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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 ---------------


                                    FORM 10-Q

[X]      QUARTERLY  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934.

                  For the quarterly period ended September 30, 2005.

                                       OR

[_]      TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934.

         For the transition period from ____________ to _______________.



                         Commission file number 1-13669



                              TAG-IT PACIFIC, INC.
               (Exact Name of Issuer as Specified in its Charter)

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


                       21900 BURBANK BOULEVARD, SUITE 270
                        WOODLAND HILLS, CALIFORNIA 91367
                    (Address of Principal Executive Offices)


                                 (818) 444-4100
              (Registrant's Telephone Number, Including Area Code)

         Indicate  by check  whether  the  issuer:  (1) has  filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.   Yes [X]    No [_]

         Indicate by check mark whether the registrant is an  accelerated  filer
(as defined in Exchange Act Rule 12b-2).    Yes [_]    No [X]

         Indicate by check mark whether the  registrant  is a shell  company (as
defined in Exchange Act Rule 12b-2).        Yes [_]    No [X]

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest  practicable  date:  Common Stock, par
value $0.001 per share,  18,241,045 shares issued and outstanding as of November
21, 2005.


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<PAGE>


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



PART I   FINANCIAL INFORMATION                                              PAGE
                                                                            ----

Item 1.  Consolidated Financial Statements  (unaudited)........................3

         Consolidated Balance Sheets as of September 30, 2005
         and December 31, 2004.................................................3

         Consolidated Statements of Operations for the Three and
         Nine Months Ended September 30, 2005 and 2004.........................4

         Consolidated Statements of Cash Flows for the
         Nine Months Ended September 30, 2005 and 2004.........................5

         Notes to the Consolidated Financial Statements........................6

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations............................................13

Item 3.  Quantitative and Qualitative Disclosures About Market Risk...........28

Item 4.  Controls and Procedures..............................................28

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings....................................................30

Item 6.  Exhibits.............................................................30

             CAUTIONARY LEGEND REGARDING FORWARD-LOOKING STATEMENTS

         Some of the  information  in this  Quarterly  Report  on Form  10-Q may
constitute  forward-looking  statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the  Securities  Exchange Act of 1934,
both as amended.  These forward-looking  statements are subject to various risks
and uncertainties.  The forward-looking  statements include, without limitation,
statements  regarding our future  business  plans and  strategies and our future
financial  position or results of operations,  as well as other  statements that
are not historical.  You can find many of these  statements by looking for words
like  "will",  "may",   "believes",   "expects",   "anticipates",   "plans"  and
"estimates"  and for similar  expressions.  Because  forward-looking  statements
involve  risks and  uncertainties,  there are many  factors that could cause the
actual  results to differ  materially  from those  expressed  or implied.  These
include, but are not limited to, economic  conditions.  This Quarterly Report on
Form 10-Q contains important  cautionary  statements and a discussion of many of
the  factors  that could  materially  affect the  accuracy  of Tag-It  Pacific's
forward-looking  statements and such statements and discussions are incorporated
herein by reference.  Any subsequent written or oral forward-looking  statements
made by us or any person acting on our behalf are qualified in their entirety by
the cautionary  statements and factors contained or referred to in this section.
We do not intend or  undertake  any  obligation  to update  any  forward-looking
statements to reflect events or circumstances after the date of this document or
the date on which any subsequent forward-looking statement is made or to reflect
the occurrence of unanticipated events.


                                       2
<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS.

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

<CAPTION>
                                                       September 30,    December 31,
                                                           2005            2004
                                                       ------------    ------------
<S>                                                    <C>             <C>
                       Assets
Current Assets:
   Cash and cash equivalents .......................   $  1,892,377    $  5,460,662
   Trade accounts receivable, net ..................      9,470,783      17,890,044
   Trade accounts receivable, related party ........      1,400,000       4,500,000
   Inventories, net ................................      8,615,953       9,305,819
   Prepaid expenses and other current assets .......      1,312,442       2,326,245
   Deferred income taxes ...........................           --         1,000,000
                                                       ------------    ------------
     Total current assets ..........................     22,691,555      40,482,770

Property and equipment, net of accumulated
   depreciation and amortization ...................      7,205,136       9,380,026
Fixed assets held for sale .........................        826,904            --
Tradename ..........................................      4,110,750       4,110,750
Goodwill ...........................................           --           450,000
License rights .....................................        168,000         259,875
Due from related parties ...........................        589,752         556,550
Other assets .......................................        761,583       1,207,885
                                                       ------------    ------------
     Total assets ..................................   $ 36,353,680    $ 56,447,856
                                                       ============    ============

       Liabilities and Stockholders' Equity
Current Liabilities:
   Line of credit ..................................   $     59,493    $    614,506
   Accounts payable and accrued expenses ...........     12,849,511       7,460,916
   Demand notes payable to related parties .........        664,971         664,971
   Current portion of capital lease obligations ....        711,197         859,799
   Current portion of note payable .................        183,798         174,975
   Note payable ....................................           --         1,400,000
                                                       ------------    ------------
     Total current liabilities .....................     14,468,970      11,175,167

Capital lease obligations, less current portion ....        956,296       1,220,969
Note payable, less current portion .................      1,307,145       1,447,855
Secured convertible promissory notes ...............     12,432,557      12,408,623
                                                       ------------    ------------
     Total liabilities .............................     29,164,968      26,252,614
                                                       ------------    ------------

Guarantees and contingencies (Note 5)

Stockholders' equity:
   Preferred stock, Series A $0.001 par value;
     250,000 shares authorized,
     no shares issued or outstanding ...............           --              --
   Common stock, $0.001 par value, 30,000,000
     shares authorized; 18,241,045 shares issued and
     outstanding at September 30, 2005; 18,171,301
     at December 31, 2004 ..........................         18,243          18,173
     Additional paid-in capital ....................     51,327,873      51,073,402
     Accumulated deficit ...........................    (44,157,404)    (20,896,333)
                                                       ------------    ------------
     Total stockholders' equity ....................      7,188,712      30,195,242
                                                       ------------    ------------
     Total liabilities and stockholders' equity ....   $ 36,353,680    $ 56,447,856
                                                       ============    ============
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       3
<PAGE>


<TABLE>
                              TAG-IT PACIFIC, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<CAPTION>
                                                Three Months Ended             Nine Months Ended
                                                   September 30,                  September 30,
                                           ----------------------------   ----------------------------
                                               2005            2004           2005            2004
                                           ------------    ------------   ------------    ------------
<S>                                        <C>             <C>            <C>             <C>
Net sales ..............................   $  9,039,507    $ 17,004,775   $ 40,568,020    $ 42,088,194
Cost of goods sold .....................     11,201,308      12,658,879     37,505,426      30,857,994
                                           ------------    ------------   ------------    ------------
   Gross (loss) profit .................     (2,161,801)      4,345,896      3,062,594      11,230,200

Selling expenses .......................        549,434         646,000      1,940,283       2,120,598
General and administrative expenses ....      4,908,555       3,226,995     19,649,868       8,875,344
Impairment of goodwill .................        450,000            --          450,000            --
Restructuring costs ....................      2,278,835            --        2,278,835            --
                                           ------------    ------------   ------------    ------------
   Total operating expenses ............      8,186,824       3,872,995     24,318,986      10,995,942

(Loss) income from operations ..........    (10,348,625)        472,901    (21,256,392)        234,258
Interest expense, net ..................        264,551         161,828        802,400         492,902
                                           ------------    ------------   ------------    ------------
(Loss) income before income taxes ......    (10,613,176)        311,073    (22,058,792)       (258,644)
(Benefit) provision for income taxes ...       (260,731)        100,069      1,202,282         (87,938)
                                           ------------    ------------   ------------    ------------
   Net (loss) income ...................    (10,352,445)        211,004    (23,261,074)       (170,706)
Less:  Preferred stock dividends .......           --              --             --            30,505
                                           ------------    ------------   ------------    ------------
Net (loss) income to common shareholders   $(10,352,445)   $    211,004   $(23,261,074)   $   (201,211)
                                           ============    ============   ============    ============

Basic (loss) earnings per share ........   $      (0.57)   $       0.01   $      (1.28)   $      (0.01)
                                           ============    ============   ============    ============
Diluted (loss) earnings per share ......   $      (0.57)   $       0.01   $      (1.28)   $      (0.01)
                                           ============    ============   ============    ============

Weighted average number of common
shares outstanding:
   Basic ...............................     18,241,045      18,112,802     18,220,731      17,036,001
                                           ============    ============   ============    ============
   Diluted .............................     18,241,045      18,269,005     18,220,731      17,036,001
                                           ============    ============   ============    ============
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>


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

<CAPTION>
                                                                    Nine Months
                                                                Ended September 30,
                                                           ----------------------------
                                                               2005            2004
                                                           ------------    ------------
<S>                                                        <C>             <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
    Net loss ...........................................   $(23,261,071)   $   (170,706)
Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
   Depreciation and amortization .......................      1,441,087       1,100,886
   Increase in allowance for doubtful accounts .........      6,195,691         421,943
   Increase in deferred tax asset valuation allowance ..      1,000,000            --
   Increase in inventory valuation reserve .............      3,918,189            --
   Asset impairment due to restructuring ...............      2,036,091            --
   Impairment of goodwill ..............................        450,000            --
   Common stock issued for services ....................           --            74,825
   Warrants issued for services ........................           --            10,906
Changes in operating assets and liabilities:
      Receivables, including related party .............      5,323,570      (9,110,564)
      Inventories ......................................     (3,228,323)        613,526
      Other assets .....................................        337,541        (504,946)
      Prepaid expenses and other current assets ........      1,013,803      (1,720,684)
      Accounts payable and accrued expenses ............      5,471,715         377,567
      Income taxes payable .............................       (116,319)       (413,212)
                                                           ------------    ------------
Net cash provided by (used in) operating activities ....        581,974      (9,320,459)
                                                           ------------    ------------
Cash flows from investing activities:
    Acquisition of property and equipment ..............     (1,634,024)     (1,261,795)
                                                           ------------    ------------
Cash flows from financing activities:
    Repayment of bank line of credit, net ..............       (555,013)     (2,498,034)
    Proceeds from exercise of stock options and warrants        254,541         478,814
    Repayment of capital leases ........................       (683,876)       (325,268)
    Proceeds from capital lease ........................           --           950,000
    Repayment of notes payable .........................     (1,531,887)       (900,000)
                                                           ------------    ------------
Net cash used in financing activities ..................     (2,516,235)     (2,294,488)
                                                           ------------    ------------
Net decrease in cash ...................................     (3,568,285)    (12,876,742)
Cash at beginning of period ............................      5,460,662      14,442,769
                                                           ------------    ------------
Cash at end of period ..................................   $  1,892,377    $  1,566,027
                                                           ============    ============

Supplemental disclosures of cash flow information:
Cash received (paid) during the period for:
      Interest paid ....................................   $   (923,839)   $   (474,619)
      Income taxes paid ................................        (47,720)       (340,119)
      Income taxes received ............................         29,734           2,585
Non-cash financing activities:
    Preferred Series D stock converted to common stock .           --        22,918,693
    Preferred Series C stock converted to common stock .           --         2,895,001
    Accrued dividends converted to common stock ........           --           458,707
    Capital lease obligation ...........................        270,597         249,418
    Mortgage note payable ..............................           --           765,000
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       5
<PAGE>


                              TAG-IT PACIFIC, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.       PRESENTATION OF INTERIM INFORMATION

         The accompanying  unaudited consolidated financial statements have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States for interim  financial  information  and in  accordance  with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not  include  all  of the  information  and  footnotes  required  by  accounting
principles  generally  accepted  in the  United  States for  complete  financial
statements. The accompanying unaudited consolidated financial statements reflect
all adjustments  that, in the opinion of the management of Tag-It Pacific,  Inc.
and Subsidiaries  (collectively,  the "Company"), are considered necessary for a
fair  presentation of the financial  position,  results of operations,  and cash
flows for the periods presented.  The results of operations for such periods are
not necessarily  indicative of the results  expected for the full fiscal year or
for any future period. The accompanying  financial  statements should be read in
conjunction with the audited  consolidated  financial  statements of the Company
included in the Company's  Form 10-K for the year ended  December 31, 2004.  The
balance  sheet  as of  December  31,  2004  has been  derived  from the  audited
financial statements as of that date but omits certain information and footnotes
required for complete financial statements.

         The accompanying  consolidated  financial statements have been prepared
assuming that the Company will continue as a going concern,  which  contemplates
the  realization  of assets and the  satisfaction  of  liabilities in the normal
course of business.  This assumption is based on the Company being successful in
restructuring its operations in accordance with the  restructuring  plan adopted
by the Company's  board of directors in August 2005.  The Company's  independent
registered  public  accounting firm has informed the Company that it may include
in its report on the Company's financial  statements for the year ended December
31,  2005 an  explanatory  paragraph  expressing  substantial  doubt  about  the
Company's  ability  to  continue  as a going  concern  if the  Company  fails to
successfully implement its restructuring initiative.


2.       EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2005     LOSS (INCOME)       SHARES       PER SHARE
                                           ------------    ------------   ------------
<S>                                        <C>               <C>          <C>
Basic loss per share:
Loss available to common stockholders ..   $(10,352,445)     18,241,045   $      (0.57)

Effect of Dilutive Securities:
Options ................................           --              --             --
Warrants ...............................           --              --             --
                                           ------------    ------------   ------------
Loss available to common stockholders ..   $(10,352,445)     18,241,045   $      (0.57)
                                           ============    ============   ============


                                       6
<PAGE>


THREE MONTHS ENDED SEPTEMBER 30, 2004
Basic earnings per share:
Income available to common stockholders    $    211,004      18,112,802   $       0.01

Effect of Dilutive Securities:
Options ................................           --           156,203           --
Warrants ...............................           --              --             --
                                           ------------    ------------   ------------
Income available to common stockholders    $    211,004      18,269,005   $       0.01
                                           ============    ============   ============


NINE MONTHS ENDED SEPTEMBER 30, 2005       LOSS (INCOME)       SHARES       PER SHARE
                                           ------------    ------------   ------------
Basic loss per share:
Loss available to common stockholders ..   $(23,261,074)     18,220,731   $      (1.28)

Effect of Dilutive Securities:
Options ................................           --              --             --
Warrants ...............................           --              --             --
                                           ------------    ------------   ------------
Loss available to common stockholders ..   $(23,261,074)     18,220,731   $      (1.28)
                                           ============    ============   ============

NINE MONTHS ENDED SEPTEMBER 30, 2004
Basic loss per share:
Loss available to common stockholders ..   $   (201,211)     17,036,001   $      (0.01)

Effect of Dilutive Securities:
Options ................................           --              --             --
Warrants ...............................           --              --             --
                                           ------------    ------------   ------------
Loss available to common stockholders ..   $   (201,211)     17,036,001   $      (0.01)
                                           ============    ============   ============
</TABLE>

         Warrants to purchase  1,510,479 shares of common stock at between $3.50
and $5.06, options to purchase 1,812,000 shares of common stock at between $1.30
and  $5.23,  convertible  debt of  $500,000  convertible  at $4.50 per share and
convertible  debt  of  $12.5  million   convertible  at  $3.65  per  share  were
outstanding for the three and nine months ended September 30, 2005, but were not
included in the  computation of diluted  earnings per share because  exercise or
conversion would have an antidilutive effect on earnings per share.


         Warrants to purchase  1,191,984 shares of common stock at between $4.29
and $5.06, options to purchase 1,270,200 shares of common stock at between $3.63
and $4.63, and convertible debt of $500,000 convertible at $4.50 per share, were
outstanding for the three months ended September 30, 2004, but were not included
in the computation of diluted  earnings per share because exercise or conversion
would have an antidilutive effect on earnings per share.


         Warrants to purchase  1,191,984 shares of common stock at between $4.29
and $5.06, options to purchase 1,790,200 shares of common stock at between $1.30
and $4.63, and convertible debt of $500,000 convertible at $4.50 per share, were
outstanding for the nine months ended September 30, 2004,


                                       7
<PAGE>


but were not included in the  computation of diluted  earnings per share because
exercise or conversion would have an antidilutive effect on earnings per share.


3.       STOCK BASED COMPENSATION

         All stock options  issued to employees  had 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
for the three and nine months ended September 30, 2005 and 2004. If compensation
cost for stock-based compensation had been determined based on the fair value of
the stock  options  on their  dates of grant in  accordance  with  Statement  of
Financial  Accounting  Standards  No. 123 the  Company's  net (loss)  income and
(loss) earnings per share for the three and nine months ended September 30, 2005
and 2004 would have amounted to the pro forma amounts presented below:

<TABLE>
<CAPTION>
                                                          Three Months                   Nine Months
                                                       Ended September 30,            Ended September 30,
                                                   ----------------------------   ----------------------------
                                                       2005            2004           2005            2004
                                                   ------------    ------------   ------------    ------------
<S>                                                <C>             <C>            <C>             <C>
Net (loss) income, as reported .................   $(10,352,445)   $    211,004   $(23,261,074)   $   (170,706)
Add: Stock-based employee compensation expense
     included in reported net income, net of
     related tax effects .......................        (65,332)           --         (142,393)           --

Deduct:  Total stock-based employee compensation
     expense determined under fair value based
     method for all awards, net of related tax
     effects ...................................           --            (5,224)          --           (50,004)
                                                   ------------    ------------   ------------    ------------

Pro forma net (loss) income ....................   $(10,417,777)   $    205,780   $(23,403,467)   $   (220,710)
                                                   ============    ============   ============    ============

(Loss) earnings per share:
     Basic - as reported .......................   $      (0.57)   $       0.01   $      (1.28)   $      (0.01)
     Basic - pro forma .........................   $      (0.57)   $       0.01   $      (1.28)   $      (0.01)
     Diluted - as reported .....................   $      (0.57)   $       0.01   $      (1.28)   $      (0.01)
     Diluted - pro forma .......................   $      (0.57)   $       0.01   $      (1.28)   $      (0.01)
</TABLE>


4.       2005 RESTRUCTURING PLAN

         In an effort to better  align  the  Company's  organizational  and cost
structures  with its future growth  opportunities,  in August 2005 the Company's
Board of Directors adopted a restructuring  plan for the Company that it expects
will be  completed  by  December  2005.  The  plan  includes  restructuring  the
Company's  global  operations  by  eliminating  redundancies  in its  Hong  Kong
operation,  closing its Mexican  facilities,  converting its Guatemala  facility
from a  manufacturing  site to a  distributor,  and closing  its North  Carolina
manufacturing  facility.  The Company also intends to focus its sales efforts on
higher margin products, which may result in lower net sales over the next twelve
months.  Upon  completion of this  restructuring,  the Company will operate with
fewer employees and reduced associated operating and manufacturing expenses.


                                       8
<PAGE>


         The Company has recorded  charges in connection with its  restructuring
plan in  accordance  with  SFAS No.  146 (As  Amended),  "Accounting  for  Costs
Associated  with  Exit or  Disposal  Activities."  In  addition,  the  Company's
restructuring  plan has  resulted in the  carrying  value of certain  long-lived
assets,  primarily  equipment,  being  impaired.  Accordingly,  the  Company has
recorded a charge to recognize the impairment of these assets in accordance with
SFAS No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets."
It is possible that, upon completion of its restructuring plan by December 2005,
the Company's  recorded  charges might need to be adjusted to reflect changes in
the  disposition  of these  assets.  The  Company  will  continue to monitor its
progress during this restructuring period and adjust its business strategies and
plans to achieve its planned operating efficiencies and costs reductions.

         The North Carolina manufacturing facility is a long lived asset that is
classified as "held for sale" because it meets the criteria  listed in Paragraph
30 of SFAS 144.  Management  has the  authority  and has  committed  to sell the
asset;  the asset is listed for sale with a commercial  real estate agent who is
actively marketing the property;  the sale of the asset is probable and the sale
is expected to be  completed  within one year and it is unlikely  that this plan
will be changed.  The major pieces of equipment used to manufacture  zippers are
not classified as held for sale because they do not meet the criteria  listed in
Paragraph 30 of SFAS 144 and will  therefore be recorded in the balance sheet as
property and equipment.

         Total restructuring  charges recorded in the third quarter of 2005 were
$6,176,000.  The  restructuring  charges  included  approximately  $3,447,000 of
inventory  write-downs,   restructuring  charges  of  approximately   $2,279,000
consisting of $2,036,000  for the  impairment  of long-lived  assets,  primarily
machinery and equipment,  $170,000 of one time employee termination benefits and
other costs of $73,000.  In addition,  an  impairment  charge to goodwill in the
amount  of  $450,000  was  recorded.   This  goodwill  was  associated  with  an
acquisition  made to benefit the Central and South  American  operations.  Since
these operations are being exited,  management  concluded that this goodwill was
impaired and should be written off. These restructuring charges were recorded on
our  Consolidated Statements  of  Operations  for the three month and nine month
periods ended September 30, 2005 in the following line items and amounts:

         Cost of goods sold .......................          $3,447,000
         Goodwill impairment ......................             450,000
         Restructuring costs ......................           2,279,000
                                                             ----------
         Total ....................................          $6,176,000
                                                             ==========


5.       GUARANTEES AND CONTINGENCIES

         In November  2002, the FASB issued FIN No. 45  "Guarantor's  Accounting
and Disclosure  Requirements for Guarantees,  including  Indirect  Guarantees of
Indebtedness of Others - and interpretation of FASB Statements No. 5, 57 and 107
and  rescission  of FIN  34."  The  following  is a  summary  of  the  Company's
agreements that it has determined are within the scope of FIN 45:

         In  accordance  with the bylaws of the Company,  officers and directors
are  indemnified  for certain events or  occurrences  arising as a result of the
officer or director's serving in such capacity.  The term of the indemnification
period is for the  lifetime of the officer or  director.  The maximum  potential
amount of future  payments  the  Company  could be  required  to make  under the
indemnification provisions of its bylaws is unlimited.  However, the Company has
a director and officer liability  insurance policy that reduces its exposure and
enables it to recover a portion of any future  amounts  paid. As a result of its
insurance policy coverage,  the Company believes the estimated fair value of the
indemnification  provisions of its bylaws is minimal and therefore,  the Company
has not recorded any related liabilities.


                                       9
<PAGE>


         In  accordance  with the bylaws of the Company,  officers and directors
are  indemnified  for certain events or  occurrences  arising as a result of the
officer or director's serving in such capacity.  The term of the indemnification
period is for the  lifetime of the officer or  director.  The maximum  potential
amount of future  payments  the  Company  could be  required  to make  under the
indemnification provisions of its bylaws is unlimited.  However, the Company has
a director and officer liability  insurance policy that reduces its exposure and
enables it to recover a portion of any future  amounts  paid. As a result of its
insurance policy coverage,  the Company believes the estimated fair value of the
indemnification  provisions of its bylaws is minimal and therefore,  the Company
has not recorded any related liabilities.

         The Company enters into indemnification provisions under its agreements
with  investors  and its  agreements  with other parties in the normal course of
business,  typically  with  suppliers,  customers  and  landlords.  Under  these
provisions, the Company generally indemnifies and holds harmless the indemnified
party for losses  suffered or incurred by the  indemnified  party as a result of
the  Company's  activities  or, in some  cases,  as a result of the  indemnified
party's activities under the agreement.  These indemnification  provisions often
include  indemnifications  relating to representations  made by the Company with
regard  to  intellectual  property  rights.  These  indemnification   provisions
generally survive termination of the underlying agreement. The maximum potential
amount of future  payments  the  Company  could be  required to make under these
indemnification  provisions is unlimited.  The Company has not incurred material
costs to defend  lawsuits  or settle  claims  related  to these  indemnification
agreements.  As a result, the Company believes the estimated fair value of these
agreements  is minimal.  Accordingly,  the Company has not  recorded any related
liabilities.

         The Company has filed suit against Pro-Fit Holdings Limited in the U.S.
District Court for the Central District of California -- TAG-IT PACIFIC, INC. V.
PRO-FIT HOLDINGS  LIMITED,  CV 04-2694 LGB (RCx) - based on various  contractual
and tort claims  relating to the Company's  exclusive  license and  intellectual
property agreement,  seeking declaratory relief,  injunctive relief and damages.
The  agreement  with  Pro-Fit  gives the  Company  exclusive  rights in  certain
geographic areas to Pro-Fit's  stretch and rigid waistband  technology.  Pro-Fit
filed an answer  denying the material  allegations  of the complaint and filed a
counterclaim  alleging  various  contractual and tort claims seeking  injunctive
relief and damages.  The Company filed a reply denying the material  allegations
of Pro-Fit's  pleading.  Pro-Fit has since  purported to terminate the exclusive
license and intellectual  property  agreement based on the same alleged breaches
of the agreement that are the subject of the parties'  existing  litigation,  as
well as on an  additional  basis  unsupported  by fact.  In February  2005,  the
Company amended its pleadings in the litigation to assert additional breaches by
Pro-Fit of its  obligations to the Company under the agreement and under certain
additional  letter  agreements,  and for a declaratory  judgment that  Pro-Fit's
patent No.  5,987,721 is invalid and not  infringed by the Company.  Thereafter,
Pro-Fit  filed  an  amended  answer  and   counterclaim   denying  the  material
allegations of the amended  complaint and alleging various  contractual and tort
claims seeking injunctive relief and damages.  Pro-Fit further asserted that the
Company  infringed its United States Patent Nos.  5,987,721 and  6,566,285.  The
Company filed a reply denying the  substantive  allegations of the reply. At the
Company's  request,  the  Court  bifurcated  the  contract  issues  for trial to
commence on January 10, 2006.  The parties have filed summary  judgment  motions
which  may  dispose  of some of the  issues in this  case  prior to  trial.  The
remaining  issues  will be tried  at a later  date.  As the  Company  derives  a
significant  amount  of  revenue  from the sale of  products  incorporating  the
stretch waistband technology,  its business, results of operations and financial
condition could be materially  adversely affected if the dispute with Pro-Fit is
not resolved in a manner favorable to the Company. Additionally, the Company has
incurred  significant  legal  fees in this  litigation,  and  unless the case is
settled,  the Company will continue to incur additional legal fees in increasing
amounts as the case accelerates to trial.


                                       10
<PAGE>


         The Company is subject to certain  other 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.


6.       NEW ACCOUNTING PRONOUNCEMENTS

         In December  2004,  the FASB issued  Statement of Financial  Accounting
Standard  ("SFAS") No. 123R "Share Based  Payment." This statement is a revision
of SFAS  Statement  No.  123,  "Accounting  for  Stock-Based  Compensation"  and
supersedes APB Opinion No. 25,  "Accounting  for Stock Issued to Employees," and
its related  implementation  guidance.  SFAS 123R  addresses  all forms of share
based  payment  ("SBP")  awards  including  shares issued under  employee  stock
purchase plans, stock options,  restricted stock and stock appreciation  rights.
Under SFAS 123R, SBP awards result in a cost that will be measured at fair value
on the awards'  grant  date,  based on the  estimated  number of awards that are
expected to vest.  This  statement is effective as of the beginning of the first
annual  reporting  period  that  begins  after June 15,  2005.  The  Company has
evaluated the effects of the adoption of this  pronouncement  and has determined
it will not have a material impact on the Company's financial statements.

         In  December  2004,  the  FASB  issued  Statement  Accounting  Standard
("SFAS") No. 153  "Exchanges  of  Nonmonetary  Assets".  This  Statement  amends
Opinion 29 to  eliminate  the  exception  for  nonmonetary  exchanges of similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial  substance if the future cash flows of the entity are expected to
change  significantly  as a  result  of the  exchange.  The  provisions  of this
Statement are  effective for  nonmonetary  asset  exchanges  occurring in fiscal
periods  beginning  after June 15, 2005.  Earlier  application  is permitted for
nonmonetary asset exchanges occurring in fiscal periods beginning after December
16, 2004. The provisions of this Statement should be applied prospectively.  The
adoption of this  pronouncement  did not have  material  effect on the Company's
financial statements.

         In March, 2005, the Securities and Exchange Commission's ("SEC") Office
of the  Chief  Accountant  and its  Division  of  Corporation  Finance  released
Financial Accounting Bulletin No. 107,  "Share-Based Payment" (SAB 107). SAB 107
provides  interpretive  guidance related to the interaction between Statement of
Financial  Accounting  Standard No. 123R "Shared Based  Payment" (SFAS 123R) and
certain SEC rules and regulations.  SAB 107 provides the staff's views regarding
the valuation of  shared-based  payment  arrangements  for public  companies and
stresses the importance of including appropriate disclosures within SEC filings,
particularly during the transition to SFAS 123R.

         In May 2005,  the FASB  issued SFAS No.  154,  "Accounting  Changes and
Error  Corrections - A Replacement  of APB Opinion No. 20 and FASB Statement No.
3" ("SFAS  154").  SFAS 154  replaces APB Opinion No. 20,  "Accounting  Changes"
("APB 20") and FASB Statement No. 3,  "Reporting  Accounting  Changes in Interim
Financial  Statements,"  and changes the requirements for the accounting for and
reporting of a change in accounting  principle.  APB 20 previously required that
most voluntary changes in accounting principle be recognized by including in net
income of the period of the change the cumulative  effect of changing to the new
accounting  principle.  SFAS 154  requires  retrospective  application  to prior
periods'  financial  statements for voluntary  changes in accounting  principle.
SFAS 154 is effective for accounting  changes and  corrections of errors made in
fiscal years  beginning  after  December  15, 2005.  The impact of SFAS 154 will
depend on the accounting change, if any, in a future period.


                                       11
<PAGE>


7.       SIGNIFICANT ADJUSTMENTS

         The Company  evaluated  its accounts  receivable,  inventory,  accounts
payable,  certain  other  assets and its net deferred tax asset and recorded the
following significant adjustments during the three months ended June 30, 2005:

         o        Increased  allowance for doubtful accounts by $6,381,000 based
                  upon management's  estimate of the  collectibility of accounts
                  receivable related to two customers;

         o        Increased inventory  obsolescence  reserve by $1,550,000 based
                  upon  management's  estimate  of the net  realizable  value of
                  certain inventories;

         o        Recorded   additional  reserves  of  $1,523,000  to  primarily
                  reflect an increase in legal accruals,  charges related to the
                  Company's  Pro-Fit  litigation  and  a  reduction  in  certain
                  assets; and

         o        Reduced the carrying  value of the  Company's net deferred tax
                  asset to zero from $1,000,000 at December 31, 2004.

8.       ACCOUNTS RECEIVABLE

         As of September  30, 2005,  the Company had  accounts  receivable  from
Azteca Productions  International of approximately $10,654,000 less a reserve of
$7,007,000,  for a net balance of $3,647,000  recorded on the Company's  balance
sheet. The Company is pursuing several payment  alternatives with Azteca, one of
which would involve the Company  granting to Azteca  warrants to purchase shares
of its  common  stock at a  significant  premium  to market to induce  Azteca to
borrow  funds,  the  proceeds  of  which  would be paid to the  Company  in full
settlement of the  outstanding  accounts  receivable  due from Azteca within the
next 60 days. The Company anticipates that the value of the warrants,  using the
Black-Scholes  valuation method, would be approximately  $100,000,  and that the
amount paid to the  Company,  less the cost of the  warrants,  would be at least
equal to the net amount the Company has  recorded in accounts  receivable  as of
September 30, 2005. If the Company is unable to reach a settlement  with Azteca,
it will consider all available alternatives,  including bringing suit to collect
the amounts due the Company.

9.       SUBSEQUENT EVENT

         On October 12, 2005, a purported  shareholder  class action lawsuit was
filed  against the Company and certain  officers and directors of the Company in
the United States District Court for the Central District of California alleging
claims  under  Section  10(b) and Section 20 of the  Securities  Exchange Act of
1934, as amended,  and Rule 10b-5 promulgated  thereunder.  The case is entitled
HUBERMAN V. TAG-IT PACIFIC,  INC., ET AL., Case No.  CV05-7352 R(Ex). The action
is   purportedly   brought  on  behalf  of  all   purchasers  of  the  Company's
publicly-traded  securities  during the period from  November 14, 2003 to August
12, 2005. The Company has accepted service of the complaint and has entered into
a  stipulation  with  plaintiff's  counsel to  formally  respond  following  the
appointment of lead plaintiff and lead counsel and the anticipated filing of the
consolidated  amended complaint.  The Company believes the lawsuit to be without
merit and intends to vigorously defend against the lawsuit. At this stage of the
litigation,  the Company is not able to reasonably estimate potential losses, if
any, related to the lawsuit.


                                       12
<PAGE>


ITEM 2.  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,  Inc. and the notes to the
Consolidated Financial Statements included elsewhere in this Form 10-Q.

         This  discussion  summarizes  the  significant  factors  affecting  the
consolidated operating results, financial condition and liquidity and cash flows
of Tag-It Pacific, Inc. for the three months and nine months ended September 30,
2005 and 2004. 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.

OVERVIEW

         Tag-It  Pacific,  Inc. is an apparel  company that  specializes  in the
distribution  of trim  items to  manufacturers  of  fashion  apparel,  specialty
retailers and mass merchandisers.

         As part of our  restructuring  plan which was  approved by our Board of
Directors in August 2005, we have  developed a new  strategic  direction for our
trim division and Talon zipper division.

                  TRIM DIVISION.

                  We have restructured our trim business to become an outsourced
product  development,  sourcing and sampling  department  for the most demanding
brands and retailers.  We believe that trim design  differentiation among brands
and  retailers  has  become a  critical  marketing  tool for our  customers.  By
assisting  our  customers in the  development,  design and sourcing of trim,  we
expect  to  achieve  higher  margins  for our trim  products,  create  long-term
relationships  with our customers,  grow our sales to a particular a customer by
supplying trim for a larger proportion of their brands, and better differentiate
our trim sales and services  from those of our  competitors.  We expect our trim
kits to have  less of a  material  contribution  to our trim  business.  We will
continue  to  supply  trim to  customers  who do not  engage  us to  serve as an
outsourced development,  sourcing and sampling department;  however, we will not
provide this trim in a preassembled "trim kit."

                  TALON ZIPPER DIVISION.

                  We intend to continue to focus on the global  expansion of our
Talon  zipper  division by  developing a network of  distribution  relationships
worldwide. Several of our distribution partners have experienced delays in their
acquisition of necessary zipper equipment, which has delayed the distribution of
Talon zippers in their respective territories.  These delays, coupled with other
performance  deficiencies,  have  caused us to  terminate  several  distribution
partners  and  modify  our  global   expansion   plans.  We  are   significantly
streamlining our distribution process, and adopting more flexible procedures for
certifying our distributor's  existing  equipment to meet our high manufacturing
standards,  supplementing  this  existing  equipment  only where  necessary.  In
addition,  we are  approaching  more existing  zipper  factories to serve as our
distributors  in order to reduce the time to market by eliminating the setup and
build-out phase of new factory development.

2005 RESTRUCTURING PLAN

         In an effort to better  align  the  Company's  organizational  and cost
structures  with its future growth  opportunities,  in August 2005 the Company's
Board of Directors adopted a restructuring  plan for the Company that it expects
will be  completed  by  December  2005.  The  plan  includes  restructuring  the


                                       13
<PAGE>


Company's  global  operations  by  eliminating  redundancies  in its  Hong  Kong
operation,  closing its Mexican  facilities,  converting its Guatemala  facility
from a  manufacturing  site to a  distributor,  and closing  its North  Carolina
manufacturing  facility.  The Company also intends to focus its sales efforts on
higher margin products, which may result in lower net sales over the next twelve
months.  Upon  completion of this  restructuring,  the Company will operate with
fewer employees and reduced associated operating and manufacturing expenses.

         The Company has recorded  charges in connection with its  restructuring
plan in  accordance  with  SFAS No.  146 (As  Amended),  "Accounting  for  Costs
Associated  with  Exit or  Disposal  Activities."  In  addition,  the  Company's
restructuring  plan has  resulted in the  carrying  value of certain  long-lived
assets,  primarily  equipment,  being  impaired.  Accordingly,  the  Company has
recorded a charge to recognize the impairment of these assets in accordance with
SFAS No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets."
It is possible that, upon completion of its restructuring plan by December 2005,
the Company's  recorded  charges might need to be adjusted to reflect changes in
the  disposition  of these  assets.  The  Company  will  continue to monitor its
progress during this restructuring period and adjust its business strategies and
plans to achieve its planned operating efficiencies and costs reductions.

         The North Carolina manufacturing facility is a long lived asset that is
classified as "held for sale" because it meets the criteria  listed in Paragraph
30 of SFAS 144.  Management  has the  authority  and has  committed  to sell the
asset;  the asset is listed for sale with a commercial  real estate agent who is
actively marketing the property;  the sale of the asset is probable and the sale
is expected to be  completed  within one year and it is unlikely  that this plan
will be changed.  The major pieces of equipment used to manufacture  zippers are
not classified as held for sale because they do not meet the criteria  listed in
Paragraph 30 of SFAS 144 and will  therefore be recorded in the balance sheet as
property and equipment.

         Total restructuring  charges recorded in the third quarter of 2005 were
$6,176,000.  The  restructuring  charges  included  approximately  $3,447,000 of
inventory  write-downs,   restructuring  charges  of  approximately   $2,279,000
consisting of $2,036,000  for the  impairment  of long-lived  assets,  primarily
machinery and equipment,  $170,000 of one time employee termination benefits and
other costs of $73,000.  In addition,  an  impairment  charge to goodwill in the
amount  of  $450,000  was  recorded.   This  goodwill  was  associated  with  an
acquisition  made to benefit the Central and South  American  operations.  Since
these operations are being exited,  management  concluded that this goodwill was
impaired and should be written off. These restructuring charges were recorded on
our  Consolidated Statements  of  Operations  for the three month and nine month
periods ended September 30, 2005 in the following line items and amounts:

         Cost of goods sold .......................          $3,447,000
         Goodwill .................................             450,000
         Restructuring costs ......................           2,279,000
                                                             ----------
         Total ....................................          $6,176,000
                                                             ==========

SHAREHOLDER LAWSUIT

         On October 12, 2005, a purported  shareholder  class action lawsuit was
filed  against us and certain of our officers and directors in the United States
District  Court for the Central  District of  California  alleging  claims under
Section 10(b) and Section 20 of the Securities Exchange Act of 1934, as amended,
and Rule 10b-5 promulgated  thereunder.  The case is entitled HUBERMAN V. TAG-IT
PACIFIC,  INC.,  ET AL., Case No.  CV05-7352  R(Ex).  The action is  purportedly
brought on behalf of all purchasers of our publicly-traded securities during the
period from November 14, 2003 to August 12, 2005. We have


                                       14
<PAGE>


accepted  service of the  complaint  and have  entered into a  stipulation  with
plaintiff's  counsel to  formally  respond  following  the  appointment  of lead
plaintiff  and lead  counsel  and the  anticipated  filing  of the  consolidated
amended  complaint.  Although we believe that we and the other  defendants  have
meritorious  defenses to the class  action  complaint  and intend to contest the
lawsuit  vigorously,  an adverse  resolution  of any of the lawsuit could have a
material adverse effect on our financial position and results of operations.  At
this stage of the litigation,  we are not able to reasonably  estimate potential
losses, if any, related to the lawsuit.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         Our discussion  and analysis of our financial  condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,   and  related  disclosure  of  contingent  assets  and
liabilities.  On an on-going basis,  we evaluate our estimates,  including those
related to our  valuation  of  inventory  and our  allowance  for  uncollectible
accounts  receivable.  We base our  estimates on  historical  experience  and on
various  other  assumptions  that  are  believed  to  be  reasonable  under  the
circumstances,  the results of which form the basis for making  judgments  about
the carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these  estimates  under different
assumptions or conditions.

         We believe the following critical  accounting  policies affect our more
significant  judgments and estimates used in the preparation of our consolidated
financial statements:

         o        Inventory  is  evaluated  on a  continual  basis  and  reserve
                  adjustments are made based on management's  estimate of future
                  sales  value,  if any, of specific  inventory  items.  Reserve
                  adjustments  are made for the  difference  between the cost of
                  the inventory and the estimated  market value,  if lower,  and
                  charged  to  operations  in the period in which the facts that
                  give rise to the  adjustments  become known.  A portion of our
                  total inventories is subject to buyback  arrangements with our
                  customers. The buyback arrangements contain provisions related
                  to the  inventory we purchase  and  warehouse on behalf of our
                  customers,  and  require  that these  customers  purchase  the
                  inventories from us in accordance with the applicable  buyback
                  arrangements. If the financial condition of a customer were to
                  deteriorate,  resulting  in an  impairment  of its  ability to
                  purchase   inventories,   an  additional   adjustment  may  be
                  required.   These  buyback   arrangements  are  considered  in
                  management's  estimate of future market value of  inventories.
                  See  further   discussion   below  of  reserve  for  inventory
                  obsolescence recorded in the third quarter of 2005.

         o        Accounts  receivable  balances  are  evaluated  on a continual
                  basis   and   allowances   are   provided   for    potentially
                  uncollectible  accounts based on management's  estimate of the
                  collectability   of  customer   accounts.   If  the  financial
                  condition of a customer were to  deteriorate,  resulting in an
                  impairment  of its  ability to make  payments,  an  additional
                  allowance may be required.  Allowance  adjustments are charged
                  to  operations in the period in which the facts that give rise
                  to the adjustments become known.

         o        We record  valuation  allowances  to reduce our  deferred  tax
                  assets to an amount that we believe is more likely than not to
                  be realized.  We consider  estimated future taxable income and
                  ongoing  prudent  and  feasible  tax  planning  strategies  in
                  assessing the need for a valuation allowance.  If we determine
                  that we may not realize all or part of our deferred tax assets
                  in the  future,  we will make an  adjustment  to the  carrying
                  value of the deferred


                                       15
<PAGE>


                  tax asset,  which would be reflected as an income tax expense.
                  Conversely,  if we  determine  that we will realize a deferred
                  tax asset, which currently has a valuation allowance, we would
                  be required to reverse the valuation allowance, which would be
                  reflected as an income tax benefit. At September 30, 2005, the
                  carrying  value of our net deferred tax asset was zero because
                  we could not  determine  that it was more likely than not that
                  the deferred tax asset would be realized.

         o        Intangible  assets  are  evaluated  on a  continual  basis and
                  impairment   adjustments   are  made  based  on   management's
                  valuation of identified  reporting  units related to goodwill,
                  the valuation of intangible  assets with indefinite  lives and
                  the   reassessment  of  the  useful  lives  related  to  other
                  intangible  assets  with  definite  useful  lives.  Impairment
                  adjustments  are made for the difference  between the carrying
                  value of the intangible asset and the estimated  valuation and
                  charged  to  operations  in the period in which the facts that
                  give rise to the adjustments become known.

         o        Long-lived  assets  are  evaluated  on a  continual  basis and
                  impairment   adjustments  are  made  based  upon  management's
                  valuations.  As part of the 2005  Restructuring  Plan, certain
                  long-lived  assets,  primarily  machinery and equipment,  were
                  impaired and their values adjusted accordingly.

         o        Sales are  recorded  at the time of  shipment,  at which point
                  title  transfers  to the  customer,  and  when  collection  is
                  reasonably assured.

RESULTS OF OPERATIONS

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

                                           THREE MONTHS ENDED  NINE MONTHS ENDED
                                               SEPTEMBER 30,      SEPTEMBER 30,
                                             ---------------    ---------------
                                              2005      2004     2005      2004
                                             -----     -----    -----     -----
Net sales ................................   100.0%    100.0%   100.0%    100.0%
Cost of goods sold .......................   123.9      74.4     92.5      73.3
                                             -----     -----    -----     -----
Gross (loss) profit ......................   (23.9)     25.6      7.5      26.7
Selling expenses .........................     6.1       3.8      4.8       5.0
General and administrative expenses ......    54.3      19.0     48.4      21.1
Impairment of goodwill ...................     5.0       0.0      1.1       0.0
Restructuring costs ......................    25.2       0.0      5.6       0.0
                                             -----     -----    -----     -----
Operating (loss) income ..................  (114.5)%     2.8%   (52.4)%     0.6%
                                             =====     =====    =====     =====


                                       16
<PAGE>


         The  following  table sets  forth for the  periods  indicated  revenues
attributed  to  geographical  regions based on the location of the customer as a
percentage of net sales:

                                        THREE MONTHS ENDED     NINE MONTHS ENDED
                                           SEPTEMBER 30,         SEPTEMBER 30,
                                         ----------------      ----------------
                                          2005       2004       2005       2004
                                         -----      -----      -----      -----
United States ......................      18.5%       9.7%      11.8%       8.7%
Asia ...............................      45.3       19.3       35.6       22.2
Mexico .............................       4.3       44.9       30.2       40.2
Dominican Republic .................      16.5       15.8       13.3       18.2
Central and South America ..........       9.9        7.4        7.0        9.3
Other ..............................       5.5        2.9        2.1        1.4
                                         -----      -----      -----      -----
                                         100.0%     100.0%     100.0%     100.0%
                                         -----      -----      -----      -----


         Net  sales  for  the  three  months  ended   September  30,  2005  were
$9,040,000,  a decrease  of  $7,965,000  or 46.8%  compared  to the net sales of
$17,005,000  for the three months ended  September  30, 2004.  This decrease was
primarily due to a decrease in sales to our Mexican  customers of trim and, to a
lesser extent, Talon zippers due to an industry shift of apparel production from
Latin America to Asia. As reported elsewhere,  we are responding to these market
changes by reducing our Mexican  operation and focusing our efforts on the Asian
market.  Asian sales of our Talon zippers and trim products increased 23%. Sales
of our  Tekfit  waistband  decreased  because  of lower  demand  from the single
customer for this product.

         Net  sales  for  the  nine  months  ended   September   30,  2005  were
$40,568,000,  a  decrease  of  $1,520,000  or  3.6%  compared  to net  sales  of
$42,088,000  for the nine months ended  September 30, 2004. This decrease in net
sales  occurred in our Mexican  operation in the third quarter as the market for
trim and zipper products moved from Latin America to Asia. For the period, sales
of  Talon   zippers  and  trim  products  by  our  Asian   operation   increased
approximately  38% over the same  period in the prior  year.  During this period
sales of our Tekfit waistband  decreased because of lower demand from the single
customer for this product.

         Gross loss was $2,162,000 for the three months ended September 30, 2005
compared  to a gross  profit of  $4,346,000,  or 25.5% of  sales,  for the three
months ended September 30, 2004. The gross loss included an inventory write down
associated with the  restructuring  plan of $3,447,000.  Excluding the inventory
restructuring  write down, gross profit would have been $1,285,000,  or 14.2% of
net sales. This amount was adversely  affected by the low sales volume resulting
in certain fixed costs being  absorbed by lower sales and inventory  adjustments
unrelated to the restructuring plan.

         Gross profit decreased approximately $8,167,000, or 72.7% to $3,062,000
for the nine  months  ended  September  30, 2005 from  $11,230,000  for the nine
months  ended  September  30, 2004.  Gross  profit as a percentage  of net sales
decreased to approximately  7.5% for the nine months ended September 30, 2005 as
compared to 26.6% for the nine months ended  September 30, 2004. The decrease in
gross profit was due to the inventory  write down of $3,447,000  associated with
the  restructuring  plan, an increase in our inventory  obsolescence  reserve of
$1,550,000  recorded in the second  quarter of 2005,  unabsorbed  overhead costs
incurred  in our  North  Carolina  manufacturing  facility,  additional  charges
associated with unrealized charge backs to vendors and customers recorded in the
second  quarter and credits  issued to a customer  during the first  quarter for
defective products received from Pro-Fit Holdings.

         Selling expenses decreased  approximately  $97,000 or 15.0% to $549,000
for the three months ended September 30, 2005 compared to $646,000 for the prior
year period.  A portion of this decrease  resulted from the  restructuring  plan
implemented during the third quarter. As a percentage of sales,


                                       17
<PAGE>


selling  expenses  were 6.1% of sales  compared to 3.8% of sales because we were
unable to reduce expenses in direct proportion to the sales decrease.

         Selling  expenses for the nine month period  ended  September  30, 2005
were $1,940,000 or 4.8% of sales compared to $2,121,000 or 5.0% of sales for the
nine  month  period  ended  September  30,  2004.   Selling  expenses  decreased
approximately $181,000 because of cost containment efforts.

         General and administrative  expenses  increased  $1,682,000 or 52.1% to
$4,909,000 for the three months ended  September 30, 2005 compared to $3,227,000
for the three months ended  September  30,  2004.  This  increase in general and
administrative expense is primarily due to higher legal expenses associated with
our litigation with Pro-Fit Holdings  Limited.  Unless this case is settled,  we
will continue to incur additional  legal fees in increasing  amounts as the case
accelerates to trial. This increase in general and  administrative  expenses was
partially  offset by a reduction  in employee  costs in September as a result of
the implementation of our restructuring plan.

         General and administrative expenses increased approximately $10,775,000
to $19,650,000  for the nine months ended September 30, 2005 from $8,875,000 for
the nine  months  ended  September  30,  2004.  This  increase  in  general  and
administrative  expenses was due  primarily to an increase of  $6,381,000 in the
reserve for doubtful  accounts  recorded in the second  quarter of 2005,  higher
legal  expenses of  approximately  $2,351,000  related  primarily to the Pro-Fit
litigation,  and  generally  higher  employment  levels  through the first eight
months of the period.

         During the third quarter of 2005 we recorded a restructuring  charge of
$6,176,000.  These  restructuring  charges  were  recorded  on our  Consolidated
Statements of  Operations  for the three  month  and nine  month  periods  ended
September 30, 2005 in the following line items and amounts:

         Cost of goods sold ........................         $3,447,000
         Goodwill impairment .......................            450,000
         Restructuring costs .......................          2,279,000
                                                             ----------
         Total .....................................         $6,176,000
                                                             ==========

         Net interest expense  increased  approximately  $103,000,  or 63.6%, to
$265,000  for the three months ended  September  30, 2005 from  $162,000 for the
three  months  ended  September  30,  2004.  Net  interest   expense   increased
approximately  $309,000,  or  62.7%,  to  $802,000  for the  nine  months  ended
September 30, 2005 from  $493,000 for the nine months ended  September 30, 2004.
The interest  expense  increases for both the three month and nine month periods
were  primarily  due to higher debt  levels  associated  with the $12.5  million
secured convertible notes partially offset by a reduction in other indebtedness.

         The benefit for income taxes for the three months ended  September  30,
2005 resulted from adjustments between our US and Hong Kong operations to better
align expenses with  revenues.  These  adjustments  resulted in a tax benefit of
$261,000.  For the three  months  ended  September  30,  2004 we  recorded a tax
provision of $100,000.

         The provision for income taxes for the nine months ended  September 30,
2005 amounted to approximately  $1,202,000  compared to an income tax benefit of
$88,000 for the nine months ended  September 30, 2004.  The provision for income
taxes  increased  due  to an  increase  in  our  deferred  tax  asset  valuation
allowance.  Based on our net operating losses,  there is not sufficient evidence
to determine that it is more likely than not that we will be able to utilize our
net operating loss carry forwards to offset future taxable income.


                                       18
<PAGE>


         Net loss was  approximately  $10,352,000  for the  three  months  ended
September  30, 2005 as compared to net income of $211,000  for the three  months
ended  September 30, 2004. Net loss was  approximately  $23,261,000 for the nine
months  ended  September  30, 2005 as compared to a net loss of $201,000 for the
nine months ended September 30, 2004.

 LIQUIDITY AND CAPITAL RESOURCES

         Cash and cash equivalents decreased to $1,892,000 at September 30, 2005
from $5,460,000 at December 31, 2004. The decrease  resulted from  approximately
$582,000 of cash  provided by operating  activities,  $1,634,000 of cash used in
investing activities and $2,516,000 of cash used in financing activities.

         Net cash provided by operating  activities was  approximately  $582,000
for the nine months ended  September  30, 2005 and cash used by  operations  was
approximately  $9,320,000  for the nine months ended  September  30, 2004.  Cash
provided by operating  activities for the nine months ended  September  resulted
primarily from a decrease in accounts  receivables because of lower sales during
the third quarter of 2005, a decrease in related party accounts receivables,  an
increase in accounts payable and accrued expenses which were partially offset by
an increase in inventories.

         Net cash used in operating activities was approximately  $9,320,000 for
the nine months ended September 30, 2004. Cash used in operating  activities for
the nine months ended  September  30, 2004  resulted  primarily  from  increased
accounts  receivable  and  prepaid and other  current  assets.  The  increase in
accounts  receivable  during  the period was due  primarily  to slower  customer
collections  of non-related  party  receivables  during the  nine-month  period.
Non-related party trade receivables  increased by an additional $5.4 million due
to the inclusion of receivables that were previously classified as related party
trade receivables.

         Net cash used in investing activities was approximately  $1,634,000 and
$1,262,000 for the nine months ended September 30, 2005 and 2004,  respectively.
Net cash used in investing  activities  for the nine months ended  September 30,
2005 consisted primarily of capital expenditures for purchases of equipment. Net
cash used in investing  activities for the nine months ended  September 30, 2004
consisted  primarily  of  capital  equipment  related  to the  exclusive  supply
agreement we entered into with Levi Strauss & Co. and the purchase of additional
TALON zipper equipment.

         Net cash used in financing activities was approximately  $2,516,000 and
$2,294,000 for the nine months ended September 30, 2005 and 2004,  respectively.
Net cash used in financing  activities  for the nine months ended  September 30,
2005  primarily  reflects  the  repayment of  borrowings  under our bank line of
credit facility, repayment of notes payable and capital leases, partially offset
by funds raised from the exercise of stock options and  warrants.  Net cash used
in financing  activities for the nine months ended  September 30, 2004 primarily
reflects  the  repayment  of  borrowings  under our  credit  facility  and notes
payable,  offset by funds raised from the exercise of stock options and warrants
and the proceeds from a capital lease obligation.

         We currently satisfy our working capital requirements primarily through
cash flows generated from operations,  sales of equity securities and borrowings
from institutional  investors and individual accredited  investors.  On November
10, 2004, we refinanced  our working  capital  credit  facility with UPS Capital
Global Trade Finance  Corporation with a portion of the proceeds received from a
private placement of $12.5 million of Secured Convertible  Promissory Notes. The
Secured  Convertible  Promissory  Notes are  convertible  into common stock at a
price of $3.65  per  share,  bear  interest  at 6%  payable  quarterly,  are due
November  9,  2007 and are  secured  by the  TALON  trademarks.  The  Notes  are
convertible at the option of the holder at any time after closing.  We may repay
the Notes at any time after


                                       19
<PAGE>


one year from the closing date with a 15% prepayment  penalty.  At maturity,  we
may repay the Notes in cash or require conversion if certain conditions are met.
In  connection  with the  issuance of the Notes,  we issued to the Note  holders
warrants to purchase up to 171,235  shares of common stock.  The warrants have a
term of five  years,  an  exercise  price of $3.65 per share and  vested 30 days
after closing. We have registered with the SEC, the resale by the holders of the
shares issuable upon conversion of the Notes and exercise of the warrants.

         Amounts borrowed under our foreign factoring  agreement as of September
30, 2005 amounted to approximately  $59,000. At September 30, 2004,  outstanding
borrowings  under our UPS Capital credit  facility,  including  amounts borrowed
under our foreign factoring agreement, amounted to approximately $4,597,000.

         In 2005,  we entered into a letter of credit  facility with Wells Fargo
Bank.  This  facility  provides  for  letters  of credit up to a maximum of $1.5
million,  expires in  November  2005 and is  secured by cash on hand  managed by
Wells Fargo Bank. At September 30, 2005, outstanding letters of credit under the
Wells Fargo facility amounted to $50,000.

         Pursuant  to the  terms of a  factoring  agreement  for our  Hong  Kong
subsidiary,  Tag-It Pacific Limited,  the 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.  If the  factor  does not assume the
credit risk for a receivable, the collection risk associated with the receivable
remains  with us.  We pay a fixed  commission  rate and may  borrow up to 80% of
eligible  accounts  receivable.  Interest  is charged at 1.5% over the Hong Kong
Dollar prime rate. As of September 30, 2005 and 2004,  the amount  factored with
recourse and included in trade accounts receivable was approximately  $1,401,000
and $872,000. Outstanding advances as of September 30, 2005 and 2004 amounted to
approximately  $59,000  and  $512,000  and are  included  in the line of  credit
balance.

         As we continue to respond to the current industry trend of large retail
brands to outsource  apparel  manufacturing to offshore  locations,  our foreign
customers,  though backed by U.S.  brands and retailers,  are  increasing.  This
makes  receivables  based financing with  traditional U.S. banks more difficult.
Our current  borrowings  may not provide the level of  financing  we may need to
expand into  additional  foreign  markets.  As a result,  we are  continuing  to
evaluate non-traditional financing of our foreign assets.

         We have incurred  significant legal fees in our litigation with Pro-Fit
Holdings  Limited.  Unless  the  case is  settled,  we will  continue  to  incur
additional legal fees in increasing amounts as the case accelerates to trial.

         As of  September  30,  2005,  we had  accounts  receivable  from Azteca
Productions  International  of  approximately  $10,654,000  less  a  reserve  of
$7,007,000,  for a net balance of $3,647,000  recorded on our balance sheet.  We
are  pursuing  several  payment  alternatives  with  Azteca,  one of which would
involve us granting to Azteca warrants to purchase shares of our common stock at
a significant  premium to market to induce Azteca to borrow funds,  the proceeds
of which  would be paid to us in full  settlement  of the  outstanding  accounts
receivable due from Azteca within the next 60 days. We anticipate that the value
of  the  warrants,   using  the  Black-Scholes   valuation   method,   would  be
approximately  $100,000,  and that the amount  paid to us,  less the cost of the
warrants, would be at least equal to the net amount we have recorded in accounts
receivable as of September 30, 2005. If we are unable to reach a settlement with
Azteca, we will consider all available alternatives,  including bringing suit to
collect the amounts due us.

         We believe that our existing cash and cash  equivalents and anticipated
cash  flows  from our  operating  activities  and  available  financing  will be
sufficient to fund our minimum working capital and capital expenditure needs for
at  least  the next  twelve  months.  This  conclusion  assumes  that we will be
successful in restructuring  our operations in accordance with the restructuring
plan adopted by our board of directors in August 2005,  and that we will collect
at least $4 million in cash from Azteca Productions  International in payment of
outstanding  accounts  receivable  within the next 60 days.  If we are unable to
successfully  fully  implement  our  restructuring  initiative  or  collect  the
receivable,  or experience greater than anticipated  reductions in sales, we may
need to raise additional  capital or further reduce the scope of our business in
order to fully  satisfy  our future  short-term  liquidity  requirements.  If we
cannot raise additional  capital or reduce the scope of our business in response
to our failure to implement our restructuring  initiative in accordance with our
plan,  there may be  substantial  doubt about our ability to continue as a going
concern.  Our auditors have informed us that they may include in their report on
our financial  statements  for the year ended  December 31, 2005 an  explanatory
paragraph expressing  substantial doubt about our ability to continue as a going
concern if we fail to successfully implement our restructuring initiative.


                                       20
<PAGE>


         The extent of our future long-term capital  requirements will depend on
many  factors,  including  our  results  of  operations,  future  demand for our
products,  the size and  timing  of  future  acquisitions,  our  borrowing  base
availability limitations related to eligible accounts receivable and inventories
and our  expansion  into  foreign  markets.  Our need for  additional  long-term
financing  includes the  integration  and expansion of our operations to exploit
our rights under our Talon trade name,  the  expansion of our  operations in the
Asian,  Central  and  South  American  and  Caribbean  markets  and the  further
development  of our waistband  technology.  If our cash from  operations is less
than anticipated or our working capital  requirements  and capital  expenditures
are  greater  than we  expect,  we may need to raise  additional  debt or equity
financing in order to provide for our operations.  We are continually evaluating
various  financing  strategies to be used to expand our business and fund future
growth or acquisitions. There can be no assurance that additional debt or equity
financing  will be available on acceptable  terms or at all. If we are unable to
secure  additional  financing,  we may not be  able to  execute  our  plans  for
expansion,  including  expansion into foreign markets to promote our Talon brand
tradename, and we may need to implement additional cost savings initiatives.

RELATED PARTY TRANSACTIONS

         Gerard  Guez  and  Todd  Kay,   executive   officers  and   significant
shareholders  of Tarrant Apparel Group,  are  significant  stockholders of ours.
Total sales to Tarrant Apparel Group and its affiliate, United Apparel Ventures,
amounted to  approximately  $165,000  and  $698,000  for the nine  months  ended
September 30, 2005 and 2004,  respectively.  As of September 30, 2005,  accounts
receivable,  related party included  $1,400,000  due from  Tarrant's  affiliate,
United Apparel  Ventures.  United Apparel  Ventures  agreed to pay its remaining
balance over an eight-month period beginning May 2005.

         As of September  30, 2005 and 2004,  we had  outstanding  related-party
debt of approximately  $665,000 and $850,000,  at interest rates ranging from 7%
to 11%, and additional  non-related-party debt of $25,200 at an interest rate of
10%. The majority of related-party debt is due on demand, with the remainder due
and  payable on the  fifteenth  day  following  the date of  delivery of written
demand for payment.

NEW ACCOUNTING PRONOUNCEMENTS

         In December  2004,  the FASB issued  Statement of Financial  Accounting
Standard  ("SFAS") No. 123R "Share Based  Payment." This statement is a revision
of SFAS  Statement  No.  123,  "Accounting  for  Stock-Based  Compensation"  and
supersedes APB Opinion No. 25,  "Accounting  for Stock Issued to Employees," and
its related  implementation  guidance.  SFAS 123R  addresses  all forms of share
based  payment  ("SBP")  awards  including  shares issued under  employee  stock
purchase plans, stock options,  restricted stock and stock appreciation  rights.
Under SFAS 123R, SBP awards result in a cost that will be measured at fair value
on the awards'  grant  date,  based on the  estimated  number of awards that are
expected to vest.  This  statement is effective as of the beginning of the first
annual  reporting  period  that  begins  after June 15,  2005.  The  Company has
evaluated the effects of the adoption of this  pronouncement  and has determined
it will not have a material impact on the Company's financial statements.

         In  December  2004,  the  FASB  issued  Statement  Accounting  Standard
("SFAS") No. 153  "Exchanges  of  Nonmonetary  Assets".  This  Statement  amends
Opinion 29 to  eliminate  the  exception  for  nonmonetary  exchanges of similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial  substance if the future cash flows of the entity are expected to
change  significantly  as a  result  of the  exchange.  The  provisions  of this
Statement are  effective for  nonmonetary  asset  exchanges  occurring in fiscal
periods  beginning  after June 15, 2005.  Earlier  application  is permitted for
nonmonetary asset exchanges occurring in fiscal periods beginning after December
16, 2004. The provisions of this


                                       21
<PAGE>


Statement should be applied  prospectively.  The adoption of this  pronouncement
did not have material effect on our financial statements.

         In March, 2005, the Securities and Exchange Commission's ("SEC") Office
of the  Chief  Accountant  and its  Division  of  Corporation  Finance  released
Financial Accounting Bulletin No. 107,  "Share-Based Payment" (SAB 107). SAB 107
provides  interpretive  guidance related to the interaction between Statement of
Financial  Accounting  Standard No. 123R "Shared Based  Payment" (SFAS 123R) and
certain SEC rules and regulations.  SAB 107 provides the staff's views regarding
the valuation of  shared-based  payment  arrangements  for public  companies and
stresses the importance of including appropriate disclosures within SEC filings,
particularly during the transition to SFAS 123R.

         In May 2005,  the FASB  issued SFAS No.  154,  "Accounting  Changes and
Error  Corrections - A Replacement  of APB Opinion No. 20 and FASB Statement No.
3" ("SFAS  154").  SFAS 154  replaces APB Opinion No. 20,  "Accounting  Changes"
("APB 20") and FASB Statement No. 3,  "Reporting  Accounting  Changes in Interim
Financial  Statements,"  and changes the requirements for the accounting for and
reporting of a change in accounting  principle.  APB 20 previously required that
most voluntary changes in accounting principle be recognized by including in net
income of the period of the change the cumulative  effect of changing to the new
accounting  principle.  SFAS 154  requires  retrospective  application  to prior
periods'  financial  statements for voluntary  changes in accounting  principle.
SFAS 154 is effective for accounting  changes and  corrections of errors made in
fiscal years  beginning  after  December  15, 2005.  The impact of SFAS 154 will
depend on the accounting change, if any, in a future period.

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.

         OUR  GROWTH  AND  OPERATING  RESULTS  COULD  BE  MATERIALLY,  ADVERSELY
EFFECTED IF WE ARE UNSUCCESSFUL IN RESOLVING A DISPUTE THAT NOW EXISTS REGARDING
OUR RIGHTS  UNDER OUR  EXCLUSIVE  LICENSE AND  INTELLECTUAL  PROPERTY  AGREEMENT
("AGREEMENT")  WITH PRO-FIT  HOLDINGS.  Pursuant to our  Agreement  with Pro-Fit
Holdings  Limited,  we have  exclusive  rights in  certain  geographic  areas to
Pro-Fit's stretch and rigid waistband technology. By letter dated April 6, 2004,
Pro-Fit alleged various  breaches of the Agreement which we dispute.  To prevent
Pro-Fit in the future from  terminating the Agreement based on alleged  breaches
that we do not regard as meritorious,  we filed a lawsuit against Pro-Fit in the
U.S.  District Court for the Central  District of  California,  based on various
contractual and tort claims seeking  declaratory  relief,  injunctive relief and
damages.  Pro-Fit  filed an  answer  denying  the  material  allegations  of the
complaint and filed a counterclaim  alleging various contractual and tort claims
seeking  injunctive  relief and damages.  We filed a reply  denying the material
allegations of Pro-Fit's pleading.  Pro-Fit has since purported to terminate our
exclusive license and intellectual  property agreement based on the same alleged
breaches of the agreement  that are the subject of our existing  litigation,  as
well as on an additional basis unsupported by fact. In February 2005, we amended
our pleadings in the litigation to assert additional  breaches by Pro-Fit of its
obligations  to us under our  agreement  and  under  certain  additional  letter
agreements,  and for a declaratory  judgment that Pro-Fit's patent No. 5,987,721
is invalid and not infringed by us. Thereafter,  Pro-Fit filed an amended answer
and counterclaim  denying the material  allegations of the amended complaint and
alleging  various  contractual  and tort claims  seeking  injunctive  relief and
damages.  Pro-Fit  further  asserted  that we infringed its United States Patent
Nos.  5,987,721  and  6,566,285.  We  filed  a  reply  denying  the  substantive
allegations of the reply. At our request, the Court


                                       22
<PAGE>


bifurcated  the contract  issues for trial to commence on January 10, 2006.  The
parties have filed  summary  judgment  motions  which may dispose of some of the
issues in this case  prior to trial.  The  remaining  issues  will be tried at a
later date.

         We derive a  significant  amount of revenues  from the sale of products
incorporating  the  stretch  waistband  technology.  Our  business,  results  of
operations and financial condition could be materially  adversely affected if we
are unable to conclude our present negotiations in a manner acceptable to us and
ensuing litigation is not resolved in a manner favorable to us. Additionally, we
have incurred significant legal fees in this litigation,  and unless the case is
settled,  we will continue to incur additional legal fees in increasing  amounts
as the case accelerates to trial.

         FAILURE  TO  MANAGE  OUR  CORPORATE   RESTRUCTURING  COULD  IMPAIR  OUR
BUSINESS.  In an effort to better align our  organizational  and cost structures
with our future  growth  opportunities,  in August  2005 our Board of  Directors
adopted a restructuring plan for our company that we expect will be completed in
December  2005.  The  plan  includes   reorganizing  our  global  operations  by
eliminating  redundancies  in our Hong Kong  operation,  reducing the  functions
performed at our Mexico  facilities,  converting  our Guatemala  facility from a
manufacturing   site  to  a   distributor,   and  closing  our  North   Carolina
manufacturing  facility.  While we expect that the restructuring  will result in
reduced operating costs and improved operating results and cash flows, there can
be no assurance that these results will be achieved. We recorded a restructuring
charge during the third quarter of 2005 of approximately  $6.2 million.  We face
many  challenges  related to our decision  implement  this  restructuring  plan,
including  that  we may  not  execute  the  restructuring  effectively,  and our
expectation that we will benefit from greater  efficiencies may not be realized.
Any  failure  on our  part to  successfully  manage  these  challenges  or other
unanticipated  consequences  may result in loss of  customers  and sales,  which
could  cause  our  results  to  differ  materially  from  management's   current
expectations. The challenges we face include:

         o        Our ability to execute  successfully  through  business cycles
                  while we continue to implement the restructuring plan and cost
                  reductions;

         o        Our  ability  to  meet  and   achieve  the   benefits  of  our
                  cost-reduction goals and otherwise successfully adapt our cost
                  structures to continuing changes in business conditions;

         o        The risk that our  cost-cutting  initiatives  will  impair our
                  ability to develop  products  and  remain  competitive  and to
                  operate effectively;

         o        We may experience  delays in  implementing  our  restructuring
                  plan and incur additional costs;

         o        We may experience decreases in employee morale; and

         o        We may  experience  unanticipated  expenses  in  winding  down
                  manufacturing  operations,  including  labor costs,  which may
                  adversely affect our results of operations in the short term.

         If we are unable to  successfully  fully  implement  our  restructuring
initiative,  or experience greater than anticipated  reductions in sales, we may
need to raise additional  capital or further reduce the scope of our business in
order to fully  satisfy  our future  short-term  liquidity  requirements.  If we
cannot raise additional  capital or reduce the scope of our business in response
to our failure to implement our restructuring  initiative in accordance with our
plan,  there may be  substantial  doubt about our ability to continue as a going
concern. Our auditors have informed us that may include in their audit report on
our financial  statements  for the year ending  December 31, 2005 an explanatory
paragraph expressing  substantial doubt about our ability to continue as a going
concern if we fail to successfully implement our restructuring initiative.

         IF WE LOSE OUR LARGER CUSTOMERS OR THEY FAIL TO PURCHASE AT ANTICIPATED
LEVELS, OUR SALES AND OPERATING RESULTS WILL BE ADVERSELY AFFECTED.  Our results
of operations will depend to a significant extent


                                       23
<PAGE>


upon the commercial success of our larger customers.  If these customers fail to
purchase our trim products at anticipated levels, or our relationship with these
customers terminates, it may have an adverse affect on our results because:

         o        We will lose a primary  source of revenue  if these  customers
                  choose not to purchase our products or services;

         o        We  may  not  be  able  to  reduce  fixed  costs  incurred  in
                  developing the  relationship  with these customers in a timely
                  manner;

         o        We may not be able to recoup setup and inventory costs;

         o        We may be left holding  inventory that cannot be sold to other
                  customers; and

         o        We may not be able to collect our receivables from them.

         CONCENTRATION OF RECEIVABLES FROM OUR LARGER CUSTOMERS MAKES RECEIVABLE
BASED  FINANCING  DIFFICULT AND INCREASES THE RISK THAT IF OUR LARGER  CUSTOMERS
FAIL TO PAY US, OUR CASH FLOW WOULD BE SEVERELY  AFFECTED.  Our business  relies
heavily on a relatively  small number of customers.  This  concentration  of our
business  reduces the amount we can borrow from our  lenders  under  receivables
based  financing  agreements.  Under a  borrowing  base  credit  agreement,  for
instance,  if accounts  receivable  due us from a particular  customer  exceed a
specified  percentage of the total eligible accounts receivable against which we
can borrower,  the lender will not lend against the receivables  that exceed the
specified percentage.  If we are unable to collect any large receivables due us,
our cash flow would be severely impacted.

         IF  CUSTOMERS  DEFAULT ON BUYBACK  AGREEMENTS  WITH US, WE WILL BE LEFT
HOLDING  NON-SALABLE  INVENTORY.  Inventories  include goods that are subject to
buyback agreements with our customers.  Under these buyback agreements,  some of
our customers are required to purchase  inventories from us under normal invoice
and selling terms, if any inventory which we purchase on their behalf remains in
our hands longer than agreed by the customer from the time we received the goods
from our  vendors.  If any  customer  defaults on these  buyback  provisions  or
insists  on  markdowns,  we may incur a charge in  connection  with our  holding
significant  amounts  of  non-salable  inventory  and this would have a negative
impact on our income.

         OUR REVENUES MAY BE HARMED IF GENERAL ECONOMIC  CONDITIONS  WORSEN. Our
revenues depend on the health of the economy and the growth of our customers and
potential future customers.  When economic  conditions  weaken,  certain apparel
manufacturers and retailers,  including some of our customers,  have experienced
in the past,  and may  experience in the future,  financial  difficulties  which
increase the risk of extending  credit to such  customers.  Customers  adversely
affected  by  economic  conditions  have also  attempted  to  improve  their own
operating efficiencies by concentrating their purchasing power among a narrowing
group of  vendors.  There can be no  assurance  that we will  remain a preferred
vendor to our existing customers. A decrease in business from or loss of a major
customer  could have a material  adverse  effect on our  results of  operations.
Further, if the economic conditions in the United States worsen or if a wider or
global economic  slowdown occurs, we may experience a material adverse impact on
our business, operating results, and financial condition.

         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.  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 may
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.


                                       24
<PAGE>


         WE OPERATE IN AN INDUSTRY THAT IS SUBJECT TO  SIGNIFICANT  FLUCTUATIONS
IN OPERATING  RESULTS THAT 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;

         o        Delays caused by third parties; 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  our  stockholders'  expectations  and those of
public  market  analysts.  If this  occurs,  the price of our common stock would
likely be adversely  affected.  In the past,  following periods of volatility in
the market price of a company's  securities,  securities class action litigation
has often been instituted against such a company. For instance, in October 2005,
a purported securities class action lawsuit was filed against us.

         THE OUTCOME OF LITIGATION IN WHICH WE HAVE BEEN NAMED AS A DEFENDANT IS
UNPREDICTABLE  AND AN ADVERSE  DECISION IN ANY SUCH MATTER COULD HAVE A MATERIAL
ADVERSE  AFFECT ON OUR  FINANCIAL  POSITION  AND RESULTS OF  OPERATIONS.  We are
defendants in a number of litigation matters.  These claims may divert financial
and management resources that would otherwise be used to benefit our operations.
Although we believe that we have meritorious defenses to the claims made in each
and all of the  litigation  matters  to which we have  been  named a party,  and
intend to contest each lawsuit  vigorously,  no assurances can be given that the
results of these  matters will be favorable to us. An adverse  resolution of any
of these lawsuits could have a material adverse affect on our financial position
and results of operations.

         We maintain product  liability and director and officer  insurance that
we regard as reasonably adequate to protect us from potential claims, however we
cannot assure you that it will.  Further,  the costs of insurance have increased
dramatically in recent years, and the availability of coverage has decreased. As
a result,  we cannot  assure you that we will be able to  maintain  our  current
product liability insurance at a reasonable cost, or at all.

         OUR CUSTOMERS HAVE CYCLICAL  BUYING PATTERNS WHICH MAY CAUSE US TO HAVE
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 usually in the first
and fourth quarters of our financial year.

         OUR BUSINESS MODEL IS DEPENDENT ON  INTEGRATION OF INFORMATION  SYSTEMS
ON A GLOBAL  BASIS AND, TO THE EXTENT  THAT WE FAIL TO MAINTAIN  AND SUPPORT OUR
INFORMATION  SYSTEMS,  IT CAN RESULT IN LOST REVENUES.  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 our Hong Kong facility with the information
systems of our principal offices in California. Our failure


                                       25
<PAGE>


to do so could result in lost revenues,  delay financial  reporting or adversely
affect availability of funds under our credit facilities.

         THE LOSS OF KEY MANAGEMENT AND SALES PERSONNEL  COULD ADVERSELY  AFFECT
OUR BUSINESS,  INCLUDING OUR ABILITY TO OBTAIN AND SECURE  ACCOUNTS AND GENERATE
SALES. Our success has and will continue to depend to a significant  extent upon
key management and sales personnel,  many of whom would be difficult to replace.
In connection with our  restructuring,  we  significantly  reduced the number of
employees  within  our  company,  which  has  increased  our  reliance  on those
employees  that have remained with the company.  The loss of the services of 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 attract  and retain  personnel  with a
variety of sales, operating and managerial skills.

         IF WE EXPERIENCE DISRUPTIONS AT ANY OF OUR FOREIGN FACILITIES,  WE WILL
NOT BE ABLE TO MEET OUR OBLIGATIONS AND MAY LOSE SALES AND CUSTOMERS. Currently,
we do not operate duplicate facilities in different geographic areas. Therefore,
in the  event of a  regional  disruption  where we  maintain  one or more of our
facilities,  it is unlikely  that we could shift our  operations  to a different
geographic  region and we may have to cease or curtail our operations.  This may
cause us to lose sales and customers.  The types of  disruptions  that may occur
include:

         o        Foreign trade disruptions;

         o        Import restrictions;

         o        Labor disruptions;

         o        Embargoes;

         o        Government intervention; and

         o        Natural disasters.

         INTERNET-BASED   SYSTEMS  THAT  HOST  OUR  MANAGED  TRIM  SOLUTION  MAY
EXPERIENCE  DISRUPTIONS AND AS A RESULT WE MAY LOSE REVENUES AND CUSTOMERS.  Our
MANAGED  TRIM  SOLUTION  is an  Internet-based  business-to-business  e-commerce
system. To the extent that we fail to adequately continue to update and maintain
the hardware and software implementing the MANAGED TRIM SOLUTION,  our customers
may  experience  interruptions  in service due to defects in our hardware or our
source code.  In addition,  since our MANAGED TRIM  SOLUTION is  Internet-based,
interruptions in Internet service generally can negatively impact our customers'
ability to use the MANAGED TRIM SOLUTION to monitor and manage  various  aspects
of their trim needs. Such defects or interruptions could result in lost revenues
and lost customers.

         THERE ARE MANY  COMPANIES  THAT OFFER SOME OR ALL OF THE  PRODUCTS  AND
SERVICES WE SELL AND IF WE ARE UNABLE TO SUCCESSFULLY  COMPETE OUR BUSINESS WILL
BE  ADVERSELY  AFFECTED.   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   national  and
international   design  companies,   distributors  and  manufacturers  of  tags,
packaging  products,  zippers  and other trim  items.  Some of our  competitors,
including  Paxar  Corporation,  YKK,  Universal  Button,  Inc.,  Avery  Dennison
Corporation and Scovill Fasteners,  Inc., have greater name recognition,  longer
operating  histories  and, in many cases,  substantially  greater  financial and
other resources than we do.

         UNAUTHORIZED  USE  OF  OUR  PROPRIETARY  TECHNOLOGY  MAY  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
worldwide.  We cannot be certain that these laws will be  sufficient  to protect
our property.  In  particular,  the laws of some countries in which our products
are distributed or may be


                                       26
<PAGE>


distributed in the future may not protect our products and  intellectual  rights
to the same extent as the laws of the United States.  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.

         IF OUR PRODUCTS INFRINGE ANY OTHER PERSON'S  PROPRIETARY RIGHTS, WE MAY
BE SUED AND HAVE TO PAY LARGE  LEGAL  EXPENSES  AND  JUDGMENTS  AND  REDESIGN OR
DISCONTINUE  SELLING  OUR  PRODUCTS.  From time to time in our  industry,  third
parties  allege  infringement  of their  proprietary  rights.  Any  infringement
claims, whether or not meritorious, could result in costly litigation or require
us to enter into royalty or licensing agreements as a means of settlement. 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.

         OUR STOCK PRICE MAY DECREASE, WHICH COULD ADVERSELY AFFECT OUR BUSINESS
AND CAUSE OUR STOCKHOLDERS TO SUFFER  SIGNIFICANT  LOSSES. The following factors
could  cause  the  market  price  of  our  common  stock  to  decrease,  perhaps
substantially:

         o        The  failure  of  our  quarterly  operating  results  to  meet
                  expectations of investors or securities analysts;

         o        Adverse  developments  in the financial  markets,  the apparel
                  industry and the worldwide or regional economies;

         o        Interest rates;

         o        Changes in accounting principles;

         o        Sales of common stock by existing  shareholders  or holders of
                  options;

         o        Announcements of key developments by our competitors; and

         o        The   reaction   of  markets   and   securities   analysts  to
                  announcements and developments involving our company.

         IF WE NEED TO SELL OR ISSUE ADDITIONAL SHARES OF COMMON STOCK OR ASSUME
ADDITIONAL DEBT TO FINANCE FUTURE GROWTH,  OUR STOCKHOLDERS'  OWNERSHIP COULD BE
DILUTED OR OUR EARNINGS COULD BE ADVERSELY  IMPACTED.  Our business strategy may
include expansion through internal growth, by acquiring complementary businesses
or  by  establishing   strategic   relationships  with  targeted  customers  and
suppliers.  In order  to do so or to fund our  other  activities,  we may  issue
additional  equity   securities  that  could  dilute  our  stockholders'   stock
ownership.  We may also  assume  additional  debt and  incur  impairment  losses
related to goodwill and other tangible  assets if we acquire another company and
this could negatively impact our results of operations.

         WE MAY NOT BE ABLE TO REALIZE THE ANTICIPATED BENEFITS OF ACQUISITIONS.
We may consider strategic  acquisitions as opportunities  arise,  subject to the
obtaining of any  necessary  financing.  Acquisitions  involve  numerous  risks,
including  diversion  of our  management's  attention  away  from our  operating
activities.  We  cannot  assure  our  stockholders  that we will  not  encounter
unanticipated problems or liabilities relating to the integration of an acquired
company's  operations,  nor can we assure our stockholders  that we will realize
the anticipated  benefits of any future  acquisitions.  We currently do not have
any plans to pursue any potential acquisitions.


                                       27
<PAGE>


         WE HAVE ADOPTED A NUMBER OF ANTI-TAKEOVER MEASURES THAT MAY DEPRESS THE
PRICE OF OUR COMMON STOCK. Our  stockholders'  rights plan, our ability to issue
additional  shares of preferred  stock and some provisions of our certificate of
incorporation  and bylaws and of Delaware law could make it more 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 it more  difficult
for third parties to acquire us by offering to purchase shares of our stock at a
premium to its market price.

         INSIDERS OWN A  SIGNIFICANT  PORTION OF OUR COMMON  STOCK,  WHICH COULD
LIMIT OUR STOCKHOLDERS' ABILITY TO INFLUENCE THE OUTCOME OF KEY TRANSACTIONS. As
of  November  21,  2005,  our  officers  and  directors  and  their   affiliates
beneficially owned  approximately  22.6% 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,   beneficially   owned
approximately  25.3% of the  outstanding  shares of our common stock at November
21, 2005.  As a result,  our officers and directors and the Dyne family are able
to exert  considerable  influence over the outcome of any 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.

         WE MAY FACE  INTERRUPTION  OF PRODUCTION  AND SERVICES DUE TO INCREASED
SECURITY  MEASURES IN RESPONSE TO  TERRORISM.  Our business  depends on the free
flow of products and services  through the  channels of commerce.  Recently,  in
response  to  terrorists'  activities  and threats  aimed at the United  States,
transportation,  mail,  financial and other services have been slowed or stopped
altogether.  Further delays or stoppages in transportation,  mail,  financial or
other services could have a material adverse effect on our business,  results of
operations and financial condition.  Furthermore,  we may experience an increase
in operating costs, such as costs for transportation,  insurance and security as
a result of the  activities  and potential  activities.  We may also  experience
delays  in  receiving  payments  from  payers  that have  been  affected  by the
terrorist  activities  and potential  activities.  The United States  economy in
general is being  adversely  affected by the terrorist  activities and potential
activities  and any  economic  downturn  could  adversely  impact our results of
operations,  impair our ability to raise capital or otherwise  adversely  affect
our ability to grow our business.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         All of our  sales  are  denominated  in United  States  dollars  or the
currency of the country in which our products  originate.  There were no hedging
contracts  outstanding  as of September  30,  2005.  Currency  fluctuations  can
increase  the price of our  products to foreign  customers  which can  adversely
impact the level of our export sales from time to time. The majority of our cash
equivalents  are held in United  States bank  accounts  and we do not believe we
have significant market risk exposure with regard to our investments.

ITEM 4.  CONTROLS AND PROCEDURES

EVALUATION OF CONTROLS AND PROCEDURES

         We maintain disclosure controls and procedures,  which we have designed
to ensure that  information  required to be disclosed  in our reports  under the
Securities Exchange Act of 1934 is recorded, processed,  summarized and reported
within the time periods  specified  in the SEC's rules and forms,  and that such
information is accumulated and  communicated to management,  including our Chief
Executive  Officer  and  Chief  Financial  Officer,  to allow  timely  decisions
regarding   disclosure.   In  response  to  recent   legislation   and  proposed
regulations,  we reviewed  our internal  control  structure  and our  disclosure
controls and procedures.


                                       28
<PAGE>


         In the course of conducting its review of our financial  statements for
the fiscal  quarters ended June 30, 2005 and September 30, 2005, our independent
registered  public  accounting  firm, BDO Seidman,  LLP informed  members of our
senior  management  and the Audit  Committee of our Board of Directors that they
had discovered  significant  deficiencies in our internal control over financial
reporting  that alone and in the aggregate  constituted  a "material  weakness,"
which is defined under  standards  established by the Public Company  Accounting
Oversight  Board  as a  deficiency  that  could  result  in more  than a  remote
likelihood  that a material  misstatement  of the  annual or  interim  financial
statements will not be prevented or detected.

         The  deficiencies  identified  consisted of our  recording  significant
post-closing adjustments in our financial statements for the quarters ended June
30, 2005 and September 30, 2005,  which were  identified by BDO Seidman,  LLP in
connection  with its review of the financial  statements,  indicating a material
weakness in our quarterly financial statement closing process.  BDO Seidman, LLP
identified the same material weakness in our annual financial  statement closing
process in connection with its audit of our financial  statements for the fiscal
year ended  December  31,  2004.  In order to  address  this  material  weakness
identified in the annual financial  statement  closing  process,  we implemented
additional  review  procedures  over the selection and monitoring of appropriate
assumptions and estimates  affecting these accounting  practices.  There were no
post-closing  adjustments  as of March  31,  2005,  the first  quarterly  period
following  implementation  of additional  review  procedures.  The deficiencies,
however,  were again present in the closing process for our financial statements
for the second and third quarters of 2005.

         Members of the Company's  management,  including  the  Company's  Chief
Executive Officer,  Stephen Forte, and Chief Financial  Officer,  August DeLuca,
have evaluated the effectiveness of our disclosure  controls and procedures,  as
defined by paragraph (e) of Exchange Act Rules 13a-15 or 15d-15, as of September
30,  2005,  the end of the  period  covered  by this  report.  Based  upon  that
evaluation,  Mr. Forte and Mr. DeLuca  concluded  that the Company's  disclosure
controls and procedures are not effective.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

         There  were  no  significant  changes  in our  internal  controls  over
financial  reporting that occurred during the third quarter that have materially
affected,  or are reasonably likely to materially  affect,  our internal control
over financial reporting.


                                       29
<PAGE>


                                     PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

         As previously reported, including in our Annual Report on Form 10-K for
the fiscal year ended  December  31, 2004,  we have filed suit  against  Pro-Fit
Holdings  Limited  in the  U.S.  District  Court  for the  Central  District  of
California -- Tag-It Pacific,  Inc. v. Pro-Fit Holdings Limited,  CV 04-2694 LGB
(RCx) - based on various  contractual  and tort claims relating to our exclusive
license  and  intellectual  property  agreement,   seeking  declaratory  relief,
injunctive  relief and damages.  The  agreement  with Pro-Fit gives us exclusive
rights in certain  geographic  areas to  Pro-Fit's  stretch and rigid  waistband
technology.  Pro-Fit  filed an answer  denying the material  allegations  of the
complaint and filed a counterclaim  alleging various contractual and tort claims
seeking  injunctive  relief and damages.  We filed a reply  denying the material
allegations of Pro-Fit's pleading.  Pro-Fit has since purported to terminate the
exclusive license and intellectual  property agreement based on the same alleged
breaches  of the  agreement  that  are  the  subject  of the  parties'  existing
litigation,  as well as on an additional basis  unsupported by fact. In February
2005, we amended our pleadings in the litigation to assert  additional  breaches
by  Pro-Fit  of its  obligations  to us under the  agreement  and under  certain
additional  letter  agreements,  and for a declaratory  judgment that  Pro-Fit's
patent No.  5,987,721 is invalid and not  infringed by us.  Thereafter,  Pro-Fit
filed an amended answer and counterclaim denying the material allegations of the
amended  complaint  and alleging  various  contractual  and tort claims  seeking
injunctive  relief and damages.  Pro-Fit further  asserted that we infringed its
United States Patent Nos. 5,987,721 and 6,566,285.  We filed a reply denying the
substantive  allegations of the reply. At our request,  the Court bifurcated the
contract  issues for trial to  commence on January 10,  2006.  The parties  have
filed summary  judgment  motions which may dispose of some of the issues in this
case prior to trial. The remaining issues will be tried at a later date.

          On October 12, 2005, a purported  shareholder class action lawsuit was
filed  against us and certain of our officers and directors in the United States
District  Court for the Central  District of  California  alleging  claims under
Section 10(b) and Section 20 of the Securities Exchange Act of 1934, as amended,
and Rule 10b-5 promulgated  thereunder.  The case is entitled HUBERMAN V. TAG-IT
PACIFIC,  INC.,  ET AL., Case No.  CV05-7352  R(Ex).  The action is  purportedly
brought on behalf of all purchasers of our publicly-traded securities during the
period from November 14, 2003 to August 12, 2005.  We have  accepted  service of
the complaint and have entered into a stipulation  with  plaintiff's  counsel to
formally  respond  following the  appointment of lead plaintiff and lead counsel
and the anticipated filing of the consolidated amended complaint. We believe the
lawsuit to be without merit and intend to vigorously defend against the lawsuit.
At this  stage  of the  litigation,  we are  not  able  to  reasonably  estimate
potential losses, if any, related to the lawsuit.

         We  currently  have  pending  a  number  of  other  claims,  suits  and
complaints that arise in the ordinary course of our business. We believe that we
have meritorious defenses to these claims and that the claims are either 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 6.  EXHIBITS

         31.1     Certificate  of  Chief  Executive  Officer  pursuant  to  Rule
                  13a-14(a)  under the  Securities  and Exchange Act of 1934, as
                  amended


                                       30
<PAGE>


         31.2     Certificate  of  Chief  Financial  Officer  pursuant  to  Rule
                  13a-14(a)  under the  Securities  and Exchange Act of 1934, as
                  amended

         32.1     Certificate  of Chief  Executive  Officer and Chief  Financial
                  Officer  pursuant to Rule  13a-14(b)  under the Securities and
                  Exchange Act of 1934, as amended.


                                       31
<PAGE>


                                   SIGNATURES

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





Dated:   November 21, 2005                  TAG-IT PACIFIC, INC.

                                            /S/  AUGUST DELUCA
                                            ------------------------------------
                                            By:      August DeLuca
                                            Its:     Chief Financial Officer


                                       32