SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]  Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
     Act of 1934

                   For the fiscal year ended December 31, 1999

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

                         Commission file number 1-13669

                              TAG-IT PACIFIC, INC.
                 (Name of Small Business Issuer In Its Charter)

              DELAWARE                                       95-4654481
  (State or Other Jurisdiction of                         (I.R.S. Employer
   Incorporation or Organization)                         Identification  No.)

                             3820 SOUTH HILL STREET
                             LOS ANGELES, CALIFORNIA            91367
                     (Address of Principal Executive Offices) (Zip Code)

                                 (323) 234-9606
                (Issuer's Telephone Number, Including Area Code)

        Securities registered under to Section 12(b) of the Exchange Act:

                                                      Name of Each Exchange
       Title of Each Class                             on which Registered
  -----------------------------                      -----------------------
  COMMON STOCK, $.001 PAR VALUE                      AMERICAN STOCK EXCHANGE

        Securities registered under to Section 12(g) of the Exchange Act:

                                      NONE

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 past 90 days.

                                 Yes [X] No ____

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]

     The issuer's revenues for the fiscal year ended December 31, 1999 were
$32,384,836.

     At March 22, 2000 the aggregate market value of the voting stock held by
non-affiliates of the issuer was $12,075,945.

     At March 22, 2000 the issuer had 6,777,556 shares of Common Stock, $.001
par value, issued and outstanding.

     Transitional Small Business Disclosure Format (check one): Yes ____ No [X]

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the issuer's Proxy Statement with respect to its 2000 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Report.

================================================================================


<PAGE>


                              TAG-IT PACIFIC, INC.
                              INDEX TO FORM 10-KSB

                                                                            PAGE
PART I

Item 1.  Description of Business..............................................3

Item 2.  Description of Property..............................................6

Item 3.  Legal Proceedings....................................................6

Item 4.  Submission of Matters to a Vote of Security Holders..................6


PART II

Item 5.  Market for Common Equity and Related Stockholder Matters.............7

Item 6.  Management's Discussion and Analysis of Financial Condition and
            Results of Operations.............................................8

Item 7.  Consolidated Financial Statements:

         Report of Independent Auditors.......................................17

         Consolidated Balance Sheets as of December 31, 1999 and December
         31, 1998.............................................................18

         Consolidated Statements of Income for the Years Ended December
         31, 1999 and 1998....................................................19

         Consolidated Statements of Stockholders' Equity (Deficiency) for
         the Years Ended December 31, 1999 and 1998...........................20

         Consolidated Statements of Cash Flows for the Years Ended
         December 31, 1999 and 1998...........................................21

         Notes to Consolidated Financial Statements...........................22

Item 8.  Changes in and Disagreements With Accountants on Accounting
         and Financial Disclosure.............................................36


PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance With Section 16(a) of the Exchange Act....................36

Item 10. Executive Compensation...............................................36

Item 11. Security Ownership of Certain Beneficial Owners and Management.......36

Item 12. Certain Relationships and Related Transactions.......................36

Item 13. Exhibits, List and Reports on Form 8-K...............................36


                                     Page 2
<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

     Tag-It Pacific is a single-source provider of complete brand identity and
trim programs to manufacturers of fashion apparel and licensed consumer products
and to specialty retailers and mass merchandisers. We design and produce
high-quality paper, metal and injection molded boxes, woven and leather labels,
paper-hanging and bar-coded tags, metal jean buttons and custom shopping bags.
We also design and manufacture products for a variety of major brand and private
label oriented companies, including Guess?, Calvin Klein, Tommy Hilfiger, The
Limited and Warner Bros., among others.

     We were incorporated in Delaware in September 1997. We were formed to serve
as the parent holding company of Tag-It, Inc., a California corporation, Tag-It
Printing & Packaging Ltd., which changed its name in 1999 to Tag-It Pacific (HK)
LTD, a BVI corporation, Tagit de Mexico, SA de CV, A.G.S. Stationery, Inc., a
California corporation, and Pacific Trim & Belt, Inc., a California corporation.
All of these companies were consolidated under a parent limited liability
company in October 1997. These companies became our wholly-owned subsidiaries
immediately prior to the effective date of our initial public offering in
January 1998.

BUSINESS STRATEGY

     Tag-It Pacific has positioned itself as a fully-integrated single-source
provider of complete brand identity programs. We offer our customers a complete
solution to their brand identity needs, including the complete management of
their trim procurement and distribution functions on a just-in-time basis.

     We have assembled a team of creative design personnel, sales
representatives, assembly workers, program managers and global production and
distribution coordinators at our facilities in Los Angeles, New York, Mexico and
Hong Kong. We believe our innovative designs and global manufacturing and
distribution operations will enable us to take advantage of and address the
increasingly complicated requirements of the large and expanding demand for
effective brand identity programs.

     Over the past year, we have continued to develop and expand the use of
TAG-IT TURNKEY, our proprietary business-to-business e-commerce system. TAG-IT
TURNKEY is a complete supply-chain management system that allows us to provide
our customers with a customized, comprehensive system for the management of
their brand identity programs. TAG-IT TURNKEY provides our customers with
assistance in the ordering, production, inventory management and just-in-time
worldwide distribution of their trim and packaging requirements. Traditionally,
manufacturers of apparel products have been required to operate their own
apparel trim departments, which requires a significant amount of infrastructure
to coordinate the buying of trim products from a large number of vendors.
Inefficient trim departments result in production delays. TAG-IT TURNKEY helps
to eliminate a manufacturer's need to maintain a trim department in an efficient
and cost-effective manner. We intend to continue to market TAG-IT TURNKEY to
existing and potential customers.

DESIGN AND DEVELOPMENT

     We estimate that we design approximately 50% of the products we sell. We
have assembled an in-house creative team to produce products with innovative
designs that we believe distinguish our products from those of our competitors.
We apply our skills in material procurement and product-manufacturing
coordination to design products intended to meet aesthetic demands, as well as
functional and cost parameters. Many specialty design companies with which we
compete have limited sourcing or manufacturing experience. These companies
create designs that often cannot be implemented because of difficulties in the
manufacturing process, the expenses of required materials, or because the
resulting product


                                     Page 3
<PAGE>


is not functional. We attempt to design products to function within the
limitations imposed by the applicable manufacturing framework. Using our
manufacturing and sourcing experience, we attempt to minimize the time-consuming
delays that often arise in coordinating the efforts of independent design houses
and manufacturing facilities. By providing design, material procurement and
product manufacturing services, we believe that we reduce development and
production costs and deliver products to our customers sooner than many of our
competitors.

     We begin our product development by creating a distinctive design that
embodies a customer's corporate image and existing trademarks. While we develop
designs to be consistent with a customer's image, each design is distinct to
each particular product. We typically create a comprehensive design presentation
for a customer that is focused on a discrete product tag, packaging, trim or
label assignment, or on an entire packaging or trim program for a line of
products. From this presentation, the client is able to select a particular
design and product style and image from one or more prototypes that we have
developed specifically for the client. We then coordinate the manufacture,
assembly, finishing and distribution of all packaging, tag, label and trim
products to the customer's locations. We believe that our in-house ability to
create customized prototypes for customer marketing presentations is a
significant competitive advantage.

     All of our design work is performed by our Los Angeles team of graphic
artists and prototype fabricators. Our film, die making and pre-production
functions also are completed in Los Angeles. Our design team uses
computer-assisted design techniques that use a Scitex color separating and
control system to produce all color separations for our printed products. We
then provide these color separations to our contract manufacturers throughout
the world. This design process helps to ensure that our finished products,
wherever manufactured, are uniform in color and appearance.

PRODUCTS

     SPECIALTY PACKAGING. Our specialty packaging products include high-quality
paper boxes, metal tins, injection-molded packaging items and high-quality
shopping bags. We design and produce these products individually or as part of a
program involving an entire coordinated packaging line for a client. Our
specialty packaging is used for a wide variety of products, including wallets,
watches, sunglasses, belts, undergarments and gift sets.

     HANG TAGS AND PRINTED APPAREL PACKAGING AND TRIMS. We produce hang tags,
bar-coded hang tags, pocket flashers, waistband tickets and size stickers.
Manufacturers and retailers attach these items to their products to identify and
promote their products, permit automated data collection, provide brand
identification and communicate consumer information such as a product's retail
price, size, fabric content and care instructions.

     We produce customized woven, leather, synthetic, embroidered and novelty
labels and tapes. We design these products to be printed on or woven into a wide
range of fabrics and other materials using various types of high-speed
equipment. Our labels are used primarily for product identification and consumer
information on apparel.

     We also offer our customers a full range of logo and non-logo hardware trim
for their apparel. Our hardware product line includes jean buttons, jean rivets,
snaps, metal sew-on buttons and an assortment of other types of logo hardware
designed specifically for our customers. We believe we are able to supply our
customers with all of their hardware needs. As an additional service, we will
lease to our customers the machinery used to attach the buttons, rivets and
snaps we produce.

CUSTOMERS

     We have more than 150 customers. Our customers include well-known apparel
manufacturers, such as Guess?, Calvin Klein Jeans, Tommy Hilfiger, A\X Armani
Exchange, The Limited Group, Nautica, Chorusline, Tarrant Apparel Group and
Swank, which is a licensee of Yves Saint Laurent, Kenneth Cole, Geoffrey Beene
and Peirre Cardin, among others. Our clients also include specialty retailers
such as


                                     Page 4
<PAGE>


American Eagle Outfitters and Miller's Outpost and mass merchant retailers such
as J.C. Penny. We also provide products and services to the promotional arms of
large entertainment companies such as Sony Signatures, Inc. and Warner Bros.
Consumer Products.

     Commencing in December 1998, we began to provide trim products to Tarrant
Apparel Group for its operations in Tehuacan, Mexico. We opened a warehouse,
distribution and partial assembly facility in Tehuacan to service Tarrant
Apparel Group and the increasing number of other garment and apparel
manufacturers doing business in the region. The Chief Executive Officer and
President of Tarrant Apparel Group are significant stockholders of Tag-It
Pacific. Tarrant Apparel Group accounted for approximately 47.9% of our net
sales for the year ended December 31, 1999. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations and "--Cautionary
Statements and Risk Factors -- If we lose any of our three largest customers,
our sales and operating results will be adversely affected."

SALES AND MARKETING

     We sell our principal products through our own sales force based in Los
Angeles and New York. We also employ customer service representatives who are
assigned to key customers and provide in-house customer service support. Our
senior executives have developed relationships with our major customers at
senior levels. These executives actively participate in marketing and sales
functions and the development of our overall marketing and sales strategies.
When we become the outsourcing vendor for a customer's packaging or tag
requirements, we attempt to position ourselves as a department of the customer's
procurement operation.

     We consider a high level of customer service essential to our success.
Accordingly, in 1998 we developed TAG-IT TURNKEY, our proprietary internet-based
computer software program. TAG-IT TURNKEY allows us to provide our customers
with a customized, comprehensive system for the management of their brand
identity programs. TAG-IT TURNKEY provides our customers with assistance in the
ordering, production, inventory management and just-in-time worldwide
distribution of their trim and packaging requirements. The number of customers
using our TAG-IT TURNKEY system continued to increase in fiscal 1999.

SOURCING

     We create most product artwork and any necessary films, dies and molds used
to manufacture our products. All bar-coded printing, assembly and finishing of
high-quality paper boxes, custom shopping bags and point-of-sale packaging
signage are performed internally by us. We also assemble multi-part jean
buttons. All other products that we design and sell are produced by third party
vendors. We intend to continue to outsource some production to qualified
vendors, particularly with respect to manufacturing activities that require
substantial investment in capital equipment.

     Through our Hong Kong facility, we produce and distribute bar-coded hang
tags, distribute apparel packaging and coordinate the manufacture and
distribution of the full range of our products. The Hong Kong facility supplies
several significant packaging programs, services customers located in Asia and
the Pacific Rim and sources products for our Los Angeles operations. Through our
assembly and finishing facility in Tijuana, Mexico, we complete the assembly and
finishing of many of our packaging products and distribute products to
Mexico-based manufacturers. We also distribute "trim packages," which include
hang tags, woven labels, jean buttons, etc., from our warehouse in Tehuacan,
Mexico.

     We purchase raw materials from several qualified material suppliers. We
have developed an expertise in identifying the best materials, prices and
vendors for particular products and raw materials. This expertise enables us to
produce a broad range of packaging styles at various price points that meet a
customer's budget and product pricing parameters.


                                     Page 5
<PAGE>


COMPETITION

     We compete in highly competitive and fragmented industries that include
numerous local and regional companies that provide some or all of the services
we offer. We also compete with United States and international design companies,
distributors and manufacturers of tag, trim and packaging products. Some of our
competitors, including Paxar, Inc., RVL, Inc., Universal Button, Inc. and
Scovill Fasteners, Inc. have greater name recognition, longer operating
histories and, in many cases, substantially greater financial and other
resources.

     We believe that to successfully compete in our industry we must offer
superior design capabilities, product pricing, quality, customer service and
delivery lead times. Because of our integrated material procurement and
production capabilities and our TAG-IT TURNKEY system, we believe that we are
able to effectively compete for our customers' business, particularly where our
customers require coordination of separately sourced production functions.

EMPLOYEES

     As of December 31, 1999, we had approximately 413 employees, with
approximately 116 employees in Los Angeles, 3 employees in New York, 41
employees in Hong Kong, 189 employees in Tijuana, Mexico and 64 employees in
Tehuacan, Mexico. Our labor force in the United States and Hong Kong are
non-union. The employees at our Mexico facilities are represented by two
collective bargaining units, the Sindicato "Mexico Moderno" De Trabajadores De
La Baja California, C.R.O.M., and Sindicato de Trabajadores y Empleados en
General de la Confeccion de Ropa, Fabricacion, Venta y Distribucion, Maquilas,
Conexos y Similares de el Estado de Pueblo. In addition to our salaried and
hourly workforce, we employ additional workers at our Mexico facilities on a
temporary basis when necessary to meet production and assembly requirements. Our
temporary work force ranges from zero to approximately 100 workers at any one
time throughout the year. We believe that we have satisfactory employee and
labor relations.

ITEM 2.  DESCRIPTION OF PROPERTY

     Our headquarters are located in Los Angeles, California, where we occupy
approximately 24,000 square feet of administrative, production, and warehouse
space. In addition to our Los Angeles facilities, we lease 2,600 square feet of
office space in New York, 20,000 square feet of office and warehouse space in
Kwun Tong, Hong Kong, 26,500 square feet of production and warehouse space in
Tijuana, Mexico, and 43,500 square feet of warehouse, distribution and
administration space in Tehuacan, Mexico.

ITEM 3.  LEGAL PROCEEDINGS

     We currently have pending a number of claims, suits and complaints that
arise in the ordinary course of our business. We believe that we have
meritorious defenses to these claims and the claims are covered by insurance or,
after taking into account the insurance in place, would not have a material
effect on our consolidated financial condition if adversely determined against
us.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.


                                     Page 6
<PAGE>


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

COMMON STOCK

     Tag-It Pacific's Common Stock began trading on the American Stock Exchange
on January 23, 1998 under the symbol "TAG". The following table sets forth, for
the periods indicated, the high and low sales prices for the Common Stock as
reported by the American Stock Exchange.

<TABLE>
<CAPTION>
                                                         HIGH        LOW
                                                         ----        ---
      <S>                                               <C>        <C>
      YEAR ENDED DECEMBER 31, 1998
         First Quarter, beginning January 23, 1998      $ 4.00     $ 3.00
         Second Quarter..........................         3.88       1.44
         Third Quarter...........................         1.81       0.94
         Fourth Quarter..........................         4.38       0.75

      YEAR ENDED DECEMBER 31, 1999
         First Quarter...........................       $ 9.88     $ 4.00
         Second Quarter..........................         7.94       4.88
         Third Quarter...........................         6.00       4.88
         Fourth Quarter..........................         5.63       4.31
</TABLE>


     On March 22, 2000, the closing sales price of the Common Stock as reported
on the American Stock Exchange was $5.00 per share. As of March 22, 2000, there
were 27 record holders of our Common Stock.

RECENT SALES OF UNREGISTERED SECURITIES

     On November 23, 1999, we issued to Chloe Holdings, Inc. 19,379 shares of
our Common Stock upon the exercise by Chloe of warrants to purchase 22,841
shares of our Common Stock with an exercise price of $0.7578 per share. In lieu
of paying the aggregate exercise price of $17,309 in cash for all 22,841 shares
of common stock, Chloe elected to exercise the warrants on a cashless basis and
received from us 3,462 fewer shares, which 3,462 shares had a market value of
$17,309 on the date the warrants were exercised. We issued the securities in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering.

DIVIDENDS

     We have never paid dividends on our Common Stock. We intend to retain any
future earnings for use in our business and do not intend to pay any cash
dividends on our Common Stock in the foreseeable future.


                                     Page 7
<PAGE>


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

     The following discussion and analysis should be read together with the
Consolidated Financial Statements of Tag-It Pacific and the notes to the
Consolidated Financial Statements included elsewhere in this Form 10-KSB.

     This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity and cash flows
of Tag-It Pacific for the fiscal years ended December 31, 1999 and December 31,
1998. Except for historical information, the matters discussed in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward looking statements that involve risks and uncertainties
and are based upon judgments concerning various factors that are beyond our
control. Actual results could differ materially from those projected in the
forward looking statements as a result of, among other things, the factors
described below under the caption "Cautionary Statements and Risk Factors."

OVERVIEW

     Tag-It Pacific is a single-source provider of complete brand identity
programs to manufacturers of fashion driven apparel and licensed consumer
products and to specialty retailers and mass merchandisers. We design and
produce high-quality paper, metal and injection molded boxes, woven and leather
labels, paper-hanging and bar-coded tags, metal jean buttons and custom shopping
bags. We also design and/or manufacture products for a variety of major brand
and private label oriented companies including Guess?, Calvin Klein, Tommy
Hilfiger, A\X Armani Exchange, Warner Bros. and Chorus Line, Tarrant Apparel
Group and Swank, among others.

     Revenues for all of our product lines are recognized at the time of product
shipment. Cost of goods sold consists primarily of raw material purchases,
direct labor, certain overhead, art and design costs associated with the product
development process, die and printing plate charges, finishing costs and
freight-in costs. In addition, during 1998 cost of goods sold also consisted of
royalties associated with our sale of products under a specialty licensing
arrangement with Guess?, We stopped selling these Guess? products in December
1998. Sales of Guess? products accounted for 7.5% of net sales for the year
ended December 31, 1998.

     We develop photographic films and dies and design art images that are used
for various products. Development costs associated with films, dies and designs
that are deemed to have no future use are expensed as incurred. Development
costs associated with films, dies and designs that are deemed to have future use
are capitalized and amortized over three years on a straight-line basis.

     During 1999, we continued to develop and offer to our customers TAG-IT
TURNKEY, our proprietary internet-based computer software program that enables
us to provide our customers with a customized, comprehensive system for the
management of their brand identity programs. Approximately 50% of our sales were
processed through the TAG-IT TURNKEY system, including sales to Tarrant Apparel
Group. In 2000, we expect to increase the volume of sales made through TAG-IT
TURNKEY and the number of customers using the system.


                                     Page 8
<PAGE>


RESULTS OF OPERATIONS

     The following table sets forth for the periods indicated selected
statements of operations data shown as a percentage of net sales.

<TABLE>
<CAPTION>
                                                            YEAR ENDED
                                                            DECEMBER 31,
                                                           --------------
                                                          1999      1998
                                                         -------    ------
     <S>                                                 <C>        <C>
     Net sales........................................   100.0%     100.0%
     Cost of goods sold...............................    67.3       64.6
                                                         ------     -----
     Gross profit.....................................    32.7       35.4
     Selling expenses.................................     5.0        9.2
     General and administrative expenses..............    20.2       21.8
                                                         ------     -----
     Operating Income.................................      7.4%      4.4%
                                                         ======     =====
</TABLE>


     NET SALES. Net sales increased approximately $13.6 million (or 72.2%) to
$32.4 million for the year ended December 31, 1999 from $18.8 million for the
year ended December 31, 1998. The increase in net sales was primarily the result
of a broader product line and an increase in trim related sales from our
Tehuacan, Mexico operations to our largest customer, Tarrant Apparel Group,
offset by a decrease in trim related sales to other customers. Tarrant Apparel
Group accounted for $15.5 million of net sales (or 47.9%) during the year ended
December 31, 1999, as compared to net sales of $569,000 (or 3.0%) for the year
ended December 31, 1998.

     GROSS PROFIT. Gross profit increased approximately $3.9 million to $10.6
million (or 58.7%) for the year ended December 31, 1999 from $6.7 million for
the year ended December 31, 1998. Gross margin as a percentage of net sales
decreased to approximately 32.7% as compared to 35.4% for the year ended
December 31, 1998. The reduction was primarily due to the shifting of some
personnel and associated costs into cost of goods sold and out of selling
expense. The remaining reduction was due to an increase in sales of trim
products with a lower gross margin that were included within the complete trim
package we offered to our customers through the TAG-IT TURNKEY system, which
accounted for approximately 50% of net sales for the year ended December 31,
1999.

     SELLING EXPENSES. Selling expense decreased approximately $100,000 to $1.6
million for the year ended December 31, 1999 from $1.7 million for the year
ended December 31,1998. As a percentage of net sales, these expenses decreased
to 5.0% for the year ended December 31, 1999 compared to 9.2% for the year ended
December 31, 1998. This decrease was due to the shifting of personnel and
associated costs into cost of goods sold to and out of selling expense, and to
our use of the TAG-IT TURNKEY system with respect to approximately 50% of our
sales, which can be made at substantially lower cost.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $2.4 million to $6.5 million for the year ended December
31, 1999 from $4.1 million for the year ended December 31, 1998. The increase in
these expenses was due to the combination of additional staffing and expenses
related to growth in our Tehuacan, Mexico and Hong Kong facilities. We hired
additional customer service and marketing personnel. The increase in expenses
was offset by a decrease in expenses related to our discontinued line of
specialty licensed stationery products. As a percentage of net sales, these
expenses decreased to 20.2% for the year ended December 31, 1999 compared to
21.8% for the year ended December 31, 1998, due to an increse in net sales that
exceeded the rate of increase in general and administrative expenses.

     INTEREST EXPENSE. Interest expense decreased approximately $42,000 (or
14.0%) to $257,000 for the year ended December 31, 1999 from $299,000 for the
year ended December 31, 1998. We used the proceeds of our January 1998 initial
public offering and our October 1998 private stock sale to KG Investment, LLC to
substantially reduce our use of factors, which reduced our cost of funds. We
intend to continue to limit


                                     Page 9
<PAGE>


our use of factors in the future and intend to rely upon the increased bank line
of credit that we renewed in October 1999 for our short-term financing needs.

     PROVISION FOR INCOME TAXES (BENEFIT). The provision for income taxes
(benefit) increased approximately $420,000 to $418,000 for the year ended
December 31, 1999 as compared to ($2,000) for the year ended December 31, 1998.
Income taxes increased primarily due to increased operating income, offset by
the use of net operating loss carry forwards from AGS Stationery, Inc. of
approximately $430,000 that were available to offset our taxable income during
1999.

     NET INCOME. Net income was $1.7 million for the year ended December 31,
1999 as compared to net income of $527,000 for the year ended December 31, 1998,
due to the factors set forth above.

LIQUIDITY AND CAPITAL RESOURCES

     Prior to 1999, we satisfied our working capital requirements primarily
through cash flows generated from operations, borrowings under factoring
agreements with Heller Financial, Inc. and Safcor, Inc., and borrowings from
related parties. As of December 31, 1998, we terminated the use of domestic
factoring arrangements with Heller and Safcor, and use Heller's factoring
services only for our Hong Kong subsidiary's sales. During 1999, we satisfied
our working capital requirements primarily through cash flows generated from
operations and borrowings under our credit agreement with Sanwa Bank.

     Pursuant to the terms of our factoring agreement for our Hong Kong
subsidiary's sales, our factor purchases our eligible accounts receivable and
assumes the credit risk with respect to those accounts for which the factor has
given its prior approval. As of December 31, 1999, the amount factored without
recourse was approximately $181,000 and the amount due from the factor and
recorded as a current asset was approximately $181,000. If the factor does not
assume the credit risk for a receivable, the collection risk associated with the
receivable remains with us. If the factor determines, at its discretion, to
advance against the receivable, the customer's payment obligation is recorded as
our receivable and the advance from the factor is recorded as a current
liability. There were no outstanding advances from the factor as of December 31,
1999 and December 31, 1998.

     In October 1999, we extended our credit facility with Sanwa Bank to May 31,
2000 and increased the amount available under the line of credit from $3.0
million to $5.0 million, and obtained a $500,000 equipment line. We intend to
continue to use the line of credit for working capital purposes. The line of
credit interest rate is equal to the bank's reference rate, and the line of
credit agreement requires us to meet certain financial covenants relating to net
worth, debt to net worth, current ratio and profitability. At December 31, 1999,
we were in compliance with these covenants. As of December 31, 1999, our
outstanding balance on the bank facility was $5,067,000 and the interest rate
was 8.5%.

     As of December 31, 1999, we had outstanding related party debt of
approximately $405,000 at a weighted average interest rate of 8.2%, and
additional non-related party debt of $25,200 at a weighted average interest rate
of 10%. The majority of related-party debt is due and payable on the fifteenth
day following the date of delivery of written demand for payment, with $160,000
due January 31, 2000.

     Our receivables increased from $4.4 million at December 31, 1998 to $5.3
million at December 31, 1999. This increase was due primarily to increased
sales. Of the $5.3 million in receivables at December 31, 1999, $2.4 million was
due from related parties as compared to $753,000 due from related parties at
December 31, 1998.

     Net cash used in operating activities was approximately $3,877,000 and
$3,134,000 for the years ended December 31, 1999 and 1998, respectively. Cash
used in operations for the year ended December 31, 1999 resulted primarily from
increases in inventory and decreases in accounts payable related party,
partially offset by increases in accounts payable. Cash used in operations for
the year ended December 31, 1998


                                    Page 10
<PAGE>


resulted primarily from decreased accounts payable and increased accounts
receivables, accounts receivable from related parties and inventory.

     Net cash used in investing activities was $1,545,000 and $839,000 for the
years ended December 31, 1999 and 1998, respectively. Net cash used in investing
activities consisted primarily of capital expenditures for computer equipment
upgrades, procurement of production equipment, purchase of equipment in
connection with the opening of our new facilities in Tehuacan, Mexico and Hong
Kong and, in 1998, expenditures for office and assembly equipment in connection
with our Tijuana, Mexico facility.

     Net cash provided by financing activities was approximately $3,457,000 and
$5,994,000 for the years ended December 31, 1999 and 1998, respectively. Net
cash provided by financing activities for the year ended December 31, 1999
primarily reflects proceeds from our bank line of credit, offset by repayments
of notes payable to related parties. Net cash provided by financing activities
for the year ended December 31, 1998 results from our initial public offering
and proceeds from bank financing, offset by reductions in advances and/or loans
from factors, related parties and non-related parties.

     As of March 1, 2000, we had cash of approximately $100,000, as well as
$587,000 remaining on our credit facility with Sanwa Bank. Based on projected
sales volumes and related cash flows, and our current balance sheet, we believe
that we may need to obtain additional financing in order to provide adequate
liquidity to fund our business growth plans and operations during the next 12
months. We are continually evaluating various financing strategies to be used to
expand our business and fund future growth or acquisitions. The extent of our
future capital requirements will depend, however, on many factors, including our
results of operations, the size and timing of future acquisitions, if any, and
the availability of additional financing. We currently are in discussions with
our bank to increase our credit facility. Based on these discussions, we believe
that the bank will agree to an increase, although the bank has made no
commitment as of this date. We cannot be certain that additional financing will
be available or that, if available, we can obtain it on terms favorable to us
and our stockholders. See "- Cautionary Statements and Risk Factors -- If we are
unable to raise additional funds, we may be required to defer implementation of
our growth strategy."

NEW ACCOUNTING PRONOUNCEMENTS

     Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), is effective for
financial statements ending June 15, 1999. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. We do not expect adoption of SFAS 133
to have a material impact, if any, on our consolidated results of operations.

     Statement of Financial Accounting Standard No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 ("SFAS 137"), is effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. SFAS 137 defers the effective
date of SFAS 133. We do not expect adoption of SFAS 137 to have a material
impact, if any, on our consolidated results of operations.

YEAR 2000 UPDATE

     We have not experienced any difficulties resulting from the Year 2000
problem, which is the processing of date-sensitive information by the
information technology systems used by us and our key customers and vendors. The
Year 2000 problem is the result of computer programs being written using two
digits to define the applicable year, which could result in computer programs
recognizing a date using "00" as the year 1900 rather than 2000, thereby causing
miscalculations or system failures. We do not currently anticipate any future
Year 2000 problems.


                                    Page 11
<PAGE>


CAUTIONARY STATEMENTS AND RISK FACTORS

     Several of the matters discussed in this document contain forward-looking
statements that involve risks and uncertainties. Factors associated with the
forward-looking statements that could cause actual results to differ from those
projected or forecast are included in the statements below. In addition to other
information contained in this report, readers should carefully consider the
following cautionary statements and risk factors.

     IF WE LOSE ANY OF OUR THREE LARGEST CUSTOMERS, OUR SALES AND OPERATING
RESULTS WILL BE ADVERSELY AFFECTED. Our three largest customers, Tarrant Apparel
Group, Swank, which is a licensee of Yves Saint Laurent, Kenneth Cole, Geoffrey
Beene and Pierre Cardin, and Guess? accounted for approximately 47.9%, 5.2% and
3.2%, respectively, of our net sales, on a consolidated basis, for the year
ended December 31 , 1999, and approximately 3%, 12.5% and 16.3%, respectively,
of our net sales, on a consolidated basis, for the year ended December 31, 1998.
We may not be able to derive the same level of sales from these customers in the
future. The termination of our business relationship with these or any of our
other significant customers or a material reduction in sales to a significant
customer could significantly reduce our revenue.

     IF WE ARE NOT BE ABLE TO MANAGE OUR RAPID EXPANSION AND GROWTH, OUR
REVENUES WILL BE ADVERSELY AFFECTED. Our subsidiaries have been operated under
family management since they were formed and have recently significantly
expanded their operations. The growth of our operations and activities has
placed and will continue to place a significant strain on our management,
operational, financial and accounting resources. If we cannot implement and
improve our financial and management information and reporting systems, we will
not be able to implement our growth strategies and our revenues will be
adversely affected. In addition, we will not be able to manage future growth, if
any, and increase production levels and continue to market and distribute our
products, if we cannot hire, train, motivate and manage new employees, including
management and operating personnel, and integrate them into our overall
operations and culture.

     FLUCTUATIONS IN OPERATING RESULTS MAY RESULT IN UNEXPECTED REDUCTIONS IN
REVENUE AND STOCK PRICE VOLATILITY. We operate in an industry that is subject to
significant fluctuations in operating results from quarter to quarter, which may
lead to unexpected reductions in revenues and stock price volatility. Factors
that may influence our quarterly operating results include:

      o     the volume and timing of customer orders received during the
            quarter;
      o     the timing and magnitude of customers' marketing campaigns;
      o     the loss or addition of a major customer;
      o     the availability and pricing of materials for our products;
      o     the increased expenses incurred in connection with the introduction
            of new products;
      o     currency fluctuations; and
      o     changes in our product mix or in the relative contribution to sales
            of our subsidiaries.

     Due to these factors, it is possible that in some quarters our operating
results may be below the expectations of public market analysts and investors.
If this occurs, the price of our common stock would likely be adversely
affected.

     CYCLICAL BUYING PATTERNS MAY RESULT IN PERIODS OF LOW SALES VOLUME. Most of
our customers are in the apparel industry. The apparel industry historically has
been subject to substantial cyclical variations. Our business has experienced,
and we expect our business to continue to experience, significant cyclical
fluctuations due, in part, to customer buying patterns, which may result in
periods of low sales. A recession in the general economy or uncertainties
regarding future economic prospects that affect consumer-spending habits could
also reduce our sales.


                                    Page 12
<PAGE>


     IF WE DO NOT IMPROVE AND INTEGRATE OUR INFORMATION AND MANAGEMENT SYSTEMS,
WE WILL NOT BE ABLE TO EFFICIENTLY MANAGE OUR OPERATIONS IN HONG KONG, MEXICO
AND THE UNITED STATES AND IMPLEMENT OUR GROWTH STRATEGIES. Prior to
consolidating our subsidiaries under a single parent company in January 1998,
each subsidiary operated as a separate company with its own information and
management reporting systems. We must consolidate and centralize the management
of our subsidiaries and significantly expand and improve our financial and
operating controls. Additionally, we must effectively integrate the information
systems of Hong Kong and Mexico with the information systems of our principal
offices in Los Angeles. We cannot be certain that we will be successful in doing
so.

     BECAUSE WE DO NOT ENTER INTO LONG-TERM SALES CONTRACTS WITH OUR CUSTOMERS,
OUR SALES MAY DECLINE IF OUR EXISTING CUSTOMERS CHOOSE NOT TO BUY OUR PRODUCTS
OR SERVICES. Our customers are not required to purchase our products. Our sales
are generally evidenced by a purchase order and similar documentation limited to
a specific sale. As a result, a customer from whom we generate substantial
revenue in one period may not be a substantial source of revenue in a future
period. In addition, our customers generally have the right to terminate their
relationships with us without penalty and on little or no notice. Without
long-term contracts with our customers, we cannot be certain that our existing
customers will continue to engage us to design and produce products.
Accordingly, we cannot guarantee that we will be able to maintain a consistent
level of sales.

     WE DEPEND ON KEY MANAGEMENT , DESIGN AND SALES PERSONNEL TO OBTAIN AND
SECURE ACCOUNTS AND GENERATE SALES. Our success has and will continue to depend
to a significant extent upon certain key management and design and sales
personnel, many of whom would be difficult to replace, particularly Colin Dyne,
our Chief Executive Officer. Colin Dyne is not bound by an employment agreement
nor is he the subject of key man insurance. The loss of the services of Colin
Dyne or the services of other key employees could have a material adverse effect
on our business, including our ability to establish and maintain client
relationships. Our future success will depend in large part upon our ability to
identify, attract, assimilate, retain and motivate personnel with a variety of
design, sales, operating and managerial skills. We may not be able to do so.

     IF WE ARE UNABLE TO RAISE ADDITIONAL FUNDS, WE MAY BE REQUIRED TO DEFER
IMPLEMENTATION OF OUR GROWTH STRATEGY. We anticipate that we will need to raise
additional funds through debt or equity financings during the next 12 months if
our line of credit, existing resources and future earnings are insufficient to
fund our business growth plans and operations. We cannot guarantee that
additional financing will be available or that, if available, it can be obtained
on terms that we deem favorable. If necessary funds are not available, we may be
required to delay implementation of our growth strategy. Additionally, our
stockholders may be diluted if we raise additional funds through the sale of our
stock.

     BECAUSE OUR OFFICERS AND DIRECTORS OWN A SIGNIFICANT PORTION OF OUR COMMON
STOCK, THEY MAY BE ABLE TO INFLUENCE STOCKHOLDER VOTES AND DISCOURAGE OTHERS
FROM ATTEMPTING TO ACQUIRE US. As of December 31, 1999, our officers and
directors and their affiliates owned approximately 19.4% of the outstanding
shares of our common stock. The Dyne family, which includes Mark Dyne, Colin
Dyne, Larry Dyne, Jonathan Burstein and the estate of Harold Dyne, owned
approximately 27.2% of the outstanding shares of our common stock. KG
Investments, LLC, a significant stockholder, owned approximately 35.3% of the
outstanding shares of our common stock with certain transfer and voting
restrictions. As a result, our officers and directors, the Dyne family and KG
Investments, LLC are able to exert influence over the outcome of all matters
submitted to a vote of the holders of our common stock, including the election
of our board of directors. The voting power of these stockholders could also
discourage others from seeking to acquire control of us through the purchase of
our common stock, which might depress the price of our common stock.

     IF WE EXPERIENCE DISRUPTIONS AT ANY OF OUR FOREIGN PRODUCTION FACILITIES,
WE WILL NOT BE ABLE TO MEET OUR PRODUCTION OBLIGATIONS AND MAY LOSE SALES AND
CUSTOMERS. Some of our products are assembled or finished at our foreign
assembly facilities. Currently, we do not operate duplicate facilities in
different geographic areas. Therefore, in the event of a disruption in the
region in which we maintain our facilities, we cannot shift manufacturing
operations to a different geographic region and we may be required to cease or
limit our assembly or finishing operations. This may cause us to lose sales and
customers. The types of disruptions that may occur include:


                                    Page 13
<PAGE>


      o     foreign trade disruptions;
      o     import restrictions;
      o     labor disruptions;
      o     embargoes;
      o     government intervention; and
      o     natural disaster.

     BECAUSE WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS, WE MAY NOT BE ABLE TO
ALWAYS OBTAIN MATERIALS WHEN WE NEED THEM AND WE MAY LOSE SALES AND CUSTOMERS.
Generally, we do not have long-term agreements with our key sources of supply.
Lead times for materials we order can vary significantly and depend on many
factors, including the specific supplier, the contract terms and the demand for
particular materials at a given time. From time to time, we experience
fluctuations in the prices, and disruptions in the supply, of materials.
Shortages or disruptions in the supply of materials, or our inability to procure
materials from alternate sources at acceptable prices in a timely manner, could
lead us to miss deadlines for orders and lose sales and customers.

     WE ARE SUBJECT TO FLUCTUATING PAPER COSTS, WHICH MAY ADVERSELY AFFECT OUR
PROFITS. The cost of paper is a principal component of the price we charge for
our paper products, including our high quality paper boxes, custom shopping
bags, hang tags and packaging. Historically, we have been able to pass on to our
customers any increase or decrease in the cost of paper, which has allowed us to
maintain our gross margins on paper products during fluctuations in the cost of
paper. If our customers are unwilling to absorb these price increases in the
future, our gross margins may decrease, which will lower our profits.

     IF THERE IS A PAPER SHORTAGE, WE MAY NOT BE ABLE TO SELL SOME OF OUR PAPER
PRODUCTS. The capacity in the paper industry has remained relatively stable in
recent years. During periods of high demand for paper, certain grades of paper,
including grades that we use in our paper products, have been unavailable or
only available in limited quantities. If we cannot acquire the paper we use to
produce our products, our sales will be lower and we may lose customers.
Although we actively manage our paper supplies and have established strong
relationships with our paper suppliers, we do not have long-term agreements with
our key paper suppliers. We cannot be certain that our sources of paper supply
will be adequate or, if they are not adequate, that we will be able to develop
alternative sources of paper supply in a timely manner.

     THERE ARE MANY COMPANIES THAT OFFER SOME OR ALL OF THE PRODUCTS AND
SERVICES WE SELL. We compete in highly competitive and fragmented industries
with numerous local and regional companies that provide some or all of the
products and services we offer. We compete with United States and international
design companies, distributors and manufacturers of tags, packaging products and
trims. Some of our competitors, including Paxar, Inc., RVL, Inc, Universal
Button, Inc. and Scovill Fasteners, Inc., have greater name recognition, longer
operating histories and, in many cases, substantially greater financial and
other resources than us.

     PRODUCT RETURNS THAT EXCEED OUR ANTICIPATED RESERVES COULD RESULT IN WORSE
THAN EXPECTED OPERATING RESULTS. We incur expenses when customers return our
products. Product returns or price protection concessions that exceed our
reserves could result in worse than expected operating results. Generally,
returned items have limited or no value and we are forced to bear the cost of
their return. Product returns also could result in lost revenue, delays in
market acceptance, diversion of development resources, increased service and
warranty costs and damage to our reputation. Products are returned for a number
of reasons, including as a result of:

      o     sale or return arrangements;
      o     defective goods;
      o     inadequate performance relative to customer expectations;


                                    Page 14
<PAGE>


      o     shipping errors; and
      o     other causes which are outside of our control.

     BECAUSE WE CONDUCT A SUBSTANTIAL PORTION OF OUR BUSINESS OUTSIDE OF THE
UNITED STATES, WE ARE SUBJECT TO MANY RISKS RELATING TO INTERNATIONAL BUSINESS
THAT MAY ADVERSELY AFFECT OUR OPERATING RESULTS. For the year ended December 31,
1999 and 1998, approximately 35% and 40%, respectively, of our products were
purchased, assembled or finished outside of the United States, principally in
Hong Kong and Mexico. We currently intend to continue to purchase, assemble
and/or finish a similar or greater percentage of our products outside of the
United States in the future. Our international business is subject to numerous
risks that could result in lost sales, increased costs and worse than expected
operating results, including:

      o     the need to comply with a wide variety of foreign and United States
            export and import laws;
      o     changes in export or import controls, tariffs and other regulatory
            requirements;
      o     the imposition of governmental controls;
      o     political and economic instability;
      o     trade restrictions;
      o     the difficulty of administering business overseas; and
      o     the general economic conditions of the countries in which we do
            business.

     If any of the above risks were to render the conduct of business in a
particular country undesirable or impractical, we may not be able to deliver
products to our customers and our sales will be lower.

     IF OUR OVERSEAS SUPPLIERS TO NOT SHIP ORDERS TO US IN A TIMELY MANNER, WE
MAY LOSE SALES OR BE FORCED TO REDUCE SALES PRICES OF OUR PRODUCTS. We could
miss our customers' delivery requirements if our overseas contractors or
suppliers do not ship orders to us in a timely manner. If we fail to deliver
products on time, our customers could cancel orders, refuse to accept deliveries
or require us to reduce the sales price of the delivered products.

     OUR PROPRIETARY TECHNOLOGY MAY NOT BE ADEQUATELY PROTECTED FROM
UNAUTHORIZED USE BY OTHERS, WHICH COULD INCREASE OUR LITIGATION COSTS AND
ADVERSELY AFFECT OUR SALES. We rely on trademark, trade secret and copyright
laws to protect our designs and other proprietary property. We cannot be certain
that these laws will be sufficient to protect our property. If litigation is
necessary in the future to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of the proprietary
rights of others, such litigation could result in substantial costs and
diversion of resources. This could have a material adverse effect on our
operating results and financial condition. Ultimately, we may be unable, for
financial or other reasons, to enforce our rights under intellectual property
laws, which could result in lost sales. The laws of certain countries in which
our products are distributed or may be distributed in the future may not protect
our products and intellectual rights to the same extent as the laws of the
United States.

     IF OUR PRODUCTS INFRINGE ANY PROPRIETARY RIGHTS OF OTHERS, A LAWSUIT MAY BE
BROUGHT AGAINST US THAT COULD REQUIRE US TO PAY LARGE LEGAL EXPENSES AND
JUDGMENTS AND REDESIGN OR DISCONTINUE SELLING OUR PRODUCTS. We believe that our
products do not infringe any valid existing proprietary rights of third parties.
Although we have received no communications from third parties alleging
infringement of any of their proprietary rights, we cannot be certain that any
infringement claims will not be made in the future. Any infringement claims,
whether or not meritorious, could result in costly litigation or require us to
enter into royalty or licensing agreements. If we are found to have infringed
the proprietary rights of others, we could be required to pay damages, cease
sales of the infringing products and redesign the products or discontinue their
sale. Any of these outcomes, individually or collectively, could have a material
adverse effect on our operating results and financial condition.

     WE HAVE ADOPTED A NUMBER OF ANTI-TAKE OVER MEASURES THAT MAY DEPRESS THE
PRICE OF OUR COMMON STOCK. Our adoption of a stockholder's rights plan, our
ability to issue up to 2,750,000 shares of preferred stock and some provisions
of our certificate of incorporation and bylaws and of Delaware law could make it
more


                                    Page 15
<PAGE>


difficult for a third party to make an unsolicited takeover attempt of us. These
anti-takeover measures may depress the price of our common stock by making third
parties less able to acquire us by offering to purchase shares of our stock at a
premium to its market price. Our board of directors can issue up to 2,750,000
shares of preferred stock and determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by our stockholders. Our board of directors could
issue the preferred stock with voting, liquidation, dividend and other rights
superior to the rights of our common stock. The rights of holders of our common
stock will be subject to, and may be adversely affected by, the rights of
holders of the share purchase rights and of any preferred stock that may be
issued in the future. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could make it more difficult for a third party to acquire a majority
of our outstanding voting stock.


                                    Page 16
<PAGE>


ITEM 7.  FINANCIAL STATEMENTS

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



The Board of Directors
Tag-It Pacific, Inc.
Los Angeles, California

     We have audited the accompanying consolidated balance sheets of Tag-It
Pacific, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity (deficiency) and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tag-It
Pacific, Inc. at December 31, 1999 and 1998, and the results of their operations
and their cash flow for each of the years then ended, in conformity with
generally accepted accounting principles.

                                    /S/ BDO SEIDMAN, LLP

Los Angeles, California
March 6, 2000


                                    Page 17
<PAGE>


<TABLE>
                                   TAG-IT PACIFIC, INC.
                                CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                           December        December
                                                           31, 1999        31, 1998
                                                          ----------      ----------
<S>                                                     <C>             <C>
Assets
Current assets:
  Cash and cash equivalents...........................  $    100,798    $  2,065,331
  Due from factor.....................................       180,767         221,770
  Accounts receivable, trade, net.....................     2,905,866       3,629,338
  Due from related parties............................     2,397,511         752,602
  Inventories.........................................    10,102,115       5,700,196
  Prepaid expenses and other current assets...........     1,133,324         892,853
                                                          ----------      ----------
Total current assets..................................    16,820,381      13,262,090

Property and equipment, net of accumulated depreciation
  and amortization....................................     2,815,308       1,335,066
Other assets..........................................       219,332          46,684
                                                          ----------      ----------
Total assets..........................................  $ 19,855,021    $ 14,643,840
                                                          ==========      ==========
Liabilities and Stockholders' Equity
Current liabilities:
  Line of credit......................................  $  5,067,259    $  1,489,000
  Accounts payable....................................     4,225,661       2,638,448
  Accounts payable, related party.....................             -       2,250,626
  Accrued expenses....................................       401,789         470,980
  Income taxes payable................................       219,310          39,001
  Notes payable.......................................        25,200          56,040
  Notes payable to related parties....................       405,149         451,626
  Current portion of capital lease obligations........       254,023               -
                                                          ----------      ----------
Total current liabilities.............................    10,598,391       7,395,721

Capital lease obligations, less current portion.......       346,337               -
Deferred income tax liability.........................        48,818         158,259
                                                          ----------      ----------
Total liabilities.....................................    10,993,546       7,553,980
                                                          ----------      ----------

Commitments and contingencies (Note 13)

Stockholders' equity:
  Preferred stock, $0.001 par value; 3,000,000 shares
    authorized; no shares issued or outstanding.......             -               -
  Common stock, $0.001 par value, 30,000,000 shares
    authorized; 6,777,556 shares issued and
    outstanding at December 31, 1999; 6,726,677 at
    December 31, 1998.................................         6,778           6,727
  Additional paid-in capital..........................     8,748,157       8,707,258
  Retained earnings (deficit).........................       106,540      (1,624,125)
                                                          ----------      ----------
Total stockholders' equity............................     8,861,475       7,089,860
                                                          ----------      ----------
Total liabilities and stockholders' equity............  $ 19,855,021    $ 14,643,840
                                                          ==========      ==========

            See accompanying notes to consolidated financial statements.
</TABLE>


                                    Page 18
<PAGE>


<TABLE>
                              TAG-IT PACIFIC, INC.
                        CONSOLIDATED STATEMENTS OF INCOME

<CAPTION>
                                                   Year Ended     Year Ended
                                                   December 31,   December 31,
                                                       1999           1998
                                                   ------------   ------------

<S>                                               <C>           <C>
Net sales....................................     $ 32,384,836  $ 18,808,067

Cost of goods sold...........................       21,807,054    12,143,143
                                                    ----------    ----------
Gross profit.................................       10,577,782     6,664,924

Selling expenses.............................       1,626,500      1,730,035
General and administrative expenses..........       6,545,252      4,110,800
                                                    ---------     ----------
Total operating expenses.....................       8,171,752      5,840,835

Income from operations.......................       2,406,030        824,089
Interest expense.............................         257,112        298,889
                                                    ---------     ----------

Income before income taxes...................       2,148,918        525,200
Provision (benefit) for income taxes.........         418,253         (1,687)
                                                    ---------     ----------
Net income...................................     $ 1,730,665   $    526,887
                                                    =========     ==========

Basic earnings per share.....................     $      0.26   $       0.12
                                                    =========     ==========

Diluted earnings per share...................     $      0.23   $       0.11
                                                    =========     ==========

            See accompanying notes to consolidated financial statements.
</TABLE>


                                    Page 19
<PAGE>


<TABLE>

                              TAG-IT PACIFIC, INC.
          Consolidated Statements of Stockholders' Equity (Deficiency)
                     Years Ended December 31, 1999 and 1998


<CAPTION>
                                        Common Stock          Preferred Stock      Additional      Retained
                                   ----------------------   ---------------------   Paid-In        Earnings
                                    Shares       Amount      Shares      Amount     Capital        (Deficit)       Total
                                   ----------  ----------  ----------  ----------  -----------    ----------   -------------

<S>                                <C>         <C>         <C>         <C>        <C>            <C>           <C>
BALANCE, JANUARY 1, 1998........   2,470,011   $   2,470   $      -    $     -    $    957,530   $(2,151,012)  $ (1,191,012)

   Initial public offering......   1,600,000       1,600          -          -       4,663,635             -      4,665,235
   Stock sales..................   2,390,000       2,390          -          -       2,686,360             -      2,688,750
   Debt conversion..............     266,666         267          -          -         399,733             -        400,000
   Net income...................           -           -          -          -               -       526,887        526,887
                                   ----------   ---------   --------    -------    -----------    ----------    -----------

BALANCE, DECEMBER 31, 1998......   6,726,677       6,727          -          -       8,707,258    (1,624,125)     7,089,860

   Common stock issued
      upon exercise of options
      and warrants..............      50,879          51          -          -          40,899             -         40,950
   Net income...................           -           -          -          -               -     1,730,665      1,730,665
                                   ----------   ---------   --------   --------    -----------    ----------    ------------

BALANCE, DECEMBER 31, 1999......   6,777,556   $   6,778   $      -    $     -    $  8,748,157   $   106,540   $  8,861,475
                                   ==========   ========    =======    =======     ===========    ==========    ===========

</TABLE>
          See accompanying notes to consolidated financial statements.


                                    Page 20
<PAGE>


<TABLE>
                              TAG-IT PACIFIC, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>
                                                       Year Ended       Year Ended
                                                      December 31,     December 31,
                                                          1999             1998
                                                      ------------    -------------
<S>                                                   <C>              <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
  Net income.......................................   $ 1,730,665      $   526,887
  Adjustments to reconcile net income to net cash
     used in operating activities:
   Depreciation and amortization...................       641,953          443,128
   Increase in deferred income tax liability.......      (109,441)         (48,513)
   Increase (decrease) in allowance for doubtful
     accounts and subsequent returns...............      (216,115)         104,843
  Changes in operating assets and liabilities:
   Receivables, including related parties..........      (556,238)      (1,517,773)
   Inventories.....................................    (4,401,919)      (3,369,065)
   Prepaid expenses and other current assets.......      (240,471)        (619,385)
   Other assets....................................      (172,648)         345,554
   Accounts payable................................     1,587,213       (1,339,120)
   Accounts payable, related party.................    (2,250,626)       2,250,626
   Accrued expenses................................       (69,191)          49,666
   Income taxes payable............................       180,309           39,001
                                                       ----------       ----------
Net cash used in operating activities..............    (3,876,509)      (3,134,151)
                                                       ----------       ----------
Cash flows from investing activities:
  Additional loans to related parties..............      (108,081)         (34,971)
  Acquisition of property and equipment............    (1,436,826)        (803,885)
                                                       ----------       ----------
Net cash used in investing activities..............    (1,544,907)        (838,856)
                                                       ----------       ----------
Cash flows from financing activities:
  Bank overdraft...................................             -         (306,565)
  Net advances from factor.........................             -       (1,404,133)
  Proceeds from IPO, net...........................             -        4,665,235
  Proceeds from stock sale.........................             -        2,688,750
  Proceeds from exercise of stock options and
    warrants.......................................        40,950                -
  Proceeds from bank line of credit, net...........     3,578,259        1,489,000
  Repayment of capital lease obligations...........       (85,009)               -
  Repayment on notes payable.......................       (30,840)        (462,983)
  Proceeds from notes payable to related parties...       160,000                -
  Repayment on notes payable to related parties....      (206,477)        (675,075)
                                                       ----------       ----------
Net cash provided by financing activities..........     3,456,883        5,994,229
                                                       ----------       ----------
Net increase (decrease) in cash and cash
  equivalents......................................    (1,964,533)       2,021,222
Cash and cash equivalents, beginning of year.......     2,065,331           44,109
                                                       ----------       ----------
Cash and cash equivalents, end of year.............   $   100,798      $ 2,065,331
                                                       ==========       ==========
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
   Interest........................................   $    269,116     $   298,889
   Income taxes....................................   $    174,334     $    83,951
  Non-cash financing activity:
   Note payable converted to equity................   $          -     $   400,000
   Capital lease obligations.......................   $    685,369     $         -

          See accompanying notes to consolidated financial statements.
</TABLE>


                                    Page 21
<PAGE>


                              TAG-IT PACIFIC, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999



NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF PRESENTATION

     The Company is the parent holding company of Tag-It, Inc., a California
corporation, Tag-It Pacific (HK) Ltd., a BVI corporation (formerly Tag-it
Printing & Packaging Ltd.), Tag-it de Mexico, SA de CV, A.G.S. Stationery, Inc.,
a California corporation ("AGS Stationery") and Pacific Trim & Belt, Inc., a
California corporation (collectively, the "Subsidiaries"), all of which were
consolidated under a parent limited liability company on October 17, 1997 (the
"Consolidation") and became wholly-owned subsidiaries of the Company immediately
prior to the effective date of the Company's initial public offering in January
1998 (the "Offering"). Immediately prior to the Offering, the outstanding
membership units of Tag-It Pacific LLC were converted to 2,470,001 shares of
Common Stock of the Company (the Exchange and such conversions are referred to
as the "Conversion"). In November 1998 the Company formed a wholly-owned
subsidiary, Pacific Trim, SA de CV located in Tehuacan, Mexico (now included in
"Subsidiaries"). All the activities of this company were merged into Tag-It de
Mexico, SA de CV, in 1999.

     The accompanying consolidated financial statements consist of the
Subsidiaries presented on a consolidated basis to give effect to the Conversion
as of the earliest period presented. The Conversion is treated as a
reorganization of entities under common control and was accounted for in a
manner similar to a pooling of interest. Accordingly, all references to shares
of Common Stock and related share prices have assumed the effects of the
Conversion. Effective in 1997, the Company changed its fiscal year-end from
August 31 to December 31.

     On July 8, 1999, the Company changed the number of authorized common shares
from 15,000,000 to 30,000,000.

     All significant intercompany accounts and transactions have been eliminated
in consolidation. Assets and liabilities of foreign subsidiaries are translated
at rates of exchange in effect at the close of the period. Revenues and expenses
are translated at the weighted average of exchange rates in effect during the
year. The resulting translation gains and losses are deferred and are shown as a
separate component of stockholders' equity and transaction gains and losses are
recorded in the consolidated statement of income in the period incurred. During
1999 and 1998, foreign currency translation and transaction gains and losses
were not material.

NATURE OF BUSINESS

     Tag-It Pacific, Inc. (the "Company") is a single-source provider of
complete brand identity programs to manufacturers of fashion driven apparel and
licensed consumer products and to specialty retailers and mass merchandisers.
The Company designs and produces high-quality paper, metal and injection molded
boxes, woven and leather labels, paper-hanging and bar-coded tags, metal jean
buttons and custom shopping bags. The Company also designs and/or manufactures
products for a variety of major brand and private label oriented companies
including Guess?, Calvin Klein, Tommy Hilfiger, A\X Armani Exchange, and Warner
Bros., among others.

REVENUE RECOGNITION

     Sales are recorded at the time of shipment and when collection is
reasonably assured.

COMPREHENSIVE INCOME

     The Company has adopted Statement of Financial Standard No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), issued by the FASB and effective for
financial statements with fiscal years beginning after December 15, 1997. SFAS
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. Adoption
of SFAS 130 did not have an impact on the Company's consolidated financial
position or results of operations for the years ended December 31, 1999 and
1998.


                                    Page 22
<PAGE>

                              TAG-IT PACIFIC, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


SEGMENTS OF AN ENTERPRISE

     The Company has adopted Statement of Financial Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), issued by the FASB and effective for financial statements with fiscal
years beginning after December 15, 1997. SFAS 131 requires that public companies
report certain information about operating segments, products, services and
geographical areas in which they operate and their major customers. There is not
enough difference between the types of products manufactured and distributed by
the Company to justify segmented reporting by product type. Adoption of SFAS 131
resulted in expanded disclosures regarding geographical regions (Note 14).

CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.

INVENTORIES

     Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. Maintenance and repairs are
charged to expense as incurred. Upon retirement or other disposition of property
and equipment, applicable cost and accumulated depreciation and amortization are
removed from the accounts and any gains or losses are included in results of
operations. The Company capitalizes the cost of films, dies, molds and art
designs. The costs capitalized include direct material and direct labor costs.

     Depreciation of property and equipment is computed using the straight-line
method based on estimated useful lives ranging from three to seven years.
Leasehold improvements are amortized using the straight-line method over the
term of the lease or the estimated life of the related improvements, whichever
is shorter.

RECLASSIFICATION

     Certain reclassifications have been made to the prior year financial
statements to conform with the 1999 presentation.

INCOME TAXES

     The Company uses the asset and liability method of accounting for income
taxes. Deferred income taxes are recognized based on the differences between
financial statement and income tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. The provision for
income taxes represents the tax payable or benefit for the period and the change
during the year in deferred tax assets and liabilities.

STOCK-BASED COMPENSATION

     Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which a
company acquires goods or services from non-employees in exchange for equity
instruments. SFAS 123 also gives the option to account for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25 ("APB
25"), "Accounting for Stock issued to Employees," or SFAS 123. The Company has
chosen to account for stock-based compensation for employees utilizing the
intrinsic value method prescribed in APB 25 and


                                    Page 23
<PAGE>


                              TAG-IT PACIFIC, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


not the method established by SFAS 123. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the fair market price of the
Company's stock at the measurement date over the amount an employee must pay to
acquire stock.

     Under SFAS 123, the Company presents in a footnote the effect of measuring
the cost of stock-based employee compensation at the grant date based on the
value of the award and recognize this cost over the service period. The value of
the stock-based award is determined using a pricing model whereby compensation
cost is the excess of the fair value of the option as determined by the model at
grant date or other measurement date over the amount an employee must pay to
acquire the stock.

USE OF ESTIMATES

     The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year.
Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INFORMATION

     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value. ACCOUNTS RECEIVABLE AND DUE FROM FACTOR: Due to the short-term
nature of the receivables, the fair value approximates the carrying value. DUE
FROM RELATED PARTIES AND NOTES PAYABLE TO RELATED PARTIES: Due to the short-term
nature and current market borrowing rates of the loans and notes, the fair value
approximates the carrying value. LINE OF CREDIT, CAPITAL LEASE OBLIGATIONS AND
NOTES PAYABLE: Estimated to approximate fair value based upon current market
borrowing rates for loans with similar terms and maturities.

NEW ACCOUNTING PRONOUNCEMENTS

     Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), is effective for
financial statements ending June 15, 1999. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. The Company does not expect adoption of
SFAS 133 to have a material impact, if any, on our consolidated results of
operations.

     Statement of Financial Accounting Standard No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of SFASB Statement No. 133" ("SFAS 137"), is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. SFAS 137 defers the effective
date of SFAS 133. The Company does not expect adoption of SFAS 137 to have a
material impact, if any, on our consolidated results of operations.

NOTE 2--EARNINGS PER SHARE

     The Company has adopted Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), which is effective for financial statements issued for the periods after
December 15, 1997, including interim periods. SFAS 128 requires the restatement
of all prior period earnings per share ("EPS") data presented.


                                    Page 24
<PAGE>


                              TAG-IT PACIFIC, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:


<TABLE>
<CAPTION>
                            December 31, 1999                    December 31, 1998
                     ----------------------------------  ----------------------------------
                                                  Per                                 Per
                       Income         Shares     Share     Income        Shares      Share
Years ended:         (Numerator)  (Denominator)  Amount  (Numerator)  (Denominator)  Amount
-------------------  -----------  -------------  ------  -----------  -------------  ------

<S>                  <C>            <C>          <C>         <C>          <C>        <C>
Basic earnings per
share:
   Income available
    to common
    stockholders...  $ 1,730,665    6,733,500    $ 0.26      526,887     4,418,618   $ 0.12

Effect of dilutive
  securities:
   Options.........                   427,904                              498,677
   Warrants........                   237,434                               42,585
                      ----------    ---------     -----     --------     ---------    -----

Income available
   to common
   stockholders....  $ 1,730,665    7,398,838    $ 0.23    $ 526,887     4,959,880   $ 0.11
                      ==========    =========     =====     ========     =========    =====
</TABLE>


     Warrants to purchase 80,000 shares of common stock at $6.00 were
outstanding for the year ended December 31, 1999 and warrants to purchase 80,000
and 110,000 shares of common stock at $6.00 and $4.80, respectively, were
outstanding for the year ended December 31, 1998, but were not included in the
computations of diluted earnings per share because the effect of exercise would
have an antidilutive effect on earnings per share.

     On January 23, 1998 the Company completed its initial public offering (the
"IPO"), and issued 1,600,000 shares of common stock at price of $4.00 per share.
In conjunction with the IPO, the Company issued options to directors to purchase
65,000 shares of common stock at $3.20, warrants to legal counsel to purchase
35,555 shares of common stock at $3.60, warrants to underwriters to purchase
110,000 shares of common stock at $4.80 per share, and warrants in connection
with bridge financing to purchase 80,000 shares of common stock at $6.00 per
share. On October 15, 1998 the Company repriced the warrants issued to legal
counsel from $3.60 per share to $1.50 per share in lieu of outstanding amounts
owed for legal fees.

     In October 1998, the Company issued 2,390,000 shares of restricted common
stock at price of $1.125 per share to a strategic investor, KG Investment, LLC.

NOTE 3--DUE FROM FACTOR

     The Company's factor purchases eligible accounts receivable and assumes the
credit risk with respect to those accounts for which they have given their prior
approval. If a factor does not assume the credit risk for a receivable, the
collection risk associated with the receivable remains with the Company. The
Company pays a fixed commission rate and may borrow up to 80% of its eligible
accounts receivable. Interest is charged at 2.5% over the prevailing reference
rate (8.5% and 7.75% at December 31, 1999 and 1998). Factored accounts
receivable, without recourse, amounted to $180,767 and $221,770 at December 31,
1999 and 1998. There were no outstanding advances at December 31, 1999 and 1998.

NOTE 4--ACCOUNTS RECEIVABLE, TRADE, NET

     Accounts receivable, trade is net of an allowance for doubtful accounts and
subsequent returns. For the years ended December 31, 1999 and 1998, the
allowance for doubtful accounts and subsequent returns was $54,998 and $271,113,
respectively, and included provision adjustments of $216,115 and $104,843,
respectively.


                                    Page 25
<PAGE>


                              TAG-IT PACIFIC, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5--INVENTORIES

     Inventories consist of the following:
<TABLE>
                                                     Year Ended December 31,
                                                    -------------------------
                                                        1999          1998
                                                    ------------  -----------

<S>                                                 <C>           <C>
Raw materials...................................    $    128,373  $   160,672
Work-in-process.................................         763,316    1,062,416
Finished goods                                         9,210,426    4,477,108
                                                     -----------   ----------

Total inventories...............................    $ 10,102,115  $ 5,700,196
                                                     ===========   ==========
</TABLE>

NOTE 6--PROPERTY AND EQUIPMENT

<TABLE>
      Property and equipment consist of the following:

<CAPTION>
                                                     Year Ended December 31,
                                                    -------------------------
                                                        1999          1998
                                                    ------------  -----------

<S>                                                 <C>            <C>
Furniture and fixtures..........................    $ 1,163,517   $   539,569
Machinery and equipment.........................      1,795,268       792,605
Leasehold improvements..........................        373,430       239,136
Films, dies, molds and art designs..............      1,342,843       981,553
                                                     -----------   ----------

                                                      4,675,058     2,552,863
Accumulated depreciation and amortization.......      1,859,750     1,217,797
                                                     -----------   ----------

Net property and equipment......................    $ 2,815,308   $ 1,335,066
                                                     ===========   ==========
</TABLE>

NOTE 7--LINE OF CREDIT

     The Company has a credit facility with Sanwa Bank which provides for a
working capital line of $5,000,000, subject to limitation based on a defined
formula related to inventory and eligible accounts receivable, and an equipment
loan with maximum borrowings of $500,000. The facility expires May 31, 2000, is
collateralized by all assets of the Company, including equipment, and provides
for interest at the bank's reference rate (8.5% at December 31 1999). The
facility also provides for a letter of credit facility with a maximum of
$1,000,000. At December 31, 1999, outstanding borrowings under the working
capital line and the equipment loan amounted to $4,892,000 and $175,259. At
December 31, 1998, outstanding borrowings under the working capital line
amounted to $1,489,000. There were no open letters of credit at December 31,
1999 or 1998.

     The credit facility provides for the maintenance of certain financial
covenants related to net worth, tangible net worth, current ratio and
profitability. At December 31, 1999 and 1998, the Company was in compliance with
these covenants.


                                    Page 26
<PAGE>


                              TAG-IT PACIFIC, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8--NOTES PAYABLE

<TABLE>
     Notes payable consist of the following:

<CAPTION>
                                                     Year Ended December 31,
                                                    -------------------------
                                                        1999          1998
                                                    ------------  -----------

<S>                                                 <C>           <C>
Note payable to an unrelated party, dated
  September 1995, payable on demand, with
  interest at 10%                                   $     25,200  $    25,200

Other notes                                                    -       30,840
                                                     -----------   ----------

                                                    $     25,200  $    56,040
                                                     ===========   ==========
</TABLE>

NOTE 9--NOTES PAYABLE TO RELATED PARTIES

<TABLE>
     Notes payable to related parties consist of the following:

<CAPTION>
                                                     Year Ended December 31,
                                                    -------------------------
                                                        1999           1998
                                                    ------------   ----------

<S>                                                   <C>          <C>
Six notes payable issued in 1996, four notes
  payable issued in 1997, and two notes payable
  issued in 1998 to officers and directors of the
  Company with no monthly payments and interest
  rates ranging from 7.5% to 10% annually, due and
  payable on the fifteenth day following delivery
  of written demand for payment.....................  $  230,149   $  246,626

Five notes payable to officers and directors of the
  Company with no monthly payments and interest
  ranging from 7.5% to prime plus 3.5% annually
  (12.25% at December 31, 1999), due and payable on
  the fifteenth day following delivery of written
  demand for payment which may be delivered for
  payment................... .......................      15,000       15,000

Notes payable to NPM Investments, Inc., which the
  Chairman of the Company holds a significant
  interest. The notes require no monthly payments
  and interest accrues at 7.5% annually, due and
  payable on the fifteenth day following delivery of
  written demand for payment, collateralized by the
  assets of Tag-It, Inc. $400,000 of the note
  payable was converted to 266,666 shares on October
  15, 1998 and the balance was repaid during the
  year ended December 31, 1999......................           -      190,000

Unsecured note payable to a director of the
  Company accrues interest at 7% per annum,
  principle and interest due January 31, 2000.......     160,000            -
                                                       ---------    ---------
                                                      $  405,149   $  451,626
                                                       =========    =========
</TABLE>


                                    Page 27
<PAGE>


                              TAG-IT PACIFIC, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10--CAPITAL LEASE OBLIGATIONS

     During 1999, the Company financed equipment purchases through various
capital lease obligations expiring through March 2003. These obligations bear
interest at various rates ranging from 8% and 10% per annum. Future minimum
annual payments under these capital lease obligations are as follows:

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,                            Amount
-------------------------                          ---------

<S>                                                <C>
2000..........................................     $ 308,255
2001..........................................       203,297
2002..........................................       167,819
2003..........................................        14,031
                                                    --------

Total payments................................       693,402

Less amount representing interest.............       (93,042)
                                                    --------

Balance at December 31, 1999..................       600,360

Less current portion..........................       254,023
                                                    --------

Long-term portion.............................     $ 346,337
                                                    ========
</TABLE>


     At December 31, 1999, total equipment, included in property and equipment
(Note 6), under capital lease obligations and related accumulated depreciation
amounted to $934,146 and $69,041. See Note 17 for capital lease obligations
entered into subsequent to December 31, 1999.

NOTE 11--STOCK OPTION INCENTIVE PLAN AND WARRANTS

STOCK OPTION INCENTIVE PLAN

     On October 1, 1997, the Company adopted the 1997 Stock Incentive Plan ("the
1997 Plan"), which authorized the granting of a variety of stock-based incentive
awards. A total of 562,500 shares of Common Stock have been reserved for
issuance under the 1997 Plan. The 1997 Plan is administered by the Board of
Directors, or a committee appointed by the Board of Directors, which determine
the recipients and terms of the awards granted. In 1997 and 1998, the Company
granted options to purchase 195,000 and 65,000 shares of Common Stock,
respectively, at an exercise price of $3.20 per share, the estimated fair value
of the Common Stock on the grant date. The options vest over four years and are
exercisable through their expiration dates in 2007 and 2008.

     Effective October 10, 1998, the Company's Board of Directors approved an
option exchange program. Under the program, holders of options to purchase
189,500 shares of Common Stock at an exercise price of $3.20 per share (which
represented all of the options outstanding on the date the program was approved)
could exchange these options for new options to purchase shares of Common Stock
at an exercise price of $1.30 per share, which exercise price was above the
$1.1875 closing sales price of a share of Common Stock on the American Stock
Exchange on October 9, 1998. Upon the exchange, the existing options were
canceled and became available for future grant under the 1997 Plan. Each new
option was for the same or fewer number of shares and/or had a longer vesting
schedule than did the option for which it was exchanged. The new options are
exercisable through their expiration dates in 2007 and 2008, which expiration
dates correspond to the expiration dates of the options for which they were
exchanged. At October 10, 1998, options to purchase 70,500 shares of Common
Stock previously granted under the 1997 Plan had been cancelled in accordance
with the terms of the respective option agreements.

     Effective October 10, 1998, the Company granted options to purchase 392,000
shares of Common Stock at an exercise price of $1.30 per share, which exercise
price was above the $1.1875 closing sales price of a share of Common Stock on
the American Stock Exchange on October 9, 1998. The options have vesting
schedules from immediate to four years and are exercisable through their
expiration in 2008.


                                    Page 28
<PAGE>
                              TAG-IT PACIFIC, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     In 1999, the Company's Board of Directors further amended its 1997 Stock
Incentive Plan to provide for a total of 1,177,500 shares of common stock to be
reserved for issuance under the Plan. On October 20, 1999, the Company granted
393,000 options to purchase common stock at an exercise price of $4.31 per
share, the closing sales price of a share of the Company's common stock on that
date.

     The following table summarizes the activity in the 1997 Plan:

<TABLE>
<CAPTION>
                                                             Weighted
                                                             Average
                                                Number       Exercise
                                               of Shares      Price
                                               ----------   ---------

<S>                                             <C>          <C>
Options outstanding - January 1, 1998........    195,000     $   3.20
   Granted...................................     65,000         3.20
   Exercised.................................          -            -
   Canceled..................................   (260,000)        3.20
   Granted...................................    562,000         1.30
                                                 -------      -------

Options outstanding - December 31, 1998......    562,000         1.30
   Granted...................................    393,000         4.31
   Exercised.................................    (31,500)        1.30
   Canceled..................................    (19,000)        2.88
                                                 -------     --------

Options outstanding - December 31, 1999......    904,500     $   2.57
                                                 =======      =======
</TABLE>

STOCK BASED COMPENSATION

     All stock options issued to employees have an exercise price not less than
the fair market value of the Company's Common Stock on the date of grant, and in
accounting for such options utilizing the intrinsic value method there is no
related compensation expense recorded in the Company's financial statements. If
compensation cost for stock-based compensation had been determined based on the
fair market value of the stock options on their dates of grant in accordance
with SFAS 123, the Company's net income and income per share for the years ended
December 31, 1999 and 1998 would have been decreased to the pro forma amounts
presented below:

<TABLE>
<CAPTION>
                                                   1999           1998
                                               ------------    ------------
<S>                                            <C>             <C>
Net income:
   As reported...............................  $  1,730,665    $    526,887
   Pro forma.................................  $  1,198,777    $     79,122

Basic income per common share:
   As reported...............................  $       0.26    $       0.11
   Pro forma.................................  $       0.18    $       0.02

Diluted income per common share:
   As reported...............................  $       0.23    $       0.11
   Pro forma.................................  $       0.16    $       0.02
</TABLE>

     The fair value of option grants is estimated on the date of grant utilizing
the Black-Scholes option-pricing model with the following weighted average
assumptions for options granted during 1999 and 1998; expected life of option of
1.5 years, expected volatility of 53% for 1999 and 80% for 1998, risk free
interest rate of 6% and a 0% dividend yield. The weighted average fair value at
the grant date for such options is $1.06 and $1.30 per option for the years
ended December 31, 1999 and 1998.


                                    Page 29
<PAGE>


                              TAG-IT PACIFIC, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Additional information relating to stock options and warrants outstanding
and exercisable at December 31, 1999, summarized by exercise price is as
follows:

<TABLE>
<CAPTION>
                                                             Exercisable
                        Outstanding Weighted Average       Weighted Average
                        ------------------------------    -------------------


 Exercise Price Per                Life       Exercise              Exercise
       Share            Shares    (years)      Price      Shares     Price
---------------------   -------   -------    ---------    -------   --------
      <S>               <C>        <C>        <C>         <C>        <C>
      $ 0.71            39,235     1.0        $ 0.71       39,235    $ 0.71
      $ 1.30            521,500    8.6        $ 1.30      453,917    $ 1.30
      $ 1.50            35,555     1.0        $ 1.50       35,555    $ 1.50
      $ 4.31            383,000    0.9        $ 4.31      322,919    $ 4.31
      $ 4.80            110,000    2.1        $ 4.80       27,500    $ 4.80
      $ 6.00             80,000    2.1        $ 6.00       20,000    $ 6.00
                      ---------                           -------

      $ 2.92          1,169,290    4.5        $ 2.92      899,126    $ 2.57
                      =========                           =======
</TABLE>

     In 1994, as compensation for employment services, a key employee received
warrants to purchase 14 shares of Tag-It Common Stock which, upon the
Consolidation, became exercisable for 39,235 shares of Common Stock of the
Company at an exercise price of $0.71 per share.

NOTE 12--INCOME TAXES

     The components of the provision (benefit) for income taxes included in the
consolidated statements of income are as follows:

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                    -------------------------
                                                        1999         1998
                                                    ------------  -----------
<S>                                                 <C>           <C>
Current:
    Federal....................................     $    474,351  $    44,426
    State......................................           53,343        2,400
                                                     -----------   ----------

                                                         527,694       46,826
Deferred:
    Federal....................................          (93,025)     (44,464)
    State......................................          (16,416)      (4,049)
                                                     -----------   ----------

                                                        (109,441)     (48,513)
                                                     -----------   ----------

                                                    $    418,253  $    (1,687)
                                                     ===========   ==========
</TABLE>


                                    Page 30
<PAGE>


                              TAG-IT PACIFIC, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      A reconciliation of the statutory Federal income tax rate with the
Company's effective income tax rate is as follows:

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                    -------------------------
                                                       1999          1998
                                                    ------------  -----------

<S>                                                 <C>           <C>
Current:
   Federal statutory rate......................     $       34.0%        34.0%
   State taxes net of Federal benefit..........              6.0          7.2
   Income earned from foreign subsidiaries.....             (6.7)       (12.1)
   Utilization of NOL benefit..................             (8.0)       (33.5)
   Other.......................................             (5.8)        4.1
                                                     -----------   ----------

                                                    $      19.5%  $      (0.3)%
                                                     ===========   ==========
</TABLE>

      The primary components of temporary differences which give rise to the
Company's deferred assets and deferred tax liabilities are as follows:

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                    -------------------------
                                                       1999          1998
                                                    ------------  -----------

<S>                                                 <C>           <C>
Net deferred tax liability:
   Net operating loss carryforwards...............  $    251,297      627,118
   Deferred tax liabilities (dies, film, and art        (214,874)    (181,164)
   Depreciation...................................       (88,920)     (68,213)
   Other..........................................         3,679            -
   Valuation allowance............................             -     (536,000)
                                                     -----------   ----------

                                                    $    (48,818) $  (158,259)
                                                     ===========   ==========
</TABLE>

     At December 31, 1999, the Company's subsidiary, AGS Stationery, Inc. had
Federal and state NOL carryforwards of approximately $570,000 and $954,000
respectively. The Federal NOL is available to offset future taxable income
through 2011, and the state NOL expires in 2001. The Company's ability to
utilize the NOL carryforwards are dependent upon the Company's ability to
generate taxable income in future periods are limited in the annual amount of
approximately $430,000 due to restrictions imposed under Federal and state laws
upon a change in ownership. The NOL's stated above are subject to separate year
loss limitations.

     Deferred tax assets are initially recognized for differences between the
financial statement carrying amount and the tax bases of assets and liabilities
which will result in future deductible amounts and operating loss and tax credit
carryforwards. A valuation allowance is then established to reduce that deferred
tax asset to the level at which it is "more likely than not" that the tax
benefits will be realized. Realization of tax benefits of deductible temporary
differences and operating loss or credit carryforwards depends on having
sufficient taxable income of an appropriate character within the carryback and
carryforward periods. Sources of taxable income that may allow for the
realization of tax benefits include (i) taxable income in the current year or
prior years that is available through carryback, (ii) future taxable income that
will result from the reversal of existing taxable temporary difference, and
(iii) future taxable income generated by future operations. Based on an
evaluation of the realizability of the deferred tax asset, management has
determined that it is more likely than not that the Company will realize this
tax benefit. Therefore, the valuation allowance of $536,000 that had been
established for a portion of the deferred tax asset as of December 31, 1998 has
been reversed for the year ended December 31, 1999.


                                    Page 31
<PAGE>


                              TAG-IT PACIFIC, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13--COMMITMENTS AND CONTINGENCIES

LEASES

     The Company is a party to a number of non-cancelable operating lease
agreements involving buildings and equipment which expire at various dates. The
future minimum lease commitments as of December 31, 1999 are as follows:

<TABLE>
<CAPTION>
Years Ending December 31,                 Amount
-------------------------              ------------

         <S>                           <C>
         2000.......................   $   557,613
         2001.......................       435,904
         2002.......................       214,519
         2003.......................        99,216
         2004.......................        25,728
                                        ----------
           Total minimum payments...   $ 1,332,980
                                        ==========
</TABLE>

     Total rental expense for the years ended December 31, 1999 and 1998
aggregated $406,632 and $400,684, respectively.

ROYALTIES

     The Company, through its AGS Stationery, manufactured Guess? stationery
products pursuant to an exclusive license with Guess? entered into as of March
1, 1996. Net sales of Guess? stationery products accounted for 7.5% of the
Company's consolidated net sales for the year ended December 31, 1998. The
Company was required to pay royalties of 7% on licensed stationery product
sales. A royalty expense of $5,367 is included in the consolidated statement of
income for the year ended December 31, 1998. Effective August 7, 1998, the
Company and Guess? mutually agreed to terminate the license. However, the
Company was allowed to sell-off the remaining inventory through December 1998.
The termination resulted in no payoff or penalties to either party.

PROFIT SHARING PLAN

     In October 1999, the Company established a 401(k) profit-sharing plan for
the benefit of qualified employees. The Company may make annual contributions to
the plan as determined by the Board of Directors. There were no contributions
made during the year ended December 31, 1999.

CONTINGENCIES

     The Company is subject to certain legal proceedings and claims arising in
connection with its business. In the opinion of management, there are currently
no claims that will have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.

NOTE 14--GEOGRAPHIC INFORMATION

     The Company develops, manufactures and distributes complete brand-identity
programs to manufacturers of fashion driven apparel and licensed consumer
products and to specialty retailers and mass merchandisers. There is not enough
difference between the types of products manufactured and distributed by the
Company to account for these products separately or to justify segmented
reporting by product type.


                                    Page 32
<PAGE>


                              TAG-IT PACIFIC, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The Company distributes its products internationally and has reporting
requirements based on geographic regions. Revenues are attributed to countries
based on the location of the customer as follows:



<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                    -------------------------
                                                      1999            1998
                                                    ------------  -----------
            <S>                                     <C>           <C>
            Sales:
               United States..................      $ 12,344,418  $16,063,627
               Asia...........................         4,539,500    2,175,279
               Mexico.........................        15,500,918      569,161
                                                     -----------   ----------
                                                    $ 32,384,836  $18,808,067
                                                    ============   ==========

            Assets:
               United States..................      $  2,247,038  $ 1,065,082
               Asia...........................           233,142       76,847
               Mexico.........................           335,128      193,137
                                                     -----------   ----------
                                                    $  2,815,308  $ 1,335,066
                                                     ===========   ==========
</TABLE>


NOTE 15--MAJOR CUSTOMER & VENDOR

     One major customer accounted for approximately 47.9% of the Company's net
sales on a consolidated basis for the year ended December 31, 1999. Included in
accounts receivable related party at December 31, 1999 is $2,047,057 due from
this customer. Terms are net 30 days.

     One major vendor accounted for approximately 22.2% of the Company's
purchases for the year ended December 31, 1999. Included in accounts payable at
December 31, 1999 is $351,851 due to this vendor. Terms are net 45 days.

     There were no customers or vendors which represented in excess of 10% of
the Company's sales or purchases during the year ended December 31, 1998.

NOTE 16--RELATED PARTY TRANSACTIONS

     The former President and Director of the Company is the general partner of
D.P.S. Associates, a general partnership, which is the lessor of the Company's
executive offices in Los Angeles, California, pursuant to a lease agreement with
the Company. The lease provides for base rent of $9,072 per month and expires in
April 2000.

     In October 1998, a portion of notes payable to NPM Investments, Inc., which
the Chairman of the Board of the Company holds a significant interest, totaling
$400,000 was converted into 266,666 shares of Common Stock of the Company. The
conversion price of $1.50 per share was based on the fair market price of a
share of Common Stock at the date of conversion.

     A Director of the Company controls a financial advisory firm, Averil
Associates, Inc. ("Averil Associates"), which has performed various services for
the Company including investigation of strategic financing and other corporate
growth initiatives. As consideration of such services, AGS Stationery paid
Averil Associates the aggregate amount of $26,123, plus out of pocket expenses.
As additional compensation for such services, in 1997, AGS Stationery granted to
Chloe Holdings, Inc., an affiliate of Averil Associates, warrants to purchase up
to 135 shares of Common Stock of AGS Stationery. Effective upon the Conversion,
the Chloe Warrants became exercisable for 22,841 shares of the Common Stock of
the Company at $0.76 per share and the Company also paid Averil Associates an
additional $175,000 upon consummation of the Company's initial public offering
for services rendered in connection therewith. The Chloe warrants were exercised
in November 1999.


                                    Page 33
<PAGE>


                              TAG-IT PACIFIC, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     In October 1998, the Company sold 2,390,000 shares of Common Stock at a
purchase price per share of $1.125 to KG Investment, LLC. The Company used the
$2,688,750 raised in the private placement to fund a portion of its business
growth plans and operations. KG Investment is owned by Gerard Guez and Todd Kay,
executive officers and significant shareholders of Tarrant Apparel Group
("Tarrant"). KG Investment has agreed that it will not seek to disposed of its
shares prior to October 16, 2000, except to certain affiliated parties, without
our prior written consent. KG Investment has also agreed to certain additional
restrictions on the transfer and voting of the shares it purchased and has been
granted piggyback registration rights.

     Commencing in December 1998, the Company began to provide trim products to
Tarrant for its operations in Tehuacan, Mexico. In connection therewith, the
Company purchased $2.25 million of Tarrant's existing inventory in December 1998
for resale to Tarrant. Total sales to Tarrant for the years ended December 31,
1999 and 1998 amounted to approximately $15,500,000 and $569,000. As of December
31, 1999 and 1998, accounts receivable related party included $2,047,057 and
$580,000 due from Tarrant. Terms are net 30 days.

     Sales to Brilliant Digital Entertainment, a company in which two of its
officers are also members of the Board of Directors of the Company, amounted to
$144,000 and $143,900 for the years ended December 31, 1999 and 1998. Included
in accounts receivable related party at December 31, 1999 and 1998 was $81,405
and $0 due from this related company. Terms are net 30 days.

     Included in accounts receivable related parties at December 31, 1999 and
1998 is $269,049 and $172,602, respectively, of unsecured advances to two
officers and members of the Board of Directors of the Company. Advances bear
interest at 7.5% and 8.5% and are due on demand.

     In August 1999, Mark Dyne, a member of the Board of Directors, loaned the
Company $160,000. This indebtedness is evidence by an unsecured promissory note
dated August 17, 1999. The principle, which bears an interest rate at 7% per
annum, and interest are due and payable January 31, 2000.

     In June 1997, AGS Stationery entered into a Collection Date Factoring
Agreement (the "Safcor Agreement") with Safcor, Inc. ("Safcor"). An officer and
director of Safcor is a stockholder of the Company. Pursuant to the Safcor
Agreement, AGS Stationery agreed to sell to Safcor all accounts receivable
related to the sale of goods or the rendering of services by AGS Stationery for
a purchase price equal to the gross amount of each account, less all discounts
and credits and a factoring commission of 1.5% of the net amount of the account.
The Safcor Agreement was terminated in 1998 and as of December 31, 1998, no
amounts were due to Safcor.

     In October 1998, the Company adopted a stockholder's rights plan. Under the
rights plan the Company distributed one preferred share purchase right for each
outstanding share of Common Stock outstanding on November 6, 1998. Upon the
occurrence of certain triggering events related to an unsolicited takeover
attempt of the Company, each purchase right not owned by the party or parties
making the unsolicited takeover attempt will entitle its holder to purchase
shares of the Company's Series A Preferred Stock at a value below the then
market value of the Series A Preferred Stock. The rights of holders of the
Common Stock will be subject to, and my be adversely affected by, the rights of
holders of the share purchase rights, the Series A Preferred Stock and any other
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire a majority of the Company's outstanding voting stock.

NOTE 17 - SUBSEQUENT EVENTS

     On January 4, 2000, the Company entered into a joint venture distribution
agreement with The Virkler Company ("TVC") whereas the Company is the exclusive
distributor of specialty chemical products to customers throughout Mexico for a
term of ten years. The agreement provides for the Company to receive a standard
profit margin at an agreed upon percentage on sales to specified customers. The
Company has the option to terminate the distribution agreement if sales of $2
million are not achieved in the initial 24-month term, increasing by 15% for
each contract year thereafter.


                                    Page 34
<PAGE>


                              TAG-IT PACIFIC, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     In January 2000, the Company entered into a capital lease obligation to
finance additional equipment purchases in the amount of $122,217. This
obligation bears interest at a rate of 8.5% per annum and is to be repaid over a
36-month period, beginning in January 2001, in monthly installments of $4,199
through December 2003. Future minimum annual payments under this obligation are
as follows:

<TABLE>
<CAPTION>
     Years ending December 31,                          Amount
     ----------------------                         ------------
           <S>                                      <C>
           2000.............................        $          -
           2001.............................              50,389
           2002.............................              50,389
           2003.............................              50,389
                                                     -----------
           Total payments...................             151,167
           Less amount representing interest              28,950
                                                     -----------
           Principal balance................        $    122,217
                                                     ===========
</TABLE>


                                    Page 35
<PAGE>


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

     None.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT.

     Information required by this Item 9 will appear in the proxy statement for
the 2000 Annual Meeting of Stockholders, and is incorporated herein by
reference.

ITEM 10. EXECUTIVE COMPENSATION.

     Information regarding executive compensation will appear in the proxy
statement for the 2000 Annual Meeting of Stockholders, and is incorporated
herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     Information regarding security ownership of certain beneficial owners and
management will appear in the proxy statement for the 2000 Annual Meeting of
Stockholders, and is incorporated herein by reference.

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Information regarding certain relationships and related transactions will
appear in the proxy statement for the 2000 Annual Meeting of Stockholders, and
is incorporated by this reference.

ITEM 13.    EXHIBITS, LIST AND REPORTS ON FORM 8-K.

     (a) Exhibits:

         See attached Exhibit List.

     (b) Reports on Form 8-K.

         None.


                                    Page 36
<PAGE>


                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                       TAG-IT PACIFIC, INC.

                                       /S/ MICHAEL DODO
                                       -----------------------------------------
                                       By:   Michael Dodo
                                       Its:  Vice President, Administration
                                             (Principal Financial and
                                             Accounting Officer)

                                POWER OF ATTORNEY

      Each person whose signature appears below constitutes and appoints Colin
Dyne and Michael Dodo, and each of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and his name, place and stead, in any and all capacities, to sign any or
all amendments to this Annual Report on Form 10-KSB and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.

                                   SIGNATURES

      In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
Signature                       Title                                           Date
---------                       -----                                           ----

<S>                             <C>                                             <C>
      /S/ MARK DYNE             Chairman of the Board of Directors              March 27, 1999
------------------------------
Mark Dyne

      /S/ COLIN DYNE            Chief Executive Officer and Director            March 27, 1999
------------------------------
Colin Dyne

      /S/ MICHAEL DODO          Vice President, Administration                  March 27, 1999
------------------------------  (Principal Financial and Accounting Officer)
Michael Dodo

      /S/ KEVIN BERMEISTER      Director                                        March 27, 1999
------------------------------
Kevin Bermeister

                                Director                                        March __, 1999
------------------------------
Brent Cohen

      /S/MICHAEL KATZ           Director                                        March 27, 1999
------------------------------
Michael Katz

      /S/JONATHAN BURSTEIN      Director                                        March 27, 1999
------------------------------
Jonathan Burstein

      /S/ PAUL MARKILES         Director                                        March 27, 1999
------------------------------
Paul Markiles
</TABLE>


                                    Page 37
<PAGE>


                                  EXHIBIT INDEX

Exhibit
Number    Exhibit Description
------    -------------------

2.1       Exchange Agreement, dated October 17, 1997. Incorporated by reference
          to Exhibit 2.1to Form SB-2 filed on October 21, 1997, and the
          amendments thereto.

3.1       Certificate of Incorporation of Registrant. Incorporated by reference
          to Exhibit 3.1 to Form SB-2 filed on October 21, 1997, and the
          amendments thereto.

3.2       Bylaws of Registrant. Incorporated by reference to Exhibit 3.2 to Form
          SB-2 filed on October 21, 1997, and the amendments thereto.

3.3       Certificate of Designation of Rights, Preferences and Privileges of
          Preferred Stock. Incorporated by reference to Exhibit A to the Rights
          Agreement filed as Exhibit 4.1 to Current Report on Form 8-K filed as
          of November 4, 1998.

3.4       Certificate of Amendment of Certificate of Incorporation of
          Registrant.

4.1       Specimen Stock Certificate of Common Stock of Registrant. Incorporated
          by reference to Exhibit 4.1to Form SB-2 filed on October 21, 1997, and
          the amendments thereto.

4.2       Rights Agreement, dated as of November 4, 1998, between Registrant and
          American Stock Transfer and Trust Company as Rights Agent.
          Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K
          filed as of November 4, 1998.

4.3       Form of Rights Certificate. Incorporated by reference to Exhibit B to
          the Rights Agreement filed as Exhibit 4.1 to Current Report on Form
          8-K filed as of November 4, 1998.

10.1      Form of Indemnification Agreement. Incorporated by reference to
          Exhibit 10.1 to Form SB-2 filed on October 21, 1997, and the
          amendments thereto

10.2      Lease Agreement, dated May 1, 1994, between D.P.S. Associates and
          Pacific Trim & Belt, Inc. Incorporated by reference to Exhibit 10.4 to
          Form SB-2 filed on October 21, 1997, and the amendments thereto.

10.3      Lease Agreement, dated September 6, 1996, between S & S Partnership
          and Tag-It, Inc. Incorporated by reference to Exhibit 10.5 to Form
          SB-2 filed on October 21, 1997, and the amendments thereto.

10.4      Lease Agreement, dated March 17, 1997, between Palobueno N.V. Ltd. and
          Pacific Trim & Belt, Inc. Incorporated by reference to Exhibit 10.7 to
          Form SB-2 filed on October 21, 1997, and the amendments thereto.

10.5      Tax Indemnification Agreement between Pacific Trim & Belt, Inc. and
          Harold Dyne, Jonathan Burstein, Raymond Spiro and Stan Magnus.
          Incorporated by reference to Exhibit 10.12 to Form SB-2 filed on
          October 21, 1997, and the amendments thereto.

10.6      Promissory Note, dated September 30, 1996, provided by Tag-It, Inc. to
          Harold Dyne. Incorporated by reference to Exhibit 10.21 to Form SB-2
          filed on October 21, 1997, and the amendments thereto.


                                    Page 38
<PAGE>


Exhibit
Number    Exhibit Description
------    -------------------

10.7      Promissory Note, dated June 30, 1991, provided by Tag-It, Inc. to
          Harold Dyne. Incorporated by reference to Exhibit 10.23 to Form SB-2
          filed on October 21, 1997, and the amendments thereto.

10.8      Promissory Note, dated January 31, 1997, provided by Tag-It Inc. to
          Mark Dyne. Incorporated by reference to Exhibit 10.24 to Form SB-2
          filed on October 21, 1997, and the amendments thereto.

10.9      Promissory Note, dated February 29, 1996, provided by A.G.S.
          Stationary, Inc. to Monto Holdings Pty. Ltd. Incorporated by reference
          to Exhibit 10.25o Form SB-2 filed on October 21, 1997, and the
          amendments thereto.

10.10     Promissory Note, dated January 19, 1995, provided by Pacific Trim &
          Belt, Inc. to Monto Holdings Pty. Ltd. Incorporated by reference to
          Exhibit 10.26 to Form SB-2 filed on October 21, 1997, and the
          amendments thereto.

10.11     Promissory Note, dated August 23, 1996, provided by Tag-It, Inc. to
          NPM Investments, Inc. Incorporated by reference to Exhibit 10.28 to
          Form SB-2 filed on October 21, 1997,
          and the amendments thereto.

10.12     Registrant's 1997 Stock Incentive Plan. Incorporated by reference to
          Exhibit 10.29 to Form SB-2 filed on October 21, 1997, and the
          amendments thereto.

10.13     Form of Non-statutory Stock Option Agreement. Incorporated by
          reference to Exhibit 10.30 to Form SB-2 filed on October 21, 1997, and
          the amendments thereto.

10.14     Promissory Note, dated August 31, 1997, provided by Colin Dyne to
          Tag-It, Inc. Incorporated by reference to Exhibit 10.31 to Form SB-2
          filed on October 21, 1997, and the amendments thereto.

10.15     Promissory Note, dated August 31, 1997, provided by Harold Dyne to
          Pacific Trim & Belt, Inc. Incorporated by reference to Exhibit 10.32
          to Form SB-2 filed on October 21, 1997, and the amendments thereto.

10.16     Promissory Note, dated October 15, 1997, provided by Colin Dyne to
          Tag-It, Inc. Incorporated by reference to Exhibit 10.33 to Form SB-2
          filed on October 21, 1997, and the amendments thereto.

10.17     Promissory Note, dated October 15, 1997, provided by Harold Dyne to
          Pacific Trim & Belt, Inc. Incorporated by reference to Exhibit 10.34
          to Form SB-2 filed on October 21, 1997, and the amendments thereto.

10.18     Formation Agreement of AGS Holdings L.L.C., dated as of October 17,
          1997. Incorporated by reference to Exhibit 10.35 to Form SB-2 filed on
          October 21, 1997, and the amendments thereto.

10.19     Promissory Note, dated October 21, 1997, provided by Tag-It, Inc. to
          NPM Investments, Inc. Incorporated by reference to Exhibit 10.36 to
          Form SB-2 filed on October 21, 1997, and the amendments thereto.


                                    Page 39
<PAGE>


Exhibit
Number    Exhibit Description
------    -------------------

10.20     Warrant Agreement, dated June 1, 1994, between Jonathan Markiles and
          Tag-It, Inc. Incorporated by reference to Exhibit 10.39 to Form SB-2
          filed on October 21, 1997, and the amendments thereto.

10.21     Form of Warrant Agreement between Registrant and Troop Meisinger
          Steuber & Pasich, LLP. Incorporated by reference to Exhibit 10.41 to
          Form SB-2 filed on October 21, 1997, and the amendments thereto.

10.22     Contract for Manufacturing Services between USA and Mexico, between
          Tag-It, Inc. and Tag It de Mexico, S.A. de C.V. Incorporated by
          reference to Exhibit 10.44 to Form SB-2 filed on October 21, 1997, and
          the amendments thereto.

10.23     Lease Agreement, dated November 15, 1997, between Mr. Abraham Beteeh
          Moussan and Tag It de Mexico, S.A. de CV. Incorporated by reference to
          Exhibit 10.46 to Form SB-2 filed on October 21, 1997, and the
          amendments thereto.

10.24     Domestic Labor Regulations of Tagit de Mexico, SA de CV. Incorporated
          by reference to Exhibit 10.47 to Form SB-2 filed on October 21, 1997,
          and the amendments thereto.

10.25     Promissory Note, dated October 15, 1997, provided by A.G.S. Stationary
          Inc. to Monto Holdings Pty. Ltd. Incorporated by reference to Exhibit
          10.48 to Form SB-2 filed on October 21, 1997, and the amendments
          thereto.

10.26     Promissory Note, dated November 4, 1997, provided by Pacific Trim &
          Belt, Inc. to Monto Holdings Pty. Ltd. Incorporated by reference to
          Exhibit 10.49 to Form SB-2 filed on October 21, 1997, and the
          amendments thereto.

10.27     Securities Purchase Agreement, dated December 31, 1997, between
          Registrant and Cruttenden Roth Bridge Fund, LLC. Incorporated by
          reference to Exhibit 10.50 to Form SB-2 filed on October 21, 1997, and
          the amendments thereto. Amendment to Securities Purchase Agreement,
          dated January 20, 1998, among Registrant, Cruttenden Roth Bridge Fund,
          LLC and Beta Research Corporation. Incorporated by reference to
          Exhibit 10.55 to Form SB-2 filed on October 21, 1997, and the
          amendments thereto.

10.28     Form of Bridge Warrant granted by Registrant to Cruttenden Roth Bridge
          Fund, LLC and Beta Research Corporation. Incorporated by reference to
          Exhibit 10.53 to Form SB-2 filed on October 21, 1997, and the
          amendments thereto.

10.29     Promissory Note, dated January 20, 1998, delivered by Registrant to
          Cruttenden Roth Bridge Fund, LLC. Incorporated by reference to Exhibit
          10.50 to Form SB-2 filed on October 21, 1997, and the amendments
          thereto.

10.30     Promissory Note, dated January 20, 1998, delivered by the Company to
          Beta Research Corporation. Incorporated by reference to Exhibit 10.56
          to Form SB-2 filed on October 21, 1997, and the amendments thereto.

10.31     Line of Credit Agreement, dated April 30, 1998, among Sanwa Bank of
          California, Tag-It, Inc. and Pacific Trim & Belt, Inc. Incorporated by
          reference to Exhibit 10.53 to Quarterly Report on Form 10-QSB for the
          quarter ended March 31, 1998.

                                    Page 40
<PAGE>


Exhibit
Number    Exhibit Description
------    -------------------

10.32     Binding Letter of Understanding, dated October 14, 1998. Incorporated
          by reference to Exhibit 99.3 to Current Report on Form 8-K filed as of
          October 29, 1998.

10.33     Side Letter Agreement, dated October 14, 1998. Incorporated by
          reference to Exhibit 99.4 to Current Report Form 8-K filed as of
          October 29, 1998.

21.1      List of Subsidiaries of Registrant. Incorporated by reference to
          Exhibit 21.1to Form SB-2 filed on October 21, 1997, and the amendments
          thereto.

23.1      Consent of BDO Seidman, LLP.

24.1      Power of Attorney (included on signature page).

27.1      Financial Data Schedule.


                                    Page 41