UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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


For
the quarterly period ended September 30, 2008


or


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


For
the transition period from __________ to __________





Commission File Number:0-25844


TAITRON
COMPONENTS INCORPORATED


(Exact
name of registrant as specified in its charter)





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





28040
West Harrison Parkway, Valencia, California 91355-4162


(Address
of principal executive
offices)                           (Zip
Code)





(661)
257-6060


(Registrant’s
telephone number)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities 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 S No £





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.





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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes £ No S





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





Class
                                  
                                  Outstanding onOctober 31, 2008Class
      A common stock, $.001 par value
                                  
                                  4,777,144Class
      B common stock, $.001 par value
                                  
                                  762,612












INDEX





PART
      I - FINANCIAL INFORMATIONItem
      1.
                Financial Statements (unaudited)Condensed Consolidated Balance Sheets at September 30, 2008
      (unaudited) and December 31, 2007
                1Condensed Consolidated Statements of Operations for the three
      and nine months ended September 30, 2008 and 2007
                2Condensed Consolidated Statements of Cash Flows for the nine
      months ended September 30, 2008 and 2007
                3Notes to Condensed Consolidated Financial
      Statements
                4Item
      2.
                Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                8Item
      3.
                Quantitative and Qualitative Disclosures About Market
      Risk.
                11Item
      4T.
                Controls and Procedures
                11PART
      II - OTHER INFORMATIONItem
      1.
                Legal Proceedings
                12Item
      2.
                Unregistered Sales of Equity Securities and Use of
      Proceeds
                12Item
      3.
                Defaults Upon Senior Securities
                12Item
      4.
                Submission of Matters to a Vote of Security
      Holders
                12Item
      5.
                Other Information
                12Item
      6.
                Exhibits
                12


Index




PART
I - FINANCIAL INFORMATION


Item1.  Financial Statements





TAITRONCOMPONENTS INCORPORATED




Condensed
Consolidated Balance Sheets




September 30,
                      
                      
                      December 31,2008
                      
                      
                      2007Assets
                      
                      (Unaudited)Current
      assets:Cash
      and cash equivalents
                      
                      $
                      1,745,000
                      
                      
                      $
                      1,111,000Trade
      accounts receivable, net
                      
                      
                      1,349,000
                      
                      
                      
                      1,450,000Inventory,
      net
                      
                      
                      13,851,000
                      
                      
                      
                      14,822,000Prepaid
      expenses and other current assets
                      
                      
                      119,000
                      
                      
                      
                      174,000Total
      current assets
                      
                      
                      17,064,000
                      
                      
                      
                      17,557,000Property
      and equipment, net
                      
                      
                      5,387,000
                      
                      
                      
                      5,532,000Other
      assets (Note 2)
                      
                      
                      732,000
                      
                      
                      
                      713,000Total
      assets
                      
                      $
                      23,183,000
                      
                      
                      $
                      23,802,000Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Trade
      accounts payable
                      
                      $
                      896,000
                      
                      
                      $
                      1,318,000Accrued
      liabilities and other
                      
                      
                      309,000
                      
                      
                      
                      294,000Current
      portion of long-term debt
                      
                      
                      89,000
                      
                      
                      
                      89,000Total
      current liabilities
                      
                      
                      1,294,000
                      
                      
                      
                      1,701,000Long-term
      debt, less current portion (Note 3)
                      
                      
                      854,000
                      
                      
                      
                      421,000Total
      liabilities
                      
                      
                      2,148,000
                      
                      
                      
                      2,122,000Commitments
      and contingencies (Note 6)Minority
      interest in subsidiary
                      
                      
                      251,000
                      
                      
                      
                      231,000Shareholders’
      equity:Preferred
      stock, $.001 par value.  Authorized 5,000,000
      shares.   None issued or outstanding.Class
      A common stock, $.001 par value.  Authorized 20,000,000 shares;
      issued and outstanding 4,777,144 and 4,775,144 shares at September 30,
      2008 and December 31, 2007, respectively.
                      
                      
                      5,000
                      
                      
                      
                      5,000Class
      B common stock, $.001 par value.  Authorized, issued and
      outstanding 762,612 shares.
                      
                      
                      1,000
                      
                      
                      
                      1,000Additional
      paid-in capital
                      
                      
                      10,563,000
                      
                      
                      
                      10,544,000Accumulated
      other comprehensive income, net of tax
                      
                      
                      30,000
                      
                      
                      
                      44,000Retained
      earnings
                      
                      
                      10,185,000
                      
                      
                      
                      10,855,000Total
      shareholders’ equity
                      
                      
                      20,784,000
                      
                      
                      
                      21,449,000Total
      liabilities and shareholders’ equity
                      
                      $
                      23,183,000
                      
                      
                      $
                      23,802,000


See accompanying notes to condensed
consolidated financial statements.




1
 Index




TAITRONCOMPONENTS INCORPORATED




Condensed
Consolidated Statements of Operations





Three months
      ended September 30,
                  
                  
                  Nine
      months ended September 30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Net
      sales
                  
                  $
                  1,778,000
                  
                  
                  $
                  1,908,000
                  
                  
                  $
                  5,812,000
                  
                  
                  $
                  5,386,000Cost
      of goods sold
                  
                  
                  1,375,000
                  
                  
                  
                  1,402,000
                  
                  
                  
                  4,246,000
                  
                  
                  
                  3,928,000Gross
      profit
                  
                  
                  403,000
                  
                  
                  
                  506,000
                  
                  
                  
                  1,566,000
                  
                  
                  
                  1,458,000Selling,
      general and administrative expenses
                  
                  
                  672,000
                  
                  
                  
                  688,000
                  
                  
                  
                  2,057,000
                  
                  
                  
                  2,082,000Operating
      loss
                  
                  
                  (269,000
                  )
                  
                  
                  (182,000
                  )
                  
                  
                  (491,000
                  )
                  
                  
                  (624,000
                  )Interest
      expense (income), net
                  
                  
                  (4,000
                  )
                  
                  
                  2,000
                  
                  
                  
                  -
                  
                  
                  
                  16,000Other
      income (loss), net
                  
                  
                  9,000
                  
                  
                  
                  (7,000
                  )
                  
                  
                  99,000
                  
                  
                  
                  (1,000
                  )Loss
      before income taxes
                  
                  
                  (264,000
                  )
                  
                  
                  (187,000
                  )
                  
                  
                  (392,000
                  )
                  
                  
                  (609,000
                  )Income
      tax provision
                  
                  
                  -
                  
                  
                  
                  (2,000
                  )
                  
                  
                  (1,000
                  )
                  
                  
                  (5,000
                  )Net
      loss
                  
                  $
                  (264,000
                  )
                  
                  $
                  (189,000
                  )
                  
                  $
                  (393,000
                  )
                  
                  $
                  (614,000
                  )Other
      Comprehensive Loss:Foreign
      currency translation adjustment
                  
                  
                  18,000
                  
                  
                  
                  37,000
                  
                  
                  
                  (14,000
                  )
                  
                  
                  5,000Comprehensive
      loss
                  
                  $
                  (246,000
                  )
                  
                  $
                  (152,000
                  )
                  
                  $
                  (407,000
                  )
                  
                  $
                  (609,000
                  )Net
      loss per share:  Basic & Diluted
                  
                  $
                  (0.05
                  )
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.07
                  )
                  
                  $
                  (0.11
                  )Weighted
      average common shares outstanding:  Basic &
      Diluted
                  
                  
                  5,539,756
                  
                  
                  
                  5,537,756
                  
                  
                  
                  5,539,756
                  
                  
                  
                  5,531,182




See accompanying notes to condensed
consolidated financial statements.




2
 Index




TAITRONCOMPONENTS INCORPORATED




Condensed
Consolidated Statements of Cash Flows




Nine
      months ended September 30,2008
                          
                          
                          2007(Unaudited)
                          
                          
                          (Unaudited)Cash
      flows from operating activities:Net
      loss
                          
                          $
                          (393,000
                          )
                          
                          $
                          (614,000
                          )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                          
                          
                          174,000
                          
                          
                          
                          173,000Provision
      for sales returns and doubtful accounts
                          
                          
                          131,000
                          
                          
                          
                          169,000Stock
      based compensation
                          
                          
                          17,000
                          
                          
                          
                          21,000Changes
      in assets and liabilities:Trade
      accounts receivable
                          
                          
                          (30,000
                          )
                          
                          
                          (97,000
                          )Inventory
                          
                          
                          971,000
                          
                          
                          
                          374,000Prepaid
      expenses and other current assets
                          
                          
                          55,000
                          
                          
                          
                          (138,000
                          )Trade
      accounts payable
                          
                          
                          (422,000
                          )
                          
                          
                          (298,000
                          )Accrued
      liabilities
                          
                          
                          15,000
                          
                          
                          
                          (19,000
                          )Minority
      interest in subsidiary
                          
                          
                          20,000
                          
                          
                          
                          124,000Total
      adjustments
                          
                          
                          931,000
                          
                          
                          
                          309,000Net
      cash provided by (used in) operating activities
                          
                          
                          538,000
                          
                          
                          
                          (305,000
                          )Cash
      flows from investing activities:Acquisition
      of property and equipment
                          
                          
                          (29,000
                          )
                          
                          
                          (61,000
                          )Investments
      in marketable securities
                          
                          
                          -
                          
                          
                          
                          (305,000
                          )Investments
      in land purchase contracts
                          
                          
                          -
                          
                          
                          
                          (147,000
                          )Other
      assets
                          
                          
                          (19,000
                          )
                          
                          
                          (6,000
                          )Net
      cash used in investing activities
                          
                          
                          (48,000
                          )
                          
                          
                          (519,000
                          )Cash
      flows from financing activities:Borrowings
      on notes payable
                          
                          
                          500,000
                          
                          
                          
                          -Payments
      on notes payable
                          
                          
                          (67,000
                          )
                          
                          
                          (66,000
                          )Dividend
      payments
                          
                          
                          (277,000
                          )
                          
                          
                          (552,000
                          )Exercise
      of Class A common stock options
                          
                          
                          2,000
                          
                          
                          
                          65,000Net
      cash provided by (used in) financing activities
                          
                          
                          158,000
                          
                          
                          
                          (553,000
                          )Impact
      of exchange rates on cash
                          
                          
                          (14,000
                          )
                          
                          
                          5,000Net
      increase (decrease) in cash and cash equivalents
                          
                          
                          634,000
                          
                          
                          
                          (1,372,000
                          )Cash
      and cash equivalents, beginning of year
                          
                          
                          1,111,000
                          
                          
                          
                          2,727,000Cash
      and cash equivalents, end of year
                          
                          $
                          1,745,000
                          
                          
                          $
                          1,355,000Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                          
                          $
                          28,000
                          
                          
                          $
                          30,000Cash
      paid for income taxes, net
                          
                          $
                          1,000
                          
                          
                          $
                          1,000




See accompanying notes to condensed
consolidatedfinancial
statements.




3
 Index




TAITRON
COMPONENTS INCORPORATED




NOTESTO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


SEPTEMBER
30, 2008




1
–BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES





In 1989,
we were formed and incorporated in California.  We maintain a
majority-owned subsidiary in Mexico (since 1998) and three divisions in each of
Taiwan (since 1998), Brazil (since 1998) and China (since 2005).  Our
Mexico and Brazil locations are for regional distribution, sales and marketing
purposes and our Taiwan and China locations are for supporting inventory
sourcing, purchases and coordinating the manufacture of our
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 our projects.





Basis
of Presentation





The
accompanying unaudited condensed consolidated financial statements 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 necessary for
a fair statement of the financial position, results of operations and cash flows
for the periods presented.Such financial statements do not
include all the information or notes necessary for a complete presentation,
therefore, they should be read in
conjunction with the consolidated financial statements, including the notes
thereto, contained in our Annual Report on Form 10-KSB for the year ended
December 31, 2007.The results of operations for the interim
periods are not necessarily indicative of results that may be achieved for the
entire year.





Principles
of Consolidation





The
accompanying condensed consolidated financial statements include our accounts
and the accounts of our majority-owned subsidiary.  All intercompany
transactions and balances 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 September 30, 2008 and 2007 were $65,000 and $16,000,
respectively, and for the nine months ended September 30, 2008 and 2007
aggregated $118,000 and $152,000, respectively.





Allowance
for Sales Returns and Doubtful Accounts





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
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.  We will not accept returns of any products that were
special-ordered by a customer or that otherwise are not generally included in
inventory.  The allowance for sales returns and doubtful accounts at
September 30, 2008 aggregated $91,000.





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
$2,959,000 at September 30, 2008.





Income
Taxes





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.  The following tax years
that remain subject to examination by major tax jurisdictions are as
follows: Federal – 2005, 2006 and 2007; and California (State) – 2004,
2005, 2006 and 2007. 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.


4
 Index




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 Class A
common stock options, of approximately 369,000 and 346,000 for the three months
ended September 30, 2008 and 2007, respectively, and approximately 370,000 and
384,000 for the nine months ended September 30, 2008 and 2007, respectively, are
excluded from the computation of diluted loss per share as their effect is
anti-dilutive.




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 unaudited condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United
States.  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.





Reclassification





Certain
amounts in the prior year condensed consolidated financial statements have been
reclassified to conform to the current year presentation.





Stock-Based
Compensation





Accounting
for stock options issued to employees follows the provisions of SFAS No. 123R,
“Share-Based Payment”.  This statement requires an entity to measure
the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award.  That
cost will be recognized over the period during which an employee is required to
provide service in exchange for the award.  Outstanding Class A common
stock options (“the 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.  We use the Black-Scholes option pricing model to
measure the fair value of the Options granted to employees.  The fair
value of the Options using the Black-Scholes option-pricing model with the
following weighted average assumptions was as follows for 2008: dividend yield
of 5%; expected volatility of 49%; a risk free interest rate of approximately
3.5% and an expected holding period of five years.  The Option
activity during the nine months ended September 30, 2008 is as
follows:




Number
                    of Shares
                  
                  
                  Weighted
      Average
                    ExercisePrice
                  
                  
                  Weighted
      Average Years
                    Remaining
      ContractualTerm
                  
                  
                  Aggregate
      Intrinsic ValueOutstanding
      at December 31, 2007
                  
                  
                  414,167
                  
                  
                  $
                  1.84
                  
                  
                  
                  4.41
                  
                  
                  $
                  106,000Granted
                  
                  
                  51,000
                  
                  
                  
                  1.63
                  
                  
                  
                  8.01
                  
                  
                  
                  -Exercised
                  
                  
                  (2,000
                  )
                  
                  
                  1.00
                  
                  
                  
                  -
                  
                  
                  
                  -Forfeited
                  
                  
                  (1,167
                  )
                  
                  
                  2.45
                  
                  
                  
                  -
                  
                  
                  
                  -Outstanding
      at September 30, 2008
                  
                  
                  462,000
                  
                  
                  $
                  1.82
                  
                  
                  
                  3.86
                  
                  
                  $
                  -Exercisable
      at September 30, 2008
                  
                  
                  368,668
                  
                  
                  $
                  1.76
                  
                  
                  
                  3.04
                  
                  
                  $
                  -





At
September 30, 2008, the range of individual outstanding weighted average
exercise prices was $1.67 to $2.45.


5
 Index




Recent
Accounting Pronouncements





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations(“SFAS 141R”). 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.  We do not expect the
adoption of SFAS 141R to have a significant impact on our results of
operations or financial position.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements(“SFAS 160”), 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.  We are currently assessing the impact
that SFAS 160 will have on our financial statements.





In
March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative
Instruments and Hedging Activities, an amendment to FASB Statement No. 133
(“SFAS 161”), which changes the disclosure requirements for derivative
instruments and hedging activities.  SFAS 161 requires entities
to provide enhanced disclosures on how and why the entity uses derivative
instruments, how derivative instruments and related hedging items are accounted
for under SFAS No. 133, and how derivative instruments and related hedging items
affect an entity’s financial position, financial performance, and cash
flows.  The provisions of SFAS 161 are effective for fiscal years
and interim periods beginning after November 15, 2008.  We do not
expect the adoption of SFAS 161 to have a significant impact on our results
of operations or financial position.







2
– OTHER ASSETS







9/30/2008Investment
      in securitites
                    
                    $
                    411,000Investment
      in land purchase contract
                    
                    
                    147,000Investment
      in joint venture
                    
                    
                    147,000Other
                    
                    
                    27,000Other
      Assets
                    
                    $
                    732,000








Our
$411,000 investment in securities as of September 30, 2008 relates to
approximately 4.5% of the outstanding shares of Zowie Technology Corporation, a
manufacturer of discrete semiconductors and also a supplier of our electronic
component products.  This investment is accounted for under the cost
method basis of accounting.





Our
$147,000 investment in land purchase contract as of September 30, 2008,
represents a 49% share of refundable deposit on approximately 3.3 acres of land
located in Yangzhou, China.  This deposit amount comprises an estimated
$54,000 for the cost of land and the remaining $93,000 allocated for initial
land development costs, of which we expect to be refunded within one
year.





Our
$147,000 investment in joint venture as of September 30, 2008, relates to our
49% ownership of Taiteam (Yangzhou) Technology Corporation Limited, a joint
venture with its 51% owner, Full Harvest Development Limited.  This
joint venture is not considered to be a “Variable Interest Entity”, as defined
under FAS Interpretation No. 46R, and as such, is accounted for under the equity
method basis of accounting.  This joint venture is not operational and
as such, there has been no activity in this joint venture during
2008.


6
 Index


3
– NOTES PAYABLE





9/30/2008Bank
      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.
                        
                        $
                        443,000Less
      current portion
                        
                        
                        (89,000
                        )Subtotal
                        
                        $
                        354,000Promissory
      note collaterilzed by real property, payable in monthly interest only
      installments, at the rate of Prime + 0.25% per annum, due June 3,
      2010.
                        
                        $
                        500,000Long-term
      debt, less current portion
                        
                        $
                        854,000








On
September 21, 2006, we borrowed $620,000 in connection with our 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
$1,240,000.  The investment will be used as rental property for lease
to others and for our project design and engineering center.





On April
21,2008 we secured $3,000,000 credit facility from K.S. Best International Co.
Ltd., a company controlled by the brother of our Chief Executive Officer,
maturing on April 21, 2011.  On June 3, 2008, we borrowed $500,000 in
connection with this credit facility.




4
– CASH DIVIDEND





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, paid on April 22, 2008 in the amount of
$277,000, to shareholders of record at the close of business on April 15,
2008.




5
– RELATED PARTY TRANSACTIONS





We made
payments of approximately $156,000 for the three month and $513,000 for the
nine months periods ending September 30, 2008 to Princeton Technology
Corporation (“PTC”), a company controlled by Mr. Chiang, one of our
directors.  These payments were for electronic component products
purchased and carried in inventory and as such, we consider these
payments to be in the normal course of business and negotiated on an arm’s
length basis.  We have entered into a distributor agreement with PTC,
and accordingly, we expect to continue purchasing from PTC.





We made
payments of $6,000 for the three month and $18,000 for the nine
months periods ending September 30, 2008 to K.S. Best International Co.
Ltd., a company controlled by the brother of our Chief Executive
Officer.  These payments were for professional fees related to the
operational management of our Taiwan office.  In addition, during
the period ended September 30, 2008, we also made payments of $6,400 for the
quarter and $6,400 for the nine months for interest expense on our credit
facility from K.S. Best International Co. Ltd. – see Note 3.




6
– COMMITMENTS AND CONTINGENCIES





Inventory
Purchasing


Outstanding
commitments to purchase inventory from suppliers aggregated $1,400,000 as of
September 30, 2008.





Regulation


On 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.  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 has 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.


7
 Index


Legal and Regulatory
Proceedings


On August
13, 2008, NASDAQ informed us that our Class A common stock has not maintained a
minimum bid price of $1.00 per share required for continued inclusion by
Marketplace Rule 4310(c)(8)(D) (the “Rule”).  Therefore, we have been
provided 180 calendar days or until February 9, 2009, to regain compliance under
the Rule.  If, at anytime before February 9, 2009, the bid price of
our Class A common closes at $1.00 per share or more for a minimum of 10
consecutive business days, NASDAQ expects to provide written notification that
we comply with the Rule.  However, if compliance with this Rule cannot
be demonstrated by February 9, 2009, NASDAQ expects to determine whether we meet
The Nasdaq Capital Market initial listing criteria as set forth in Marketplace
Rule 4310(c), except for the bid price requirement.  If determined we
still meet the initial listing criteria, NASDAQ expects to grant an additional
180 calendar day compliance period or until August 8, 2009.  If we are
not eligible for an additional compliance period, NASDAQ expects to provide
written notification that our securities will be delisted.  At that time,
we may appeal NASDAQ’s determination to delist our securities to a Listing
Qualifications Panel.  See updated event under Note 7 - Subsequent
Events.




7
– SUBSEQUENT EVENTS




On
October 16, 2008, NASDAQ informed us they have temporarily suspended the
enforcement of its minimum $1.00 bid price or Marketplace Rule 4310(c)(8)(D)
(the “Rule”), through Friday, January 16, 2009, due to the extraordinary market
conditions, and will reinstate the Rule on Monday, January 19,
2009.  As a result of suspending the Rule, we will remain at the same
stage of the compliance process after the suspension period
expires.  We had 116 calendar days remaining in our compliance period
as of October 16, 2008, the effective date of the suspension.  Upon
reinstatement of the Rule on January 19, 2009, we will have the same number of
days remaining, or until May 13, 2009, to regain compliance.  NASDAQ
intends to continue monitoring companies to determine if they regain compliance
with the Rule during the suspension, so we may regain compliance either during
the suspension period or during the compliance period resuming after the
suspension.




Item2. 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
for the year ended December 31, 2007.  Also, several of the matters
discussed in this document contain forward-looking statements as defined in
the Private Securities Litigation Reform Act of 1995 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
most recent annual report on Form 10-KSB 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
specifically defines.





Critical
Accounting Policies and Estimates




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 our condensed consolidated financial
statements in conformity with accounting principles generally accepted in the
United States.  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
September 30, 2008 and 2007 were $65,000 and $16,000, respectively and the nine
months ended September 30, 2008 and 2007 aggregated $118,000 and $152,000,
respectively.  The allowance for sales returns and doubtful accounts
at September 30, 2008 aggregated $91,000.


8
 Index




Inventory
– Inventory, consisting principally of products held for resale, is recorded at
the lower of cost (determined using the first in-first out method) or estimated
market value.  We had inventory balances in the amount of $13,851,000
at September 30, 2008, which is presented net of valuation allowances of
$2,959,000.  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.  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.




Impact of
Governmental Regulation – 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 has 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 – In June 2006, FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN48), which defines the threshold for recognizing the benefits
of tax return positions in the financial statements as “more-likely-than-not” to
be sustained by the taxing authority. A tax position that meet the
“more-likely-than-not” criterion shall be measured at the largest amount of
benefit that is more than 50% likely of being realized upon ultimate settlement.
FIN48 applies to all tax positions accounted for under SFAS No. 109, Accounting for Income
Taxes.  FIN48 is effective for fiscal years beginning after
December 15, 2006.  We adopted FIN48 as of January 1,
2007.  Based on our preliminary analysis, 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 including our effective tax
rate.  Therefore, no reserves for uncertain income tax
positions have been recorded pursuant to FIN 48 and we did not record
a cumulative effect adjustment related to the adoption of FIN 48.  In
addition, we have not recorded any accrued interest nor penalties related to
income tax.  It is our policy to classify interest and penalties
related to income tax as income taxes in our financial
statements.  The following tax years that remain subject to
examination by major tax jurisdictions are as follows:  Federal –
2005, 2006 and 2007; and California (State) – 2004, 2005, 2006 and
2007.




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 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 current discrete
semiconductor lines, since 2007.





Our core
strategy of electronic components fulfillment, however, 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.  Although we
believe better market conditions may return, we are focused on lowering our
inventory balances and increasing our cash holdings.  Our long-term
strategy is to rely not only on our core strategy of component fulfillment
service, but also the value-added engineering and turn-key
services.





In
accordance with Generally Accepted Accounting Principles, we have classified
inventory as a current asset in our September 30, 2008, consolidated financial
statements representing approximately 81% of current assets and 60% 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.


9
 Index




Since the
beginning of 2001, our gross profit margins in general have been
stable.  Our gross profit margins are subject to a number of factors,
including product demand, strength of the U.S. dollar, our ability to purchase
inventory at favorable prices and our sales product mix.




Results
of Operations





Thirdquarter of 2008versusthirdquarter of 2007.





Net sales
in the third quarter of 2008 totaled $1,778,000 versus $1,908,000 in the
comparable period for 2007, a decrease of $130,000 or 6.8% over the same period
last year.  The overall decrease came from a decrease in demand for
our products.




Gross
profit for the third quarter of 2008 was $403,000 versus $506,000 in the
comparable period for 2007, and gross margin percentage of net sales was 22.7%
in the third quarter of 2008 versus 26.5 % in the comparable period for
2007.   The overall decrease came from selling at lower product
prices to our customers resulting in lower margins as compared to the same
period last year.




Selling,
general and administrative (“SG&A”) expenses in the third quarter of 2008
totaled $672,000 versus $688,000 in the comparable period for
2007.  The decrease was primarily attributed to decreases in salaries
and benefit expenses.  Also, effective January 1, 2006, we adopted
SFAS 123(R) and such had a $6,000 financial impact to our SG&A for the third
quarter of 2008, as compared to $7,000 financial impact for the same period last
year.




Interest
expense, net of interest income, was $4,000 for the third quarter of 2008 versus
net interest income of $2,000 in the comparable period for 2007.




Other
income, net of other losses, in the three months ended September 30, 2008 was
$9,000 versus net other loses of $7,000 in the comparable period for
2007.




Income
tax provision was $0 for the third quarter of 2008 and $2,000 in the comparable
period for 2007, as we do not expect significant taxable income for fiscal year
2008.




Net loss
was $264,000 for the third quarter of 2008 versus $189,000 in the
comparable period for 2007, an increase of $75,000 resulting from the reasons
discussed above.




Nine
Months Ended September 30, 2008 versus Nine Months Ended September 30,
2007.





Net sales
in the nine months ended September 30, 2008 was $5,812,000 versus $5,386,000 in
the comparable period for 2007, an increase of $426,000 or 7.9% over the same
period last year.  The overall increase came from sales of our ICs and
ODM products, when comparing $700,000 and $554,000, respectively, in the nine
month ended September 30, 2008, versus $435,000 and $284,000, respectively, in
the comparable period for 2007.




Gross
profit for the nine months ended September 30, 2008 was $1,566,000 versus
$1,458,000 in the comparable period for 2007, and gross margin percentage of net
sales was approximately 26.9% for the nine months ended September 30, 2008 and
27.1% for 2007, respectively.




Selling,
general and administrative (“SG&A”) expenses in the nine months ended
September 30, 2008 totaled $2,057,000 versus $2,082,000 in the comparable period
for 2007.  The decrease was primarily attributed to decreases in
salaries and benefit expenses.  Also, effective January 1, 2006, we
adopted SFAS 123(R) and such had a $17,000 financial impact to our SG&A for
the nine months ended September 30, 2008 versus $21,000 in the comparable period
for 2007.








10
 Index




Other
income, net of other losses, in the nine months ended September 30, 2008 was
$99,000 versus other losses of $1,000 in the comparable period for
2007.  The increase came primarily from rental income of $70,000 in
the nine months ended September 30, 2008, compared to $0 in the comparable
period for 2007.





Income
tax provision was $1,000 for the nine months ended September 30, 2008 versus
$5,000 in the comparable period for 2007.





Net loss
was $393,000 for the nine months ended September 30, 2008 versus $614,000 in the
comparable period for 2007, a decrease of $221,000 resulting from the reasons
discussed above.





Liquidity
and Capital Resources




We have
satisfied our liquidity requirements principally through cash generated from
operations and commercial loans.  A summary of our cash flows
resulting from our operating, investing and financing activities for the nine
months ended September 30, 2008 are as follows:




Nine
      months ended September 30,2008
                  
                  
                  2007(Unaudited)
                  
                  
                  (Unaudited)Operating
      activities
                  
                  
                  538,000
                  
                  
                  
                  (305,000
                  )Investing
      activities
                  
                  
                  (48,000
                  )
                  
                  
                  (519,000
                  )Financing
      activities
                  
                  
                  158,000
                  
                  
                  
                  (553,000
                  )






Cash
flows provided by (used in) operating activities were $538,000 and $(305,000)
for the nine months ended September 30, 2008 and 2007, respectively.
 The increase of $843,000 in cash flows provided by operations compared
with the prior period resulted from changes in operating assets and liabilities,
primarily reduction of inventory.




Cash
flows used in investing activities were $48,000 and $519,000 for the nine
months ended September 30, 2008 and 2007, respectively.  The 2007
outflows primarily came from our $305,000 marketable securities investment in
the preferred stock of Zowie Technology Corporation.  Also, in 2007 we
invested $147,000 in land purchase contract for deposit on land in Yangzhou,
China.




Cash
flows provided by (used in) in financing activities were $158,000 and $(553,000)
for the nine months ended September 30, 2008 and 2007,
respectively. The 2008 inflows came primarily from our $500,000 borrowing
under promissory note from a related party (see Note 3), offset by our cash
dividend payment of $277,000.




Inventory
is included in current assets; however, it will take over one year for the
inventory to turn.  Hence, inventory would not be as readily
marketable or liquid as other items included in current assets, such as
cash.




We
believe that funds generated from, or used in operations, in addition to
existing cash balances 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 short-term commercial loans, asset-based lending on accounts receivables or
issue debt or equity securities.




Off-Balance Sheet
Arrangements





As of
September 30, 2008, we had no off-balance sheet arrangements.




Item3.  Quantitative and Qualitative Disclosures About Market
Risk.None.




Item4T.  Controls and Procedures.




Evaluation of Disclosure Controls
and Procedures





Under the
supervision and with the participation of our management, including our Chief
Executive and Chief Financial Officer, we evaluated the effectiveness of our
disclosure controls and procedures (as defined in the Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) required by Exchange Act Rules 13a-15(b) or 15d-15(b), as of the end of
the period covered by this report.  Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of that date to provide
reasonable assurance that information we are required to disclose in reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in SEC rules and forms, and
include controls and procedures designed to ensure that information required to
be disclosed by us in such reports is accumulated and communicated to our
management, including the principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosures.
 11
 Index


Evaluation of Changes in Internal
Control over Financial Reporting





Pursuant
to Rule 13a-15(d) or Rule 15d-15(d) of the Exchange Act, our management,
including our Chief Executive and Chief Financial Officer, is responsible for
evaluating any change in our internal control over financial reporting (as
defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act), that
occurred during each of our fiscal quarters that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.





Under the
supervision and with the participation of our management, including our Chief
Executive and Chief Financial Officer, we have determined that, during the
period covered by this report, there were no changes in our internal control
over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.


PART
II - OTHER INFORMATION





Item1.  Legal Proceedings. – None





Item2.  Unregistered Sales of Equity Securities and Use of
Proceeds. – None





Item3.  Defaults Upon Senior Securities.– None





Item4.  Submission of Matters to a Vote of Security
Holders.–
None





Item5.  Other Information. – None





Item6.  Exhibits.





Exhibit
                  Number
                
                Description of Document31.1 *
                
                Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2 *
                
                Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32 *
                
                Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002 (18 USC.
      Section 1350).*
                
                Filed
      herewith.








SIGNATURES





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





TAITRON
      COMPONENTS INCORPORATEDDate:  November
      14, 2008
                /s/StewartWangStewart WangChief
      Executive Officer and President(Principal
      Executive Officer)/s/DavidVanderhorstDavid VanderhorstChief
      Financial Officer






12