UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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


For
the quarterly period ended September 30, 2009


or


oTRANSITION 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 incorporation or 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, including area code)





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 x No o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).


Yes o No o




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 o
            Accelerated
      filer oNon-accelerated
      filer o  (Do
      not check if a smaller reporting company)
            Smaller
      reporting company x





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


Yes o No x





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





Class
            
            Outstanding on November 2,
    2009Class
      A common stock, $.001 par value
            
            4,777,144Class
      B common stock, $.001 par value
            
            762,612










TAITRON COMPONENTS INCORPORATED


FORM
10-Q


September
30, 2009


INDEX





PagePART
      I - FINANCIAL INFORMATIONItem
      1.
            Financial Statements (unaudited)Condensed Consolidated Balance Sheets at September 30, 2009 and
      December 31, 2008
            1Condensed Consolidated Statements of Operations for the three
      and nine months ended September 30, 2009 and 2008
            2Condensed Consolidated Statements of Comprehensive Income
      (Loss) for the three and nine months ended September 30, 2009 and
      2008
            3Condensed Consolidated Statements of Cash Flows for the nine
      months ended September 30, 2009 and 2008
            4Notes to Condensed Consolidated Financial
      Statements
            5Item
      2.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            8Item
      3.
            Quantitative and Qualitative Disclosures About Market
      Risk.
            10Item
      4T.
            Controls and Procedures
            10PART
      II - OTHER INFORMATIONItem
      1.
            Legal Proceedings
            11Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            11Item
      3.
            Defaults Upon Senior Securities
            11Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            11Item
      5.
            Other Information
            11Item
      6.
            Exhibits
            11Signatures
            11


Index


PARTI - FINANCIAL INFORMATION


Item
1.  Financial Statements





TAITRON
COMPONENTS INCORPORATED




Condensed
Consolidated Balance Sheets





September
      30,
            
            
            December
      31,2009
            
            
            2008(Unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
            
            $
            2,045,000
            
            
            $
            1,762,000Restricted
      cash (Note 4)
            
            
            100,000
            
            
            
            -Trade
      accounts receivable, net
            
            
            710,000
            
            
            
            964,000Inventory,
      net
            
            
            12,613,000
            
            
            
            13,926,000Prepaid
      expenses and other current assets
            
            
            462,000
            
            
            
            565,000Total
      current assets
            
            
            15,930,000
            
            
            
            17,217,000Property
      and equipment, net
            
            
            5,194,000
            
            
            
            5,316,000Other
      assets (Note 5)
            
            
            258,000
            
            
            
            236,000Total
      assets
            
            $
            21,382,000
            
            
            $
            22,769,000Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Trade
      accounts payable
            
            $
            407,000
            
            
            $
            822,000Accrued
      liabilities
            
            
            303,000
            
            
            
            316,000Current
      portion of long-term debt (Note 6)
            
            
            500,000
            
            
            
            89,000Total
      current liabilities
            
            
            1,210,000
            
            
            
            1,227,000Long-term
      debt, less current portion (Note 6)
            
            
            500,000
            
            
            
            832,000Total
      liabilities
            
            
            1,710,000
            
            
            
            2,059,000Commitments
      and contingencies (Notes 6 and 9)Shareholders’
      equity:Preferred
      stock, $.001 par value.  Authorized 5,000,000 shares; None
      issued or outstanding for all periods presented.
            
            
            -
            
            
            
            -Class
      A common stock, $.001 par value. Authorized 20,000,000 shares; 4,777,144
      shares issued and outstanding for all periods presented.
            
            
            5,000
            
            
            
            5,000Class
      B common stock, $.001 par value.  Authorized, issued and
      outstanding 762,612 shares for all periods presented.
            
            
            1,000
            
            
            
            1,000Additional
      paid-in capital
            
            
            10,589,000
            
            
            
            10,569,000Accumulated
      other comprehensive income
            
            
            92,000
            
            
            
            92,000Retained
      earnings
            
            
            8,753,000
            
            
            
            9,792,000Noncontrolling
      interest in subsidiary
            
            
            232,000
            
            
            
            251,000Total
      shareholders’ equity
            
            
            19,672,000
            
            
            
            20,710,000Total
      liabilities and shareholders’ equity
            
            $
            21,382,000
            
            
            $
            22,769,000





See accompanying notes to condensed
consolidated financial statements.




1
 Index


TAITRONCOMPONENTS INCORPORATED




Condensed
Consolidated Statements of Operations





Three
      Months EndedSeptember
      30,
            
            
            Nine
      Months EndedSeptember
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008(Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)Net
      sales
            
            $
            1,504,000
            
            
            $
            1,778,000
            
            
            $
            4,131,000
            
            
            $
            5,812,000Cost
      of goods sold
            
            
            1,127,000
            
            
            
            1,375,000
            
            
            
            3,167,000
            
            
            
            4,246,000Gross
      profit
            
            
            377,000
            
            
            
            403,000
            
            
            
            964,000
            
            
            
            1,566,000Selling,
      general and administrative expenses
            
            
            591,000
            
            
            
            672,000
            
            
            
            1,828,000
            
            
            
            2,057,000Operating
      loss
            
            
            (214,000
            )
            
            
            (269,000
            )
            
            
            (864,000
            )
            
            
            (491,000
            )Interest
      (expense) income, net
            
            
            (4,000
            )
            
            
            (4,000
            )
            
            
            (7,000
            )
            
            
            -Other
      income, net
            
            
            43,000
            
            
            
            9,000
            
            
            
            91,000
            
            
            
            99,000Loss
      before income taxes
            
            
            (175,000
            )
            
            
            (264,000
            )
            
            
            (780,000
            )
            
            
            (392,000
            )Income
      tax provision
            
            
            (1,000
            )
            
            
            -
            
            
            
            (3,000
            )
            
            
            (1,000
            )Net
      loss
            
            
            (176,000
            )
            
            
            (264,000
            )
            
            
            (783,000
            )
            
            
            (393,000
            )Net
      loss attributable to noncontrolling interest in subsidiary
            
            
            6,000
            
            
            
            -
            
            
            
            20,000
            
            
            
            -Net
      loss attributable to Taitron Components Inc.
            
            $
            (170,000
            )
            
            $
            (264,000
            )
            
            $
            (763,000
            )
            
            $
            (393,000
            )Net
      loss per share:  Basic & Diluted
            
            $
            (0.03
            )
            
            $
            (0.05
            )
            
            $
            (0.14
            )
            
            $
            (0.07
            )Weighted
      average common shares outstanding:  Basic &
      Diluted
            
            
            5,539,756
            
            
            
            5,539,756
            
            
            
            5,539,756
            
            
            
            5,539,756





See accompanying notes to condensed
consolidated financial statements.




2
 Index


TAITRONCOMPONENTS INCORPORATED




Condensed
Consolidated Statements of Comprehensive Income (Loss)





Three
      Months EndedSeptember
      30,
            
            
            Nine
      Months EndedSeptember
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008(Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)Net
      loss
            
            $
            (176,000
            )
            
            $
            (264,000
            )
            
            $
            (783,000
            )
            
            $
            (393,000
            )Other
      Comprehensive loss:Foreign
      currency translation adjustment
            
            
            (6,000
            )
            
            
            (7,000
            )
            
            
            -
            
            
            
            (32,000
            )Comprehensive
      loss
            
            
            (182,000
            )
            
            
            (271,000
            )
            
            
            (783,000
            )
            
            
            (425,000
            )Comprehensive
      loss attributable to noncontrolling interest in subsidiary
            
            
            7,000
            
            
            
            -
            
            
            
            19,000
            
            
            
            -Comprehensive
      loss attributable to Taitron Components Inc.
            
            $
            (175,000
            )
            
            $
            (271,000
            )
            
            $
            (764,000
            )
            
            $
            (425,000
            )





See accompanying notes to condensed
consolidated financial statements.




3
 Index


TAITRONCOMPONENTS INCORPORATED




Condensed
Consolidated Statements of Cash Flows





Nine
      Months EndedSeptember
      30,2009
            
            
            2008(Unaudited)
            
            
            (Unaudited)Cash
      flows from operating activities:Net
      loss
            
            $
            (763,000
            )
            
            $
            (393,000
            )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            165,000
            
            
            
            174,000Provision
      for sales returns and doubtful accounts
            
            
            39,000
            
            
            
            131,000Stock
      based compensation
            
            
            20,000
            
            
            
            17,000Noncontrolling
      interest in subsidiary
            
            
            (19,000
            )
            
            
            20,000Changes
      in operating assets and liabilities:Restricted
      cash
            
            
            (100,000
            )
            
            
            -Trade
      accounts receivable
            
            
            215,000
            
            
            
            (30,000
            )Inventory
            
            
            1,313,000
            
            
            
            971,000Prepaid
      expenses and other current assets
            
            
            100,000
            
            
            
            55,000Trade
      accounts payable
            
            
            (415,000
            )
            
            
            (422,000
            )Accrued
      liabilities
            
            
            (13,000
            )
            
            
            15,000Total
      adjustments
            
            
            1,305,000
            
            
            
            931,000Net
      cash provided by operating activities
            
            
            542,000
            
            
            
            538,000Cash
      flows from investing activities:Acquisition
      of property and equipment
            
            
            (43,000
            )
            
            
            (29,000
            )Other
      assets
            
            
            (19,000
            )
            
            
            (19,000
            )Net
      cash used in investing activities
            
            
            (62,000
            )
            
            
            (48,000
            )Cash
      flows from financing activities:Borrowings
      on notes payable
            
            
            500,000
            
            
            
            500,000Payments
      on notes payable
            
            
            (421,000
            )
            
            
            (67,000
            )Dividend
      payments
            
            
            (276,000
            )
            
            
            (277,000
            )Exercise
      of Class A common stock options
            
            
            -
            
            
            
            2,000Net
      cash (used in) provided by financing activities
            
            
            (197,000
            )
            
            
            158,000Impact
      of exchange rates on cash
            
            
            -
            
            
            
            (14,000
            )Net
      increase in cash and cash equivalents
            
            
            283,000
            
            
            
            634,000Cash
      and cash equivalents, beginning of year
            
            
            1,762,000
            
            
            
            1,111,000Cash
      and cash equivalents, end of year
            
            $
            2,045,000
            
            
            $
            1,745,000Supplemental
      disclosures of cash flow information:Cash
      paid for interest
            
            $
            23,000
            
            
            $
            28,000Cash
      paid for income taxes, net
            
            $
            1,000
            
            
            $
            1,000




See accompanying notes to condensed
consolidated financial statements.




4
 Index


TAITRONCOMPONENTS INCORPORATED




Notes to
Condensed Consolidated Financial Statements (unaudited)





1
– ORGANIZATION





In 1989,
we were formed and incorporated in California.  We maintain a
majority-owned subsidiary in Mexico (since 1998) and three subsidiaries 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.





2
– BASIS OF PRESENTATION





The
unaudited condensed consolidated interim financial statements include the
accounts of the Company and all wholly owned subsidiaries, including its 60%
majority-owned subsidiary, Taitron Components Mexico, S.A. de
C.V.  All significant intercompany accounts and transactions have been
eliminated in consolidation.





These
unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America (“GAAP”) for interim financial information and the instructions to Form
10-Q and Article 10 of Regulation S-X.  Accordingly, they do not
include all of the information and footnotes required by GAAP for complete
financial statements.  In the opinion of management, all adjustments
of a normal recurring nature and considered necessary for a fair presentation of
its financial condition and results of operations for the interim periods
presented in this Form 10-Q have been included.  Operating results for
the interim periods are not necessarily indicative of financial results for the
full year.  These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2008.  In preparing these
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
consolidated financial statements and the reported amount of revenues and
expenses during the reporting periods.  Actual results could differ
from those estimates.  Significant estimates and assumptions included
in the Company’s consolidated financial statements relate to the allowance for
sales returns, doubtful accounts, inventory reserves, accrued liabilities and
deferred income taxes.  Certain amounts in the prior year condensed
consolidated financial statements have been reclassified to conform to the
current year presentation.





3
– RECENT ACCOUNTING DEVELOPMENTS





In June
2009, the FASB issued authoritative guidance on the consolidation of variable
interest entities, which is effective for us beginning January 1,
2010.  The new guidance requires revised evaluations of whether
entities represent variable interest entities, ongoing assessments of control
over such entities, and additional disclosures for variable
interests.  We believe adoption of this new guidance will not have a
material impact on our condensed consolidated financial statements.





Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the American Institute of Certified Public Accountants, and
the United States Securities and Exchange Commission did not or are not believed
by management to have a material impact on the Company’s present or future
financial statements.




4
– RESTRICTED CASH





At
September 30, 2009 we had $100,000 of restricted cash on deposit as collateral
for our $100,000 irrevocable letter of credit in favor of a trade vendor for
inventory purchasing.


5
 Index


5
– OTHER ASSETS





September 30,
            
            
            December
      31,2009
            
            
            2008(Unaudited)Investment
      in securitites
            
            $
            68,000
            
            
            $
            68,000Investment
      in joint venture
            
            
            147,000
            
            
            
            147,000Other
            
            
            43,000
            
            
            
            21,000Other
      Assets
            
            $
            258,000
            
            
            $
            236,000





Our
$68,000 investment in securities as of September 30, 2009 relates to our
ownership of 154,808 common 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 joint venture as of September 30, 2009, 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 FASB 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 material activity in this joint
venture during 2008 or 2009.





6
– NOTES PAYABLE





September 30,
            
            
            December
      31,2009
            
            
            2008(Unaudited)Bank
      loan
            
            $
            -
            
            
            $
            421,000Less
      current portion
            
            
            -
            
            
            
            (89,000
            )Subtotal
            
            $
            -
            
            
            $
            332,000Secured
      credit facility - related party
            
            
            1,000,000
            
            
            
            500,000Less
      current portion
            
            
            (500,000
            )Subtotal
            
            $
            500,000
            
            
            $
            500,000Long-term
      debt, less current portion
            
            $
            500,000
            
            
            $
            832,000





Bank loan
- On September 29, 2006, the Company borrowed $620,000 in connection with its
acquisition of approximately 4,500 square feet of office space (consisting of 2
separate units on the same floor) in Shanghai, China with a total purchase price
of $1,230,000.  The loan is collateralized by the underlying 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.  On January 16, 2009, we repaid the entire outstanding balance
of $421,000.





Secured
credit facility - On April 21, 2008 we entered into a $3,000,000 credit
facility, collateralized by real property, from K.S. Best International Co.
Ltd., a company controlled by the brother of our Chief Executive Officer,
maturing on April 21, 2011.  Credit is available in $500,000 advances,
each advance payable in monthly interest only installments, at the rate of Prime
+ 0.25% per annum with entire principal amount outstanding due two years from
the date of each advance or April 21, 2011, whichever is earlier.  As
of September 30, 3009 the aggregate outstanding balance on this credit facility
was $1,000,000 as on June 3, 2008, we borrowed $500,000 due June 3, 2010 and on
April 3, 2009, we borrowed $500,000 due April 3, 2011.


6
 Index




7
– RELATED PARTY TRANSACTIONS





We made
payments of approximately $110,000 and $69,000 for the three month periods
ending September 30, 2009 and 2008, respectively, and $434,000 and $357,000 for
the nine months ending September 30, 2009 and 2008, respectively, 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 both the three month period ending September 30, 2009 and
2008, and $18,000 for both the nine months ending September 30, 2009 and 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, we also made payments of $8,800 for the three months ended September
30, 2009 and $20,500 for the nine months ending September 30, 2009 for interest
expense on our credit facility from K.S. Best International Co.
Ltd.  See Note 6.





We have a
$3,000,000 credit facility, collateralized by real property, from K.S. Best
International Co. Ltd., a company controlled by the brother of our Chief
Executive Officer.  See Note 6 for additional details.





8
– SHARE BASED COMPENSATION





Accounting
for stock options issued to employees  measures 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 is recognized over the
period during which an employee is required to provide service in exchange for
the award.  Outstanding options to purchase Class A common stock (“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 our 2005
Stock Incentive Plan.  We use the Black-Scholes option pricing model
to measure the fair value of the Options granted to employees.  The
option activity during the nine months ended September 30, 2009 is as
follows:





Number
      of Shares
            
            
            Weighted
      Average Exercise Price
            
            
            Weighted
      Average Years Remaining Contractual Term
            
            
            Aggregate
      Intrinsic ValueOutstanding
      at December 31, 2008
            
            
            453,167
            
            
            $
            1.81
            
            
            
            3.64
            
            
            
            -Granted
            
            
            42,000
            
            
            
            0.87
            
            
            
            8.05
            
            
            
            -Forfeited
            
            
            (99,667
            )
            
            
            1.62
            
            
            
            -
            
            
            
            -Outstanding
      at September 30, 2009
            
            
            395,500
            
            
            $
            1.75
            
            
            
            4.29
            
            
            
            -Exercisable
      at September 30, 2009
            
            
            297,834
            
            
            $
            1.83
            
            
            
            3.41
            
            
            
            -





At
September 30, 2009, the range of individual outstanding weighted average
exercise prices was $1.79 to $2.05.





9
– COMMITMENTS AND CONTINGENCIES





Inventory
Purchasing


Outstanding
commitments to purchase inventory from suppliers aggregated $882,000 as of
September 30, 2009.


7
 Index


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 Part 1of this quarterly report on Form 10-Q, as well as our most
recent annual report on Form 10-K for the year ended December 31,
2008.





This
document contains forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995 which are subject to 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.  We do not undertake
any duty to update forward-looking statements after the date they are made or to
conform them to actual results or to changes in circumstances or
expectations.





References
to “Taitron,” the “Company,” “we,” “our” and “us” refer to Taitron Components
Incorporated and its wholly owned and majority-owned subsidiaries, 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, 2009 and 2008 were $2,000 and $65,000, respectively and the nine
months ended September 30, 2009 and 2008 were $24,000 and $118,000,
respectively.  The allowance for sales returns and doubtful accounts
at September 30, 2009 aggregated $93,000.





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 $12,613,000
at September 30, 2009, which is presented net of valuation allowances of
$3,465,000.  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.




Overview




We distribute both
brand name electronic components and private labeled original designed and
manufactured electronic components (“ODM Components”) and provide integrated
services and solutions to support original equipment manufacturers (OEMs) and
original design manufacturers (ODMs).  Our product offerings
range from discrete semiconductors (transistors, diodes, etc.),
optoelectronic devices and passive components to small electronic
devices.




Due to
ongoing economic recession and related decreased product demand, we are placing
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).




8
 Index





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, 2009, condensed consolidated
financial statements representing approximately 79% of current assets and 59% of
total assets.  However, if all or a substantial portion of the
inventory was required to be immediately liquidated, the inventory would not be
as readily marketable or liquid as other items included or classified as a
current asset, such as cash.  We cannot assure you that demand in the
discrete semiconductor market will increase and that market conditions will
improve.  Therefore, it is possible that further declines in our
carrying values of inventory may result.




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




Results
of Operations





Third quarter of 2009 versus
third quarter of 2008.





Net sales
in the third quarter of 2009 totaled $1,504,000 versus $1,778,000 in the
comparable period for 2008, a decrease of $274,000 or 15.4% over the same period
last year.  Our declining sales results continued to be negatively
impacted primarily due to weakness in North America and Europe as a result of
lower demand for products due to the global economic recession, a trend we
believe is likely to continue in the near term and potentially
longer.




Gross
profit for the third quarter of 2009 was $377,000 versus $403,000 in the
comparable period for 2008, and gross margin percentage of net sales was 25.1%
in the third quarter of 2009 versus 22.7% in the comparable period for
2008.   The overall increase in gross margin percentage came from
selling at higher product prices to our customers resulting in higher margins as
compared to the same period last year.




Selling,
general and administrative expenses in the third quarter of 2009 totaled
$591,000 versus $672,000 in the comparable period for 2008.  The
decrease of $81,000 or 12.1% was primarily attributed to decreases in salaries
and benefit expenses by $40,000 and professional fees by $15,000.




Interest
expense, net of interest income, was $4,000 for both the third quarter of 2009
and in the comparable period for 2008.




Other
income, net of other expense, in the third quarter of 2009 was $43,000 versus
$9,000 in the comparable period for 2008.  Other income was primarily
derived from the rental income of available excess office space within our
headquarters’ facility.




Income
tax provision was $1,000 for the third quarter of 2009 and $0 in the comparable
period for 2008, as we do not expect significant taxable income for fiscal year
2009.




Net loss
was $170,000 for the third quarter of 2009 versus $264,000 in the comparable
period for 2008, a decrease of $94,000 resulting from the reasons discussed
above.




Nine
months Ended September 30, 2009 versus Nine months Ended September 30,
2008.





Net sales
in the nine months ended September 30, 2009 was $4,131,000 versus $5,812,000 in
the comparable period for 2008, a decrease of $1,681,000 or 28.9% over the same
period last year.  Our declining sales results continued to be
negatively impacted primarily due to weakness in North America and Europe as a
result of lower demand for products due to the global economic recession, a
trend we believe is likely to continue in the near term and potentially
longer.




Gross
profit for the nine months ended September 30, 2009 was $964,000 versus
$1,566,000 in the comparable period for 2008, and gross margin percentage of net
sales was approximately 22.3% for the nine months ended September 30, 2009 and
26.9% for 2008, respectively.




Selling,
general and administrative expenses in the nine months ended September 30, 2009
totaled $1,828,000 versus $2,057,000 in the comparable period for
2008.  The decrease of $229,000 or 11.1% was primarily attributed to
decreases to salaries and benefits by $113,000, trade commissions by $35,000 and
supplies, repairs and maintenance expenses by $33,000.




9
 Index


Interest
expense, net of interest income, was $7,000 for the nine months ended September
30, 2009 versus $0 in the comparable period for 2008.




Other
income, net of other losses, in the nine months ended September 30, 2009 was
$91,000 versus $99,000 in the comparable period for 2008.




Income
tax provision was $3,000 for the nine months ended September 30, 2009 versus
$1,000 in the comparable period for 2008.





Net loss
was $763,000 for the nine months ended September 30, 2009 versus $393,000 in the
comparable period for 2008, an increase of $370,000 resulting from the reasons
discussed above.





Liquidity
and Capital Resources





We have
financed our operations with funds generated from operating activities and
borrowings under our revolving credit facility.





Cash
flows provided by operating activities were $542,000 and $538,000 for the nine
months ending September 30, 2009 and 2008, respectively.  The increase
of $4,000 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) provided by financing activities were $(197,000) and $158,000
for the nine months ending September 30, 2009 and 2008,
respectively.  The 2009 outflows came primarily from our $421,000
repayment of the bank note.  See Note 6.





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, 2009, we had no off-balance sheet arrangements.




Item3.  Quantitative and Qualitative Disclosures About Market Risk. -Not applicable.




Item4T.  Controls and Procedures.




Evaluation of Disclosure Controls
and Procedures





Our management has evaluated, under the
supervision and with the participation of our principal executive and principal
financial officers, the effectiveness of our disclosure controls and procedures
as of the end of the period covered by this report pursuant to Rule 13a-15(b)
under the Securities Exchange Act of 1934 (the “Exchange Act”).  Based
on that evaluation, our principal executive principal financial officers
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective in ensuring that information
required to be disclosed in our Exchange Act reports is (1) recorded, processed,
summarized and reported in a timely manner, and (2) accumulated and communicated
to our management, including our principal executive and financial officers, as
appropriate to allow timely decisions regarding required
disclosure.


Changes in Internal Control over
Financial Reporting





There have been no changes in our
internal control over financial reporting that occurred during the period
covered by this report that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
 10
 Index


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
      13, 2009
            /s/ Stewart WangStewart
      Wang,Chief
      Executive Officer and President
              (Principal
      Executive Officer)/s/ David VanderhorstDavid
      VanderhorstChief
      Financial Officer and Secretary
              (Principal
      Financial Officer)






11