnish the material to,
the Securities and Exchange Commission.





ITEM
1A.  RISK FACTORS.   Not
applicable.





ITEM
1B.  UNRESOLVED STAFF
COMMENTS.Not applicable.





ITEM 2.  PROPERTIES.





We own our headquarters and main
distribution facility which is located in approximately 50,000 square feet at
28040 West Harrison Parkway, Valencia, California.  We believe this
facility is adequately covered by insurance (except earthquake
coverage).





We also have the following properties:
(1) we own 4,500 square feet of office space in Shanghai, China - this property
is being used as Company’s project design and engineering center and partially
as rental property for lease to others, (2) we own 15,000 square feet of office
and distribution space through our subsidiary in Mexico, (3) we own 2,500 square
feet of office space in Taipei, Taiwan - currently leased to an unrelated
tenant, and (4) we lease 350 square feet of office space for sales and marketing
functions in Brazil, the lease expiring annually each year in May. We
believe these existing facilities are adequate for the foreseeable future and
have no plans to renovate or expand them.





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ITEM3.  LEGAL PROCEEDINGS.





In the
ordinary course of business, we may become involved in legal proceedings from
time to time.  As of the date of this report, we are not aware of any
material pending legal proceedings.





ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.





No
matters were submitted to a vote of security holders during the quarter ended
December 31, 2008.





PART
II





ITEM 5.
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY
SECURITIES.





Market
Information.Our Class A common stock is
traded on the Nasdaq Smallcap Market under the symbol "TAIT".  The
following table sets forth, for the periods indicated, the high and low closing
sale prices for our common stock, as reported by Nasdaq:





High
                          
                          
                          LowFiscal
      Year Ended December 31, 2007:First
      Quarter
                          
                          $
                          3.47
                          
                          
                          $
                          2.09Second
      Quarter
                          
                          
                          3.00
                          
                          
                          
                          2.50Third
      Quarter
                          
                          
                          2.66
                          
                          
                          
                          1.79Fourth
      Quarter
                          
                          
                          1.99
                          
                          
                          
                          1.31Fiscal
      Year Ended December 31, 2008:First
      Quarter
                          
                          $
                          1.87
                          
                          
                          $
                          1.33Second
      Quarter
                          
                          
                          1.54
                          
                          
                          
                          1.02Third
      Quarter
                          
                          
                          1.02
                          
                          
                          
                          0.78Fourth
      Quarter
                          
                          
                          0.89
                          
                          
                          
                          0.56Year
      Ended December 31, 2009:First
      Quarter (through March 2, 2009)
                          
                          $
                          1.04
                          
                          
                          $
                          0.82





On March
2, 2009, the last sale price of the Class A common stock as reported by Nasdaq
was $0.97 per share.





Holders.As
of March 2, 2009, there were 39 registered holders of our Class A common stock
(not including those holders whose shares of common stock are held in street
name) and one holder of our Class B common stock, which are not
traded.





Dividends and Dividend
Policy.The payment of future cash dividends
under the policy is subject to the continuing determination that the policy
remains in the best interest of our shareholders and complies with laws and any
agreements we may enter into applicable to the declaration and payment of cash
dividends.  The maintenance of the dividend policy will depend on
factors that we deem relevant, including our cash earnings, financial condition
and cash requirements in any given year.  Our ability to declare
dividends could be affected by a variety of factors affecting cash flow,
including required capital expenditures, increased or unanticipated expenses,
additional borrowings and future issuances of securities.  See
“Management’s Discussion and Analysis - Results of Operations; Liquidity and
Capital Resources.”





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Securities
authorized for issuance under equity compensation plans.





Equity
      Compensation Plan InformationNumber
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
                          
                          
                          Weighted-average
      exercise price of outstanding options, warrants and rights
                          
                          
                          Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities refliected in column
      (a))Plan
      Category
                          
                          (a)
                          
                          
                          (b)
                          
                          
                          (c)Equity
      compensation plans approved by security holders
                          
                          
                          453,167
                          
                          
                          $
                          1.81
                          
                          
                          
                          881,500Equity
      compensation plans not approved by security holders
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Total
                          
                          
                          453,167
                          
                          
                          $
                          1.81
                          
                          
                          
                          881,500





Unregistered Sales of Equity
Securities.                                                                           None.





Issuer Purchases of Equity
Securities.None.





ITEM
6.  SELECTED FINANCIAL DATA.     Not
Applicable.





ITEM 7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.





The
following discussion should be read in conjunction with the consolidated
financial statements, including the related notes, appearing in Item 8 of this
report.  Also, several of the matters discussed in this document
contain forward-looking statements that involve risks and
uncertainties.  Forward-looking statements usually are denoted by
words or phrases such as “believes,” “expects,” “projects,” “estimates,”
“anticipates,” “will likely result” or similar expressions.  We wish
to caution readers that all forward-looking statements are necessarily
speculative and not to place undue reliance on forward-looking statements, which
speak only as of the date made, and to advise readers that actual results could
vary due to a variety of risks and uncertainties.  Factors associated
with the forward-looking statements that could cause the forward-looking
statements to be inaccurate and could otherwise impact our future results are
set forth in detail in this report.





Critical
Accounting Policies and Estimates





Use of Estimates – We have made a
number of estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to prepare
our financial statements included in Item 8 of this report in accordance with
generally accepted accounting principles.  These estimates have a
significant impact on our valuation and reserve accounts relating to the
allowance for sales returns, doubtful accounts, inventory reserves and deferred
income taxes.  Actual results could differ from these
estimates.





Revenue Recognition – We recognize
revenue when we have evidence of an arrangement, a determinable fee, and when
collection is considered to be probable and products are
delivered,  This occurs  upon shipment of the merchandise,
which is when legal transfer of title occurs.  Reserves for sales
allowances and customer returns are established based upon historical experience
and our estimates of future returns.  Sales returns for the years
ended December 31, 2008 and 2007 aggregated $148,000 and $183,000,
respectively.  The allowance for sales returns and doubtful accounts
at December 31, 2008 aggregated $74,000.  We review the actual sales
returns and bad debts for our customers and establish an estimate of future
returns and allowance for doubtful accounts.





Inventory - Inventory, consisting
principally of products held for resale, is recorded at the lower of cost
(determined using the first in-first out method) or estimated market
value.  We had inventory balances in the amount of $13,926,000 at
December 31, 2008, which is presented net of valuation allowances of
$3,127,000.  We evaluate inventories to identify excess, high-cost,
slow-moving or other factors rendering inventories as unmarketable at normal
profit margins.  Due to the large number of transactions and the
complexity of managing and maintaining a large inventory of product offerings,
estimates are made regarding adjustments to the cost of
inventories.  If our assumptions about future demand change, or market
conditions are less favorable than those projected, additional write-downs of
inventories may be required.  In any case, actual amounts could be
different from those estimated.





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Our worldwide operations are subject to
local laws and regulations.  As such, of particular interest is the
European Union (“EU”) directive relating to the Restriction of Certain Hazardous
Substance (“RoHS”).  On July 1, 2006, this directive restricted the
distribution of products within the EU containing certain substances, including
lead.  At the present time, much of our inventory contains substances
prohibited by the RoHS directive.  Further, many of our suppliers are
not yet supplying RoHS compliant products.  The legislation is
effective and some of our inventory has become obsolete.  Management
has estimated the impact of the legislation and have written down or reserved
for related inventories based on amounts expected to be realized given all
available current information.  Actual amounts realized from the
ultimate disposition of related inventories could be different from those
estimated.





Deferred Taxes – We review the nature
of each component of our deferred income taxes for reasonableness.  If
determined that it is more likely than not that we will not realize all or part
of our net deferred tax assets in the future, we record a valuation allowance
against the deferred tax assets, which allowance will be charged to income tax
expense in the period of such determination.  We also consider the
scheduled reversal of deferred tax liabilities, tax planning strategies and
future taxable income in assessing the realizability of deferred tax
assets.  We also consider the weight of both positive and negative
evidence in determining whether a valuation allowance is
needed.  However, due to the continued net losses, we have fully
reserved a $1,491,000 allowance against our net deferred tax
assets.





In July 2006, the FASB issued FASB
Interpretation No. 48,
Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement
No. 109("FIN 48"), which clarifies the accounting and disclosure for
uncertainty in tax positions, as defined. FIN 48 seeks to reduce the diversity
in practice associated with certain aspects of the recognition and measurement
related to accounting for income taxes.  We adopted the provisions of
FIN 48 as of January 1, 2007, and have analyzed filing positions in each of the
federal and state jurisdictions where required to file income tax returns, as
well as all open tax years in these jurisdictions.  We have identified
the U.S. federal and California as our "major" tax
jurisdictions.  Generally, we remain subject to Internal Revenue
Service examination of our 2005 through 2007 U.S. federal income tax returns,
and remain subject to California Franchise Tax Board examination of our 2004
through 2007 California Franchise Tax Returns.  However, we have
certain tax attribute carryforwards which will remain subject to review and
adjustment by the relevant tax authorities until the statute of limitations
closes with respect to the year in which such attributes are
utilized.





We believe that our income tax filing
positions and deductions will be sustained on audit and do not anticipate any
adjustments that will result in a material change to our financial
position.  Therefore, no reserves for uncertain income tax positions
have been recorded pursuant to FIN 48.  In addition, we did not record
a cumulative effect adjustment related to the adoption of FIN 48.  Our
policy for recording interest and penalties associated with income-based tax
audits is to record such items as a component of income taxes.





Recent
Accounting Policies





In September 2006, the FASB issued SFAS
No. 157, “Fair Value
Measurements.”  This statement defines fair value, establishes
a framework for measuring fair value in generally accepted accounting
principles, and expands disclosure about fair value
measurements.  This statement does not require any new fair value
measurements.  This statement was effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years.  However, on December 14, 2007 the FASB
issued proposed FASB Staff Position (FSP) SFAS 157-b (FSP 157-b), which
partially delays the effective dates of SFAS 157 to fiscal years beginning after
November 15, 2008 and interim periods within those years.  Management
does not expect this statement will have a material impact on its financial
statements upon adoption.





In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, which
is an amendment of Accounting Research Bulletin (ARB) No. 51.  This
statement clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. This statement changes the way
the consolidated income statement is presented, thus requiring consolidated net
income to be reported at amounts that include the amounts attributable to both
parent and the noncontrolling interest.  This statement is effective
for the fiscal years, and interim periods within those fiscal years, beginning
on or after December 15, 2008.  Management is currently assessing the
impact that SFAS No. 160 will have on its financial statements.





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In December 2007, the FASB issued SFAS
No. 141 (revised 2007), “Business Combinations.” This statement replaces
FASB Statement No. 141, “Business Combinations.”  This statement retains
the fundamental requirements in SFAS 141 that the acquisition method of
accounting (which SFAS 141 called the purchase method) be used for all business
combinations and for an acquirer to be identified for each business combination.
 This statement defines the acquirer as the entity that obtains control of
one or more businesses in the business combination and establishes the
acquisition date as the date that the acquirer achieves control.  This
statement requires an acquirer to recognize the assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree at the acquisition
date, measured at their fair values as of that date, with limited exceptions
specified in the statement.  This statement applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008.  Management does not expect the adoption of SFAS 141R to
have a significant impact on its financial statements.





In
November 2008, the FASB ratified the Emerging Issues Task Force (EITF) consensus
on Issue No. 08-6, “Equity Method Investment Accounting Considerations” (EITF
08-6) which addresses certain effects of SFAS Nos. 141R and 160 on an entity’s
accounting for equity method investments.  The consensus indicates,
among other things, that transaction costs for an investment should be included
in the cost of the equity-method investment (and not expensed) and shares
subsequently issued by the equity-method investee that reduce the investor’s
ownership percentage should be accounted for as if the investor had sold a
proportionate share of its investment, with gains or losses recorded through
earnings.  EITF 08-6 is effective for us on transactions occurring
after December 31, 2008.  We do not expect this standard will have a
material impact on our financial statements upon adoption.





Overview





We distribute discrete semiconductors,
optoelectronic devices and passive components to other electronic distributors,
CEMs and OEMs, who incorporate them in their products and supply ODM products
for our customer’s multi-year turn-key projects.





We continue to be impacted by the
severe decline in demand for discrete semiconductors from the U.S. market, which
began in late 2000.  As a result, we have experienced declining sales
is such components since early 2001.  In response to this declining
demand, we placed emphasis on increasing our sales to existing customers through
further expansion of the number of different types of discrete components and
other integrated circuits in our inventory and by attracting additional contract
electronic manufacturers (CEMs), original equipment manufacturers (OEMs) and
electronics distributor customers.  In addition, over the last three
years we have developed our ODM service capabilities and added products
developed through partnership agreements with offshore solution providers (OEMs
and CEMs).  We now offer commodity Integrated Circuits (ICs) as an
extension of current discrete semiconductor lines in 2007.





Our core strategy still includes
maintaining a substantial inventory of electronic components that allows us to
fill customer orders immediately from stock held in
inventory.  However, since demand remained weak throughout 2008, we
continue to focus on lowering our inventory balances and changing our product
mix.  As a result, net inventory levels decreased throughout the year
by $296,000, including a non-cash provision of approximately $600,000 during
2008 to increase our inventory reserves for price declines, non-RoHS compliant
components and slow-moving inventory.  This provision is mainly used
to increase our inventory reserve to account for slow moving and excess
inventory.





In accordance with generally accepted
accounting principles, we have classified inventory as a current asset in our
December 31, 2008, consolidated financial statements representing approximately
83% of current assets and 61% of total assets.  However, if all or a
substantial portion of the inventory was required to be immediately liquidated,
the inventory would not be as readily marketable or liquid as other items
included or classified as a current asset, such as cash.  We cannot
assure you that demand in the discrete semiconductor market will increase and
that market conditions will improve.  Therefore, it is possible that
further declines in our carrying values of inventory may result.





Our gross profit margins are subject to
a number of factors, including product demand, the relative strength of the U.S.
dollar, provisions for inventory reserves, our ability to purchase inventory at
favorable prices and our sales product mix.





Results
of Operations




The
Year Ended December 31, 2008 Compared to the Year Ended December 31,
2007




Net sales were $7,197,000 and
$7,539,000 in 2008 and 2007, respectively, representing a decrease of $342,000
or 4.5%.  The decrease in net sales was primarily due to a domestic
decline in demand for our electronic discrete, passive and opto component
products which overall declined by $940,000 as compared to 2007, partially
offset primarily by increase in sales for our ICs and ODM products which
combined increased by $580,000 as compared with 2007.





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Gross margins were $1,901,000 and
$1,333,000 in 2008 and 2007, respectively, which represented 26.4% and 17.7% of
net sales for those periods.  The increase of $568,000 was primarily
attributed to the decrease of our provision for inventory reserves by $750,000,
when comparing $600,000 or 8.3% of net sales in 2008 with $1,350,000 or 17.9% of
net sales in the 2007.





Selling, general and administrative
expenses were $2,712,000 and $2,811,000 in 2008 and 2007, respectively, which
represented 37.7% and 37.3% of net sales for those periods.  The
decrease of $99,000 was primarily due to decreases in salaries and benefits
expenses by $49,000 and rent expenses by $21,000.





Operating losses were $811,000 and
$1,478,000 in 2008 and 2007, respectively, which represented 11.3% and 19.6% of
net sales for those periods.  Operating losses decreased primarily as
a result of higher gross margins discussed above related to declines in our
provision for inventory reserves.





Net interest expense was $1,000 and
$41,000 income for 2008 and 2007, respectively.  The decrease was due
to lower cash on hand levels during the year.





Income tax provision was $3,000 and
$1,000 in 2008 and 2007, respectively.  Our tax provision is primarily
based upon our state income tax liabilities.





We incurred net losses of $786,000 and
$1,406,000 in 2008 and 2007, respectively, which represented 10.9% and 18.7% of
net sales for those periods.  The losses are primarily due lower
margins discussed above and related to provisions for our inventory
reserves.





Liquidity
and Capital Resources





We historically have satisfied our
liquidity requirements through cash generated from operations, short-term
commercial loans, subordinated promissory notes and issuance of equity
securities.  A summary of our cash flows resulting from our operating,
investing and financing activities for the years ended December 31, 2008 and
2007 were as follows:





Year
      Ended December 31,2008
                  
                  
                  2007Operating
      activities
                  
                  $
                  499,000
                  
                  
                  $
                  (278,000
                  )Investing
      activities
                  
                  
                  (32,000
                  )
                  
                  
                  (786,000
                  )Financing
      activities
                  
                  
                  136,000
                  
                  
                  
                  (576,000
                  )





Cash flows provided by operating
activities increased to $499,000 during 2008, as compared to $278,000 used in
the prior year.  The increase in cash provided by operations was
primarily attributed to accounts receivable and inventory decreasing by $338,000
and $296,000, respectively, during 2008, as compared to increasing by $401,000
and $479,000, respectively, during 2007.





Cash flows used in investing activities
decreased to $32,000 during 2008, as compared to $786,000 in the prior
year.  Our 2008 investing outflows of $32,000 came from acquisitions
of property and equipment, compared with $78,000 in 2007.   Our
remaining 2007 outflows of $708,000 primarily came from investments in
marketable securities, real estate construction expenses and joint
ventures.





Cash flows provided by financing
activities were $136,000 in 2008 as compared to $576,000 used in the prior
year.  The increase in cash provided by financing was primarily
attributed to reducing our cash dividend of $277,000 in 2008, compared with
$552,000 in the prior year and the borrowing of $500,000 in notes payable during
2008.





We believe that funds generated from
operations, existing cash balances and short-term loans, are likely to be
sufficient to finance our working capital and capital expenditure requirements
for the foreseeable future.  If these funds are not sufficient, we may
secure new sources of asset-based lending on accounts receivables or issue debt
or equity securities.  Otherwise, we may need to liquidate assets to
generate the necessary working capital.





Inventory is included and classified as
a current asset.  As of December 31, 2008, inventory represented
approximately 81% of current assets and 61% of total assets.  However,
it is likely to take over one year for the inventory to turn and therefore is
likely not to be saleable within a one-year time frame.  Hence,
inventory would not be as readily marketable or liquid as other items included
in current assets, such as cash.





- 15
-
 Table of Contents





Off-Balance
Sheet Arrangements





We had no material off-balance sheet
arrangements that have, or are likely to have, a current or future material
effect on our operations.





ITEM
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.    Not applicable.





ITEM8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS





PageReport
      of Independent Registered Public Accounting Firm
                        17Consolidated
      Balance Sheets at December 31, 2008 and 2007
                        18Consolidated
      Statements of Operations for the Years Ended December 31, 2008 and
      2007
                        19Consolidated
      Statements of Shareholders’ Equity for the Years Ended December 31, 2008
      and 2007
                        20Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008 and
      2007
                        21Notes
      to Consolidated Financial Statements
                        22





- 16
-
 Table of Contents





Report
Of Independent Registered Public Accounting Firm





The Board
of Directors


Taitron
Components Incorporated:





We have
audited the accompanying consolidated balance sheets of Taitron Components
Incorporated (the “Company”) as of December 31, 2008 and 2007, and the related
consolidated statements of operations, shareholders’ equity and cash flows for
each of the years ended December 31, 2008 and 2007.  These
consolidated financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits include consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, 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.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing 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.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Taitron Components
Incorporated as of December 31, 2008 and 2007, and the consolidated results of
its operations and its cash flows for each of the years in the periods ended
December 31, 2008 and 2007, in conformity with accounting principles generally
accepted in the United States of America.








/s/
      HASKELL & WHITE LLP





Irvine,
California


March 30,
2009





- 17
-
 Table of Contents





TAITRON
COMPONENTS INCORPORATED




Consolidated
Balance Sheets







December
      31,2008
                  
                  
                  2007AssetsCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  1,762,000
                  
                  
                  $
                  1,111,000Trade
      accounts receivable, net
                  
                  
                  964,000
                  
                  
                  
                  1,450,000Inventory,
      net
                  
                  
                  13,926,000
                  
                  
                  
                  14,822,000Prepaid
      expenses and other current assets (Note 2)
                  
                  
                  565,000
                  
                  
                  
                  174,000Total
      current assets
                  
                  
                  17,217,000
                  
                  
                  
                  17,557,000Property
      and equipment, net (Note 3)
                  
                  
                  5,316,000
                  
                  
                  
                  5,532,000Other
      assets (Note 4)
                  
                  
                  236,000
                  
                  
                  
                  713,000Total
      assets
                  
                  $
                  22,769,000
                  
                  
                  $
                  23,802,000Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Trade
      accounts payable
                  
                  $
                  822,000
                  
                  
                  $
                  1,318,000Accrued
      liabilities
                  
                  
                  316,000
                  
                  
                  
                  294,000Current
      portion of long-term debt (Note 5)
                  
                  
                  89,000
                  
                  
                  
                  89,000Total
      current liabilities
                  
                  
                  1,227,000
                  
                  
                  
                  1,701,000Long-term
      debt, less current portion (Note 5)
                  
                  
                  832,000
                  
                  
                  
                  421,000Total
      liabilities
                  
                  
                  2,059,000
                  
                  
                  
                  2,122,000Commitments
      and contingencies (Notes 5, 8 and 11)Minority
      interest in subsidiary
                  
                  
                  251,000
                  
                  
                  
                  231,000Shareholders’
      equity:Preferred
      stock, $.001 par value.  Authorized 5,000,000
      shares;None
      issued or outstanding
                  
                  
                  -
                  
                  
                  
                  -Class
      A common stock, $.001 par value.  Authorized 20,000,000 shares;
      4,777,144 and 4,775,144 shares issued and outstanding at December 31, 2008
      and 2007, respectively.
                  
                  
                  5,000
                  
                  
                  
                  5,000Class
      B common stock, $.001 par value.  Authorized, issued and
      outstanding 762,612 shares
                  
                  
                  1,000
                  
                  
                  
                  1,000Additional
      paid-in capital
                  
                  
                  10,569,000
                  
                  
                  
                  10,544,000Accumulated
      other comprehensive income
                  
                  
                  92,000
                  
                  
                  
                  44,000Retained
      earnings
                  
                  
                  9,792,000
                  
                  
                  
                  10,855,000Total
      shareholders’ equity
                  
                  
                  20,459,000
                  
                  
                  
                  21,449,000Total
      liabilities and shareholders’ equity
                  
                  $
                  22,769,000
                  
                  
                  $
                  23,802,000








See
accompanying notes to consolidated financial statements.





- 18
-
 Table of Contents





TAITRON
COMPONENTS INCORPORATED




Consolidated
Statements of Operations







Year
      ended December 31,2008
                  
                  
                  2007Net
      sales
                  
                  $
                  7,197,000
                  
                  
                  $
                  7,539,000Cost
      of goods sold
                  
                  
                  5,296,000
                  
                  
                  
                  6,206,000Gross
      profit
                  
                  
                  1,901,000
                  
                  
                  
                  1,333,000Selling,
      general and administrative expenses
                  
                  
                  2,712,000
                  
                  
                  
                  2,811,000Operating
      loss
                  
                  
                  (811,000
                  )
                  
                  
                  (1,478,000
                  )Interest
      (expense) income, net
                  
                  
                  (1,000
                  )
                  
                  
                  41,000Other
      income, net
                  
                  
                  29,000
                  
                  
                  
                  32,000Loss
      before income taxes
                  
                  
                  (783,000
                  )
                  
                  
                  (1,405,000
                  )Income
      tax provision
                  
                  
                  (3,000
                  )
                  
                  
                  (1,000
                  )Net
      loss
                  
                  $
                  (786,000
                  )
                  
                  $
                  (1,406,000
                  )Other
      comprehensive income:Foreign
      currency translation adjustment
                  
                  
                  48,000
                  
                  
                  
                  24,000Comprehensive
      loss
                  
                  $
                  (738,000
                  )
                  
                  $
                  (1,382,000
                  )Net
      loss per share:  Basic & Diluted
                  
                  $
                  (0.14
                  )
                  
                  $
                  (0.25
                  )Weighted
      average common shares outstanding:  Basic &
      Diluted
                  
                  
                  5,539,756
                  
                  
                  
                  5,532,825








See
accompanying notes to consolidated financial statements.





- 19
-
 Table of Contents





TAITRON
COMPONENTS INCORPORATED




Consolidated
Statements of Shareholders’ Equity




Two years
ended December 31, 2008









AccumulatedOther
                
                
                
                
                
                TotalClass
      A common stock
                
                
                Class
      B common stock
                
                
                Additional
                
                
                Comprehensive
                
                
                Retained
                
                
                Shareholders’Shares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Paid-in capital
                
                
                Income (Loss)
                
                
                Earnings
                
                
                EquityBalances
      at December 31, 2006
                
                
                4,716,811
                
                
                $
                5,000
                
                
                
                762,612
                
                
                $
                1,000
                
                
                $
                10,457,000
                
                
                $
                20,000
                
                
                $
                12,813,000
                
                
                $
                23,296,000Issuances
      of common stock
                
                
                58,333
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                64,000
                
                
                
                -
                
                
                
                -
                
                
                
                64,000Amortization
      of stock based compensation
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                23,000
                
                
                
                -
                
                
                
                -
                
                
                
                23,000Dividend
      payments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (552,000
                )
                
                
                (552,000
                )Comprehensive
      loss:Foreign
      currency translation adjustment
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                24,000
                
                
                
                -
                
                
                
                24,000Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,406,000
                )
                
                
                (1,406,000
                )Comprehensive
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,382,000
                )Balances
      at December 31, 2007
                
                
                4,775,144
                
                
                $
                5,000
                
                
                
                762,612
                
                
                $
                1,000
                
                
                $
                10,544,000
                
                
                $
                44,000
                
                
                $
                10,855,000
                
                
                $
                21,449,000Issuances
      of common stock
                
                
                2,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,000
                
                
                
                -
                
                
                
                -
                
                
                
                2,000Amortization
      of stock based compensation
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                23,000
                
                
                
                -
                
                
                
                -
                
                
                
                23,000Dividend
      payments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (277,000
                )
                
                
                (277,000
                )Comprehensive
      loss:Foreign
      currency translation adjustment
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                48,000
                
                
                
                -
                
                
                
                48,000Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (786,000
                )
                
                
                (786,000
                )Comprehensive
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (738,000
                )Balances
      at December 31, 2008
                
                
                4,777,144
                
                
                $
                5,000
                
                
                
                762,612
                
                
                $
                1,000
                
                
                $
                10,569,000
                
                
                $
                92,000
                
                
                $
                9,792,000
                
                
                $
                20,459,000







See
accompanying notes to consolidated financial statements.





- 20
-
 Table of Contents





TAITRON
COMPONENTS INCORPORATED




Consolidated
Statements of Cash Flows







Year
      ended December 31,2008
                            
                            
                            2007Cash
      flows from operating activities:Net
      loss
                            
                            $
                            (786,000
                            )
                            
                            $
                            (1,406,000
                            )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                            
                            
                            248,000
                            
                            
                            
                            280,000Provision
      for inventory reserve
                            
                            
                            600,000
                            
                            
                            
                            1,350,000Provision
      for sales returns and doubtful accounts
                            
                            
                            148,000
                            
                            
                            
                            198,000Stock
      based compensation
                            
                            
                            23,000
                            
                            
                            
                            23,000Changes
      in assets and liabilities:Trade
      accounts receivable
                            
                            
                            338,000
                            
                            
                            
                            (401,000
                            )Inventory
                            
                            
                            296,000
                            
                            
                            
                            (479,000
                            )Prepaid
      expenses and other current assets
                            
                            
                            (391,000
                            )
                            
                            
                            (69,000
                            )Other
      assets
                            
                            
                            477,000
                            
                            
                            
                            (17,000
                            )Trade
      accounts payable
                            
                            
                            (496,000
                            )
                            
                            
                            98,000Accrued
      liabilities
                            
                            
                            42,000
                            
                            
                            
                            145,000Total
      adjustments
                            
                            
                            1,285,000
                            
                            
                            
                            1,128,000Net
      cash provided by (used in) operating activities
                            
                            
                            499,000
                            
                            
                            
                            (278,000
                            )Cash
      flows from investing activities:Acquisition
      of property and equipment
                            
                            
                            (32,000
                            )
                            
                            
                            (78,000
                            )Real
      estate acquisition under construction
                            
                            
                            -
                            
                            
                            
                            (108,000
                            )Investments
      in land purchase contracts
                            
                            
                            -
                            
                            
                            
                            (147,000
                            )Investments
      in joint ventures
                            
                            
                            -
                            
                            
                            
                            (148,000
                            )Investments
      in marketable securities
                            
                            
                            -
                            
                            
                            
                            (305,000
                            )Net
      cash used in investing activities
                            
                            
                            (32,000
                            )
                            
                            
                            (786,000
                            )Cash
      flows from financing activities:Borrowing
      on notes payable
                            
                            
                            500,000
                            
                            
                            
                            -(Payments)
      on notes payable
                            
                            
                            (89,000
                            )
                            
                            
                            (88,000
                            )Dividend
      payments
                            
                            
                            (277,000
                            )
                            
                            
                            (552,000
                            )Exercise
      of Class A common stock options
                            
                            
                            2,000
                            
                            
                            
                            64,000Net
      cash provided by (used in) financing activities
                            
                            
                            136,000
                            
                            
                            
                            (576,000
                            )Impact
      of exchange rates on cash
                            
                            
                            48,000
                            
                            
                            
                            24,000Net
      increase (decrease) in cash and cash equivalents
                            
                            
                            651,000
                            
                            
                            
                            (1,616,000
                            )Cash
      and cash equivalents, beginning of year
                            
                            
                            1,111,000
                            
                            
                            
                            2,727,000Cash
      and cash equivalents, end of year
                            
                            $
                            1,762,000
                            
                            
                            $
                            1,111,000Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                            
                            $
                            41,000
                            
                            
                            $
                            39,000Cash
      paid for income taxes, net
                            
                            $
                            1,000
                            
                            
                            $
                            1,000








See
accompanying notes to consolidated financial statements.





- 21
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TAITRON
COMPONENTS INCORPORATED




Notes to
Consolidated Financial Statements







1  -  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES




Principles
of Consolidation





The
consolidated financial statements include the accounts of the Company, its
various wholly-owned subsidiaries and its 60% majority-owned subsidiary, Taitron
Components Mexico, SA de CV.  All significant intercompany
transactions and balances have been eliminated in consolidation.  The
ownership interests of the minority investors in Taitron Components Mexico, SA
de CV are recorded in the accompanying consolidated balance sheet as minority
interests, which have a balance of $251,000 as of December 31,
2008.





Concentration
of Risk





A
significant number of the products distributed by the Company are manufactured
in Taiwan, Hong Kong, China, South Korea and the Philippines.  The
purchase of goods manufactured in foreign countries is subject to a number of
risks, including economic disruptions, transportation delays and interruptions,
foreign exchange rate fluctuations, imposition of tariffs and import and export
controls and changes in governmental policies, any of which could have a
material adverse effect on the Company’s business and results of
operations.





The
ability to remain competitive with respect to the pricing of imported components
could be adversely affected by increases in tariffs or duties, changes in trade
treaties, strikes in air or sea transportation, and possible future U.S.
legislation with respect to pricing and import quotas on products from foreign
countries.  For example, it is possible that political or economic
developments in China, or with respect to the relationship of the United States
with China, could have an adverse effect on the Company’s
business.  The Company’s ability to remain competitive could also be
affected by other government actions related to, among other things,
anti-dumping legislation and international currency
fluctuations.  While the Company does not believe that any of these
factors adversely impact its business at present, the Company cannot provide
assurance that these factors will not materially adversely affect the Company in
the future.  Any significant disruption in the delivery of merchandise
from the Company’s suppliers, substantially all of whom are foreign, could also
have a material adverse impact on the Company’s business and results of
operations.  Management estimates that over 90% of the Company’s
products were produced in Asia.





Samsung
Electro-Mechanics Co. and Everlight Electronics Co, Ltd., together accounted for
approximately 27% and 30% of all Taitron’s net purchases for fiscal years 2008
and 2007, respectively.  However, Taitron does not regard any one
supplier as essential to its operations, since equivalent replacements for most
of the products Taitron markets are either available from one or more of
Taitron’s other suppliers or are available from various other sources at
competitive prices.  Taitron believes that, even if it loses its
direct relationship with a supplier, there exist alternative sources for a
supplier’s products.





For the
year ended December 31, 2008 two customers accounted for 11% and 8% of our net
sales.  For the year ended December 31, 2007 two customers accounted
for 8% and 6% of our net sales.  As of December 31, 2008, two
customers accounted for 19% and 17% of our trade receivables.  As of
December 31, 2007, two customers accounted for 23% and 10% of our trade
receivables.





- 22
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Cash
and Cash Equivalents





The
Company considers all highly liquid investments with an original maturity of 90
days or less to be cash equivalents and maintains cash balances in multiple
accounts at multiple banks.  Accounts at our primary domestic
financial institution are non-interest-bearing transaction accounts and as such,
are 100% insured by the Federal Deposit Insurance Corporation (“FDIC”) under the
FDIC's Transaction Account Guarantee Program, and will continue through December
31, 2009. Our cash held in a money market investment account exceeds
insurance limits.  Our foreign accounts are not insured, however,
management does not believe that there is a significant credit risk with respect
to the non-performance of these institutions based on their respective
creditworthiness and liquidity.





Revenue
Recognition





The
Company recognizes revenue when it has evidence of an arrangement, a
determinable fee, and when collection is considered to be probable and products
are delivered.  This occurs upon shipment of the merchandise, which is
when legal transfer of title occurs.  Reserves for sales allowances
and customer returns are established based upon historical experience and
management’s estimates of future returns.  Sales returns for the years
ended December 31, 2008 and 2007 aggregated $148,000 and $183,000,
respectively.





Allowance
for Sales Returns and Doubtful Accounts





On a
case-by-case basis, the Company accepts returns of products from its customers,
without restocking charges, when they can demonstrate an acceptable cause for
the return.  Requests by a distributor to return products purchased
for its own inventory generally are not included under this
policy.  The Company will, on a case-by-case basis, accept returns of
products upon payment of a restocking fee, which is generally 10% to 30% of the
net sales price.  The Company will not accept returns of any products
that were special-ordered by a customer or that otherwise are not generally
included in our inventory.  The allowance for sales returns and
doubtful accounts at December 31, 2008 aggregated $74,000.





Inventory





Inventory,
consisting principally of products held for resale, is stated at the lower of
cost, using the first-in, first-out method, or market.  The amount
presented in the accompanying consolidated balance sheet is net of valuation
allowances of $3,127,000 and $2,506,000 at December 31, 2008 and 2007,
respectively.  The Company uses a systematic methodology that includes
regular evaluations of inventory to identify costs in excess of the lower of
cost or market and slow-moving inventory.





Depreciation
and Amortization





Depreciation
and amortization of property and equipment are computed principally using
accelerated and straight-line methods using lives from 5 to 7 years for
furniture, machinery and equipment and 31.5 years for building and building
improvements.  Property and equipment amortized using an accelerated
method does not result in a material difference over the straight-line
method.  Renewals and betterments, which extend the life of an
existing asset, are capitalized while normal repairs and maintenance costs are
expensed as incurred.





Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed Of





Long-lived
assets and certain identifiable intangibles are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.  Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset.  If these assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair value of the
assets.  Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.





Stock-Based
Compensation





Effective
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
“Share-Based Payment” (SFAS 123R)  using the “modified prospective
application.”.  SFAS 123R requires that the Company account for all
stock-based compensation using a fair-value method and recognize the fair value
of each award as an expense over the service period.





- 23
-
 Table of Contents





Income
Taxes





The
Company accounts for income taxes under the asset and liability
method.  Deferred tax assets and liabilities are recognized for future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which the
temporary differences are expected to be recovered or settled.  The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.  Valuation allowances are recorded, when necessary, to reduce
deferred tax assets to the amount expected to be realized.





In July
2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes--an interpretation of FASB Statement No. 109("FIN 48"),
which clarifies the accounting and disclosure for uncertainty in tax positions,
as defined. FIN 48 seeks to reduce the diversity in practice associated with
certain aspects of the recognition and measurement related to accounting for
income taxes.  We adopted the provisions of FIN 48 as of January 1,
2007, and have analyzed filing positions in each of the federal and state
jurisdictions where required to file income tax returns, as well as all open tax
years in these jurisdictions.  We have identified the U.S. federal and
California as our "major" tax jurisdictions.  Generally, we remain
subject to Internal Revenue Service examination of our 2005 through 2007 U.S.
federal income tax returns, and remain subject to California Franchise Tax Board
examination of our 2004 through 2007 California Franchise Tax
Returns.  However, we have certain tax attribute carryforwards which
will remain subject to review and adjustment by the relevant tax authorities
until the statute of limitations closes with respect to the year in which such
attributes are utilized.





We
believe that our income tax filing positions and deductions will be sustained on
audit and do not anticipate any adjustments that will result in a material
change to our financial position.  Therefore, no reserves for
uncertain income tax positions have been recorded pursuant to FIN
48.  In addition, we did not record a cumulative effect adjustment
related to the adoption of FIN 48.  Our policy for recording interest
and penalties associated with income-based tax audits is to record such items as
a component of income taxes.





Financial
Instruments





The
estimated fair values of cash and cash equivalents, accounts receivable,
accounts payable, and accrued liabilities approximate their carrying value
because of the short-term maturity of these instruments.  The
estimated fair value of long-term debt approximates its carrying value because
the interest rate associated with the instrument fluctuates with market
conditions.  All financial instruments are held for purposes other
than trading.





Net
Loss Per Share





Basic
loss per share is computed by dividing net loss available to common shareholders
by the weighted average number of common shares outstanding during the
period.  Common equivalent shares, consisting primarily of stock
options, of approximately 370,000 and 384,000 for the years ended December 31,
2008 and 2007, respectively, are excluded from the computation of diluted loss
per share as their effect is anti-dilutive.





Foreign
Currency Translation





The
financial statements of the Company’s majority-owned subsidiary in Mexico and
divisions in Taiwan, Brazil and China, which were established in 1998, 1997,
1996 and 2005, respectively, are translated into U.S. dollars for financial
reporting purposes.  Balance sheet accounts are translated at year-end
or historical rates while income and expenses are translated at weighted-average
exchange rates for the year.  Translation gains or losses related to
net assets are shown as a separate component of shareholders’ equity as
accumulated other comprehensive income.  Gains and losses resulting
from realized foreign currency transactions (transactions denominated in a
currency other than the entities’ functional currency) are included in
operations.  The transactional gains and losses are not significant to
the consolidated financial statements.





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Use
of Estimates





The
Company’s management has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
accounting principles generally accepted in the United States of
America.  These estimates have a significant impact on the Company’s
valuation and reserve accounts relating to the allowance for sales returns,
doubtful accounts and inventory reserves.  Actual results could differ
from these estimates.





Reclassifications





Certain
reclassifications have been made to the prior years’ financial statements
in order to conform to the current year presentation.  Such
reclassifications are immaterial to both current and all previously issued
financial statements taken as a whole and had no effect on previously reported
results of operations.





Business
Segments




We
operate in one industry, the business of providing distribution and value-added
services for electronic components. Management designates the internal
reporting used by the chief executive officer for making decisions and assessing
performance as the source of our reportable segments. See Note 12 to
the consolidated financial statements Geographic Information, for
additional information.




Recent
Accounting Pronouncements





In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.”  This statement defines fair value, establishes
a framework for measuring fair value in generally accepted accounting
principles, and expands disclosure about fair value
measurements.  This statement does not require any new fair value
measurements.  This statement was effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years.  However, on December 14, 2007 the FASB
issued proposed FASB Staff Position (FSP) SFAS 157-b (FSP 157-b), which
partially delays the effective dates of SFAS 157 to fiscal years beginning after
November 15, 2008 and interim periods within those years.  Management
does not expect this statement will have a material impact on its financial
statements upon adoption.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which is an amendment of Accounting Research
Bulletin (ARB) No. 51.  This statement clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial
statements. This statement changes the way the consolidated income
statement is presented, thus requiring consolidated net income to be reported at
amounts that include the amounts attributable to both parent and the
noncontrolling interest.  This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  Management is currently assessing the impact that
SFAS No. 160 will have on its financial statements.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations.” This statement replaces FASB Statement No. 141, “Business
Combinations.”  This statement retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which SFAS 141 called
the purchase method) be used for all business combinations and for an acquirer
to be identified for each business combination.  This statement defines the
acquirer as the entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the date that the
acquirer achieves control.  This statement requires an acquirer to
recognize the assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree at the acquisition date, measured at their fair values
as of that date, with limited exceptions specified in the statement.  This
statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  Management does not
expect the adoption of SFAS 141R to have a significant impact on its financial
statements.





In
November 2008, the FASB ratified the Emerging Issues Task Force (EITF) consensus
on Issue No. 08-6, “Equity Method Investment Accounting Considerations” (EITF
08-6) which addresses certain effects of SFAS Nos. 141R and 160 on an entity’s
accounting for equity method investments.  The consensus indicates,
among other things, that transaction costs for an investment should be included
in the cost of the equity-method investment (and not expensed) and shares
subsequently issued by the equity-method investee that reduce the investor’s
ownership percentage should be accounted for as if the investor had sold a
proportionate share of its investment, with gains or losses recorded through
earnings.  For the Company, EITF 08-6 is effective for transactions
occurring after December 31, 2008.  Management does not expect this
standard will have a material impact on its financial statements upon
adoption.





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2  -  PREPAID
EXPENSES AND OTHER CURRENT ASSETS





Includes
$349,000 for 1,000,000 preferred shares in Zowie Technology Corporation, a
manufacturer of discrete semiconductors and also our supplier of electronic
component products, as we have exercised our rights for redemption as of
December 31, 2008.  Also includes $147,000 in our investment in land
purchase contract, of which we expect to be refunded within one
year.





3  -  PROPERTY
AND EQUIPMENT





Property
and equipment, at cost, is summarized as follows:




December
      31,2008
                          
                          
                          2007Land
                          
                          $
                          1,297,000
                          
                          
                          $
                          1,297,000Buildings
      and improvements
                          
                          
                          5,123,000
                          
                          
                          
                          5,080,000Furniture
      and equipment
                          
                          
                          981,000
                          
                          
                          
                          959,000Computer
      software and equipment
                          
                          
                          2,318,000
                          
                          
                          
                          2,311,000Total
      Property and Equipment
                          
                          
                          9,719,000
                          
                          
                          
                          9,647,000Less:
      Accumulated depreciation and amortization
                          
                          
                          (4,403,000
                          )
                          
                          
                          (4,115,000
                          )Property
      and Equipment, net
                          
                          $
                          5,316,000
                          
                          
                          $
                          5,532,000


4  -  OTHER
ASSETS





Other
assets is summarized as follows:





December
      31,2008
                        
                        
                        2007Investment
      in securitites
                        
                        $
                        68,000
                        
                        
                        $
                        395,000Investment
      in land purchase contract
                        
                        
                        -
                        
                        
                        
                        147,000Investment
      in joint venture
                        
                        
                        147,000
                        
                        
                        
                        147,000Other
                        
                        
                        21,000
                        
                        
                        
                        24,000Other
      Assets
                        
                        $
                        236,000
                        
                        
                        $
                        713,000





Our
$68,000 investment in securities as of December 31, 2008 relates to 154,808
shares of Zowie Technology Corporation, a manufacturer of discrete
semiconductors and also a supplier of our electronic component
products.  This investment is accounted for under the cost method
basis of accounting.





Our
$147,000 investment in joint venture as of December 31, 2008, relates to our 49%
ownership of Taiteam (Yangzhou) Technology Corporation Limited, a joint venture
with its 51% owner, Full Harvest Development Limited.  This joint
venture is not considered to be a “Variable Interest Entity”, as defined under
FAS Interpretation No. 46R, and as such, is accounted for under the equity
method basis of accounting.  This joint venture is not operational and
as such, there has been no activity in this joint venture during
2008.





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5  -  LONG-TERM
DEBT





Long-term
debt consists of the following:





December
      31,2008
                    
                    
                    2007Bank
      loan
                    
                    $
                    421,000
                    
                    
                    $
                    510,000Less
      current portion
                    
                    
                    (89,000
                    )
                    
                    
                    (89,000
                    )Subtotal
                    
                    $
                    332,000
                    
                    
                    $
                    421,000Secured
      credit facility - related party
                    
                    
                    500,000
                    
                    
                    
                    -Long-term
      debt, less current portion
                    
                    $
                    832,000
                    
                    
                    $
                    421,000





Bank loan
- On September 29, 2006, the Company borrowed $620,000 in connection with its
acquisition of approximately 4,500 square feet of office space (consisting of 2
separate units on the same floor) in Shanghai, China with a total purchase price
of $1,230,000.  The loan is collateralized by the underlying real
property, payable in fixed monthly principal installments of $7,381, plus
interest at the rate of one year LIBOR + 1.8% per annum, due September 20,
2013.





Secured
credit facility - On April 21, 2008 we secured $3,000,000 credit facility from
K.S. Best International Co. Ltd., a company controlled by the brother of our
Chief Executive Officer, maturing on April 21, 2011.  Credit is
available in $500,000 advances, each advance payable in monthly interest only
installments, at the rate of Prime + 0.25% per annum with entire principal
amount outstanding due two years from the date of each advance or April 21,
2011, whichever is earlier.  On June 3, 2008, we borrowed $500,000 due
June 3, 2010.





6  -  SHAREHOLDER’S
EQUITY


Preferred
Stock - There are 5,000,000 shares of authorized preferred stock, par value
$.001 per share, with no shares of preferred stock outstanding.  The
terms of the shares are subject to the discretion of the Board of
Directors.





Class A
Common Stock - There are 20,000,000 shares of authorized Class A common stock,
par value $.001 per share, with 4,777,144 and 4,775,144 issued and outstanding
as of December 31, 2008 and 2007, respectively.  Each holder of Class
A common stock is entitled to one vote for each share held.  During
2008 and 2007, the Company did not repurchase any shares of its Class A common
stock.  However, the Company issued 2,000 and 58,333 shares of common
stock upon the exercise of stock options during 2008 and 2007, respectively
(Note 9).





Class B
Common Stock - There are 762,612 shares of authorized Class B common stock, par
value $.001 per share, with 762,612 shares issued and outstanding as of December
31, 2008 and 2007.  Each holder of Class B common stock is entitled to
ten votes for each share held.  The shares of Class B common stock are
convertible at any time at the election of the shareholder into one share of
Class A common stock, subject to certain adjustments.  The Company’s
Chief Executive Officer is the sole beneficial owner of all the outstanding
shares of Class B common stock.





Dividends
- On March 28, 2008, the Board of Directors declared an annual cash dividend of
$0.05 per share of Class A and Class B common stock, payable to shareholders of
record at the close of business on April 15, 2008.  The total dividend
amount paid for the year ended December 31, 2008 was $277,000.





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7  -  INCOME
TAXES





Income
tax provision is summarized as follows:





Year
      Ended December 31,2008
                    
                    
                    2007Current:Federal
                    
                    $
                    -
                    
                    
                    $
                    -State
                    
                    
                    3,000
                    
                    
                    
                    1,0003,000
                    
                    
                    
                    1,000Deferred:Federal
                    
                    
                    (196,000
                    )
                    
                    
                    (408,000
                    )State
                    
                    
                    (54,000
                    )
                    
                    
                    (112,000
                    )Increase
      in valuation allowance
                    
                    
                    250,000
                    
                    
                    
                    520,000-
                    
                    
                    
                    -Income
      tax provision
                    
                    $
                    3,000
                    
                    
                    $
                    1,000





The
actual income tax provision differs from the “expected” tax computed by applying
the Federal corporate tax rate of 34% to the loss before income taxes as
follows:





Year
      Ended December 31,2008
                  
                  
                  2007“Expected”
      income tax expense (benefit)
                  
                  $
                  (250,000
                  )
                  
                  $
                  (468,000
                  )State
      tax expense, net of Federal benefit
                  
                  
                  2,000
                  
                  
                  
                  1,000Foreign
      (income) loss
                  
                  
                  -
                  
                  
                  
                  (16,000
                  )Increase
      in valuation allowance
                  
                  
                  250,000
                  
                  
                  
                  520,000Other
                  
                  
                  1,000
                  
                  
                  
                  (36,000
                  )Income
      tax provision
                  
                  $
                  3,000
                  
                  
                  $
                  1,000





The tax
effects of temporary differences which give rise to significant portions of the
deferred taxes are summarized as follows:





December
      31,2008
                      
                      
                      2007Deferred
      tax assets:Inventory
      reserves
                      
                      $
                      1,340,000
                      
                      
                      $
                      1,074,000Section
      263a adjustment
                      
                      
                      90,000
                      
                      
                      
                      90,000Allowances
      for bad debts and returns
                      
                      
                      32,000
                      
                      
                      
                      31,000Accrued
      expenses
                      
                      
                      18,000
                      
                      
                      
                      16,000Asset
      valuation reserve
                      
                      
                      57,000
                      
                      
                      
                      56,000State
      net operating loss carry forward
                      
                      
                      61,000
                      
                      
                      
                      60,000Other
                      
                      
                      24,000
                      
                      
                      
                      27,000Total
      deferred tax assets
                      
                      
                      1,622,000
                      
                      
                      
                      1,354,000Valuation
      allowance
                      
                      
                      (1,491,000
                      )
                      
                      
                      (1,241,000
                      )131,000
                      
                      
                      
                      113,000Deferred
      tax liabilities:Deferred
      state taxes
                      
                      
                      (131,000
                      )
                      
                      
                      (113,000
                      )Net
      deferred tax assets
                      
                      $
                      -
                      
                      
                      $
                      -





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As of
December 31, 2008, the Company had approximately $4,000 and $682,000 in net
operating loss carryforwards for federal and state income tax purposes,
respectively.  In assessing the realizability of the deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be
realized.  Management considers the scheduled reversal of deferred tax
assets, the level of historical taxable income and tax planning strategies in
making the assessment of the realizability of deferred tax assets.  We
have identified the U.S. federal and California as our "major" tax jurisdiction
and generally, we remain subject to Internal Revenue Service examination of our
2005 through 2007 U.S. federal income tax returns, and remain subject to
California Franchise Tax Board examination of our 2004 through 2007 California
Franchise Tax Returns.





As a
result of the implementation of FIN 48, we recognized no material adjustment to
unrecognized tax benefits.  At the adoption date of January 1, 2007,
we had $795,000 of unrecognized tax benefits, all of which would affect our
effective tax rate if recognized.  At December 31, 2008 we have
$1,491,000 of unrecognized tax benefits.





8  -  401(k)
PROFIT SHARING PLAN





In
January 1995, the Company implemented a defined contribution profit sharing plan
pursuant to Section 401(k) of the Internal Revenue Code (the Code) covering all
employees of the Company.  Participants once eligible, as defined by
the plan, may contribute up to the maximum allowed under the
Code.  The plan also provides for safe harbor matching contributions,
vesting immediately, at the discretion of the Company.  For the years
ended December 31, 2008 and 2007, employer matching contributions aggregated
approximately $33,000 and $37,000, respectively.





Participants
in the plan, through self-directed brokerage accounts, held 156,354 shares in
Class A common stock of the Company at December 31, 2008.  The Plan
does not offer new issues of common stock of the Company as an investment
option.





9  -  STOCK
OPTIONS





The
Company’s2005 Stock
Incentive Plan (the “Plan”) authorizes
the issuance of up to 1,000,000 shares pursuant to options or awards granted
under the plan.  Under the Plan, incentive stock and
nonstatutory options were granted at prices equal to at least the fair market
value of the Company’s Class A common stock at the date of
grant.  Outstanding options vest in three equal annual installments
beginning one year from the date of grant and are subject to termination
provisions as defined in the Plan.  The fair value of options using
the Black-Scholes option-pricing model with the following weighted average
assumptions was as follows for 2008 and 2007: dividend yield of 2%; expected
volatility of 33%; a risk free interest rate of approximately 4.4% and an
expected holding period of five years.





Stock
option activity during the periods indicated is as follows:





Number
                    of Shares
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                  
                  
                  Weighted
                    Average
                    Years
                    Remaining
                    Contractual
                    Term
                  
                  
                  Aggregate
                    Intrinsic
                    Value
                  
                  
                  Weighted
                    Average
                    Fair
                    ValueOutstanding
      at December 31, 2006
                  
                  
                  502,000
                  
                  
                  $
                  1.82
                  
                  
                  
                  5.28
                  
                  
                  $
                  296,000Exercised
                  
                  
                  (58,333
                  )
                  
                  
                  1.11
                  
                  
                  
                  -
                  
                  
                  
                  -Forfeited
                  
                  
                  (29,500
                  )
                  
                  
                  2.95
                  
                  
                  
                  -
                  
                  
                  
                  -Outstanding
      at December 31, 2007
                  
                  
                  414,167
                  
                  
                  
                  1.84
                  
                  
                  
                  4.41
                  
                  
                  
                  106,000Granted
                  
                  
                  51,000
                  
                  
                  
                  1.63
                  
                  
                  
                  7.26
                  
                  
                  
                  -
                  
                  
                  $
                  0.47Exercised
                  
                  
                  (2,000
                  )
                  
                  
                  1.00
                  
                  
                  
                  -
                  
                  
                  
                  -Forfeited
                  
                  
                  (10,000
                  )
                  
                  
                  2.40
                  
                  
                  
                  -
                  
                  
                  
                  -Outstanding
      at December 31, 2008
                  
                  
                  453,167
                  
                  
                  
                  1.81
                  
                  
                  
                  3.64
                  
                  
                  
                  -Exercisable
      at December 31, 2008
                  
                  
                  380,500
                  
                  
                  
                  1.79
                  
                  
                  
                  3.00
                  
                  
                  
                  -





At
December 31, 2008, the range of individual weighted average exercise prices was
$1.71 to $2.45.





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10  -  NET
LOSS PER SHARE





The
following data shows a reconciliation of the numerators and the denominators
used in computing loss per share and the weighted average number of shares of
dilutive potential common stock.





Year
      ended December 31,2008
                  
                  
                  2007Net
      loss available to common shareholders used in basic and diluted loss per
      share
                  
                  $
                  (786,000
                  )
                  
                  $
                  (1,406,000
                  )Weighted
      average number of common shares used in basic loss per
    share
                  
                  
                  5,539,673
                  
                  
                  
                  5,532,825Basic
      loss per share
                  
                  $
                  (0.14
                  )
                  
                  $
                  (0.25
                  )Effect
      of dilutive securities:Options
                  
                  
                  -
                  
                  
                  
                  -Weighted
      average number of common shares and dilutive potential common shares used
      in diluted loss per share
                  
                  
                  5,539,673
                  
                  
                  
                  5,532,825Diluted
      loss per share
                  
                  $
                  (0.14
                  )
                  
                  $
                  (0.25
                  )





11  -  COMMITMENTS
AND CONTINGENCIES





Legal and Regulatory
Proceedings


The
Company is engaged in various legal and regulatory proceedings incidental to its
normal business activities, none of which, individually or in the aggregate, are
deemed to be a material risk to its financial condition.





Inventory
Purchasing


Outstanding
commitments to purchase inventory from suppliers aggregated $760,000 as of
December 31, 2008.





Software
Upgrade


The
Company is in process of upgrading its Oracle ERP software to a current version
and has outstanding commitments for professional consulting services that
aggregated $38,000 as of December 31, 2008.





Regulation


Effective
July 1, 2006, the European Union (“EU”) directive relating to the Restriction of
Certain Hazardous Substance (“RoHS”) restricted the distribution of products
within the EU containing certain substances, including lead.  At the
present time, much of our inventory contains substances prohibited by the RoHS
directive and some of our inventory may become obsolete and unsaleable and, as a
result, have to be written off.





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12  -  GEOGRAPHIC
INFORMATION







The
following table presents summary geographic information about revenues and
long-lived assets (land and property, net of accumulated depreciation)
attributed to countries based upon location of our customers:





Year
      ended
                        December
      31,
                        2008
                      
                      
                      December
      31,
                        2008Long-livedRevenues
                      
                      
                      AssetsUnited
      States
                      
                      $
                      4,425,000
                      
                      
                      $
                      3,617,000Mexico
                      
                      
                      1,173,000
                      
                      
                      
                      184,000Brazil
                      
                      
                      368,000
                      
                      
                      
                      -Taiwan
                      
                      
                      311,000
                      
                      
                      
                      297,000China
                      
                      
                      136,000
                      
                      
                      
                      1,218,000Canada
                      
                      
                      26,000
                      
                      
                      
                      -Other
      foreign countries
                      
                      
                      758,000
                      
                      
                      
                      -Total
                      
                      $
                      7,197,000
                      
                      
                      $
                      5,316,000





13  -  SUBSEQUENT
EVENTS





On
January 16, 2009 the remaining balance of our bank loan collateralized by real
estate in the amount of $421,000 was paid in full.  See Note
5.





On
February 20, 2009 we received notification from The Nasdaq Stock Market
confirming the closing bid price of our Class A common stock has been at $1.00
per share or greater for at least 10 consecutive days.  Accordingly,
we have regained compliance with Nasdaq Marketplace Rule
4310(c)(4).  In the letter, Nasdaq stated this matter is now
closed.





ITEM
9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.    None.





ITEM9A.  CONTROLS AND PROCEDURES.





Evaluation
of Disclosure Controls and Procedures.





Our
management, with the participation of our principal executive and principal
financial officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end
of the period covered by this report.  Based on that evaluation, our
principal executive and principal financial officer concluded that our
disclosure controls and procedures as of the end of the period covered by this
report were effective such that the information required to be disclosed by us
in reports filed under the Securities Exchange Act of 1934 is (i) recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms and (ii) accumulated and communicated to our management,
including our principal executive and principal financial officer, as
appropriate to allow timely decisions regarding disclosure.





Internal
Control over Financial Reporting.





a) Management’s Annual Report on Internal Control
over Financial Reporting. Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act) for the
Company.  Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in accordance with accounting principles generally accepted in the United
States. Because of its inherent limitations, internal control over
financial reporting may not prevent nor detect
misstatements.  Therefore, even those systems determined to be
effective can provide only reasonable assurance of achieving their control
objectives.





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Our
internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
(i) Pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of our assets; (ii) Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors; and
(iii) Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on the financial statements. Our internal controls framework is
based on the criteria set forth in the Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).





Our
management, with the participation of our principal executive and principal
financial officer, evaluated the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2008 and concluded that, as of
December 31, 2008, our internal control over financial reporting was
effective.





Management's
assessment report was not subject to attestation by the Company's independent
registered public accounting firm and as such, no attestation was performed
pursuant to SEC Final Rule Release Nos. 33-8934; 34-58028 that permit the
Company to provide only management's assessment report for the year ended
December 31, 2008.





b) Changes in Internal Control over
Financial Reporting.  There were no changes in the Company's
internal controls over financial reporting identified in connection with
management’s assessment of the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2008 during the period covered by
this report that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.





ITEM9B.  OTHER
INFORMATION.None.





PART
III





ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE.





The
information required by this section, with the exception of the information
provided below concerning the Company’s Code of Ethics, will appear in the Proxy
Statement for the 2009 Annual Meeting of Shareholders (the “Proxy Statement”)
under the captions “Election of Directors”, “Compliance with Section 16(a)
- Beneficial Ownership Reporting” and “Report of the Audit Committee” and is
incorporated herein by this reference.  The Proxy Statement will be
filed with the Securities and Exchange Commission within 120 days following
December 31, 2008.





The
Company has adopted a Code of Ethics that applies to all officers (including its
principal executive officer, principal financial officer, controller and any
person performing similar functions).  The Code of Ethics is available
on the Company’s website at www.taitroncomponents.com.





ITEM 11.  EXECUTIVE COMPENSATION.





The
information required by this section will appear in the Proxy Statement under
the caption “Executive Compensation” and is incorporated herein by this
reference.




ITEM12.
              SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
      AND RELATED STOCKHOLDER
MATTERS.





The
information required by this section will appear in the Proxy Statement under
the caption “Security Ownership of Certain Beneficial Owners and Management” and
is incorporated herein by this reference.





ITEM13.  CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS AND DIRECTOR INDEPENDENCE.





The
information required by this section will appear in the Proxy Statement under
the caption “Certain Relationships and Related Transactions” and is incorporated
herein by this reference.





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ITEM 14.  PRINCIPAL ACCOUNTING FEES AND
SERVICES.





The
information required by this section will appear in the Proxy Statement under
the caption “Principal Accounting Fees and Services” and is incorporated herein
by this reference.








PART
IV





ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES.





Financial Statement
Schedules.Not Applicable.





Exhibits





3.1
                      Articles
      of Incorporation of Taitron Components
      Incorporated.  (1)3.2
                      Bylaws.  (1)4.1
                      Specimen
      certificate evidencing Class A common
  stock.  (1)4.2
                      Form
      of Underwriter’s Warrant.  (1)10.1*
                      Form
      of Director and Officer Indemnification
      Agreement.  (1)10.2*
                      2005
      Stock Incentive Plan.  (2)21.1**
                      List
      of Subsidiaries.23.1**
                      Consent
      of Independent Registered Public Accounting Firm – Haskell & White
      LLP.24.1**
                      Power
      of Attorney (contained on the signature page hereof).31.1**
                      Principal
      Executive Officer - Section 302 Certification.31.2**
                      Principal
      Financial Officer - Section 302 Certification.32**
                      Principal
      Executive and Principal Financial Officer - Section 906
      Certification.*
                      Management
      contract or compensatory plan or arrangement.**
                      Filed
      herewith.(1)
                      Incorporation
      by reference from the Company’s Registration Statement on Form SB-2,
      Registration No. 33-90294-LA.(2)
                      Incorporated
      by reference from the Company’s Definitive Proxy Statement on Form DEF-14
      filed May 2,
2006.





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SIGNATURES





Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.





TAITRON
      COMPONENTS INCORPORATEDDated:  March
      31, 2009
                    By:
                    /s/ Stewart WangStewart
      WangDirector,
      Chief Executive Officer and PresidentDated:  March
      31, 2009
                    By:
                    /s/ David VanderhorstDavid
      VanderhorstChief
      Financial
Officer











POWER
OF ATTORNEY





KNOW ALL MEN BY THESE PRESENTS, that
each person whose signature appears below constitutes and appoints Stewart Wang
and David Vanderhorst and each of them singly, as attorneys-in-fact and agents,
with full power of substitution, for him in any and all capacities, to sign any
amendments to this Annual Report, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact, or
his substitutes, may do or cause to be done by virtue hereof.





Pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated below.





Signature
                Title
                Date/s/ Johnson Ku
                Chairman of the Board
                March 31, 2009Johnson
      Ku/s/ Stewart Wang
                Director, Chief Executive Officer and
      President
                March 31, 2009Stewart
      Wang/s/ Richard Chiang
                Director
                March 31, 2009Richard
      Chiang/s/ Craig Miller
                Director
                March 31, 2009Craig
      Miller/s/ Felix Sung
                Director
                March 31, 2009Felix
      Sung






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