form10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission File Number:  0-25844
TAITRON COMPONENTS INCORPORATED
(Exact name of registrant as specified in its charter)

California
95-4249240
(State or other jurisdiction of 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 o
   
Non-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, 2009
Class A common stock, $.001 par value
  
4,777,144
Class B common stock, $.001 par value
  
762,612
 
 
 

TAITRON COMPONENTS INCORPORATED
FORM 10-Q
September 30, 2009
INDEX

   
Page
 
PART I - FINANCIAL INFORMATION
  
     
Item 1.
  
   
 
    1
     
 
2
     
 
3
     
 
4
     
 
5
     
Item 2.
8
     
Item 3.
10
     
Item 4T.
10
     
 
PART II - OTHER INFORMATION
  
     
Item 1.
11
     
Item 2.
11
     
Item 3.
11
     
Item 4.
11
     
Item 5.
11
     
Item 6.
11
     
 
11

 
 

PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements

TAITRON COMPONENTS INCORPORATED
 
Condensed Consolidated Balance Sheets

   
September 30,
    
December 31,
  
   
2009
    
2008
  
   
(Unaudited)
        
Assets
            
Current assets:
            
Cash and cash equivalents
   $ 2,045,000     $ 1,762,000  
Restricted cash (Note 4)
     100,000       -  
Trade accounts receivable, net
     710,000       964,000  
Inventory, net
     12,613,000       13,926,000  
Prepaid expenses and other current assets
     462,000       565,000  
Total current assets
     15,930,000       17,217,000  
Property and equipment, net
     5,194,000       5,316,000  
Other assets (Note 5)
     258,000       236,000  
Total assets
   $ 21,382,000     $ 22,769,000  
                 
Liabilities and Shareholders’ Equity
                
Current liabilities:
                
Trade accounts payable
   $ 407,000     $ 822,000  
Accrued liabilities
     303,000       316,000  
Current portion of long-term debt (Note 6)
     500,000       89,000  
Total current liabilities
     1,210,000       1,227,000  
Long-term debt, less current portion (Note 6)
     500,000       832,000  
Total liabilities
     1,710,000       2,059,000  
                 
Commitments 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       5,000  
Class B common stock, $.001 par value.  Authorized, issued and outstanding 762,612 shares for all periods presented.
     1,000       1,000  
Additional paid-in capital
     10,589,000       10,569,000  
Accumulated other comprehensive income
     92,000       92,000  
Retained earnings
     8,753,000       9,792,000  
Noncontrolling interest in subsidiary
     232,000       251,000  
Total shareholders’ equity
     19,672,000       20,710,000  
Total liabilities and shareholders’ equity
   $ 21,382,000     $ 22,769,000  

See accompanying notes to condensed consolidated financial statements.
 
 
1

TAITRON COMPONENTS INCORPORATED
 
Condensed Consolidated Statements of Operations

   
Three Months Ended  September 30,
    
Nine Months Ended  September 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
(Unaudited)
    
(Unaudited)
    
(Unaudited)
    
(Unaudited)
  
                         
Net sales
   $ 1,504,000     $ 1,778,000     $ 4,131,000     $ 5,812,000  
Cost of goods sold
     1,127,000       1,375,000       3,167,000       4,246,000  
Gross profit
     377,000       403,000       964,000       1,566,000  
                                 
Selling, general and administrative expenses
     591,000       672,000       1,828,000       2,057,000  
Operating 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       99,000  
Loss 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

TAITRON COMPONENTS INCORPORATED
 
Condensed Consolidated Statements of Comprehensive Income (Loss)

   
Three Months Ended  September 30,
    
Nine Months Ended  September 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

TAITRON COMPONENTS INCORPORATED
 
Condensed Consolidated Statements of Cash Flows

   
Nine Months Ended  September 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       174,000  
Provision for sales returns and doubtful accounts
     39,000       131,000  
Stock based compensation
     20,000       17,000  
Noncontrolling interest in subsidiary
     (19,000 )     20,000  
Changes in operating assets and liabilities:
                
Restricted cash
     (100,000 )     -  
Trade accounts receivable
     215,000       (30,000 )
Inventory
     1,313,000       971,000  
Prepaid expenses and other current assets
     100,000       55,000  
Trade accounts payable
     (415,000 )     (422,000 )
Accrued liabilities
     (13,000 )     15,000  
Total adjustments
     1,305,000       931,000  
Net cash provided by operating activities
     542,000       538,000  
                 
Cash 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       500,000  
Payments on notes payable
     (421,000 )     (67,000 )
Dividend payments
     (276,000 )     (277,000 )
Exercise of Class A common stock options
     -       2,000  
Net cash (used in) provided by financing activities
     (197,000 )     158,000  
Impact of exchange rates on cash
     -       (14,000 )
                 
Net increase in cash and cash equivalents
     283,000       634,000  
Cash and cash equivalents, beginning of year
     1,762,000       1,111,000  
Cash and cash equivalents, end of year
   $ 2,045,000     $ 1,745,000  
                 
Supplemental disclosures of cash flow information:
                
Cash paid for interest
   $ 23,000     $ 28,000  
Cash paid for income taxes, net
   $ 1,000     $ 1,000  
 
See accompanying notes to condensed consolidated financial statements.
 
 
4

TAITRON COMPONENTS 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

5 – OTHER ASSETS

   
September 30,
    
December 31,
  
   
2009
    
2008
  
   
(Unaudited)
        
             
Investment in securitites
   $ 68,000     $ 68,000  
Investment in joint venture
     147,000       147,000  
Other
     43,000       21,000  
Other 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
   $ -     $ 421,000  
Less current portion
     -       (89,000 )
Subtotal
   $ -     $ 332,000  
Secured credit facility - related party
     1,000,000       500,000  
Less current portion
     (500,000 )        
Subtotal
   $ 500,000     $ 500,000  
Long-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
 
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 Value
  
                         
Outstanding 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

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 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
 
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.
 
 
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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.
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk. - Not applicable.
 
Item 4T.  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.

 
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PART II - OTHER INFORMATION
 
Item 1.  Legal Proceedings. - None
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds. - None
 
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.
 
Exhibit
Number
  
Description of Document
     
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
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 INCORPORATED
   
Date:  November 13, 2009
/s/ Stewart Wang
 
Stewart Wang,
 
Chief Executive Officer and President  
(Principal Executive Officer)
   
 
/s/ David Vanderhorst
 
David Vanderhorst
 
Chief Financial Officer and Secretary  
(Principal Financial Officer)
 
 
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