<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K

        [X]    ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
               EXCHANGE ACT OF 1934

                  For the Fiscal Year Ended December 31, 2001

        [_]    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934

                        Commission File Number 0-25844

                        TAITRON COMPONENTS INCORPORATED
               (Name of Registrant as specified in its charter)

          California                                              95-4249240
(State or Other Jurisdiction of                                (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

                          28040 West Harrison Parkway
                       Valencia, California  91355-4162
                   (Address of Principal Executive Offices)

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

<TABLE>
<S>                                                               <C>
Securities registered under Section 12(b) of the Exchange Act:    None
Securities registered under Section 12(g) of the Exchange Act:    Class A Common Stock, par value $.001 per share
                                                                           (Title of each class)
</TABLE>

Indicate by check mark whether the Registrant: (1)  has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 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 in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the 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]

Approximate aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 2002 was $5.2 million.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:

              Class                             Outstanding on February 28, 2002
-------------------------------------           --------------------------------
Class A Common Stock, $.001 par value                         4,873,542
Class B Common Stock, $.001 par value                           762,612

                      DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrant's Proxy Statement relating to Registrant's
Annual Meeting of Shareholders, scheduled to be held on
May 17, 2002, are incorporated by reference in Part III of this Form 10-K.
<PAGE>

                                    PART I

ITEM 1.   BUSINESS.

     For a discussion of certain material factors which may affect the Company,
see "BUSINESS - Cautionary Statements and Risk Factors" commencing on page 9 of
this report.

General

     Taitron Components Incorporated ("Taitron" or the "Company") is a "discrete
components superstore," which distributes a wide variety of transistors, diodes
and other discrete semiconductors, optoelectronic devices and passive components
to other electronic distributors, original equipment manufacturers (OEMs) and to
contract electronic manufacturers (CEMs) who incorporate these devices in their
products. In order to meet the rapid delivery requirements of its customers, the
Company maintains a significant inventory of discrete components. At December
31, 2001, the Company's inventory consisted of over 1.7 billion components. The
Company distributes over 13,000 different products manufactured by more than 50
different suppliers. The Company's per unit sales price of components for the
net sales made during the year ended December 31, 2001 averaged approximately
2.1 cents each.

     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 such diverse products 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 United States 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. The Company focuses its
efforts almost exclusively on the distribution of discrete semiconductors,
optoelectronic devices and passive components, a small subset of the component
market. In 2001, Electronic Buyers News ranked the Company 44th among the top 50
distributors and 16th for distribution of discrete semiconductors based upon
2000 sales in North America. The largest single distributor reported sales of
over $10.9 billion. Of this magazine's top 50 electronics distributors, the
Company believes that it is the only distributor which concentrates its efforts
principally on the discrete semiconductor market.

     The Company's "superstore" strategy includes carrying inventory with
quality (name brand), quantities and varieties. Some suppliers have given the
Company the exclusive right for selling all or part of their products in the
United States and positioned the Company to be the master distributor of their
product lines. In 2001, approximately 49% of the Company's sales went to other
distributors.

     The Company expects to increase its sales to existing customers through
further expansion of the number of different types of discrete component and
other non-integrated circuit components in its inventory and by attracting
additional CEMs, OEMs and electronics distributor customers. In addition to its'
own sales force, the Company sells its products through a national network of
independent sales representatives.

     In 2001, the Company invested in a new outside sales office and continued
enhancements including upgrades of computer hardware and software of the
Company's integrated real-time information system and on-line query system.
Also, during the first quarter of 2002, the Company completed the final stages
of it's wireless bar-coded Warehouse Management System.   Management believes
these investments will increase the Company's efficiency, improve inventory
turns and eventually reduce operating cost.

                                       2
<PAGE>

Discrete Semiconductors

     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 as many as several million transistors and other elements in a single
package, and usually are designed to perform complex tasks.

     While integrated circuits, such as microprocessor chips, have garnered more
public exposure during the past several years, discrete semiconductors, the
ancestral root of integrated circuits, have been a core element of electric
equipment for more than 30 years.  Discrete semiconductors are found in most
consumer, industrial and military electrical and electronic applications.

     Discrete semiconductors represent only a small subset of the different
types of semiconductors currently available. Discrete semiconductors 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
integrated circuits. The Company believes that the market for discrete
semiconductors is growing, although at a slower pace than the market for
semiconductors in general. This could in part be due to the fact that OEMs are
designing products which utilize integrated circuits in place of discrete
semiconductors.

Optoelectronic Devices and Passive Components

     The Company offers 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. The Company believes that optoelectronic devices and passive
components can be marketed through existing channels, which in turn will
reinforce the Company's current relationship with its customers. Sales of
optoelectronic devices and passive components were 29%, 27% and 13% of total
sales for the years ended December 31, 2001, 2000 and 1999, respectively. During
2001, the Company purchased inventory of $4,132,000 and $857,000 of passive and
optoelectronic components, respectively, to facilitate planned increases in
sales of these components in the future. This is a forward looking statement and
the Company cannot guarantee that sales of passive and optoelectronic components
will increase in the future.

Electronic Distribution Channels

     Electronic component manufacturers ("suppliers") sell components directly
to CEMs and OEMs, as well as to their distributors. The practice among the major
suppliers is generally to focus their direct selling efforts on larger volume
customers, while utilizing distributors to reach medium and smaller 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 smaller 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 them.
Distributors offer product availability, selection and more rapid and flexible
delivery schedules keyed to meet the requirements of their CEMs and OEM
customers.  They also often rely upon electronic distributors to provide timely,
knowledgeable access to electronic components.

     There is also pressure on both 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 such 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.

     Most large distributors tend to be broad line distributors, carrying
various different categories of electronic products, and usually focus their
resources on the fastest selling products in each category they distribute. Of
the top 50 electronics distributors reported by Electronic Buyers News, the
Company believes that only Taitron and three other companies focuses a
significant portion of their distribution efforts on discrete semiconductors.
However, the Company believes that the three other companies concentrate their
selling efforts on other semiconductor components, such as integrated circuits,
microprocessors and memory components. The Company believes that it is the only
distributor which concentrates its efforts almost exclusively on the discrete
semiconductor market.

                                       3
<PAGE>

Strategy

     Since the Company was founded in 1989, its goal has been to become one of
the leading distributors of discrete semiconductors in North America. The
Company initially gained market share by concentrating on selling discrete
semiconductors at competitive prices. Since 1997, The Company has marketed
itself as a "discrete components superstore," whose in-depth focus on discrete
semiconductors, passive and opto electronic components and extensive inventory
of products is of benefit to both suppliers and customers. In creating the
"superstore" strategy, the Company has attempted to develop a more efficient
link between suppliers and the small to medium sized customers which generally
do not have direct access to large suppliers and must purchase exclusively
through distributors. The primary aspects of the Company's strategy include:

          Inventory. The Company believes that its most important competitive
     advantage is the depth of its inventory. Unlike other distributors who
     carry only the best-selling discretes, the Company's entire inventory
     consists of a wide range of discrete semiconductors, optoelectronic devices
     and passive components. Due to manufacturers' lead times ranging from eight
     weeks to twenty-four weeks, the Company generally attempts to maintain
     approximately a ten month supply of inventory of most products in its
     catalogs. Currently, the Company's inventory is higher than this goal due
     to the current market down turn. With immediate availability of a wide
     selection of products and brands, the Company believes that sales could
     grow if the market rebounds. See Part II Item 7 - "MANAGEMENT'S DISCUSSION
     AND ANALYSIS -Liquidity and Capital Resources."

          Strategic Purchasing. When the opportunity presents itself, the
     Company makes opportunistic purchases of a supplier's uncommitted inventory
     in order to take advantage of favorable pricing. The Company also makes
     significant purchases in advance in an attempt to maintain consistent
     inventory levels and meet anticipated orders. When possible, the Company
     attempts to control its inventory risks by matching large customer orders
     with simultaneous purchases from suppliers. See "BUSINESS - Cautionary
     Statements and Risk Factors - Need to Maintain Large Inventory; Price
     Fluctuations."

          Master Distributor. The Company distributes electronic components to
     other nationwide distributors when their inventory cannot fulfill immediate
     customer orders. The Company, with its high volume, low cost inventory acts
     as a master distributor for certain of its component suppliers. The Company
     estimates that approximately 35% of its sales are a direct result of being
     a master distributor.

          Preferred Distributors. In 1998, the Company developed a Preferred
     Distributor Agreement with its preferred distributors to promote a much
     stronger business relationship. Under this type of agreement, Taitron's
     Preferred Distributors provide point of sales ("POS") reports which
     identifies the distributor's customers and the Company provides the
     distributors limited price protection, limited stock rotations and return
     privileges among other benefits. As of the date of this Report, over 60
     Preferred Distributors signed the Preferred Agreement. Going forward, the
     Company expects to renew some of the 60 Preferred Distributors to new
     agreements and focus on this group to support new products and sales
     programs.

          Relationships with Suppliers. Unlike most other distributors, the
     Company does not always demand stock rotation and price protection
     privileges which are sometimes available from its 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. The Company has distribution
     agreements with certain suppliers that provide the Company with stock
     rotation and price protection privileges. These distribution agreements
     also provide stock buy back terms where suppliers will buy back inventory
     from the distributor if the supplier terminates the distribution agreement.
     The Company believes that it has 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 the risk for price fluctuations ) in order to obtain
     better pricing. The Company has operated an office in Taipei, Taiwan, since
     1997. This office focuses on product procurement and strengthening
     relationships with suppliers in the Far East. See "BUSINESS - Cautionary
     Statements and Risk Factors - Need to Maintain Large Inventory; Price
     Fluctuations" and "BUSINESS - Suppliers."

          Low Cost "PSD" Brand. The Company recently introduced a limited number
     of low cost brand commodity products from a few strategic suppliers. The
     expected higher demand and faster turn of the PSD Brand should help reduce
     carrying costs and offer the Company's preferred distributors the most
     competitive price in the current market. The Company plans to market the
     PSD Brand through it's preferred distributor channel in 2002.

                                       4
<PAGE>

          Reliable One Stop Shopping. The Company offers a large selection of
     different name-brand discrete semiconductors, optoelectronic devices and
     passive components at competitive prices which reduces significantly the
     number of suppliers a buyer must purchase from. The Company provides
     customers with catalogs that are specially designed to aid customers in
     quickly locating the types and brands of products that they need. Because
     of its large inventory, the Company can often fill a significant portion,
     or all, of a customer's order from stock. Historically, the Company has
     been able to fill most of its customers' orders within 24 hours and in
     compliance with their requested delivery schedules. The Company also
     follows a lenient policy of "no hassle" returns. Under this policy, if a
     customer can demonstrate an acceptable cause for a return, it may generally
     return products to the Company for a reasonable period of time after
     purchase, without penalty or restocking charge. See "BUSINESS - Cautionary
     Statements and Risk Factors - Product Returns," Part II Item 7 -
     "MANAGEMENT'S DISCUSSION AND ANALYSIS - Results of Operations," "BUSINESS-
     Customers" and "BUSINESS - Sales and Marketing."

          Support Smaller Distributors,CEMs and OEMs. The Company focuses its
     marketing efforts on smaller 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.
     During the last few years, there has been substantial consolidations within
     the electronics distribution industry creating very large distributors.
     This trend to consolidate creates opportunities for the Company since
     suppliers do not usually direct sales efforts toward smaller or medium
     sized CEMs and OEMs and often the larger distributors no longer adequately
     service smaller customers. The Company believes that its strategic
     purchasing policies enable the Company to provide medium and smaller CEMs
     and OEMs and distributors competitive prices while still maintaining
     adequate profit margins. The Company, generally, does not impose minimum
     order limitations on its customers, which enables smaller customers to
     avoid the costs of carrying large inventories. The Company also offers its
     customers a limited range of value added services such as cutting and
     forming, quality monitoring and product source tracing. The Company intends
     to grow through further expansion of the number of different types and
     brands of products in its inventory and by expanding its direct sales force
     geographically to attract additional electronics distributors, CEMs and
     OEMs. See "BUSINESS - Sales and Marketing."

Products

     The Company markets a wide variety of discrete semiconductors, including
rectifiers (or power diodes), diodes, transistors, optoelectronic devices and
passive components. The Company attempts to maintain at least ten months of
inventory for each component in its catalogs. At December 31, 2001, the
Company's inventory contained over 1.7 billion separate components and over
13,000 distinct products. In 2001, the average per unit sales price of the
products sold by the Company was approximately 2.1 cents.

     In 2001, the Company purchased products from over 50 suppliers, including
Everlight Electronics Co, Ltd., Fairchild Semiconductor Corporation, General
Semiconductor Inc., Samsung Electro-Mechanics Co. and Vishay Americas Inc. See
"BUSINESS - Cautionary Statements and Risk Factors - Suppliers," "BUSINESS -
Customers" and "BUSINESS - Suppliers."

     Discretes are categorized based on various factors, including capacity,
construction, fabrication and function. The products sold by the Company
include:

          Rectifiers. Rectifiers are generally utilized in power supply and
     other high power applications to convert alternating current to direct
     current. The Company sells 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 the Company include switching diodes, varistor diodes, 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. The

                                       5
<PAGE>

     Company currently stocks 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 fiberoptic transmission of computer signals to
     pattern sensing for regulation, such as is found in automobile cruise
     controls. Optoelectronic devices are not generally 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 the Company are mature products that are used
in a wide range of commercial and industrial products and industries. The
Company believes that a majority of the products it distributes are used in
applications where integrated circuits are not viable alternatives. As a result,
the Company has never experienced any material amount of product obsolescence,
and does not expect to experience any material amount of product obsolescence in
the foreseeable future. This is a forward looking statement and, as such, is
subject to uncertainties. There can be no assurance that over time the functions
for which discretes are used will not eventually be displaced by integrated
circuits.

     The Company conducts limited quality monitoring of its products. The
Company purchases products from reliable manufacturers who provide warranties
for their products that are common in the industry. Also, during the last
quarter of 2001, the Company upgraded its Certification according to the
International Standardization Organization ("ISO") to the quality standard ISO
9001:2000.

     The Company's distribution originates from a 55,000 square foot owned
facility located in Valencia. The newly purchased facility was fully operational
as of December 31, 2000. The Company utilizes a computerized inventory
control/tracking system which enables the Company to quickly access its
inventory levels and trace product shipments. See Item 2 - "PROPERTIES."

Customers

     The Company markets its products to distributors, CEMs and OEMs. The
Company believes that its strategic purchasing policies allow the Company to
provide medium and smaller distributors, CEMs and OEMs competitive prices while
still maintaining an adequate profit margin. As a rule, the Company does not
impose minimum order limitations on its customers, which enables smaller
customers to avoid the cost of carrying large inventories. See "BUSINESS -
Strategy."

     During 2001, the Company distributed its products to over 1,300 customers.
For the years ended December 31, 2001, 2000 and 1999, no one customer accounted
for more than 6.2%, 5.9% and 4.2%, respectively, of the Company's net sales. The
Company does not believe that the loss of any one customer would have a material
adverse effect on its business.

     Historically, distributors have accounted for a much larger percentage of
the Company's net sales than CEMs and OEMs. However, as the Company has expanded
its customer base, the Company's customer mix has become more balanced, with
distributors representing approximately 49% and both CEMs and OEMs together
representing approximately 51% of the Company's net sales in 2001.

     The Company historically has not required its distributor customers to
provide any point of sale reporting and therefore the Company does not know the
different industries which its products are sold by its distributor customers.
However, based on its sales to CEMs and OEMs, the Company believes that no one
industry accounted for a majority of the applications of the products sold in
2001, 2000 or 1999.

     Taitron offers its customers with inventory support which includes carrying
inventory for their specific needs and providing free samples of the products
the Company distributes.  The Company also offers its customers a limited range
of value added services, such as wire or 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 the Company's
business or results of operations.

     The Company believes that exceptional customer service and customer
relations are key elements of its success, and trains its sales force to provide
prompt, efficient and courteous service to all customers. See "BUSINESS - Sales
and

                                       6
<PAGE>

Marketing." The Company has the ability to ship most orders the same day they
are placed and, historically, most of its customers' orders have been shipped
within the requested delivery schedule.

     As the Company's customers grow in size, the Company may lose its larger
customers to its suppliers and as the electronics distribution industry
consolidates some of the Company's customers may be acquired by competitors. See
"BUSINESS Cautionary Statements and Risk Factors - Competition."

Sales and Marketing Channels

     As of February 28, 2002, the Company's sales and marketing department
consisted of 24 employees. The Company has a branch sales office in each state
of Arizona, Illinois, Florida, Massachusetts, New York and Texas. Branch office
sales personnel decreased to 9 in 2001 from 15 in 2000. The Company's inside
sales department is divided into regional sales territories throughout North
America. The regional sales managers are responsible for maintaining
relationships and providing support to existing key CEMs and OEMs, as well as
Taitron's preferred distributors. 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.

     The Company also supplies products to National Distributors who share
franchised lines with Taitron.  National Distributors usually have many office
locations throughout the United States and are among the "Electronic Buyers
News" Top 50 Distributors of the year.  The Company services the National
Distributors by providing easy access to discrete products they choose not to
inventory, as well as supporting their needs in shortage inventory situations.
Sales to National Distributors were $392,000 in 2001.

     Sales people are generally compensated by a combination of salary and
incentives based upon the sales growth and profits obtained from their sales.

     The Company also has sales channels into South America through its branch
office in Sao Paulo, Brazil.  South American sales were $340,000, $594,000 and
$489,000 in 2001, 2000 and 1999, respectively.

     The Company also has sales channels into Asia through its branch office in
Taipei, Taiwan.  Sales to Asian customers were $1.1 million, $1.5 million, and $
340,000 in 2001, 2000 and 1999, respectively.

     Independent sales representatives have played an important role in
developing the Company's client base, especially with respect to OEMs.  Many
OEMs want their suppliers to have a local presence and the Company's network of
independent sales representatives are responsive to these needs.  Independent
sales representatives are primarily responsible for face-to-face meetings with
the Company's customers, and for developing new customers.  Independent sales
representatives are each given responsibility for a specific geographical
territory.  Historically, sales representatives were paid a commission of 5% on
all sales made in their territory, regardless of whether they were involved in
the sales process.  Since 1998, sales representatives are no longer compensated
for sales made to non-preferred distributors.  The Company believes that this
new commission policy re-directs independent sales representatives attention to
CEMs, OEMs and preferred distributors, thereby increasing the Company's market
share with end users.  The Company and its independent sales representatives
also jointly advertise and participate in trade shows.  The Company utilized 15
independent sales representatives during 2001 to develop new OEM customers and
to provide a more direct link to existing OEM customers.

     The Company provides customers with catalogs that are specially designed to
aid customers in quickly finding the types and brands of discrete
semiconductors, passive and optoelectronic devices that they need.

     To attract new customers, the Company has advertised in national industry
publications such as Electronic Buyer's News, EEM Local Sources, Electronic
Source Book, and, in Canada, Electronic Products and Technology.  The Company
also participates in regional and national trade shows and jointly advertises
with suppliers and independent sales representatives.

Suppliers

     The Company believes that it is important to develop and maintain good
relationships with its suppliers.  Historically, the Company did not have long-
term supply, distribution or franchise agreements with its suppliers, but
instead cultivated strong working relationships with each of its suppliers.
However, since 1997 the Company has entered into franchise agreements with
certain of its suppliers.  Such franchise agreements have terms from one to two
years.  See "BUSINESS - Cautionary Statements and Risk Factors - Relationship
with Suppliers."

                                       7
<PAGE>

     In order to facilitate good relationships with its suppliers, the Company
typically will carry a complete line of each supplier's discrete products.  The
Company also supports its suppliers by increasing their visibility through
advertising and participation in regional and national trade shows.  The Company
generally orders components far in advance, helping suppliers plan production.
Also, the Company has distribution agreements with certain suppliers whereby the
terms of the agreement provides stock-rotation, price protection and stock buy
back terms.  See "BUSINESS - Cautionary Statements and Risk Factors - Need to
Maintain Large Inventory; Price Fluctuations" and "BUSINESS - Strategy."

     The Company purchases components from over 50 different suppliers,
including Everlight Electronics Co, Ltd., Fairchild Semiconductor Corporation,
General Semiconductor Inc., Samsung Electro-Mechanics Co. and Vishay Americas
Inc. The Company is continually attempting to build relationships with suppliers
and from time to time adds new suppliers in an attempt to provide its customers
with a better product mix. Also, the Company's relationships with suppliers have
been terminated from time to time. The possibility exists that the loss of one
or more supplier distribution relationships might have a material adverse effect
on the Company and its results of operations. See "BUSINESS - Cautionary
Statements and Risk Factors - Relationship with Suppliers."

     For the year ended December 31, 2001, the Company's five largest suppliers,
Everlight Electronics Co, Ltd., Fairchild Semiconductor Corporation, General
Semiconductor Inc., Samsung Electro-Mechanics Co., and Vishay Americas Inc.
accounted for approximately 59% of the Company's net purchases.  However, the
Company does not regard any one supplier as essential to its operations, since
equivalent replacements for most of the products the Company markets are either
available from one or more of the Company's other suppliers or are available
from various other sources at competitive prices.   The Company believes that,
even if it loses its direct relationship with a supplier, there exist
alternative sources for a supplier's products.  No assurance can be given that
the loss or a significant disruption in the relationship with one or more of the
Company's suppliers would not have a material adverse effect on the Company's
business and results of operations.  See "BUSINESS - Cautionary Statements and
Risk Factors - Relationship with Suppliers."

Competition

     The Company operates in a highly competitive environment. The Company faces
competition from numerous local, regional and national distributors (both in
purchasing and selling inventory) and electronic component manufacturers,
including some of its own suppliers. Many of the Company's competitors are more
established and have greater name recognition and financial and marketing
resources than the Company. The Company believes that competition in the
electronic industry is based on breadth of product lines, product availability,
choice of suppliers, customer service, response time, competitive pricing and
product knowledge, as well as value-added services. The Company believes it
competes effectively with respect to breadth and availability of inventory,
response time, pricing and product knowledge. To the Company's knowledge, no
other national distributor focuses its business on discrete semiconductors to
the same extent as does the Company. Generally, large component manufacturers
and large distributors do not focus their internal selling efforts on small to
medium sized OEMs and distributors, which constitute the vast majority of the
Company's customers; however, as the Company's customers increase in size,
component manufacturers may find it cost effective to focus direct selling
efforts on those customers, which could result in the loss of customers or
decreased selling prices. See "BUSINESS - Cautionary Statements and Risk
Factors -Competition" and "BUSINESS - Electronic Distribution Channels."

Management Information Systems

     The Company has made a significant investment in computer hardware,
software and personnel. The MIS department is responsible for software and
hardware upgrades, maintenance of current software and related databases, and
designing custom systems. The Company believes that its MIS department is
crucial to the Company's success and believes in continually upgrading its
hardware and software. To that end, during 2001 the Company continued to upgrade
its Oracle Applications System. The Company believes that this system has the
capabilities to serve the Company for future anticipated needs including
capabilities of networking with remote locations. Also, during 2001, the Company
continued to upgrade its web site which allows customers internet access to its
inventory. The Company also developed a Vendor Management Inventory ("VMI")
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 the Company.

Warehouse Management System

During 1998 through 2001, Taitron installed a Warehouse Management System which
greatly enhances the accuracy of quantity and location control of the inventory.
It also reduces potential errors in delivering components to customers.  The
first phase of the Warehouse Management System was completed during the first
quarter of 2000.  Custom software is being developed to complete the final phase
which is to link the system with the Company's Oracle Applications System.  The
final phase was completed in the first quarter of 2002.

                                       8
<PAGE>

Foreign Trade Regulation

     A large portion of the products distributed by the Company are manufactured
in the Far East, 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 the
Company's business and results of operations.

     Many of the Company's suppliers have their manufacturing facilities in
countries whose economies continue to be volatile while recovering from recent
years of financial concerns. Although local currencies have stabilized, the US
dollar's strength compared with Asian currencies may further reduce exports to
Asia in the future. Sales to Asian customers were 6.6%, 4.4% and 1.1% of the
Company's total sales in 2001, 2000 and 1999, respectively. Conversely, the
Company believes that the weaker Asian currencies may actually benefit the
Company in the short-term by providing opportunities for the Company to purchase
products at lower prices.

     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. The Company 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 its 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 United States 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 the Company's business.
The Company's ability to remain competitive could also be affected by other
governmental 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, there can be no
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 have a
material adverse impact on the Company's business and results of operations. See
"BUSINESS - Cautionary Statements and Risk Factors - Foreign Trade Regulation."

Employees

     At March 15, 2002, the Company had a total of 53 employees.  None of the
Company's employees are covered by a collective bargaining agreement and the
Company considers its relations with its employees to be good.

Cautionary Statements and Risk Factors

     Several of the matters discussed in this document contain forward looking
statements that involve risks and uncertainties.  Factors associated with the
forward looking statements which could cause actual results to differ materially
from those projected or forecast in the statements appear below.  In addition to
other information contained in this document, readers should carefully consider
the following cautionary statements and risk factors:

     Dependence Upon Key Personnel. We are highly dependent upon the services of
Stewart Wang, our Chief Executive Officer and President. Our success to date has
been largely dependent upon the efforts and abilities of Mr. Wang and the loss
of Mr. Wang's services for any reason could have a material adverse effect upon
us. In addition, our work force includes executives and employees with
significant knowledge and experience in the electronics distribution industry.
Our future success will be strongly influenced by our ability to continue to
recruit, train and retain a skilled work force. While we believe that we would
be able to locate suitable replacements for our executives or other personnel if
their services were lost, there can be no assurance that we would be able to do
so on terms favorable to us. In particular, the hiring of a suitable replacement
for Mr. Wang could be very difficult. We have purchased and currently intend to
maintain a key-man life insurance policy on Mr. Wang's life with benefits of
$2,000,000 payable to us in the event of Mr. Wang's death. The benefits received
under this policy might not be sufficient to compensate us for the loss of Mr.
Wang's services should a suitable replacement not be employed.

     Relationship with Suppliers. Typically, we do not have written long-term
supply or distribution agreements with any of our non-franchise suppliers and
our written franchise supplier agreements have terms of one to two years.
Although we believe that we have established close working relationships with
our principal suppliers, our success will depend, in large part, on maintaining
these relationships and developing new supplier relationships for our existing
and future product lines.  Because of the lack of long-term contracts, there can
be no assurance that we will be able to maintain these relationships.

                                       9
<PAGE>

However, we believe that, even if we lose our direct relationship with a
supplier, there exists alternative sources for our products. No assurance can be
given that the loss or a significant disruption in the relationship with one or
more of our suppliers would not have a material adverse effect on our business
and results of operations.

     Need to Maintain Large Inventory; Price Fluctuations. To adequately service
our customers, we believe that it is necessary to maintain a large inventory of
our product offerings and we generally attempt to maintain approximately ten
months inventory of most products in our catalogs. Our inventory level is higher
than this due to the current market down turn. If prices of components held in
inventory by us decline or if new technology is developed that displaces
products distributed by us and held in inventory, our business could be
materially adversely affected.

     Liquidity of Inventory. Inventory, according to Generally Accepted
Accounting Principles, is included and classified as a current asset. 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.

     Product Mix; Product Margins.  Our gross profit margins in general have
decreased in recent years, principally due to a weaker product demand and
competitive pricing pressures within the electronics industry caused by a
general economic slow down.  Our gross profit margins are subject to a number of
factors, including product demand, our ability to purchase inventory at
favorable prices and our sales product mix, all of which could adversely impact
margins.

     Availability of Components.  The semiconductor component business has from
time to time experienced periods of extreme shortages in product supply,
generally as the result of demand exceeding available supply. When these
shortages occur, suppliers tend to either raise unit prices in order to reduce
order backlog or place their customers on "allocation," reducing the number of
units sold to each customer.  While we believe that, due to the depth of our
inventory, we have not been adversely affected by past shortages in certain
discrete components, no assurance can be given that future shortages will not
adversely impact us.

     Foreign Trade Regulation. A significant number of the products distributed
by us are manufactured in Taiwan, 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 our 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 United States 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 could also 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, there can be no assurance 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 also have a material adverse impact
on our business and results of operations.

     Management of Growth.   Our ability to effectively manage future growth, if
any, will require us to continue to implement and improve our operational,
financial and management information systems and to train, motivate and manage a
larger number of employees.  There can be no assurance that we will be able to
preserve the revenue growth experienced in prior years, continue our profitable
operations or manage future growth successfully.  As an example, sales decreased
from 1995 to 1996, then from 1997 to 1998, and most recently from 2000 to 2001,
principally as a result of the soft market demand for discrete semiconductors
caused by a general economic slow down.

     Competition.  We face intense competition, both in our selling efforts and
purchasing efforts, from the significant number of companies that manufacture or
distribute discrete products.  Many of these companies have substantially
greater assets and possess substantially greater financial and personnel
resources than us.   Many competing distributors also carry product lines which
we do not carry.  Generally, large component manufacturers and large
distributors do not focus their direct selling efforts on small to medium sized
OEMs and distributors, which constitute the vast majority of our customers.
However, as our customers increase in size, component manufacturers may find it
cost effective to focus direct selling efforts on those customers, which could
result in the loss of customers or decrease on profit margins.  There can be no
assurance that we will be able to continue to compete effectively with existing
or potential competitors.

     Control by Class B Common Stock Shareholder; Possible Depressive Effect on
the Price of the Class A Common Stock. Stewart Wang, our Chief Executive Officer
and President, beneficially owns all of our Class B Common Stock, which

                                       10
<PAGE>

carries ten votes per share, and he thus controls approximately 62% of the
voting power of our common stock. As a result, Mr. Wang is able to control us
and our operations, including the election of at least a majority of our Board
of Directors. Also, at any time while we have at least 800 shareholders who
beneficially own shares of our Common Stock, our Articles of Incorporation
provide for the automatic elimination of cumulative voting, which would allow
Mr. Wang to elect all of the Directors. The disproportionate vote afforded the
Class B Common Stock could also serve to discourage potential acquirers from
seeking to acquire control of us through the purchase of the Class A Common
Stock, which might have a depressive effect on the price of the Class A Common
Stock.

     Product Returns. On a case-by-case basis, we accept returns of products
from our 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 are generally not included under this policy. We
will also, on a case-by-case basis, accept returns of products upon payment of a
restocking fee, which generally is set at 15% to 30% of the sales price. We will
not accept returns of any products which were special ordered by a customer, or
which are otherwise not generally included in our inventory. During the fiscal
years ended December 31, 2001, 2000 and 1999, sales returns aggregated $437,000,
$631,000 and $715,000 or 2.6%, 1.9%, and 2.4% of net sales, respectively.
Historically, most allowable returns occur during the first two months following
shipment. While we maintain reserves for product returns which we consider to be
adequate, the possibility exists that we could experience returns in any period
at a rate significantly in excess of historical levels, which could materially
and adversely impact our results of operations for that period.

     Cyclical Nature of Electronics Industry. The electronics distribution
industry has been affected historically by general economic downturns, which
have had an adverse economic effect upon manufacturers and end-users of discrete
components, as well as electronic distributors such as us. In addition, the
life-cycle of existing electronic products and the timing of new product
development and introduction can affect demand for electronic components. Any
downturns in the electronics distribution industry, or the electronics industry
in general, could adversely affect our business and results of operations.

     No Earthquake Insurance. Our former principal executive offices are located
in Santa Clarita, California - an area which experienced significant damage in
the 1994 Northridge, California earthquake. During 1994, we spent approximately
$145,000 in repair costs and renovations to our facility resulting from that
earthquake, none of which were covered by insurance. We believe that it is
economically a better decision to self insure against any future earthquake
losses than to pay the expensive earthquake insurance premiums. During 1999, we
also purchased our new 55,000 square foot warehouse and headquarters which is
also located in Valencia, California. The newly purchased facility is also self
insured against future earthquake loss.

     Subsequent Events - NASDAQ Listing.  We received notice, dated February 14,
2002, from NASDAQ which informed us that our Class A common stock has not
maintained a minimum market value of publicly held shares ("MVPHS") of
$5,000,000 as required for continued inclusion by Marketplace Rule 4450(a)(2)
(the "Rule").   Therefore, we have been provided 90 calendar days or until May
15, 2002, to regain compliance.  If, at anytime before May 15, 2002, the MVPHS
of our Class A common stock is $5,000,000   or greater for a minimum of 10
consecutive trading days, NASDAQ expects to provide written notification that we
comply with the Rule.  If compliance with this Rule cannot be demonstrated by
May 15, 2002, NASDAQ expects to provide written  notification that our
securities will be delisted.  At that time, we may appeal NASDAQ's
determination.

As of the Date of this Report, we have been in contact with NASDAQ to review
certain proposals to regain compliance and remain on NASDAQ's National Market
stock exchange.  As an alternative, we may apply to transfer our securities to
The NASDAQ SmallCap Market.  To transfer, we must satisfy the continued
inclusion requirement for that market.  If we submit a transfer application and
pay the applicable listing fees by May 15, 2002, the initiation for the
delisting proceedings may be stayed pending NASDAQ's review of the transfer
application.  If NASDAQ does not approve our transfer application, NASDAQ
intends to provide written notification that the our securities will be
delisted.

                                       11
<PAGE>

ITEM 2.   PROPERTIES.

     The Company's executive offices and warehouse facility, covering
approximately 55,000 square feet, are now located in Valencia, California. Upon
completion of interior improvements, the Company moved into its new 55,000
square foot location in the fourth quarter of 2000. The Company purchased the
facility in 1999 for $3.3 million and is not subject to any debt.

     The Company still owns its previous warehouse facility, covering
approximately 23,191 feet, located in Santa Clarita, California.  This property
subject to a mortgage held by a bank with an outstanding principal balance of
approximately $412,000 as of December 31, 2001 and due on December 1, 2013 (the
"Mortgage").  Pursuant to the Mortgage, the Company is obligated to make monthly
payments of $4,349, which includes interest at 6.359% per annum.  As of March
15, 2001, the Company has entered into an agreement to lease this facility for
three years.

     During 1998, the Company invested $519,000 in its Taiwan office,
principally for acquisition of office and warehouse space that is owned by the
Company and not subject to any debt.

     As of February 28, 2002, the Company had branch sales offices in Phoenix,
Arizona; Long Island, New York; Melbourne, Florida; Boston, Massachussets;
Chicago, Illinois; and Dallas, Texas.  Each office is approximately 1,000 to
2,800 square feet and accommodates up to three sales employees.  Each of the
leases are for a term of one to three years, all expiring at different times
during 2001 and 2002 with monthly rental expense ranging from $500 to $2,500 per
lease.

ITEM 3.   LEGAL PROCEEDINGS.

     In the ordinary course of business the Company may become involved in legal
proceedings from time-to-time.  As of February 28, 2002, the Company was not a
part to any material pending legal proceedings.

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

     No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of 2001.

                                       12
<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS

     Since April 19, 1995, the Company's Class A Common Stock has been traded on
the Nasdaq National Market under the symbol "TAIT".  The following table sets
forth the range of high and low sale prices per share for the Class A Common
Stock as quoted on the Nasdaq National Market, for the periods indicated

                                                High          Low
                                                ----          ---

     Year Ended December 31, 1999
     First Quarter                              1 15/16      1 1/8
     Second Quarter                             2 9/16       1 1/16
     Third Quarter                              3 3/4        2 1/8
     Fourth Quarter                             2 3/8        1 5/16

     Year Ended December 31, 2000
     First Quarter                              5 1/2        1 13/16
     Second Quarter                             4 1/4        2 1/4
     Third Quarter                              8 21/32      3
     Fourth Quarter                             3 13/16      1 7/8

     Year Ended December 31, 2001
     First Quarter                              3 3/4        1 5/8
     Second Quarter                             2 3/4        1 11/16
     Third Quarter                              2 13/32      1 5/16
     Fourth Quarter                             2 1/8        1 3/32

     At February 28, 2002, there were approximately 100 holders of record of the
Company's Common Stock.  The Company estimates that there are approximately
1,000 beneficial owners of its Class A Common stock.

     The Company's Board of Directors is considering whether or not to pay
dividends. At this time, the Company does not plan to pay cash dividends.   The
present policy of the Company is to retain earnings to finance the development
of its operations.  See "MANAGEMENT'S DISCUSSION AND ANALYSIS - Results of
Operations; Liquidity and Capital Resources."

     In November 1996, the Board of Directors approved a program to repurchase
up to 500,000 shares of its Class A common stock.  In February 1998, September
1999 and September 2000 the Board of Directors again approved additional
repurchases of up to $1,500,000, $500,000 and $1,000,000, respectively, of the
Company's Class A common stock.  As of February 28, 2002, the Company had
repurchased approximately 1.4 million shares of its Class A common stock in open
market purchases for an approximate aggregate amount of $ 3.9 million.

                                       13
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

     The following table presents certain selected consolidated financial and
operating data for the Company as of and for each of the years in the five year
period ended December 31, 2001.  The selected consolidated financial and
operating data in the table should be read in conjunction with the Company's
Financial Statements and the notes thereto included elsewhere herein and in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

Statements of Operations and Per Share Data:

(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                -----------------------------------
                                         2001        2000       1999       1998       1997
                                       ---------   ---------  ---------  ---------  ---------
<S>                                    <C>         <C>        <C>        <C>        <C>
Net sales                              $  16,736   $  32,948  $  29,326  $  30,828  $  33,945
Cost of goods sold                        12,534      22,763     20,930     22,302     24,544

Gross profit                               4,202      10,185      8,396      8,526      9,401

Selling, general and administrative
expenses                                   5,521       6,668      6,053      5,333      5,641

Operating (loss) earnings                 (1,319)      3,517      2,343      3,193      3,760

Income tax (benefit) provision              (391)      1,025        759      1,023      1,220

Net (loss) earnings                    $  (1,254)  $   1,663  $   1,029  $   1,499  $   1,850

(Loss) earnings per share:
     Basic                             $    (.22)  $     .29  $     .17  $     .24  $     .28
     Diluted                           $    (.22)  $     .28  $     .17  $     .24  $     .27

Weighted average common shares
outstanding
     Basic                                 5,680       5,800      6,006      6,278      6,644
     Diluted                               5,680       5,922      6,050      6,287      6,733

<CAPTION>
Balance Sheet Data:                                         December 31,
                                       ------------------------------------------------------
                                         2001        2000       1999       1998       1997
                                       ---------   ---------  ---------  ---------  ---------
<S>                                    <C>         <C>        <C>        <C>        <C>
Working capital                        $  18,432   $  19,559  $  22,396  $  25,239  $  25,500
Total assets                              38,834      44,400     41,081     44,583     44,985
Total debt                                12,097      14,364     12,774     14,375     16,444
Stockholders' equity                      25,117      26,639     25,440     25,096     24,371
</TABLE>

                                       14
<PAGE>

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

Results of Operations

The Company distributes a wide variety of transistors, diodes and other discrete
semiconductors, optoelectronic devices and passive components to other
electronic distributors, contract electronic manufacturers (CEMs) and original
equipment manufacturers (OEMs), who incorporated them in their products.

The following table sets forth, for the periods indicated, certain operating
amounts and ratios:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                    ----------------------------------------------------------------
                                                           2001                    2000                  1999
                                                    -------------------    --------------------    -----------------
                                                                         (dollars in thousands)
<S>                                                 <C>                    <C>                     <C>
Net sales                                               $   16,736              $   32,948             $  29,326

Cost of goods sold                                          12,534                  22,763                20,930
   % of net sales                                             74.9%                   69.1%                 71.4%

Gross profit                                                 4,202                  10,185                 8,396
   % of net sales                                             25.1%                   30.9%                 28.6%

Selling, general and administrative expenses                 5,521                   6,668                 6,053
   % of net sales                                             33.0%                   20.2%                 20.6%

Operating (loss) earnings                                   (1,319)                  3,517                 2,343
   % of net sales                                             (7.9%)                  10.7%                  8.0%

Income tax (benefit) provision                                (391)                  1,025                   759
 Effective tax rate as a % of (loss)
   earnings before income taxes                              (37.6%)                  38.1%                 42.5%

Net (loss) earnings                                     $   (1,254)             $    1,663             $   1,029
   % of net sales                                             (7.5)%                   5.1%                  3.5%
</TABLE>

The Year Ended December 31, 2001 Compared to The Year Ended December 31, 2000

     Net sales for the year ended December 31, 2001 were $16,736,000 compared
with net sales for the year ended December 31, 2000 of $32,948,000, a decrease
of $16,212,000 or 49.2%.  This decrease was primarily due to an industry wide
decrease in demand for discrete semiconductors  and passive components resulting
from an overall economic slowdown.   Approximately 71% and 73% of net sales
mostly comprise of discrete components sales during the year ended December 31,
2001 and 2000, respectively.  Passive and Optoelectronic components sales
decreased by $4,135,000 or 46% when comparing $4,874,000 and $9,009,000 of
passive and Opto sales, for the year 2001 and 2000, respectively and a decrease
in our export sales by $3,241,000 or 59% when comparing $2,243,000 and
$5,484,000 of export sales, for the year 2001 and 2000, respectively.  However,
the overall average per unit sales price of components increased to 2.1 cents
for the current year from 1.8 cents during the same time last year.  The
increase was primarily the result of selling less passive components, which have
a lower average per unit sales price.

     Cost of goods sold decreased by $10,229,000 to $12,534,000 for the year
ended December 31, 2001, a decrease of 44.9% from the year ended December 31,
2000.  Cost of goods sold decreased with the decrease in net sales, resulting in
gross profits decreasing as a percentage of net sales to 25.1% for the current
year from 30.9% for the same period last year.  Gross profits decreased by
$5,983,000 to $4,202,000 for the current year from $10,185,000 for the same
period in 2000.  The decline in gross profit percentage during the year ended
December 31, 2001, was primarily due to a non-cash inventory write off of
approximately $775,000, (as discussed below - see "Supply and Demand Issues"),
as compared to a $100,000 non-cash inventory write off for the same period of
2000.  The decline in gross profit dollars were primarily due to the decline in
net sales  as well as price decreases during the year ended December 31, 2001.

                                       15
<PAGE>

     Selling, general and administrative expenses decreased by $1,147,000 or
17.2% for 2001 compared to 2000.  The decrease is primarily attributable to
reducing personnel-related expenses by approximately $845,000 and commissions
paid to independent sales representatives, resulting from lower net sales, by
approximately $415,000.  SG&A expenses, as a percentage of net sales, increased
to 33.0% for the year ended December 31, 2001 compared to 20.2% for the year
ended December 31, 2000, primarily due to the decline in net sales.

     Operating earnings decreased by $4,836,000 or 137.5% between the years
ended December 31, 2001, and 2000, from earnings of $3,517,000 to a loss of
$1,319,000.  Operating earnings decreased principally as a result of lower net
sales with lower gross margins discussed above.

     Interest expense for the year ended December 31, 2001 decreased by $160,000
compared to the year ended December 31, 2000.  The decrease is due to lower
borrowing levels and lower effective average borrowing interest rates incurred
on our bank revolving line of credit as compared to the same period last year .

     Income tax benefit was $391,000 for the year ended December 31, 2001,
representing an effective tax rate of (37.6%), as compared to income tax expense
of $1,025,000 for the year ended December 31, 2000, an effective tax rate of
38.1%.  The change is a direct result of the Company recording operating losses
during the year ended December 31, 2001 as compared to operating earnings during
the same period last year.

     The Company had net losses of $1,254,000 for the year ended December 31,
2001 as compared with net earnings of $1,663,000 for the year ended December 31,
2000, a decrease of $2,917,000 or 175.4%.  The decrease in net earnings is
primarily attributable to lower gross profit dollars discussed above.  Net loss
as a percentage of net sales decreased to (7.5%) from net earnings of 5.1%.

The Year Ended December 31, 2000 Compared to The Year Ended December 31, 1999

     Net sales for the year ended December 31, 2000 were $32,948,000 compared
with net sales for the year ended December 31, 1999 of $29,326,000, an increase
of $3,622,000 or 12.4%.  This increase was primarily attributable to (a) growth
in our domestic passive and opto electronic components sales volume by
$5,272,000 or 141% when comparing $9,009,000 and $3,737,000 of passive and opto
sales, for the year 2000 and 1999, respectively and (b) increase in our export
sales by $1,895,000 or 53% when comparing $5,484,000 and $3,589,000 of export
sales, for the year 2000 and 1999, respectively.  However, the overall average
per unit sales price of components decreased to 1.8 cents for the year 2000 from
2.7 cents during the same time in 1999.  The decrease was primarily the result
of selling more passive components, which have a lower average per unit sales
price.

     Cost of goods sold increased by $1,833,000 to $22,763,000 for the year
ended December 31, 2000, an increase of 8.8 % from the year ended December 31,
1999.  Cost of goods sold increased with the increase in net sales, however at a
slower rate due to higher sales, resulting in gross profits increasing as a
percentage of net sales to 30.9% for the year 2000 from 28.6% for the same
period in 1999.  Gross profits increased by $1,789,000 to $10,185,000 for the
year 2000 from $8,396,000 for the same period in 1999.

     Selling, general and administrative expenses increased by $615,000 or 10.2%
for 2000 compared to 1999.  The increase is primarily attributable to increased
payroll and new opening costs incurred from opening two more sales offices in
the United States (New England and Illinois) and additional selling, general and
administrative expenses from our subsidiary in Mexico.  We continued to invest
in sales and marketing personnel during the year 2000, which we believed was
required to achieve growth.  Also, contributing to the increase was additional
depreciation and expenses related to the purchase of our new warehouse and
headquarters.  These expenses, as a percentage of net sales, decreased to 20.2%
for the year ended December 31, 2000 compared to 20.6% for the year ended
December 31, 1999.

     Operating earnings increased by $1,174,000 or 50.1% between the years ended
December 31, 2000, and 1999, and increased as a percentage of net sales to 10.7%
from 8.0%.  Operating earnings increased principally as a result of higher net
sales with higher gross margins discussed above.

     Interest expense for the year ended December 31, 2000 increased by $67,000
compared to the year ended December 31, 1999.  The increase is primarily due to
higher average interest rates incurred on our bank revolving line of credit.

                                       16
<PAGE>

     Income taxes were $1,025,000 for the year ended December 31, 2000,
representing an effective tax rate of 38.1%, compared to $759,000 for the year
ended December 31, 1999, an effective tax rate of 42.5%.

     The Company had net earnings of $1,663,000 for the year ended December 31,
2000 as compared with net earnings of $1,029,000 for the year ended December 31,
1999, an increase of $634,000 or 61.6%.  The increase in net earnings is
primarily attributable to higher gross profit dollars discussed above.  Net
earnings as a percentage of net sales increased to 5.1% from 3.5%.

Supply and Demand Issues

     Background
     ----------

     In 1996, suppliers increased capacity and the weak demand left suppliers
with large amounts of uncommitted products.  During 1996 and continuing into
1997, the Company decided to take advantage of this situation by intensifying
its long standing purchasing strategy by making opportunistic purchases of
suppliers' uncommitted capacity, at favorable pricing.  The Company believes
this strategy of opportunistic purchasing postures the Company to be price
competitive, while still maintaining acceptable profit margins.

     The demand for discrete semiconductors in the U.S. market decreased from
1996 through the middle of 1999.  From 1999 throughout 2000, demand had
increased as a result of industry wide shortages.  Since then, the industry wide
shortage began to diminish towards the end of 2000 and demand in 2001
drastically declined resulting from an overall economic slowdown and excess
product availability.

     Current Issues
     --------------

     The Company's core strategy is to maintain a substantial inventory of
discrete semiconductors purchased at prices generally lower than those commonly
available to its competitors.  This strategy allows the Company to fill customer
orders immediately from stock held in inventory.  Since demand significantly
weakened throughout 2001 resulting from an overall economic slowdown and excess
product availability, the Company focused on lowering its inventory balances.
As such, inventory levels decreased throughout the year from $30,609,000 to
$27,895,000 as of December 31, 2000 and 2001, respectively, including a non-cash
inventory write off of approximately $775,000 during 2001 to increase the
Company's inventory reserves.  Since demand continued to be weak towards the end
of 2001, the Company expects to lower inventory balances throughout 2002.
There are no assurances that demand in the discrete semiconductor market will
increase and that market conditions will improve in 2002.

     Several of the matters discussed under Supply and Demand Issues contain
forward looking statements that involve risks and uncertainties with respect to
growth and relationships with suppliers.  Many factors could cause actual
results to differ materially from these statements.  See "BUSINESS - Cautionary
Statements and Risk Factors - Relationship with Suppliers; Need to Maintain
Large Inventory; Price Fluctuations."

Liquidity and Capital Resources

     The Company historically has satisfied its liquidity requirements
principally through cash generated from operations, short-term commercial loans
and the sale of equity securities, including the initial public offering of its
common stock in April 1995 and issuance of a convertible bond in 1996.  The
Company's cash flows provided by (used in) operating, financing and investing
activities for the years ended December 31, 2001, 2000 and 1999 were as follows:

                                              Year Ended December 31,
                                                   (In thousands)
                                      ----------------------------------------
                                        2001             2000            1999
                                        ----             ----            ----
Operating activities........          $ 2,653          $   109         $ 6,054
Investing activities........             (126)          (1,319)         (3,858)
Financing activities........           (2,527)           1,195          (2,323)

     Cash flows provided by operating activities increased to $2,653,000 during
the year ended December 31, 2001, as compared to $109,000 during the same period
last year.  The increase is primarily attributable to a decrease in inventory of
$1,939,000 and accounts receivable of $2,270,000 resulting from the decreased
business and lower net sales during the current year which was partially offset
by a decrease in accounts payable of $1,324,000.

                                       17
<PAGE>

     Cash flows used in investing activities was $126,000, decreasing by
$1,193,000 from $1,319,000 during the year ended December 31, 2001.  The
decrease is due to the completion of construction in December 2000 of interior
improvements to our new 55,000 square foot warehouse and headquarters.

     Cash flows used in financing activities increased to $2,527,000 from
$1,195,000 of cash flows provided by during the year ended December 31, 2001.
The change resulted, primarily due to increased net repayments to our bank
revolving line of credit and notes payables during the current year of
$2,267,000 and decreased amounts of the Company's Class A Common Stock
repurchased during the current year 2001, as compared to the same period last
year.

     Inventory, according to Generally Accepted Accounting Principles, is
included in current 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 in current assets, such
as cash.

     As of the date of this Report, the Company has no commitment for other
equity or debt financing or other capital expenditures.

     Effective December 5, 2001, the Company amended its revolving line of
credit changing the principal amount from $16 million to $15 million and
changing the interest rate from LIBOR plus 1.35% to LIBOR plus 1.85%. The
agreement governing this credit facility contains security agreements covering
essentially all assets of the Company and covenants that require the Company to
be in compliance with certain financial ratios. As of December 31, 2001,
borrowings under the line of credit was $11.7 million in aggregate.

     On March 21, 2002, the Company signed a commitment letter which allows the
Company to renew its $15 million revolving line of credit to a new maturity date
of May 18, 2004.  The agreement governing the renewed credit facility contains
security agreements covering essentially all assets of the Company and covenants
that require the Company to be in compliance with certain financial ratios.
Borrowings under the renewed revolving line of credit bears interest at the
bank's prime rate (4.75% at December 31, 2001) or at the option of the Company,
at LIBOR (weighted average of 2.54% at December 31, 2001) plus 2.35% (if the
Company meets certain financial results, the interest may change to LIBOR plus
2.00%). Borrowing under the renewed credit facility will be limited to a certain
formula, essentially consisting of a portion of the Company's account
receivables, inventory and fixed assets.

     The Company believes that funds generated from operations and the revolving
line of credit will be sufficient to finance its working capital and capital
expenditures requirements for the foreseeable future.

Foreign Economic Issues

     Many of the Company's suppliers have their manufacturing facilities in
countries whose economies continue to be volatile while recovering from recent
years of financial concerns.  Although local currencies have stabilized, the US
dollar's strength compared with Asian currencies may further reduce exports to
Asia in the future.  Conversely, the Company believes that the weaker Asian
currencies may actually benefit the Company in the short-term by providing
opportunities for the Company to purchase products at lower prices.

Significant Accounting Policy

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 Company had
inventory balances in the amounts of $27,895,000 and $30,609,000, at December
31, 2001 and 2000, respectively, which are presented net of valuation allowances
of $1,309,000 and $966,000 at December 31, 2001 and 2000, respectively.  The
Company uses a systematic methodology that includes regular evaluations of
inventory to identify high cost and slow-moving inventory.

Subsequent Events

The Company received notice, dated February 14, 2002, from NASDAQ which informed
the Company that its Class A common stock has not maintained a minimum market
value of publicly held shares ("MVPHS") of $5,000,000 as required for continued
inclusion by Marketplace Rule 4450(a)(2) (the "Rule").   Therefore, the Company
has been provided 90 calendar days or until May 15, 2002, to regain compliance.
If, at anytime before May 15, 2002, the MVPHS of the Company's Class A common
stock is $5,000,000   or greater for a minimum of 10 consecutive trading days,
NASDAQ expects to provide written notification that the Company complies with
the Rule.  If compliance with this Rule cannot be demonstrated by May 15, 2002,
NASDAQ expects to provide written  notification that its securities will be
delisted.  At that time, the Company may appeal NASDAQ's determination.

                                       18
<PAGE>

As of the Date of this Report, the Company has been in contact with NASDAQ to
review certain proposals to regain compliance and remain on NASDAQ's National
Market stock exchange.  As an alternative, the Company may apply to transfer its
securities to The NASDAQ SmallCap Market.  To transfer, the Company must satisfy
the continued inclusion requirement for that market.  If the Company submits a
transfer application and pays the applicable listing fees by May 15, 2002, the
initiation for the delisting proceedings may be stayed pending NASDAQ's review
of the transfer application.  If NASDAQ does not approve the Company's transfer
application, NASDAQ  intends to provide written notification that the Company's
securities will be delisted.

On March 21, 2002, the Company signed a commitment letter which allows the
Company to renew its $15 million revolving line of credit to a new maturity date
of May 18, 2004.  The agreement governing the renewed credit facility contains
security agreements covering essentially all assets of the Company and covenants
that require the Company to be in compliance with certain financial ratios.
Borrowings under the renewed revolving line of credit bears interest at the
bank's prime rate (4.75% at December 31, 2001) or at the option of the Company,
at LIBOR (weighted average of 2.54% at December 31, 2001) plus 2.35% (if the
Company meets certain financial results, the interest may change to LIBOR plus
2.00%). Borrowing under the renewed credit facility will be limited to a certain
formula, essentially consisting of a portion of the Company's account
receivables, inventory and fixed assets.

The Company believes that funds generated from operations and the revolving line
of credit will be sufficient to finance its working capital and capital
expenditures requirements for the foreseeable future.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                         INDEX TO FINANCIAL STATEMENTS
                        TAITRON COMPONENTS INCORPORATED

<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----
<S>                                                                                           <C>
Report of Independent Certified Public Accountants..........................................    20
Consolidated Balance Sheets at December 31, 2001 and 2000...................................    21
Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999..    23
Consolidated Statement of Shareholders' Equity for the Three Years Ended December 31, 2001..    24
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999..    25
Notes to Consolidated Financial Statements..................................................    26
</TABLE>

                                       19
<PAGE>

              Report Of Independent Certified Public Accountants

The Board of Directors
Taitron Components Incorporated:

We have audited the accompanying consolidated balance sheets of Taitron
Components Incorporated as of December 31, 2001 and 2000, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2001.  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 auditing standards generally accepted
in the United States of America.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement.  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, 2001 and 2000, and the consolidated results of
its operations and its consolidated cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.

/s/ Grant Thornton LLP


Los Angeles, California
February 19, 2002 (except for Note 12, as to which the date is March 21, 2002)

                                       20
<PAGE>

                        TAITRON COMPONENTS INCORPORATED

                          Consolidated Balance Sheets

                                 December 31,

<TABLE>
<CAPTION>
                                                               2001                  2000
                                                        -----------------     -----------------
<S>                                                     <C>                   <C>
              Assets
Current assets:
 Cash and cash equivalents                              $         182,000     $         190,000
 Trade accounts receivable, net                                 2,024,000             4,809,000
 Income Tax receivable                                            781,000                     -
 Inventory, net                                                27,895,000            30,609,000
 Prepaid expenses                                                 248,000               355,000
 Deferred income taxes                                            528,000               749,000
 Other current assets                                             103,000               196,000
                                                        -----------------     -----------------

      Total current assets                                     31,761,000            36,908,000

Property and equipment, net                                     6,768,000             7,205,000

Other assets                                                      305,000               287,000
                                                        -----------------     -----------------

      Total assets                                      $      38,834,000     $      44,400,000
                                                        =================     =================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       21
<PAGE>

                        TAITRON COMPONENTS INCORPORATED

                    Consolidated Balance Sheets - continued

                                 December 31,

<TABLE>
<CAPTION>
                                                                 2001                   2000
                                                          -----------------      -----------------
<S>                                                       <C>                    <C>
         Liabilities and Shareholders' Equity
Current liabilities:
 Revolving line of credit                                 $      11,685,000      $      13,930,000
 Current portion of long-term debt                                   24,000                 22,000
 Trade accounts payable                                           1,171,000              2,495,000
 Accrued liabilities and other                                      449,000                902,000
                                                          -----------------      -----------------
      Total current liabilities                                  13,329,000             17,349,000

Long-term debt, less current portion                                388,000                412,000
                                                          -----------------      -----------------

      Total liabilities                                          13,717,000             17,761,000
                                                          -----------------      -----------------

Commitments and contingencies                                             -                      -

Shareholders' 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; 4,880,682 and 4,983,975 shares
  issued and outstanding at December 31, 2001 and
  2000, respectively                                                  5,000                  5,000
 Class B common stock, $.001 par value.  Authorized,
  issued and outstanding 762,612 shares at December
  31, 2001 and 2000                                                   1,000                  1,000
 Additional paid-in capital                                      10,802,000             11,062,000
 Accumulated other comprehensive loss, net of tax                   (53,000)               (45,000)
 Retained earnings                                               14,362,000             15,616,000
                                                          -----------------      -----------------
      Total shareholders' equity                                 25,117,000             26,639,000
                                                          -----------------      -----------------

      Total liabilities and shareholders' equity          $      38,834,000      $      44,400,000
                                                          =================      =================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       22
<PAGE>

                         TAITRON COMPONENTS INCORPORATED

                      Consolidated Statements of Operations

                             Year ended December 31,


<TABLE>
<CAPTION>
                                                                   2001             2000                1999
                                                             --------------     -------------       -------------
<S>                                                          <C>                <C>                 <C>
Net sales                                                    $   16,736,000     $  32,948,000       $  29,326,000
Cost of goods sold                                               12,534,000        22,763,000          20,930,000
                                                             --------------     -------------       -------------
         Gross profit                                             4,202,000        10,185,000           8,396,000

Selling, general and administrative expenses                      5,521,000         6,668,000           6,053,000
                                                             --------------     -------------       -------------
         Operating (loss) earnings                               (1,319,000)        3,517,000           2,343,000

Interest expense, net                                               761,000           921,000             854,000
Other income, net                                                  (435,000)          (92,000)           (299,000)
                                                             --------------     -------------       -------------
         (Loss) earnings before income taxes                     (1,645,000)        2,688,000           1,788,000

Income tax (benefit) provision                                     (391,000)        1,025,000             759,000
                                                             --------------     -------------       -------------

         Net (loss) earnings                                 $   (1,254,000)    $   1,663,000       $   1,029,000
                                                             ==============     =============       =============

(Loss) earnings per share:
         Basic                                               $         (.22)    $         .29       $         .17
                                                             ==============     =============       =============
         Diluted                                             $         (.22)    $         .28       $         .17
                                                             ==============     =============       =============
Weighted average common shares outstanding:
         Basic                                                    5,679,946         5,799,786           6,006,436
                                                             ==============     =============       =============
         Diluted                                                  5,679,946         5,922,127           6,050,322
                                                             ==============     =============       =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       23
<PAGE>

                         TAITRON COMPONENTS INCORPORATED
                 Consolidated Statement of Shareholders' Equity
                       Three years ended December 31, 2001

<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                     Class A common stock      Class B common stock                         Other
                                     --------------------      --------------------    Additional       Comprehensive
                                       Shares      Amount        Shares      Amount   Paid-in capital   Income (Loss)
                                       ------      ------        ------      ------   ---------------   -------------
<S>                                  <C>          <C>          <C>          <C>       <C>               <C>
Balances at December 31, 1998        5,376,096    $ 5,000        762,612    $ 1,000    $   12,179,000    $    (13,000)

Repurchase of common stock            (291,070)       --             --         --           (722,000)            --

Comprehensive income:
    Foreign currency translation
     adjustment                            --         --             --         --                --           37,000

     Net earnings                          --         --             --         --                --              --

          Comprehensive income             --         --             --         --                --              --
                                     --------------------      --------------------    --------------    ------------
Balances at December 31, 1999        5,085,026      5,000        762,612      1,000        11,457,000          24,000

Exercise of stock options               52,549        --             --         --            100,000             --

Repurchase of common stock            (153,600)       --             --         --           (495,000)            --

Comprehensive income:
    Foreign currency translation
     adjustment                            --         --             --         --                --          (69,000)

     Net earnings                          --         --             --         --                --              --
          Comprehensive income             --         --             --         --                --              --
                                     --------------------      --------------------    --------------    ------------

Balances at December 31, 2000        4,983,975      5,000        762,612      1,000        11,062,000         (45,000)

Exercise of stock options               28,765        --             --         --             55,000             --

Repurchase of common stock            (132,058)       --             --         --           (315,000)            --

Comprehensive loss:
    Foreign currency translation
     adjustment                            --         --             --         --                --           (8,000)

     Net loss                              --         --             --         --                --              --
          Comprehensive loss               --         --             --         --                --              --
                                     --------------------      --------------------    --------------    ------------
Balances at December 31, 2001        4,880,682    $ 5,000        762,612    $ 1,000    $   10,802,000    $    (53,000)
                                     ====================      ====================    ==============    ============

<CAPTION>

                                                      Total
                                       Retained     Shareholders'
                                       Earnings        Equity
                                       --------        ------
<S>                                  <C>            <C>
Balances at December 31, 1998        $ 12,924,000    $ 25,096,000

Repurchase of common stock                    --         (722,000)

Comprehensive income:
    Foreign currency translation
     adjustment                               --           37,000

     Net earnings                       1,029,000       1,029,000
                                                     ------------
          Comprehensive income                --        1,066,000
                                     ------------    ------------

Balances at December 31, 1999          13,953,000      25,440,000

Exercise of stock options                     --          100,000

Repurchase of common stock                    --         (495,000)

Comprehensive income:
    Foreign currency translation
     adjustment                               --          (69,000)

     Net earnings                       1,663,000       1,663,000
                                                     ------------
          Comprehensive income                --        1,594,000
                                     ------------    ------------

Balances at December 31, 2000          15,616,000      26,639,000

Exercise of stock options                     --           55,000

Repurchase of common stock                    --         (315,000)

Comprehensive loss:
    Foreign currency translation
     adjustment                               --           (8,000)

     Net loss                          (1,254,000)     (1,254,000)
                                                     ------------
          Comprehensive loss                  --       (1,262,000)
                                     ------------    ------------

Balances at December 31, 2001        $ 14,362,000    $ 25,117,000
                                     ============    ============
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       24
<PAGE>

                         TAITRON COMPONENTS INCORPORATED

                      Consolidated Statements of Cash Flows

                             Year ended December 31,

<TABLE>
<CAPTION>
                                                                               2001            2000            1999
                                                                           ------------    ------------    ------------
<S>                                                                        <C>             <C>             <C>
Cash flows from operating activities:
    Net (loss) earnings                                                    $ (1,254,000)   $  1,663,000    $  1,029,000
                                                                           ------------    ------------    ------------
    Adjustments to reconcile net (loss) earnings
      to net cash provided by operating activities:
        Depreciation and amortization                                           570,000         506,000         442,000
        Write-down of inventory                                                 775,000         100,000              --
        Provision for sales returns and doubtful accounts                       515,000         662,000         800,000
        Gain on sale of assets                                                   (7,000)             --              --
        Deferred income taxes                                                   221,000        (198,000)        314,000
        Changes in assets and liabilities:
          Trade accounts receivable                                           2,270,000      (1,416,000)       (447,000)
          Income tax receivable                                                (781,000)             --              --
          Inventory                                                           1,939,000      (1,556,000)      5,715,000
          Prepaid expenses and other current assets                             200,000          19,000         145,000
          Other assets                                                          (18,000)       (201,000)        250,000
          Trade accounts payable                                             (1,324,000)        245,000      (2,157,000)
          Accrued liabilities                                                  (453,000)        285,000         (37,000)
                                                                           ------------    ------------    ------------
              Total adjustments                                               3,907,000      (1,554,000)      5,025,000
                                                                           ------------    ------------    ------------
              Net cash provided by operating activities                       2,653,000         109,000       6,054,000
                                                                           ------------    ------------    ------------
Cash flows from investing activities:
    Acquisition of property and equipment                                      (133,000)     (1,319,000)     (3,858,000)
    Proceeds on sale of assets                                                    7,000              --              --
                                                                           ------------    ------------    ------------
              Net cash used in investing activities                            (126,000)     (1,319,000)     (3,858,000)
                                                                           ------------    ------------    ------------

Cash flows from financing activities:
    Borrowings on revolving line of credit and notes payable                  5,076,000      14,056,000       8,986,000
    Proceeds from exercise of stock options                                      55,000         100,000              --
    Payments on revolving line of credit and notes payable                   (7,343,000)    (12,466,000)    (10,587,000)
    Repurchase of common stock                                                 (315,000)       (495,000)       (722,000)
                                                                           ------------    ------------    ------------

              Net cash (used in) provided by financing activities            (2,527,000)      1,195,000      (2,323,000)
                                                                           ------------    ------------    ------------
Impact of exchange rates on cash                                                 (8,000)        (69,000)         37,000
                                                                           ------------    ------------    ------------

              Net decrease in cash and cash equivalents                          (8,000)        (84,000)        (90,000)
Cash and cash equivalents, beginning of year                                    190,000         274,000         364,000
                                                                           ------------    ------------    ------------
Cash and cash equivalents, end of year                                     $    182,000    $    190,000    $    274,000
                                                                           ============    ============    ============

Supplemental disclosures of cash flow information:

    Cash paid for interest (net of capitalized interest of $0, $33,000
      and $38,000 in 2001, 2000 and 1999, respectively)                    $    869,000    $    979,000    $    954,000
                                                                           ============    ============    ============

    Cash paid for income taxes                                             $    309,000    $  1,017,000    $    564,000
                                                                           ============    ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       25
<PAGE>

                         TAITRON COMPONENTS INCORPORATED

                   Notes to Consolidated Financial Statements


(1)    Summary of Significant Accounting Policies

       Description of Business

       Taitron Components Incorporated ("Taitron" or the "Company") is a
       "discrete components superstore," which distributes a wide variety of
       transistors, diodes and other discrete semiconductors, optoelectronic
       devices and passive components to other electronic distributors, contract
       electronic manufacturers (CEMs) and original equipment manufacturers
       (OEMs), who incorporate these devices into their products. In order to
       meet the rapid delivery requirements of its customers, the Company
       maintains a significant inventory of discrete components.

       Principles of Consolidation

       The consolidated financial statements include the accounts of the Company
       and its majority-owned subsidiary. All significant intercompany
       transactions have been eliminated in consolidation.

       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 United States 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, there
       can be no 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 50% of the Company's products are produced in Asia.

       Cash and Cash Equivalents

       The Company considers all highly liquid investments with an original
       maturity of 90 days or less to be cash equivalents. Management of the
       Company maintains a relatively low cash balance as cash is used to buy
       inventory and to repay debt in order to reduce interest cost.

                                       26
<PAGE>

       Revenue Recognition

       Revenue is recognized upon shipment of the merchandise. 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, 2001, 2000 and 1999 aggregated
       $437,000, $631,000 and $715,000, respectively.

       Allowance for Sales Returns and Doubtful Accounts

       The allowance for sales returns and doubtful accounts at December 31,
       2001 and 2000 aggregated $110,000 and $120,000, respectively.

       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 financial statements is net of
       valuation allowances of $1,309,000 and $966,000 at December 31, 2001 and
       2000, respectively. The Company uses a systematic methodology that
       includes regular evaluations of inventory to identify high cost and
       slow-moving inventory.

       Depreciation and Amortization

       Depreciation and amortization of property and equipment are computed
       principally using the accelerated and the straight-line methods using
       lives from 5 to 7 years for furniture, machinery and equipment and 31.5
       years for building and building improvements.

       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 such 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 Option Plan

       Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
       for Stock-Based Compensation," permits entities to recognize as expense,
       over the vesting period, the fair value of all stock-based awards on the
       date of grant. Alternatively SFAS No. 123 allows entities to continue to
       apply the provisions of APB Opinion No. 25 under which compensation
       expense is recorded on the date of grant only if the current market price
       of the underlying stock exceeds the exercise price, and provides for
       disclosure of pro forma earnings and per share information for employee
       stock options as if the fair-value-based method defined in SFAS No. 123
       had been applied. The Company has elected to continue to apply the
       provisions of APB Opinion No. 25 and provide the pro forma disclosure
       provisions of SFAS No. 123.

       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 such
       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.

                                       27
<PAGE>

       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 fair value of long-term debt approximates its carrying value as the
       interest rates are comparable to rates currently offered to the Company
       for similar debt instruments with similar maturities. All financial
       instruments are held for purposes other than trading.

       Net (Loss) Earnings Per Share

       Basic (loss) earnings per share is computed by dividing net (loss) income
       available to common shareholders by the weighted average number of common
       shares outstanding during the period. Diluted earnings per share reflects
       the potential dilution that could occur if securities or other contracts
       to issue common stock were exercised or converted into common stock or
       resulted in the issuance of common stock that then shared in the earnings
       of the Company. Common equivalent shares, consisting primarily of stock
       options, are excluded from the computation of diluted loss per share for
       the period ended December 31, 2001 as their effect is anti-dilutive.

       Foreign Currency Translation

       The financial statements of the Company's majority-owned subsidiary in
       Mexico and division in Taiwan, which were established in 1998 and 1997,
       respectively, are translated into United States 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. Such transactional gains and losses are not
       significant to the consolidated financial statements.

       Segment Reporting

       The Company is centrally managed and operates in one business segment:
       distribution of discrete components including discrete semiconductors,
       passives and optoelectronic devisces.

       Reclassifications

       Certain amounts in the 2000 and 1999 financial statements have been
       reclassified to conform to the 2001 financial statement presentation.

       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 generally accepted accounting principles. 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.

       Recent Accounting Pronouncements

       On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
       Statement of Financial Accounting Standards (SFAS) 141, Business
       Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
       effective for all business combinations completed after June 30, 2001.
       SFAS 142 is effective for fiscal years beginning after December 15, 2001;
       however, certain provisions of this Statement apply to goodwill and other
       intangible assets acquired between July 1, 2001 and the effective date of
       SFAS 142. Major provisions of these Statements and their effective dates
       for the Company are as follows:

                                       28
<PAGE>

       .    All business combinations initiated after June 30, 2001 must use the
            purchase method of accounting. The pooling of interest method of
            accounting is prohibited except for transactions initiated before
            July 1, 2001.

       .    Intangible assets acquired in a business combination must be
            recorded separately from goodwill if they arise from contractual or
            other legal rights or are separable from the acquired entity and can
            be sold, transferred, licensed, rented or changed, either
            individually or as part of a related contract, asset or liability.

       .    Goodwill, as well as intangible assets with indefinite lives,
            acquired after June 30, 2001, will not be amortized. Effective
            January 1, 2002, all previously recognized goodwill and intangible
            assets with indefinite lives will no longer be subject to
            amortization.

       .    Effective January 1, 2002, goodwill and intangible assets with
            indefinite lives will be tested for impairment annually and whenever
            there is an impairment indicator.

       .    All acquired goodwill must be assigned to reporting units for
            purposes of impairment testing and segment reporting.

       The Company believes the adoption of SFAS 141 and 142 will not have a
       material impact on its consolidated financial position or results of
       operations.

       In June 2001, the FASB issued Statement of Financial Accounting Standards
       No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143), which
       addresses financial accounting and reporting for obligations associated
       with the retirement of tangible long-lived assets and associated asset
       retirement costs. The new rules apply to legal obligations associated
       with the retirement of long-lived assets that result from the
       acquisition, construction, development and (or) normal operation of a
       long-lived asset. SFAS 143 is effective for the Company at the beginning
       of fiscal 2003. The Company believes the adoption of SFAS 143 will not
       have a material impact on its consolidated financial position or results
       of operations.

       In August 2001, the FASB issued Statement of Financial Accounting
       Standards No. 144, "Accounting for the Impairment of Disposal of
       Long-Lived Assets" (SFAS 144). SFAS 144 establishes a single accounting
       model for the Impairment or disposal of long-lived assets, including
       discontinued operations. SFAS 144 superseded Statement of Financial
       Accounting Standards No. 121, "Accounting for the Impairment of
       Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS
       121), and APB Opinion No. 30, Reporting the Results of
       Operations-Reporting the Effects of Disposal of a Segment of a Business,
       and Extraordinary, Unusual and Infrequently Occurring Events and
       Transactions. The provisions of SFAS 144 are effective in fiscal years
       beginning after December 15, 2001, with early adoption permitted, and in
       general are to be applied prospectively. The Company believes the
       adoption of SFAS 144 will not have a material impact on its consolidated
       financial position or results of operations.

       Fourth Quarter Significant Adjustments

       During the fourth quarter ended December 31, 2001, the Company recorded
       significant adjustments that contributed to the Company reporting a net
       loss for the fiscal year. Most of those adjustments related to material
       changes in estimates.

       The Company increased the reserve for inventory in the total amount of
       $485,000 during the fourth quarter which was written off to cost of
       sales. The Company estimates the inventory is recoverable at its current
       cost.

       The Company established a valuation allowance for tax deferred assets in
       the amount of $149,000 during the fourth quarter which was expensed to
       income tax benefit. The Company estimates the deferred tax assets will be
       realized prior to expiration.

                                       29
<PAGE>

     The Company increased the recorded amount of income tax receivables and
     deferred tax assets in the amount of $407,000 during the fourth quarter
     which was recorded to income tax benefit. The Company estimates that
     taxable losses will be offset against prior years' taxable income.


(2)  Property and Equipment

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

<TABLE>
<CAPTION>
                                                                December 31,
                                                         --------------------------
                                                             2001           2000
                                                         -----------    -----------
       <S>                                               <C>            <C>
       Land                                              $ 1,650,000    $ 1,643,000
       Building and improvements                           4,896,000      4,881,000
       Furniture and equipment                               863,000        837,000
       Computer software and equipment                     1,887,000      1,828,000
                                                         -----------    -----------
           Total Property and Equipment                    9,296,000      9,189,000
       Less: Accumulated depreciation and amortization    (2,528,000)    (1,984,000)
                                                         -----------    -----------
       Property and Equipment, net                       $ 6,768,000    $ 7,205,000
                                                         ===========    ===========
</TABLE>

(3)  Revolving Line of Credit

     The Company has a revolving line of credit maturing on May 18, 2003, that
     provides up to $15 million for operating purposes. The agreement governing
     this credit facility contains security agreements covering essentially all
     assets of the Company and covenants that require the Company to be in
     compliance with certain financial ratios. Borrowings under the revolving
     line of credit bears interest at the bank's prime rate (4.75% at December
     31, 2001) or at the option of the Company, at LIBOR (weighted average of
     2.54% at December 31, 2001) plus 1.85%. (See Note 13)

(4)  Long-Term Debt

     Long-term debt at December 31, 2001 and 2000 consists of the following:

<TABLE>
<CAPTION>
                                                                                  2001         2000
                                                                               ---------    ---------
       <S>                                                                     <C>          <C>
       First trust deed loan payable in monthly installments of
         $4,349, bearing interest at the rate of 6.359% per
         annum, due December 1, 2013                                           $ 412,000    $ 434,000
       Less current portion                                                      (24,000)     (22,000)
                                                                               ---------    ---------
                                                                               $ 388,000    $ 412,000
                                                                               =========    =========
</TABLE>

     Minimum future payments of long-term debt are summarized as follows:

                    Year ending December 31:
                          2002                       $ 24,000
                          2003                         25,000
                          2004                         27,000
                          2005                         29,000
                          2006                         31,000
                          Thereafter                  276,000
                                                     --------
                                                     $412,000
                                                     ========

                                       30
<PAGE>

(5)  Shareholders' Equity

     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.

     There are 20,000,000 shares of authorized Class A common stock, par value
     $.001 per share, with 4,880,682 and 4,983,975 shares issued and outstanding
     as of December 31, 2001 and 2000, respectively. Each holder of Class A
     common stock is entitled to one vote for each share held.

     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, 2001 and 2000. 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.

     During 2001, 2000, and 1999, the Company repurchased 132,058, 153,600 and
     291,070 shares of its Class A Common Stock on the open market for $315,000,
     $495,000 and $722,000, respectively, and permanently retired such shares.

(6)  Income Taxes

     Income tax (benefit) provision is summarized as follows:

                                                 Year Ended December 31
                                       -----------------------------------------
                                           2001           2000           1999
                                       -----------    -----------    -----------
       Current:
          Federal                      $  (503,000)   $   993,000    $   351,000
          State                           (109,000)       213,000         94,000
                                       -----------    -----------    -----------
                                          (612,000)     1,206,000        445,000
                                       -----------    -----------    -----------
       Deferred:
          Federal                          228,000       (168,000)       237,000
          State                             (7,000)       (13,000)        77,000
                                       -----------    -----------    -----------
                                           221,000       (181,000)       314,000
                                       -----------    -----------    -----------
      Income tax (benefit) provision   $  (391,000)   $ 1,025,000    $   759,000
                                       ===========    ===========    ===========

     The actual income (benefit) provision differs from the "expected" tax
     computed by applying the Federal corporate tax rate of 34% to (loss)
     earnings before income taxes as follows:

<TABLE>
<CAPTION>
                                                             Year Ended December 31
                                                   ------------------------------------------
                                                        2001           2000           1999
                                                   -----------    -----------    -----------
<S>                                                <C>            <C>            <C>
       "Expected" income tax (benefit) expense     $  (487,000)   $   913,000    $   645,000
       State tax (benefit) expense,
            net of Federal benefit                     (77,000)       148,000        110,000
       Increase in valuation allowance                 149,000             --             --
       Other                                            24,000        (36,000)         4,000
                                                   -----------    -----------    -----------
       Income tax (benefit) provision              $  (391,000)   $ 1,025,000    $   759,000
                                                   ===========    ===========    ===========
</TABLE>

                                       31
<PAGE>

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

<TABLE>
<CAPTION>
                                                             December 31
                                                        ----------------------
          Deferred tax assets:                             2001        2000
                                                        ---------    ---------
          <S>                                           <C>          <C>
          Inventory reserves                            $ 608,000    $ 560,000
          Section 263a adjustment                         160,000      170,000
          Allowances for bad debts and returns             59,000       63,000
          Accrued expenses                                 43,000       76,000
          Other                                                --       41,000
                                                        ---------    ---------

          Total deferred tax assets                       870,000      910,000
          Valuation allowance                            (149,000)          --

          Deferred tax liability:                        (122,000)    (161,000)
          Depreciation                                    (71,000)          --
          Deferred state taxes
                                                        ---------    ---------

          Net deferred tax assets                       $ 528,000    $ 749,000
                                                        =========    =========
</TABLE>
       The valuation allowance was $149,000 at December 31, 2001. 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.

(7)  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 15% of their compensation, but
     not in excess of the maximum allowed under the Code. The plan also provides
     for a 20% matching contribution vesting immediately, at the discretion of
     the Company. For the years ended December 31, 2001, 2000 and 1999, employer
     matching contributions aggregated approximately $29,000, $36,000 and
     $24,000, respectively.

     The plan invests a portion of its assets in the common stock of the
     Company. The plan sold 691 and 39,929 shares of the Company's common stock
     on the open market for cash consideration of approximately $1,000 and
     $117,000 during the years ended December 31, 2001 and 2000, respectively.
     The plan purchased 9,780 shares for approximately $19,000 during the year
     ended December 31, 1999. At December 31, 2001, the plan held 119,181 shares
     of the Company's common stock.

(8)  Stock Options and Warrants

     In March 1995, the Company established the 1995 Stock Incentive Plan (the
     Plan) expiring in March, 2005. The Plan provides for the issuance of an
     aggregate of 740,000 incentive stock options, nonstatutory options or stock
     appreciation rights (SAR's) to directors, officers and other employees of
     the Company. Under the Plan, incentive stock options may be granted at
     prices equal to at least the fair market value of the Company's Class A
     common stock at the date of grant. Nonstatutory options and stock
     appreciation rights may be granted at prices equal to at least 85% and
     100%, respectively, of the fair market value of the Company's Class A
     common stock at the date of grant. Outstanding options and rights vest
     ratably over three years commencing one year from the date of grant and are
     subject to termination provisions as defined in the Plan. The Plan also
     provides for automatic grants of nonstatutory options to purchase 5,000
     shares of Class A common stock to all members of the committee
     administering the Plan, upon

                                       32
<PAGE>

     their initial election to such committee and each year thereafter. The
     exercise price of these options is equal to the fair market value of the
     Company's Class A common stock at the date of grant.

     In November 1996, the Company gave each employee who held options and SAR's
     issued during 1995 and 1996 with exercise prices of $5.25 and $7.125 the
     right to receive, in place of such options, an amended option for half the
     shares covered by the original option but with a reduced exercise price of
     $2.25 (the market price on November 21, 1996).

     In April 1995, the Company granted 6,600 stock appreciation rights to
     certain employees at an exercise price of $5.25. Compensation expense
     related to these rights was $0 in 2001, 2000 and 1999.

     The fair value of options, SAR's and warrants used to compute pro forma net
     (loss) earnings and (loss) earnings per share disclosures is the estimated
     present value at grant date using the Black-Scholes option-pricing model
     with the following weighted average assumptions used for 2001: dividend
     yield of 0%; expected volatility of 41%; a risk free interest rate of
     approximately 4% and an expected holding period of five years; assumptions
     for 2000: dividend yield of 0%; expected volatility of 70%; a risk free
     interest rate of approximately 5% and an expected holding period of five
     years; assumptions for 1999: dividend yield of 0%; expected volatility of
     72%; a risk free interest rate of approximately 7% and an expected holding
     period of five years.

     The Company has adopted the disclosure-only provisions of SFAS No. 123,
     "Accounting for Stock-Based Compensation", but applies Accounting
     Principles Board Opinion No. 25 and related interpretations in accounting
     for its Plan SAR's and warrants. If the Company had elected to recognize
     compensation cost based on the fair value at the grant dates for awards
     under the Plan SAR's and warrants (including the modified awards),
     consistent with the method prescribed by SFAS No. 123, net (loss) earnings
     and (loss) earnings per share would have been changed to the pro forma
     amounts indicated below:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                                        ------------------------
                                                              2001              2000             1999
                                                              ----              ----             ----
     <S>                                                  <C>               <C>                <C>
     Net (loss) earnings             As reported          $(1,254,000)      $1,663,000         $1,029,000
                                     Pro forma            $(1,402,000)      $1,498,000         $  765,000
     Diluted (loss) earnings
        per share                    As reported          $      (.22)      $      .28         $      .17
                                     Pro forma            $      (.25)      $      .25         $      .13
</TABLE>

     Stock option and SAR activity during the periods indicated is as follows:

<TABLE>
<CAPTION>
                                                                                                 Weighted
                                                                                                  Average
                                                                                Number           Exercise
                                                                              of Shares            Price
                                                                              ---------            -----
     <S>                                                                      <C>                <C>
     Balance at December 31, 1998                                                  335,250       $2.66
        Granted                                                                    375,400        1.67
        Forfeited                                                                  (73,800)       1.92
                                                                          ------------------
     Balance at December 31, 1999                                                  636,850        1.69
        Granted                                                                    110,800        3.19
        Exercised                                                                  (60,515)       1.90
        Forfeited                                                                  (46,799)       1.58
                                                                          ------------------
     Balance at December 31, 2000                                                  640,336        2.52
        Granted                                                                    142,800        1.83
        Exercised                                                                  (28,765)       1.90
        Forfeited                                                                 (145,837)       2.06
                                                                          ------------------
     Balance at December 31, 2001                                                  608,534        2.10
                                                                          ==================
</TABLE>

                                       33
<PAGE>

     The weighted average fair value of options granted in 2001, 2000 and 1999
     was $0.81, $2.30 and $1.17, respectively.

     At December 31, 2001, the range of exercise prices was: $1.31 to $1.86 for
     229,800 options; $2.25 to $3.00 for 324,034 options; and; $3.19 to $4.13
     for 54,700 options. The remaining contractual life of outstanding options
     is 90 days after termination of employment of option holder.

     At December 31, 2001, 2000 and 1999, the number of options exercisable was
     456,699, 469,235 and 442,383, respectively, and weighted average exercise
     prices of those options were $2.61, $2.61 and $2.58, respectively.

9)   Net (Loss) Earnings Per Share

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

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                  ---------------------------------------------------
                                                                         2001              2000            1999
                                                                  -----------------  ---------------  ---------------
     <S>                                                          <C>                <C>              <C>
     Net (loss) earnings available to common
        shareholders used in basic
        (loss) earnings per share                                 $     (1,254,000)  $    1,663,000   $    1,029,000
                                                                  =================  ===============  ===============

     Weighted average number of common shares
        used in basic (loss) earnings per share                          5,679,946        5,799,786        6,006,436
                                                                  -----------------  ---------------  ---------------

     Basic (loss) earnings per share                              $           (.22)  $          .29   $          .17
                                                                  =================  ===============  ===============

     Effect of dilutive securities:
        Warrants                                                                 -                -                -
        Options                                                                  -          122,341           43,886
                                                                  -----------------  ---------------  ---------------
     Weighted number of common shares and
        dilutive potential common shares used in
        diluted (loss) earnings per share                                5,679,946        5,922,127        6,050,322
                                                                  =================  ===============  ===============

     Diluted (loss) earnings per share                            $           (.22)  $          .28   $          .17
                                                                  =================  ===============  ===============
</TABLE>

     Warrants on 220,000 shares of common stock were not included in computing
     diluted (loss) earnings per share for the year ended December 31, 1999
     because their effects were antidilutive. These warrants expired unexercised
     on April 19, 2000.

(10) Commitments and Contingencies

     Operating Leases
     ----------------

     The Company leases property and equipment under non-cancelable operating
     leases expiring on various dates through 2004 with total future commitments
     of $59,000. There were no new operating leases entered into during 2001.
     Rental expense for the years ended December 31, 2001, 2000 and 1999
     aggregated $88,000, $89,000 and $134,000, respectively.

     At December 31, 2001, 2000 and 1999, the Company had no standby or
     commercial letters of credit outstanding under the revolving line of credit
     agreement with the bank (Note 3).

                                       34
<PAGE>

(11)   Valuation and Qualifying Accounts and Reserves

       The following is the Company's schedule of activity in the valuation and
       qualifying accounts and reserves for the years ended December 31, 2001,
       2000 and 1999:

<TABLE>
<CAPTION>
                                               Balance at           Charged to                              Balance
                                                Beginning           Costs and                               At end
                                                 of year             Expenses           Deductions          of year
                                              --------------      ---------------    ----------------    --------------
       <S>                                    <C>                 <C>                <C>                 <C>
       Allowance for sales returns and
          doubtful accounts:
            2001                              $    120,000        $    515,000         $   525,000        $    110,000
            2000                              $    120,000        $    662,000         $   662,000        $    120,000
            1999                              $    160,000        $    800,000         $   840,000        $    120,000

       Inventory reserves:
            2001                              $    966,000        $    775,000         $   432,000        $  1,309,000
            2000                              $  1,030,000        $    100,000         $   164,000        $    966,000
            1999                              $  1,353,000        $          -         $   323,000        $  1,030,000
</TABLE>

(12)   Subsequent Events

       The Company received notice, dated February 14, 2002, from NASDAQ which
       informed the Company that its Class A common stock has not maintained a
       minimum market value of publicly held shares ("MVPHS") of $5,000,000 as
       required for continued inclusion by Marketplace Rule 4450(a)(2) (the
       "Rule"). Therefore, the Company has been provided 90 calendar days or
       until May 15, 2002, to regain compliance. If, at anytime before May 15,
       2002, the MVPHS of the Company's Class A common stock is $5,000,000 or
       greater for a minimum of 10 consecutive trading days, NASDAQ expects to
       provide written notification that the Company complies with the Rule. If
       compliance with this Rule cannot be demonstrated by May 15, 2002, NASDAQ
       expects to provide written notification that its securities will be
       delisted. At that time, the Company may appeal NASDAQ's determination.

       As of the Date of this Report, the Company has been in contact with
       NASDAQ to review certain proposals to regain compliance and remain on
       NASDAQ's National Market stock exchange. As an alternative, the Company
       may apply to transfer its securities to The NASDAQ SmallCap Market. To
       transfer, the Company must satisfy the continued inclusion requirement
       for that market. If the Company submits a transfer application and pays
       the applicable listing fees by May 15, 2002, the initiation for the
       delisting proceedings may be stayed pending NASDAQ's review of the
       transfer application. If NASDAQ does not approve the Company's transfer
       application, NASDAQ intends to provide written notification that the
       Company's securities will be delisted.

       On March 21, 2002, the Company signed a commitment letter which allows
       the Company to renew its $15 million revolving line of credit to a new
       maturity date of May 18, 2004. The agreement governing the renewed credit
       facility contains security agreements covering essentially all assets of
       the Company and covenants that require the Company to be in compliance
       with certain financial ratios. Borrowings under the renewed revolving
       line of credit bears interest at the bank's prime rate (4.75% at December
       31, 2001) or at the option of the Company, at LIBOR (weighted average of
       2.54% at December 31, 2001) plus 2.35% (if the Company meets certain
       financial results, the interest may change to LIBOR plus 2.00%).
       Borrowing under the renewed credit facility will be limited to a certain
       formula, essentially consisting of a portion of the Company's account
       receivables, inventory and fixed assets.

                                       35
<PAGE>

(13)     Selected Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
                                                         Three Months Ended
                                      3/31/2001     6/30/2001      9/30/2001      12/31/2001
<S>                                   <C>           <C>            <C>            <C>
Net sales                           $ 5,524,000   $ 4,152,000    $ 3,726,000     $ 3,334,000
Gross profit                          1,637,000     1,106,000        975,000         484,000
Net (loss) earnings                 $   (74,000)  $  (364,000)   $  (307,000)    $  (509,000)

(Loss) earnings per share
     Basic                          $     ( .01)  $     ( .06)   $     ( .06)    $     ( .09)
     Diluted                        $     ( .01)  $     ( .06)   $     ( .06)    $     ( .09)

<CAPTION>
                                                         Three Months Ended
                                      3/31/2000     6/30/2000      9/30/2000      12/31/2000
<S>                                   <C>           <C>            <C>            <C>
Net sales                           $ 8,348,000   $ 8,826,000    $ 8,663,000     $ 7,111,000
Gross profit                          2,562,000     2,828,000      2,748,000       2,047,000
Net (loss) earnings                 $   437,000   $   549,000    $   523,000     $   154,000

(Loss) earnings per share
     Basic                          $       .08   $       .09    $       .09     $       .03
     Diluted                        $       .07   $       .09    $       .09     $       .03
</TABLE>

                                       36
<PAGE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                         FINANCIAL DISCLOSURES

               None.


                                   PART III


ITEM 10.  DIRECTORS, AND EXECUTIVE OFFICERS, OF THE REGISTRANT

               Information regarding directors and executive officers of the
       Company will appear in the Proxy Statement of the Annual Meeting of
       Shareholders under the caption "Election of Directors" and is
       incorporated herein by this reference. The Proxy Statement will be filed
       with the SEC within 120 days following December 31, 2001.


ITEM 11.  EXECUTIVE COMPENSATION

               Information regarding executive compensation will appear in the
       Proxy Statement for the Annual Meeting of Shareholders under the caption
       "Executive Compensation" and is incorporated herein by this reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

               Information regarding security ownership of certain beneficial
       owners and management will appear in the Proxy Statement for the Annual
       Meeting of Shareholders under the caption "Security Ownership of Certain
       Beneficial Owners and Management" and is incorporated herein by this
       reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

               Information regarding certain relationships and related
       transactions will appear in the Proxy Statement for the Annual Meeting of
       Shareholders under the caption "Certain Relationships and Related
       Transactions" and is incorporated herein by this reference.

                                       37
<PAGE>

                                    PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  List the following documents filed as part of this report:

(1)  Financial Statements:

     Reference is made to the Financial Statements provided under Item 8 of this
     report.

(2)  Financial Statement Schedules:

     Reference is made to the Financial Data Schedule provided as Exhibit 27.

(3)  Exhibits:

     3.1     Articles of Incorporation of Taitron Components Incorporated (the
             Registrant). (a)

     3.2     Bylaws of the Registrant. (a)

     4.1     Specimen certificate evidencing Class A Common Stock of the
             Registrant. (a)

     4.2     Form of Underwriter's Warrant. (a)

     10.1    Form of Director and Officer Indemnification Agreement. (a)

     10.2    1995 Stock Incentive Plan, As Amended (e)

     10.3    Form of Employment Agreement, dated as of January 1, 1995, by and
             between the Registrant and Stewart Wang. (a)

     10.4    Loan and Security Agreement, dated May 5, 1994, between the
             Registrant and Union Bank. (a)

     10.5    Loan Agreement, dated October 15, 1993, by and between the
             Registrant and California Statewide Certified Development
             Corporation. (a)

     10.6    Wm Michaels Limited Regional Prototype Defined Contribution Plan
             and Trust (d)

     10.7    Form of Sales Representative Agreement. (a)

     10.8    Loan Agreement, dated June 16, 1995, between Registrant and Union
             Bank. (b)

     10.9    Convertible Subordinated Note Agreement, dated May 18, 1996, by and
             between the Registrant and Tenrich Holdings. (c)

     10.10   Lease Agreement, dated May 29, 1996, by and between Scott Valencia
             Property Company as Lessor and Taitron Components Incorporated, as
             Lessee for property located at 27827 Ave Scott, Santa Clarita,
             California 91355. (c)

     10.11   Amended Loan Agreement and Note, dated January 2, 1997, between
             Registrant and Union Bank; Amended Loan Agreement and Note, dated
             March 13, 1997, between Registrant and Union Bank. (e)

     10.12   Business Loan Agreement and Addendum, dated May 6, 1997, between
             the Registrant and Comerica Bank - California. (d)

     10.13   Master Revolving Note and Addendum, dated May 6, 1997, between the
             Registrant and Comerica Bank - California. (d)

     10.14   Security Agreement, dated May 6, 1997, between the Registrant and
             Comerica Bank -

                                       38
<PAGE>

             California. (d)

     10.15   Amendment to Business Loan Agreement and Master Revolving Note,
             dated June 9, 1999, between the Registrant and Comerica Bank -
             California. (f)

     10.16   Amendment to Business Loan Agreement, dated December 27, 1999,
             between the Registrant and Comerica Bank - California. (f)

     10.17   Amendment to Business Loan Agreement, dated May 5, 2000, between
             the Registrant and Comerica Bank - California. (g)

     10.18   Amendment to Business Loan Agreement, dated May 18, 2001, between
             the Registrant and Comerica Bank - California. (h)

     10.19   Amendment to Business Loan Agreement, dated December 5, 2001,
             between the Registrant and Comerica Bank - California.

     10.20   Commitment Letter to Amend Business Loan Agreement, dated March 21,
             2002, between the Registrant and Comerica Bank - California.

     24.1    Power of Attorney (see page 40 of this Annual Report on Form 10-K).

     ---------------------------------------------------------------------------

     (a)     Incorporation by reference from Taitron Components Incorporated
             Registration Statement on Form SB-2, Registration No. 33-90294-LA.

     (b)     Incorporation by reference from Taitron Components Incorporated
             Form 10-KSB for the Fiscal year ended December 31, 1995.

     (c)     Incorporated by reference from Taitron Components Incorporated Form
             10-QSB for the quarter ended June 30, 1996.

     (d)     Incorporated by reference from Taitron Components Incorporated Form
             10-QSB for the quarter ended June 30, 1997.

     (e)     Incorporated by reference from Taitron Components Incorporated Form
             10-QSB for the quarter ended June 30, 1998

     (f)     Incorporated by reference from Taitron Components Incorporated Form
             10-K for the Fiscal year ended December 31, 1999.

     (g)     Incorporated by reference from Taitron Components Incorporated Form
             10-K for the Fiscal year ended December 31, 2000.

     (h)     Incorporated by reference from Taitron Components Incorporated Form
             10-Q for the quarter ended September 30, 2001.


(b) Reports on Form 8-K:

             None

                                       39
<PAGE>

                                  SIGNATURES

          In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                       Taitron Components Incorporated
                                       (Registrant)

                                       By  /s/ Stewart Wang
                                           --------------------------------
                                       Stewart Wang
                                       Its:  Chief Executive Officer

                                       Date:        March 25, 2002
                                             ----------------------------

                               POWER OF ATTORNEY

          KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stewart Wang his attorney-in-fact and
agent, 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 attorney-in-
fact, or his substitutes, may do or cause to be done by virtue hereof.

In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
          Signature                          Title                                  Date
          ---------                          -----                                  ----
<S>                                  <C>                                         <C>
/s/ Johnson Ku                       Chairman of the Board                       March 25, 2002
-------------------------------
Johnson Ku


/s/ Stewart Wang                     Chief Executive Officer, President          March 25, 2002
-------------------------------      and Director
Stewart Wang                         (Principal Executive Officer)



/s/ Steven H. Dong                   Chief Financial Officer                     March 25, 2002
-------------------------------      and Secretary
Steven H. Dong                       (Principal Financial Officer)



/s/ Richard Chiang                   Director                                    March 25, 2002
-------------------------------
Richard Chiang


/s/ Craig Miller                     Director                                    March 25, 2002
-------------------------------
Craig Miller


/s/ Felix Sung                       Director                                    March 25, 2002
-------------------------------
Felix Sung
</TABLE>

                                       40