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                         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, 1998

     / /  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.)


          25202 ANZA DRIVE, SANTA CLARITA, CALIFORNIA  91355
          (Address of Principal Executive Offices)   (Zip Code)

     REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:    (805) 257-6060

     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)

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 March 15, 1999 was $4,500,000.

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

Number of shares outstanding on March 15, 1999:
Class A Common Stock, $.001 par value 5,376,096
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 
June 11, 1999 are incorporated by reference in Part III of this Form 10-K.

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<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 11 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, 1998, the Company's 
inventory consisted of over 1.4 billion components.  The Company distributes 
over 12,000 different products manufactured by more than 65 different 
suppliers.  The Company's per unit sales price of components for the net 
sales made during the year ended December 31, 1998 averaged approximately 3.1 
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.  Based on 1997 sales in North America, ELECTRONIC 
BUYERS NEWS ranked the Company 50th among the top 50 distributors and 18th 
for distribution of discrete semiconductors.  The largest single distributor 
reported sales for 1997 of over $4.9 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 1998, approximately 58% of the Company's sales went 
to other distributors.

     The Company intends to continue to grow by increasing 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.  The Company has historically sold its products 
through a national network of independent sales representatives.  To better 
service its customers, the Company, during the last fiscal year, expanded its 
direct sales force geographically to cover portions of the United States.  

     In 1998, the Company has invested substantially in a warehouse 
management system, computer upgrades, software enhancements, integrated 
real-time information system and on-line query system.  Management believes 
these investments will increase the Company's efficiency, improve inventory 
turns and eventually reduce operating cost.

                                      -1-

<PAGE>

     The demand for discrete semiconductors in the U.S. market has slowed 
down since 1996.  The Company sold more units of components in fiscal year 
1998 than 1997,  but has been unable to offset the price reductions that have 
occurred. Management believes, with the stronger infrastructure and it's 
strong financial position, the Company anticipates managing the Company's 
future growth through mergers and acquisitions including potential candidates 
overseas. 

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

     During 1994, the Company introduced optoelectronic devices in a new 
catalog.  The catalog contains a wide selection of optoelectronic devices 
such as LED's, infrared sensors and opto couplers.  During 1997, the Company 
introduced a new catalog of all passive components.  The catalog began an 
aggressive marketing campaign to sell passive components, such as resistors, 
capacitors and inductors, a type of electronic component manufactured with 
non-semiconductor materials.  The Company believes that optoelectronic 
devices, passive components and discrete semiconductors can be marketed 
through existing channels, which in turn will reinforce the Company's current 
relationship with its customers.  Sales of optoelectronic devices were 
$1,972,000, $1,721,000 and $1,675,000 for the years ended December 31, 1998, 
1997 and 1996, respectively. Sales of passive components during 1998 and 1997 
were $ 1,046,000 and $799,000, respectively. The Company purchased inventory 
of $1,642,000 of passive components to facilitate planned increases in sales 
of passive components in the future.  This is a forward looking statement and 
the Company cannot guarantee that sales of passive 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.

                                      -2-

<PAGE>

     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 1997's top 50 electronics distributors reported by ELECTRONIC BUYERS NEWS, 
the Company believes that only Taitron and three other companies focused a 
significant portion of their distribution efforts on discrete semiconductors. 
However, the Company believes that the three other companies concentrated 
their selling efforts on other semiconductor components, such as integrated 
circuits, microprocessors and memory components.  The Company believes that 
it was the only distributor which concentrated its efforts almost exclusively 
on the discrete semiconductor market.

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.  The Company has marketed itself as a 
"discrete components  superstore," whose in-depth focus on discrete 
semiconductors and extensive inventory of products is of benefit to both 
suppliers and OEMs.  In creating the "superstore" strategy, the Company has 
attempted to develop a more efficient link between suppliers and the small to 
medium sized OEMs and distributors 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 as a result of its decision to 
     maintain inventory levels and intensify its long standing purchasing 
     strategy by making opportunistic purchases of suppliers' uncommitted 
     capacity, at favorable pricing. With immediate availability of a wide 
     selection of products and brands, the Company attempts to function more 
     like a wholesale superstore than a franchised distributor.  See Part II 
     Item 7 - "MANAGEMENT'S DISCUSSION AND ANALYSIS -Liquidity and Capital 
     Resources."

          STRATEGIC PURCHASING.   When the opportunity presents itself, the 
     Company also 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 15% of its sales 
     are a direct result of being a master distributor. 

          FRANCHISED DISTRIBUTORS.  This year, the Company is developing a 
     Franchised Distributor Agreement with its preferred distributors to 
     promote a much stronger business relationship.   Under this type of 
     agreement, Taitron's Franchised Distributors provide point of sales 
     ("POS") reports which identifies the distributor's customers and the 
     Company provides the distributors price protection, stock rotations and 
     return privileges among other benefits.  By the end of 1998, over 40 
     Preferred Distributors signed the Franchised Agreement.    

                                      -3-

<PAGE>

          RELATIONSHIPS WITH SUPPLIERS.  During 1998, the Company entered 
     into agreements with certain suppliers that provide the Company with 
     stock rotation and price protection privileges.  The amount of inventory 
     subject to these agreements that provide stock rotation and price 
     protection privileges was approximately $17.1 million of total inventory 
     at December 31, 1998.  For the balance of the Company's inventory, 
     unlike most other distributors, the Company does not demand stock 
     rotation and price protection privileges which are generally 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 
     significantly reducing the risks and costs associated with 
     over-purchasing or obsolescence. Price protection mitigates the risks of 
     falling prices of components held in inventory.  Approximately $13.5 
     million of the Company's inventory at December 31, 1998 was subject to 
     price protection arrangements with suppliers.  The Company believes that 
     it has been able to gain a competitive advantage over other distributors 
     by typically foregoing or not demanding these privileges (and thus 
     assuming the majority of risk for over-purchasing, product obsolescence 
     and the risk for price fluctuations) in order to obtain better pricing.  
     Since 1997, the Company has operated an office in Taipei, Taiwan.  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."

          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 
     continue to grow through further expansion of the number of different 
     types and brands of products in its inventory and by continuing to 
     expand its direct sales force geographically to attract additional 
     electronics distributors, CEMs and OEMs. See "BUSINESS - Sales and 
     Marketing."

                                      -4-

<PAGE>

PRODUCTS

     The Company markets a wide variety of discrete semiconductors, including 
rectifiers (or power diodes), diodes and transistors, optoelectronic devices 
and passive components.  The Company maintains a broad line of brands and 
products including a "Taitron" label produced by certain suppliers on 
selected products in order not to conflict with their own marketing channels. 
 The Company attempts to maintain at least ten months of inventory for each 
component in its catalogs.  At December 31, 1998, the Company's inventory 
contained over 1.4 billion separate components and over 12,000 distinct 
products.   In 1998, the average component sales price of the products sold 
by the Company was approximately 3.1 cents.

     In 1998, the Company purchased products from over 65 suppliers, 
including Everlight Electronics Co, Ltd., Fairchild Semiconductor 
Corporation, Frontier Electronics Co., Ltd., General Semiconductor, Inc., 
Hi-Sincerity Microelectronics, Samsung Semiconductor, Inc., United Parts Mart 
and Vishay Electronic Components.  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 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.

                                      -5-

<PAGE>

     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.

     The Company's distribution originates from a 24,500 square foot owned 
facility and a 30,000 square foot leased facility, both located in Santa 
Clarita, California.  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 1998, the Company distributed its products to over 2,000 
customers. For the years ended December 31, 1998, 1997 and 1996, no one 
customer accounted for more than 3.6%, 3.3% and 3.6%, 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, over time, as the 
Company has expanded its customer base, the Company's customer breakdown has 
become somewhat more balanced, with distributors accounting for approximately 
58% and CEMs and OEMs accounting for  approximately 42% of the Company's net 
sales in 1998.

     The Company historically has not required its distributor customers to 
provide any point of sale reporting and therefore the Company does not know 
the breakdown of industries into which its products are sold. 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 which it sold in 
1998, 1997 or 1996.

     Taitron offers sales support to its customers through its sales 
department and a network of 13 independent sales representatives.  Inventory 
support provided to customers 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 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." 

                                      -6-


<PAGE>

SALES AND MARKETING

     The Company's inside sales department, located in Santa Clarita, 
California, 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 franchised distributors. The company also has outside account 
managers responsible for developing new CEM and OEM accounts, as well as 
working locally with our independent sales representatives and franchised 
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 from National Distributors increased from $2.8 
million in 1997 to $3.9 million in 1998.

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

     The Company has recognized that there is a rapidly growing market for 
discrete components in South America.  To take advantage of this opportunity, 
Taitron opened a branch office in Sao Paulo, Brazil in May 1995, and entered 
into a joint venture in Mexico City, Mexico in September 1998.  South 
American sales were $376,000 in 1998, $438,000 in 1997 and $391,000 in 1996. 

     The 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.  The 
independent sales representatives are primarily responsible for face-to-face 
meetings with the Company's customers, and for developing new customers.  The 
Company's 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. During 1998, sales 
representatives were no longer compensated for sales made to non-franchised 
distributors. The Company believes that this new commission policy re-directs 
independent sales representatives attention to CEMs, OEMs and franchised 
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.

     At March 15, 1999, the Company's sales and marketing department 
consisted of 20 employees, including 4 that are located outside of Santa 
Clarita, California, and the Company utilized 13 independent sales 
representatives 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 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.

                                      -7-

<PAGE>

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, during 1997 and 1998 the Company did enter 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."

     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, and it generally does not require 
stock-rotation or return privileges, all of which are costly to the supplier. 
The Company requests and will accept price protection from its suppliers.  
See "BUSINESS - Cautionary Statements and Risk Factors - NEED TO MAINTAIN 
LARGE INVENTORY; PRICE FLUCTUATIONS" and "BUSINESS - Strategy."

     The Company purchases components from over 65 different suppliers, 
including Everlight Electronics Co., Ltd., Fairchild Semiconductor 
Corporation, Frontier Electronics Co., Ltd., General Semiconductor, Inc. 
Hi-Sincerity Microelectronics, Samsung Semiconductors Inc., United Parts Mart 
and Vishay Electronic Components.  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, 1998, the Company's four largest 
suppliers, General Semiconductor, Inc., Samsung Semiconductors, Inc., 
Fairchild Semiconductor Corporation and Vishay Electronic Components 
accounted for approximately 60% 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, 
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 - Semiconductor 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 

                                      -8-

<PAGE>

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 1998 the Company 
has acquired and fully implemented an Oracle Applications System.  The 
Company believes that this system has the capabilities to serve the Company 
for future anticipated needs including capabilities of net working with 
remote locations. 

WAREHOUSE MANAGEMENT SYSTEM 

Taitron has invested approximately $100,000 for the installation of a 
Warehouse Management System. In return, the wireless radiofrequency bar-coded 
system will greatly enhance the accuracy of quantity and location control of 
the inventory. It will also reduce the errors in delivering components to 
customers.  The complete Warehouse Management System is expected to be 
operational by the third quarter of 1999. See "MANAGEMENT'S DICUSSION AND 
ANALYSIS "Year 2000 Issues ."

FOREIGN TRADE REGULATION

     A large portion of the products distributed by the Company are 
manufactured in the Far East, including Taiwan, Japan, China, 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 are experiencing financial problems.  Mounting 
trade deficits have sent interest rates soaring and local currencies 
plunging.  The US dollar's rise compared with Asian currencies may reduce 
exports to Asia in the future.  1998 sales to Asian customers was 4.3% of the 
Company's total sales. Management believes that the decline in 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, 1999, the Company had a total of 51 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 excellent.

                                      -9-

<PAGE>

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.  The Company is highly dependent upon the 
services of Stewart Wang, its Chief Executive Officer and President.  The 
success of the Company 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 the Company.  In addition, the 
Company's work force includes executives and employees with significant 
knowledge and experience in the electronics distribution industry.  The 
Company's future success will be strongly influenced by its ability to 
continue to recruit, train and retain a skilled work force.  While the 
Company believes that it would be able to locate suitable replacements for 
its executives or other personnel if their services were lost to the Company, 
there can be no assurance that the Company would be able to do so on terms 
acceptable to the Company.  In particular, the location and hiring of a 
suitable replacement for Mr. Wang could be very difficult.  The Company has 
purchased and currently intends to maintain a key-man life insurance policy 
on Mr. Wang's life with benefits of $2,000,000 payable to the Company in the 
event of Mr. Wang's death.  The benefits received under this policy might not 
be sufficient to compensate the Company for the loss of Mr. Wang's services 
should a suitable replacement not be employed.

     RELATIONSHIP WITH SUPPLIERS.  Typically, the Company does not have 
written long-term supply or distribution agreements with any of its 
suppliers.  Although the Company believes that it has established close 
working relationships with its principal suppliers, the Company's success 
will depend, in large part, on maintaining these relationships and developing 
new supplier relationships for its existing and future product lines.  
Because of the lack of long-term contracts, there can be no assurance that 
the Company will be able to maintain these relationships.  For example, in 
1992, ITT Semiconductors, which was then one of the Company's principal 
suppliers, consolidated its United States distribution network into a limited 
number of distribution channels and the Company was not among the 
distributors chosen.  The Company believes that, even if it loses its direct 
relationship with a supplier, there exist alternative sources for 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.

     NEED TO MAINTAIN LARGE INVENTORY; PRICE FLUCTUATIONS.  To adequately 
service its customers, the Company believes that it is necessary to maintain 
a large inventory of its product offerings, and the Company generally 
attempts to maintain approximately ten months inventory of most products in 
its catalogs. The Company's inventory level is higher than this due to its 
decision to maintain inventory levels and intensify its long standing 
purchasing strategy by making opportunistic purchases of suppliers' 
uncommitted capacity, at favorable pricing.  The Company is focusing its 
efforts to maintain or gradually reduce its inventory.  If prices of 
components held in inventory by the Company decline or if new technology is 
developed that displaces products distributed by the Company and held in 
inventory, the Company's business could be materially adversely affected.  
See "BUSINESS - Strategy."

     PRODUCT MIX; PRODUCT MARGINS.  The Company's gross profit margins in 
general have decreased since 1995, principally due to a weaker product demand 
and competitive pricing pressures within the electronics industry.  The 
Company's gross profit margins are subject to a number of factors, including 
product demand, the ability of the Company to purchase inventory at favorable 
prices and the Company's favorable sales mix, all of which could adversely 
impact margins.  Generally optoelectronic devices and passive components have 
a lower gross margin than other products that the Company sells.  See Part II 
Item 7 - "MANAGEMENT'S DISCUSSION AND ANALYSIS - Results of Operations."

     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 the Company believes that, due 
to the depth of its inventory, it has not been adversely affected by past 
shortages in certain discrete 

                                     -10-

<PAGE>

components, no assurance can be given that future shortages will not 
adversely impact the Company.  See "BUSINESS - Suppliers."

     FOREIGN TRADE REGULATION.  A significant number of the products 
distributed by the Company are manufactured in Taiwan, China, 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 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 also have a material adverse 
impact on the Company's business and results of operations. See "BUSINESS - 
Suppliers" and "BUSINESS - Foreign Trade Regulation."

     MANAGEMENT OF GROWTH.   The Company's ability to effectively manage 
future growth, if any, will require it to continue to implement and improve 
its operational, financial and management information systems and to train, 
motivate and manage a larger number of employees.  There can be no assurance 
that the Company will be able to preserve the revenue growth experienced in 
prior years, continue its profitable operations or manage future growth 
successfully.  As an example, sales decreased from 1995 to 1996 principally 
as a result of the soft market demand for discrete semiconductors.  See Part 
II Item 7 - "MANAGEMENT'S DISCUSSION AND ANALYSIS - Results of Operations."

     COMPETITION.  The Company faces intense competition, both in its 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 those of the Company.  Many competing distributors 
also carry product lines which the Company does 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 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 decrease on profit margins.  There 
can be no assurance that the Company will be able to continue to compete 
effectively with existing or potential competitors.  See "BUSINESS - 
Competition."

                                      -11-

<PAGE>

     CONTROL BY CLASS B COMMON STOCK SHAREHOLDER; POSSIBLE DEPRESSIVE EFFECT 
ON THE PRICE OF THE CLASS A COMMON STOCK.  Stewart Wang, the Company's Chief 
Executive Officer and President, beneficially owns all of the Class B Common 
Stock of the Company, which carries ten votes per share, and he thus controls 
approximately 58% of the voting power of the Company's Common Stock.  As a 
result, Mr. Wang is able to control the Company and its operations, including 
the election of at least a majority of the Company's Board of Directors and 
the policies of the Company.  Also, at any time while the Company has at 
least 800 shareholders who beneficially own shares of the Company's Common 
Stock, the Company's 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 the Company 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.  The Company maintains a "no hassle" return policy.  On 
a case-by-case basis, the Company accepts returns of products from its 
customers, without restocking charges, where 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.  With respect to CEMs and OEMs, acceptable causes are generally 
limited to loss of orders for products in which the components were to be 
incorporated and errors in specifications of the CEMs and OEMs orders to the 
Company (e.g. when the CEM or OEM erroneously orders the wrong product).  The 
Company will also, on a case-by-case basis, accept returns of products upon 
payment of a restocking fee, which generally is set at 15% of the sales 
price.  The Company will not accept returns of any products which were 
special ordered by a customer, or which are otherwise not generally included 
in the Company's inventory.  During the fiscal years ended December 31, 1998, 
1997 and 1996, sales returns aggregated $1,128,000, $1,110,000 and $1,536,000 
or 3.7%, 3.3% and 5.1% of net sales, respectively. Historically, most 
allowable returns occur during the first two months following shipment.  
While the Company maintains reserves for product returns which it considers 
to be adequate, the possibility exists that the Company could experience 
returns in any period at a rate significantly in excess of historical levels, 
which could materially and adversely impact the Company's results of 
operations for that period. See Part II Item 7 - "MANAGEMENT'S DISCUSSION AND 
ANALYSIS - Results of Operations" and "BUSINESS - Customers."

     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 the Company.  
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 the Company's 
business and results of operations.  See "BUSINESS - Semiconductor 
Distribution Channels."

     NO EARTHQUAKE INSURANCE.  The Company's principal executive offices are 
located in a Company-owned facility in Santa Clarita, California - an area 
which experienced significant damage in the 1994 Northridge, California 
earthquake. During 1994, the Company spent approximately $145,000 in repair 
costs and renovations to its facility resulting from that earthquake, none of 
which were covered by insurance.  The Company believes that it is 
economically a better decision to self insure against any future earthquake 
losses than to pay the expensive earthquake insurance premiums.

                                      -12-

<PAGE>

ITEM 2.   PROPERTIES.

     The Company's executive offices and warehouse facilities, covering 
approximately 24,500 square feet, are located in Santa Clarita, California.  
The Company owns this property subject to a mortgage held by a bank with an 
outstanding principal balance of  $475,000 as of December 31, 1998 and due on 
December 1, 2013 (the "Mortgage"). Pursuant to the Mortgage, the Company is 
obligated to make monthly payments of $4,390, which includes interest at 
6.359% per annum. Payments by the Company under the Mortgage are currently 
unconditionally guaranteed by both the Chairman of the Board of the Company 
and the President of the Company. Neither of the officers has any intention 
of guaranteeing obligations of the Company in the future.  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.

     In May, 1996, the Company increased its warehouse space by entering into 
a two year lease, with an option for one additional year, for warehouse space 
of approximately 30,000 square feet located in Santa Clarita, California.  
All of the space is currently occupied by the Company.  In January 1998, the 
Company exercised its option extending the lease to June 1999. The monthly 
rental expense is $13,000.

     The Company currently anticipates that it will need to relocate its 
executive offices and/or leased warehouse operations to a larger facility 
sometime during the second quarter of fiscal 1999.   When the lease on the 
Company's 30,000 square foot warehouse expires in June 1999, the Company will 
either relocate to another leased facility with approximately the same square 
footage, or combine both of it's Santa Clarita facilities into a newly 
purchased or leased facility with approximately 60,000 square feet.  In that 
event, the single location will then accommodate all of the Company's 
executive offices and warehouse facilities now currently located in Santa 
Clarita, California.

     The Company currently does not anticipate that the costs to obtain new 
facilities will adversely affect  its overall financial condition or results 
of operations.  However, the actual relocation and lease costs will be 
subject to real estate market conditions at the time of the move.  If the 
Company combines both it's current Santa Clarita facilities into one 
location,  the Company anticipates that it will attempt to either sell or 
lease its owned facility. While the Company believes that the disposition or 
leasing of its owned facilities should not adversely impact the results of 
operations, there is a possibility that the Company could realize a loss with 
respect thereto.

ITEM 3.   LEGAL PROCEEDINGS.

     In September 1997, the Company filed a lawsuit in Los Angeles Superior 
Court against Taiwan Semiconductor Co. Ltd. ("TSCL"), TSC America, Inc. 
("TSC"), an officer of these companies and a former employee of the Company.  
On August 12, 1998, a settlement agreement was entered into between the 
Company and TSCL and TSC and, accordingly, on August 18, 1998, a Request For 
Dismissal with prejudice was filed in the Los Angeles Superior Court.

     In March 1999, the Company filed a lawsuit in Los Angeles Superior Court 
against QT Optoelectronic ("QT"), a manufacturer of optoelectronic 
semiconductors.  The lawsuit arose from QT's decision to terminate its 
distributor agreement with the Company, and QT's refusal to accept return of 
QT inventory of approximately $800,000 which the Company stocked in reliance 
on a continuing distributor relationship with QT.  In the lawsuit, the 
Company asserts claims of breach of contract, fraud, negligent 
misrepresentation and declaratory relief against QT and seeks compensatory 
and punitive damages.  The lawsuit is currently in the discovery stage and 
the company does not anticipate incurring any unrecoverable losses related to 
this litigation.

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 1998.

                                      -13-

<PAGE>

                                   PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON 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

<TABLE>
<CAPTION>

                                                       High           Low
                                                       ----           ---
      <S>                                              <C>           <C>
      Year Ended December 31, 1996
      First Quarter                                      8              6
      Second Quarter                                   7 1/4          4 7/8
      Third Quarter                                    5 3/4          2 7/8
      Fourth Quarter                                   4 1/4         2 1/16

      Year Ended December 31, 1997
      First Quarter                                    3 7/8         2 25/64
      Second Quarter                                   3 7/8         2 35/64
      Third Quarter                                    4 1/8          2 7/8
      Fourth Quarter                                   4 1/4          2 1/2

      Year Ended December 31, 1998
      First Quarter                                    3 1/8          2 1/8
      Second Quarter                                   3 1/8          2 1/4
      Third Quarter                                      3           1 11/16
      Fourth Quarter                                   2 3/8         1 1/4  

</TABLE>

     At March 15, 1999, there were approximately 105 holders of record of the 
Company's Common Stock.  The Company estimates that there are approximately 
1,815 beneficial owners of its Class A Common stock.

     The Company's Board of Directors ("BOD")  is considering whether or not 
to pay dividends.  However, bank credit facility may prohibit the Company 
from paying cash dividends on its common stock.  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 BOD approved a program to repurchase up to 500,000 
shares of its Class A common stock.  In  February 1998, the BOD again 
approved an additional repurchase of up to $1,500,000 of the Company's Class 
A common stock.   As of March 15, 1999, the Company had repurchased 823,513 
shares of its Class A common stock in open market purchases for an 
approximate aggregate amount of $2.4 million.

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, 1998.  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. 

                                      -14-

<PAGE>

STATEMENTS OF INCOME AND PER SHARE DATA:

(In thousands, except per share data)

<TABLE>
<CAPTION>

                                                                    YEAR ENDED DECEMBER 31,
                                                    --------------------------------------------------------
                                                  1998            1997            1996           1995          1994
                                               -----------     -----------      ----------     ---------     ---------
<S>                                            <C>             <C>              <C>            <C>           <C>
Net sales                                         $30,828         $33,945         $30,128       $35,936       $24,588
Cost of goods sold                                 21,991          24,293          20,744        23,303        17,220

Gross profit                                        8,837           9,652           9,384        12,633         7,368

Selling, general and
  administrative expenses                           5,333           5,641           4,870         5,424         3,879

Operating earnings                                  3,504           4,011           4,514         7,209         3,489

Income tax expense                                  1,023           1,220           1,424         2,807         1,229

Net earnings                                      $ 1,499         $ 1,850         $ 2,158       $ 4,304       $ 1,775

Earnings per share:
     Basic                                        $   .24         $   .28         $   .31       $   .68       $   .41
     Diluted                                      $   .24         $   .27         $   .31       $   .68       $   .41

Weighted average common shares
outstanding (1)
     Basic                                          6,278           6,644           6,930         6,297         4,287
     Diluted                                        6,287           6,733           7,004         6,297         4,287


BALANCE SHEET DATA:

Working capital (1)                               $25,239         $25,500         $25,923       $20,838       $ 5,883
Total assets (1)                                   44,583          44,985          42,315        36,380        18,494
Total debt (1)                                     14,375          16,444          13,510           527         6,561
Stockholder's equity (1)                           25,096          24,371          24,113        21,955         6,342

</TABLE>

(1)  On April 19, 1995, the Company sold 2,530,000 shares of Class A common 
stock at $5.25 per share in connection with its initial public offering.  The 
$11.3 million net proceeds from this offering were used to pay off the bank 
line of credit, to retire long-term debt and to expand inventory.

                                      -15-

<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
semiconductors and optoelectronic devices to other electronic distributors,
contract electronic manufacturers (CEMs) and original equipment manufacturers
(OEMs), who incorporate them in their products.

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

<TABLE>
<CAPTION>

                                                                           YEAR ENDED DECEMBER 31,
                                                            -------------------------------------------------
                                                                1998              1997              1996
                                                            --------------   ---------------    -------------
                                                                         (dollars in thousands)
<S>                                                         <C>              <C>                <C>
Net sales                                                       $30,828             $33,945          $30,128

Cost of goods sold                                               21,991              24,293           20,744
       % of net sales                                             71.3%               71.6%            68.9%

Gross profit                                                      8,837               9,652            9,384
       % of net sales                                             28.7%               28.4%            31.1%

Selling, general and administrative expenses                      5,333               5,641            4,870
       % of net sales                                             17.3%               16.6%            16.2%

Operating earnings                                                3,504               4,011            4,514
       % of net sales                                             11.4%               11.8%            15.0%

Income tax expense                                                1,023               1,220            1,424
       Effective tax rate as a % of earnings
       before income taxes                                        40.6%               39.7%            39.8%

Net earnings                                                    $ 1,499             $ 1,850           $2,158
       % of net sales                                              4.9%                5.5%             7.2%

</TABLE>

YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

     Net sales for the year ended December 31, 1998 were $30,828,000 compared 
with net sales for the year ended December 31, 1997 of $33,945,000, a 
decrease of $3,117,000 or 9.2%.  This decrease in net sales during 1998 was 
attributable principally to a decline in the Company's domestic sales volume 
of approximately $1,550,000. For most of 1998, the supply for discrete 
semiconductors was greater than the demand.   A decrease in export sales of 
$1,500,000 also contributed to the decline in net sales.  The Company has 
continued to add new customers during 1998, but at a slower rate than during 
in previous years.  The decline in net sales was principally a result of an 
industry wide decline in demand for discrete semiconductors.

     Cost of goods sold decreased by $2,302,000 to $21,991,000 for the year 
ended December 31, 1998, a decrease of 9.5% from the year ended December 31, 
1997.  Consistent with the decrease in net sales, the Company was able to 
reduce the cost of goods sold.  Gross profit on net sales decreased by 
$815,000 to $8,837,000 for the year ended December 31, 1998 from $9,652,000 
for the same period in 1997, and increased as a percentage of net sales to 
28.7% from 28.4%.  The increase in gross profit as a percentage of net sales 
is primarily due to inventory price protection programs from various 
suppliers partially offset by lower selling 

                                      -16-

<PAGE>

prices obtained in the market place.

     Selling, general and administrative expenses decreased by $308,000 or 
5.5% for 1998 compared to 1997. These expenses, as a percentage of net sales, 
increased to 17.3% for the year ended December 31, 1998 compared to 16.6% for 
the year ended December 31, 1997.  The Company was able to reduce selling, 
general and administrative expenses during 1998, principally by eliminating 
non-essential expenditures and reducing other non-essential overhead.

     Operating earnings decreased by $507,000 or 12.6% between the years 
ended December 31, 1998,  and 1997, and decreased as a percentage of net 
sales to 11.4% from 11.8%.  Operating earnings decreased principally as a 
result of decreases in both domestic and export sales and market price 
reductions.  The decrease in revenue was offset somewhat by a reduction in 
cost of goods sold and selling, general and administrative expenses.

     Interest expense for the year ended December 31, 1998 increased  by 
$109,000 compared to the year ended December 31, 1997.  This increase is 
primarily due to higher average principal credit line borrowings of $12.9 
million during the current year as compared to $9.9 million average principal 
credit line borrowings during the same period last year.  The borrowings were 
made to finance the acquisition of the Oracle Application System, stock 
repurchase program and investment in a joint venture in Mexico during  the 
current year.

     Income taxes were $1,023,000 for the year ended December 31, 1998, 
representing an effective tax rate of 40.6%, compared to $1,220,000 for the 
year ended December 31, 1997, an effective tax rate of 39.7%.

     The Company had net earnings of $1,499,000 for the year ended December 
31, 1998 as compared with net earnings of $1,850,000 for the year ended 
December 31, 1997 a decrease of $351,000 or 19% for the reasons discussed 
above.  Net earnings as a percentage of net sales decreased to 4.9% from 5.5%.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996

     Net sales for the year ended December 31, 1997 increased $3,817,000 or 
12.7% to $33,945,000 from $30,128,000 for the year ended December 31, 1996.  
The increase in net sales during 1997 was attributable principally to an 
increase in the volume of products sold of $6.1 million, partially offset by 
net price reductions of approximately $3.2 million.  The Company also 
experienced an increase in export sales volume of approximately $1.0 million 
and a $426,000 reduction in sales returns and allowances from customers.  The 
increase in net sales was principally a result of sales made to new customers 
during 1997.

     Cost of goods sold increased by $3,549,000 to $24,293,000 for the year 
ended December 31, 1997, an increase of 17.1% from the year ended December 
31, 1996.   Early in 1996, the demand for discrete semiconductors was greater 
than the supply.  The intense competition for available supply of discrete 
semiconductors caused the Company to purchase products for prices that were 
higher than normal market conditions.  As the high priced inventory was sold 
in late 1996 and all of 1997, it caused cost of goods sold to increase as a 
percentage of sales.  Gross profit on net sales increased by $268,000 to 
$9,652,000 for the year ended December 31, 1997 from $9,384,000 from the year 
ended December 31, 1996, and decreased, as a percentage of net sales, to 
28.4% from 31.1%.

     Gross profit as a percentage of net sales decreased to 28.4% for the 
year ended December 31, 1997 from 31.1% for the year ended December 31, 1996 
principally as a result of lower selling prices due to the competitive market 
place and as a result of higher export sales which usually have a lower 
profit margin than domestic sales.

     Selling, general and administrative expenses increased by $771,000 or 
15.8% in 1997 as compared to 1996.  The increase was attributable to 
increased payroll costs principally as a result of the geographic expansion 
of its direct sales force and the addition of sales support staff.  The 
increase in net sales resulted in an increase in commissions paid to both 
sales employees and independent sales representatives. In addition, 
management decided to take a one-time impairment charge in connection with 
the abandonment of the Company's prior computer software system in the amount 
of $163,000.  Selling, general and administrative expenses, as a percentage 
of net sales, increased to 16.6% for the year ended December 31, 1997 
compared to 16.2% for the year ended December 31, 1996

                                      -17-

<PAGE>

     Operating earnings decreased by $503,000 or 11.1% between the years 
ended December 31, 1997 and 1996, and decreased as a percentage of net sales 
to 11.8% from 15.0%.  Operating earnings decreased principally as a result of 
increased cost of sales and increases in selling, general and administrative 
expenses as described above.  

     Interest expense, net, for the year ended December 31, 1997 increased 
$14,000 compared to the year ended December 31, 1996.  Net interest expense 
as a percentage of net sales, decreased to 2.8% for the year ended December 
31, 1997 compared to 3.1% for the year ended December 31, 1996.  During 1997, 
interest expense resulted from borrowings incurred to finance increased 
inventory levels, trade receivables, computer software, office space and 
equipment in the Taiwan office and to finance the repurchase of 487,113 
shares of the Company's Class A Common Stock.

     Income taxes were $1,220,000 for the year ended December 31, 1997, 
resulting in an effective tax rate of 39.7%, compared to $1,424,000 for the 
year ended December 31, 1996, an effective tax rate of 39.8%.

     The Company had net earnings of $1,850,000 for the year ended December 
31, 1997 as compared with net earnings of $2,158,000 for the year ended 
December 31, 1996, a decrease of $308,000 or 14.3% for the reasons discussed 
above.  Net earnings as a percentage of net sales decreased to 5.5% from 7.2%.

SUPPLY AND DEMAND ISSUES

     BACKGROUND

     The year 1995 was exceptionally good for the Company and other discrete 
suppliers.  For most of 1995, the demand for discrete semiconductors, in 
general, was greater than the supply.  The intense competition for the 
available supply of discrete semiconductors pushed the prices higher than in 
normal market conditions.  The Company, from time to time, could not fulfill 
some sales orders because of the limited supply of certain of these products.

     The supply shortage of discrete semiconductors in 1995 caused many 
customers to order more than their needs to prevent future shortages and 
suppliers expanded their capacity to meet the strong market demands. However, 
with a weak market demand in the later part of 1996, many distributors and 
end-users had built-up excessive inventories and as a result, the majority of 
Taitron's customers were struggling with inventory adjustments and 
corrections. To help customers readjust their inventories, Taitron 
strategically decided to accept more returns and order cancellations than it 
normally would.

     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 will posture the Company to be 
price competitive, while still maintaining acceptable profit margins.

     As a result, the Company's inventory has increased significantly during 
1996 and continuing into 1997, leading to the leasing of additional warehouse 
space in 1996 and full utilization of the space in 1997.  The Company's 
inventory level peaked in May 1996 at $39.2 million and has subsequently been 
reduced to $34.9 million at December 31, 1998.  The Company is focusing its 
efforts to maintain or gradually reduce its inventory while keeping adequate 
stock to accommodate the Company's future growth, if any, when demand 
increases. 

     CURRENT ISSUES 

     Taitron's competitive edge is its ability to fill customer orders 
immediately from stock held in inventory. Thus, management has structured 
inventory levels in such a way as to poise the Company to take advantage of a 
recovery in the discrete semiconductor market.  At the same time, if the 
market recovery is slow in taking place, inventory levels should not impose 
an unwarranted financial burden on the Company's earnings.

     Management believes, that the strategies it has followed with its 
customers and suppliers have cemented its relationships which will benefit 
the Company in the future.  The Company's core strategy has been to maintain 

                                      -18-

<PAGE>

a substantial inventory of discrete semiconductors purchased at prices 
generally lower than those commonly available to its competitors.  The 
Company has been able to offer its products to customers at competitive 
prices and offers other incentives to customers, such as its no hassle 
returns policy, which distinguishes the Company from most of its competitors.

     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 and - 
Need to Maintain Large Inventory; Price Fluctuations."

LIQUIDITY AND CAPITAL RESOURCES

     Since 1993, the Company has satisfied its liquidity requirements 
principally through cash generated from short-term commercial loans and the 
sale of equity securities, including the initial public offering of its 
common stock in April 1995.  The Company's cash flows provided by (used in) 
operating, financing and investing activities for the years ended December 
31, 1998, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>

                                                    YEAR ENDED DECEMBER 31, 
                                                         (In thousands)
                                                    --------------------------
                                                    1998      1997       1996
                                                    ----      ----       ----
 <S>                                               <C>        <C>    <C>
 Operating activities.......................      $ 4,220    $ (478)  $(13,658)
 Investing activities.......................       (1,176)     (998)      (171)
 Financing activities.......................       (2,887)    1,398     12,984

</TABLE>

     In positioning itself as a "discrete components superstore," the Company 
has been required to carry large inventory levels.   However, since 1997, the 
Company has focused on utilizing its current inventory, thereby reducing 
inventory through 1998.  As a result, inventory has decreased from $35.8 
million at December 31, 1997 to $34.9 million at December 31, 1998. 

     The discrete semiconductor products distributed by the Company are 
mature products, used in a wide range of commercial and industrial products 
and industries.  As a result, the Company has never experienced any material 
amounts of product obsolescence.  The Company also attempts to control its 
inventory risks by matching large customer orders with simultaneous orders to 
suppliers. Nonetheless, the high levels of inventory carried by the Company 
increase the risks of price fluctuations and product obsolescence.

     Investment activities consisted of the purchase of property and 
equipment, principally computer equipment.  Investment in computer systems 
was $135,000, $424,000 and $957,000 for the years ended December 31, 1996, 
1997 and 1998. During 1997, the Company invested $519,000 in its Taiwan 
office, principally for acquisition of office and warehouse space.  The 
Company invested $957,000 in hardware and software for maintaining and 
improving its new Oracle Applications System, which was implemented in the 
second quarter of 1998.  See "BUSINESS -Management Information Systems."

     In May 1996, the Company issued a Convertible Subordinated Note (the 
Note) for $3,000,000, with interest at 8% payable annually and the principal 
is due May 2001.  The Note is convertible into the Company's Class A Common 
Stock at the conversion price of $5.25 per share.  These securities have not 
been registered under the Securities Act of 1933, as amended (the Act), and 
the Company issued these securities in reliance upon exemption from 
registration provided by Regulation S of the Act.

                                      -19-

<PAGE>

     In May 1998, the Company renewed its $20 million revolving line of 
credit that had been in place since March 1996.  The renewed revolving line 
of credit provides the Company with up to $16 million for operating purposes 
and up to an additional $4 million for business acquisition purposes.  Both 
facilities mature on June 2, 2000.  The agreement governing these credit 
facilities contains covenants that require the Company to be in compliance 
with certain financial ratios.

     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.

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

YEAR 2000 ISSUES

GENERAL
     The Company's Year 2000 Project (Project) is proceeding on schedule.  
The Project is addressing the issue of computer chips being unable to 
distinguish between the year 1900 and the year 2000.  The Project consists of 
three elements.  First, the Company is evaluating its Year 2000 readiness in 
both information technology ("IT") and non-IT systems.  Non-IT systems 
typically include embedded technology in electronic equipment, such as 
microprocessors. Non-IT systems are more difficult to assess and repair than 
IT systems.  Second, for both IT and non-IT systems, the Company is planning 
and implementing any necessary changes that the Company believes will make 
the Company ready for the Year 2000.  Third, the Company is evaluating the 
effect that third-parties Year 2000 readiness may have on the Company's 
business.

PROJECT
     In 1997, in order to improve access to business information and to 
prepare the Company for any future growth, the Company began a systems 
replacement project to convert its then existing system to an Oracle based 
system.  Oracle was implemented during the third quarter of 1998.  Oracle has 
represented that their products used by the Company are Year 2000 fully 
compliant meeting the requirements set out by the British Standards Institute 
in DISC PD-2000-1 A DEFINITION OF YEAR 2000 CONFORMITY REQUIREMENTS.  Year 
2000 conformity means that neither performance nor functionality is affected 
by dates prior to, during and after the year 2000.  The other material 
computer software programs utilized by the Company are supplied by vendors 
that  also publish that their products are Year 2000 compliant.  The Company 
believes that its IT systems are approximately 95% Year 2000 compliant now 
and if further evaluation uncovers a problem the software will be replaced 
before December 31, 1999.  The Company has begun the evaluation of its non-IT 
systems, but the Project plan is to have the evaluation completed and where 
necessary replacement equipment installed and operational by the end of the 
third quarter of 1999.  The Company has also begun the evaluation of 
third-parties Year 2000 readiness.  This includes identifying and 
prioritizing critical suppliers, customers and other third-parties by 
communicating with them about their plans and progress in addressing the Year 
2000 problem.  These evaluations will be followed by the development of 
contingency plans, which are scheduled to be developed in the second quarter 
of 1999.

COSTS
     The total cost associated with required modifications to become Year 
2000 compliant is not expected to be material to the Company's financial 
position. The estimated total cost of the Year 2000 Project is less than 
$25,000 and consists principally of replacing old IT and Non-IT equipment 
where compliance with Year 2000 is in doubt.  The cost of implementing the 
Oracle system and any resulting equipment replacement or upgrades are not 
included in these costs estimates as the Company did not accelerate the 
replacement of its old system due to Year 2000 issues.

RISKS      The failure to correct a material Year 2000 problem could result 
in an interruption in, or a failure of, certain normal business activities or 
operations.  Such failure could materially and adversely affect the Company's 
results of operations, liquidity and financial condition.  Due to the general 
uncertainty inherent in the Year 2000 problem, resulting in part from the 
uncertainty of the Year 2000 readiness of third-party suppliers and 
customers, the Company is unable to determine at this time whether the 
consequences of Year 2000 failures will have a material impact on the 
company's results of operations, liquidity or financial condition.  The 
Year 2000 

                                      -20-

<PAGE>

Project is expected to significantly reduce the Company's level of 
uncertainty about the Year 2000 problem and, in particular, about the Year 
2000 compliance and readiness of its material external third-parties.  The 
Company believes that, with the implementation of new business systems and 
completion of the Project as scheduled, the possibility of significant 
interruptions of normal operations should be reduced.

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

     Readers are cautioned that the foregoing statements contained in the 
Year 2000 Update are forward looking and are necessarily speculative.  There 
can be no guarantee that the Company will not encounter a material Year 2000 
problem that may adversely affect the Company's results of operations, 
liquidity and financial position.  In addition to the statements made under 
the Year 2000 Update, several of the matters discussed in this document 
contain forward looking statements that involve risks and uncertainties.  
Such forward looking statements are usually denoted by words or phrases such 
as "believes," "expects," "projects," "estimates," "anticipates," "will 
likely result," "plans," or similar expressions.  The Company wishes to 
caution readers that all forward looking statements are necessarily 
speculative and  not to place undue reliance on such forward looking 
statements, which speak only as of the date made, and to advise readers that 
actual results could vary due to a variety of risks and uncertainties.   In 
addition, readers should carefully consider the information contained in the 
heading "Cautionary Statements and Risk Factors" elsewhere provided herein.
 
ASIAN ECONOMIC ISSUES

     Many of the Company's suppliers have their manufacturing facilities in 
countries who's economies are experiencing financial problems.  Mounting 
trade deficits have sent interest rates soaring and local currencies 
plunging.  The US dollar's rise compared with Asian currencies may reduce 
exports to Asia in the future.  During 1998, the Company sold $1,339,000 or 
4.3% of net sales to Asian customers and most of the products purchased by 
the Company are manufactured in Asia.  Management believes that the decline 
in Asian currencies may actually benefit the Company in the short-term by 
providing an opportunity for the Company to purchase products at lower 
prices. 

                                      -21-

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements as of December 31, 1998, 1997 and 1996 and for the years
then ended and the Independent Auditors' Report are included on pages 23 to 37
of this Annual Report on Form 10-K.

                              INDEX TO FINANCIAL STATEMENTS
                              TAITRON COMPONENTS INCORPORATED

<TABLE>
<CAPTION>

                                                                                            Page
                                                                                            ----
<S>                                                                                         <C>
Independent Auditors' Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Balance Sheets at December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . 25
Statements of Earnings for the Years Ended December 31, 1998, 1997 and 1996. . . . . . . . . 27
Statement of Shareholders' Equity for the Years Ended December 31, 1998, 1997 and 1996 . . . 28
Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996. . . . . . . . 29
Notes to Financial Statements for the Years Ended December 31, 1998, 1997 and 1996 . . . . . 30

</TABLE>

                                      -22-

<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Board of Directors
Taitron Components Incorporated:

We have audited the accompanying balance sheet of Taitron Components 
Incorporated as of December 31, 1998 and the related statements of earnings, 
shareholders' equity and cash flows for the year then ended. These financial 
statements are the responsibility of the Company's management.  Our 
responsibility is to express an opinion on these financial statements based 
on our audit.  

We conducted our audit in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the 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 audit provides a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of Taitron Components 
Incorporated as of December 31, 1998 and the results of its operations and 
its cash flows for the year then ended, in conformity with generally accepted 
accounting principles.

/s/ Grant Thornton


Los Angeles, California
February 19, 1999 

                                      -23-

<PAGE>

                         INDEPENDENT AUDITORS' REPORT


The Board of Directors
Taitron Components Incorporated:

We have audited the accompanying balance sheet of Taitron Components 
Incorporated as of December 31, 1997 and the related statements of earnings, 
shareholders' equity and cash flows for each of the years in the two year 
period ended December 31, 1997.  These 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 generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the 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 financial position of Taitron Components 
Incorporated as of December 31, 1997  and the results of its operations and 
its cash flows for each of the years in the two year period ended December 
31, 1997, in conformity with generally accepted accounting principles.

/s/ KPMG LLP


Los Angeles, California
February 11, 1998 

                                     -24-

<PAGE>

                       TAITRON COMPONENTS INCORPORATED

                                Balance Sheets

                          December 31, 1998 and 1997

<TABLE>
<CAPTION>

                                                                      1998                 1997
                                                                -----------------    -----------------
<S>                                                          <C>                  <C>
                       ASSETS

Current assets:
    Cash and cash equivalents                                $         364,000    $         163,000
    Trade accounts receivable, net                                   4,528,000            5,398,000
    Inventory, net                                                  34,868,000           35,757,000
    Prepaid expenses                                                   360,000              169,000
    Deferred income taxes                                              861,000              716,000
    Other current assets                                               290,000              436,000
                                                                -----------------    -----------------

           Total current assets                                     41,271,000           42,639,000

Property and equipment, net                                          2,976,000            2,309,000

Other assets                                                           336,000               37,000

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

           Total assets                                      $      44,583,000    $      44,985,000
                                                                -----------------    -----------------
                                                                -----------------    -----------------

</TABLE>

                                      -25-

<PAGE>

                       Taitron Components Incorporated

                                Balance Sheets

                          December 31, 1998 and 1997

<TABLE>
<CAPTION>

                                                                        1998                 1997
                                                                  ------------------   ------------------
<S>                                                            <C>                  <C>
                LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Revolving line of credit                                   $      10,900,000    $      12,950,000
    Current portion of long-term debt                                     20,000               19,000
    Trade accounts payable                                             4,407,000            3,235,000
    Accrued liabilities                                                  705,000              935,000
                                                                  ------------------   ------------------
           Total current liabilities                                  16,032,000           17,139,000

Long-term debt, less current portion                                   3,455,000            3,475,000
                                                                  ------------------   ------------------

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; 5,376,096 and 5,685,062 shares issued 
      and outstanding at December 31, 1998 and 1997,
      respectively                                                         5,000                5,000
    Class B common stock, $.001 par value.  Authorized,
      issued and outstanding 762,612 shares at December 31,
      1998 and 1997                                                        1,000                1,000
    Additional paid-in capital                                        12,179,000           12,997,000
    Accumulated other comprehensive income, net of tax                   (13,000)             (57,000)
    Retained earnings                                                 12,924,000           11,425,000
                                                                  ------------------   ------------------
           Total shareholders' equity                                 25,096,000           24,371,000
                                                                  ------------------   ------------------

           Total liabilities and shareholders' equity          $      44,583,000    $      44,985,000
                                                                  ------------------   ------------------
                                                                  ------------------   ------------------

</TABLE>

See accompanying notes to financial statements.

                                      -26-

<PAGE>

                       TAITRON COMPONENTS INCORPORATED

                            Statements of Earnings

                 Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                                  1998                1997               1996
                                                             ---------------   ----------------    ----------------
<S>                                                       <C>               <C>                 <C>
Net sales                                                 $   30,828,000     $  33,945,000       $      30,128,000
Cost of goods sold                                            21,991,000        24,293,000              20,744,000
                                                             ---------------   ----------------    ----------------
         Gross profit                                          8,837,000         9,652,000               9,384,000

Selling, general and administrative expenses                   5,333,000         5,641,000               4,870,000
                                                             ---------------   ----------------    ----------------
         Operating earnings                                    3,504,000         4,011,000               4,514,000

Interest expense, net                                          1,065,000           956,000                 942,000
Other income                                                     (83,000)          (15,000)                (10,000)
                                                             ---------------   ----------------    ----------------
         Earnings before income taxes                          2,522,000         3,070,000               3,582,000

Income tax expense                                             1,023,000         1,220,000               1,424,000
                                                             ---------------   ----------------    ----------------

         Net earnings                                     $    1,499,000     $   1,850,000       $       2,158,000
                                                             ---------------   ----------------    ----------------
                                                             ---------------   ----------------    ----------------

Earnings Per Share:

         Basic                                            $           .24    $          .28     $             .31
                                                             ---------------   ----------------    ----------------
                                                             ---------------   ----------------    ----------------
         Diluted                                          $           .24    $          .27     $             .31
                                                             ---------------   ----------------    ----------------
                                                             ---------------   ----------------    ----------------
Weighted Average Common Shares Outstanding:

         Basic                                                  6,277,697         6,643,975             6,929,953
                                                             ---------------   ----------------    ----------------
                                                             ---------------   ----------------    ----------------
         Diluted                                                6,286,912         6,732,856             7,003,883
                                                             ---------------   ----------------    ----------------
                                                             ---------------   ----------------    ----------------

</TABLE>

See accompanying notes to financial statements.

                                                         -27-

<PAGE>

                         TAITRON COMPONENTS INCORPORATED

                        Statement of Shareholders' Equity

                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                                                                        Accumulated
                               Class A common stock    Class B common stock                                Other         Total
                               --------------------    --------------------     Additional     Retained Comprehensive Shareholders'
                               Shares        Amount    Shares        Amount   paid-in capital  earnings    Income        Equity
                               ------        ------    ------        ------   ---------------  --------    ------        ------
<S>                          <C>            <C>       <C>            <C>      <C>              <C>      <C>           <C>
Balances at 
 December 31, 1995           6,167,341      $6,000    762,612        $1,000     $14,531,000    $7,417,000   $  -      $21,955,000

Net earnings                     -           -          -             -               -         2,158,000      -        2,158,000
                             ---------      ------    -------        ------     -----------    ----------   --------  -----------
Balances at 
 December 31, 1996           6,167,341       6,000    762,612         1,000      14,531,000     9,575,000      -       24,113,000

Exercise of stock 
 options                         4,834       -          -             -              11,000         -          -           11,000

Repurchase of common 
 stock                        (487,113)     (1,000)     -             -          (1,548,000)        -          -       (1,549,000)

Tax effect of 
 disqualifying
 disposition
 of stock options                -           -          -             -               3,000         -          -            3,000

Comprehensive income:
 Foreign currency 
  translation
  adjustment                     -           -          -             -               -             -        (57,000)     (57,000)

 Net earnings                    -           -          -             -               -         1,850,000      -        1,850,000
  Comprehensive income           -           -          -             -               -             -          -        1,793,000

                             ---------      ------    -------        ------     -----------    ----------   --------  -----------
Balances at 
 December 31, 1997           5,685,062       5,000    762,612         1,000      12,997,000    11,425,000    (57,000)  24,371,000

Exercise of stock options        5,334       -          -             -              12,000         -          -           12,000

Repurchase of common stock    (314,300)      -          -             -            (830,000)        -          -         (830,000)

Comprehensive income:
 Foreign currency 
  translation adjustment         -           -          -             -               -             -         44,000       44,000

 Net earnings                    -           -          -             -               -         1,499,000      -        1,499,000
  Comprehensive income           -           -          -             -               -             -          -        1,543,000

                             ---------      ------    -------        ------     -----------    ----------   --------  -----------
Balances at 
 December 31, 1998           5,376,096     $ 5,000    762,612        $1,000    $ 12,179,000  $ 12,924,000  $ (13,000) $25,096,000
                             ---------      ------    -------        ------     -----------    ----------   --------  -----------
                             ---------      ------    -------        ------     -----------    ----------   --------  -----------

</TABLE>

See accompanying notes to financial statements.

                                      -28-

<PAGE>

                                           TAITRON COMPONENTS INCORPORATED

                                              Statements of Cash Flows

                                    Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                                            1998                 1997                1996
                                                                   -------------------   ------------------   ----------------
<S>                                                             <C>                   <C>                  <C>
Cash flows from operating activities:
    Net earnings                                                         $ 1,499,000         $  1,850,000       $  2,158,000
                                                                   -------------------   ------------------   ----------------

    Adjustments to reconcile net earnings to net cash used in 
      operating activities:
        Depreciation and amortization                                        309,000              348,000            139,000
        Deferred income taxes                                               (145,000)            (104,000)          (212,000)
        Changes in assets and liabilities:
          Trade accounts receivable                                          870,000           (1,288,000)         1,252,000
          Inventory                                                          889,000             (589,000)        (7,416,000)
          Prepaid expenses and other current assets                          (45,000)             (42,000)          (351,000)
          Other assets                                                       (99,000)             (12,000)           (22,000)
          Trade accounts payable                                           1,172,000             (502,000)        (9,125,000)
          Accrued liabilities                                               (230,000)            (139,000)           (81,000)
                                                                   -------------------   ------------------   ----------------
                  Total adjustments                                        2,721,000           (2,328,000)       (15,816,000)
                                                                   -------------------   ------------------   ----------------
                  Net cash provided by (used in) operating 
                   activities                                              4,220,000             (478,000)       (13,658,000)

Cash flows from investing activities
     Acquisition of property and equipment                                  (976,000)            (998,000)          (171,000)
     Loans to others                                                        (200,000)               -                  -
                                                                   -------------------   ------------------   ----------------
                  Net cash used in investing activities                   (1,176,000)            (998,000)          (171,000)
                                                                   -------------------   ------------------   ----------------

Cash flows from financing activities:
    Borrowings on long-term debt                                           4,000,000           12,950,000         13,000,000
    Proceeds from exercise of stock options                                   12,000               11,000              -
    Tax effect of disqualifying dispositions of stock options                  -                    3,000              -
    Payments on long-term debt                                            (6,069,000)         (10,017,000)           (16,000)
    Repurchase of Company stock                                             (830,000)          (1,549,000)             -
                                                                   -------------------   -----------------    ----------------
                  Net cash (used in) provided by financing
                  activities                                              (2,887,000)           1,398,000         12,984,000
                                                                   -------------------   ------------------   ----------------

Impact of changes in exchange rates on cash                                   44,000              (59,000)             -

                  Net increase (decrease) in cash and cash
                  equivalents                                                201,000             (137,000)          (845,000)
Cash and cash equivalents, beginning of year                                 163,000              300,000          1,145,000
                                                                   -------------------   ------------------   ----------------
Cash and cash equivalents, end of year                                   $   364,000         $    163,000       $    300,000
                                                                   -------------------   ------------------   ----------------
                                                                   -------------------   ------------------   ----------------

Supplemental disclosures of cash flow information:
    Cash paid for interest                                               $ 1,182,000         $  1,008,000       $    758,000
    Cash paid for income taxes                                           $   996,000         $  1,410,000       $  1,710,000
                                                                   -------------------   ------------------   ----------------
                                                                   -------------------   ------------------   ----------------

</TABLE>

See accompanying notes to financial statements.

                                      29

<PAGE>

                         TAITRON COMPONENTS INCORPORATED

                          Notes to 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 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.

       CONCENTRATION OF RISK

       A significant number of the products distributed by the Company are
       manufactured in Taiwan, China, 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 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 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.

       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 as shipments are made.
       Sales returns for the years ended December 31, 1998, 1997 and 1996
       aggregated $1,128,000, $1,110,000 and $1,536,000, respectively.

                                      30

<PAGE>

       ALLOWANCE FOR SALES RETURNS AND DOUBTFUL ACCOUNTS

       The allowance for sales returns and doubtful accounts was $160,000 and 
       $135,000 at December 31, 1998 and 1997, respectively.

       INVENTORY

       Inventory, consisting principally of products held for resale, is stated
       at the lower of cost or market, using the first-in, first-out method. The
       value presented in the accompanying financial statements is net of
       valuation allowances of $1,593,000 and $1,291,000 at December 31, 1998
       and 1997, respectively.

       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

       On January 1, 1996, the Company adopted Statement of Financial Accounting
       Standards("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
       which 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 would
       be recorded in the date of grant only if the current market price of the
       underlying stock exceeded the exercise price, and provide pro forma net
       income and pro forma earnings per share disclosures 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.

       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.

                                      31

<PAGE>

       NET EARNINGS PER SHARE

       Basic earnings per share is computed by dividing net 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.

       FOREIGN CURRENCY TRANSLATION

       The financial statements of the Company's division in Taiwan, which was
       established in 1997, are translated into United States dollars. 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 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 immaterial to the financial statements for 1998, 1997 and
       1996

       COMPREHENSIVE INCOME

       In 1998, the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE
       INCOME, which prescribes standards for reporting comprehensive income and
       its components. The Company's comprehensive income consists of net
       earnings for the current period and the realized foreign currency
       translation adjustments.

       RECLASSIFICATIONS

       Certain amounts in the 1997 and 1996 financial statements have been 
       reclassified to conform to the 1998 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 Company's allowance for sales returns,
       doubtful accounts and inventory reserves. Actual results could differ
       from these estimates.

(2)    PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>

                                                                       DECEMBER 31,
                                                           ---------------------------------------
                                                                 1998                 1997
                                                           ------------------   ------------------
       <S>                                              <C>                  <C>
       Land                                             $         474,000    $         474,000
       Building and improvements                                1,487,000            1,479,000
       Furniture and equipment                                    524,000              514,000
       Computer and test equipment                              1,527,000              570,000
                                                           ------------------   ------------------
                                                                4,012,000            3,037,000
       Less accumulated depreciation and amortization           1,036,000              728,000
                                                           ------------------   ------------------
                                                        $       2,976,000    $       2,309,000
                                                           ------------------   ------------------
                                                           ------------------   ------------------

</TABLE>

(3)    REVOLVING LINE OF CREDIT

       On May 6, 1997, the Company replaced its $15 million revolving line of
       credit with a new revolving line of credit facility which provides the
       Company with up to $16 million for operating purposes and up to an
       additional $4 million for business acquisition purposes, which matures on
       June 2, 2000.  

                                      32

<PAGE>

       The agreement governing these credit facilities contains covenants
       that require the Company to be in compliance with certain
       financial ratios. Borrowings on the line of credit are secured by
       substantially all of the Company's assets.

       Both the old and new revolving lines of credit contain security
       agreements which essentially cover all assets of the Company and bear
       interest at the bank's prime rate (7.75% and 8.5% at December 31, 1998
       and 1997, respectively) or at the option of the Company, at LIBOR
       (weighted average of 5.34% and 5.65% at December 31, 1998 and 1997
       respectively) plus 1.375% after May 6, 1997 and 1.5% prior to that date.

(4)    LONG-TERM DEBT

       Long-term debt at December 31, 1998 and 1997 consists of the following:

<TABLE>
<CAPTION>

                                                                               1998               1997
                                                                       -----------------  -----------------
       <S>                                                             <C>                <C>
       Second trust deed loan payable in monthly installments of
           $4,390, bearing interest at the rate of 6.359% per annum,
           due December 1, 2013 and guaranteed by certain officers
           of the Company                                              $         475,000  $         494,000
       8% convertible subordinated debenture, interest
           due May 18, 2001.                                                   3,000,000          3,000,000
                                                                          --------------     --------------

                                                                               3,475,000          3,494,000
       Less current portion                                                       20,000             19,000
                                                                          ---------------    ---------------
                                                                       $       3,455,000  $       3,475,000
                                                                          --------------     --------------
                                                                          --------------     --------------

</TABLE>

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

<TABLE>

       <S>                                      <C>
       Year ending December 31:
               1999                             $          20,000
               2000                                        21,000
               2001                                     3,022,000
               2002                                        24,000
               2003                                        26,000
               Thereafter                                 362,000
                                                   -----------------
                                                $       3,475,000
                                                   -----------------
                                                   -----------------

</TABLE>

       CONVERTIBLE SUBORDINATED DEBENTURE

       In May 1996, the Company issued a Convertible Subordinated Debenture (the
       Note) for $3,000,000 with interest at 8% payable annually and the
       principal due May 2001. The Note is convertible into the Company's Class
       A Common Stock at the conversion price of $5.25 per share, the market
       price of the stock on the date of issuance. These securities have not
       been registered under the Securities Act of 1933, as amended (the Act),
       in the belief that the securities are exempt from such registration under
       Regulation S of the Act.

(4)    SHAREHOLDERS' EQUITY

       There are 5,000,000 shares 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 authorized Class A common stock, par value
       $.001 per share, with 5,376,096 and 5,685,062 shares issued and
       outstanding as of December 31, 1998 and 1997, respectively. Each holder
       of Class A common stock is entitled to one vote for each share held.

       There are 762,612 shares authorized Class B common stock, par value $.001
       per share, with 762,612 shares issued and outstanding as of December 31,
       1998 and 1997. Each holder of Class B common stock is entitled to ten
       votes for each share held. The shares of Class B common stock are

                                      33

<PAGE>

       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 sole beneficial owner of all the outstanding
       shares of Class B common stock.

       During 1998 and 1997, the Company repurchased 314,300 and 487,113 shares
       of its Class A Common Stock on the open market for $830,000 and
       $1,549,000 in the aggregate and permanently retired such shares.

(5)    INCOME TAXES

       Income tax expense is summarized as follows:

<TABLE>
<CAPTION>

                                                                          YEAR ENDED DECEMBER 31
                                                           -----------------------------------------------------
                                                                1998               1997                 1996
                                                           ----------------   ----------------   ----------------
      <S>                                               <C>                <C>                <C>
      Current:
          Federal                                       $         867,000  $       1,008,000  $       1,272,000
          State                                                   301,000            316,000            392,000
                                                           ----------------   ----------------   ---------------
                                                                1,168,000          1,324,000          1,664,000
      Deferred:
          Federal                                                 (80,000)           (86,000)          (197,000)
          State                                                   (65,000)           (18,000)           (43,000)
                                                           ----------------   ----------------   ---------------
                                                                 (145,000)          (104,000)          (240,000)
                                                           ----------------   ----------------   ---------------
                                                        $       1,023,000  $       1,220,000  $       1,424,000
                                                           ----------------   ----------------   ---------------
                                                           ----------------   ----------------   ---------------

</TABLE>

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

<TABLE>
<CAPTION>

                                                                      YEAR ENDED DECEMBER 31
                                                           ---------------------------------------------
                                                                 1998                1997               1996
                                                           ------------------   ----------------   ----------------
       <S>                                              <C>                  <C>                <C>
       "Expected" income tax expense                    $         857,000    $       1,044,000  $       1,218,000
       State tax expense, net of Federal benefit                  155,000              190,000            220,000
       Other                                                       11,000              (14,000)           (14,000)
                                                          ------------------   ----------------   ----------------
                                                        $       1,023,000    $       1,220,000  $       1,424,000
                                                          ------------------   ----------------   ----------------
                                                          ------------------   ----------------   ----------------

</TABLE>

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

<TABLE>
<CAPTION>

                                                                         DECEMBER 31
                                                             ------------------------------------
        DEFERRED TAX ASSETS:                                      1998                1997
                                                             ----------------   -----------------
        <S>                                              <C>                 <C>
        Inventory reserves                               $          586,000  $         455,000
        Section 263a adjustment                                     162,000            150,000
        Allowances for bad debts and returns                         69,000             84,000
        Accrued expenses                                             78,000             49,000
        Other                                                         9,000              -
                                                             ----------------   -----------------
        Total deferred tax assets                                   904,000            738,000
        Deferred tax liability - depreciation                       (43,000)           (22,000)
                                                             ----------------   -----------------
        Net deferred tax assets                          $          861,000  $         716,000
                                                             ----------------   -----------------
                                                             ----------------   -----------------

</TABLE>

       Based upon the level of historical taxable earnings and projections of
       future taxable earnings over the periods in which the temporary
       differences are deductible, management has concluded that, as of December
       31, 1998, it is more likely than not that the Company will realize the
       benefits of these deductible differences.

                                      34

<PAGE>

(6)    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
       provides for a matching contribution at the discretion of the Company
       which vests immediately, as defined by the plan. For the years ended
       December 31, 1998, 1997 and 1996 employer matching contributions
       aggregated approximately $32,000, $29,000 and $30,000, respectively. The
       plan purchased 17,942, 28,666 and 28,991 shares of the Company's common
       stock on the open market for cash consideration of approximately $34,000,
       $97,000 and $135,000 during the years ended December 31, 1998, 1997 and
       1996, respectively.

(7)    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 their initial election to such
       committee and each year thereafter. The exercise price of these options
       will be 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
       SARs 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 connection with the Company's initial public offering, the Company
       issued warrants exercisable over a period of four years commencing April
       19, 1996 to purchase 220,000 shares of the Company's Class A common stock
       at a price of $6.30, which is 120% of the initial public offering price.

       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, $3,800 and $1,200 in 1998, 1997 and 1996,
       respectively.

       The fair value of options, SAR's and warrants used to compute pro forma
       net income and 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 for 1998, 1997 and 1996: Dividend
       yield of 2%; expected volatility of 40%; a risk free interest rate of
       approximately 6% and an expected holding period of five years. The
       incremental fair value of the modified options substituted for options
       issued during 1995, used to compute pro forma net earnings and earnings
       per share disclosures was determined using the Black-Scholes
       option-pricing model with the following weighted average assumptions:
       dividend yield of 2%; expected volatility of 40%; a risk free interest
       rate of approximately 6%; and an expected holding period of 3.5 years,
       adjusted to reflect the remaining period to maturity of the modified
       options.

       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 earnings and
       earnings per share would have been changed to the pro forma amounts
       indicated below:

                                      35

<PAGE>

<TABLE>
<CAPTION>

                                                                               YEAR ENDED DECEMBER 31, 
                                                                          ----------------------------------
                                                                          1998           1997           1996
                                                                          ----           ----           ----
       <S>                                <C>                        <C>             <C>            <C>
       Net earnings                       As reported                $1,499,000      $1,850,000     $2,158,000
                                          Pro forma                  $1,410,000      $1,482,000     $1,838,000
       Diluted Earnings per share         As reported                $      .24      $      .27     $      .31
                                          Pro forma                  $      .22      $      .22     $      .26

</TABLE>

       The disclosure of compensation cost under this pronouncement may not be
       representative of the effects on net earnings for future years. 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, 1995                                               329,300              $ 6.44
         Granted                                                                  162,050                2.34
         Exercised                                                                 -                      -
         Forfeited                                                                (35,200)               6.44
         Canceled                                                                (294,100)               6.44
                                                                           -----------------
       Balance at December 31, 1996                                               162,050                2.34
                                                                           -----------------
          Granted                                                                 253,400                2.51
          Exercised                                                                 (4,834)              2.25
          Forfeited                                                               (33,066)               2.50
          Canceled                                                                 -                      -
                                                                           -----------------
       Balance at December 31, 1997                                              377,550                 2.44
                                                                           -----------------
          Granted                                                                    -                   -
          Exercised                                                                (5,334)               2.25
          Forfeited                                                               (36,966)               2.67
          Canceled                                                                   -                    -
                                                                           -----------------
       Balance at December 31, 1998                                              335,250               $ 2.66
                                                                           -----------------

</TABLE>

       The  weighted average fair value of options granted in 1997 and 1996 was
       $.94 and $.76, respectively.  There were no options granted in 1998.

       At December 31, 1998, the range of exercise prices and weighted-average
       remaining contractual life of outstanding options was $2.25 to $3.25 and
       19 months, respectively.

       At December 31, 1998, 1997 and 1996, the number of options exercisable
       was 251,566, 193,006 and 49,017, respectively, and weighted average
       exercise prices of those options were $2.67, $2.36 and $2.25,
       respectively.

(8)     NET EARNINGS PER SHARE

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

<TABLE>
<CAPTION>

                                                                               YEAR ENDED DECEMBER 31,
                                                                   ---------------------------------------------------
                                                                      1998               1997              1996
                                                                   -------------      -------------     --------------
       <S>                                                     <C>               <C>                <C>
       Net earnings available to common
            shareholders used in basic EPS                     $   1,499,000     $    1,850,000     $   2,158,000
                                                                   -------------      -------------     --------------
                                                                   -------------      -------------     --------------
       Weighted average number of common shares
             used in basic EPS                                     6,277,697          6,643,975         6,929,953
                                                                   -------------      -------------     --------------
       Basic EPS                                               $         .24     $          .28     $         .31
                                                                   -------------      -------------     --------------
       Effect of dilutive securities:
            Warrants                                                      -                  -                 -
            Options                                                    9,215             88,881            73,930
                                                                   -------------      -------------     --------------
       Weighted number of common shares and
            dilutive potential common shares used in
            diluted EPS                                            6,286,912          6,732,856         7,003,883
                                                                   -------------      -------------     --------------
                                                                   -------------      -------------     --------------
       Diluted  EPS                                            $         .24     $          .27      $        .31
                                                                   -------------      -------------     --------------
                                                                   -------------      -------------     --------------

</TABLE>

                                      36

<PAGE>

       Warrants on 220,000 shares of common stock were not included in computing
       diluted EPS for the years ended December 31, 1998, 1997 and 1996 because
       their effects were antidilutive. Also, convertible subordinated
       debentures convertible into 571,429 shares of common stock were not
       included in computing diluted EPS for the years ended December 31, 1998
       and 1997 because their effects were antidilutive.

(9)    COMMITMENTS AND CONTINGENCIES

       OPERATING LEASES

       The Company leases equipment under noncancelable operating leases
       expiring on various dates through 1999 with total future commitments of
       $95,000. In May 1996, the Company entered into a two year lease for
       additional warehouse space of approximately 30,000 square feet located in
       Santa Clarita, California which is now completely occupied by the
       Company. Rental expense for the years ended December 31, 1998, 1997 and
       1996 aggregated $175,000, $160,000 and $112,000, respectively.

       At December 31, 1998 and 1997, the Company had no standby or commercial
       letters of credit outstanding under the revolving line of credit
       agreement with the bank (Note 3).

(10)   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, 1998,
       1997 and 1996:

<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:
            1996                              $       138,000     $        1,540,000   $     1,543,000     $     135,000
            1997                              $       135,000     $        1,169,000   $     1,169,000     $     135,000
            1998                              $       135,000     $        1,006,000   $       981,000     $     160,000

       Inventory reserves:
            1996                              $       447,000     $          541,000   $         -         $     988,000
            1997                              $       988,000     $          303,000   $         -         $   1,291,000
            1998                              $     1,291,000     $          302,000   $         -         $   1,593,000

</TABLE>

(11)   SUBSEQUENT EVENTS

       During February, 1999, the Company converted accounts receivable of
       $346,000 and $87,000, due from two unrelated customers, into notes
       receivable for the same amounts, bearing annual interest of 9% each and
       due in February 2000 and May 1999, respectively.

                                      37

<PAGE>

ITEM 9.CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ACCOUNTING AND
                      FINANCIAL DISCLOSURES

         On December 8, 1998, the Company filed on Form 8-K, dated December 2,
1998, reporting a change of the Company's accountants. KPMG, LLP (formerly known
as KPMG Peat Marwick LLP) ("KPMG") was previously the principal accountants for
the Company. On December 2, 1998, KPMG was dismissed by the Company as principal
accountants and Grant Thornton LLP was engaged as principal accountants to audit
the accounts of the company for the year ending December 31, 1998. The decision
to change accountants was approved by the Company's Audit Committee and the
Board of Directors.

         During the fiscal years ended December 31, 1997 and 1996 and through
the date of this report, there were no disagreements with KPMG on any matter of
accounting principles or practices, financial statement disclosure or audit
scope or procedure which disagreement, if not resolved to the satisfaction of
KPMG, would have caused them to make reference to the matter of such
disagreement in connection with the Form 8-K, dated December 2, 1998. The
accountant's report for the fiscal years ended December 31, 1997 and 1996 did
not contain an adverse opinion or a disclaimer of opinion, nor were such reports
qualified or modified as to uncertainty, audit scope, or accounting principles.

         The Company had requested that KPMG furnish it with a letter addressed
to the Securities and Exchange Commission stating whether it agrees with the
above statements. A copy of that letter is filed as Exhibit 16 to the Form 8-K,
dated December 2, 1998, incorporated herein by reference.

                                    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, 1998.

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.



                                      38

<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).*

          3.2    Bylaws of the Registrant.*

          4.1    Specimen certificate evidencing Class A Common Stock of the 
                 Registrant.*

          4.2    Form of Underwriter's Warrant.*

          10.1   Form of Director and Officer Indemnification Agreement.*

          10.2   1995 Stock Incentive Plan, As Amended *****

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

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

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

          10.6   Wm Michaels Limited Regional Prototype Defined Contribution 
                 Plan and Trust.****

          10.7   Form of Sales Representative Agreement.*

          10.8   Loan Agreement, dated June 16, 1995, between Registrant and 
                 Union Bank.**

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

          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.***

          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.*****

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

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

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

                                      39

<PAGE>

           23.1  Consent of KPMG, LLP

           24.1  Power of Attorney (see page 41 of this Annual Report on 
                 Form 10-K).

           27    Financial Data Schedule
------------------------------------------------------------------------------

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

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

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

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

       *****     Incorporated by reference from Taitron Components Incorporated
                 Form 10-QSB for the quarter ended June 30, 1998.

(b)      REPORTS ON FORM 8-K:

                 None

                                      40

<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 29, 1999
                                                    --------------------------

                                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 29, 1999
------------------------------------------------
Johnson Ku


/s/ Stewart Wang                                     Chief Executive Officer, President          March 29, 1999
------------------------------------------------     and Director
Stewart Wang                                         (Principal Executive Officer)


/s/ Steven H. Dong                                   Chief Financial Officer                     March 29, 1999
------------------------------------------------     and Secretary
Steven H. Dong                                       (Principal Financial and Accounting Officer)


/s/ Richard Chiang                                    Director                                   March 29, 1999
------------------------------------------------
Richard Chiang


/s/ Winston Gu                                        Director                                   March 29, 1999
------------------------------------------------
Winston Gu


/s/ Felix Sung                                        Director                                    March 29, 1999
------------------------------------------------
Felix Sung

</TABLE>

                                      41