**UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
        10-QSB**
 
 
 ý
              **QUARTERLY
                  REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934**
 
 **For
        the quarterly period ended September 30, 2005**
   ̈
              **TRANSITION
                  REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934**
 
 
 **Commission
        File Number 0-25844**
 
 **TAITRON
        COMPONENTS INCORPORATED**
 (Exact
        name of small business issuer as specified in its charter)
 
 **California**
              
              **95-4249240**(State
                  or Other Jurisdiction of
              
              (I.R.S.
                  EmployerIncorporation
                  or Organization)
              
              Identification
                  No.)
 
 
 **28040
        West Harrison Parkway**
 **Valencia,
        California 91355-4162**
 (Address
        Of Principal Executive Offices)
 
 **(661)
        257-6060**
 (Issuer’s
        Telephone Number)
 
 **NONE**
 (Former
        Name, Address and Fiscal Year, if Changed Since Last Report)
 
 Indicate
        by check mark whether the registrant: (1) has filed all reports required
        to be
        filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding
        12
        months (or for such shorter period that the Registrant was required to file
        such
        reports), and (2) has been subject to such filing requirements for the past
        90
        days.
 Yes ý No o
 
 
 
 State
        the
        number of shares outstanding of each of the issu er’s
        classes of common stock, as of the latest practicable date:
 
 Class
              
              Outstanding
                  on October 31, 2005Class
                  A Common Stock, $.001 par value
              
              4,700,145Class
                  B Common Stock, $.001 par value
              
              762,612
 
 
 Transitional
        Small Business Disclosure Format (check one): Yes  o **** No **** ý
  
  PART
        I.
        FINANCIAL INFORMATION
 
 Item
        1.
        Financial Statements
 
 **TAITRON
        COMPONENTS INCORPORATED**
 Condensed
        Consolidated Balance Sheets
 (Dollars
        in Thousands)
  **September
                  30, 2005****Assets**
              
              (Unaudited)Current
                  assets:Cash
                  and cash equivalents
              
              $
              1,466Trade
                  accounts receivable, net
              
              
              1,500Inventory,
                  net
              
              
              16,991Prepaid
                  expenses and other current assets
              
              
              186Total
                  current assets
              
              
              20,143Property
                  and equipment, net
              
              
              4,463Other
                  assets
              
              
              79Total
                  assets
              
              $
              24,685**Liabilities
                  and Shareholders’ Equity**Current
                  liabilities:Trade
                  accounts payable
              
              $
              838Accrued
                  liabilities and other
              
              
              556Total
                  current liabilities
              
              
              1,394Total
                  liabilities
              
              
              1,394Commitments
                  and contingencies (Note 3)Shareholders’
                  equity:Preferred
                  stock, $.001 par value. Authorized 5,000,000 shares.None
                  issued or outstanding.
              
              
              -Class
                  A common stock, $.001 par value. Authorized 20,000,000 shares;
                  issued and
                  outstanding 4,700,145 shares.
              
              
              5Class
                  B common stock, $.001 par value. Authorized, issued and outstanding
                  762,612 shares.
              
              
              1Additional
                  paid-in capital
              
              
              10,416Accumulated
                  other comprehensive loss, net of tax
              
              
              (18
              )Retained
                  earnings
              
              
              12,887Total
                  shareholders’ equity
              
              
              23,291Total
                  liabilities and shareholders’ equity
              
              $
              24,685
  See
        accompanying notes to condensed consolidated financial statements.
  Page
              2
 
 **TAITRON
        COMPONENTS INCORPORATED**
 Condensed
        Consolidated Statements of Operations
 (Dollars
        in thousands, except per share amounts)
   **Three
                  months ended September 30,**
              
              **Nine
                  months ended September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**(Unaudited)
              
              (Unaudited)
              
              (Unaudited)
              
              (Unaudited)Net
                  sales
              
              $
              2,288
              
              $
              2,371
              
              $
              6,332
              
              $
              7,509Cost
                  of goods sold
              
              
              1,625
              
              
              1,665
              
              
              4,582
              
              
              5,395Gross
                  profit
              
              
              663
              
              
              706
              
              
              1,750
              
              
              2,114Selling,
                  general and administrative expenses
              
              
              706
              
              
              636
              
              
              1,952
              
              
              1,907(Loss)
                  income from operations
              
              
              (43
              )
              
              70
              
              
              (202
              )
              
              207Interest
                  income (expense), net
              
              
              6
              
              
              (44
              )
              
              (11
              )
              
              (160
              )Other
                  income (expense), net
              
              
              22
              
              
              3
              
              
              61
              
              
              16(Loss)
                  income before income taxes
              
              
              (15
              )
              
              29
              
              
              (152
              )
              
              63Income
                  tax provision
              
              
              (8
              )
              
              -
              
              
              (8
              )
              
              -Net
                  (loss) income
              
              $
              (23
              )
              $
              29
              
              $
              (160
              )
              $
              63(Loss)
                  income per shareBasic
              
              $
              (.00
              )
              $
              .01
              
              $
              (.03
              )
              $
              .01Diluted
              
              $
              (.00
              )
              $
              .01
              
              $
              (.03
              )
              $
              .01Weighted
                  average common shares outstandingBasic
              
              
              5,462,757
              
              
              5,460,258
              
              
              5,461,952
              
              
              5,466,463Diluted
              
              
              5,462,757
              
              
              6,044,258
              
              
              5,461,952
              
              
              6,037,463
  See
        accompanying notes to condensed consolidated **** financial
        statements.
  Page
            3
  **TAITRON
        COMPONENTS INCORPORATED**
 Condensed
        Consolidated Statements of Cash Flows
  (Dollars
        in thousands)
  **Nine
                  months ended September 30,****2005**
              
              **2004**(Unaudited)
              
              (Unaudited)Cash
                  flows from operating activities:Net
                  (loss) income
              
              $
              (160
              )
              $
              63Adjustments
                  to reconcile net (loss) income to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              173
              
              
              193Amortization
                  of debt discount related to options issued with notes
                  payable
              
              
              -
              
              
              28Provision
                  for sales returns and doubtful accounts
              
              
              92
              
              
              27Gain
                  on sale of assets
              
              
              -
              
              
              (6
              )Changes
                  in assets and liabilities:Trade
                  accounts receivable
              
              
              (493
              )
              
              (139
              )Inventory,
                  net
              
              
              1,250
              
              
              1,387Prepaid
                  expenses and other current assets
              
              
              231
              
              
              (135
              )Other
                  assets
              
              
              (15
              )
              
              (1
              )Trade
                  accounts payable
              
              
              32
              
              
              51Accrued
                  liabilities and other
              
              
              165
              
              
              3Total
                  adjustments
              
              
              1,435
              
              
              1,408Net
                  cash provided by operating activities
              
              
              1,275
              
              
              1,471Cash
                  flows from investing activities:Acquisitions
                  of property and equipment
              
              
              (3
              )
              
              (32
              )Proceeds
                  from sale of assets
              
              
              -
              
              
              6Net
                  cash used by investing activities
              
              
              (3
              )
              
              (26
              )Cash
                  flows from financing activities:Payments
                  on notes payable
              
              
              (1,326
              )
              
              (2,699
              )Repurchase
                  of Class A Common Stock
              
              
              -
              
              
              (322
              )Proceeds
                  from exercise of stock options and issuance of stock
              
              
              2
              
              
              27Net
                  cash used in financing activities
              
              
              (1,324
              )
              
              (2,994
              )Impact
                  of exchange rate changes on cash
              
              
              (21
              )
              
              4Net
                  decrease in cash and cash equivalents
              
              
              (73
              )
              
              (1,545
              )Cash
                  and cash equivalents, beginning of period
              
              
              1,539
              
              
              2,953Cash
                  and cash equivalents, end of period
              
              $
              1,466
              
              $
              1,408Supplemental
                  disclosure of cash flow information:Cash
                  paid for interest
              
              $
              48
              
              $
              154Cash
                  paid for income taxes
              
              $
              10
              
              $
              30
  See
        accompanying notes to condensed consolidated **** financial
        statements.
  Page
              4
  **TAITRON
        COMPONENTS INCORPORATED**
 Notes
        to
        Condensed Consolidated Financial Statements
 September
        30, 2005
 (All
        amounts are unaudited)
 **Note
        1 - Basis of Presentation**
 
 The
        accompanying unaudited condensed consolidated financial statements of Taitron
        Components Incorporated (“the Company”) were prepared in accordance with
        accounting principles generally accepted in the United States of America
        and
        reflect all adjustments, consisting of normal recurring accruals and
        adjustments, which are, in the opinion of management, necessary for a fair
        presentation of the consolidated financial position and results of operations
        at
        and for the periods presented. Such financial statements do not include all
        the
        information or footnotes necessary for a complete presentation and, accordingly,
        should be read in conjunction with the Company's Annual Report on Form 10-KSB
        for the fiscal year ended December 31, 2004, and the notes thereto, which
        include significant accounting policies and estimates. The results of operations
        for the interim periods are not necessarily indicative of results for the
        full
        year.
  **Note
        2 - Summary of Significant Accounting Policies and
        Estimates**
 
 **Principles
        of Consolidation**
  The
        unaudited condensed consolidated financial statements include the accounts
        of
        the Company and its majority-owned subsidiary. All significant intercompany
        transactions 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, 2005 and 2004 were $31,000 and $30,000, respectively, and for the nine
        months ended September 30, 2005 and 2004 aggregated $92,000 and $83,000,
        respectively.
 
 **Allowance
        for Sales Returns and Doubtful Accounts**
  On
        a
        case-by-case basis, the Company accepts returns of products from its customers,
        without restocking charges, when they can demonstrate an acceptable cause
        for
        the return. Requests by a distributor to return products purchased for its
        own
        inventory generally are not included under this policy. The Company will,
        on a
        case-by-case basis, accept returns of products upon payment of a restocking
        fee,
        which is generally 15% to 30% of the net sales price. The Company will not
        accept returns of any products that were special-ordered by a customer or
        that
        otherwise are not generally included in inventory. The allowance for sales
        returns and doubtful accounts at September 30, 2005 aggregated
        $64,000.
  **Inventory**
  Inventory,
        consisting principally of products held for resale, is recorded at the lower
        of
        cost (determined using the first in-first out method) or estimated market
        value.
        Inventory is presented net of valuation allowances of $1,371,000 at September
        30, 2005.
 
 **Income
        Taxes**
  The
        Company accounts for income taxes under the asset and liability method. Deferred
        tax assets and liabilities are recognized for future tax consequences
        attributable to differences between the financial statement carrying amounts
        of
        existing assets and liabilities and their respective tax bases. Deferred
        tax
        assets and liabilities are measured using enacted tax rates expected to apply
        to
        taxable income in the years in which the temporary differences are expected
        to
        be recovered or settled. The effect on deferred tax assets and liabilities
        of a
        change in tax rates is recognized in income in the period that includes the
        enactment date. Valuation allowances are recorded, when necessary, to reduce
        deferred tax assets to the amount expected to
  Page
            5
  be
        realized. The Company has fully reserved against its deferred income tax
        assets,
        as management could not determine that it was more likely than not such assets
        would be realized.
 
 **(Loss)
        Income Per** **Share**
  Basic
        (loss) income per share is computed by dividing net (loss) income available
        to
        common shareholders by the weighted-average number of common shares outstanding
        during the period. Diluted income per share reflects the potential dilution
        that
        could occur if securities or other contracts to issue common stock were
        exercised or converted into common stock or resulted in the issuance of common
        stock that then shared in the earnings of the Company.  Common
        equivalent shares for both the quarter and nine months ended September 30,
        2005,
        of approximately 616,000 and 603,000, respectively, are excluded from the
        computation of diluted (loss) per share as their effect is
        anti-dilutive.
 
 **Stock
        Option Plan**
  The
        Company has adopted the disclosure requirements of SFAS No. 148, “Accounting for
        Stock-Based Compensation—Transition and Disclosure”. SFAS No. 123 allows
        companies to choose whether to account for employee stock-based compensation
        on
        a fair value method, or to continue to account for stock-based compensation
        under the current intrinsic value method as prescribed by APB Opinion
        No. 25, “Accounting for Stock Issued to Employees.” The Company has elected
        to continue to follow the provisions of APB Opinion No. 25. SFAS No. 148
        requires interim disclosures regarding the pro forma effects of compensation
        expense had stock options issued under the Company’s 1995 Stock Incentive Plan
        been determined based on the fair value consistent with SFAS
        No. 123.
 
 Accordingly,
        under SFAS No. 123, the Company’s net earnings (loss) and diluted earnings
        (loss) per share for the quarters and nine months ended September 30, 2005
        and
        2004, would have been changed to the pro forma amounts indicated
        below:
  Three
                      Month
                    Period
                      Ended September 30,
                  
                  Nine
                      Month
                    Period
                      Ended September 30,2005
                  
                  2004
                  
                  2005
                  
                  2004Net
                      (loss) income As reported
                  
                  $
                  (23,000
                  )
                  $
                  29,000
                  
                  $
                  (160,000
                  )
                  $
                  63,000Pro
                      Forma
                  
                  $
                  (17,000
                  )
                  $
                  36,000
                  
                  $
                  (142,000
                  )
                  $
                  84,000Diluted
                      (loss) income per share As reported
                  
                  $
                  -
                  
                  $
                  0.01
                  
                  $
                  (0.03
                  )
                  $
                  0.01Pro
                      Forma
                  
                  $
                  -
                  
                  $
                  0.01
                  
                  $
                  (0.03
                  )
                  $
                  0.01
 
 The
        Company’s 1995 Stock Incentive Plan expired by its terms in March 2005. Since no
        new grants can be awarded out of this plan, the total weighted average fair
        value of options granted for the quarter and nine months ended September
        30,
        2005 was $0. At September 30, 2005, the number of options exercisable was
        616,000 and the weighted average exercise price of those options was
        $1.74.
 
 **Reclassification**
  Certain
        amounts in the 2004 condensed consolidated financial statements have been
        reclassified to conform with the 2005 presentation.
 
 **Use
        of Estimates**
  Management
        has made a number of estimates and assumptions relating to the reporting
        of
        assets and liabilities and the disclosure of contingent assets and liabilities
        to prepare these condensed consolidated financial statements in conformity
        with
        accounting principles generally accepted in the United States. These estimates
        have a significant impact on the Company’s valuation and reserve accounts
        relating to the allowance for sales returns, doubtful accounts, inventory
        reserves and deferred income taxes. Actual results could differ from these
        estimates.
  Page
            6
  **Note
        3 - Commitments and Contingencies**
 
 On
        July
        9, 2005, the Company renewed its revolving line of credit facility providing
        up
        to $3 million for operating purposes. The agreement governing this credit
        facility contains security agreements covering essentially all assets of
        the
        Company and financial covenants requiring compliance with certain financial
        ratios. As of the date of this report, the Company has not yet used this
        credit
        facility.
 
 Effective
        July 1, 2006, the European Union (“EU”) will begin restricting the distribution
        of products within the EU containing certain substances, including lead.
        At the
        present time, much of our inventory contains substances prohibited by the
        RoHS
        directive and we believe it is likely that we will not be able to distribute
        non-RoHS compliant products to most customers who intend to sell their finished
        goods in the EU after the effective date. Upon effectiveness of the RoHS
        legislation, some of our inventory may become obsolete and unsaleable and,
        as a
        result, have to be written off. See Item 2 - “Management’s Discussion and
        Analysis - Critical Accounting Policies - *Impact
        of Governmental Regulation.*
 
 
 Item
        2.
        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS
 
 *The
        following discussion should be read in conjunction with the condensed
        consolidated financial statements, including the related notes, appearing
        in
        Item 1 of this report as well as our most recent annual report on Form 10-KSB
        for the year ended December 31, 2004. Also, several of the matters discussed
        in
        this document contain forward-looking statements that involve risks and
        uncertainties. Forward-looking statements usually are denoted by words or
        phrases such as “believes,” “expects,” “projects,” “estimates,” “anticipates,”
“will likely result” or similar expressions. We wish to caution readers that all
        forward-looking statements are necessarily speculative and not to place undue
        reliance on forward-looking statements, which speak only as of the date made,
        and to advise readers that actual results could vary due to a variety of
        risks
        and uncertainties. Factors associated with the forward looking statements
        that
        could cause the forward looking statements to be inaccurate and could otherwise
        impact our future results are set forth in detail in our most recent annual
        report on Form 10-KSB. In addition to the other information contained in
        this
        document, readers should carefully consider the information contained in
        our
        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
        requires.
 
 **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 its condensed consolidated financial
        statements in conformity with accounting principles generally accepted in
        the
        United States. These estimates have a significant impact on the Company’s
        valuation and reserve accounts relating to the allowance for sales returns,
        doubtful accounts, inventory reserves and deferred income taxes. Actual results
        could differ from these estimates.
 
 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, 2005 and
        2004
        were $31,000 and $30,000, respectively, and for the nine months ended September
        30, 2005 and 2004 aggregated $92,000 and $83,000, respectively. The allowance
        for sales returns and doubtful accounts at September 30, 2005 aggregated
        $64,000.
 
 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 $16,991,000 at September 30, 2005, which
        is
        presented net of valuation allowances of $1,371,000. We evaluate inventories
        to
        identify excess, high-cost, slow-moving or other factors rendering inventories
        as unmarketable at normal profit margins. For inventories supplied under
        franchise agreements, we rely upon our contractual rights to receive
        compensation for price differences caused by market fluctuations. Due to
        the
        large number of transactions
  Page
            7
  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”).
        Effective July 1, 2006, this directive restricts the distribution of products
        within the EU containing certain substances, including lead. While the enabling
        legislation of a number of EU member countries has not yet been adopted,
        we
        believe it is likely that we will not be able to distribute non-RoHS compliant
        products to most customers who intend to sell their finished goods in the
        EU
        after the effective date. At the present time, much of our inventory contains
        substances prohibited by the RoHS directive. Further, many of our suppliers
        are
        not yet supplying RoHS compliant products. Upon effectiveness of the RoHS
        legislation, some of our inventory may become obsolete and unsaleable and,
        as a
        result, have to be written off. While we are working closely with our customers
        and suppliers to minimize this impact, at this time, it is difficult to quantify
        the financial impact, if any, of such obsolete inventory.
 
 Deferred
        Taxes - We review the nature of each component of our deferred income taxes
        for
        reasonableness. If determined that it is more likely than not that we will
        not
        realize all or part of our net deferred tax assets in the future, we record
        a
        valuation allowance against the deferred tax assets, which allowance will
        be
        charged to income tax expense in the period of such determination. We also
        consider the scheduled reversal of deferred tax liabilities, tax planning
        strategies and future taxable income in assessing the realizability of deferred
        tax assets. We also consider the weight of both positive and negative evidence
        in determining whether a valuation allowance is needed. Based upon recent
        operating results and the difficulty of estimating future market conditions,
        we
        have fully reserved a $669,000 allowance against our net deferred tax
        assets.
 
 **Recent
        Accounting Policies**
 
 In
        December 2004, the FASB issued SFAS No. 123 (R), "Share-Based Payment" ("SFAS
        123(R)") which establishes standards for the accounting for transactions
        in
        which an entity exchanges its equity instruments for goods or services. This
        SFAS 123(R) standard requires that the fair value of such equity instruments
        be
        recognized as expense in the historical financial statements as services
        are
        performed. Prior to SFAS 123(R), only certain pro forma disclosures of fair
        value were required. SFAS 123(R) shall be effective for small business issuers
        as of the beginning of the first interim or annual reporting period that
        begins
        after December 15, 2005. The adoption of this new accounting pronouncement
        may
        have a material impact on our financial statements during the next year ended
        December 31, 2006.
 
 **Overview**
  We
        are a
        national distributor of electronic components, primarily focused on transistors,
        diodes and other discrete semiconductors, optoelectronic devices and passive
        components with a reputation of in-depth inventories and knowledge of the
        products we sell. Our customers consist of other electronic distributors,
        contract electronic manufacturers (CEMs) and original equipment manufacturers
        (OEMs).
 
 We
        believe that demand for discrete semiconductors in the U.S. market had
        drastically declined since 2000. This declining demand has resulted
        from the accelerated trend of moving the production capacity of OEM/CEM
        customers abroad and the consolidation of CEM customers domestically. In
        response, w e
        are
        refocusing our business strategy beyond the traditional role of electronic
        components fulfillment to the additional role of engineering and turn-key
        services for our existing OEM and CEM customers by outsourcing their product
        design and manufacturing work offshore. We formed some strategic business
        partnerships with a few customers and are providing them with original design
        and manufacturing (ODM) services for their multi-year turn-key projects.
        We
        expect to see some more opportunities and results from these additional services
        during 2006.
 
 
 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
  Page
            8
  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 classify inventory
        as a current asset . However,
        if all or a substantial portion of the inventory was required to be immediately
        liquidated, the inventory would not be as readily marketable or liquid as
        other
        items included or classified as a current asset, such as cash. We cannot
        assure
        you that demand in the discrete semiconductor market will increase and that
        market conditions will improve. Therefore, it is possible that further declines
        in our carrying values of inventory may result.
 
 
 *Results
        of Operations*
 
 *Three
        month Period Ended September 30, 2005 Compared To The Three month Period
        Ended
        September 30, 2004.*
 
 Net
        sales
        for the three months ended September 30, 2005 were $2,288,000, compared with
        $2,371,000 for the same period last year, a decrease of $83,000 or 3.5%.
        The
        decrease is primarily due to a decrease in demand for our discrete and passive
        and semiconductor components.
  Cost
        of
        goods sold for the quarter ended September 30, 2005 decreased to $1,625,000
        from
        $1,665,000 for the same period last year, a decrease of $40,000 or 2.4%.
        Consistent with the decrease in net sales, cost of goods sold decreased.
        Gross
        profit decreased as a percentage of net sales to 29% for the quarter ended
        September 30, 2005 from 29.8% for the same period last year. Gross profit
        decreased by $43,000 to $663,000 for the quarter ended September 30, 2005
        from
        $706,000 for the same period in 2004.
  Selling,
        general and administrative (“SG&A”) expenses increased by $70,000 or 11% for
        the quarter ended September 30, 2005 compared to the same period of 2004.
        The
        increase is primarily attributable to higher outside professional related
        expenses by $44,000 and the reduction of bad debt reserves by $30,000 in
        the
        prior period. The corresponding average employee base declined to 23 from
        28
        employees, which represents a 17.9% reduction in overall workforce. As a
        percentage of net sales, SG&A increased to 30.9% from 26.8% for the three
        months ended September 30, 2005 and 2004, respectively.
  Operating
        loss was $43,000 for the quarter ended September 30, 2005 as compared to
        an
        operating income of $70,000 for the same period last year. Operating results
        decreased primarily from lower gross profits and higher SG&A, as discussed
        above.
  Interest
        expense, net of interest income, for the quarter ended September 30, 2005
        decreased by $50,000 compared to the same period last year. The decrease
        is
        primarily due to lower outstanding borrowing levels during the current quarter,
        when compared to the same period last year.
  Income
        tax provision was $8,000 during the quarter ended September 30, 2005 as compared
        to $0 for the same period last year.
  Net
        loss
        was $23,000 for the quarter ended September 30, 2005 as compared with $29,000
        net income for the same period last year.
  *Nine
        month Period Ended September 30, 2005 Compared To The Nine month Period Ended
        September 30, 2004.*
  Net
        sales
        for the nine months ended September 30, 2005 were $6,332,000 compared with
        net
        sales for the nine months ended September 30, 2004 of $7,509,000, a decrease
        of
        $1,177,000 or 15.7%.
  Cost
        of
        goods sold decreased by $813,000 to $4,582,000 for the nine months ended
        September 30, 2005, a decrease of 15.1% from the same period in 2004. Consistent
        with the decrease in net sales, cost of goods sold decreased, however at
        a
        slower rate, resulting in gross profit decreasing as a percentage of net
        sales
        to 27.6% for the first nine months of this year from 28.2% for the same period
        last year. Gross profit decreased by $364,000 to $1,750,000 for the nine
        months
        ended September 30, 2005 from $2,114,000 for the same period in
        2004.
  SG&A
        expenses increased by $45,000 or 2.4% for the nine months ended September
        30,
        2005 compared to the same period in 2004. The increase is primarily attributable
        to higher outside professional related expenses by $81,000 and the reduction
        of
        bad debt reserves by $56,000 in the prior period, offset with lower personnel
        related
  Page
            9
  expenses
        by $24,000, lower depreciation and amortization by $18,000, lower trade
        commission fees by $15,000 and lower public company expenses by $27,000.
        As a
        percentage of net sales, SG&A increased to 30.8% for the nine months ended
        September 30, 2005 from 25.4% for the same period last year.
  Operating
        loss was $202,000 for the nine months ended September 30, 2005 as compared
        to
        operating income $207,000 for the same period ended September 30, 2004.
        Operating results decreased primarily from lower gross profits and higher
        SG&A expenses, as discussed above.
  Interest
        expense, net of interest income for the nine months ended September 30, 2005
        decreased by $149,000 compared to the nine months ended September 30, 2004.
        The
        decrease is primarily due to lower outstanding borrowing levels incurred
        during
        the current quarter, when compared to the same period last year.
  Income
        tax provision was $8,000 for the nine months ended September 30, 2005 as
        compared to $0 for the same period ended September 30, 2004.
  Net
        loss
        was $160,000 for the nine months ended September 30, 2005 compared to a net
        income of $63,000 for the same period in 2004, a decrease of $223,000 resulting
        from the same reasons discussed above.
   *Liquidity
        and Capital Resources*
 
 We
        have
        satisfied our liquidity requirements principally through cash generated from
        operations, short-term commercial loans, subordinated promissory notes and
        issuance of equity securities. A summary of our cash flows resulting from
        our
        operating, investing and financing activities for the nine months ended
        September 30, 2005 and 2004 are as follows:
  **Nine
                  months ended September 30,**(Dollars
                  in thousands)
              
              **2005**
              
              **2004**(Unaudited)
              
              (Unaudited)Operating
                  activities
              
              $
              1,275
              
              $
              1,471Investing
                  activities
              
              
              (3
              )
              
              (26
              )Financing
                  activities
              
              
              (1,324
              )
              
              (2,994
              )
 
  Cash
        flows provided by operating activities decreased to $1,275,000 during the
        nine
        months ended September 30, 2005, as compared to $1,471,000 during the same
        period last year. The overall decrease was affected by a decrease in inventory
        of $1,250,000 during the first nine months of 2005, as compared to a decrease
        of
        $1,387,000 during the same period last year. The Company’s ability to continue
        generating cash from operations is dependent upon using its current inventory
        (as opposed to new purchases of inventory) for generating sales, collection
        of
        its receivables and extended payments of accounts payables.
  Cash
        flows used in investing activities was $3,000 during the nine months ended
        September 30, 2005 compared with $26,000 during the same period last year.
  Cash
        flows used in financing activities decreased to $1,324,000 from $2,994,000
        during the nine months ended September 30, 2005 and 2004, respectively. The
        decrease was primarily the result of using operating cash flow of $322,000
        for
        repurchase of Class A Common Stocks and $2,699,000 for repayments of notes
        payable during the 2004 period.
  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 operations, in addition to existing cash
        balances, and the revolving line of credit facility is likely to be sufficient
        to finance our working capital and capital expenditure requirements for the
        foreseeable future. If these funds are not sufficient, we may secure new
        sources
        of asset-based lending on accounts receivables or issue debt or equity
        securities. Otherwise, we may need to liquidate assets to generate the necessary
        working capital.
  Page
            10
  As
        of the
        date of this Report, we had no commitments for other equity or debt financing
        or
        other capital expenditures.
   Item
        3.
        Controls and Procedures
 
 The
        Company’s management, including its Chief Executive Officer and Chief Financial
        Officer, have evaluated the effectiveness of the Company’s disclosure controls
        and procedures (as such term is defined in Rules 13a-15(e) under the Securities
        Exchange Act of 1934 (the “Exchange Act”)) as of the end of the reporting period
        covered by this quarterly report. Based on such evaluation, the Chief Executive
        Officer and Chief Financial Officer have concluded that, as of the end of
        the
        period covered by this quarterly report, the Company’s disclosure controls and
        procedures are effective such that material information required to be disclosed
        by the Company (including
        its consolidated subsidiary) in
        the
        reports that it files or submits under the Exchange Act is recorded, processed,
        summarized and reported, within the time periods specified by the Securities
        and
        Exchange Commission’s rules and forms relating to the Company.
 
 During
        the period covered by this report, there have been no changes to the Company’s
        internal control over financial reporting that have materially affected,
        or are
        reasonably likely to materially affect, the Company’s internal control over
        financial reporting.
 
 
 PART
        II.
        OTHER INFORMATION
  Item
        1.
        Legal Proceedings.
  None.
  Item
        2.
        Changes In Securities and Small Business Issuer Purchases of Equity
        Securities.
  There
        were no issuances or sales of our securities by us during the third quarter
        of
        2005 that were not registered under the Securities Act.
  Item
        3.
        Defaults Upon Senior Securities.
  None.
  Item
        4.
        Submission of Matters to a Vote of Security Holders.
  None.
  Item
        5.
        Other Information.
  None.
  Item
        6.
        Exhibits.
  a.
              Certification
                  Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.
  b.
                Certification
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002.
  Page
              11
  SIGNATURES
 
 
 In
        accordance with the requirements of the Securities Exchange Act of 1934,
        the
        registrant caused this report to be signed on its behalf by the undersigned,
        thereunto duly authorized.
   TAITRON
                    COMPONENTS INCORPORATEDDate:
                    November 14, 2005
                
                By:
                /s/
                    Stewart WangStewart
                    WangChief
                    Executive Officer, President,Chief
                    Financial Officer and Director(Principal
                    Executive, Financial and Accounting
                    Officer)






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