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

FORM
  10-QSB

||X| |  | QUARTERLY REPORT
      UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- |  | ---------------------------------------------------------------------------------------

| | For the quarterly
      period ended June 30, 2004
| | --------------------------------------------------

||_| |  | TRANSITION
      REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- |  | ----------------------------------------------------------------------------------------

Commission File
Number 0-25844

TAITRON
  COMPONENTS INCORPORATED(Exact name of small business issuer as specified in its charter)

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

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

(661) 257-6060(Issuers Telephone Number)

NONE(Former Name, Address and Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes |X|                        No
  |  |

State the number of shares
outstanding of each of the issuers classes of common stock, as of the latest
practicable date:

|                                      |                              | 
|------------------------------------- | ---------------------------- | 
|Class                                 | Outstanding on July 31, 2004
|Class A Common Stock, $.001 par value | 4,697,646                    | 
|Class B Common Stock, $.001 par value | 762,612                      | 

Transitional Small Business
Disclosure Format  (check one):     Yes  |  |    No  |X|



| |  | 
| |  | 

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PART I. FINANCIAL INFORMATION

| | Item
1. Financial Statements
| | ----------------------------

TAITRON
  COMPONENTS INCORPORATEDCondensed Consolidated Balance Sheet 
  (Dollars in Thousands)

|Assets                                                                     | June 30, 2004
      (Unaudited)
|-------------------------------------------------------------------------- | -------------------------------
|Current assets:                                                            |                                
|Cash and cash
      equivalents                                            | $   3,022                      
|Trade accounts
      receivable, net                                       | 1,384                          
|Inventory,
      net                                                       | 18,710                         
|Prepaid expenses
      and other current assets                            | 330                            
|                                                                           |                                
|Total
      current assets                                                 | 23,446                         
|Property and equipment, net                                                | 4,758                          
|Other assets                                                               | 167                            
|                                                                           |                                
|Total
      assets                                                         | $ 28,371                       
|                                                                           |                                
|Liabilities
      and Shareholders Equity                                 |                                
|Current liabilities:                                                       |                                
|Trade accounts
      payable                                               | $   1,050                      
|Accrued liabilities
      and other                                        | 205                            
|Current portion
      of long term debt                                    | 72                             
|                                                                           |                                
|Total
      current liabilities                                            | 1,327                          
|Long-term debt, less current portion                                       | 3,306                          
|                                                                           |                                
|Total
      liabilities                                                    | 4,633                          
|                                                                           |                                
|Commitments and contingencies (Notes
      3 and 4)                        |                                
|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                              
|issued
      and outstanding 4,697,646 shares                              |                                
|Class
      B common stock, $.001 par value. Authorized, issued and        | 1                              
|outstanding
      762,612, shares                                          |                                
|Additional
      paid-in capital                                           | 10,414                         
|Accumulated
      other comprehensive loss, net of tax                     | (11                            
|Retained earnings                                                          | 13,329                         
|                                                                           |                                
|Total
      shareholders equity                                           | 23,738                         
|                                                                           |                                
|Total
      liabilities and shareholders equity                           | $ 28,371                       
|                                                                           |                                

See accompanying
  notes to condensed consolidated financial statements.



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TAITRON
  COMPONENTS INCORPORATEDCondensed Consolidated
  Statements of Operations 
  (Dollars in thousands, except per share amounts)

|                                            | Three months ended June 30, | Six months ended June 30,
|------------------------------------------- | --------------------------- | -------------------------
|                                            | 2004
      (Unaudited)      | 2003
      (Unaudited)   
|Net sales                                   | $        2,647              |                          
|Cost of goods sold                          | 1,888                       |                          
|                                            |                             |                          
|Gross
      profit                          | 759                         |                          
|Selling, general and administrativeexpenses | 662                         |                          
|
|                                            |                             |                          
|Operating
      income (loss)               | 97                          |                          
|Interest expense, net                       | (54                         | )                        
|Other (expense) income, net                 | (19                         | )                        
|                                            |                             |                          
|Income
      (loss) before income taxes     | 24                          |                          
|Income tax provision                        |                            |                          
|                                            |                             |                          
|Net
      income (loss)                     | $             24            |                          
|                                            |                             |                          
|Net income (loss) per share                 |                             |                          
|Basic                                       | $           .00             |                          
|                                            |                             |                          
|Diluted                                     | $           .00             |                          
|                                            |                             |                          
|Weighted average common shares outstanding  |                             |                          
|Basic                                       | 5,459,425                   |                          
|                                            |                             |                          
|Diluted                                     | 6,008,425                   |                          
|                                            |                             |                          

See accompanying
  notes to condensed consolidated financial statements.



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TAITRON
  COMPONENTS INCORPORATEDCondensed Consolidated Statements of Cash Flows 
  (Dollars in thousands)

|                                                                                                             | Six months ended June 30,
|------------------------------------------------------------------------------------------------------------ | -------------------------
|                                                                                                             |                          
|                                                                                                             | 2004
      (Unaudited)   
|Cash flows from operating activities:                                                                        |                          
|Net income
      (loss)                                                                                      | $      34                
|Adjustments
      to reconcile net income (loss) to net cash provided 
              by operatingactivities: |                          
|Depreciation
      and amortization                                                                          | 128                      
|Amortization
      of debt discount related to options issuedwith notes payable                              | 7                        
|Provision
      for sales returns and doubtful accounts                                                      | 50                       
|Changes in
      assets and liabilities:                                                                     |                          
|Trade
      accounts receivable                                                                              | (218                     
|Income
      tax receivable                                                                                  |                         
|Inventory                                                                                                    | 1,006                    
|Prepaid
      expenses and other current assets                                                              | (135                     
|Other
      assets                                                                                           | 1                        
|Trade
      accounts payable                                                                                 | 215                      
|Accrued
      liabilities and other                                                                          | (44                      
|                                                                                                             |                          
|Total
      adjustments                                                                                      | 1,010                    
|                                                                                                             |                          
|Net
      cash provided by operating activities                                                              | 1,044                    
|                                                                                                             |                          
|Cash flows from investing activities:                                                                        |                          
|Acquisitions
      of property and equipment                                                                 | (26                      
|                                                                                                             |                          
|Net
      cash used in investing activities                                                                  | (26                      
|                                                                                                             |                          
|Cash flows from financing activities:                                                                        |                          
|Payments on
      revolving line of credit                                                                   |                         
|Borrowings
      on notes payable                                                                            |                         
|Payments on
      notes payable                                                                              | (664                     
|Proceeds from
      exercise of stock options                                                                | 27                       
|Repurchase
      of Class A Common Stock                                                                     | (322                     
|                                                                                                             |                          
|Net
      cash used in financing activities                                                                  | (959                     
|                                                                                                             |                          
|Impact of exchange rate changes on
      cash                                                                | 10                       
|                                                                                                             |                          
|Net
      increase in cash and cash equivalents                                                              | 69                       
|Cash and cash equivalents, beginning
      of period                                                         | 2,953                    
|                                                                                                             |                          
|Cash and cash equivalents, end of
      period                                                               | $ 3,022                  
|Supplemental disclosure of cash flow
      information:                                                      |                          
|Cash paid
      for interest                                                                                 | $    115                 
|                                                                                                             |                          
|Cash paid
      (refunded) for income taxes                                                                  | $      30                
|                                                                                                             |                          

See accompanying
  notes to condensed consolidated financial statements.



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TAITRON
  COMPONENTS INCORPORATED

Notes to Condensed
  Consolidated Financial Statements 
  June 30, 2004 
  (All amounts are unaudited)

Note 1 - Basis of
Presentation

| | The
accompanying unaudited condensed consolidated financial statements of        Taitron
Components Incorporated (the Company) were prepared in        accordance with
accounting principles generally accepted in the United        States of America and
reflect all adjustments, consisting of normal        recurring accruals and adjustments,
which are, in the opinion of        management, necessary for a fair presentation of the
consolidated        financial position and results of operations at and for the periods
       presented. Such financial statements do not include all the information        or
footnotes necessary for a complete presentation and, accordingly,        should be read
in conjunction with the Companys Annual Report on Form        10-KSB for the fiscal
year ended December 31, 2003, and the notes        thereto, which include significant
accounting policies and estimates. The        results of operations for the interim
periods are not necessarily        indicative of results for the full year.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 2 - Summary of
Significant Accounting Policies and Estimates

| | Principles
      of Consolidation
| | ---------------------------------

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

| | Revenue Recognition
| | -------------------

| | Revenue
is typically recognized upon shipment of merchandise and sales        are recorded net of
discounts, rebates, and returns. Reserves for sales        allowances and customer
returns are established based upon historical        experience and managements
estimates as shipments are made. Sales        returns for the quarters ended June 30,
2004 and 2003 were $5,000 and        $71,000, respectively and for the six months ended
June 30, 2004 and 2003        aggregated to $53,000 and $117,000, 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 15% 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 June 30, 2004 aggregated $127,000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
Inventory is presented net of        valuation allowances of $1,006,000 at June 30, 2004.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | be
realized. The Company has fully        reserved against its deferred income tax assets,
as management could not        determine that it was more likely than not such assets
would be realized.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net Income
      (Loss) Per Share
| | ---------------------------------

| | Basic
income (loss) per share is computed by dividing net income        available to common
shareholders by the weighted-average number of common        shares outstanding during
the period. Diluted income per share reflects        the potential dilution that could
occur if securities or other contracts        to issue common stock were exercised or
converted into common stock or        resulted in the issuance of common stock that then
shared in the earnings        of the Company. Common equivalent shares for the quarter
and six months        ended June 30, 2003, of approximately 405,000 and 419,000,
respectively,        are excluded from the computation of diluted (loss) per share as
their        effect is anti-dilutive.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock Option
      Plan
| | -----------------------

| | The
Company has adopted the disclosure requirements of SFAS No. 148,        Accounting
for Stock-Based Compensation--Transition and Disclosure and        SFAS No. 123.
SFAS No. 123 allows companies to choose whether to account        for employee
stock-based compensation on a fair value method, or to        continue to account for
stock-based compensation under the current        intrinsic value method as prescribed by
APB Opinion No. 25, Accounting        for Stock Issued to Employees. The
Company has elected to continue to        follow the provisions of APB Opinion No. 25.
SFAS No. 123, as amended by        SFAS No. 148, requires interim disclosures regarding
the pro forma        effects of compensation expense had the Companys 1995 Stock
Incentive        Plan been determined based on the fair value at the grant date
consistent        with SFAS No. 123.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accordingly,
under SFAS No. 123, the Companys net income (loss) and        diluted income (loss)
per share for the quarter and six months ended June        30, 2004 and 2003, would have
been changed to the pro forma amounts        indicated below:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                 | Three Month 
      Period Ended June 30, | Six Month 
      Period Ended June 30,
| | ----------------------------------------------- | ---------------------------------------- | --------------------------------------
| |                                                 | 2004                                     | 2003                                  
| | Net income (loss) As reported                   | $24,000                                  |                                       
| | Pro
      Forma                                 | 34,000                                   |                                       
| |                                                 |                                          |                                       
| | Diluted income (loss) As reported               | $      .00                               |                                       
| | per
      share                 Pro
      Forma | $      .01                               |                                       
| |                                                 |                                          |                                       

| | The
total fair value of options granted for both the quarter and six        months ended June
30, 2004 was $.63. At June 30, 2004, the number of        options exercisable was 581,800
and weighted average exercise prices of        those options were $1.82.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Reclassification
| | ----------------

| | Certain
amounts in the 2003 condensed consolidated financial statements        have been
reclassified to conform with the 2004 presentation.
| | --------------------------------------------------------------------------------------------------------------------------------------------

| | Use of Estimates
| | ----------------

| | 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 condensed consolidated financial        statements in conformity with accounting
principles generally accepted in        the United States. These estimates have a
significant impact on the        Companys 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Note 3 - Long-Term Debt

| | Long-term debt is summarized as follows:                                                                     | June 30, 2004
| | ------------------------------------------------------------------------------------------------------------ | -------------
| | Note payable collateralized
      by real property, dueDecember 31, 2009, bearing an interest rate of 6.875% | 1,899,000    
|
| |                                                                                                              |              
| | Subordinated note, due
      September 30, 2005, bearing an interestrate of 4.75% per annum.*                | 1,000,000    
|
| |                                                                                                              |              
| | Subordinated note, due
      February 20, 2006, bearing an interestrate of 4.75% per annum.**                | 500,000      
|
| |                                                                                                              |              
| |                                                                                                              | 3,399,000    
| | Less current maturities                                                                                      | (72,000      
| |                                                                                                              |              
| |                                                                                                              | 3,327,000    
| | Less unamortized debt discount                                                                               | (21,000      
| |                                                                                                              |              
| |                                                                                                              | 3,306,000    
| |                                                                                                              |              

| | *
The subordinated note of $1,000,000, due September 30, 2005, is from        K.S. Best
International Co. Ltd., a company controlled by the brother of        the Companys
Chief Executive Officer. In connection with the        subordinated note, the Company
issued 100,000 stock options with a        relative estimated fair value of $29,000. The
amount has been presented        as debt discounts and accreted through periodic interest
charges through        the maturity date of these notes.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | **
The subordinated note of $500,000, due February 20, 2006, is from an        un-related
third party. In connection with the subordinated note, the        Company issued 50,000
stock options with a relative estimated fair value        of $15,000. The amount has been
presented as debt discounts and accreted        through periodic interest charges through
the maturity date of these        notes.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 4 - Subsequent
Events

On July 8, 2004, we entered into a
revolving line of credit facility providing up to $3 million for operating purposes. As
of the date of this Report, we have not used this credit facility. The agreement
governing this credit facility contains security agreements covering essentially all
assets of the Company and covenants that require the Company to be in compliance with
certain financial ratios.

On July 16, 2004, we made an early
principal repayment of $500,000 on our note payable collateralized by real property.

Item  2.  MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The
following discussion should be read in conjunction with the condensed consolidated
financial statements, including the related notes, appearing in Item 1 of this report as
well as our most recent annual report on Form 10-KSB. 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 our most recent annual report on Form 10-KSB. In addition to the other
information contained in this document, readers should carefully consider the information
contained in our Form 10-KSB for the year ended December 31, 2003 under the heading Cautionary
Statements and Risk Factors.



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

Overview

We
are a national distributor of electronic components, primarily focused on transistors,
diodes and other discrete semiconductors, optoelectronic devices and passive components
with a reputation of in-depth inventories and knowledge of the products we sell. Our
customers consist of other electronic distributors, contract electronic manufacturers
(CEMs) and original equipment manufacturers (OEMs).

The
demand for electronic components drastically decreased beginning in 2001 and continued
through most of 2003. This downturn was marked by oversupply of components, excess
manufacturing capacity, accelerated migration of the manufacturing capacity of OEM/CEM
customers abroad and the consolidation of CEM customers domestically. In response, we are
refocusing our business strategy beyond the traditional role of electronic components
fulfillment to the additional role of engineering and turn-key services for the existing
OEM and CEM customers. We intend to form strategic business partnerships with a few
selected existing customers and provide them with original design and manufacturing (ODM)
services for their multi-year turn-key projects. We expect to see some new opportunities
and results from these additional services during 2004.

We
believe that the overall market demand for our products has increased during the first
six months of 2004, as we continue to experience some business improvement in shipments
and bookings and our suppliers lead times have been stretching out with prices
steadily increasing. Under these market conditions and the results of our cost-cutting
efforts accomplished during the past few years, we believe these factors may help us
continue consistent profitability in 2004.

Our
core strategy consists of carrying a substantial quantity and variety of products in
inventory to meet the rapid delivery requirements of our customers. This strategy allows
us to fill customer orders immediately from stock on hand. However, while we believe
strong market demand is returning, we are focused on lowering our inventory balances and
increasing our cash holdings. Our long-term growth strategy is to rely not only on the
existing component fulfillment service, but also the value-added engineering service to
support our existing small and medium size OEM customers in outsourcing their product
design and manufacturing work offshore. In accordance with Generally Accepted Accounting
Principles, we classify inventory as a current asset. However, if all or a substantial
portion of the inventory was required to be immediately liquidated, the inventory would
not be as readily marketable or liquid as other items included or classified as a current
asset, such as cash. 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.

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 in conformity with accounting principles
generally accepted in the U.S. 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  Revenue is recognized 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 quarters ended June 30, 2004 and 2003
  were $5,000 and $71,000, respectively, and for the six months ended June 30,
  2004 and 2003 aggregated to $53,000 and $117,000, respectively. The allowance
  for sales returns and doubtful accounts at June 30, 2004 aggregated $127,000.

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 $18,710,000 at June
  30, 2004, which is presented net of valuation allowances of $1,006,000. We evaluate
  inventories to identify excess, high-cost, slow-moving or other factors rendering
  inventories as unmarketable at normal profit margins. For inventories supplied
  under franchise agreements, we rely upon our contractual rights to receive compensation
  for price differences caused by market fluctuations. Due to the large number
  of transactions



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and the complexity of managing and
maintaining a large inventory of product offerings, estimates are made regarding
adjustments to the cost of inventories. Based on our assumptions about future demand and
market conditions, inventories are carried at the lower of cost or estimated market
value. 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.

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 previously reported
  continuous net losses, we have fully reserved a $652,000 allowance against our
  net deferred tax assets.

Results of Operations

Three month Period
Ended June 30, 2004 Compared To The Three month Period Ended June 30, 2003.

Net
sales for the three months ended June 30, 2004 were $2,647,000, compared with $2,324,000
for the same period last year, an increase of $323,000 or 13.9%. The increase is
primarily due to an industry-wide increase in demand for discrete and passive and
semiconductor components.

Cost
of goods sold for the quarter ended June 30, 2004 increased to $1,888,000 from $1,594,000
for the same period last year, an increase of $294,000 or 18.4%. Consistent with the
increase in net sales, cost of goods sold increased, however at a faster rate, resulting
in gross profit decreasing as a percentage of net sales to 28.7% for the quarter ended
June 30, 2004 from 31.4% for the same period last year. Gross profit increased by $29,000
to $759,000 for the quarter ended June 30, 2004 from $730,000 for the same period in 2003.

Selling,
general and administrative (SG&A) expenses decreased by $106,000 or 13.8%
for the quarter ended June 30, 2004 compared to the same period of 2003. The decrease is
primarily attributable to personnel-related expenses decreasing by $40,000 and
depreciation decreasing by $42,000, with no other individual item significantly impacting
the change during the quarter ended June 30, 2004. As a percentage of net sales, SG&A
decreased to 25% for the three months ended June 30, 2004 compared to 33% for the three
months ended June 30, 2003.

Operating
income was $97,000 for the quarter ended June 30, 2004 as compared to operating losses of
$38,000 for the same period last year. The increase in operating income results from the
increase in gross profits and from the decrease in SG&A expenses, as discussed above.

Interest
expense, net of interest income, for the quarter ended June 30, 2004 decreased by $37,000
compared to the same period last year. The decrease is primarily due to lower outstanding
borrowing levels incurred during the current quarter, when compared to the same period
last year.

No
income tax provision or benefit was recorded during the quarters ended June 30, 2004 and
2003.

Net
income was $24,000 for the quarter ended June 30, 2004 as compared to a net loss of
$92,000 for the same period last year.

Six month Period Ended
June 30, 2004 Compared To The Six month Period Ended June 30, 2003.

Net
sales for the six months ended June 30, 2004 were $5,138,000 compared with net sales for
the six months ended June 30, 2003 of $5,479,000, a decrease of $341,000 or 6.2%.

Cost
of goods sold decreased by $52,000 to $3,730,000 for the six months ended June 30, 2004,
a decrease of 1.4% from the same period in 2003. Consistent with the decrease in net
sales, cost of goods sold decreased,



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however at a slower rate, resulting
in gross profit decreasing as a percentage of net sales to 27.4% for the first six months
of this year from 31% for the same period last year. Gross profit decreased by $289,000
to $1,408,000 for the six months ended June 30, 2004 from $1,697,000 for the same period
in 2003.

SG&A
expenses decreased by $346,000 or 21.4% for the six months ended June 30, 2004 compared
to the same period in 2003. The decrease is primarily attributable to personnel-related
expenses decreasing by $144,000, depreciation decreasing by $85,000 and bad debt expenses
decreasing by $56,000, with no other individual item significantly impacting the change
during the quarter ended June 30, 2004. As a percentage of net sales, SG&A decreased
to 24.7% for the six months ended June 30, 2004 from 29.5% for the same period last year.

Operating
income was $137,000 for the six months ended June 30, 2004 as compared to $80,000 for the
same period ended June 30, 2003. The increase resulted primarily due to the cost cutting
measures, as discussed above.

Interest
expense, net of interest income for the six months ended June 30, 2004 decreased by
$83,000 compared to the six months ended June 30, 2003. The decrease is primarily due to
lower outstanding borrowing levels incurred during the current quarter, when compared to
the same period last year.

No
income tax provision or benefit was recorded during the six months ended June 30, 2004
and 2003.

Net
income was $34,000 for the six months ended June 30, 2004 compared to a net loss of
$86,000 for the same period in 2003, an increase of $120,000 resulting from the same
reasons discussed above.

Liquidity and Capital
Resources

We
have satisfied our liquidity requirements principally 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 six months ended June 30, 2004 and 2003 are as follows:

| |                        | Six months ended June 30,
| | ---------------------- | -------------------------
| | (Dollars in thousands) | 2004
      (Unaudited)   
| | Operating activities   | $ 1,044                  
| | Investing activities   | (26                      
| | Financing activities   | (959                     

Cash
flows provided by operating activities decreased to $1,044,00 during the six months ended
June 30, 2004, as compared to $2,400,000 during the same period last year. The change is
primarily due to a decrease in inventory of $1,006,000 during the first six months of
2004, as compared to a decrease of $1,661,000 during the same period last year.
Additionally, the overall decrease in operating cash flow was affected by an increase in
accounts receivable of $218,000 during the first six months of 2004, as compared to a
decrease of $523,000 during the same period last year. The Companys ability to
continue generating cash from operations is dependent upon using its current inventory
(as opposed to new purchases of inventory) for generating sales, collection of its
receivables and extended payments of accounts payables.

Cash
flows used in investing activities was $26,000 during the six months ended June 30, 2004
compared to $14,000 during the same period last year.

Cash
flows used in financing activities decreased to $959,000 from $2,054,000 during the six
months ended June 30, 2004 and 2003, respectively, as we repaid more borrowings during
the 2003 period.

Inventory
is included in current assets, however, it may take over one year for the inventory to
turn and therefore may not 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.



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We
believe that funds generated from operations, in addition to existing cash balances, is
likely to be sufficient to finance our working capital and capital expenditure
requirements for the foreseeable future or until principal payments are due under our
outstanding obligations. 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.

As
of the date of this Report, we had no commitments for other equity or debt financing or
other capital expenditures, except as noted in Subsequent Events.

Subsequent Events

On
July 8, 2004, we entered into a revolving line of credit facility providing up to $3
million for operating purposes. However, as of the date of this Report, we have not used
this credit facility. The agreement governing this credit facility contains security
agreements covering essentially all assets of the Company and covenants that require the
Company to be in compliance with certain financial ratios.

On
July 16, 2004, we made an early principal repayment of $500,000 on our note payable
collateralized by real property.

Item  3.  Controls and Procedures

As
of the last day covered by this report, the Company carried out an evaluation, under the
supervision and with the participation of the Companys management, including the
Companys Chief Executive Officer, of the effectiveness of the design and operation
of the Companys disclosure controls and procedures pursuant to Rule 13a-14 of the
Securities Exchange Act of 1934 (the Exchange Act). Based upon that
evaluation, the Chief Executive Officer concluded that the Companys disclosure
controls and procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiary) required to be included
in the Companys Exchange Act filings.

There
have been no significant changes in the Companys internal controls or in other
factors which could significantly affect internal controls subsequent to the date the
Company carried out its evaluation.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings.

None.

Item 2.  Changes In Securities and
Small Business Issuer Purchases of Equity Securities.

There
were no issuances or sales of our securities by us during the second quarter of 2004 that
were not registered under the Securities Act.

There
were no repurchases of our Class A common stock in the second quarter of 2004.

Item 3.  Defaults Upon Senior
Securities.

None.

Item 4.  Submission of Matters to a
Vote of Security Holders.

None.

Item 5.  Other Information.

None.

Item 6.  Exhibits and Reports on
Form 8-K.



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(a)
Exhibits:

| | a. |  | Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | -- |  | ------------------------------------------------------------------------

| | b. |  | Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | -- |  | ------------------------------------------------------------------------

(b)
Reports on Form 8-K:

| | On
May 11, 2004, the Company filed a Form 8-K reporting financial results for the first
quarter ended March 31, 2004.
| | ---------------------------------------------------------------------------------------------------------------------

| | No
other reports on Form 8-K were filed during the quarter ended June 30, 2004.
| | -------------------------------------------------------------------------------

SIGNATURES

In
accordance with the requirements of the Securities Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|                      |  |  | TAITRON COMPONENTS INCORPORATED
|--------------------- |  |  | -------------------------------
|                      |  |  |                                
|Date: August 16, 2004 |  |  | By:                            



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