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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, 2003.

                                       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) filed all reports required to
be filed by Section 13 or 15(d) of the  Exchange  Act  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  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,  11,506,909 shares issued and outstanding as of November
14, 2003.

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


<PAGE>


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

PART I.  FINANCIAL INFORMATION                                              PAGE
                                                                            ----

Item 1.  Consolidated Financial Statements.....................................3

         Consolidated Balance Sheets as of
         September 30, 2003 (unaudited) and December 31, 2002..................3

         Consolidated Statements of Operations (unaudited)
         for the Three Months and Nine Months Ended
         September 30, 2003 and 2002...........................................4

         Consolidated Statements of Cash Flows (unaudited)
         for the Nine Months Ended September 30, 2003 and 2002.................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..........................................................31

Item 4.  Controls and Procedures..............................................31


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings....................................................32

Item 6.  Exhibits and Reports on Form 8-K.....................................32


                                       2
<PAGE>


                                      PART I
                              FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS.

                              TAG-IT PACIFIC, INC.
                           Consolidated Balance Sheets

                                                     September 30,  December 31,
                                                           2003          2002
                                                       -----------   -----------
                   Assets                              (unaudited)
Current Assets:
   Cash and cash equivalents .......................   $   288,360   $   285,464
   Due from factor .................................        17,606        43,730
   Trade accounts receivable, net ..................     7,043,930     5,697,655
   Trade accounts receivable, related parties ......    15,977,758    14,770,466
   Refundable income taxes .........................          --         212,082
   Inventories .....................................    22,978,398    23,105,267
   Prepaid expenses and other current assets .......     1,624,760       599,543
   Deferred income taxes ...........................        90,928        90,928
                                                       -----------   -----------
      Total current assets .........................    48,021,740    44,805,135

   Property and Equipment, net of accumulated
      depreciation and amortization ................     6,035,842     2,953,701
   Tradename .......................................     4,110,750     4,110,750
   Goodwill ........................................       450,000       450,000
   License rights ..................................       428,750       490,875
   Due from related parties ........................       914,426       870,251
   Other assets ....................................       207,057       374,106
                                                       -----------   -----------
   Total assets ....................................   $60,168,565   $54,054,818
                                                       ===========   ===========

 Liabilities, Convertible Redeemable Preferred
       Stock and Stockholders' Equity
Current Liabilities:
   Line of credit ..................................   $13,265,244   $15,934,257
   Accounts payable and accrued expenses ...........    12,084,456    10,401,187
   Deferred income .................................       449,984     1,027,984
   Subordinated notes payable to related parties ...       849,971     1,349,971
   Current portion of capital lease obligations ....       562,330        71,928
   Current portion of subordinated note payable ....     1,200,000     1,200,000
                                                       -----------   -----------
      Total current liabilities ....................    28,411,985    29,985,327

Capital lease obligations, less current portion ....       782,780       107,307
Subordinated note payable, less current portion ....     1,700,000     2,600,000
                                                       -----------   -----------
     Total liabilities .............................    30,894,765    32,692,634

Convertible redeemable preferred stock Series C,
   $0.001 par value; 759,494 shares authorized;
   759,494 shares issued and outstanding at
   September 30, 2003 and December 31, 2002
   (stated value $3,000,000) .......................     2,895,001     2,895,001
Stockholders' equity:
   Preferred stock, Series A $0.001 par value;
      250,000 shares authorized, no shares
      issued or outstanding ........................          --            --
   Convertible preferred stock Series B, $0.001
      par value; 850,000 shares authorized; no
      shares issued or outstanding .................          --            --
   Common stock, $0.001 par value, 30,000,000
      shares authorized; 11,464,909 shares
      issued and outstanding at September 30,
      2003; 9,319,909 at December 31, 2002 .........        11,466         9,321
   Additional paid in capital ......................    23,624,907    16,776,012
   Retained earnings ...............................     2,742,426     1,681,850
                                                       -----------   -----------
Total stockholders' equity .........................    26,378,799    18,467,183
                                                       -----------   -----------
Total liabilities, convertible redeemable
   preferred stock and stockholders' equity ........   $60,168,565   $54,054,818
                                                       ===========   ===========

          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,
                                      -------------------------   -------------------------
                                          2003         2002          2003           2002
                                      -----------   -----------   -----------   -----------
<S>                                   <C>           <C>           <C>           <C>
Net sales .........................   $16,467,896   $16,349,906   $51,558,303   $45,468,306
Cost of goods sold ................    12,237,757    12,424,257    37,564,067    33,931,051
                                      -----------   -----------   -----------   -----------
    Gross profit ..................     4,230,139     3,925,257    13,994,236    11,537,255

Selling expenses ..................       967,688       472,680     3,042,601     1,445,598
General and administrative expenses     2,831,140     2,649,188     8,469,572     7,246,100
                                      -----------   -----------   -----------   -----------
    Total operating expenses ......     3,798,828     3,121,868    11,512,173     8,691,698

Income from operations ............       431,311       803,781     2,482,063     2,845,557
Interest expense, net .............       307,253       344,585       971,090       912,856
                                      -----------   -----------   -----------   -----------
Income before income taxes ........       124,058       459,196     1,510,973     1,932,701
Provision for income taxes ........        28,888       115,265       306,271       488,455
                                      -----------   -----------   -----------   -----------
    Net income ....................   $    95,170   $   343,931   $ 1,204,702   $ 1,444,246
                                      ===========   ===========   ===========   ===========
Less:  Preferred stock dividends ..        49,926        47,100       144,126       137,100
                                      -----------   -----------   -----------   -----------
Net income to common stockholders .   $    45,244   $   296,831   $ 1,060,576   $ 1,307,146
                                      ===========   ===========   ===========   ===========

Basic earnings per share ..........   $      0.00   $      0.03   $      0.10   $      0.14
                                      ===========   ===========   ===========   ===========
Diluted earnings per share ........   $      0.00   $      0.03   $      0.10   $      0.14
                                      ===========   ===========   ===========   ===========

Weighted average number of common
shares outstanding:
    Basic .........................    11,436,702     9,310,099    10,363,755     9,203,078
                                      ===========   ===========   ===========   ===========
    Diluted .......................    12,245,083     9,615,355    10,809,895     9,499,855
                                      ===========   ===========   ===========   ===========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>


                              TAG-IT PACIFIC, INC.

                      Consolidated Statements of Cash Flows
                                   (unaudited)

                                                 Nine Months Ended September 30,
                                                  -----------------------------
                                                      2003             2002
                                                  ------------     ------------
Increase (decrease) in cash and cash
   equivalents
Cash flows from operating activities:
     Net income ..............................    $  1,204,702     $  1,444,246
Adjustments to reconcile net income
   to net cash provided by (used in)
   operating activities:
     Depreciation and amortization ...........         956,742          869,586
     Increase in allowance for
       doubtful accounts .....................         238,440           72,096
Changes in operating assets and
   Liabilities:
        Receivables, including related
           parties and due from factor .......      (2,765,882)     (10,438,350)
        Inventories ..........................         126,869       (3,879,117)
        Other assets .........................          (6,050)         (66,680)
        Prepaid expenses and other
           current assets ....................      (1,025,217)        (160,481)
        Accounts payable and accrued
           expenses ..........................         782,998        4,347,340
        Deferred revenue .....................            --          1,250,000
        Income taxes payable .................         504,291          483,807
                                                  ------------     ------------
Net cash provided by (used in)
   operating activities ......................          16,893       (6,077,553)
                                                  ------------     ------------

Cash flows from investing activities:
     Acquisition of property and equipment ...      (2,329,606)        (437,823)
                                                  ------------     ------------

Cash flows from financing activities:
     (Repayment) proceeds from bank line
        of credit, net .......................      (2,669,013)       6,378,886
     Proceeds from private placement
        transactions .........................       6,395,300        1,029,997
     Proceeds from exercise of stock
        options ..............................         297,500           57,850
     Repayment of capital leases .............        (308,178)         (56,310)
     Repayment of notes payable ..............      (1,400,000)        (700,000)
                                                  ------------     ------------
Net cash provided by financing activities ....       2,315,609        6,710,423
                                                  ------------     ------------

Net increase in cash .........................           2,896          195,047
Cash at beginning of period ..................         285,464           46,948
                                                  ------------     ------------
Cash at end of period ........................    $    288,360     $    241,995
                                                  ============     ============

Supplemental  disclosures of cash flow
  information:
     Cash paid (received) during the
       period for:
        Interest .............................    $    953,732     $    829,725
        Income taxes paid ....................    $     13,208     $      5,280
        Income taxes received ................    $   (212,082)    $       --
     Non-cash financing activity:
        Common stock issued in
           acquisition of license rights .....    $       --       $    577,500
        Capital lease obligation .............    $  1,474,053     $       --

          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 generally accepted
accounting  principles 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, 2002.

2.       EARNINGS PER SHARE

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

THREE MONTHS ENDED SEPTEMBER 30, 2003:                                 PER SHARE
                                                 INCOME      SHARES      AMOUNT
                                               ---------   ----------   --------
Basic earnings per share:
Income available to common stockholders ....   $  45,244   11,436,702   $   0.00

Effect of Dilutive Securities:
Options ....................................                  684,740
Warrants ...................................                  123,641
                                               ---------   ----------   --------
Income available to common stockholders ....   $  45,244   12,245,083   $   0.00
                                               =========   ==========   ========

THREE MONTHS ENDED SEPTEMBER 30, 2002:
Basic earnings per share:
Income available to common stockholders ....   $ 296,831    9,310,099   $   0.03

Effect of Dilutive Securities:
Options ....................................                  250,271
Warrants ...................................                   54,985
                                               ---------   ----------   --------
Income available to common stockholders ....   $ 296,831    9,615,355   $   0.03
                                               =========   ==========   ========


                                       6
<PAGE>


                              TAG-IT PACIFIC, INC.
                 Notes to the Consolidated Financial Statements
                                   (unaudited)


NINE MONTHS ENDED SEPTEMBER 30, 2003:                                  PER SHARE
                                                INCOME       SHARES      AMOUNT
                                              ----------   ----------   --------
Basic earnings per share:
Income available to common stockholders ...   $1,060,576   10,363,755   $   0.10

Effect of Dilutive Securities:
Options ...................................                    44,609
Warrants ..................................                   401,531
                                              ----------   ----------   --------
Income available to common stockholders ...   $1,060,576   10,809,895   $   0.10
                                              ==========   ==========   ========

NINE MONTHS ENDED SEPTEMBER 30, 2002:
Basic earnings per share:
Income available to common stockholders ...   $1,307,146    9,203,078   $   0.14

Effect of Dilutive Securities:
Options ...................................                   242,252
Warrants ..................................                    54,525
                                              ----------   ----------   --------
Income available to common stockholders ...   $1,307,146    9,499,855   $   0.14
                                              ==========   ==========   ========

         Convertible debt of $500,000 convertible at $4.50 per share and 759,494
shares  of  preferred  Series  C stock  convertible  at  $4.94  per  share  were
outstanding for the three months ended September 30, 2003, 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  426,666  shares of common stock at between  $4.57
and  $5.06,  options  to  purchase  105,000  shares  of  common  stock at $4.63,
convertible  debt of $500,000  convertible at $4.50 per share and 759,494 shares
of preferred Series C stock  convertible at $4.94 per share were outstanding for
the  nine  months  ended  September  30,  2003,  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  523,332  shares of common stock at between  $4.34
and $6.00,  options to purchase  646,000 shares of common stock at between $4.00
and  $4.63,  convertible  debt of  $500,000  convertible  at $4.50 per share and
759,494 shares of preferred  Series C stock  convertible at $4.94 per share were
outstanding for the three and nine months ended September 30, 2002, 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.


                                       7
<PAGE>


                              TAG-IT PACIFIC, INC.
                 Notes to the Consolidated Financial Statements
                                   (unaudited)


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, 2003 and 2002. If compensation
cost for stock-based  compensation  had been determined based on the fair market
value of the stock options on their dates of grant in accordance  with SFAS 123,
the  Company's  net income and  earnings per share for the three and nine months
ended  September  30, 2003 and 2002 would have amounted to the pro forma amounts
presented below:

<TABLE>
<CAPTION>

                                                      Three Months Ended           Nine Months Ended
                                                         September 30,               September 30,
                                                --------------------------    --------------------------
                                                   2003           2002           2003           2002
                                                -----------    -----------    -----------    -----------
<S>                                             <C>            <C>            <C>            <C>
Net Income, as reported...................      $    95,170    $   343,931    $ 1,204,702    $ 1,444,246
Add:  Stock-based employee compensation
    expense included in reported net
    income, net of related tax effects....               --             --             --             --

Deduct:  Total stock-based employee
    compensation expense determined under
    fair value based methods for all
    awards, net of related tax effects....          (44,838)       (30,268)       (94,948)       (90,804)
                                                -----------    -----------    -----------    -----------

Pro forma net income......................      $    50,332    $   313,663    $ 1,109,754    $ 1,353,442
                                                ===========    ===========    ===========    ===========

Earnings per share:

    Basic - as reported...................      $      0.00    $      0.03    $      0.10    $      0.14

    Basic - pro forma.....................      $      0.00    $      0.03    $      0.09    $      0.13

    Diluted - as reported.................      $      0.00    $      0.03    $      0.10    $      0.14

    Diluted - pro forma...................      $      0.00    $      0.03    $      0.09    $      0.13
</TABLE>


                                       8
<PAGE>


                              TAG-IT PACIFIC, INC.
                 Notes to the Consolidated Financial Statements
                                   (unaudited)


4.       PRIVATE PLACEMENTS

         On May 30,  2003,  the Company  raised  approximately  $6,037,500  in a
private placement transaction with five institutional  investors.  Pursuant to a
securities  purchase agreement with these institutional  investors,  the Company
sold 1,725,000  shares of its common stock at a price per share of $3.50.  After
commissions  and expenses,  the Company  received net proceeds of  approximately
$5.5  million.  The  Company  has agreed to  register  the shares  issued in the
private placement with the Securities and Exchange  Commission for resale by the
investors.  In conjunction with the private placement  transaction,  the Company
issued 172,500  warrants to the placement  agent.  The warrants are  exercisable
beginning  August 30, 2003  through  May 30, 2008 and have a per share  exercise
price of $5.06.

         In a series of sales on December 28, 2001,  January 7, 2002 and January
8, 2002, the Company  entered into Stock and Warrant  Purchase  Agreements  with
three  private  investors,  including  Mark Dyne,  the chairman of the Company's
board of directors.  Pursuant to the Stock and Warrant Purchase Agreements,  the
Company  issued an  aggregate  of 516,665  shares of common stock at a price per
share of $3.00 for  aggregate  proceeds  of  $1,549,995.  The Stock and  Warrant
Purchase  Agreements  also included a commitment  by one of the two  non-related
investors to purchase an  additional  400,000  shares of common stock at a price
per share of $3.00 at a second  closing  (subject of certain  conditions)  on or
prior to March 1, 2003,  as amended,  for  additional  proceeds  of  $1,200,000.
Pursuant  to the Stock and  Warrant  purchase  agreements,  258,332  warrants to
purchase common stock were issued at the first closing of the  transactions  and
200,000  warrants  were  issued  at  the  second  closings.   The  warrants  are
exercisable  immediately after closing,  one half of the warrants at an exercise
price of 110% and the  second  half at an  exercise  price of 120% of the market
value of the Company's  common stock on the date of closing.  The exercise price
for the warrants shall be adjusted upward by 25% of the amount, if any, that the
market  price of our common  stock on the  exercise  date  exceeds  the  initial
exercise  price (as  adjusted)  up to a  maximum  exercise  price of $5.25.  The
warrants have a term of four years. The shares contain  restrictions  related to
the sale or transfer of the shares, registration and voting rights.

         In March  2002 and  February  2003,  one of the  non-related  investors
purchased an  additional  100,000 and 300,000  shares,  respectively,  of common
stock at a price per share of $3.00 pursuant to the second closing provisions of
the related  agreement for total proceeds of $1,200,000.  Pursuant to the second
closing  provisions  of the Stock and  Warrant  Purchase  Agreement,  50,000 and
150,000  warrants  were issued to the investor in March 2002 and February  2003,
respectively. There are no remaining commitments due under the stock and warrant
purchase agreements.


                                       9
<PAGE>


                              TAG-IT PACIFIC, INC.
                 Notes to the Consolidated Financial Statements
                                   (unaudited)


5.       CAPITAL LEASE OBLIGATION

         On April 3, 2003,  the Company  entered into a financing  agreement for
the purchase and implementation of computer equipment and software.  The capital
lease obligation bears interest at 6% and expires in March 2006.  Future minimum
annual payments under the capital lease obligation are as follows:

YEARS ENDING DECEMBER 31,                                             Amount
                                                                  -------------
2003 (three months)........................................       $     141,220
2004.......................................................             564,880
2005.......................................................             466,756
2006.......................................................             152,117
                                                                  -------------
Total payments.............................................           1,324,973
Less amount representing interest..........................            (105,187)
                                                                  -------------
Balance at September 30, 2003..............................           1,219,786
Less current Portion.......................................             499,726
                                                                  -------------
Long-term portion..........................................       $     720,060
                                                                  =============

6.       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.

         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.


                                       10
<PAGE>


                              TAG-IT PACIFIC, INC.
                 Notes to the Consolidated Financial Statements
                                   (unaudited)


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

7.       NEW ACCOUNTING PRONOUNCEMENTS

         In August  2001,  the FASB issued SFAS No.  143,  Accounting  for Asset
Retirement Obligations.  SFAS No. 143 requires the fair value of a liability for
an asset  retirement  obligation  to be  recognized in the period in which it is
incurred  if a  reasonable  estimate of fair value can be made.  The  associated
asset  retirement  costs are  capitalized as part of the carrying  amount of the
long-lived  asset.  SFAS No. 143 is effective for fiscal years  beginning  after
September 15, 2002.  The Company  believes the adoption of this  Statement  will
have no material impact on its financial statements.

         In  April  2002,  the FASB  issued  SFAS No.  145,  Rescission  of FASB
Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections.  This statement  eliminates the current  requirement that gains and
losses on debt  extinguishment  must be classified as extraordinary items in the
income  statement.  Instead,  such  gains  and  losses  will  be  classified  as
extraordinary  items only if they are deemed to be unusual  and  infrequent,  in
accordance with the current GAAP criteria for extraordinary  classification.  In
addition,  SFAS 145 eliminates an inconsistency in lease accounting by requiring
that  modifications  of  capital  leases  that  result  in  reclassification  as
operating  leases be accounted for  consistent  with  sale-leaseback  accounting
rules.  The  statement  also  contains  other   nonsubstantive   corrections  to
authoritative accounting literature.  The changes related to debt extinguishment
will be effective for fiscal years beginning after May 15, 2002, and the changes
related to lease accounting will be effective for  transactions  occurring after
May 15, 2002.  Adoption of this standard  will not have any immediate  effect on
the Company's consolidated financial statements.

         In September  2002, the FASB issued SFAS No. 146,  Accounting for Costs
Associated  with Exit or Disposal  Activities,  which  addresses  accounting for
restructuring  and similar costs.  SFAS No. 146 supersedes  previous  accounting
guidance,  principally  Emerging  Issues Task Force (EITF)  Issue No. 94-3.  The
Company will adopt the provisions of SFAS No. 146 for  restructuring  activities
initiated  after December 31, 2002. SFAS No. 146 requires that the liability for
costs  associated  with an exit or  disposal  activity  be  recognized  when the
liability  is incurred.  Under EITF No.  94-3, a liability  for an exit cost was
recognized at the date of a company's  commitment to an exit plan.  SFAS No. 146
also establishes that the liability should initially be measured and recorded at
fair  value.  Accordingly,  SFAS No. 146 may  affect  the timing of  recognizing
future restructuring costs as well as the amount recognized.

         In  January  2003,  the  FASB  issued  FASB   Interpretation   No.  46,
Consolidation of Variable  Interest  Entities,  an  interpretation of Accounting
Research Bulletins ("ARB") No. 51, Consolidated Financial Statements ("FIN 46").
FIN 46  clarifies  the  application  of ARB No. 51 to certain  entities in which
equity  investors do not have the  characteristics  of a  controlling  financial
interest or do not have sufficient  equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties.
The Company does not believe the adoption of FIN 46 will have a material  impact
on its financial position and results of operations.

         In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative  Instruments and Hedging  Activities,  ("SFAS 149").  SFAS No. 149
amends and  clarifies  the  accounting  for  derivative  instruments,  including
certain derivative instruments embedded in other contracts,  and for the hedging
activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging


                                       11
<PAGE>


                              TAG-IT PACIFIC, INC.
                 Notes to the Consolidated Financial Statements
                                   (unaudited)


Activities.  SFAS 149 is  generally  effective  for  contracts  entered  into or
modified after September 30, 2003 and for hedging relationships designated after
September 30, 2003.  The adoption of SFAS 149 is not expected to have a material
effect on the Company's financial position, results of operations or cash flows.

         In May 2003,  the FASB  issued  SFAS No.  150,  Accounting  for Certain
Instruments with  Characteristics  of Both Liabilities and Equity,  ("SFAS 150")
which  establishes  standards for how an issuer  classifies and measures certain
financial  instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer  classify a financial  instrument that is within
its scope, which may have previously been reported as equity, as a liability (or
an asset in some  circumstances).  This  statement  is effective  for  financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the first interim period beginning after September
15, 2003 for public companies.  The Company adopted SFAS 150 on July 1, 2003 and
the  adoption  of  this  statement  had no  material  impact  on  its  financial
statements.


                                       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 and nine months ended September 30, 2003
and 2002.  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.

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  uncollectable
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 and charged to
                  operations  in the period in which the facts that give rise to
                  the  adjustments  become known.  A substantial  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.  In the event that  inventories  remain  with us in
                  excess of six to nine  months  from our  receipt  of the goods
                  from  our  vendors  or  the  termination  of  production  of a
                  customer's  product  line  related  to  the  inventories,  the
                  customer is required to purchase the inventories from us under
                  normal invoice and selling terms.  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.

         o        Accounts  receivable  balances  are  evaluated  on a continual
                  basis   and   allowances   are   provided   for    potentially
                  uncollectable  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.


                                       13
<PAGE>


         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
                  accessing the need for a valuation allowance.  If we determine
                  that we will  not  realize  all or  part of our  deferred  tax
                  assets  in the  future,  we would  make an  adjustment  to the
                  carrying  value of the  deferred  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.

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

BUSINESS OVERVIEW AND RECENT DEVELOPMENTS

         Tag-It  Pacific,  Inc. is an apparel  company that  specializes  in the
distribution  of trim items to  manufacturers  of fashion  apparel and  licensed
consumer products,  and specialty retailers and mass merchandisers.  We act as a
full service outsourced trim management  department for manufacturers of fashion
apparel such as Tarrant Apparel Group and Azteca  Production  International.  We
also serve as a specified  supplier of trim items to owners of specific  brands,
brand  licensees and  retailers,  including  Abercrombie  & Fitch,  The Limited,
Express,  Lerner and Miller's Outpost,  among others. We also distribute zippers
under our TALON brand name to owners of apparel brands and apparel manufacturers
such as Levi  Strauss & Co.,  VF  Corporation  and  Tropical  Sportswear,  among
others.  In 2002,  we created a new division  under the TEKFIT brand name.  This
division develops and sells apparel components that utilize the patented Pro-Fit
technology,  including a stretch waistband. We market these products to the same
customers targeted by our MANAGED TRIM SOLUTION(TM) and TALON zipper divisions.

         We  have  positioned  ourselves  as a  fully  integrated  single-source
supplier of a full range of trim items for manufacturers of fashion apparel. Our
business  focuses on servicing all of the trim  requirements of our customers at
the manufacturing  and retail brand level of the fashion apparel industry.  Trim
items include  thread,  zippers,  labels,  buttons,  rivets,  printed  marketing
material,  polybags,  packing  cartons,  and  hangers.  Trim  items  comprise  a
relatively small part of the cost of most apparel products but comprise the vast
majority of  components  necessary to fabricate a typical  apparel  product.  We
offer  customers  what  we call  our  MANAGED  TRIM  SOLUTION(TM),  which  is an
Internet-based  supply-chain  management system covering the complete management
of development,  ordering,  production,  inventory  management and  just-in-time
distribution   of  their  trim  and   packaging   requirements.   Traditionally,
manufacturers  of apparel  products  have been  required  to  operate  their own
apparel trim departments,  requiring the manufacturers to maintain a significant
amount of  infrastructure to coordinate the buying of trim products from a large
number of vendors. By acting as a single source provider of a full range of trim
items, we allow  manufacturers  using our MANAGED TRIM SOLUTION(TM) to eliminate
the  added  infrastructure,   trim  inventory  positions,   overhead  costs  and
inefficiencies  created  by  in-house  trim  departments  that deal with a large
number of vendors for the  procurement  of trim items.  We also seek to


                                       14
<PAGE>


leverage our position as a single  source  supplier of trim items as well as our
extensive  expertise in the field of trim  distribution  and procurement to more
efficiently  manage the trim assembly process resulting in faster delivery times
and fewer production  delays for our manufacturing  customers.  Our MANAGED TRIM
SOLUTION(TM)  also helps to eliminate a  manufacturer's  need to maintain a trim
purchasing and logistics department.

         We also serve as a  specified  supplier  for a variety of major  retail
brand and private label oriented  companies.  A specified supplier is a supplier
that has been  approved  for  quality  and  service by a major  retail  brand or
private  label  company.  We seek to expand our  services  as a vendor of select
lines of trim items for such  customers  to being a preferred  or single  source
provider  of all of such brand  customer's  authorized  trim  requirements.  Our
ability to offer brand name and private label oriented customers a full range of
trim  products is  attractive  because it enables our customers to address their
quality  and  supply  needs  for all of their  trim  requirements  from a single
source,  avoiding the time and expense  necessary to monitor  quality and supply
from  multiple  vendors and  manufacturer  sources.  In addition,  by becoming a
specified  supplier to brand  customers,  we have an  opportunity  to become the
preferred or sole vendor of trim items for all contract manufacturers of apparel
under that brand name.

         On May 30,  2003,  we  raised  approximately  $6,037,500  in a  private
placement  transaction  with  five  institutional   investors.   Pursuant  to  a
securities  purchase  agreement  with  these  institutional  investors,  we sold
1,725,000  shares of our  common  stock at a price  per  share of  $3.50.  After
commissions  and  expenses,  we  received  net  proceeds of  approximately  $5.5
million.  We have agreed to register the shares issued in the private  placement
with the  Securities and Exchange  Commission  for resale by the  investors.  In
conjunction with the private placement  transaction,  we issued 172,500 warrants
to the placement agent.  The warrants are exercisable  beginning August 30, 2003
through May 30, 2008 and have a per share exercise price of $5.06.

         On July 12, 2002, we entered into an exclusive  supply  agreement  with
Levi Strauss & Co. In accordance with the supply agreement,  Levi is to purchase
a  minimum  of  $10  million  of  waistbands,  various  trim  products,  garment
components  and  services  over  the  two-year  term of the  agreement.  Certain
proprietary products,  equipment and technological  know-how will be supplied to
Levi on an  exclusive  basis  during  this  period.  The supply  agreement  also
appoints  TALON as an approved  zipper  supplier to Levi.  As an addendum to the
supply  agreement,  we have also been granted  approval as a specified vendor of
woven labels and printed tags by Levi Strauss & Co.

         On April 2, 2002, we entered into an exclusive license and intellectual
property rights agreement with Pro-Fit Holdings Limited. This agreement gives us
the  exclusive  rights  to  sell or  sublicense  waistbands  manufactured  under
patented  technology  developed by Pro-Fit  Holdings  for garments  manufactured
anywhere  in the world for the United  States  market and for all United  States
brands.  The new technology allows pant  manufacturers to build a stretch factor
into standard waistbands that does not alter the appearance of the garment,  but
allows the waist to stretch out and back by as much as two waist sizes.  Through
our trim package business, and our TALON line of zippers, we are already focused
on the North American  bottoms  market.  This product  compliments  our existing
product line and we intend to integrate the  production of the  waistbands  into
our existing  infrastructure.  The exclusive  license and intellectual  property
rights  agreement  has an  indefinite  term that extends for the duration of the
trade secrets licensed under the agreement.

         On December 21, 2001, we entered into an asset purchase  agreement with
Talon,  Inc.  and Grupo  Industrial  Cierres  Ideal,  S.A.  de C.V.  whereby  we
purchased certain TALON zipper assets, including the TALON(R) zipper brand name,
trademarks,  patents,  technical field equipment and inventory. Since July 2000,
we have been the  exclusive  distributor  of TALON  brand  zippers.  TALON is an
American brand with significant name recognition and brand equity. TALON was the
original pioneer of the formed wire metal


                                       15
<PAGE>


zipper for the jeans industry and is a specified zipper brand for  manufacturers
in the sportswear and outerwear  markets.  The TALON acquisition is an important
step in our  strategy to offer a complete  high  quality trim package to apparel
manufacturers.  Our transition from a distributor to an owner of the TALON brand
name  better  positions  us to  revitalize  the  TALON  brand  name and  capture
increased market share in the industry. As the owner of the TALON brand name, we
believe we will be able to more effectively respond to customer needs and better
maintain the quality and value of the TALON products.

RELATED PARTY SUPPLY AGREEMENTS

         On September  20, 2001,  we entered  into a ten-year  co-marketing  and
supply  agreement with Coats American,  Inc., an affiliate of Coats plc, as well
as a preferred stock purchase  agreement with Coats North America  Consolidated,
Inc.,  also an  affiliate of Coats plc. The  co-marketing  and supply  agreement
provides  for  selected  introductions  into  Coats'  customer  base and has the
potential  to  accelerate  our growth  plans and to  introduce  our MANAGED TRIM
SOLUTION(TM) to apparel  manufacturers on a broader basis. Pursuant to the terms
of the  co-marketing  and supply  agreement,  our trim packages will exclusively
offer thread manufactured by Coats. Coats was selected for its quality, service,
brand recognition and global reach.  Prior to entering into the co-marketing and
supply  agreement,  we were a long-time  customer of Coats,  distributing  their
thread to sewing  operations under our MANAGED TRIM SOLUTION(TM)  program.  This
exclusive  agreement  will allow Coats to offer its customer base of contractors
in Mexico,  Central America and the Caribbean full-service trim management under
our MANAGED TRIM SOLUTION(TM) program.

         Pursuant to the terms of the preferred  stock  purchase  agreement,  we
received a cash  investment of $3 million from Coats North America  Consolidated
in exchange  for 759,494  shares of series C  convertible  redeemable  preferred
stock. London-based Coats, plc is the world's largest manufacturer of industrial
thread and textile-related craft products.  Coats has operations in 65 countries
and has a North American presence in the United States,  Canada, Mexico, Central
America and the Caribbean.

         We  have  entered  into  an  exclusive  supply  agreement  with  Azteca
Production  International,   Inc.,  AZT  International  SA  D  RL  and  Commerce
Investment  Group,  LLC.  Pursuant  to this  supply  agreement,  we provide  all
trim-related  products for certain  programs  manufactured by Azteca  Production
International.  The  agreement  provides  for a minimum  aggregate  total of $10
million  in  annual  purchases  by  Azteca  Production   International  and  its
affiliates  during each year of the three-year term of the agreement,  if and to
the extent,  we are able to provide trim products on a basis that is competitive
in  terms of price  and  quality.  Azteca  Production  International  has been a
significant  customer of ours for many years.  This agreement is structured in a
manner that has allowed us to utilize our MANAGED  TRIM  SOLUTION(TM)  system to
supply   Azteca   Production   International   with  all  of  its  trim  program
requirements.  We have expanded our facilities in Tlaxcala,  Mexico,  to service
Azteca Production International's trim requirements.

         We also have an exclusive  supply  agreement with Tarrant Apparel Group
and have been supplying  Tarrant Apparel Group with all of its trim requirements
under our MANAGED TRIM  SOLUTION(TM)  system since 1998.  The  exclusive  supply
agreement with Tarrant Apparel Group has an indefinite term.

         Sales under our  exclusive  supply  agreements  with Azteca  Production
International  and Tarrant  Apparel Group  amounted to  approximately  69.7% and
63.0% of our total sales for the years ended  December 2002 and 2001,  and 43.7%
of our  total  sales for the nine  months  ended  September  30,  2003.  We will
continue to rely on these two customers  for a  significant  amount of our sales
for the year ending December 2004. Sales under these exclusive supply agreements
as a percentage of total sales for the year ending December 2004 are anticipated
to be lower than the year ending  December  30, 2003 due to an increase in sales
to other  customers and a decrease in sales to these major  customers as part of
our plan to further  diversify our customer base. Our results of operations will
depend to a significant extent upon the


                                       16
<PAGE>


commercial success of Azteca Production International and Tarrant Apparel Group.
If Azteca  Production  International  and Tarrant Apparel Group fail to purchase
our trim  products  at  anticipated  levels,  or our  relationship  with  Azteca
Production  International  or Tarrant Apparel Group  terminates,  it may have an
adverse  affect  on our  results  of  operations.  Included  in  trade  accounts
receivable,  related  parties at September  30,  2003,  is  approximately  $16.0
million due from Tarrant Apparel Group and Azteca Production International.

         Included  in  inventories  at  September  30, 2003 are  inventories  of
approximately  $9.2 million that are subject to buyback  arrangements  with Levi
Strauss & Co., Tarrant Apparel Group, Azteca Production  International and other
customers.  The buyback arrangements contain provisions related to the inventory
purchased on behalf of these  customers.  In the event that  inventories  remain
with us in excess of six to nine  months  from our receipt of the goods from our
vendors or the termination of production of a customer's product line related to
the  inventories,  the customer is required to purchase the inventories  from us
under normal invoice and selling terms.  During the nine months ended  September
30, 2003,  we sold  approximately  $2.4 million in inventory to Tarrant  Apparel
Group  and  Azteca   Production   International   pursuant   to  these   buyback
arrangements.  If the  financial  condition of Tarrant  Apparel Group and Azteca
Production  International  were to  deteriorate,  resulting in an  impairment of
their ability to purchase inventories or pay receivables, it may have an adverse
affect on our results of operations.

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,
                                          ----------------     ----------------
                                            2003     2002       2003      2002
                                          -------  -------     -------  -------
Net sales .............................     100.0%   100.0%      100.0%   100.0%
Cost of goods sold ....................      74.3     76.0        72.9     74.6
                                          -------  -------     -------  -------
   Gross profit .......................      25.7     24.0        27.1     25.4
Selling expenses ......................       5.9      2.9         5.9      3.2
General and administrative expenses ...      17.2     16.2        16.4     15.9
                                          -------  -------     -------  -------
   Operating Income ...................       2.6%     4.9%       4.8%     6.3%
                                          =======  =======     =======  =======

         Net sales increased approximately $118,000, or 0.7%, to $16,468,000 for
the three months ended September 30, 2003 from  $16,350,000 for the three months
ended  September  30, 2002.  The increase in net sales was  primarily due to the
addition of sales under our TEKFIT stretch waistband  division,  for which there
were no sales in the three months ended  September  30, 2002.  In late 2002,  we
created a new division under the TEKFIT brand name.  This division  develops and
sells apparel components that utilize the patented Pro-Fit technology, including
a stretch  waistband sold under our exclusive supply agreement with Levi Strauss
& Co. The  increase in net sales was also  attributable  to an increase in sales
from our Hong Kong subsidiary for programs  related to major U.S.  retailers and
an  increase in zipper  sales  under our TALON  brand name to our  MANAGED  TRIM
SOLUTION(TM)  customers  in Mexico and our other TALON  customers  in Mexico and
Asia. The increase in net sales was offset by a decrease in  trim-related  sales
from our Tlaxcala,  Mexico  operations under our MANAGED TRIM  SOLUTION(TM) trim
package  program.  This  decrease is due in part to our efforts to decrease  our
reliance on our major customers and to further diversify our customer base.

         Net sales increased approximately  $6,090,000, or 13.4%, to $51,558,000
for the nine  months  ended  September  30, 2003 from  $45,468,000  for the nine
months ended  September 30, 2002. The increase in net sales was primarily due to
the addition of sales under our TEKFIT stretch waistband


                                       17
<PAGE>


division, as discussed above. The increase in net sales was also attributable to
an increase in sales from our Hong Kong subsidiary for programs related to major
U.S. retailers and an increase in zipper sales under our Talon brand name to our
MANAGED TRIM  SOLUTION(TM)  customers in Mexico and our other TALON customers in
Mexico and Asia. The increase in net sales was partially offset by a decrease in
trim-related  sales from our Tlaxcala,  Mexico operations under our MANAGED TRIM
SOLUTION(TM)  trim package program.  This decrease is due in part to our efforts
to decrease our reliance on our major  customers  and to further  diversify  our
customer base.

         Gross profit increased  approximately  $304,000, or 7.7%, to $4,230,000
for the three  months ended  September  30, 2003 from  $3,926,000  for the three
months  ended  September  30, 2002.  Gross  margin as a percentage  of net sales
increased to  approximately  25.7% for the three months ended September 30, 2003
as compared to 24.0% for the three months ended September 30, 2002. The increase
in gross  profit  as a  percentage  of net  sales  for the  three  months  ended
September  30,  2003 was due to a change in our  product  mix during the current
quarter,  resulting  in an  increase  in sales of  products  with  higher  gross
margins.

         Gross  profit  increased   approximately   $2,457,000,   or  21.3%,  to
$13,994,000  for the nine months ended  September 30, 2003 from  $11,537,000 for
the nine months ended  September  30, 2002.  Gross margin as a percentage of net
sales increased to  approximately  27.1% for the nine months ended September 30,
2003 as compared to 25.4% for the nine months  ended  September  30,  2002.  The
increase in gross profit as a percentage  of net sales for the nine months ended
September  30,  2003 was due to a change in our  product  mix during the period,
resulting in an increase in sales of products with higher gross margins.

         Selling  expenses  increased  approximately  $495,000,  or  104.7%,  to
$968,000  for the three months ended  September  30, 2003 from  $473,000 for the
three  months ended  September  30, 2002.  As a percentage  of net sales,  these
expenses  increased  to 5.9% for the  three  months  ended  September  30,  2003
compared to 2.9% for the three months ended  September 30, 2002. The increase in
selling  expenses  during the  quarter  was due  primarily  to royalty and other
expenses  related to our  exclusive  license and  intellectual  property  rights
agreement with Pro-Fit Holdings Limited incurred during the period, the addition
of sales personnel in our Hong Kong facility and increased  marketing efforts to
promote our updated Oracle-based MANAGED TRIM SOLUTION(TM) system. We are in the
process of  completing an update of our MANAGED TRIM  SOLUTION(TM)  system which
will enable us to further  sell  complete  trim  packages to new  locations on a
global basis.  Royalty expense related to our exclusive license and intellectual
property   rights   agreement  with  Pro-Fit   Holdings   Limited   amounted  to
approximately  $199,000 for the three months ended  September  30, 2003.  We pay
royalties of 6% on related sales of up to $10 million,  4% of related sales from
$10-20  million and 3% on related sales in excess of $20 million.  There were no
royalties incurred for the three months ended September 30, 2002.

         Selling expenses  increased  approximately  $1,597,000,  or 110.4%,  to
$3,043,000 for the nine months ended  September 30, 2003 from $1,446,000 for the
nine months ended  September  30,  2002.  As a  percentage  of net sales,  these
expenses increased to 5.9% for the nine months ended September 30, 2003 compared
to 3.2% for the nine months ended  September  30, 2002.  The increase in selling
expenses  during the  period was due  primarily  to royalty  and other  expenses
related to our exclusive license and intellectual property rights agreement with
Pro-Fit  Holdings  Limited  incurred  during  the period  and  additional  sales
personnel hired in our Hong Kong facility and for our TEKFIT  division.  Royalty
expense  related to our  exclusive  license  and  intellectual  property  rights
agreement with Pro-Fit Holdings  Limited amounted to approximately  $705,000 for
the nine months ended September 30, 2003.  There were no royalties  incurred for
the nine months ended September 30, 2002.


                                       18
<PAGE>


         General and administrative  expenses increased  approximately $182,000,
or 6.9%,  to  $2,831,000  for the three  months  ended  September  30, 2003 from
$2,649,000 for the three months ended  September 30, 2002. The increase in these
expenses  was due  primarily  to  expenses  incurred  related  to our  exclusive
waistband  license  agreement and the amortization of intangible assets incurred
as a result of the exclusive waistband  technology license rights we acquired in
April 2002. In addition,  we incurred  approximately  $156,000 of  non-recurring
severance  costs during the three months ended September 30, 2003 related to the
reduction of our workforce in certain  divisions.  As a percentage of net sales,
these expenses  increased to 17.2% for the three months ended September 30, 2003
compared to 16.2% for the three months  ended  September  30, 2002,  because the
rate of increase in net sales did not exceed that of general and  administrative
expenses.

         General and administrative expenses increased approximately $1,224,000,
or 16.9%,  to  $8,470,000  for the nine  months  ended  September  30, 2003 from
$7,246,000  for the nine months ended  September 30, 2002. The increase in these
expenses  was due  primarily  to  expenses  incurred  related  to our  exclusive
waistband license agreement, the amortization of intangible assets incurred as a
result of the exclusive waistband technology license rights we acquired in April
2002 and the relocation of our Hong Kong office during the year. In addition, we
incurred  approximately  $249,000 of  non-recurring  severance  costs during the
three months ended  September 30, 2003 related to the reduction of our workforce
in certain divisions.  As a percentage of net sales, these expenses increased to
16.4% for the nine months  ended  September  30, 2003  compared to 15.9% for the
nine months ended September 30, 2002,  because the rate of increase in net sales
did not exceed that of general and administrative expenses.

         Interest expense decreased approximately $38,000, or 11.0%, to $307,000
for the three months ended September 30, 2003 from $345,000 for the three months
ended  September  30, 2002.  Borrowings  under our UPS Capital  credit  facility
decreased  during the quarter ended September 30, 2003 due to proceeds  received
from our  private  placement  transaction  in which we raised  approximately  $6
million from the sale of common stock.

         Interest expense increased  approximately $58,000, or 6.4%, to $971,000
for the nine months ended  September  30, 2003 from $913,000 for the nine months
ended  September  30, 2002.  Borrowings  under our UPS Capital  credit  facility
increased  during the period ended September 30, 2003 due to increased sales and
expanded  operations in Mexico,  the Dominican Republic and Asia. The additional
borrowings during the period were offset by the application of the proceeds from
our private placement transaction in which we raised approximately $6 million in
May 2003.

         The provision for income taxes for the three months ended September 30,
2003 amounted to approximately $29,000 compared to $115,000 for the three months
ended  September  30, 2002.  Income taxes  decreased  for the three months ended
September 30, 2003 primarily due to decreased taxable income.

         The provision for income taxes for the nine months ended  September 30,
2003 amounted to approximately $306,000 compared to $488,000 for the nine months
ended  September  30,  2002.  Income taxes  decreased  for the nine months ended
September 30, 2003 primarily due to decreased taxable income.

         Net  income  was  approximately  $95,000  for the  three  months  ended
September  30, 2003 as compared to net income of $344,000  for the three  months
ended  September 30, 2002, due primarily to increases in selling and general and
administrative expenses, offset by an increase in net sales and gross margin, as
discussed above.


                                       19
<PAGE>


         Net income  was  approximately  $1,205,000  for the nine  months  ended
September 30, 2003 as compared to net income of  $1,444,000  for the nine months
ended  September 30, 2002, due primarily to increases in selling and general and
administrative expenses, offset by an increase in net sales and gross margin, as
discussed above.

         Preferred stock  dividends  amounted to  approximately  $50,000 for the
three  months  ended  September  30,  2003 as  compared to $47,000 for the three
months ended  September 30, 2002.  Preferred stock  dividends  represent  earned
dividends  at 6% of the  stated  value  per  annum of the  Series C  convertible
redeemable preferred stock. Net income available to common stockholders amounted
to $45,000 for the three months ended  September  30, 2003  compared to $297,000
for the three months ended  September 30, 2002.  Basic and diluted  earnings per
share  were $0.00 for the three  months  ended  September  30,  2003.  Basic and
diluted  earnings per share were $0.03 for the three months ended  September 30,
2002.

         Preferred stock dividends  amounted to  approximately  $144,000 for the
nine months ended September 30, 2003 as compared to $137,100 for the nine months
ended September 30, 2002.  Preferred stock dividends  represent earned dividends
at 6% of the  stated  value per  annum of the  Series C  convertible  redeemable
preferred  stock.  Net  income  available  to common  stockholders  amounted  to
$1,061,000  for the nine months ended  September 30, 2003 compared to $1,307,000
for the nine months ended September 30, 2002 and basic and diluted  earnings per
share were $0.10 for the nine months ended September 30, 2003. Basic and diluted
earnings per share were $0.14 for the nine months ended September 30, 2002.

LIQUIDITY AND CAPITAL RESOURCES AND RELATED PARTY TRANSACTIONS

         Cash and cash  equivalents  increased to $288,000 at September 30, 2003
from  $285,000 at December 31,  2002.  The  increase  resulted  from $17,000 and
$2,316,000 of cash provided by operating and financing activities, respectively,
offset by $2,330,000 of cash used in investing activities.

         Net cash provided by operating activities was approximately $17,000 for
the  nine  months  ended  September  30,  2003 and net  cash  used in  operating
activities  was $6,078,000  for the nine months ended  September 30, 2002.  Cash
provided by operating  activities  for the nine months ended  September 30, 2003
resulted  primarily  from  increases in accounts  payable and accrued  expenses,
income taxes payable and net income,  which was offset primarily by increases in
receivables and prepaid expenses. The increase in accounts receivable during the
period was due  primarily  to increased  sales  during 2003 and slower  customer
collections.  Cash  used in  operating  activities  for the  nine  months  ended
September 30, 2002 resulted primarily from increases in inventories and accounts
receivable,  which was  partially  offset by increases  in accounts  payable and
accrued expenses, deferred revenue and net income.

         Net cash used in investing activities was approximately  $2,330,000 and
$438,000 for the nine months ended  September  30, 2003 and 2002,  respectively.
Net cash used in investing  activities  for the nine months ended  September 30,
2003 consisted  primarily of capital  expenditures for equipment  related to the
exclusive  supply  agreement  we  entered  into with Levi  Strauss & Co. and the
purchase of  additional  TALON  zipper  equipment.  During the  period,  we also
purchased  computer  equipment  and  software  for the  implementation  of a new
Oracle-based  computer  system.  This purchase was treated as a non-cash capital
lease  obligation.  Net cash used in  investing  activities  for the nine months
ended  September  30,  2002  consisted  primarily  of capital  expenditures  for
machinery and equipment.

         Net cash provided by financing activities was approximately  $2,316,000
and  $6,710,000  for  the  nine  months  ended  September  30,  2003  and  2002,
respectively.  Net cash  provided by  financing  activities  for the nine months
ended September 30, 2003 primarily  reflects funds raised from private placement


                                       20
<PAGE>


transactions,  offset by the repayment of notes payable and decreased borrowings
under our credit  facility.  Net cash provided by financing  activities  for the
nine months ended  September 30, 2002 primarily  reflects  increased  borrowings
under our credit facility and funds raised from private placement  transactions,
offset by the repayment of notes payable.

         We currently satisfy our working capital requirements primarily through
cash flows  generated from  operations and borrowings  under our credit facility
with UPS  Capital.  Our maximum  availability  under the credit  facility is $20
million,  although historically we have been unable to borrow up to this maximum
amount due to borrowing restrictions under our credit facility. At September 30,
2003 and 2002,  outstanding  borrowings  under our UPS Capital credit  facility,
including  amounts borrowed under the foreign factoring  agreement,  amounted to
approximately  $13,265,000  and  $15,688,000,  respectively.  There were no open
letters of credit under our UPS Capital  credit  facility at September 30, 2003.
Open letters of credit  amounted to  approximately  $1,080,000  at September 30,
2002.

         The initial term of our  agreement  with UPS Capital is three years and
the facility is secured by substantially all of our assets. The interest rate of
the credit facility is at the prime rate plus 2%. The credit  facility  requires
that we comply with  certain  financial  covenants  including  net worth,  fixed
charge ratio and capital expenditures.  We were in compliance with all financial
covenants  at  September  30,  2003.  The amount we can borrow  under the credit
facility is  determined  based on a defined  borrowing  base formula  related to
eligible  accounts  receivable and inventories.  Our borrowing base availability
ranged from  approximately  $14,801,000 to  $18,829,000  from October 1, 2002 to
September 30, 2003. A significant  decrease in eligible accounts  receivable and
inventories due to customer  concentration  levels and the aging of inventories,
among other factors,  can have an adverse  effect on our borrowing  capabilities
under our credit facility, which thereafter,  may not be adequate to satisfy our
working capital  requirements.  Eligible accounts  receivable are reduced if our
accounts  receivable  customer  balances  are  concentrated  with  a  particular
customer  in excess of the  percentages  allowed  under our  agreement  with UPS
Capital.  From  time  to  time,  we may  be in an  overadvance  position  due to
borrowing  base  constraints  under our  credit  facility  related  to  customer
concentration levels and other reductions in eligible collateral.  We were in an
overadvance position as of the date of this report. UPS Capital has accommodated
us in these periods of overadvance. There can be no assurance, however, that UPS
Capital will  continue to  accommodate  us in the future.  In addition,  we have
typically  experienced  seasonal  fluctuations  in sales volume.  These seasonal
fluctuations  result in sales volume  decreases in the first and fourth quarters
of each year due to the seasonal fluctuations experienced by the majority of our
customers.  During  these  quarters,  borrowing  availability  under our  credit
facility may decrease as a result of decreases in eligible accounts  receivables
generated  from our sales.  As a result of our  concentration  of business  with
Tarrant  Apparel  Group  and  Azteca  Production  International,   our  eligible
receivables have been limited under the UPS Capital facility over the past year.
If  our  business  becomes  further  dependant  on one or a  limited  number  of
customers  or  if  we  experience  future  significant  seasonal  reductions  in
receivables,  our  availability  under the UPS Capital credit  facility would be
correspondingly  reduced.  If this were to occur,  we would be  required to seek
additional financing which may not be available on attractive terms and, if such
financing  is  unavailable,  we  may be  unable  to  meet  our  working  capital
requirements.

         The  UPS  Capital  credit   facility   contains   customary   covenants
restricting  our  activities  as well as  those of our  subsidiaries,  including
limitations  on  certain  transactions  related  to the  disposition  of assets;
mergers;  entering  into  operating  leases or  capital  leases;  entering  into
transactions  involving subsidiaries and related parties outside of the ordinary
course of business; incurring indebtedness or granting liens or negative pledges
on  our  assets;  making  loans  or  other  investments;   paying  dividends  or
repurchasing  stock or other securities;  guarantying  third party  obligations;
repaying subordinated debt; and making changes in our corporate structure.


                                       21
<PAGE>


         Pursuant to the terms of a foreign  factoring  agreement  under our UPS
Capital credit facility,  UPS Capital purchases our eligible accounts receivable
and assumes the credit risk with respect to those foreign accounts for which UPS
Capital has given its prior approval.  If UPS Capital 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 85% of
eligible  accounts  receivable under our credit  facility.  Included in due from
factor as of September 30, 2003 and 2002, are trade accounts receivable factored
without recourse of approximately $117,000 and $552,000, respectively.  Included
in due from  factor  are  outstanding  advances  due to UPS  Capital  under this
factoring  arrangement  amounting  to  approximately  $100,000  and  $469,000 at
September 30, 2003 and 2002, respectively.

         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, 2003 and 2002,  the amount  factored with
recourse and included in trade accounts  receivable was  approximately  $260,000
and $223,000. Outstanding advances as of September 30, 2003 and 2002 amounted to
approximately $213,000 and $118,000,  respectively, and are included in the line
of credit balance.

         In a series of sales on December 28, 2001,  January 7, 2002 and January
8,  2002,  we entered  into stock and  warrant  purchase  agreements  with three
private investors,  including Mark Dyne, the chairman of our board of directors.
Pursuant to the stock and warrant purchase agreements, we issued an aggregate of
516,665  shares  of common  stock at a price  per  share of $3.00 for  aggregate
proceeds of $1,549,995.  The stock and warrant purchase agreements also included
a commitment by one of the private  investors to purchase an additional  400,000
shares of common  stock at a price per share of $3.00 at second  closings  on or
prior to March 1, 2003, as amended,  for additional  proceeds of $1,200,000.  In
March 2002 and  February  2003,  this  private  investor  purchased  100,000 and
300,000  shares,  respectively,  of  common  stock at a price per share of $3.00
pursuant to the second  closing  provisions  of the stock and  warrant  purchase
agreement  for total  proceeds of  $1,200,000.  Pursuant  to the second  closing
provisions  of the stock and  warrant  purchase  agreement,  50,000 and  150,000
warrants  were  issued  to  the  investor  in  March  2002  and  February  2003,
respectively. There are no remaining commitments due under the stock and warrant
purchase agreements.

         In  accordance  with the series C preferred  stock  purchase  agreement
entered into by us and Coats North America  Consolidated,  Inc. on September 20,
2001,  we issued  759,494  shares of series C convertible  redeemable  preferred
stock to Coats  North  America  Consolidated,  Inc.  in  exchange  for an equity
investment from Coats North America  Consolidated of $3 million cash. The series
C preferred shares are convertible at the option of the holder after one year at
the rate $4.94 per share.  The series C preferred  shares are  redeemable at the
option of the holder after four years. If the holders elect to redeem the series
C preferred shares, we have the option to redeem for cash at the stated value of
$3 million or in our common stock at 85% of the market price of our common stock
on the date of  redemption.  If the market price of our common stock on the date
of  redemption  is less than  $2.75 per  share,  we must  redeem for cash at the
stated value of the series C preferred shares. We can elect to redeem the series
C preferred shares at any time for cash at the stated value. The preferred stock
purchase  agreement  provides  for  cumulative  dividends at a rate of 6% of the
stated value per annum,  payable in cash or our common stock. Each holder of the
series C preferred  shares has the right to vote with our common  stock based on
the number of our common shares that the series C preferred shares could then be
converted into on the record date.


                                       22
<PAGE>


         As of September  30, 2003 and 2002,  we had  outstanding  related-party
debt of  approximately  $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. On October 4, 2002, we entered into a note payable agreement with a
related  party in the amount of  $500,000  to fund  additional  working  capital
requirements. The note payable was unsecured, due on demand, accrued interest at
4% and was  subordinated  to UPS Capital.  This note was re-paid on February 28,
2003.

         Our  receivables  increased to  $23,022,000  at September 30, 2003 from
$20,872,000  at  September  30,  2002.   This  increase  was  due  to  increased
non-related  trade  receivables  of  approximately  $2.1 million  resulting from
increased sales to non-related parties during the period.

         In  October  1998,  we entered  into a supply  agreement  with  Tarrant
Apparel Group.  In October 1998, we also issued  2,390,000  shares of our common
stock to KG Investment, LLC. KG Investment is owned by Gerard Guez and Todd Kay,
executive  officers  and  significant  shareholders  of Tarrant  Apparel  Group.
Commencing  in  December  1998,  we began to provide  trim  products  to Tarrant
Apparel  Group for its  operations in Mexico.  Pricing and terms are  consistent
with competitive vendors.

         On December 22, 2000,  we entered into a supply  agreement  with Azteca
Production  International,   Inc.,  AZT  International  SA  D  RL  and  Commerce
Investment  Group,  LLC. The term of the supply  agreement is three years,  with
automatic  renewals of consecutive  three-year terms, and provides for a minimum
of $10  million in sales for each  contract  year  beginning  April 1, 2001.  In
accordance with the supply  agreement,  we issued 1,000,000 shares of our common
stock to Commerce  Investment Group, LLC.  Commencing in December 2000, we began
to  provide  trim  products  to  Azteca  Production  International,  Inc for its
operations in Mexico. Pricing and terms are consistent with competitive vendors.

         Included  in  inventories  at  September  30, 2003 are  inventories  of
approximately  $9.2 million that are subject to buyback  arrangements  with Levi
Strauss & Co., Tarrant Apparel Group, Azteca Production  International and other
customers.  The buyback arrangements contain provisions related to the inventory
purchased on behalf of these  customers.  In the event that  inventories  remain
with us in excess of six to nine  months  from our receipt of the goods from our
vendors or the termination of production of a customer's product line related to
the  inventories,  the customer is required to purchase the inventories  from us
under normal invoice and selling terms.  During the nine months ended  September
30, 2003,  we sold  approximately  $2.4 million in inventory to Tarrant  Apparel
Group  and  Azteca   Production   International   pursuant   to  these   buyback
arrangements.  If the  financial  condition of Tarrant  Apparel Group and Azteca
Production  International  were to  deteriorate,  resulting in an  impairment of
their ability to purchase inventories or pay receivables, it may have an adverse
affect on our results of operations.

         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
the next twelve  months.  In May 2003, we raised  approximately  $6 million in a
private placement  transaction with five institutional  investors.  Net proceeds
received from the private placement amounted to approximately  $5.5 million.  As
of September 30, 2003,  we have applied the proceeds  against  vendor  payables,
equipment purchases and other working capital requirements. We expect to receive
quarterly cash payments of a minimum of $1.25 million under our supply agreement
with Levi Strauss & Co. through August 2004. We also received  additional  funds
of $900,000 in February 2003 pursuant to the remaining  commitment due under the
stock  warrant  and  purchase  agreement  we entered  into with a related  party
private investor.  We used a portion of these funds to repay a subordinated note
payable to this related party private investor of $500,000 in February 2003. The
extent of our future 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


                                       23
<PAGE>


limitations  related to eligible  accounts  receivable and  inventories  and our
expansion  into  foreign  markets.  If our cash  from  operations  is less  than
anticipated or our working capital  requirements  and capital  expenditures  are
greater  than  we  expect,  we will  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.

         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 and Caribbean markets and the
further development of our waistband technology.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

         The following  summarizes our contractual  obligations at September 30,
2003 and the effects such obligations are expected to have on liquidity and cash
flow in future periods:

<TABLE>
<CAPTION>

                                                  Payments Due by Period
                             --------------------------------------------------------------------
                                            Less than        1-3           4-5          After
 Contractual Obligations         Total       1 Year         Years         Years        5 Years
--------------------------   -----------   -----------   -----------   -----------   ------------
<S>                          <C>           <C>           <C>           <C>           <C>
Subordinated notes payable   $ 2,900,000   $ 1,200,000   $ 1,700,000   $      --     $      --
Capital lease obligations    $ 1,345,110   $   562,330   $   782,780   $      --     $      --
Subordinated notes payable
    to related parties(1)    $   849,971   $   849,971   $      --     $      --     $      --
Operating leases .........   $ 1,251,565   $   534,542   $   714,661   $     2,362   $      --
Line of credit ...........   $13,265,244   $13,265,244   $      --     $      --     $      --
Note payable .............   $    25,200   $    25,200   $      --     $      --     $      --
Royalty Payments .........   $   453,460   $      --     $   453,460   $      --     $      --
----------
<FN>
(1)    The majority of subordinated  notes payable to related parties are due on
       demand with the  remainder due and payable on the fifteenth day following
       the date of delivery of written demand for payment.
</FN>
</TABLE>


NEW ACCOUNTING PRONOUNCEMENTS

         In August  2001,  the FASB issued SFAS No.  143,  Accounting  for Asset
Retirement Obligations.  SFAS No. 143 requires the fair value of a liability for
an asset  retirement  obligation  to be  recognized in the period in which it is
incurred  if a  reasonable  estimate of fair value can be made.  The  associated
asset  retirement  costs are  capitalized as part of the carrying  amount of the
long-lived  asset.  SFAS No. 143 is effective for fiscal years  beginning  after
September  15,  2002.  We believe the  adoption of this  Statement  will have no
material impact on our financial statements.

         In  April  2002,  the FASB  issued  SFAS No.  145,  Rescission  of FASB
Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections.  This statement  eliminates the current  requirement that gains and
losses on debt  extinguishment  must be classified as extraordinary items in the
income  statement.  Instead,  such  gains  and  losses  will  be  classified  as
extraordinary  items only if they are deemed to be unusual  and  infrequent,  in
accordance with the current GAAP criteria for extraordinary  classification.  In
addition,  SFAS 145 eliminates an inconsistency in lease accounting by requiring
that  modifications  of  capital  leases  that  result  in  reclassification  as
operating  leases be accounted for  consistent  with  sale-leaseback  accounting
rules. The statement also contains other


                                       24
<PAGE>


nonsubstantive  corrections to authoritative accounting literature.  The changes
related to debt  extinguishment  will be effective  for fiscal  years  beginning
after  May 15,  2002,  and the  changes  related  to  lease  accounting  will be
effective  for  transactions  occurring  after May 15,  2002.  Adoption  of this
standard  will not have  any  immediate  effect  on our  consolidated  financial
statements.

         In September  2002, the FASB issued SFAS No. 146,  Accounting for Costs
Associated  with Exit or Disposal  Activities,  which  addresses  accounting for
restructuring  and similar costs.  SFAS No. 146 supersedes  previous  accounting
guidance,  principally  Emerging  Issues Task Force (EITF)  Issue No. 94-3.  The
Company will adopt the provisions of SFAS No. 146 for  restructuring  activities
initiated  after December 31, 2002. SFAS No. 146 requires that the liability for
costs  associated  with an exit or  disposal  activity  be  recognized  when the
liability  is incurred.  Under EITF No.  94-3, a liability  for an exit cost was
recognized at the date of a company's  commitment to an exit plan.  SFAS No. 146
also establishes that the liability should initially be measured and recorded at
fair  value.  Accordingly,  SFAS No. 146 may  affect  the timing of  recognizing
future restructuring costs as well as the amount recognized.

         In  January  2003,  the  FASB  issued  FASB   Interpretation   No.  46,
Consolidation of Variable  Interest  Entities,  an  interpretation of Accounting
Research Bulletins ("ARB") No. 51, Consolidated Financial Statements ("FIN 46").
FIN 46  clarifies  the  application  of ARB No. 51 to certain  entities in which
equity  investors do not have the  characteristics  of a  controlling  financial
interest or do not have sufficient  equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties.
We do not  believe  the  adoption  of FIN 46 will have a material  impact on our
financial position and results of operations.

         In April 2003,  the FASB issued SFAS No. 149,  "Amendment  of Statement
133 on Derivative  Instruments and Hedging  Activities,"  ("SFAS 149"). SFAS No.
149 amends and clarifies the accounting for  derivative  instruments,  including
certain derivative instruments embedded in other contracts,  and for the hedging
activities  under SFAS No.  133,  "Accounting  for  Derivative  Instruments  and
Hedging  Activities." SFAS 149 is generally effective for contracts entered into
or modified after  September 30, 2003 and for hedging  relationships  designated
after  September  30,  2003.  The adoption of SFAS 149 is not expected to have a
material effect on the Company's  financial  position,  results of operations or
cash flows.

         In May 2003,  the FASB  issued SFAS No.  150,  "Accounting  for Certain
Instruments with  Characteristics  of Both Liabilities and Equity," ("SFAS 150")
which  establishes  standards for how an issuer  classifies and measures certain
financial  instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer  classify a financial  instrument that is within
its scope, which may have previously been reported as equity, as a liability (or
an asset in some  circumstances).  This  statement  is effective  for  financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the first interim period beginning after September
15, 2003 for public companies.  The Company adopted SFAS 150 on July 1, 2003 and
the  adoption  of  this  statement  had no  material  impact  on  its  financial
statements.

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.


                                       25
<PAGE>


         IF  WE  LOSE  OUR  LARGEST  CUSTOMERS  OR  THEY  FAIL  TO  PURCHASE  AT
ANTICIPATED  LEVELS, OUR SALES AND OPERATING RESULTS WILL BE ADVERSELY AFFECTED.
Our largest customer,  Tarrant Apparel Group,  accounted for approximately 41.5%
and  42.3% of our net  sales,  on a  consolidated  basis,  for the  years  ended
December  31,  2002 and 2001,  and 22.5% of our total  sales for the nine months
ended September 30, 2003. In December 2000, we entered into an exclusive  supply
agreement with Azteca Production  International,  AZT International SA D RL, and
Commerce  Investment  Group,  LLC that provides for a minimum of  $10,000,000 in
total annual  purchases by Azteca  Production  International  and its affiliates
during each year of the  three-year  term of the  agreement.  Azteca  Production
International  is required  to  purchase  from us only if we are able to provide
trim products on a competitive basis in terms of price and quality.

         Our results of operations will depend to a significant  extent upon the
commercial success of Azteca Production International and Tarrant Apparel Group.
If Azteca and Tarrant fail to purchase our trim products at anticipated  levels,
or our relationship  with Azteca or Tarrant  terminates,  it may have an adverse
affect on our results because:

         o        We will lose a primary  source of revenue if either of Tarrant
                  or Azteca choose not to purchase our products or services;
         o        We  may  not  be  able  to  reduce  fixed  costs  incurred  in
                  developing  the  relationship  with  Azteca  and  Tarrant 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  LARGEST   CUSTOMERS  MAKES
RECEIVABLE BASED FINANCING  DIFFICULT AND INCREASES THE RISK THAT IF OUR LARGEST
CUSTOMERS FAIL TO PAY US, OUR CASH FLOW WOULD BE SEVERELY AFFECTED. Our business
relies heavily on a relatively small number of customers, including Levi Strauss
&  Co.,  Tarrant  Apparel  Group  and  Azteca  Production  International.   This
concentration  of our business reduces the amount we can borrow from our lenders
under  receivables based financing  agreements.  Under our credit agreement with
UPS  Capital,  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, UPS Capital will not lend against the receivables
that exceed the specified  percentage.  In addition,  Gerard Guez,  the founder,
Chairman and Chief Executive Officer,  and a significant  stockholder of Tarrant
Apparel  Group and  Hubert  Guez,  the  founder,  Chief  Executive  Officer  and
President, and a significant stockholder of Azteca Production International, are
brothers.   This   relationship   between  our  two  largest  customers  further
concentrates  our  receivables  risk  significantly  among  this  family  group.
Further, if we are unable to collect any large receivables due us, our cash flow
would be severely impacted.

         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.

         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


                                       26
<PAGE>



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.

         IF WE ARE NOT ABLE TO MANAGE OUR RAPID  EXPANSION AND GROWTH,  WE COULD
INCUR  UNFORESEEN  COSTS OR DELAYS AND OUR  REPUTATION  AND  RELIABILITY  IN THE
MARKETPLACE  AND OUR  REVENUES  WILL BE  ADVERSELY  AFFECTED.  The growth of our
operations  and  activities  has placed and will continue to place a significant
strain on our management, operational, financial and accounting resources. If we
cannot  implement  and improve our  financial  and  management  information  and
reporting  systems,  we may not be  able  to  implement  our  growth  strategies
successfully  and our revenues will be adversely  affected.  In addition,  if we
cannot hire, train, motivate and manage new employees,  including management and
operating personnel in sufficient  numbers,  and integrate them into our overall
operations and culture, our ability to manage future growth, increase production
levels and effectively  market and distribute our products may be  significantly
impaired.

         WE OPERATE IN AN INDUSTRY THAT IS SUBJECT TO  SIGNIFICANT  FLUCTUATIONS
IN  OPERATING  RESULTS FROM  QUARTER TO QUARTER,  THAT MAY RESULT IN  UNEXPECTED
REDUCTIONS IN REVENUE 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.

         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 Mexican and Caribbean  facilities with
the information systems of our principal offices in California and Florida.  Our
failure to do so could result in lost  revenues,  delay  financial  reporting or
adversely affect availability of funds under our credit facilities.


                                       27
<PAGE>


         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,
particularly Colin Dyne, our Chief Executive Officer. Colin Dyne is not bound by
an employment agreement.  The loss of the services of Colin Dyne or the services
of other key  employees  could have a material  adverse  effect on our business,
including our ability to establish and maintain client relationships. Our future
success  will  depend in large  part upon our  ability  to  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(TM)  MAY
EXPERIENCE  DISRUPTIONS AND AS A RESULT WE MAY LOSE REVENUES AND CUSTOMERS.  Our
Managed Trim Solution(TM) 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(TM),  our
customers mAY experience interruptions in service due to defects in our hardware
or our  source  code.  In  addition,  since our  Managed  Trim  Solution(TM)  is
Internet-based,  interruptions  in Internet  service  generally  can  negatively
impact our customers'  ability to use the Managed Trim  Solution(TM)  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.

         IF  CUSTOMERS  DEFAULT ON BUYBACK  AGREEMENTS  WITH US, WE WILL BE LEFT
HOLDING  UNSALABLE  INVENTORY.  Inventories  include  goods that are  subject to
buyback  agreements  with our  customers.  Under these buyback  agreements,  the
customer must purchase the 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,  we may incur a
charge  in  connection  with  our  holding   significant  amounts  of  unsalable
inventory.


                                       28
<PAGE>


         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 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.


                                       29
<PAGE>


         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 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 December 31, 2002,  our officers and  directors  and their  affiliates  owned
approximately  36.2% 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  41.1% of the
outstanding shares of our common stock. The number of shares  beneficially owned
by the Dyne family includes the shares of common stock held by Azteca Production
International, which are voted by Colin Dyne pursuant to a voting agreement. The
Azteca Production  International  shares constitute  approximately  10.7% of the
outstanding  shares of common stock at December  31, 2002.  Gerard Guez and Todd
Kay,  significant  stockholders of Tarrant Apparel Group, each own approximately
12.8% of the  outstanding  shares of our common stock at December 31, 2002. As a
result, our officers and directors, the Dyne family and Messrs. Kay and Guez 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.


                                       30
<PAGE>


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 and, accordingly,  we do
not enter into  hedging  transactions  with  regard to any  foreign  currencies.
Currency  fluctuations  can,  however,  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.

         We are also  exposed  to the  impact of  interest  rate  changes on our
outstanding  borrowings.  At September  30,  2003,  we had  approximately  $17.0
million  of   indebtedness   subject  to  interest  rate   fluctuations.   These
fluctuations  may increase our interest expense and decrease our cash flows from
time to time.  For  example,  based on average  bank  borrowings  of $10 million
during a  three-month  period,  if the  interest  rate indices on which our bank
borrowing  rates are based were to increase 100 basis points in the  three-month
period,  interest  incurred  would  increase  and cash flows  would  decrease by
$25,000.

ITEM 4.  CONTROLS AND PROCEDURES

EVALUATION OF CONTROLS AND PROCEDURES

         We maintain disclosure controls and procedures,  which we have designed
to ensure that material  information related to Tag-it Pacific,  Inc., including
our consolidated  subsidiaries,  is disclosed in our public filings on a regular
basis. In response to recent legislation and proposed  regulations,  we reviewed
our internal control  structure and our disclosure  controls and procedures.  We
believe our  pre-existing  disclosure  controls and  procedures  are adequate to
enable us to comply with our disclosure obligations.

         As of September 30, 2003, the end of the period covered by this report,
members of the Company's  management,  including the Company's  Chief  Executive
Officer, Colin Dyne, and Chief Financial Officer,  Ronda Sallmen,  evaluated the
effectiveness of the design and operation of the Company's  disclosure  controls
and procedures.  Based upon that evaluation,  Mr. Dyne and Ms. Sallmen concluded
that the Company's  disclosure  controls and procedures are effective in causing
material  information  to be  recorded,  processed,  summarized  and reported by
management  of the Company on a timely  basis and to ensure that the quality and
timeliness of the Company's public disclosures  complies with its SEC disclosure
obligations.

CHANGES IN CONTROLS AND PROCEDURES

         There were no significant changes in the Company's internal controls or
in other factors that could  significantly  affect these internal controls after
the date of our most recent evaluation.


                                       31
<PAGE>


                                     PART II

                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

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

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits:

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

                  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.

         (b)      Reports on Form 8-K:

                  Current Report on Form 8-K, reporting Items 7 and 12, as filed
                  on August 18, 2003.


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<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.


Date: November 14, 2003                     TAG-IT PACIFIC, INC.


                                             /S/  RONDA SALLMEN
                                             -----------------------------------
                                             By:      Ronda Sallmen
                                             Its:     Chief Financial Officer


                                       33