EXHIBIT 10.3

March 16, 2006

Lonnie David Schnell
1721 Cannes Drive
Thousand Oaks, CA 91362

Dear Lonnie:

Tag-it  Pacific  Inc.,  (the  "Company")  is  pleased  to  offer  you  continued
employment on the following terms:

POSITION:                  You  will  serve  in a  full-time  capacity  as Chief
                           Financial Officer of the Company.  You will report to
                           the CEO and shall perform  duties  customary for such
                           position  and  such  other  related   duties  as  are
                           assigned  by  the  CEO.  You  shall  (i)  faithfully,
                           diligently  and to the best of your  ability  perform
                           such duties,  (ii) devote your full business time and
                           attention to the affairs of the Company and (iii) use
                           your best efforts to further the  Company's  business
                           interests.  By signing this agreement,  you represent
                           and  warrant  to the  Company  that you are  under no
                           contractual   commitments   inconsistent   with  your
                           obligations to the Company.

BASE SALARY:               Your  annual  salary  will be  $185,000,  payable  in
                           accordance  with  the  Company's   standard   payroll
                           schedule.

BONUS:                     You will have the  opportunity to earn an annual cash
                           bonus  in  accordance  with the  Company's  executive
                           bonus pool which is based on a  calculation  of EBIT,
                           as determined by the Company in its discretion.

INCENTIVE STOCK
COMPENSATION:              In January  2006,  the  Company  granted  you a stock
                           option  for  400,000  shares of common  stock with an
                           exercise  price of $0.57  per  share.  The  Company's
                           standard stock option  agreement  terms will apply to
                           this grant, with the vesting over four years: (a) 25%
                           will vest on your first  anniversary  of  employment;
                           and (b) the unvested  balance  shall vest 1/48 of the
                           original grant each month thereafter.

BENEFITS PLAN:             You will be eligible  for the  Company's  benefits in
                           accordance with the Company's existing benefits plan.

AT WILL:                   The Company's  employees  serve on an at-will  basis.
                           Your  employment  is voluntary and for no set period.
                           If you accept  employment with the Company,  you will
                           be  free  to  resign  at  any  time,  without  cause.
                           Likewise, the


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                           Company will be free to terminate your  employment at
                           any time, with or without cause.  Although employment
                           policies and  practices may change from time to time,
                           the at-will  nature of your  employment  relationship
                           may not be changed  unless it is changed in a written
                           document  signed  by you and the  Company.  You  will
                           receive 3 weeks paid vacation per year,  with no more
                           than 3 weeks accrual.

TERMINATION WITHOUT
CAUSE:                     Subject to the provisions below, if terminated by the
                           Company  without  cause  or  due  to  your  death  or
                           permanent and total disability, conditioned upon your
                           (or your estate's)  execution and non-revocation of a
                           full release and waiver of claims agreement in a form
                           prescribed by the Company,  you (or your estate) will
                           receive  (i)  6  months  of  your  then-current  base
                           salary,  payable  in  6  equal  monthly  installments
                           commencing  on the  first day of the  calendar  month
                           immediately following such termination and thereafter
                           on the first day of each  subsequent  calendar month;
                           (ii)  6  months  of  continued   coverage  under  the
                           company's  group  health plan at the same cost to you
                           (and/or your dependents) as immediately prior to your
                           termination,    subject   to   your    (and/or   your
                           dependents')  making a valid "COBRA"  election and to
                           any  cost  increases   affecting  plan   participants
                           generally; and (iii) accelerated stock option vesting
                           deemed to occur immediately prior to your termination
                           with   respect  to  that   portion  of  any  and  all
                           outstanding  options then held by you that would have
                           vested during the 6 months immediately following your
                           termination     absent    such    termination    (the
                           "Severance").   Notwithstanding  the  foregoing,  the
                           payments  and  benefits  described in clauses (i) and
                           (ii) of the preceding  sentence  shall, to the extent
                           not already paid or provided,  cease  immediately  if
                           you become employed prior to their expiration.

TERMINATION WITH CAUSE:    For  purposes of this  Agreement,  "cause" is defined
                           as:  any  action  by  you  that   includes   (i)  the
                           commission    of   any    fraud,    misappropriation,
                           embezzlement or other actions  involving  dishonesty,
                           material  disloyalty,  or moral turpitude;  (ii) your
                           conviction  for  commission  of a  felony;  (iii) the
                           issuance of an order, judgment or decree of any court
                           permanently   enjoining   you  from   violating   any
                           provision of federal or state  securities  laws; (iv)
                           the willful engaging by you in gross misconduct which
                           materially and demonstrably  injures the Company; (v)
                           a final  judgment of a court  holding you liable in a
                           civil  action  based upon  conduct  showing  that you
                           breached  a  fiduciary  duty  to the  Company  or its
                           shareholders;  (vi) material breach of this agreement
                           or Employee Non-Disclosure and Invention Agreement as
                           determined  by the CEO; or (vii) a failure or refusal
                           in a material respect by you to follow the reasonable
                           policies or directions of the Company as specified by
                           the CEO or to carry out the  duties of your  position
                           after being  provided with notice of such failure and
                           an  opportunity  to cure  within  thirty (30) days of
                           receipt  of such  notice  (and  satisfactory  cure as
                           determined by the CEO).

                           In the event of  termination  for cause,  the Company
                           shall pay you all compensation (including base salary
                           and  accrued  vacation)  due to you  on the  date  of
                           termination.  There will be no  compensation  paid or
                           stock vested beyond the termination date.


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CHANGE OF CONTROL:         Immediately  prior  to  a  "Change  of  Control"  (as
                           defined below), you shall vest with respect to 50% of
                           your   then-outstanding   unvested   stock   options.
                           Furthermore, any unvested,  outstanding stock options
                           held by you immediately prior to a termination by you
                           or the Company of your employment  within the 6-month
                           period  preceding a Change of Control or the 12-month
                           period  following  such  Change of Control for any of
                           the  following  reasons shall  thereupon  immediately
                           vest in full:

                           1) you are terminated without cause, 2) your position
                           is reduced to less than a general manager position or
                           a vice president level position,  3) your base pay is
                           reduced below your  prevailing base pay amount at the
                           time of the  Change of Control or 4) you are asked to
                           relocate  to an office  more than 60 miles  from your
                           office prior to the Change of Control.

                           "CHANGE OF CONTROL"  means (i) any  consolidation  or
                           merger  of  the  Company   with  or  into  any  other
                           corporation  or other entity or person,  or any other
                           corporate  reorganization,  in which the stockholders
                           of   the   Company    immediately   prior   to   such
                           consolidation,  merger  or  reorganization,  own less
                           than  fifty  percent  (50%) of the  Company's  voting
                           power immediately after such consolidation, merger or
                           reorganization,  or  any  transaction  or  series  of
                           related  transactions to which the Company is a party
                           in which in  excess  of  fifty  percent  (50%) of the
                           Company's voting power is transferred,  excluding any
                           consolidation  or  merger  effected   exclusively  to
                           change  the  domicile  of the  Company or any sale of
                           Company's securities for financing purposes;  or (ii)
                           a  sale,  lease  or  other   disposition  of  all  or
                           substantially all of the assets of the Company.

CODE SECTION 409A          Notwithstanding  anything  to the  contrary  in  this
                           agreement,  no  compensation  or benefits,  including
                           without   limitation   any   Severance   payments  or
                           benefits,  shall be paid to you  during  the  6-month
                           period   following  your  "separation  from  service"
                           (within  the meaning of Section  409A(a)(2)(A)(i)  of
                           the Internal  Revenue  Code of 1986,  as amended (the
                           "CODE")) to the extent that the Company determines in
                           good faith that  paying  such  amounts at the time or
                           times  indicated in this agreement would cause you to
                           incur  additional tax under Code Section 409A. If the
                           payment of any such amounts is delayed as a result of
                           the  previous   sentence,   then  on  the  first  day
                           following the end of such 6-month period, the Company
                           will  pay  you  a  lump-sum   amount   equal  to  the
                           cumulative  amount  that  would have  otherwise  been
                           payable to you during such 6-month period.

                           The  compensation  and  benefits  payable  under this
                           agreement,    including   without    limitation   the
                           Severance,    are   not   intended   to    constitute
                           "nonqualified   deferred   compensation"  within  the
                           meaning of Code Section 409A.  However, to the extent
                           that  the  Company  reasonably  determines  that  any
                           compensation or benefits payable under this agreement
                           may be subject to Code Section 409A,  this  agreement
                           shall  incorporate the terms and conditions  required
                           by Code  Section  409A  and  Department  of  Treasury
                           regulations as


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                           reasonably  determined by the Company.  To the extent
                           applicable,  this  agreement  shall be interpreted in
                           accordance  with Code Section 409A and  Department of
                           Treasury regulations and other interpretive  guidance
                           issued   thereunder.   If  the   Company   reasonably
                           determines that any  compensation or benefits payable
                           under this  agreement  may be subject to Code Section
                           409A and related Department of Treasury guidance, the
                           Company shall adopt such amendments to this agreement
                           or adopt  other  policies  or  procedures  (including
                           amendments,  policies and procedures with retroactive
                           effect),  or take such other  actions as the  Company
                           deems  necessary  or  appropriate  to (a)  exempt the
                           compensation   and   benefits   payable   under  this
                           Agreement from Code Section 409A and/or  preserve the
                           intended  tax  treatment  of  the   compensation  and
                           benefits provided with respect to this agreement,  or
                           (b) comply with the requirements of Code Section 409A
                           and related Department of Treasury guidance.

ENTIRE AGREEMENT AND
CHOICE OF LAW:             This is the full and complete  agreement  between you
                           and the  Company  of all  terms  of the  arrangements
                           between  the   parties,   supersedes   all   previous
                           agreements  and cannot be  amended  except by written
                           agreement  signed  by both  parties.  If  there  is a
                           dispute over the  interpretation  of this Offer,  its
                           enforceability,  or any claim  arising in  connection
                           with  your  employment,  it  shall  be  governed  and
                           decided under  California law,  without  reference to
                           the law regarding conflicts of law.

                           You represent  that you have had the  opportunity  to
                           consult with an attorney, and have carefully read and
                           understand the scope and effect of this agreement.


To indicate your acceptance of this offer, please sign this letter.

Yours very truly,

/S/ STEPHEN FORTE
--------------------------------------
Stephen Forte, Chief Executive Officer

By accepting  this offer you agree as a  pre-condition  of this offer to execute
Tag-it Pacific's "Employee Non-Disclosure and Invention Agreement" as attached.

Agreed to and accepted:


/S/ LONNIE DAVID SCHNELL
--------------------------------------
Lonnie David Schnell


Date:  March 16, 2006


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