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

                                   FORM 10-KSB

[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF
      1934
                   For the fiscal year ended December 31, 2007

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

                         Commission File Number 0-25844

                         TAITRON COMPONENTS INCORPORATED
                 (Name of Small Business Issuer in Its Charter)

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

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

         (Issuer's Telephone Number, Including Area Code) (661) 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 Class)

Check whether the issuer is not required to file reports  pursuant to Section 13
or 15(f) of the Exchange Act. |_|

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.   Yes[X]     No |_|

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB.    [X]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
                                Yes |_|       No [X]

Registrant's revenues for its most recent fiscal year:  $7,539,000

The aggregate market value of the voting common equity held by non-affiliates of
the registrant as of March 1, 2008 was approximately $5.5 million based upon the
closing price of $1.46 per share.

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

                Class                              Outstanding on March 1, 2008
-------------------------------------              ----------------------------
Class A common stock, $.001 par value                         4,777,144
Class B common stock, $.001 par value                           762,612

Transitional Small Business Disclosure Format:  Yes |_|   No [X]

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement relating to registrant's
Annual Meeting of Shareholders are incorporated by reference in Part III of this
Form 10-KSB, which will be filed within 120 days of the registrant's fiscal year
end.

<PAGE>

FORWARD-LOOKING STATEMENTS

      This   document,   press   releases  and  certain   information   provided
periodically  in writing or orally by the  Company's  officers or its agents may
contain  statements which  constitute  "forward-looking  statements"  within the
meaning of Section 27A of the  Securities  Act of 1933, as amended,  and Section
21E of the Securities Exchange Act of 1934, as amended,  and involve a number of
risks and uncertainties. Forward-looking statements are usually denoted by words
or phrases such as "believes,"  "expects,"  "thinks,"  "projects,"  "estimates,"
"anticipates," "will likely result," or similar expressions.  We wish to caution
readers that all forward-looking  statements are necessarily speculative and not
to place undue reliance on  forward-looking  statements,  which speak only as of
the date made,  and to advise  readers that actual  results  could vary due to a
variety of risks and uncertainties.  Factors associated with the forward-looking
statements that could cause the forward-looking  statements to be inaccurate and
could  otherwise  impact  our  future  results  are set  forth in detail in this
document.  In  addition to the other  information  contained  in this  document,
readers should carefully  consider the information  appearing in Part II, Item 6
of this document under the heading "Cautionary Statements and Risk Factors."

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

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

General

         We are a national  distributor of brand name electronic  components and
supplier of original designed and manufactured (ODM) electronic components ("ODM
Components"),  with our product offerings  ranging from discrete  semiconductors
through small electronic  devices.  Prior to 2003, we were primarily  focused on
the  distribution  of  transistors,  diodes and other  discrete  semiconductors,
optoelectronic   devices  and  passive   components.   Commencing  in  2003,  we
implemented a strategy to expand our business into  value-added  engineering and
turn-key   services,   focusing  on  providing   existing  contract   electronic
manufacturers  (CEMs) and original equipment  manufacturers (OEMs) with original
design and manufacturing  (ODM) services for their multi-year turn-key projects.
Our  ODM  services,   and  the   distribution   of  products   manufactured   to
specifications  developed  as a  result  of our ODM  services  ("ODM  Products")
accounted for 6% of our revenue during our fiscal year ended December 31, 2007.

         We have developed a reputation for maintaining in-depth inventories and
knowledge of the products in our markets. Our "superstore"  strategy consists of
carrying a large  quantity  and variety of  components  in inventory to meet the
rapid  delivery  requirements  of our  customers.  To  differentiate  from other
distributors,  we also offer ODM Components,  which are manufactured  electronic
components based on our own engineering  specifications  under the private label
brands "TCI" or "PSD" through  outsourcing.  At December 31, 2007, our inventory
consisted  of over  14,000  different  products  manufactured  by more  than 100
different suppliers.  In 2007, we offered approximately 72 that are ODM Products
to specifications developed as a result of our ODM services. We are incorporated
in California,  and were originally formed in 1989. We maintain a majority-owned
subsidiary  in Mexico and three  divisions in each of Taiwan,  Brazil and China.
Our  Mexico  and  Brazil  locations  are for  regional  distribution,  sales and
marketing  purposes  and our  Taiwan  and  China  locations  are for  supporting
inventory  sourcing and purchases and  coordinating  the  manufacture of our ODM
Components and ODM Products.  Our China location also serves as the  engineering
center  responsible  for making  component  datasheets and test  specifications,
arranging  pre-production  and mass production at our outsourced  manufacturers,
preparing samples, monitoring quality of shipments,  performing failure analysis
reports, and designing circuits with partners for ODM projects.

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

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


                                      -2-
<PAGE>

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

Discrete Semiconductors and Commodity Integrated Circuits

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

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

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

Optoelectronic Devices and Passive Components

      In addition to discrete  semiconductors,  we offer optoelectronic  devices
such as LED's,  infrared sensors and opto couplers,  along with passive devices,
such as resistors,  capacitors  and inductors  which are  electronic  components
manufactured with  non-semiconductor  materials.  We market these optoelectronic
devices  and  passive  components  through the same  channels,  as the  discrete
semiconductors.  Sales of these  optoelectronic  devices and passive  components
were 46% and 41% of our total  sales for the years ended  December  31, 2007 and
2006, respectively.  During 2007, we purchased $2,580,000 of inventory for these
components, to facilitate our market for these products.

Electronics Distribution Channels

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

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

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


                                      -3-
<PAGE>

ODM Service Industry

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

"Superstore" Strategy

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

      Reliable  One Stop  Shopping:  Large  Inventory.  We believe that our most
important  competitive  advantage  is the depth of our  inventory.  Unlike other
distributors who carry only the  best-selling  discrete  components,  we offer a
large selection of different name-brand discrete semiconductors,  optoelectronic
devices and passive  components.  Because of its large  inventory,  we often can
fill a significant  portion,  or all, of a customer's order from stock. Also, we
have  been  able to fill most of our  customers'  orders  within 24 hours and in
compliance  with  their  requested  delivery  schedules.  However,  we are  also
focusing on lowering our inventory levels to balance the weakened demand we have
experienced  for our  products  over  the past  several  years.  With  immediate
availability  of a wide selection of products and brands,  we believe that sales
may grow if the market rebounds. See Part II, Item 6 - "Management's  Discussion
and Analysis - Liquidity and Capital Resources".

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

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

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

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

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


                                      -4-
<PAGE>

      Relationships   with  Suppliers.   Stock  rotation  and  price  protection
privileges are beneficial to  distributors  because they enable  distributors to
reduce inventory cost or rotate inventory they are unable to sell, thus reducing
the risks and costs  associated  with  over-purchasing  or  obsolescence.  Price
protection  mitigates  the  risks  of  falling  prices  of  components  held  in
inventory.  We believe  that we have been able to gain a  competitive  advantage
over other distributors by sometimes foregoing or not demanding these privileges
(and thus assuming the risk for over-purchasing,  product obsolescence and price
fluctuations)  in  order  to  obtain  better  pricing.  See  Part  II,  Item 6 -
"Management's Discussion and Analysis - Cautionary Statements and Risk Factors -
Need  to  Maintain  Large  Inventory;   Price   Fluctuations"  and  "Business  -
Suppliers".

      Third Party Warehouse. Paying a percentage of the transaction, some of our
principals  use our  warehouse  to hold  their  inventory  and to ship to  their
customers  in North  America.  Our  ability of  tracking  the  products  and the
convenience of the real-time web order entry make the third party warehouse more
attractive to many  component  manufacturers  overseas.  We believe this service
will enhance our market position as the discrete components superstore.

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

Service Strategy and ODM Products

      We have historically  offered our customers a limited range of value-added
services  such as cutting and forming,  quality  monitoring  and product  source
tracing.  Beginning in 2003, we significantly  expanded our value-added services
by offering our existing OEM and CEM  customers  outsourced  product  design and
manufacturing  assembly  services.  Our ODM (original design and  manufacturing)
products  and  services  were   $422,000  and   $2,354,000  in  2007  and  2006,
respectively.  This decline was  attributed to the loss of one customer in 2007.
In order to support our ODM service  offerings,  we opened an engineering design
center in Shanghai, China in 2005. Strategic allies such as Princeton Technology
Corporation,  a company  controlled by one of our  directors,  and Teamforce Co.
Ltd., both Taiwan-based companies, assist us with this program. We plan to joint
venture  with   Teamforce  Co.  Ltd.  to  set  up  an  ODM  product  design  and
manufacturing  plant in China by the end of 2008. As a franchise  distributor of
Princeton Technology Corporation in the US, we receive engineering support using
their  products  in our ODM  projects in order to lower costs and to shorten the
design cycle.  Our goal is to have 50%  component  sales and 50% ODM service and
products sales by the end of 2012.

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

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

Products

      Electronic Components - Discrete

      We market a wide variety of discrete semiconductors,  including rectifiers
(or power  diodes),  diodes,  transistors,  optoelectronic  devices  and passive
components, to other electronic distributors,  contract electronic manufacturers
and original equipment manufacturers, who incorporate them in their products. At
December 31, 2007,  our inventory  consisted of over


                                      -5-
<PAGE>

14,000 different products manufactured by more than 100 different suppliers.

      In 2007, we purchased  electronic component products from approximately 40
suppliers,  including Everlight Electronics Co, Ltd., Samsung  Electro-Mechanics
Co., Vishay Americas Inc. and Zowie Technology Corporation.  See Part II, Item 6
- "Management's Discussion and Analysis - Cautionary Statements and Risk Factors
- Suppliers", "Business - Customers" and "Business - Suppliers".

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

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

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

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

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

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

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

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

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

      ODM Products

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

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

Customers

      We  market  our  products  to  distributors,  CEMs and  OEMs,  and our ODM
Services to CEMs and OEMs.  We believe that our  strategic  purchasing  policies
allow  us to  provide  smaller  and  medium-sized  distributors,  CEMs  and OEMs
competitive


                                      -6-
<PAGE>

prices on discrete  electronic  components while  maintaining an adequate profit
margin.  As a rule,  we do not impose  minimum order  limitations,  which enable
customers  to avoid the cost of  carrying  large  inventories.  See  "Business -
Strategy."

      During 2007, we distributed our discrete electronic  component products to
approximately 650 customers.  Other than one customer  accounting for 22% of our
net sales in 2006,  for the years ended December 31, 2007 and 2006, no other one
customer accounted for more than 8% and 4%, respectively, of our net sales.

      In 2007,  sales of brand name  electronic  component  products and our ODM
Components together represented  approximately 94% of our net sales, while sales
of our ODM Products represented the remaining 6% of our net sales.  Distributors
represented  approximately  38% and  both  CEMs and  OEMs  together  represented
approximately  45% of our  net  sales  of  electronic  component  products.  The
remaining 17% of our electronic component sales were made to other exporters and
overseas customers.

      We historically have not required our distributor customers to provide any
point of sale reporting and therefore we do not know the different industries in
which our products are sold by our distributor customers.  However, based on our
sales to CEMs and OEMs, we believe that no any single  industry  accounted for a
majority of the applications of our discrete electronic  component products sold
in 2007 or 2006.

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

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

      As our customers grow in size, we may lose our larger customers to our own
discrete  electronic  components  suppliers and as the electronics  distribution
industry consolidates, some of our customers may be acquired by competitors. See
Part II, Item 6 - "Management's  Discussion and Analysis - Cautionary Statements
and Risk Factors - Competition".

Sales and Marketing Channels

      As of March 1, 2008,  our sales and marketing  department  consisted of 13
employees.  We have  centralized our sales order processing and customer service
department into our headquarters at Valencia,  California.  However, we retained
outside sales account managers in the states of Massachusetts  and Georgia.  Our
inside sales and customer  service  departments  are divided into regional sales
territories  throughout  North America.  The outside sales account  managers are
also  responsible  for developing  new CEM and OEM accounts,  as well as working
locally with our independent sales representatives and preferred distributors.

      We also supply products to national  distributors who share our franchised
lines. These national distributors usually have many office locations throughout
the United States and are larger than us. We serve the national  distributors by
providing  easy access to discrete  products  that they choose not to stock,  as
well as  supporting  their  needs in  inventory  shortage  situations.  Sales to
national distributors were $32,000 in 2007 and $24,000 in 2006.

      We have sales  channels into Central  America  through our  majority-owned
subsidiary  in Mexico City,  Mexico.  Central  American  sales were $994,000 and
$842,000 in 2007 and 2006, respectively.

      We have sales  channels into Asia through our branch  offices in Shanghai,
China and Taipei, Taiwan. Sales to Asian customers were $624,000 and $362,000 in
2007 and 2006, respectively.

      We also have sales  channels into South America  through our branch office
in Sao Paulo,  Brazil.  South  American sales were $512,000 and $422,000 in 2007
and 2006, respectively.

      Independent  sales  representatives  have  played  an  important  role  in
developing  our client base,  especially  with  respect to OEMs.  Many OEMs want
their  suppliers to have a local presence and our network of  independent  sales
representatives is responsive to those needs.  Independent sales representatives
are primarily responsible for face-to-face meetings with our customers,  and for
developing  new  customers.  Independent  sales  representatives  are each given
responsibility for a specific


                                      -7-
<PAGE>

geographic territory.  Typically, sales representatives are only compensated for
sales  made to CEMs,  OEMs and  preferred  distributors.  We  believe  that this
commission policy directs independent sales representatives'  attention to those
end users with potential to increase  market share.  Along with our  independent
sales  representatives,  we jointly advertise and participate in trade shows. We
utilized 7 independent sales representatives during 2007.

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

Suppliers

      We believe that it's important to develop and maintain good  relationships
with our discrete electronic component suppliers. We do not typically enter into
long-term supply,  distribution or franchise agreements with our suppliers,  but
instead  cultivate  strong  working  relationships  with each of our  suppliers.
However,  we have entered into franchise  agreements with some of our suppliers.
The  franchise  agreements  have terms from one to two years with  inventory and
price protection  programs.  See Part II, Item 6 - "Management's  Discussion and
Analysis  -  Cautionary   Statements  and  Risk  Factors  -  Relationship   with
Suppliers".

      In order to facilitate good relationships with our suppliers, we typically
will carry a complete line of each supplier's discrete products. We also support
our  suppliers  by  increasing   their   visibility   through   advertising  and
participation   in  regional  and  national  trade  shows.  We  generally  order
components far in advance, helping suppliers plan their production.  Outstanding
commitments  to  purchase  inventory  from  suppliers  as of March 1,  2008 were
approximately  $1,500,000.  In addition,  we have  distribution  agreements with
certain suppliers which provide  stock-rotation,  price protection and stock buy
back  terms.  See Part II,  Item 6 -  "Management's  Discussion  and  Analysis -
Cautionary Statements and Risk Factors - Need to Maintain Large Inventory; Price
Fluctuations" and "Business - Strategy".

      In  2007,  we  purchased   components  from   approximately  40  different
suppliers,  including Samsung  Electro-Mechanics  Co., Everlight Electronics Co,
Ltd.,   Princeton   Technology,   Vishay  Americas  Inc.  and  Zowie  Technology
Corporation.  While we are continually  attempting to build  relationships  with
suppliers  and from time to time add new  suppliers in an attempt to provide our
customers  with  a  better  product  mix,  the   possibility   exists  that  our
relationship  with  a  supplier  may  be  terminated.  See  Part  II,  Item  6 -
"Management's Discussion and Analysis - Cautionary Statements and Risk Factors -
Relationship with Suppliers".

      For the year ended December 31, 2007,  the following name brands,  Samsung
Electro-Mechanics Co., Princeton Technology,  Everlight Electronics Co, Ltd. and
Vishay Americas Inc.  accounted for  approximately  25% of our net purchases for
name brand distributed components. However, we do not regard any one supplier as
essential  to our  operations,  since  equivalent  replacements  for most of the
products we market are either  available from one or more of our other suppliers
or are available  from various other sources at competitive  prices.  We believe
that,  even  if we lose a  direct  relationship  with a  supplier,  there  exist
alternative  sources  for  another  supplier's  products.  See Part II, Item 6 -
"Management's Discussion and Analysis - Cautionary Statements and Risk Factors -
Relationship with Suppliers."

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

Competition

      We  operate  our  discrete  electronic  components  business  in a  highly
competitive  environment and face competition from numerous local,  regional and
national  distributors (both in purchasing and selling inventory) and electronic
component  manufacturers,  including  some  of our  own  suppliers.  Many of our
competitors are more established and have greater name recognition and financial
and marketing  resources than us. We believe that  competition in the electronic
industry is based on breadth of product lines, product  availability,  choice of
brand name,  customer service,  response time,  competitive  pricing and product
knowledge,  as well as value-added  services.  We believe we compete effectively
with respect to breadth and  availability of inventory,  response time,  pricing
and  product  knowledge.  Generally,  large  component  manufacturers  and large
distributors  do  not  focus  their  internal   selling  efforts  on  small  and
medium-sized  OEMs and  distributors,  which constitute the vast majority of our
customers.   However,   should  our  customers   increase  in  size,   component
manufacturers  may find it cost effective to focus direct sales efforts on those
customers,  which could result in the loss of  customers  or  decreased  selling
prices. See Part II, Item 6 - "Management's Discussion and Analysis - Cautionary
Statements  and  Risk  Factors  -   Competition"   and  "Business  -  Electronic
Distribution Channels".


                                      -8-
<PAGE>

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

Management Information Systems

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

Warehouse Management System

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

Foreign Trade Regulation

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

      Sales to Asian customers were 6.4% and 3.8% of our total sales in 2007 and
2006, respectively.

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

      The ability to remain  competitive with respect to the pricing of imported
components  could be  adversely  affected  by  increases  in  tariffs or duties,
changes in trade treaties,  strikes in air or sea  transportation,  and possible
future U.S.  legislation  with respect to pricing and import  quotas on products
from foreign countries.  For example,  it is possible that political or economic
developments in China, or with respect to the United States'  relationship  with
China,  could  have an adverse  effect on our  business.  Our  ability to remain
competitive  also could be affected by other  governmental  actions  related to,
among  other  things,   anti-dumping   legislation  and  international  currency
fluctuations. While we do not believe that any of these factors adversely impact
our  business  at  present,  we cannot  assure you that these  factors  will not
materially adversely affect us in the future. Any significant  disruption in the
delivery  of  merchandise  from  our  suppliers,  substantially  all of whom are
foreign,  could have a material  adverse  impact on our  business and results of
operations.  See Part II,  Item 6 -  "Management's  Discussion  and  Analysis  -
Cautionary Statements and Risk Factors - Foreign Trade Regulation."

Employees

      At March 1, 2008, we had 31 employees,  all of whom are employed on a full
time  basis.  None of our  employees  are  covered  by a  collective  bargaining
agreement and we consider our relations with employees to be good.


                                      -9-
<PAGE>

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

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

ITEM 2.  DESCRIPTION OF PROPERTY.

      We own our headquarters and main distribution facility which is located in
approximately  50,000  square  feet at 28040 West  Harrison  Parkway,  Valencia,
California.  We believe this facility is adequately covered by insurance (except
earthquake coverage).  We also own 15,000 square feet of office and distribution
space through our  subsidiary in Mexico and 2,500 square feet of office space in
Taipei,  Taiwan  (currently  leased to an unrelated  tenant).  We believe  these
existing facilities are adequate for the foreseeable future and have no plans to
renovate or expand them.

      In September 2006, we purchased  approximately 4,500 square feet of office
space (consisting of 2 separate units on the same floor) in Shanghai, China with
a total cost of $1,230,000. The overall office building project and construction
of interior  improvements  were completed and occupied on October 1, 2007.  This
investment  is being  used as rental  property  for lease to others  and for the
Company's project design and engineering center.

      In  addition,  we lease  350  square  feet of  office  space for sales and
marketing functions in Brazil, expiring annually each year in May.

ITEM 3.  LEGAL PROCEEDINGS.

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

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

      None.

                                     PART II

ITEM  5.  MARKET  FOR  COMMON  EQUITY,  RELATED  STOCKHOLDER  MATTERS  AND SMALL
          BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

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

                                                  High       Low
                                                  ----       ---
      Year Ended December 31, 2006:
      First Quarter                              $2.49     $1.75
      Second Quarter                              2.50      1.86
      Third Quarter                               2.13      1.80
      Fourth Quarter                              2.50      1.86

      Year Ended December 31, 2007:
      First Quarter                              $3.47     $2.09
      Second Quarter                              3.00      2.50
      Third Quarter                               2.66      1.79
      Fourth Quarter                              1.99      1.31

      Year Ended December 31, 2008:
      First Quarter (through March 1, 2008)      $1.87     $1.33

      On March 1,  2008,  the last  sale  price of the  Class A common  stock as
reported by Nasdaq was $1.46 per share.


                                      -10-
<PAGE>

Holders

      As of March 1,  2008,  there  were 39  registered  holders  of our Class A
common stock (not including  those holders whose shares of common stock are held
in street name) and one holder of our Class B common stock.

Dividends and Dividend Policy

      On March 28, 2008 we  declared an annual cash  dividend of $0.05 per share
of Class A Common Stock and Class B Common Stock,  payable on April 22, 2008, to
shareholders  of record at the close of business on April 15, 2008. The dividend
was  declared in  connection  with our prior  decision in 2007 to  establish  an
annual  cash  dividend  of up to $0.10  per  share on Class A and Class B Common
Stock for a period of five years.  The dividend amount for 2008 was reduced from
$0.10  to  $0.05  per  share  due to  $786,000  of net  cash  used in  investing
activities  and $278,000 of net cash used in operating  activities  during 2007.
See "Management's Discussion and Analysis - Results of Operations; Liquidity and
Capital Resources."

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

Recent Sales of Unregistered Securities

      We have not issued or sold any of our  securities  during fiscal 2007 that
were not registered under the Securities Act of 1933.

Repurchase of Equity Securities

      We have not repurchased any shares during fiscal 2007 and through March 1,
2008.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

      The  following   discussion   should  be  read  in  conjunction  with  the
consolidated  financial  statements,  including the related notes,  appearing in
Item 7 of this report.  Also,  several of the matters discussed in this document
contain  forward-looking   statements  that  involve  risks  and  uncertainties.
Forward-looking  statements  usually  are  denoted by words or  phrases  such as
"believes,"  "expects,"  "projects,"  "estimates,"  "anticipates,"  "will likely
result"  or  similar   expressions.   We  wish  to  caution   readers  that  all
forward-looking  statements are  necessarily  speculative and not to place undue
reliance on  forward-looking  statements,  which speak only as of the date made,
and to advise  readers that actual  results could vary due to a variety of risks
and uncertainties.  Factors associated with the forward-looking  statements that
could cause the forward-looking  statements to be inaccurate and could otherwise
impact our future results are set forth in detail in this report. In addition to
the  other  information  contained  in this  report,  readers  should  carefully
consider  the  following  information  appearing  under the heading  "Cautionary
Statements and Risk Factors."

Critical Accounting Policies and Estimates

      Use of  Estimates  - We have made a number of  estimates  and  assumptions
relating  to the  reporting  of assets and  liabilities  and the  disclosure  of
contingent assets and liabilities to prepare our financial  statements  included
in Item 7 of this  report  in  conformity  with  generally  accepted  accounting
principles.  These  estimates  have a  significant  impact on our  valuation and
reserve accounts relating to the allowance for sales returns, doubtful accounts,
inventory  reserves and deferred income taxes.  Actual results could differ from
these estimates.

      Revenue  Recognition  - We recognize  revenue when we have  evidence of an
arrangement,  a  determinable  fee,  and when  collection  is  considered  to be
probable  and  products  are  delivered,   This  occurs  upon  shipment  of  the
merchandise,  which is when legal  transfer of title occurs.  Reserves for sales
allowances and customer returns are established based upon historical experience
and our estimates of future returns.  Sales returns for the years ended December
31, 2007 and 2006 aggregated


                                      -11-
<PAGE>

$183,000  and  $131,000,  respectively.  The  allowance  for sales  returns  and
doubtful accounts at December 31, 2007 aggregated  $78,000. We review the actual
sales  returns  and bad debts for our  customers  and  establish  an estimate of
future returns and allowance for doubtful accounts.

      Inventory - Inventory, consisting principally of products held for resale,
is  recorded  at the lower of cost  (determined  using the  first  in-first  out
method) or estimated  market value.  We had inventory  balances in the amount of
$14,822,000 at December 31, 2007, which is presented net of valuation allowances
of  $2,506,000.   We  evaluate   inventories  to  identify  excess,   high-cost,
slow-moving or other factors  rendering  inventories as  unmarketable  at normal
profit margins.  Due to the large number of  transactions  and the complexity of
managing and maintaining a large inventory of product  offerings,  estimates are
made regarding adjustments to the cost of inventories.  If our assumptions about
future  demand  change,  or market  conditions  are less  favorable  than  those
projected,  additional  write-downs of inventories may be required. In any case,
actual amounts could be different from those estimated.

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

      Deferred  Taxes - We review the nature of each  component  of our deferred
income taxes for  reasonableness.  If determined that it is more likely than not
that we will not  realize  all or part of our net  deferred  tax  assets  in the
future, we record a valuation  allowance against the deferred tax assets,  which
allowance  will  be  charged  to  income  tax  expense  in the  period  of  such
determination.   We  also  consider  the  scheduled  reversal  of  deferred  tax
liabilities,  tax planning strategies and future taxable income in assessing the
realizability  of  deferred  tax  assets.  We also  consider  the weight of both
positive and negative evidence in determining  whether a valuation  allowance is
needed.  However,  due to the  continued  net losses,  we have fully  reserved a
$1,241,000 allowance against our net deferred tax assets.

      In July 2006, the FASB issued FASB  Interpretation  No. 48, Accounting for
Uncertainty in Income Taxes--an  interpretation  of FASB Statement No. 109 ("FIN
48"),  which  clarifies the accounting  and  disclosure  for  uncertainty in tax
positions,  as  defined.  FIN 48 seeks  to  reduce  the  diversity  in  practice
associated with certain  aspects of the  recognition and measurement  related to
accounting  for income taxes.  We adopted the provisions of FIN 48 as of January
1, 2007,  and have  analyzed  filing  positions in each of the federal and state
jurisdictions where required to file income tax returns, as well as all open tax
years in these jurisdictions. We have identified the U.S. federal and California
as our  "major"  tax  jurisdictions.  Generally,  we remain  subject to Internal
Revenue  Service  examination  of our 2004 through 2006 U.S.  federal income tax
returns, and remain subject to California Franchise Tax Board examination of our
2003 through 2006 California Franchise Tax Returns. However, we have certain tax
attribute  carryforwards  which will remain  subject to review and adjustment by
the  relevant  tax  authorities  until the  statute of  limitations  closes with
respect to the year in which such attributes are utilized.

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

Recent Accounting Policies

      In   September   2006,   the  FASB  issued  SFAS  No.  157,   "Fair  Value
Measurements."  This statement  defines fair value,  establishes a framework for
measuring fair value in generally accepted  accounting  principles,  and expands
disclosure  about fair value  measurements.  This statement does not require any
new  fair  value  measurements.   This  statement  is  effective  for  financial
statements  issued for fiscal years  beginning  after  November  15,  2008,  and
interim periods within those fiscal years. Management is currently reviewing the
effect,  if  any,  that  this  new  pronouncement  will  have  on its  financial
statements.

      In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and  Liabilities,  including an amendment of FASB Statement No.
115" ("SFAS No.  159").  SFAS No. 159 permits  entities to choose,  at specified
election dates, to measure many financial instruments and certain other items at
fair value that are not currently


                                      -12-
<PAGE>

required  to be measured at fair  value.  Unrealized  gains and losses  shall be
reported on items for which the fair value  option has been  elected in earnings
at each  subsequent  reporting  date. SFAS No. 159 is effective for fiscal years
beginning  after  November  15,  2007.  Early  adoption is  permitted  as of the
beginning of a fiscal year that begins on or before November 15, 2007,  provided
the entity  also  elects to apply the  provisions  of SFAS No.  157 "Fair  Value
Measurements"  ("SFAS No. 157").  The Company is currently  assessing the impact
that SFAS No. 159 will have on its financial statements.

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

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

Overview

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

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

      Our core strategy  still includes  maintaining a substantial  inventory of
electronic  components that allows us to fill customer orders  immediately  from
stock held in inventory. However, since demand remained weak throughout 2007, we
continue to focus on lowering  our  inventory  balances and changing our product
mix.  As a  result,  net  inventory  levels  decreased  throughout  the  year by
$871,000, including a non-cash provision of approximately $1,350,000 during 2007
to increase  our  inventory  reserves  for price  declines,  non-RoHS  compliant
components and slow-moving inventory.  This provision is mainly used to increase
our inventory  reserve in anticipation of future inventory value fluctuation and
excess inventory.

      In accordance  with  Generally  Accepted  Accounting  Principles,  we have
classified  inventory as a current asset in our December 31, 2006,  consolidated
financial statements representing approximately 84% of current assets and 62% of
total  assets.  However,  if all or a  substantial  portion of the inventory was
required to be  immediately  liquidated,  the inventory  would not be as readily
marketable or liquid as other items  included or classified as a current  asset,
such as cash.  We cannot  assure you that demand in the  discrete  semiconductor
market will increase and that market conditions will improve.  Therefore,  it is
possible that further declines in our carrying values of inventory may result.

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


                                      -13-
<PAGE>

Results of Operations

The Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

      Net sales for the year ended  December 31, 2007 decreased by $2,020,000 or
21% to $7,539,000 from  $9,559,000 in the prior year. The overall  decrease came
from our ODM product  sales  declining by  $1,932,000  or 26% compared  with the
prior year.

      Gross margins were 18% for the year ended  December 31, 2007,  compared to
29% for the prior year. The decrease was primarily attributed to the increase to
our  provision for  inventory  reserves by $870,000,  when compared to the prior
year.

      Selling,  general and  administrative  expenses decreased by $82,000 or 3%
for 2007 as compared to the prior year. The decrease was primarily attributed to
decreases to repairs and  maintenance  expenses by $57,000 and trade  commission
fees by $102,0000, partially offset by increases to our salaries and benefits by
$65,000.

      Operating loss was $1,478,000 or 20% of net sales for 2007, as compared to
$100,000 or 1% loss in the prior year.  Operating loss increased  primarily as a
result of lower gross margins discussed above.

      Net  interest  income was  $41,000  for 2007 as compared to $68,000 in the
prior year. The interest income was due to investment income earned from cash on
hand.

      Income tax provision was $1,000 for 2007 and $1,000 in the prior year. Our
tax provision is primarily  based upon our state income tax liabilities for both
2007 and 2006.

      We incurred net losses of $1,406,000 for 2007 as compared with $29,000 for
the prior year, an increase of $1,377,000. Net loss as a percentage of net sales
increased to 19% from 0.3%.

Liquidity and Capital Resources

      We  historically  have satisfied our liquidity  requirements  through cash
generated from operations,  short-term commercial loans, subordinated promissory
notes and issuance of equity  securities.  A summary of our cash flows resulting
from our  operating,  investing  and  financing  activities  for the years ended
December 31, 2007 and 2006 were as follows:

                                                Year Ended December 31,
                                           ---------------------------------
                                              2007                  2006
                                              ----                  ----
Operating activities .............         $(278,000)           $ 1,538,000
Investing activities .............          (786,000)            (1,432,000)
Financing activities .............          (576,000)               622,000

      Cash flows used in operating activities increased to $278,000 during 2007,
as compared to cash provided by of $1,538,000 in the prior year. The decrease in
cash provided by operations was primarily  attributed to accounts receivable and
inventory  increasing  by $401,000 and $479,000,  respectively,  during 2007, as
compared to both decreasing by $174,000 and $508,000, respectively, in the prior
year, a net change by the amount of $575,000 and $987,000, respectively.

      Cash flows used in investing activities decreased to $786,000 during 2007,
as  compared  to  $1,432,000  in the prior  year.  The  decrease  was  primarily
attributed  to the deposit of  $1,230,000  paid for the real estate  contract of
office space in Shanghai, China in during 2006.

      Cash flows used in financing  activities  was $576,000 in 2007 as compared
to  $622,000  provided by in the prior year.  The  decrease in cash  provided by
financing was primarily  attributed to paying cash dividend of $552,000 or $0.10
per share in 2007.

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


                                      -14-
<PAGE>

      Inventory is included and  classified as a current  asset.  As of December
31, 2007, inventory  represented  approximately 84% of current assets and 62% of
total assets.  However,  it is likely to take over one year for the inventory to
turn and  therefore is likely not to be saleable  within a one-year  time frame.
Hence,  inventory  would not be as readily  marketable  or liquid as other items
included in current assets, such as cash.

Off-Balance Sheet Arrangements

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

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:

      If environmental  laws and regulations  restrict the ability to distribute
our products,  our inventory may become obsolete and  unsaleable.  Our worldwide
operations are subject to local laws and regulations,  compliance with which may
require  substantial  expense.  As such, of particular  interest is the European
Union  ("EU")  directive  relating  to  the  Restriction  of  Certain  Hazardous
Substance  ("RoHS").  Effective  July 1, 2006,  this  directive  restricted  the
distribution of products within the EU containing certain substances,  including
lead. At the present time, much of our inventory contains substances  prohibited
by the RoHS directive. Further, many of our suppliers are not yet supplying RoHS
compliant  products.  Upon  effectiveness of the RoHS  legislation,  some of our
inventory  may become  obsolete  and  unsaleable  and,  as a result,  have to be
written off.

      If we fail to retain key  personnel  our  operations  could suffer and our
stock price  could be  negatively  impacted.  We are highly  dependent  upon the
services of Stewart Wang, our Chief Executive Officer and President. Our success
to date has been largely  dependent  upon the efforts and  abilities of Mr. Wang
and the loss of Mr. Wang's services for any reason could have a material adverse
effect upon us. In addition,  our work force  includes  executives and employees
with  significant  knowledge  and  experience  in the  electronics  distribution
industry.  Our future  success  will be  strongly  influenced  by our ability to
continue to  recruit,  train and retain a skilled  work force.  While we believe
that we would be able to locate  suitable  replacements  for our  executives  or
other  personnel if their services were lost, we cannot assure you that we would
be able to do so on terms  favorable  to us.  In  particular,  the  hiring  of a
suitable replacement for Mr. Wang could be very difficult. We have purchased and
currently  intend to maintain a key-man life insurance policy on Mr. Wang's life
with benefits of $2 million payable to us in the event of Mr. Wang's death.  The
benefits received under this policy might not be sufficient to compensate us for
the loss of Mr. Wang's services should a suitable replacement not be employed.

      Difficulties  with or termination of our  relationship  with our suppliers
could  adversely  impact our  ability to provide  sufficient  quantities  of our
products on a timely basis.  Typically,  we do not have written long-term supply
or  distribution  agreements  with any of our  non-franchise  suppliers  and our
written franchise supplier agreements have limited protection terms. Although we
believe that we have established close working  relationships with our principal
suppliers,  our  success  will  depend,  in large  part,  on  maintaining  these
relationships  and  developing new supplier  relationships  for our existing and
future  product  lines.  Because of the lack of long-term  contracts,  we cannot
assure you that we will be able to maintain  these  relationships.  However,  we
believe  that,  even  if we  lose  our  direct  relationship  with  a  supplier,
alternative  sources exist for our products.  We cannot assure you that the loss
or a  significant  disruption  in  the  relationship  with  one or  more  of our
suppliers  would not have a material  adverse effect on our business and results
of operations.

      We may not  receive  the full value of our  inventory  if we are forced to
liquidate  within a limited  time  period.  Inventory,  according  to  Generally
Accepted Accounting Principles, is included and classified as a current asset in
our December 31, 2007 consolidated  financial  statements.  However, if all or a
substantial portion of the inventory was required to be immediately  liquidated,
the  inventory  would not be as  readily  marketable  or  liquid as other  items
included or classified as a current  asset,  such as cash.  Further,  we may not
realize the full carrying value of our reported inventories.

      Our  revenues and  operating  results have been and may again be adversely
affected  by  downturns  or  other  changes  in the  general  economy  or in the
semiconductor industry. The electronics  distribution industry has been affected
historically by general economic  downturns,  which have had an adverse economic
effect upon  manufacturers  and  end-users  of discrete  components,  as well as
electronic  distributors  such as us. In addition,  the  life-cycle  of existing
electronic  products and the timing of new product  development and introduction
can affect  demand  for  electronic  components.  Downturns  in the  electronics
distribution  industry, or the electronics industry in general,  could adversely
affect our business and results of operations.


                                      -15-
<PAGE>

      Our gross  margins  may  decline as we  increasingly  compete  with larger
companies with greater  financial  resources and foreign  distributors.  We face
intense  competition,  both in our selling efforts and purchasing efforts,  from
the  significant  number of companies that  manufacture  or distribute  discrete
products.  Many of these companies have substantially greater assets and possess
substantially  greater  financial  and  personnel  resources  than  we do.  Many
competing  distributors  also  carry  product  lines  which  we  do  not  carry.
Generally,  large component  manufacturers  and large  distributors do not focus
their  direct  selling  efforts  on  smaller  and  medium-sized  CEMs,  OEMs and
distributors,  which  constitute  the vast majority of our  customers.  However,
should our customers increase in size, component  manufacturers may find it cost
effective to focus direct selling efforts on those customers, which could result
in the loss of customers  or decrease on profit  margins.  We cannot  assure you
that we will  be able to  continue  to  compete  effectively  with  existing  or
potential competitors. Also, we have seen new competition from Asia in two major
areas: (a) more Asian  manufacturers  competing directly with U.S.  distributors
and (b) more OEMs and CEMs moving production capacity to Asia for cost savings.

      Because  we   maintain  a  large   inventory,   price   fluctuations   can
significantly  affect our  results of  operations.  To  adequately  service  our
customers,  we believe that it is necessary to maintain a significant  inventory
supply of our product  offerings.  However,  if prices of components held in our
inventory  supply  decline or if new  technology  is  developed  that  displaces
products  distributed  by us and held in inventory,  our business and results of
operations could be materially adversely affected.

      An  unanticipated  shortage  of  products  may  cause us to fall  short of
expected quarterly revenues and operating results.  The semiconductor  component
business  has from time to time  experienced  periods  of extreme  shortages  in
product supply,  generally as the result of demand exceeding  available  supply.
When these shortages occur,  suppliers tend to either raise unit prices in order
to reduce order backlog or place their customers on  "allocation,"  reducing the
number of units sold to each  customer.  While we believe that, due to the depth
of our  inventory,  we have not been  adversely  affected by past  shortages  in
certain discrete components, we cannot assure you that future shortages will not
adversely impact us.

      Because we depend on international  suppliers for a significant  amount of
our products,  we are subject to all of the risks and  uncertainties  associated
with the conduct of international business. A significant number of the products
distributed  by us are  manufactured  in  Taiwan,  China,  South  Korea  and the
Philippines.  The purchase of goods manufactured in foreign countries is subject
to a number of risks, including economic disruptions,  transportation delays and
interruptions,  foreign  exchange rate  fluctuations,  imposition of tariffs and
import and export  controls and changes in governmental  policies,  any of which
could have a material adverse effect on our business and results of operations.

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

      Because one  shareholder  holds the  majority  of the voting  power of our
common stock, we may not be an attractive  candidate for acquisition,  which may
have a negative  effect on our stock price.  Stewart Wang,  our Chief  Executive
Officer and President,  beneficially owns all of our Class B common stock, which
carries  ten votes per  share,  and he thus  controls  approximately  62% of the
voting power of our common  stock.  As a result,  Mr. Wang is able to control us
and our  operations,  including the election of at least a majority of our Board
of  Directors.  Also,  at any time while we have at least 800  shareholders  who
beneficially  own shares of our common  stock,  our  Articles  of  Incorporation
provide for the automatic  elimination of cumulative  voting,  which would allow
Mr. Wang to elect all of our directors.  The disproportionate  vote afforded the
Class B common stock could also serve to  discourage  potential  acquirers  from
seeking to acquire  control of us  through  the  purchase  of the Class A common
stock,  which might have a depressive  affect on the price of the Class A common
stock.

      If our  customers  return  products at a rate  significantly  in excess of
historical  levels,  our  reserves  for  returns  may  not  be  adequate.  On  a
case-by-case  basis,  we accept returns of products from our customers,  without
restocking  charges,  when  they can  demonstrate  an  acceptable  cause for the
return.  Requests by a  distributor  to return  products  purchased  for its own
inventory  generally  are not  included  under this policy.  We also will,  on a
case-by-case basis, accept returns of products upon payment of a restocking fee,
which  generally  is set at 15% to 30% of the sales  price.  We will not  accept
returns of any products that were


                                      -16-
<PAGE>

special-ordered  by a customer,  or that otherwise are not generally included in
our inventory.  During the fiscal years ended December 31, 2007 and 2006,  sales
returns  aggregated  $183,000  and  $131,000,  or 2.4%  and  1.3% of net  sales,
respectively.  Historically,  most allowable  returns occur during the first two
months following shipment.  While we maintain reserves for product returns which
we consider to be  adequate,  the  possibility  exists that we could  experience
returns in any period at a rate  significantly  in excess of historical  levels,
which could  materially and adversely  impact our results of operations for that
period.

ITEM 7.  FINANCIAL STATEMENTS.

                          INDEX TO FINANCIAL STATEMENTS
                         TAITRON COMPONENTS INCORPORATED

                                                                           Page

Report of Independent Registered Public Accounting Firm.......................18
Consolidated Balance Sheet at December 31, 2007...............................19
Consolidated Statements of Operations for the Years Ended
  December 31, 2007 and 2006..................................................20
Consolidated Statements of Shareholders' Equity for the Years
  Ended December 31, 2007 and 2006............................................21
Consolidated Statements of Cash Flows for the Years
  Ended December 31, 2007 and 2006............................................22
Notes to Consolidated Financial Statements.................................23-31


                                      -17-
<PAGE>

             Report Of Independent Registered Public Accounting Firm

The Board of Directors
Taitron Components Incorporated:

We  have  audited  the  accompanying   consolidated  balance  sheet  of  Taitron
Components Incorporated (the "Company") as of December 31, 2007, and the related
consolidated  statements of operations,  shareholders' equity and cash flows for
each of the years ended December 31, 2007 and 2006. These consolidated financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements  are free of  material  misstatement.  The  Company is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial reporting.  Our audits include  consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of Taitron Components
Incorporated  as of  December  31,  2007,  and the  consolidated  results of its
operations  and its cash  flows  for  each of the  years  in the  periods  ended
December 31, 2007 and 2006, in conformity with accounting  principles  generally
accepted in the United States of America.

As  discussed  in  Notes  1  and 5 to  the  consolidated  financial  statements,
effective  January 1, 2007,  the Company  adopted  FASB  Interpretation  No. 48,
Accounting for Uncertainty in Income Taxes -- an Interpretation of FASB No. 109.


                                            /s/ Haskell & White LLP

Irvine, California
March 31, 2008


                                      -18-
<PAGE>

                         TAITRON COMPONENTS INCORPORATED

                           Consolidated Balance Sheet

                                December 31, 2007

                 Assets

Current assets:
    Cash and cash equivalents                                        $ 1,111,000
    Trade accounts receivable, net                                     1,450,000
    Inventory, net                                                    14,822,000
    Prepaid expenses and other current assets                            174,000
                                                                     -----------
        Total current assets                                          17,557,000

Property and equipment, net                                            5,532,000
Other assets                                                             713,000
                                                                     -----------
        Total assets                                                 $23,802,000
                                                                     ===========

             Liabilities and Shareholders' Equity

Current liabilities:
    Trade accounts payable                                           $ 1,318,000
    Accrued liabilities                                                  525,000
    Current portion of long-term debt                                     89,000
                                                                     -----------
        Total current liabilities                                      1,932,000

Long-term debt, less current portion                                     421,000
                                                                     -----------
        Total liabilities                                              2,353,000
                                                                     -----------

Commitments and contingencies (Notes 3, 6 and 9)

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;                                        5,000
      4,775,144 shares issued and outstanding
    Class B common stock, $.001 par value.
      Authorized, issued and outstanding                                   1,000
      762,612 shares
    Additional paid-in capital                                        10,544,000
    Accumulated other comprehensive income                                44,000
    Retained earnings                                                 10,855,000
                                                                     -----------
        Total shareholders' equity                                    21,449,000
                                                                     -----------
        Total liabilities and shareholders' equity                   $23,802,000
                                                                     ===========

See accompanying notes to consolidated financial statements.


                                      -19-
<PAGE>

                         TAITRON COMPONENTS INCORPORATED

                      Consolidated Statements of Operations

                             Year ended December 31,

                                                        2007            2006
                                                    -----------     -----------
Net sales                                           $ 7,539,000     $ 9,559,000
Cost of goods sold                                    6,206,000       6,766,000
                                                    -----------     -----------
Gross profit                                          1,333,000       2,793,000

Selling, general and administrative expenses          2,811,000       2,893,000
                                                    -----------     -----------
Operating loss                                       (1,478,000)       (100,000)

Interest income, net                                     41,000          68,000
Other income, net                                        32,000           4,000
                                                    -----------     -----------
Loss before income taxes                             (1,405,000)        (28,000)

Income tax provision                                     (1,000)         (1,000)
                                                    -----------     -----------
Net loss                                            $(1,406,000)    $   (29,000)
                                                    ===========     ===========
Other Comprehensive Loss:
     Foreign currency translation adjustment             24,000          37,000
                                                    -----------     -----------
Comprehensive (loss) income                         $(1,382,000)    $     8,000
                                                    ===========     ===========
Net loss per share:  Basic & Diluted:               $     (0.25)    $     (0.01)
                                                    ===========     ===========
Weighted average common shares outstanding:
  Basic & Diluted                                     5,532,825       5,477,016
                                                    ===========     ===========

          See accompanying notes to consolidated financial statements.


                                      -20-
<PAGE>

                         TAITRON COMPONENTS INCORPORATED
                 Consolidated Statements of Shareholders' Equity
                        Two years ended December 31, 2007

<TABLE>
<CAPTION>

                                        Class A              Class B                      Accumulated
                                     common stock         common stock                       Other                       Total
                                   ----------------      ---------------   Additional    Comprehensive  Retained     Shareholders'
                                   Shares    Amount      Shares   Amount Paid-in capital  Income (Loss)  Earnings        Equity
                                   ------    ------      ------   ------ --------------- -------------- --------         ------
<S>                              <C>         <C>        <C>       <C>      <C>              <C>         <C>            <C>
Balances at December 31, 2005    4,700,145   $5,000     762,612   $1,000   $10,416,000      $(17,000)   $12,842,000    $23,247,000


Issuances of common stock           16,666     --          --       --          24,000          --             --           24,000
Amortization of stock based
compensation                          --       --          --       --          17,000          --             --           17,000
Comprehensive loss:
    Foreign currency translation
    adjustment                        --       --          --       --            --          37,000           --           37,000

     Net loss                         --       --          --       --            --            --          (29,000)       (29,000)
                                                                                                                       -----------
       Comprehensive loss             --       --          --       --            --            --             --            8,000
                                 ---------   ------     -------   ------   -----------       -------    -----------    -----------
Balances at December 31, 2006    4,716,811   $5,000     762,612   $1,000   $10,457,000       $20,000    $12,813,000    $23,296,000

Issuances of common stock           58,333     --          --       --          64,000          --             --           64,000
Amortization of stock based
compensation                          --       --          --       --          23,000          --             --           23,000
Dividend payments                     --       --          --       --            --            --         (552,000)      (552,000)

Comprehensive income:
    Foreign currency translation
    adjustment                        --       --          --       --            --          24,000           --           24,000

     Net loss                         --       --          --       --            --            --       (1,406,000)    (1,406,000)
                                                                                                                       -----------
       Comprehensive income           --       --          --       --            --            --             --       (1,382,000)
                                 ---------   ------     -------   ------   -----------       -------    -----------    -----------
Balances at December 31, 2007    4,775,144   $5,000     762,612   $1,000   $10,544,000       $44,000    $10,855,000    $21,449,000
                                 =========   ======     =======   ======   ===========       =======    ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      -21-
<PAGE>

                         TAITRON COMPONENTS INCORPORATED

                      Consolidated Statements of Cash Flows

                             Year ended December 31,

<TABLE>
<CAPTION>
                                                           2007           2006
                                                        -----------    -----------
<S>                                                     <C>            <C>
Cash flows from operating activities:
Net loss                                                $(1,406,000)   $   (29,000)
                                                        -----------    -----------
 Adjustments to reconcile net loss to net cash
 provided by operating activities:
   Depreciation and amortization                            280,000        234,000
   Provision for inventory reserve                        1,350,000        480,000
   Provision for sales returns and doubtful accounts        198,000        131,000
   Stock based compensation                                  23,000         17,000
   Changes in assets and liabilities:
     Trade accounts receivable                             (401,000)       174,000
     Inventory                                             (479,000)       508,000
     Prepaid expenses and other current assets              (69,000)        46,000
     Other assets                                           (17,000)       (18,000)
     Trade accounts payable                                  98,000        200,000
     Accrued liabilities                                    145,000       (205,000)
                                                        -----------    -----------
       Total adjustments                                  1,128,000      1,567,000
                                                        -----------    -----------
 Net cash (used in) provided by operating activities       (278,000)     1,538,000
                                                        -----------    -----------
 Cash flows from investing activities:
   Acquisition of property and equipment                    (78,000)      (202,000)
   Real estate acquisition under construction              (108,000)    (1,230,000)
   Investments in land purchase contracts                  (147,000)            --
   Investments in joint ventures                           (148,000)            --
   Investments in marketable securities                    (305,000)            --
                                                        -----------    -----------
 Net cash used in investing activities                     (786,000)    (1,432,000)
                                                        -----------    -----------
 Cash flows from financing activities:
   Borrowing on notes payable                                    --        620,000
   (Payments) on notes payable                              (88,000)       (22,000)
   Dividend payments                                       (552,000)            --
   Exercise of Class A common stock options                  64,000         24,000
                                                        -----------    -----------
 Net cash (used in) provided by financing activities       (576,000)       622,000
                                                        -----------    -----------
   Impact of exchange rates on cash                          24,000         37,000
                                                        -----------    -----------

 Net (decrease) increase in cash and cash equivalents    (1,616,000)       765,000
 Cash and cash equivalents, beginning of year             2,727,000      1,962,000
                                                        -----------    -----------
 Cash and cash equivalents, end of year                 $ 1,111,000    $ 2,727,000
                                                        ===========    ===========

 Supplemental disclosures of cash flow information:
   Cash paid for interest                               $    39,000    $    11,000
                                                        ===========    ===========
   Cash paid for income taxes, net                      $     1,000    $    13,000
                                                        ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      -22-
<PAGE>

                         TAITRON COMPONENTS INCORPORATED

                   Notes to Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies

       Description of Business

       Taitron  Components  Incorporated  ("Taitron"  or  the  "Company")  is  a
       national distributor of brand name electronic  components and supplier of
       original  designed and  manufactured  (ODM)  electronic  components ("ODM
       Components")  based on our own engineering  specifications  under private
       label brands, with product offerings ranging from discrete semiconductors
       through small electronic devices.  The Company also provides  value-added
       engineering and turn-key services, focused on providing existing contract
       electronic  manufacturers  (CEMs) and  original  equipment  manufacturers
       (OEMs) with original  design and  manufacturing  (ODM) services for their
       multi-year turn-key projects ("ODM Products"). In order to meet the rapid
       delivery  requirements  of its customers for electronic  components,  the
       Company maintains a significant inventory.

       Principles of Consolidation

       The consolidated financial statements include the accounts of the Company
       and its 60% majority-owned  subsidiary,  Taitron Components Mexico, SA de
       CV. All  significant  intercompany  transactions  and balances  have been
       eliminated  in  consolidation.  The  ownership  interests of the minority
       investors  in Taitron  Components  Mexico,  SA de CV are  recorded in the
       accompanying consolidated balance sheet as minority interests, which have
       a balance of $231,000 as of  December  31,  2007,  and are  presented  in
       accrued liabilities.

       Concentration of Risk

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

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

       Samsung   Electro-Mechanics  Co.  and  Everlight  Electronics  Co,  Ltd.,
       together  accounted  for  approximately  30% and 26% of all Taitron's net
       purchases  for 2007 and 2006,  respectively.  However,  Taitron  does not
       regard any one supplier as essential to its operations,  since equivalent
       replacements  for  most  of  the  products  Taitron  markets  are  either
       available from one or more of Taitron's  other suppliers or are available
       from various other sources at competitive prices.  Taitron believes that,
       even if it loses its direct  relationship  with a  supplier,  there exist
       alternative sources for a supplier's products.

       During  the year  ended  December  31,  2007 and  2006,  Taitron  had one
       customer accounting for 0% and 22% of our net sales, respectively.  Other
       than this  customer,  for the years ended  December 31, 2007 and 2006, no
       other customer  accounted for more than 8.2% and 4.2%,  respectively,  of
       our net sales.


                                      -23-
<PAGE>

       Cash and Cash Equivalents

       The Company  considers  all highly  liquid  investments  with an original
       maturity of 90 days or less to be cash equivalents.

       The Company  maintains  cash  balances  in  multiple  accounts at several
       banks. Accounts at the various financial  institutions are insured by the
       Federal  Deposit  Insurance  Corporation up to $100,000 in the aggregate.
       From time to time, the Company has uninsured amounts on deposit in excess
       of  insurable  limits.  Management  does  not  believe  that  there  is a
       significant  credit  risk with  respect to the  non-performance  of these
       institutions based on their respective creditworthiness and liquidity.

       Revenue Recognition

       The Company recognizes revenue when it has evidence of an arrangement,  a
       determinable  fee, and when  collection  is considered to be probable and
       products are  delivered.  This occurs upon  shipment of the  merchandise,
       which  is when  legal  transfer  of  title  occurs.  Reserves  for  sales
       allowances and customer  returns are  established  based upon  historical
       experience and  management's  estimates of future returns.  Sales returns
       for the years ended  December 31, 2007 and 2006  aggregated  $183,000 and
       $131,000, respectively.

       Allowance for Sales Returns and Doubtful Accounts

       On a case-by-case basis, the Company accepts returns of products from its
       customers,  without  restocking  charges,  when they can  demonstrate  an
       acceptable  cause for the  return.  Requests by a  distributor  to return
       products purchased for its own inventory generally are not included under
       this policy. The Company will, on a case-by-case basis, accept returns of
       products upon payment of a restocking  fee, which is generally 10% to 30%
       of the net sales  price.  The  Company  will not  accept  returns  of any
       products that were  special-ordered  by a customer or that  otherwise are
       not generally included in our inventory.  The allowance for sales returns
       and doubtful accounts at December 31, 2007 aggregated $78,000.

       Inventory

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

       Depreciation and Amortization

       Depreciation  and  amortization  of property and  equipment  are computed
       principally using accelerated and straight-line  methods using lives from
       5 to 7 years for  furniture,  machinery  and equipment and 31.5 years for
       building  and building  improvements.  Renewals  and  betterments,  which
       extend  the life of an  existing  asset,  are  capitalized  while  normal
       repairs and maintenance costs are expensed as incurred.

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

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

       Stock-Based Compensation

       In September  2006,  the Company's  2005 Stock  Incentive Plan (the "2005
       Plan") was approved by state regulators, which authorizes the issuance of
       up to 1,000,000  shares  pursuant to options or awards  granted under the
       plan. We granted no shares under the 2005 Plan during 2007.

       Effective  January 1, 2006,  the Company  adopted  SFAS No. 123  (revised
       2004),  "Share-Based Payment" (SFAS 123R) using the "modified prospective
       application.".  SFAS  123R  requires  that the  Company  account  for all
       stock-based


                                      -24-
<PAGE>

       compensation  using a fair-value  method and  recognize the fair value of
       each award as an expense  over the service  period.  The adoption of SFAS
       123R  for  the  year  ended  December  31,  2007  increased   stock-based
       compensation expense by $23,000.

       Income Taxes

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

       In July 2006, the FASB issued FASB  Interpretation No. 48, Accounting for
       Uncertainty in Income Taxes--an  interpretation of FASB Statement No. 109
       ("FIN 48"), which clarifies the accounting and disclosure for uncertainty
       in tax  positions,  as defined.  FIN 48 seeks to reduce the  diversity in
       practice   associated   with  certain  aspects  of  the  recognition  and
       measurement  related to  accounting  for  income  taxes.  We adopted  the
       provisions  of FIN 48 as of  January 1, 2007,  and have  analyzed  filing
       positions in each of the federal and state  jurisdictions  where required
       to file  income  tax  returns,  as well as all  open  tax  years in these
       jurisdictions.  We have identified the U.S. federal and California as our
       "major"  tax  jurisdictions.  Generally,  we remain  subject to  Internal
       Revenue Service  examination of our 2004 through 2006 U.S. federal income
       tax  returns,  and  remain  subject  to  California  Franchise  Tax Board
       examination  of our 2003 through 2006  California  Franchise Tax Returns.
       However,  we have certain tax attribute  carryforwards  which will remain
       subject to review and  adjustment by the relevant tax  authorities  until
       the statute of limitations  closes with respect to the year in which such
       attributes are utilized.

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

       Financial Instruments

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

       Net Loss Per Share

       Basic loss per share is computed by dividing net loss available to common
       shareholders by the weighted average number of common shares  outstanding
       during the period.  Common  equivalent  shares,  consisting  primarily of
       stock options,  of approximately  384,000 and 446,000 for the years ended
       December  31,  2007  and  2006,  respectively,   are  excluded  from  the
       computation of diluted loss per share as their effect is anti-dilutive.

       Foreign Currency Translation

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


                                      -25-
<PAGE>

       Use of Estimates

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

       Recent Accounting Pronouncements

       In  September   2006,   the  FASB  issued  SFAS  No.  157,   "Fair  Value
       Measurements." This statement defines fair value, establishes a framework
       for measuring fair value in generally accepted accounting principles, and
       expands disclosure about fair value measurements. This statement does not
       require any new fair value measurements.  This statement is effective for
       financial statements issued for fiscal years beginning after November 15,
       2008,  and interim  periods  within those  fiscal  years.  Management  is
       currently  reviewing the effect, if any, that this new pronouncement will
       have on its financial statements.

       In February  2007,  the FASB issued SFAS No. 159,  "The Fair Value Option
       for  Financial  Assets and  Liabilities,  including  an amendment of FASB
       Statement  No. 115" ("SFAS No.  159").  SFAS No. 159 permits  entities to
       choose,   at  specified   election   dates,  to  measure  many  financial
       instruments  and certain other items at fair value that are not currently
       required to be measured at fair value.  Unrealized gains and losses shall
       be reported on items for which the fair value  option has been elected in
       earnings at each subsequent reporting date. SFAS No. 159 is effective for
       fiscal  years  beginning  after  November  15,  2007.  Early  adoption is
       permitted  as of the  beginning of a fiscal year that begins on or before
       November  15,  2007,  provided  the  entity  also  elects  to  apply  the
       provisions  of SFAS No. 157 "Fair Value  Measurements"  ("SFAS No. 157").
       The Company is currently assessing the impact that SFAS No. 159 will have
       on its financial statements.

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

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


                                      -26-
<PAGE>

Note 2 - Property and Equipment

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

                                                                12/31/2007
                                                               -----------
     Land                                                      $ 1,297,000
     Buildings and improvements                                  5,080,000
     Furniture and equipment                                       959,000
     Computer software and equipment                             2,311,000
                                                               -----------
         Total Property and Equipment                            9,647,000
     Less: Accumulated depreciation and amortization            (4,115,000)
                                                               -----------
     Property and Equipment, net                               $ 5,532,000
                                                               ===========

Note 3 - Note Payable

      Note Payable is summarized as follows:

                                                                12/31/2007
                                                                ----------
     Bank loan  collateralized by real property,
     payable in fixed  monthly principal installments
     of $7,381,  plus interest at the rate of one year
     LIBOR + 1.8% per annum, due September 20, 2013.              $510,000

      Less current portion                                         (89,000)
                                                                 ---------
     Long-term debt, less current portion                         $421,000
                                                                 =========

       On September 29, 2006, the Company  borrowed  $620,000 in connection with
       its  acquisition  of  approximately  4,500  square  feet of office  space
       (consisting  of 2 separate  units on the same floor) in  Shanghai,  China
       with a total purchase price of $1,230,000.  The  construction of interior
       improvements  was  completed  on  October 1, 2007 and the  investment  is
       currently  being used as rental  property for lease to others and for the
       Company's project design and engineering center.

Note 4 - Shareholders' Equity

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

       There are 20,000,000 shares of authorized Class A common stock, par value
       $.001 per share, with 4,775,144 issued and outstanding as of December 31,
       2007.  Each  holder of Class A common  stock is  entitled to one vote for
       each share held.

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

       During 2007 and 2006,  the Company did not  repurchase  any shares of its
       Class A common  stock.  However,  the  Company  issued  58,333 and 16,666
       shares of common stock upon the exercise of stock options during 2007 and
       2006, respectively (Note 7).


                                      -27-
<PAGE>

Note 5 - Income Taxes

       Income tax provision is summarized as follows:

                                                  Year Ended December 31,
                                                  ------------------------
                                                    2007            2006
                                                  ---------      ---------
     Current:
       Federal                                    $    --        $    --
       State                                          1,000          1,000
                                                      1,000          1,000
     Deferred:
       Federal                                     (408,000)          --
       State                                       (112,000)        (1,000)
       Increase in valuation allowance              520,000          1,000
                                                  ---------      ---------
     Income tax provision                         $   1,000      $   1,000
                                                  =========      =========

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

                                                    Year Ended December 31,
                                                    -----------------------
                                                       2007         2006
                                                    ---------    ---------
       "Expected" income tax expense (benefit)      $(468,000)   $(1,000)
       State tax expense, net of Federal benefit        1,000      1,000
       Foreign (income)loss                           (16,000)    (2,000)
       Increase in valuation allowance                520,000      1,000
       Other                                          (36,000)     2,000
                                                    ---------    -------
       Income tax provision                         $   1,000    $ 1,000
                                                    =========    =======

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

                                                 12/31/2007      12/31/2006
                                                 ----------      ----------
     Deferred tax assets:
       Inventory reserves                         $ 1,074,000      $ 494,000
       Section 263a adjustment                         90,000         89,000
       Allowances for bad debts and returns            31,000         28,000
       Accrued expenses                                16,000         17,000
       Asset valuation reserve                         56,000         56,000
       State net operating loss carry forward          60,000         79,000
       Other                                           27,000         32,000
                                                  -----------      ---------
       Total deferred tax assets                    1,354,000        795,000
       Valuation allowance                         (1,241,000)      (721,000)
                                                      113,000         74,000
     Deferred tax liabilities:
     Deferred state taxes                            (113,000)       (74,000)
                                                  -----------      ---------
       Net deferred tax assets                    $      --        $    --
                                                  ===========      =========

       The  Company  has  a  net   operating   loss   carryforward   aggregating
       approximately  $679,000 for state tax purposes that


                                      -28-
<PAGE>

       expires in 2015.  In  assessing  the  realizability  of the  deferred tax
       assets, management considers whether it is more likely than not that some
       portion  or  all  of the  deferred  tax  assets  will  not  be  realized.
       Management  considers the scheduled  reversal of deferred tax assets, the
       level of historical taxable income and tax planning  strategies in making
       the assessment of the realizability of deferred tax assets.

       As a result of the  implementation  of FIN 48, we  recognized no material
       adjustment to unrecognized tax benefits.  At the adoption date of January
       1, 2007, we had $795,000 of unrecognized tax benefits, all of which would
       affect our effective tax rate if recognized. At December 31, 2007 we have
       $ 1,354,000 of unrecognized tax benefits.

Note 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 the maximum  allowed under
       the Code. The plan also provides for safe harbor matching  contributions,
       vesting  immediately,  at the  discretion  of the Company.  For the years
       ended  December  31,  2007  and  2006,  employer  matching  contributions
       aggregated approximately $37,000 and $36,000, respectively.

       The plan  invests a portion  of its  assets  in the  common  stock of the
       Company.  The plan held  69,987  shares of the  Company's  Class A common
       stock at December 31, 2007.

Note 7 - Stock Options

       In September  2006,  the Company' 2005 Stock  Incentive Plan (the "Plan")
       was approved by state regulators,  which authorizes the issuance of up to
       1,000,000  shares  pursuant to options or awards  granted under the plan.
       Under the Plan,  incentive stock and nonstatutory options were granted at
       prices equal to at least the fair market value of the  Company's  Class A
       common  stock at the date of  grant.  Outstanding  options  vest in three
       equal annual  installments  beginning one year from the date of grant and
       are subject to  termination  provisions as defined in the Plan.  The fair
       value of options using the  Black-Scholes  option-pricing  model with the
       following weighted average  assumptions was as follows for 2006: dividend
       yield of 2%;  expected  volatility  of 33%; a risk free  interest rate of
       approximately 4.4% and an expected holding period of five years.

       Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>

                                                            Weighted
                                                             Average
                                                Weighted      Years                    Weighted
                                                 Average    Remaining    Aggregate     Average
                                     Number     Exercise   Contractual   Intrinsic       Fair
                                   of Shares      Price        Term        Value        Value
                                   ---------   ---------   -----------   ----------    ---------
<S>                                 <C>           <C>          <C>       <C>            <C>
Outstanding at December 31, 2005    526,166       $1.78
   Granted                           70,000        2.52        9.93                     $0.72
   Exercised                        (16,666)       1.41          --
   Forfeited                        (77,500)       2.32          --
                                    -------
Outstanding at December 31, 2006    502,000        1.82        5.28      $296,000
   Exercised                        (58,333)       1.11          --
   Forfeited                        (29,500)       2.95          --
                                    -------
Outstanding at December 31, 2007    414,167        1.84         4.41      106,000
                                    =======
Exercisable at December 31, 2007    371,835        1.76         3.90      106,000
                                    =======
</TABLE>

       At December 31, 2007, the range of individual  weighted  average exercise
       prices was $1.70 to $2.45.


                                      -29-
<PAGE>

Note 8 - Net Loss Per Share

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

                                                         2007           2006
                                                     -----------    -----------
  Net loss  available to common  shareholders
  used in basic and  diluted loss per share          $(1,406,000)   $   (29,000)
  Weighted  average  number of
  common  shares used in basic loss per share          5,532,825      5,477,016
                                                     -----------    -----------
Basic loss per share                                 $     (0.25)   $     (0.01)
                                                     ===========    ===========

Effect of dilutive securities:
  Options                                                   --             --
  Weighted average number of common shares and
  dilutive potential shares used in diluted
  loss per share                                       5,532,825      5,477,016
                                                     -----------    -----------
Diluted loss per share                               $     (0.25)   $     (0.01)
                                                     ===========    ===========

Note 9 - Commitments and Contingencies

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

       Inventory Purchasing
       --------------------
       Outstanding  commitments to purchase inventory from suppliers  aggregated
       $1,500,000 as of December 31, 2007.

       Software Upgrade
       ----------------
       The  Company is in  process of  upgrading  its Oracle ERP  software  to a
       current  version  and  has  outstanding   commitments  for   professional
       consulting services that aggregated $50,000 as of December 31, 2007.

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


                                      -30-
<PAGE>

Note 10 - Geographic information

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

                                                                 Long-lived
                                                 Revenues          Assets
                                                 --------        ----------
     United States                              $4,818,000       $3,799,000
     Mexico                                        994,000          179,000
     Brazil                                        512,000               --
     Taiwan                                        479,000          305,000
     China                                         145,000        1,249,000
     Canada                                         75,000               --
     Other foreign countries                       516,000               --
                                                ----------       ----------
     Total                                      $7,539,000       $5,532,000
                                                ==========       ==========

Note 11 - Subsequent Events

       On March 28, 2008 we declared an annual cash  dividend of $0.05 per share
       of Class A Common  Stock and Class B Common  Stock,  payable on April 22,
       2008,  to  shareholders  of record at the close of  business on April 15,
       2008. The dividend was declared in connection  with our prior decision in
       2007 to establish an annual cash dividend policy of up to $0.10 per share
       on Class A and  Class B Common  Stock  for a period  of five  years.  The
       dividend amount for 2008 was reduced from $0.10 to $0.05 per share due to
       $786,000 of net cash used in  investing  activities  and  $278,000 of net
       cash  used  in  operating   activities  during  2007.  See  "Management's
       Discussion  and Analysis - Results of  Operations;  Liquidity and Capital
       Resources."

ITEM 8. CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
        FINANCIAL DISCLOSURE.

            None

ITEM 8A.  CONTROLS AND PROCEDURES.

       a.1) Evaluation of Disclosure  Controls and  Procedures.  Our management,
       with the  participation of our President,  evaluated the effectiveness of
       our  disclosure  controls  and  procedures  as of the  end of the  period
       covered by this report. Based on that evaluation, our President concluded
       that our  disclosure  controls and procedures as of the end of the period
       covered by this report were effective such that the information  required
       to be disclosed by us in reports filed under the Securities  Exchange Act
       of 1934 is (i) recorded,  processed,  summarized and reported  within the
       time periods  specified in the SEC's rules and forms and (ii) accumulated
       and  communicated  to  our  management,   including  our  President,   as
       appropriate to allow timely decisions  regarding  disclosure.  A controls
       system cannot provide absolute assurance, however, that the objectives of
       the controls  system are met, and no  evaluation  of controls can provide
       absolute  assurance  that all control  issues and instances of fraud,  if
       any, within a company have been detected.

       a.2)  Management's  Annual  Report on  Internal  Control  over  Financial
       Reporting. Our management is responsible for establishing and maintaining
       adequate  internal  control over financial  reporting (as defined in Rule
       13a-15(f)  under the Exchange Act).  Our internal  control over financial
       reporting is a process designed to provide reasonable assurance regarding
       the  reliability of financial  reporting and the preparation of financial
       statements  for  external  purposes of  accounting  principles  generally
       accepted in the United States.

       Because of its inherent  limitations,  internal  control  over  financial
       reporting may not prevent nor detect misstatements. Therefore, even those
       systems determined to be effective can provide only reasonable  assurance
       of achieving their control objectives.


                                      -31-
<PAGE>

       Our management,  with the  participation of the President,  evaluated the
       effectiveness of the Company's internal control over financial  reporting
       as of December  31,  2007.  In making  this  assessment,  our  management
       primarily  used  their  extensive  knowledge  and direct  supervision  of
       controls.   Based  on  this   evaluation,   our   management,   with  the
       participation of the President,  concluded that, as of December 31, 2007,
       our internal control over financial reporting was effective.

       Management's  assessment  report was not  subject to  attestation  by the
       Company's  registered  public accounting firm and as such, no attestation
       was performed  pursuant to temporary rules of the Securities and Exchange
       Commission   that  permit  the  Company  to  provide  only   management's
       assessment report for the year ended December 31, 2007.

       b) Changes in Internal  Control over Financial  Reporting.  There were no
       changes in the  Company's  internal  controls over  financial  reporting,
       known to the chief executive officer or the chief financial officer, that
       occurred  during the period  covered by this report  that has  materially
       affected,  or is reasonably  likely to materially  affect,  the Company's
       internal control over financial reporting.

ITEM 8B.  OTHER INFORMATION.

            None

                                    PART III

ITEM 9. DIRECTORS,   EXECUTIVE   OFFICERS,   PROMOTERS,  CONTROL   PERSONS   AND
        CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

            The  information  required  by Item 9,  with  the  exception  of the
       information  provided below concerning the Company's Code of Ethics, will
       appear in the Proxy Statement for the 2008 Annual Meeting of Shareholders
       (the "Proxy  Statement")  under the  captions  "Election  of  Directors",
       "Compliance  with Section  16(a) - Beneficial  Ownership  Reporting"  and
       "Report  of the  Audit  Committee"  and is  incorporated  herein  by this
       reference.  The Proxy  Statement  will be filed with the  Securities  and
       Exchange Commission within 120 days following December 31, 2007.

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

ITEM 10.  EXECUTIVE COMPENSATION.

            The  information  required  by  Item  10 will  appear  in the  Proxy
       Statement under the caption "Executive  Compensation" and is incorporated
       herein by this reference.

ITEM 11. SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS  AND MANAGEMENT  AND
         RELATED STOCKHOLDER MATTERS.

            The  information  required  by  Item  11 will  appear  in the  Proxy
       Statement  under the caption  "Security  Ownership of Certain  Beneficial
       Owners and Management" and is incorporated herein by this reference.

ITEM 12.  CERTAIN    RELATIONSHIPS   AND   RELATED   TRANSACTIONS  AND  DIRECTOR
          INDEPENDENCE.

            The  information  required  by  Item  12 will  appear  in the  Proxy
       Statement   under  the  caption   "Certain   Relationships   and  Related
       Transactions" and is incorporated herein by this reference.


                                      -32-
<PAGE>

ITEM 13.  EXHIBITS.
--------  ---------

3.1       Articles of Incorporation of Taitron Components Incorporated. (1)
3.2       Bylaws.  (1)
4.1       Specimen certificate evidencing Class A common stock. (1)
4.2       Form of Underwriter's Warrant.  (1)
10.1*     Form of Director and Officer Indemnification Agreement. (1)
10.2*     2005 Stock Incentive Plan. (2)
21.1**    List of Subsidiaries.
23.1**    Consent of Independent Registered Public Accounting Firm - Haskell &
            White LLP.
24.1**    Power of Attorney (contained on the signature page hereof).
31.1**    Principal Executive and Financial Officer - Section 302 Certification.
32.1**    Principal Executive and Financial Officer - Section 906 Certification.
--------------------------------------------------------------------------------

*     Management contract or compensatory plan or arrangement.
**    Filed herewith.
(1)   Incorporation  by reference from the Company's  Registration  Statement on
      Form SB-2, Registration No. 33-90294-LA.
(2)   Incorporated by reference from the Company's Definitive Proxy Statement on
      Form DEF-14 filed May 2, 2006.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

      Information  regarding principal  accountant fees and services will appear
in the Proxy  Statement  for the 2008  Annual  Meeting  of  Shareholders  and is
incorporated herein by this reference.

                                   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

Dated:  March 31, 2008                By: /s/ Stewart Wang
                                          ------------------------------------
                                          Stewart Wang
                                          Chief Executive Officer, President and
                                          Chief Financial Officer



                                      -33-
<PAGE>

                                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.

    Signature                       Title                              Date
    ---------                       -----                              ----

/s/ Johnson Ku               Chairman of the Board                March 31, 2008
--------------------------------------------------------------------------------
Johnson Ku

/s/ Stewart Wang             Chief Executive Officer, President,  March 31, 2008
--------------------------------------------------------------------------------
Stewart Wang                 Chief Financial Officer and Director
                             (Principal Executive, Financial
                             and Accounting Officer)

/s/ Richard Chiang           Director                             March 31, 2008
--------------------------------------------------------------------------------
Richard Chiang

/s/ Craig Miller             Director                             March 31, 2008
--------------------------------------------------------------------------------
Craig Miller

/s/ Felix Sung               Director                             March 31, 2008
--------------------------------------------------------------------------------
Felix Sung


                                      -34-