TAG IT PACIFIC INC
SB-2/A, 1997-11-26
COMMERCIAL PRINTING
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<PAGE>
   
   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
    
   
                                                      REGISTRATION NO. 333-38397
    
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
   
                                AMENDMENT NO. 1
                                       TO
                                   FORM SB-2
    
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
 
                              TAG-IT PACIFIC, INC.
                 (Name of Small Business Issuer in its Charter)
 
   
<TABLE>
<S>                            <C>                            <C>
          DELAWARE                         2759                        95-4654481
(State or Other Jurisdiction   (Primary Standard Industrial         (I.R.S. Employer
     of Incorporation or        Classification Code Number)        Identification No.)
        Organization)
</TABLE>
    
 
                             3820 SOUTH HILL STREET
                         LOS ANGELES, CALIFORNIA 90037
                                 (213) 234-9606
         (Address and Telephone Number of Principal Executive Offices)
 
                             3820 SOUTH HILL STREET
                         LOS ANGELES, CALIFORNIA 90037
                                 (213) 234-9606
(Address of Principal Place of Business or Intended Principal Place of Business)
 
                              MARK DYNE, CHAIRMAN
                              TAG-IT PACIFIC, INC.
                             3820 SOUTH HILL STREET
                         LOS ANGELES, CALIFORNIA 90037
                                 (213) 234-9606
           (Name, Address and Telephone number of Agent for Service)
                            ------------------------
 
                                   COPIES TO:
 
   
        MURRAY MARKILES, ESQ.                     LAWRENCE B. LOW, ESQ.
         SCOTT D. GALER, ESQ.                      JAMES Y.M. WU, ESQ.
Troop Meisinger Steuber & Pasich, LLP               Graham & James LLP
       10940 Wilshire Boulevard                     One Maritime Plaza
    Los Angeles, California 90024            San Francisco, California 94111
            (310) 824-7000                            (415) 954-0200
 
    
                           --------------------------
 
        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
                            ------------------------
 
    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.  / /
    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  / /
    If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  / /
   
    If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.  / /
    
                            ------------------------
 
    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
 
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- --------------------------------------------------------------------------------
<PAGE>
   
                 SUBJECT TO COMPLETION DATED NOVEMBER 26, 1997
    
THIS PRELIMINARY PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO
COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY
BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
UNDER NO CIRCUMSTANCES SHALL THIS PRELIMINARY PROSPECTUS CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES, IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
SUCH JURISDICTION.
<PAGE>
                                1,450,000 SHARES
 
                              TAG-IT PACIFIC, INC.
 
                                  COMMON STOCK
 
   
    Of the 1,450,000 shares of common stock, par value $0.001 per share (the
"Common Stock"), offered hereby (the "Offering"), 1,280,000 shares are being
sold by Tag-It Pacific, Inc. (the "Company") and 170,000 shares are being sold
by a stockholder (the "Selling Stockholder"). See "Principal and Selling
Stockholders." The Company will not receive any proceeds from the sale of shares
by the Selling Stockholder. Prior to this Offering, there has been no public
market for the Common Stock. It is currently estimated that the initial public
offering price will be between $7.00 and $8.00 per share. See "Underwriting" for
a discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for listing on the American
Stock Exchange under the symbol "TAG," subject to notice of issuance.
    
 
                            ------------------------
 
    SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
 
                             ---------------------
 
 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
     EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
     SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
         PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
            REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
                                                                        PRICE          UNDERWRITING
                                                                         TO            DISCOUNTS AND         PROCEEDS TO
                                                                       PUBLIC         COMMISSIONS(1)         COMPANY(2)
<S>                                                                 <C>            <C>                    <C>
Per Share.........................................................    $                  $                    $
Total(3)..........................................................    $                  $                    $
 
<CAPTION>
                                                                       PROCEEDS TO
                                                                         SELLING
                                                                       STOCKHOLDER
<S>                                                                 <C>
Per Share.........................................................      $
Total(3)..........................................................      $
</TABLE>
 
   
(1) Excludes additional compensation to the Underwriters in the form of warrants
    granted to the Representatives of the Underwriters to purchase 100,000
    shares of Common Stock, exercisable over a period of four years commencing
    one year from the date of this Prospectus (the "Representatives' Warrants").
    In addition, the Company and the Selling Stockholder have agreed to
    indemnify the Underwriters against certain liabilities, including
    liabilities under the Securities Act of 1933, as amended (the "Securities
    Act").
    
 
   
(2) Before deducting estimated expenses of $875,000 payable by the Company,
    including the Representatives' non-accountable expense allowance, certain
    consulting fees to be paid following the closing of the Offering and
    expenses of the Selling Stockholder. See "Principal and Selling
    Stockholders" and "Underwriting."
    
 
(3) The Company has granted the Underwriters a 45-day option to purchase up to
    an additional 192,000 shares of Common Stock, solely to cover
    over-allotments, if any (the "Over-Allotment Option"). If the Underwriters
    exercise this option in full, the total Price to Public, Underwriting
    Discounts and Commissions, Proceeds to Company and Proceeds to Selling
    Stockholder will be $    , $    , $    and $    , respectively. See
    "Underwriting."
 
                            ------------------------
 
    The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to the right of the Underwriters to reject any order
in whole or in part and certain other conditions. It is expected that delivery
of the certificates for the Common Stock will be made against payment therefor
at the offices of Cruttenden Roth Incorporated, Irvine, California or through
the facilities of the Depository Trust Company, on or about December   , 1997.
 
   
    [LOGO]
                                                           JOSEPHTHAL & CO. INC.
    
 
                THE DATE OF THIS PROSPECTUS IS             1997
<PAGE>
                                   [PICTURES]
 
INSIDE FRONT COVER OF PROSPECTUS:
 
    Collage of customer logos.
 
                                       2
<PAGE>
                                   [PICTURES]
 
INSIDE FOLD OUT SPREAD (2 PAGES) OF PROSPECTUS:
 
    Pictures of the following product groups:
 
   
        HANG TAGS - POCKET FLASHERS - SIZE STICKERS - BAR CODE TAGS
    
 
   
        WOVEN - EMBROIDERED LABELS - JEAN PATCHES
    
 
   
        GIFT SET - HOLIDAY PACKAGING
    
 
   
        LEATHER GOODS - ACCESSORY PACKAGING
    
 
   
        LICENSED & PRIVATE LABEL STATIONERY - BACKPACKS
    
 
   
        JEWELRY PACKAGING
    
 
   
        DESIGNER SHOPPING BAGS
    
 
   
        WATCH - EYEWEAR PACKAGING
    
 
   
        METAL LOGO BUTTONS - ZIPPERS
    
 
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS.
 
                                       3
<PAGE>
                               PROSPECTUS SUMMARY
 
   
    THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. THE STATEMENTS WHICH
ARE NOT HISTORICAL FACTS CONTAINED IN THIS PROSPECTUS ARE FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THOSE DESCRIBED UNDER
"RISK FACTORS." EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS
PROSPECTUS (I) GIVES EFFECT TO THE CONSUMMATION ON OCTOBER 17, 1997 OF THE
CONSOLIDATION, WHICH AS DESCRIBED UNDER "THE COMPANY," COMBINED THE COMPANY'S
SUBSIDIARIES UNDER A SINGLE HOLDING COMPANY, (II) REFLECTS THE CONVERSION INTO
384,402 SHARES OF COMMON STOCK OF A CONVERTIBLE PROMISSORY NOTE IN THE PRINCIPAL
AMOUNT OF $875,000 PAYABLE TO CERTAIN STOCKHOLDERS AT A PRICE OF $2.28 PER
SHARE, (III) HAS BEEN ADJUSTED TO REFLECT THE CHANGE OF THE STATUS OF PACIFIC
TRIM & BELT, INC., A CALIFORNIA CORPORATION, FROM AN S CORPORATION TO A C
CORPORATION FOR INCOME TAX PURPOSES, AND (IV) ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION AND REPRESENTATIVES' WARRANTS ARE NOT EXERCISED.
    
 
                                  THE COMPANY
 
   
    Tag-It Pacific, Inc. (the "Company") is a single-source provider of complete
brand identity programs to manufacturers of fashion apparel and accessories as
well as specialty retailers and mass merchandisers. Such programs communicate a
certain lifestyle, image or identity and enable the Company's customers to
promote and differentiate their product line or brand. The Company's programs
allow its customers, such as Guess?, Calvin Klein, Quiksilver, Carole Little,
The Limited, Sony Signatures and Warner Bros., as well as licensees of Yves
Saint Laurent, Kenneth Cole, Geoffrey Beene and Pierre Cardin, to outsource most
aspects of a brand identity program, including value-added design, materials
procurement and manufacturing and distribution coordination of creative
packaging, tag, and trim products.
    
 
   
    The Company designs and produces high quality paper, metal and injection
molded boxes, woven and leather labels, paper hanging and bar-coded tags, metal
jean buttons, and custom shopping bags. The Company also designs and produces
specialty private label and licensed stationery as well as related accessories
and backpacks. The Company designs approximately 70% of the products it sells.
The Company's design capabilities, combined with the Company's experience in
materials procurement, and manufacturing and distribution coordination enable
the Company to provide customers with complete design solutions for entire
product lines that meet not only aesthetic demands, but also functional and cost
parameters.
    
 
   
    The majority of the Company's revenues are related to the apparel and
accessory markets, both of which are large and growing. The increasing number of
fashion-driven apparel and accessory producers and products has made it more
difficult for manufacturers to differentiate their products from those of
competitors. As a result, manufacturers of fashion-driven consumer products have
increased their emphasis on specialty packaging, value-added tags and other
promotional material in order to compete for consumer attention in the retail
environment. This emphasis on product differentiation has created strong demand
for creative image enhancements such as bright, colorful and otherwise highly
distinguishable and attractive logos, point-of-sale packaging and signage, tags
and labels. In addition, short product life cycles for fashion-driven items,
advances in printing and packaging technology, and the diverse geographic
locations of specialty packaging or printing vendors and apparel or accessory
manufacturers, combine to make the design and execution of complete brand
identity programs increasingly more complex. The difficulties associated with
executing a program which coordinates these many facets are creating demand for
the programs offered by the Company.
    
 
    There are a large number of vendors with varying capabilities serving the
printing, packaging and trim markets. Apparel and accessory manufacturers often
find themselves consuming excessive time, effort and expenses attempting to
manage in-house brand identity programs and ship floor-ready packaged products
to retailers throughout the global marketplace. To take advantage of the large
expanding demand for, and address the increasingly complicated requirements of,
effective brand identity programs, the Company has
 
                                       4
<PAGE>
   
positioned itself as a fully-integrated single-source provider of complete brand
identity programs with creative design personnel, sales representatives,
assembly workers, program managers and global production and distribution
coordinators in Los Angeles, New York, Mexico and Hong Kong. Because specialty
packaging or printing vendors are usually specialized in limited product areas,
management believes that the Company, with its innovative design and global
manufacturing and distribution coordination capabilities, is well positioned to
become a recognized single-source provider and a market leader.
    
 
   
    The Company's growth strategy includes the following elements: (i) expand
its customer base by promoting its single-source solution and in-house design,
materials procurement, and manufacturing and distribution coordination
capabilities, (ii) increase customer penetration by targeting additional product
lines within existing accounts, (iii) expand its marketing programs and network
of sales offices, (iv) broaden its target customer base for products to include
cosmetics and specialty foods manufacturers, (v) pursue private label
opportunities, and (vi) remain opportunistic with respect to strategic
acquisitions.
    
 
   
    The Company was formed to serve as the parent holding company for each of
Tag-It, Inc., a California corporation ("Tag-It"), Tag-It Printing & Packaging
Ltd., a British Virgin Islands corporation ("Tag-It Hong Kong"), Tag It de
Mexico, S.A. de C.V., a qualified Maquiladora ("Tag-It Mexico"), A.G.S.
Stationery, Inc., a California corporation ("AGS Stationery") and Pacific Trim &
Belt, Inc., a California corporation ("Pacific Trim") (collectively the
"Subsidiaries"). Reference to the Company hereafter includes all of the
Subsidiaries.
    
 
                                  THE OFFERING
 
   
<TABLE>
<S>                                                <C>
Common Stock offered by:
 
  The Company....................................  1,280,000 shares
 
  The Selling Stockholder........................  170,000 shares
 
Common Stock to be outstanding after the           3,750,011 shares(1)
  Offering.......................................
 
Use of Proceeds..................................  To repay certain indebtedness; develop a
                                                   national sales network; acquire certain
                                                   fixed assets; establish domestic woven
                                                   label capability; increase inventories to
                                                   maximize efficiencies; and for working
                                                   capital and general corporate purposes.
                                                   See "Use of Proceeds."
 
Proposed American Stock Exchange Symbol..........  "TAG"
</TABLE>
    
 
- ------------------------
 
   
(1) Excludes (i) an estimated 337,631 shares of Common Stock issuable upon
    exercise of outstanding options and warrants, and (ii) 322,500 shares of
    Common Stock reserved for issuance pursuant to options that may be granted
    in the future under the Company's 1997 Stock Incentive Plan. See
    "Management--Stock Incentive Plan," "Description of Capital
    Stock--Warrants," "Underwriting" and "Shares Eligible for Future Sale."
    
 
                                       5
<PAGE>
               SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
                    (IN THOUSANDS EXCEPT FOR PER SHARE DATA)
 
   
<TABLE>
<CAPTION>
                                                                                          FISCAL YEAR ENDED
                                                                                             AUGUST 31,
                                                                                        ---------------------
<S>                                                                                     <C>         <C>
                                                                                           1996       1997
                                                                                        ----------  ---------
INCOME STATEMENT DATA:
Net sales.............................................................................  $   14,738  $  19,539
Cost of goods sold....................................................................      10,090     12,546
                                                                                        ----------  ---------
 
  Gross profit........................................................................       4,648      6,993
 
Selling, general and administrative expenses..........................................       4,973      5,897
Write-off of printing division........................................................      --            232
                                                                                        ----------  ---------
  Total operating expenses............................................................       4,973      6,129
                                                                                        ----------  ---------
 
Income (loss) from operations.........................................................        (325)       864
Interest expense......................................................................         465        810
Income (loss) before provision for income taxes.......................................        (790)        54
Provision for income taxes(1).........................................................      --            113
                                                                                        ----------  ---------
 
  Net loss............................................................................  $     (790) $     (59)
                                                                                        ----------  ---------
                                                                                        ----------  ---------
Net loss per share....................................................................  $     (.37) $    (.03)
                                                                                        ----------  ---------
                                                                                        ----------  ---------
Weighted average shares outstanding...................................................       2,086      2,086
                                                                                        ----------  ---------
                                                                                        ----------  ---------
Pro forma net loss per share(2)                                                         $   --      $    (.02)
Pro forma weighted average shares outstanding(2)......................................      --          2,539
                                                                                        ----------  ---------
                                                                                        ----------  ---------
</TABLE>
    
 
   
<TABLE>
<CAPTION>
                                                                                       AUGUST 31, 1997
                                                                           ---------------------------------------
                                                                            ACTUAL    PRO FORMA(2)  AS ADJUSTED(3)
                                                                           ---------  ------------  --------------
<S>                                                                        <C>        <C>           <C>
BALANCE SHEET DATA:
Cash.....................................................................  $     148   $      148     $    6,705
Working capital..........................................................     (1,807)        (932)         5,775
Total assets.............................................................      5,350        5,445         12,002
Total liabilities........................................................      7,491        6,711          5,311
Stockholders' equity (capital deficiency)................................     (2,141)      (1,266)         6,691
</TABLE>
    
 
- ------------------------
 
   
(1) The Provision for income taxes is the result of the Subsidiaries filing
    separate tax returns in years prior to the Consolidation. See "The Company."
    
 
   
(2) To reflect the conversion of a convertible promissory note in the principal
    amount of $875,000 into 384,402 shares of Common Stock.
    
 
   
(3) As adjusted for sale of 1,280,000 shares of Common Stock by the Company at
    an assumed offering price of $7.50 per share in the Offering.
    
 
                                       6
<PAGE>
                                  THE COMPANY
 
   
    The Company was incorporated in Delaware in September 1997. The Company was
formed to combine several existing related operating entities formed by Harold,
Colin and Mark Dyne under a single holding company for the purposes of creating
a simplified and unified corporate structure, securing capital for the benefit
of all of the individual entities, capturing within the holding company overall
operating efficiencies and developing an integrated sales and marketing network.
The Company combines Tag-It, Tag-It Hong Kong, Tag-It Mexico, AGS Stationery and
Pacific Trim, all of which were related through common stockholders, shared
facilities, and certain shared personnel.
    
 
   
    Tag-It Pacific L.L.C., a Delaware limited liability company ("Tag-It Pacific
LLC"), has (i) acquired directly, and in the case of AGS Stationery, indirectly
through AGS Holdings L.L.C., a Delaware limited liability company ("AGS
Holdings"), in a single transaction all of the outstanding capital stock of each
of the Subsidiaries for an aggregate of 2,470,001 membership units of Tag-It
Pacific LLC, and (ii) assumed outstanding warrants to purchase equity securities
of certain Subsidiaries which will become exercisable for 62,076 membership
units of Tag-It Pacific LLC at a weighted average exercise price of $0.7299 per
unit in a stock-for-unit exchange (the "Exchange"). At the time of the Exchange,
Pacific Trim converted from an S corporation to a C corporation for tax
purposes. Immediately prior to the effectiveness of this Prospectus, the
2,470,001 outstanding membership units of Tag-It Pacific LLC will be converted
to 2,470,001 shares of Common Stock of the Company and outstanding warrants to
acquire units will be converted into warrants to acquire 62,076 shares of Common
Stock of the Company (the Exchange and such conversion are referred to as the
"Consolidation.")
    
 
    Tag-It, founded in May 1991, designs and produces hang tags and specialty
packaging products. In October 1994, Tag-It's founders expanded Tag-It's
offshore raw material sourcing capabilities and Asian distribution
infrastructure by forming Tag-It Hong Kong. In 1996, Tag-It expanded into the
licensed and private label stationery business. Also in 1996, to gain the
benefits of a larger and more cost-effective in-house labor force, Tag-It
commenced operations in Mexico through Tag-It Mexico, a qualified "Maquiladora"
under Mexico's Border Industrialization Program. Tag-It, Tag-It Hong Kong and
Tag-It Mexico, although separate corporate entities, have always operated as a
single functional enterprise.
 
   
    In December 1995, AGS Stationery was formed for the limited purpose of
designing, manufacturing and marketing Guess? brand stationery products pursuant
to an exclusive license covering the United States, Canada, Mexico, Australia
and parts of Asia. AGS Stationery is operated separately from the other
stationery operations of Tag-It due to provisions of the Guess? license which
mandate that voting and management control of AGS Stationery be maintained by
Mark Dyne and Colin Dyne. See "Risk Factors--Dependence upon Guess? License."
    
 
   
    Pacific Trim was founded in November 1987 and shares its principal offices
and facilities with Tag-It and AGS Stationery. Pacific Trim has been treated as
an S corporation for tax purposes since its inception. Due to its S corporation
status and the existence of third party shareholders not associated with the
Dyne family, Pacific Trim, although operated at the same location as Tag-It and
AGS Stationery in Los Angeles and sharing certain overhead and infrastructure
resources and certain sales and marketing personnel, has operated as a separate
entity for financial reporting, financing and legal purposes.
    
 
   
    As a result of the Exchange, Pacific Trim's S corporation status was
terminated. Through the date immediately preceding the date of the termination
of its S corporation status (the "Termination Date"), Pacific Trim's earnings
will be taxed for federal income tax purposes directly to its shareholders,
rather than to the Company. Other than a tax imposed on S corporations by the
State of California (currently 1.5% of income), state income taxes on earnings
also have been the responsibility of the shareholders of Pacific Trim. On the
Termination Date, Pacific Trim became subject to federal and state corporate
income taxes. See Note 7 of Notes to Financial Statements.
    
 
                                       7
<PAGE>
   
    Approximately $92,000 of the proceeds of the Offering will be distributed to
Pacific Trim's shareholders to permit them to pay income taxes attributable to
the earnings of Pacific Trim prior to the Termination Date.
    
 
   
    Immediately prior to the Exchange, the Company and the Pacific Trim
shareholders entered into a tax indemnification agreement (the "Tax Agreement")
relating to their respective income tax liabilities. Because the Company became
fully subject to corporate income taxation on the earnings of Pacific Trim after
the Termination Date, the reallocation of income and deductions between the
period during which Pacific Trim was treated as an S corporation and the period
following the Termination Date may increase the taxable income of one party
while decreasing that of another party. Accordingly, the Tax Agreement is
intended to assure that taxes are borne by the Company and the shareholders of
Pacific Trim only to the extent that such parties received the related income.
The Tax Agreement generally provides that, if an adjustment is made to the
taxable income of Pacific Trim for a year in which it was treated as an S
corporation, the Company will indemnify the Pacific Trim shareholders and the
Pacific Trim shareholders will indemnify the Company against any increase in the
indemnified party's income tax liability (including interest, penalties and
related costs and expenses), to the extent such increase results in a
corresponding decrease in the income tax liability of the indemnifying party for
that year. The Company has also indemnified the Pacific Trim shareholders
against any increase in income tax liability as a result of their receipt of an
indemnification payment under the Tax Agreement. Any payment made by the Company
to the Pacific Trim shareholders pursuant to the Tax Agreement may be considered
by the Internal Revenue Service or state taxing authorities to be non-deductible
by the Company for income tax purposes.
    
 
    The Exchange will be treated as a reorganization of companies under common
control and will be accounted for in a manner similar to a pooling of interests.
All information set forth in this Prospectus gives effect to the Consolidation
and the conversion of Pacific Trim to a C corporation for tax purposes,
including all financial information which is presented on a consolidated basis.
 
   
    The Company maintains its principal executive offices at 3820 South Hill
Street, Los Angeles, California 90037. The telephone number of its principal
executive offices is (213) 234-9606.
    
 
                                       8
<PAGE>
                                  RISK FACTORS
 
    IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE INTENT, BELIEF AND
CURRENT EXPECTATIONS OF THE COMPANY, ITS DIRECTORS AND ITS OFFICERS, INCLUDING
STATEMENTS WITH RESPECT TO THE USE OF PROCEEDS OF THE OFFERING AND TRENDS
AFFECTING THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES AND THAT
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. THE ACCOMPANYING
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING THE INFORMATION SET FORTH
BELOW AND UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," AND "BUSINESS" IDENTIFIES IMPORTANT FACTORS THAT COULD
CAUSE SUCH DIFFERENCES.
 
MANAGEMENT OF BUSINESS CHANGES; POTENTIAL GROWTH; POTENTIAL ACQUISITIONS
 
   
    The Subsidiaries have been operated under family management since inception
and have recently significantly expanded their operations. Such expansion has
placed, and any future expansion, internally or through acquisitions, will
place, significant demands on the Company's management, operational,
administrative, financial and accounting resources. Successful management of the
Company's operations will require the Company to continue to implement and
improve its financial and management information and reporting systems and
procedures on a timely basis. The Company's ability to manage its future growth,
if any, will also require it to hire and train new employees, including
management and operating personnel, and motivate and manage its new employees
and integrate them into its overall operations and culture. The Company recently
has made additions to its management team and is in the process of expanding its
accounting staff and improving its financial and management information and
reporting systems to adapt to its new role as a public company, a process which
is expected to continue following the Offering. The Company's failure to manage
implementation of its growth strategies and to implement and improve its
financial and management information and reporting systems would have a material
adverse effect on the Company's results of operations and its ability to
implement its growth strategy.
    
 
    In the future, the Company may acquire complementary companies, products or
technologies, although no specific acquisitions currently are pending or under
negotiation. Acquisitions involve numerous risks, including adverse short-term
effects on the combined business' reported operating results, impairments of
goodwill and other intangible assets, the diversion of management's attention,
the dependence on retention, hiring and training of key personnel, the
amortization of intangible assets and risks associated with unanticipated
problems or legal liabilities.
 
   
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
    
 
    The Company may in the future experience significant quarterly fluctuations
in sales, operating income and cash flows as a result of certain factors,
including the volume and timing of customer orders received during the quarter,
the timing and magnitude of customers' marketing campaigns, the loss of a major
customer, the availability and pricing of materials for the Company's products,
increased selling, general and administrative expenses incurred in connection
with acquisitions or the introduction of new products, the costs and timing of
any future acquisitions, the timing and magnitude of capital expenditures, and
changes in the Company's product mix or in the relative contribution to sales of
the various Subsidiaries. Due to the foregoing factors, it is possible that in
some future quarter the Company's operating results may be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially and adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
 
    In addition, most of the Company's customers are in the apparel industry,
which historically has been subject to substantial cyclical variations. The
Company's business has experienced and is expected to
 
                                       9
<PAGE>
   
continue to experience significant seasonality, in part due to customer buying
patterns. In recent years, the Company generally has had stronger demands for
its products during the quarters ending in November, May and August, and
significantly weaker demand in the quarter ending in February. A recession in
the general economy or uncertainties regarding future economic prospects that
affect consumer spending habits could have a material adverse effect on the
Company's financial condition and results of operations.
    
 
REQUIREMENT FOR INTEGRATED INFORMATION SYSTEM
 
   
    The Consolidation and resulting centralized management of the Subsidiaries,
implementation of the Company's growth strategies and the general strains of the
Company's new role as a public company will place significant demands on the
Company's financial and management information and reporting systems and require
that the Company significantly expand and improve its financial and operating
controls. Additionally, the Company must effectively integrate the information
systems of Hong Kong and Mexico with its principal offices in Los Angeles.
Although the Company intends to apply a portion of the proceeds of the Offering
to the implementation and improvement of its financial and management
information and reporting systems and staff, there are no assurances that the
Company will be successful in doing so, and the Company's failure to improve its
financial and management information and reporting systems could have a material
adverse effect on the Company's results of operations and its ability to
implement its business strategy.
    
 
DEPENDENCE ON KEY CUSTOMERS; ABSENCE OF LONG-TERM CONTRACTS WITH CUSTOMERS
 
   
    The Company's two largest customers, Guess? and Swank (a licensee of Yves
Saint Laurent, Kenneth Cole, Geoffrey Beene and Pierre Cardin), accounted for
approximately 18.3% and 11.1%, respectively, of the Company's net sales (on a
consolidated basis) for the year ended August 31, 1997, and approximately 15.1%
and 11.4%, respectively, of the Company's net sales (on a consolidated basis)
for the year ended August 31, 1996. There can be no assurance that the Company
will be able to maintain the current level of sales derived from these or any
other customer in the future.
    
 
   
    The Company generally does not enter into long-term sales contracts with its
customers requiring them to make purchases from the Company. The Company's sales
are generally evidenced by a purchase order and similar documentation limited to
a specific sale. As a result, a customer from whom the Company generates
substantial revenue in one period may not be a substantial source of revenue in
a subsequent period. In addition, the Company's customers generally have the
right to terminate their relationships with the Company without penalty and on
little or no notice. In the absence of such long-term contracts, there can be no
assurance that these customers will continue to engage the Company to design and
produce products, and thus there can be no assurance that the Company will be
able to maintain a consistent level of sales.
    
 
    The termination of the Company's business relationship with any of its
significant customers or a material reduction in sales to a significant customer
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Customers."
 
DEPENDENCE ON KEY PERSONNEL
 
   
    The Company's success has and will continue to depend to a significant
extent upon certain key management and design and sales personnel, many of whom
would be difficult to replace, particularly Colin Dyne, its Chief Executive
Officer and Harold Dyne, its President, neither of whom is bound by an
employment agreement or the subject of key man insurance. The Company has no
current plan to enter into employment agreements with Colin Dyne or Mark Dyne,
but does intend to obtain $1 million key man life insurance on Colin Dyne. The
loss of the services of one or more of these key executives and other key
employees could have a material adverse effect on the Company, including the
Company's ability to establish and maintain client relationships. The Company's
future success will depend in large part upon its
    
 
                                       10
<PAGE>
ability to identify, attract, assimilate, retain and motivate personnel with a
variety of design, sales, operating and managerial skills. There can be no
assurance that the Company will be able to retain and motivate its managerial,
design, sales and operating personnel or attract additional qualified members to
management, design or sales staff. See "Business--Employees" and "Management."
 
CONTROL BY EXISTING STOCKHOLDERS
 
   
    Upon consummation of the Offering, the Company's officers and directors (and
their affiliates), will own approximately 48.1% of the Company's outstanding
shares (approximately 45.9% assuming the full exercise of the Over-Allotment
Option); and the Dyne family (Harold Dyne, Mark Dyne, Colin Dyne, Larry Dyne and
Jonathan Burstein) will own approximately 47.8% of the Company's outstanding
shares (approximately 45.5% assuming the full exercise of the Over-Allotment
Option). As a result, these stockholders, or the Dyne family acting as a group,
will be able to control the Company and its operations, including the election
of at least a majority of the Company's Board of Directors and thus the policies
of the Company. The voting power of these stockholders could also serve to
discourage potential acquirors from seeking to acquire control of the Company
through the purchase of the Common Stock, which might have a depressive effect
on the price of the Common Stock. See "Management," "Principal and Selling
Stockholders," and "Description of Capital Stock."
    
 
ACCESS TO FINANCING AND REPLACEMENT OF FACTORS
 
   
    Historically, the Company has been capital constrained. The Company's
working capital has been provided primarily through related party loans and
factoring arrangements, with both related and unrelated parties. See "Certain
Transactions." Factoring of its receivables has substantially increased the
Company's cost of funds, restricted the Company's ability to sell to customers
not approved by the Company's factors, and, in management's opinion, limited the
Company's growth potential. Under the Company's factoring arrangements, the
amount of cash available to the Company is tied directly to the level of the
Company's shipments and the credit quality of the Company's customers. The
amount of cash available to the Company has been, and may continue to be,
adversely affected by delays in shipment, economic trends in the packaging and
garment industry, interest rate fluctuations and the lending policies of the
Company's factors. Many of these influences are beyond the Company's control.
Following the Offering, the Company expects to replace its factoring
relationships with more cost effective asset based financing. However, no
assurance can be given that the Company will be able to obtain such financing or
any other financing at rates and on terms more favorable to the Company than its
current factoring arrangements. Even if the Company is able to obtain
alternative financing on acceptable terms, any decrease or material limitation
on the amount of capital available to the Company under such arrangements will
limit the ability of the Company to expand its sales levels and, therefore,
would have a material adverse effect on the Company's financial position,
operating results and cash flows. In addition, any significant increases in
interest rates will increase the cost of financing to the Company and would have
a material adverse effect on the Company's financial position, operating results
and cash flows.
    
 
DEPENDENCE ON LIMITED ASSEMBLY FACILITIES
 
   
    Certain of the Company's products are assembled or finished at the foreign
assembly facilities of the Company. Since the Company does not currently operate
duplicate facilities in different geographic areas, a disruption of the
Company's manufacturing operations resulting from various factors, including
human error, foreign trade disruptions, import restrictions, labor disruptions,
embargos, government intervention or a natural disaster such as fire, earthquake
or flood, could cause the Company to cease or limit its assembly or finishing
operations and consequently could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Procurement, Assembly and Finishing."
    
 
                                       11
<PAGE>
   
LIMITED SOURCES OF SUPPLY
    
 
   
    The Company generally does not have long-term agreements with its key
sources of supply. Lead times for materials ordered by the Company can vary
significantly and depend on factors such as the specific supplier, contract
terms and demand for particular materials at a given time. From time to time,
the Company has experienced fluctuations in materials prices and disruptions in
supply. Shortages or disruptions in the supply of materials, or the inability of
the Company to procure such materials from alternate sources at acceptable
prices in a timely manner, could lead to the loss of customers due to the
failure to timely meet orders which in turn could result in a material adverse
effect on the Company's business, financial condition and results of operations.
    
 
FLUCTUATING PAPER COSTS AND PAPER SHORTAGES
 
   
    The cost of paper is a principal component of the price the Company charges
for its paper products, including its high quality paper boxes, custom shopping
bags, hang tags, packaging and stationery products. Historically, the Company
has been able to pass on to its customers any increase or decrease in the cost
of paper, and therefore maintain its gross margins on paper products during
fluctuations in the cost of paper. There can be no assurance, however, that the
Company will continue to be able to pass increases in paper costs to its
customers. To the extent that the Company's customers are unwilling to absorb
increases in paper costs, the Company's results of operations could be
materially adversely affected.
    
 
   
    While capacity in the paper industry has remained relatively stable in
recent years, increases or decreases in demand for paper have led to
corresponding pricing changes and, in periods of high demand, to limitations on
the availability of certain grades of paper, including grades utilized by the
Company. Any disruption in the Company's paper sources could cause shortages in
needed materials which could have a material adverse effect on the Company's
results of operations. Although the Company actively manages its paper supply
and has established strong relationships with its paper suppliers, the Company
does not have any long-term agreements with its key paper suppliers and there
can be no assurance that the Company's sources of paper supply will be adequate
or, in the event that such sources are not adequate, that alternative sources
can be developed in a timely manner.
    
 
   
COMPETITION
    
 
   
    The industries in which the Company competes are highly competitive and
fragmented and include numerous local and regional companies that provide some
or all of the services offered by the Company. The Company also competes with
United States and international design companies, distributors and manufacturers
of tags, packaging products and trims. Some of the Company's competitors,
including Paxar, Inc., RVL, Inc., Copac International Packaging, Inc., Universal
Button, Inc., and Scovill Fasteners, Inc., have greater name recognition, longer
operating histories and, in many cases, substantially greater financial and
other resources than the Company.
    
 
    In addition, new competitors, potentially with substantially greater
resources than the Company, may arise and may develop products which compete
with the Company's products. Moreover, there can be no assurance that new or
proprietary technology will not be introduced by an existing or new competitor
that may make some of the Company's products or services obsolete. To the extent
that the Company is unable to compete successfully against its existing and
future competitors, its business, operating results and financial condition
would be materially adversely affected. While the Company believes that it
competes effectively within the value-added design and packaging industry, there
are numerous factors that could reduce the Company's ability to compete
effectively. See "Business--Competition."
 
DEPENDENCE UPON GUESS? LICENSE
 
    The Company, through AGS Stationery, manufactures Guess? stationery products
pursuant to an exclusive license with Guess? entered into as of March 1, 1996.
Net sales of Guess? stationery products
 
                                       12
<PAGE>
   
accounted for 10.9% of the Company's consolidated net sales in fiscal year 1997.
The Guess? license terminates on December 31, 2001, but may be renewed by the
Company through December 31, 2006 so long as the Company is not in breach of the
license and generates the required amount of minimum net sales for the two
contract years prior to renewal. Guess? may terminate the license before its
term expires upon the occurrence of certain events, including (i) if the Company
commits a breach of the license and fails to cure that breach within any
applicable cure period, (ii) if net sales for any contract year do not meet or
exceed the minimum net sales required for such contract year, (iii) if,
following any consolidation, sale or merger of AGS Stationery, Mark Dyne and
Colin Dyne do not, retain, directly or indirectly, the power to vote or direct
the voting of more than fifty percent of the outstanding voting securities of
AGS Stationery, or (iv) if Colin Dyne leaves the employment of AGS Stationery or
otherwise fails to devote the vast majority of his time and efforts to the daily
management of AGS Stationery's business, or Mark Dyne ceases to exert, on a
regular basis, actual and bona fide management control and oversight over AGS
Stationery's business. The Company has structured the Consolidation in order to
assure that Mark Dyne and Colin Dyne continue to control the management of AGS
Stationery, and Guess? has been notified of this structure and has not objected.
See "The Company." The termination of the Guess? license could have a material
adverse effect on the Company's business, operating results and financial
condition. Additionally, Guess? has certain approval rights over the various
aspects of the design, manufacture, marketing and distribution of products under
the license and consequently may delay the distribution of products bearing its
proprietary marks. There can be no assurance that the Company will not be
subject to delays resulting from disagreements with, or an inability to obtain
approvals from Guess?. See "Business-- Products--Private Label and Specialty
Licenses."
    
 
RISK OF PRODUCT RETURNS
 
   
    The Company incurs expenses as a result of the return of products by
customers, particularly in connection with customers of the Company's licensed
stationery business. Such returns may result from sale or return arrangements,
defective goods, inadequate performance relative to customer expectations,
shipping errors and other causes which are outside the Company's control.
Generally, returned items have limited or no value and Company will be forced to
bear the cost of such returns. Product returns could result in loss of revenue
or delay in market acceptance, diversion of development resources, damage to the
Company's reputation, and increases service and warranty costs. Any significant
increase in the rate of product returns could have a material adverse effect on
the Company's financial position, operating results, and cash flows.
    
 
INTERNATIONAL BUSINESS
 
    During 1997, approximately 40% of the Company's products were purchased,
assembled or finished outside the United States, principally in Hong Kong and
Mexico, and the Company intends to continue to purchase, assemble or finish a
similar or greater percentage of its products outside of the United States in
the future. The Company's international business is subject to numerous risks,
including the need to comply with a wide variety of foreign and United States
export and import laws, changes in export or import controls, tariffs and other
regulatory requirements, the imposition of governmental controls, political and
economic instability, trade restrictions, the difficulty of administering
business overseas and general economic conditions. The inability of a contractor
or supplier to ship orders in a timely manner could cause the Company to miss
the delivery date requirements of its customers for those items, which could
result in the cancellation of orders, refusal to accept deliveries or a
reduction in sales price. Although the Company's international operations are
denominated principally in United States dollars, purchases from foreign vendors
may also be affected by changes in demand resulting from fluctuations in
interest and currency exchange rates. There can be no assurance that these
factors will not have a material adverse effect on the Company's business and
results of operations. In addition, the Company cannot predict the effects the
above risks will have on its business arrangements with its contractors or
suppliers. If any such risks were to render the conduct of business in a
particular country undesirable or impractical, or if the
 
                                       13
<PAGE>
   
Company's current contractors or suppliers were to cease doing business with the
Company for any reason, the Company's financial position, operating results and
cash flows could be adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
    
 
    Sovereignty over Hong Kong was transferred from the United Kingdom to The
People's Republic of China on July 1, 1997. If the business climate in Hong Kong
were to experience an adverse change as a result of the transfer, the Company
believes it could relocate its production and sourcing facilities outside Hong
Kong and replace the products currently produced in Hong Kong with products
produced elsewhere without a material adverse effect on the Company's financial
condition or results of operations. Nevertheless, there can be no assurance that
the Company would be able to do so.
 
SHARED RESPONSIBILITIES OF CHAIRMAN
 
   
    The Company's Chairman, Mark Dyne, also serves as Chief Executive Officer
and Chairman of Brilliant Digital Entertainment, Inc. ("Brilliant"), as the
joint managing director of Sega Ozisoft Pty., Limited ("Sega Ozisoft"), a
director of Monto Holdings Pty. Ltd. ("Monto Holdings") and Nu-Metro Multimedia
Pty. Ltd. ("Nu-Metro"), and a co-owner and director of Packard Bell Australia
Pty. Ltd. ("Packard Bell NEC Australia"). Mr. Dyne is a shareholder of Sega
Enterprises (Australia) Pty., Ltd., which operates a $70 million interactive
indoor theme park in Darling Harbor in Sydney, Australia. Brilliant is a
production and development studio involved in the production of a new generation
of digital entertainment that is being distributed over the internet and on
CD-ROM. Sega Ozisoft is an Australia-distributor of software products for many
leading publishers, Monto Holdings is a private investment holding company,
Nu-Metro is a South African based distributor of multi-media software products
and Packard Bell NEC Australia is one of the leading manufacturers and
distributors of personal computers through the Australian mass merchant channel.
Mr. Dyne is not required to spend a certain amount of time at the Company nor is
he able to devote his full time and resources to the Company.
    
 
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
 
   
    The Company anticipates that its existing capital resources, together with
the net proceeds of the Offering, will be adequate to satisfy its capital
requirements for at least the next 18 months. The Company's future capital
requirements will depend, however, on many factors, including but not limited
to, results of operations, the size and timing of future acquisitions, if any,
and the availability of additional financing. To the extent that existing
resources and future earnings are insufficient to fund the Company's activities,
the Company may need to raise additional funds through debt or equity
financings. No assurance can be given that such additional financing will be
available or that, if available, it can be obtained on terms favorable to the
Company and its stockholders. In addition, any equity financing could result in
dilution to the Company's stockholders. The Company's inability to obtain
adequate funds would adversely affect the Company's operations and ability to
implement its strategy. See "--Access to Financing and Replacement of Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
    
 
HOLDING COMPANY STRUCTURE
 
    The Company is a holding company with no substantial operations and,
consequently, is dependent on dividends and other payments from the Subsidiaries
for virtually all of its cash flow, including cash flow for management salaries
and overhead, to service debt, to make equity investments and to finance its
growth. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
 
                                       14
<PAGE>
MANAGEMENT'S DISCRETION AS TO USE OF PROCEEDS
 
   
    The Company's management will have broad discretion as to the application of
the net proceeds to the Company from the sale of Common Stock in the Offering.
The net proceeds to the Company are estimated to be approximately $8.0 million
(assuming no exercise of the Over-Allotment Option). The Company expects to use
approximately $1.57 million of the net proceeds to repay outstanding
indebtedness (of which $1.52 million will be used to repay indebtedness to
related parties), approximately $1.0 million to develop a national sales and
marketing network, including hiring additional sales personnel, approximately
$1.25 million to acquire fixed assets, including bar-code equipment, prototype
fabrication equipment, and equipment to upgrade the Company's information
systems, approximately $500,000 to establish domestic woven label capacity for
rapid turnaround of samples and short-run production and approximately $1.0
million to finance increased inventory levels to maximize efficiency and volume
discounts. The balance of the net proceeds will be used for working capital and
general corporate purposes. The Company may change the allocation of these
proceeds in response to developments in the industries in which it operates and
changes in the Company. See "Use of Proceeds."
    
 
NO EARTHQUAKE INSURANCE
 
    The Company's principal executive offices are located in Los Angeles,
California--an area which often experiences earthquakes. The Company faces the
risks that it may experience uninsured property damage and/or sustain
interruption of its business and operations. The Company does not currently
carry insurance against earthquake-related risks.
 
   
LIMITED PROPRIETARY PROTECTION
    
 
   
    The Company relies on trademark, trade secret and copyright laws to protect
its designs and other proprietary property. The Company does not have United
States or foreign patents or patent applications currently pending. If
litigation is necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's 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 and could have a material
adverse effect on the Company's business, operating results and financial
condition. Ultimately, the Company may be unable, for financial or other
reasons, to enforce its rights under intellectual property laws and the laws of
certain countries in which the Company's products are or may be distributed may
not protect the Company's products and intellectual rights to the same extent as
the laws of the United States.
    
 
   
    The Company believes that its products do not infringe any validly existing
proprietary rights of third parties. Although the Company has received no
communication from third parties alleging the infringement of proprietary rights
of such parties, there can be no assurance that third parties will not assert
infringement claims in the future and the Company could be subject to such
claims in the future. Any such third party claims, whether or not meritorious,
could result in costly litigation or require the Company to enter into royalty
or licensing agreements. There can be no assurance that any such licenses would
be available on acceptable terms, if at all, or that the Company would prevail
in any such litigation. If the Company were found to have infringed upon the
proprietary rights of third parties, it could be required to pay damages, cease
sales of the infringing products and redesign or discontinue such products, any
of which could have a material adverse effect on the Company's business,
operating results and financial condition.
    
 
IMMEDIATE AND SUBSTANTIAL DILUTION
 
   
    The proposed initial public offering price of $7.50 per share is
substantially higher than the book value per outstanding share of Common Stock.
Specifically, investors will sustain immediate dilution of $5.72 per share (or
76%) based on the pro forma net tangible book value of the Company at August 31,
1997 of $6,691,163. Investors in the Offering therefore will bear a
disproportionate part of the financial risk
    
 
                                       15
<PAGE>
associated with the Company's business while effective control will remain with
existing stockholders and management. Additional dilution may occur upon the
exercise of outstanding stock options and warrants. See "Dilution" and
"Principal and Selling Stockholders."
 
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; ARBITRARY
  DETERMINATION OF OFFERING PRICE
 
   
    Prior to the Offering, there has been no public market for the Common Stock.
Although the Company has received approval for trading of the Common Stock on
the American Stock Exchange, there can be no assurance that an active trading
market for the Common Stock will develop as a result of the Offering or, if a
trading market does develop, that it will continue or be sustained after the
Offering. In the absence of such a market, investors may be unable readily to
liquidate their investment in the Common Stock. The trading price of the Common
Stock could be subject to wide fluctuations in response to quarter to quarter
variations in operating results, news announcements relating to the Company's
business (including innovations or new product introductions by the Company or
its competitors), changes in financial estimates by securities analysts, the
operating and stock price performance of other companies that investors may deem
comparable to the Company as well as other developments affecting the Company or
its competitors. In addition, the market for equity securities in general has
been volatile and the trading price of the Common Stock could be subject to wide
fluctuations in response to general market trends, changes in general conditions
in the economy or the financial markets and other factors which may be unrelated
to the Company's operating performance. The public offering price of the shares
of Common Stock will be determined by arms-length negotiations between the
Company, Selling Stockholder and Cruttenden Roth Incorporated and Josephthal &
Co. Inc., as representatives of the Underwriters (the "Representatives") and
will not necessarily bear any relationship to the Company's assets, book value,
earnings history or other investment criteria. There can be no assurance that
the shares offered hereby will trade at market prices in excess of the initial
public offering price. See "Underwriting."
    
 
SHARES ELIGIBLE FOR FUTURE SALE
 
   
    Future sales of Common Stock by existing stockholders could adversely affect
the prevailing market price of the Common Stock and the Company's ability to
raise capital in the equity markets. Upon completion of the Offering, the
Company will have 3,750,011 shares of Common Stock outstanding (3,942,011 if the
Over-Allotment Option is exercised in full). Of those shares, the 1,450,000
shares of Common Stock offered hereby (1,642,000 if the Over-Allotment Option is
exercised in full) will be freely tradeable without restriction or further
registration under the Securities Act, unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act ("Rule
144"). The remaining 2,300,011 shares of Common Stock outstanding are
"restricted securities," as that term is defined by Rule 144, and are also
subject to the holding period, volume and manner of sale limitations of Rule
144. Under certain lock-up agreements, the officers, directors and stockholders
of the Company have agreed that they will not, directly or indirectly, sell,
assign or otherwise transfer any shares of Common Stock owned by them for a
period of 365 days after the effective date of this Prospectus, without the
prior written consent of Cruttenden Roth Incorporated. Upon expiration of the
lock-up agreements, such 2,300,011 shares of Common Stock will become eligible
for sale, subject to compliance with the volume and manner of sale limitations
of Rule 144. See "Shares Eligible for Future Sale" and "Underwriting."
    
 
   
    The Company intends to file a registration statement under the Securities
Act to register the shares of Common Stock reserved for issuance pursuant to the
Company's 1997 Stock Incentive Plan (the "1997 Plan"). See "Management--Stock
Incentive Plan." This registration statement will become effective immediately
upon filing. As of November 26, 1997, options to purchase 240,000 shares of
Common Stock and warrants to purchase 97,631 shares of Common Stock (including
warrants to purchase an estimated 35,555 shares issued to Troop Meisinger
Steuber & Pasich, LLP (the "TMS&P Warrants") had been granted, none of which had
been exercised. See "Description of Capital Stock--Warrants." The availability
    
 
                                       16
<PAGE>
for sale, as well as actual sales, of currently outstanding shares of Common
Stock, and shares of Common Stock issuable upon the exercise of options and
warrants, may depress the prevailing market price for the Common Stock and could
adversely affect the terms upon which the Company would be able to obtain
additional equity financing.
 
ENVIRONMENTAL REGULATIONS
 
    Certain of the Subsidiaries use hazardous materials in their manufacturing
operations. As a result, the Company is subject to federal, state and local
regulations governing the storage, use and disposal of such materials. The use
and disposal of hazardous materials involves the risk that the Company could be
required to incur substantial expenditures for preventive or remedial action,
reduction of chemical exposure, or waste treatment or disposal. The liability in
the event of an accident or the costs of such actions could exceed the Company's
resources or otherwise have a material adverse effect on the Company's business,
financial condition or results of operations.
 
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF
  INCORPORATION, BYLAWS AND DELAWARE LAW
 
    The Company's Board of Directors has the authority to issue up to 3,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. The Preferred Stock could be
issued with voting, liquidation, dividend and other rights superior to those of
the Common Stock. Following the Offering, no shares of Preferred Stock of the
Company will be outstanding, and the Company has no present intention to issue
any shares of Preferred Stock. However, the rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. Further, certain provisions of the
Company's Certificate of Incorporation and Bylaws and of Delaware law could
delay or make more difficult a merger, tender offer or proxy contest involving
the Company. See "Description of Capital Stock--Preferred Stock" and
"Description of Capital Stock--Anti-Takeover Provisions."
 
                                       17
<PAGE>
                                USE OF PROCEEDS
 
   
    The net proceeds to the Company from the sale of the 1,280,000 shares of
Common Stock offered by the Company hereby are estimated to be $8.0 million
(approximately $9.3 million if the Over-Allotment Option granted to the
Underwriters by the Company is excercised in full), at an assumed initial public
offering price of $7.50 per share and after deducting the estimated offering
expenses and underwriting discounts and commissions payable by the Company.
    
 
   
    The Company expects to use the estimated net proceeds (i) to repay certain
indebtedness, which was incurred to fund the working capital requirements of the
Company's operations, of which $1.52 million will be paid to certain related
parties (the "Related Party Indebtedness"); (ii) to develop a national sales and
marketing network, including hiring of additional sales personnel; (iii) to
acquire fixed assets, including bar-code equipment, prototype fabrication
equipment, and equipment to upgrade the Company's information systems; (iv) to
finance increased inventory levels to maximize efficiency and volume discounts;
and (v) to establish domestic woven label capability for rapid turnaround of
samples and short-run production. The balance of the net proceeds will be used
for working capital and general corporate purposes.
    
 
   
    The Company anticipates allocating the net proceeds of the Offering among
the foregoing uses approximately as follows:
    
 
   
<TABLE>
<CAPTION>
                                                                                    PERCENTAGE
                                                                       AMOUNT OF      OF NET
                            APPLICATION                               NET PROCEEDS   PROCEEDS
- --------------------------------------------------------------------  ------------  -----------
<S>                                                                   <C>           <C>
Repayment of indebtedness...........................................   $1,570,000        19.7%
Develop national sales and marketing network........................    1,000,000        12.6
Acquire fixed assets................................................    1,250,000        15.7
Increase inventory levels...........................................    1,000,000        12.6
Establish domestic woven label capability...........................      500,000         6.3
Working capital and general corporate purposes......................    2,637,000        33.1
                                                                      ------------  -----------
  Total.............................................................   $7,957,000       100.0%
                                                                      ------------  -----------
                                                                      ------------  -----------
</TABLE>
    
 
   
    The Company is also conducting the Offering to create a market for its
Common Stock, to facilitate future access by the Company to the public equity
markets and to enhance the Company's public image and credibility to support its
marketing efforts, particularly its plans to create a national sales presence in
the United States.
    
 
   
    Until the net proceeds of the Offering are used, the Company intends to
invest them in United States government securities, short-term certificates of
deposit, money market funds or other short-term interest bearing investments.
The Company's management will have broad discretion as to the application of the
net proceeds to the Company from the sale of Common Stock in the Offering. The
Company may change the allocation of these proceeds in response to developments
in the industries in which it operates and changes in the Company.
    
 
   
    As of November 26, 1997, the Related Party Indebtedness consisted of
approximately (i) $100,000 owed by Tag-It to Harold Dyne with an interest rate
equal to the interest rate on the indebtedness owed by Harold Dyne to Mercantile
National Bank (11.75% as of October 15, 1997), (ii) $10,000 owed by Tag-It to
Harold Dyne with an interest rate of 10.0% per annum, (iii) $15,000 owed by
Tag-It to Mark Dyne with an interest rate of 7.5% per annum, (iv) $300,000 owed
by AGS Stationery to Monto Holdings Pty. Ltd. ("Monto Holdings") with an
interest rate of 7.5% per annum, (v) $124,626 owed by Pacific Trim to Monto
Holdings with an interest rate of 10.0% per annum, (vi) $110,000 owed by Pacific
Trim to Monto Holdings with an interest rate of 7.5% per annum, (vii) $841,000
owed by Tag-It to NPM Investments, Inc. with an interest rate of 7.5% per annum,
(viii) $16,000 owed by Tag-It to Pacific Western, Inc. ("Pacific Western") with
an interest rate of 7.5% per annum, and (ix) $6,000 owed by Pacific Trim to
Pacific Western with an interest rate of 7.5% per annum. All of the Related
Party Indebtedness is due and payable on the fifteenth
    
 
                                       18
<PAGE>
   
day following delivery of written demand for payment which may be delivered at
any time following December 31, 1998.
    
 
   
    The non-Related Party Indebtedness to be repaid by the Company consists of
(i) $25,200 owed by Pacific Trim to ECD International, Inc. with an interest
rate of 10.0% per annum and which is due and payable on the fifteenth day
following the date of delivery of written demand for payment, and (ii) $15,897
owed by Pacific Trim to Raymond Spiro with an interest rate of 10.0% per annum
and which is due and payable on the fifteenth day following the date of delivery
of written demand for payment.
    
 
                                DIVIDEND POLICY
 
    The Company has no current intention to pay dividends on its Common Stock
following the Offering and intends to follow a policy of retaining earnings to
finance the growth of its business. Additionally, several of the Company's
current credit facilities limit or prohibit the payment of dividends unless
certain conditions are satisfied. Any future determination to pay dividends will
be at the discretion of the Board of Directors of the Company and will be
dependent on the Company's results of operations, financial condition,
contractual and legal restrictions and other factors deemed relevant by the
Board of Directors at that time.
 
                                       19
<PAGE>
                                    DILUTION
 
   
    The consolidated pro forma net tangible book value of the Common Stock as of
August 31, 1997, was $(1,265,837) or $(.51) per share. Consolidated net tangible
book value per share is equal to the total tangible assets of the Company, less
total pro forma liabilities, divided by the pro forma number of shares of Common
Stock outstanding. After giving effect to the sale of the 1,280,000 shares
offered by the Company hereby (at an assumed initial offering price of $7.50 per
share) and assuming net proceeds to the Company of $7,957,000 (after deducting
underwriting discounts and commissions and estimated offering expenses), the pro
forma consolidated net tangible book value for the Common Stock as of August 31,
1997, would have been $6,691,163, or $1.78 per share. This represents an
immediate increase in consolidated net tangible book value of $2.29 per share to
existing stockholders and an immediate dilution of $5.72 per share to new
investors purchasing shares in the Offering. The following table illustrates
this per share dilution:
    
 
   
<TABLE>
<S>                                                            <C>        <C>
Assumed initial public offering price........................             $    7.50
Consolidated pro forma net tangible book value per share as
  of August 31, 1997.........................................  $    (.51)
Increase per share attributable to new investors.............  $    2.29
                                                               ---------
Pro forma consolidated net tangible book value per share as
  of August 31, 1997, as adjusted............................             $    1.78
                                                                          ---------
Dilution per share to new investors..........................             $    5.72
                                                                          ---------
                                                                          ---------
</TABLE>
    
 
    The following table summarizes, with respect to existing holders of Common
Stock and new investors, a comparison of the number of shares of Common Stock
acquired from the Company, the percentage ownership of such shares, the total
consideration, the percentage of total consideration and the average price per
share.
 
   
<TABLE>
<CAPTION>
                                                SHARES OF COMMON
                                                 STOCK ACQUIRED      TOTAL CONSIDERATION     AVERAGE
                                              --------------------  ---------------------   PRICE PER
                                               NUMBER     PERCENT     AMOUNT     PERCENT      SHARE
                                              ---------  ---------  ----------  ---------  -----------
<S>                                           <C>        <C>        <C>         <C>        <C>
All existing stockholders...................  2,470,011      65.87% $  960,000       9.09%  $     .39
New investors...............................  1,280,000      34.13   9,600,000      90.91        7.50
                                              ---------  ---------  ----------  ---------  -----------
                                              3,750,011     100.00% $10,560,000    100.00%  $    2.81
                                              ---------  ---------  ----------  ---------  -----------
                                              ---------  ---------  ----------  ---------  -----------
</TABLE>
    
 
   
    The foregoing tables and calculations assume no exercise of outstanding
options and warrants. At November 26, 1997, 240,000 shares of Common Stock were
subject to outstanding options at a weighted average exercise price of $6.00 per
share and 97,631 shares of Common Stock (includes warrants to purchase an
estimated 35,555 shares of Common Stock under the TMS&P Warrants) were subject
to outstanding warrants at a weighted average exercise price of $2.65 per share.
If all of the currently exercisable options and warrants are exercised, an
additional 337,631 shares would be issued and the dilution to new investors
would decrease to $5.45 per share.
    
 
                                       20
<PAGE>
                                 CAPITALIZATION
 
   
    The following table sets forth the capitalization of the Company at August
31, 1997 and as adjusted to give effect to the sale of the 1,280,000 shares of
Common Stock offered by the Company hereby at an assumed offering price of $7.50
per share and the application of the estimated net proceeds therefrom (after
deducting underwriting discounts and commissions and estimated offering
expenses). See "Use of Proceeds." This table should be read in conjunction with
the Consolidated Financial Statements and related notes contained therein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
    
 
   
<TABLE>
<CAPTION>
                                                                  AUGUST 31, 1997
                                                         ----------------------------------
                                                                        PRO          AS
                                                           ACTUAL     FORMA(1)   ADJUSTED(2)
                                                         ----------  ----------  ----------
<S>                                                      <C>         <C>         <C>
Current Liabilities....................................  $6,280,780  $5,405,780  $5,255,478
                                                         ----------  ----------  ----------
Total long-term debt, less current portion.............      55,315      55,315      55,315
Notes payable to related parties, less current
  portion..............................................   1,249,698   1,249,698         -0-
                                                         ----------  ----------  ----------
Stockholders' deficiency:
  Preferred Stock, $.001 par value; 3,000,000 shares
    authorized; no shares issued and outstanding.......      --          --          --
  Common Stock; $.001 par value; 15,000,000 shares
    authorized; shares issued and outstanding,
    2,085,609, 2,470,011 and 3,750,011.................       2,086       2,086       3,366
  Additional paid-in capital...........................      82,914     957,914   8,913,634
  Accumulated deficit..................................  (2,225,837) (2,225,837) (2,225,837)
                                                         ----------  ----------  ----------
Total Stockholders Equity (Capital Deficiency).........  (2,140,837) (1,265,837)  6,691,163
                                                         ----------  ----------  ----------
Total Liabilities and Stockholders Equity..............  $5,444,956  $5,444,956  $12,001,956
                                                         ----------  ----------  ----------
                                                         ----------  ----------  ----------
</TABLE>
    
 
- ------------------------
 
   
(1) Assumes conversion of a convertible promissory note in the principal amount
    of $875,000 into 384,402 shares of Common Stock.
    
 
   
(2) As adjusted for sale of 1,280,000 shares of Common Stock by the Company at
    an assumed offering price of $7.50 per share in the Offering.
    
 
                                       21
<PAGE>
                      SELECTED CONSOLIDATED FINANCIAL DATA
 
    The following selected consolidated financial data have been derived from
the Company's consolidated financial statements, which financial statements for
the years ended August 31, 1996 and 1997 have been audited by BDO Seidman, LLP,
independent certified public accountants. The consolidated financial statements
as of August 31, 1996 and 1997, and for each of the years in the two-year period
ended August 31, 1997, and the report thereon, are included elsewhere in this
Prospectus. The selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and related notes and
other financial information included elsewhere in this Prospectus.
 
   
<TABLE>
<CAPTION>
                                                                         FISCAL YEAR ENDED
                                                                             AUGUST 31,
                                                                        --------------------
                                                                          1996       1997
                                                                        ---------  ---------
                                                                           (IN THOUSANDS,
                                                                        EXCEPT FOR PER SHARE
                                                                               DATA)
<S>                                                                     <C>        <C>
INCOME STATEMENT DATA:
Net sales.............................................................  $  14,738  $  19,539
Cost of goods sold....................................................     10,090     12,546
                                                                        ---------  ---------
  Gross profit........................................................      4,648      6,993
 
Selling, general and administrative expenses..........................      4,973      5,897
Write-off of printing division........................................         --        232
                                                                        ---------  ---------
  Total operating expenses............................................      4,973      6,129
                                                                        ---------  ---------
 
Income (loss) from operations.........................................       (325)       864
Interest expense......................................................        465        810
Income (loss) before provision for income taxes.......................       (790)        54
Provision for income taxes(1)                                                  --        113
                                                                        ---------  ---------
  Net loss............................................................  ($    790) $     (59)
                                                                        ---------  ---------
                                                                        ---------  ---------
Net loss per share....................................................  $    (.37) $    (.03)
                                                                        ---------  ---------
                                                                        ---------  ---------
Weighted average shares outstanding...................................      2,086      2,086
                                                                        ---------  ---------
                                                                        ---------  ---------
Pro forma net loss per share(2).......................................  $  --      $    (.02)
                                                                        ---------  ---------
                                                                        ---------  ---------
Pro forma weighted average shares ourstanding(2)......................     --          2,539
                                                                        ---------  ---------
                                                                        ---------  ---------
</TABLE>
    
 
   
<TABLE>
<CAPTION>
                                                                                       AUGUST 31, 1997
                                                                           ---------------------------------------
<S>                                                                        <C>        <C>           <C>
                                                                            ACTUAL    PRO FORMA(2)  AS ADJUSTED(3)
                                                                           ---------  ------------  --------------
BALANCE SHEET DATA:
Cash.....................................................................  $     148   $      148     $    6,705
Working capital..........................................................     (1,807)        (932)         5,775
Total assets.............................................................      5,350        5,445         12,002
Total liabilities........................................................      7,491        6,711          5,311
Stockholders' equity (capital deficiency)................................     (2,141)      (1,266)         6,691
</TABLE>
    
 
- ------------------------
 
   
(1) The provision for income taxes is the result of the Subsidiaries filing
    separate tax returns in years prior to the reorganization.
    
 
   
(2) To reflect the conversion of a convertible promissory note in the principal
    amount of $875,000 into 384,402 shares of Common Stock.
    
 
   
(3) As adjusted for sale of 1,280,000 shares of Common Stock by the Company at
    an assumed offering price of $7.50 per share in the Offering.
    
 
                                       22
<PAGE>
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
    THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
SELECTED FINANCIAL DATA, CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND
THE OTHER FINANCIAL INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
MOREOVER, THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN "RISK FACTORS."
 
OVERVIEW
 
    The Company is a single source provider of complete brand identity programs
to manufacturers of fashion apparel and accessories as well as specialty
retailers and mass merchandisers.
 
   
    Revenues for all product lines are recognized at the time of product
shipment. Cost of goods sold consists primarily of raw material purchases,
direct labor, certain art and design costs associated with the product
development process, die and printing plate charges, finishing costs, freight-in
costs and royalties associated with the Guess? license. The Company develops
photographic films, dies and designs art images which are used for various
products. Development costs associated with films, dies or designs art images
which are deemed to have no future use are expensed as incurred, while
development costs associated with films, dies or designs art images which are
deemed to have future use are capitalized and are amortized over three years on
a straight line basis.
    
 
   
    Historically, the Company has been capital constrained. The Company's
working capital has been provided primarily through related party loans and
factoring arrangements. Factoring of its receivables has substantially increased
the cost of funds, restricted the Company's ability to sell to customers not
approved by the Company's factors, and, in management's opinion, limited the
Company's growth potential. In addition, meeting its factoring obligations, has
required cash which would otherwise have been used by the Company for cost
efficient raw material purchases and to further expand its business. For
example, in fiscal 1997, the Company purchased approximately $3.5 million of
paper products used in its business, but because of capital constraints, was
frequently unable to take advantage of volume purchase discounts which would
have lowered its overall cost of materials and cost of goods sold. From the
proceeds of this Offering, the Company plans to repay substantially all of its
debt and discount its factoring arrangements which will substantially reduce
interest expense. In addition, the Company plans to take advantage of volume
material purchase discounts which management believes will enhance the Company's
profitability.
    
 
   
    Beginning in September 1996, the Company implemented several strategies
which contributed to a 32.6% growth in net sales in fiscal 1997 and which are
anticipated to facilitate further growth in net sales. These strategies included
the establishment of an assembly operation in Mexico, which enabled the Company
to attract significant new business and to conduct assembly operations at a
lower cost, the start-up of the Company's private-label and licensed stationery
business and the expansion of its sales and marketing efforts.
    
 
    The Company plans to change its fiscal year end from August 31 to December
31 following the completion of the Offering.
 
                                       23
<PAGE>
RESULTS OF OPERATIONS
 
    The following tables sets forth, for the periods indicated, certain selected
statement of operations data expressed as a percentage of net sales:
 
   
<TABLE>
<CAPTION>
                                                                                           YEAR ENDED
                                                                                           AUGUST 31,
                                                                                      --------------------
                                                                                        1996       1997
                                                                                      ---------  ---------
<S>                                                                                   <C>        <C>
Net sales...........................................................................      100.0%     100.0%
Cost of goods sold..................................................................       68.5       64.2
                                                                                      ---------  ---------
Gross profit........................................................................       31.5       35.8
Selling, general and administrative expenses........................................       33.7       30.2
                                                                                      ---------  ---------
Income (loss) from operations.......................................................       (2.2)%       4.4%
                                                                                      ---------  ---------
                                                                                      ---------  ---------
</TABLE>
    
 
COMPARISON OF FISCAL YEAR ENDED AUGUST 31, 1996 AND AUGUST 31, 1997
 
   
    NET SALES.  Net sales increased approximately $4.8 million or 32.6% to $19.5
million for the fiscal year ended August 31, 1997 from $14.7 million for the
prior fiscal year. A substantial portion of the net sales increase was due to
increased sales of hang tag and specialty packaging products to the Company's
two largest customers, Guess? and Swank, sales to new customers including Calvin
Klein Jeans as well as the hang tag and label sales pursuant to the Warner Bros.
Looney Tunes licensing agreement. Increases in specialty packaging and custom
shopping bag sales is directly related to the opening of the Mexico facility
which provided the Company with greater assembly and finishing capacity at lower
costs. Other sales increases were attributable to the commencement of sales of
the Guess? licensed stationery.
    
 
   
    GROSS PROFIT.  Gross profit increased approximately $2.4 million or 50.5% to
$7.0 million for the fiscal year ended August 31, 1997 from $4.6 million for the
prior fiscal year. Gross margin as a percentage of net sales increased to
approximately 35.8% for the 1997 fiscal year as compared to 31.5% for the prior
fiscal year. The increase in gross margin is attributable to improved overhead
absorption and substantial labor and other cost savings associated with
production of specialty packaging and high quality shopping bags at the
Company's Mexico facility.
    
 
   
    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased approximately $923,000 or 18.6% to $5.9
million for the fiscal year ended August 31, 1997 from $5.0 million for the
prior fiscal year; however, as a percentage of net sales, these expenses
declined to 30.2% in fiscal 1997 compared to 33.7% in the prior period.
Increases in expenses were attributable to a higher level of sales, marketing
and other general expenses associated with the launching of the Guess?
stationery line and other private label and licensed stationery business, and
higher selling expenses associated with increased sales of hang tag and
specialty packaging products.
    
 
   
    Direct art costs capitalized as part of the Company's art designs total
$45,732 and $134,256 for the years ended August 31, 1996 and 1997, respectively.
Amortization of capitalized art costs of $7,622 and $37,620 for the 1996 and
1997 fiscal years, respectively, are included in cost of goods sold. Capitalized
costs to develop photographic films and dies equaled $225,718 and $246,825 for
the years ended August 31, 1996 and 1997, respectively. Amortization of
capitalized film and die costs of $45,865 and $104,011 for the 1996 and 1997
fiscal years, respectively, are included in selling, general and administrative
expenses.
    
 
   
    PRINTING DIVISION EXPENSE.  The Company incurred approximately $232,000 of
incremental printing costs associated with the operation of its captive printing
division which was closed during fiscal 1997.
    
 
   
    INTEREST EXPENSE.  Interest expense increased approximately $346,000 or
74.4% to $811,000 for the fiscal year ended August 31, 1997 from $465,000 for
the prior fiscal year. This increase is attributable to increased factoring
expenses associated with increased sales.
    
 
                                       24
<PAGE>
    PROVISION FOR INCOME TAXES.  The provision for income taxes increased to
approximately $113,000 for the fiscal year ended August 31, 1997 as compared
with no tax provision for the prior fiscal year. Notwithstanding the
Consolidation, operating losses from AGS Stationery were not available to offset
taxable income of the Company's other Subsidiaries and in future periods may
only be used to offset future AGS Stationery profits.
 
    NET LOSS.  Net loss was $59,000 for the fiscal year ended August 31, 1997 as
compared to a net loss of approximately $790,000 for the prior fiscal year.
 
   
QUARTERLY RESULTS
    
 
   
    The Company's quarterly operating results have varied in the past and can be
expected to vary in the future. Fluctuations in operating results generally are
caused by a number of factors, including the volume and timing of customer
orders received during the quarter, the timing and magnitude of customers'
marketing campaigns, the loss of a major customer, the availability and pricing
of materials for the Company's products, increased selling, general and
administrative expenses which may be incurred in connection with acquisitions or
the introduction of new products, the costs and timing of any future
acquisitions, the timing and magnitude of capital expenditures, and changes in
the Company's product mix or in the relative contribution to sales of the
various Subsidiaries.
    
 
   
    The following table presents certain data for each of the Company's last
four fiscal quarters. This information has been derived from unaudited
Consolidated Financial Statements which, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such information. These operating results are not
necessarily indicative of results for any future period.
    
 
   
<TABLE>
<CAPTION>
                                                                                   THREE MONTHS ENDED
                                                                                 (AMOUNTS IN THOUSANDS)
                                                                 ------------------------------------------------------
                                                                 NOVEMBER 30,   FEBRUARY 28,     MAY 31,    AUGUST 31,
                                                                     1996           1997          1997         1997
                                                                 -------------  -------------  -----------  -----------
<S>                                                              <C>            <C>            <C>          <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................................    $   4,890      $   4,443     $   4,067    $   6,139
Cost of goods sold.............................................        3,341          2,859         2,567        3,779
                                                                      ------         ------    -----------  -----------
Gross profit...................................................        1,549          1,584         1,500        2,360
Selling, general and administrative expenses...................        1,560          1,569         1,304        1,696
                                                                      ------         ------    -----------  -----------
Income (loss) from operations..................................    $     (11)     $      15     $     196    $     664
                                                                      ------         ------    -----------  -----------
                                                                      ------         ------    -----------  -----------
 
AS A PERCENTAGE OF NET SALES:
Cost of goods sold.............................................      68.3%            64.4%         63.1%        61.6%
Gross profit...................................................      31.7%             35.6%        36.9%        38.4%
Selling, general and administrative expenses...................      31.9%             35.3%        32.1%        27.6%
Income (loss) from operations..................................     (0.2)%              0.3%         4.8%        10.8%
</TABLE>
    
 
LIQUIDITY AND CAPITAL RESOURCES
 
   
    During 1995 and 1996 the Company satisfied its working capital requirements
primarily through cash flows generated from operations, borrowings under
factoring agreements with Heller Financial, Inc. ("Heller Financial") and
Safcor, Inc. ("Safcor") and related party borrowings. Generally, the Company's
borrowing requirements have been somewhat seasonal, with the peak working
capital needs occurring at the end of the calendar year.
    
 
   
    Pursuant to the terms of its factoring agreements, the Company's factors
purchase the Company's eligible accounts receivable and assume the credit risk
only with respect to those accounts for which the factors have given prior
approval. Where the Company's factors do not assume the credit risk for a
    
 
                                       25
<PAGE>
   
receivable, the collection risk associated with the receivable remains with the
Company and if the factor, in its discretion, determines to advance against the
receivable, the customer's payment obligation is recorded as a Company
receivable and the advance from the factor is recorded as a current liability.
As of August 31, 1997, the amount factored without recourse was $1,326,383 and
the net amount due to the factor recorded as a current liability was $94,786.
    
 
   
    As of August 31, 1997 the Company had outstanding related party debt of
approximately $2.16 million. All related party debt is due and payable on the
fifteenth day following the date of delivery of written demand for payment which
may be delivered at any time after December 31, 1998. On October 16, 1997, NPM
Investments, Inc. exercised its conversion rights under a convertible debenture
in the amount of $875,000, which was converted into 384,402 shares of Common
Stock, or 15.6% of the fully diluted shares outstanding at the time. As a result
of such conversion, the remaining outstanding related party debt was $1.29
million.
    
 
   
    Net cash (used in) provided by operating activities was approximately
($1,230,000) and $236,000 for fiscal years 1996 and 1997, respectively. The
increase in net cash used in operating activities during 1996 resulted primarily
from the operating losses incurred relating to the start up of the Guess?
licensed stationery line including operating expenses and the purchases of
inventory. The decrease in net cash used in operating activities during 1997
resulted primarily from increased trade credit and increased inventory and
higher accounts payable and accrued expenses. In addition, the Company used cash
to increase inventory during 1997 to support the Guess? stationery launch and
increased customer orders for hang tags and specialty packaging.
    
 
    Net cash used in investing activities for fiscal years 1996 and 1997 was
$463,000 and $610,000, respectively. Those activities related primarily to
capital expenditures related to the leasing of equipment and expenditures for
office and assembly equipment in connection with the Mexico facility.
 
   
    Net cash provided by financing activities was approximately $1,685,000 and
$433,000 for 1996 and 1997, respectively. The net cash provided by financing
activities in 1996 was provided primarily by borrowings from related parties and
net advances from factors. Net cash in 1997 was provided by borrowings from
related parties and offset by decreases in net advances from factors.
    
 
    The Company is continually evaluating various financing strategies to be
utilized in expanding its business and to fund future growth or acquisitions.
The Company's future capital requirements will depend, however, on many factors,
including but not limited to, results of operations, the size and timing of
future acquisitions, if any, and the availability of additional financing. To
the extent that existing resources and future earnings are insufficient to fund
the Company's activities, the Company may need to raise additional funds through
debt or equity financings. No assurance can be given that such additional
financing will be available or that, if available, it can be obtained on terms
favorable to the Company and its stockholders. In addition, any equity financing
could result in dilution to the Company's stockholders. The Company's inability
to obtain adequate funds would adversely affect the Company's operations and
ability to implement its strategy.
 
   
    Management of the Company anticipates that the net proceeds from the
Offering, combined with cash flow from operations, will provide adequate
liquidity to fund its business growth plans and its operations for at least the
next 18 months. The Company intends to use a portion of the net proceeds from
the Offering to satisfy all obligations existing under the Heller Financial and
Safcor factoring arrangements and to repay all outstanding Related Party
Indebtedness.
    
 
NEW ACCOUNTING STANDARDS
 
    In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement
128"), which is effective for financial statements issued for the periods after
December 15, 1997, including interim periods. Statement 128 requires the
 
                                       26
<PAGE>
restatement of all prior period earnings per share ("EPS") data presented. Some
of the changes made to current EPS standards include (i) eliminating the
presentation of primary EPS and replacing it with basic EPS, with the principal
difference being that common stock equivalents are not considered in computing
basic EPS; (ii) eliminating the modified treasury stock method and the three
percent materiality provision; and (iii) revising the contingent share provision
and the supplemental EPS data requirements. Statement 128 also requires dual
presentation of basic and diluted EPS on the face of the income statement, as
well as a reconciliation of the numerator and denominator used in the two
computations of EPS. Basic EPS is defined by Statement 128 as net income from
continuing operations divided by the average number of common shares outstanding
without the consideration of common stock equivalents which may be dilutive to
EPS. The Company does not expect the adoption will have a material effect on its
EPS calculation.
 
    In 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure" ("Statement 129"), which is effective for financial statements ending
after December 15, 1997. Statement 129 reinstates various securities disclosure
requirements previously in effect under Accounting Principles Board Opinion No.
15, which has been superseded by Statement 128. The Company does not expect
adoption of Statement 129 to have a material effect, if any, on its consolidated
financial position or results of operation.
 
    During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("Statement 130"), which is effective for financial statements with fiscal years
beginning after December 15, 1997. Statement 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Company has not determined the
effect on its consolidated financial position or results of operations, if any,
from the adoption of this statement.
 
    During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("Statement 130"), which is effective for
financial statements with fiscal years beginning after December 15, 1997. The
new standard requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and in condensed financial statements of interim periods issued
to stockholders. It also requires that public business enterprises report
certain information about their products and services, the geographic areas in
which they operate and their major customers. The Company does not expect
adoption of Statement 131 to have a material effect, if any, on its consolidated
results of operation.
 
   
YEAR 2000 MODIFICATIONS
    
 
   
    The Company is currently reviewing its computer systems in order to evaluate
if any modifications are necessary for the year 2000. The Company currently does
not anticipate that any material modifications or expenditures will be required
in its computer systems for the year 2000.
    
 
                                       27
<PAGE>
                                    BUSINESS
 
GENERAL
 
   
    Tag-It Pacific, Inc. (the "Company") is a single-source provider of complete
brand identity programs to manufacturers of fashion apparel and accessories as
well as specialty retailers and mass merchandisers. Such programs communicate a
certain lifestyle, image or identity and enable the Company's customers to
promote and differentiate their product line or brand. The Company's programs
allow its customers, such as Guess?, Calvin Klein Jeans, Quiksilver, Carole
Little, The Limited, Sony Signatures and Warner Bros, as well as licensees of
Yves Saint Laurent, Kenneth Cole, Geoffrey Beene and Pierre Cardin, to outsource
most aspects of a brand identity program, including value-added design,
materials procurement, and manufacturing and distribution coordination of
creative packaging, tag, and trim products.
    
 
   
    The Company designs and produces high quality paper, metal and injection
molded boxes, woven and leather labels, paper-hanging and bar-coded tags, metal
jean buttons, and custom shopping bags. The Company also designs and produces
specialty private label and licensed stationery as well as related accessories
and backpacks. The Company designs approximately 70% of the products it sells.
The Company's design capabilities, combined with the Company's experience in
materials procurement, and manufacturing and distribution coordination enable
the Company to provide customers with complete design solutions for entire
product lines that meet not only aesthetic demands, but also functional and cost
parameters.
    
 
INDUSTRY BACKGROUND
 
   
    The majority of the Company's revenues are related to the apparel and
accessory markets, both of which are large and growing. According to The TOPLINE
REPORT published by the NPD Group, Inc., annual apparel sales in 1996 in the
United States equaled $161.4 billion, up from $152.5 billion in 1995. The
increasing number of fashion-driven apparel and accessory producers and products
has made it more difficult for manufacturers to differentiate their products
from those of competitors. As a result, these manufacturers have increased their
emphasis on specialty packaging, value-added tags and other promotional material
in order to compete for consumer attention in the retail environment. This
emphasis on product differentiation has created strong demand for creative image
enhancements such as bright, colorful and otherwise highly distinguishable and
attractive logos, point-of-sale packaging and signage, tags and labels. For
example, the primary distinction among many brand oriented products such as
designer jeans are woven and leather labels, buttons and trims. Where designer
jeans are displayed by retail stores, the trims, hang tags and pocket tags are
used to attract customer attention, as well as to provide important consumer
information. Similarly, wallets and designer jewelry, which are in many cases
difficult to visually distinguish, are often differentiated by specially
designed boxes, which then become a significant factor in attracting consumer
attention.
    
 
   
    Short product life cycles for fashion-driven items, advances in printing and
packaging technology, and the diverse geographic locations of specialty
packaging or printing vendors and apparel or accessory manufacturers, combine to
make the design and execution of complete brand identity programs increasingly
more complex. Manufacturers demand complex assortments of specialty packaging,
hang tags, labels and trim items compliant with a number of color, materials,
printing, bar coding and other quality standards and timely delivery that can
generally only be provided by a single vendor able to coordinate its
manufacturing and distribution on a world-wide basis. While apparel and
accessory manufacturers are actively involved in the design and manufacture of
their proprietary product lines, the design and production of critical
point-of-sale differentiators are ancillary to their primary business and are
often out-sourced to multiple separate vendors typically overseen by the
manufacturer or a separate vendor agency. Apparel and accessory manufacturers
who oversee their own multi-vendor brand identify programs often find themselves
consuming excessive time, effort and expenses attempting to manage in-house
brand identity programs and ship floor-ready packaged products to retailers
throughout the global marketplace.
    
 
                                       28
<PAGE>
The difficulties associated with executing a program which coordinates these
many facets are creating demand for the single source programs offered by the
Company.
 
THE TAG-IT PACIFIC SOLUTION
 
   
    To take advantage of the large expanding demand for, and address the
increasingly complicated requirements of, effective brand identity programs, the
Company has positioned itself as a fully-integrated single-source provider of
complete brand identity programs with creative design personnel, sales
representatives, assembly workers, program managers and global production and
distribution coordinators and with offices located in Los Angeles, New York,
Mexico and Hong Kong. Because specialty packaging or printing vendors usually
specialize in limited product areas, management believes that the Company, with
its innovative designs and its global manufacturing and distribution
coordination, is well positioned to become a recognized single-source provider
and a market leader.
    
 
TAG-IT PACIFIC GROWTH STRATEGY
 
   
    The Company's growth strategy includes the following elements: (i) expand
its customer base by promoting its single-source solution and in-house design,
materials procurement, and manufacturing and distribution coordination
capabilities, (ii) increase customer penetration by targeting additional product
lines within existing accounts, (iii) expand its marketing programs and network
of sales offices, (iv) broaden its target customer base for products to include
cosmetics and specialty foods manufacturers, (v) pursue private label
opportunities, and (vi) remain opportunistic with respect to strategic
acquisitions.
    
 
   
    EXPAND THE COMPANY'S CUSTOMER BASE BY PROMOTING ITS SINGLE SOURCE SOLUTIONS
AND IN-HOUSE DESIGN, MANUFACTURING AND DISTRIBUTION COORDINATION
CAPABILITIES.  The Company plans to expand its reputation as a single source
provider of specialty packaging and tag and trim needs. The Company's design
capabilities, combined with the Company's experience in materials procurement,
and manufacturing and distribution coordination enable the Company to provide
customers with a complete design solution for entire product lines that meet not
only aesthetic demands, but also functional and cost parameters. Because of its
single source provider capability, the Company's customers do not have to
maintain the same level of oversight as is required for numerous separate
vendors, allowing the customer to realize an internal cost savings in addition
to the competitive pricing offered by the Company.
    
 
    INCREASE CUSTOMER PENETRATION BY TARGETING ADDITIONAL PRODUCT LINES WITHIN
EXISTING ACCOUNTS.  The Company intends, through increased account coverage and
client monitoring, to further penetrate each individual customer account it
currently services with additional products and services. The Company plans to
increase sales by actively marketing its total solution design capabilities to
new and existing clients.
 
   
    EXPAND ITS MARKETING PROGRAMS AND NETWORK OF SALES OFFICES.  The Company
intends to continue developing a sales and marketing network to offer its fully
integrated design, manufacturing and distribution capabilities in the key
apparel and accessory manufacturing centers in the United States and possibly in
Asia and South America.
    
 
   
    BROADEN ITS TARGET CUSTOMER BASE FOR PRODUCTS TO INCLUDE COSMETICS AND
SPECIALTY FOODS MANUFACTURERS. The Company has begun to exploit its experience
in the apparel and accessories industry to other industries and applications
such as specialty packaging tags and labels for cosmetics and specialty food
products, all of which should provide new business opportunities not previously
pursued by the Company.
    
 
   
    PURSUE PRIVATE LABEL OPPORTUNITIES.  The Company has produced lines of
private label stationery for Quiksilver, and its Roxy division, and has
developed private label expertise in connection with its Guess? stationery
license. The Company intends to pursue private label design and manufacturing
projects for additional customers with well established brand recognition.
    
 
                                       29
<PAGE>
    REMAIN OPPORTUNISTIC WITH RESPECT TO STRATEGIC ACQUISITIONS.  While
historically the Company has grown solely through internal efforts, the Company
may in the future pursue selected strategic acquisitions. In this regard, the
Company will seek acquisition targets that build additional internal product
expertise or bring in-house certain manufacturing capabilities that are
currently performed by third party vendors. The Company is not currently
considering any acquisition candidate.
 
DESIGN AND DEVELOPMENT
 
   
    The Company estimates that 70% of the products sold by the Company are also
designed by the Company. The Company believes that its products are
distinguished by the innovative designs developed by its in-house creative
staff. The Company's expertise in material procurement and manufacturing
coordination of the products it designs enables the Company to design products
that meet not only aesthetic demands, but also functional and cost parameters.
The Company believes that specialty design companies, with limited sourcing or
manufacturing experience, create designs that often cannot be implemented
because of difficulties in the manufacturing process, the expenses of required
materials, or because the resulting product is not functional. The Company's
products are designed to function within the limitations imposed by the
applicable manufacturing framework, and, because of its manufacturing and
sourcing experience, time consuming delays arising from the coordination of
independent design houses and manufacturing facilities are minimized. This not
only reduces development and production costs, but also decreases the total time
to market.
    
 
   
    The Company's product development begins with the creation of a distinctive
design that embodies a customer's corporate image and existing trademarks.
Although the designs developed by the Company are consistent with the customer's
image, they are distinct to each particular product. The Company will typically
create a comprehensive design presentation for a customer focused on a discrete
product tag, packaging, trim or label assignment or for an entire packaging, tag
and labeling program for a line of products. From the presentation, the client
is able to select from numerous prototypes generated by the Company the
particular design and product style and image. The Company will then coordinate
the manufacture, assembly, finishing and distribution of all packaging, tag,
label and trim products to the customer's locations. The Company believes that
its in-house ability to create customized prototypes for customer marketing
presentations is a significant competitive advantage.
    
 
    All of the Company's design work is done in-house by its team of seven
designers, who include graphic artists and prototype fabricators. All design
services for specialty packaging, hang tags, woven labels, metal jean buttons
and trims, and licensed and private label stationery is performed by the
Company's art department located in Los Angeles. In addition, all film, die
making and pre-production is completed at the Company's Los Angeles facilities.
 
    The Company's design team uses computer assisted design techniques employing
a sophisticated Scitex color separating and color control system to produce all
color separations for its printed products. The Company provides these color
separations to its contract manufacturers worldwide to ensure that the Company's
finished products, wherever manufactured, have color and appearance uniformity.
 
   
    Many woven labels designed by the Company are manufactured offshore. The
Company plans to use a portion of the net proceeds of the Offering to establish
a woven label manufacturing capability in the United States for rapid turn
around of samples and short-run production.
    
 
PROCUREMENT, ASSEMBLY AND FINISHING
 
   
    The Company creates all product artwork, and any necessary films, dies and
molds, which are used to manufacture its products. All bar-code printing,
assembly and finishing of high quality paper boxes, custom shopping bags and
point-of-sale packaging signage is performed internally by the Company. The
Company also assembles multi-part jean buttons. All other products designed and
sold by the Company are produced by third party vendors. The Company intends to
continue to outsource high risk production to qualified
    
 
                                       30
<PAGE>
vendors, particularly with respect to manufacturing activities that require
substantial investment in capital equipment.
 
    Through its Hong Kong facility, the Company produces and distributes
bar-coded hang tags, distributes apparel packaging and coordinates the
manufacturing and distribution of the full range of the Company's products. The
Hong Kong facility supplies several significant packaging programs, services
customers located in Asia and the Pacific Rim and sources products for the
Company's Los Angeles operations. Through its assembly and finishing facility in
Mexico, the Company completes the assembly and finishing of many of its
packaging products and has commenced distributing products to Mexico based
manufacturers.
 
   
    The Company purchases raw materials from several qualified material
suppliers and has developed a knowledge of the best materials, prices and
vendors for particular products and raw materials. Because of its raw material
procurement capabilities and knowledge, the Company is able to produce a broad
range of packaging styles at various price points which meet a customer's budget
and product pricing parameters.
    
 
   
    The Company's customers generally book orders for speciality packaging, hang
tags or woven labels for an entire season. Although the Company will produce the
entire order, it allows its customers to draw down and pay for finished items in
inventory, on an as needed basis. Although the Company from time to time holds
significant inventory and bears the cost of doing so, all customers are
obligated by contract to pay the full purchase order price of the inventory by a
specified date, regardless of when or whether they accept delivery. The Company
prefers to purchase certain paper stock and finished product in bulk, but, as a
result of cash constraints raw materials have generally been purchased on an as
needed basis. This has resulted in less than optimal pricing for raw material
and finished goods purchases, and has required multiple runs to fulfill
customers' orders, increasing labor cost and management burden. The Company
intends to use a portion of the net proceeds of this Offering to purchase
certain materials in bulk in order to realize the benefits of volume discounts
and single production runs. See "Use of Proceeds," "Risk Factors--Limited
Sources of Supply" and "--Fluctuating Paper Costs and Paper Shortages."
    
 
SALES AND MARKETING
 
   
    The Company's principal products are currently sold through a combination of
its own sales force (five representatives based in Los Angeles and two based in
New York) and three independent sales representatives and one sales manager who
focuses on sales of licensed and private label stationery products.
Additionally, the Company has three major account managers who service three of
the Company's significant customers and who have first hand knowledge of those
customers' practices. The Company believes that its in-house design and
prototype development capabilities allow its sales representatives to make
effective customer presentations with actual prototypes and examples of the
Company's innovative designs. The Company believes that these in-house design
and prototype development capabilities provide the Company with a significant
competitive advantage.
    
 
   
    The Company's senior executives have developed strong relationships with its
major customers at senior levels and actively participate in marketing and sales
functions and development of overall strategy. The Company also builds upon its
top-level relationships through its account managers who are responsible for
enhancing these existing relationships through a high level of responsiveness
and attention. When the Company becomes the outsourcing vendor for a customer's
packaging or tag requirements, the Company attempts to position itself as a
department of the customer's procurement operation.
    
 
   
    The Company plans to expand its overall team approach for the sales and
marketing of its products to include regional sales vice presidents located in
major apparel centers who will be assigned account coverage and make calls on
senior merchandising officers of major manufacturers and field representatives
who will interface with the manufacturing and distribution personnel of these
major customers. These team sales efforts will be supported by the Company's
in-house account representatives who will provide
    
 
                                       31
<PAGE>
customer service to all accounts, and coordinate order fulfillment. The Company
considers a high level of customer service essential to its success.
 
   
    It is anticipated that a portion of the net proceeds of this Offering will
be used to expand the Company's sales force. The Company initially plans to
expand its sales network into major apparel and accessory centers in the United
States and possibly in Asia and South America.
    
 
PRODUCTS
 
    SPECIALTY PACKAGING.  The Company's specialty packaging products include
high quality paper boxes, metal tins, injection-molded packaging items and high
quality shopping bags. These products are designed and produced individually or
as part of a program where the Company designs and develops an entire
coordinated packaging line for a client. The Company's specialty packaging is
used for a wide variety of products, such as wallets, watches, sunglasses,
belts, undergarments and gift sets.
 
    HANG TAGS AND PRINTED APPAREL PACKAGING AND TRIMS.  The Company's hang tags,
pocket flashers, waistband tickets, size stickers and bar-coded hang tags are
attached to products by manufacturers and retailers to identify and promote
their products, allow automated data collection and provide brand identification
and consumer information such as UPC bar code, manufacturer's suggested retail
price, size, fabric content and care instructions.
 
    The Company's customized woven, leather, synthetic, embroidered and novelty
labels and tapes are designed for and printed on or woven in a wide range of
fabrics and other materials and produced on various types of high-speed
equipment. The Company's labels are used primarily for product identification
and consumer information on apparel.
 
   
    The Company offers its customers a full range of logo and non-logo hardware
trim for their apparel. The hardware product line includes jean buttons, jean
rivets, snaps, metal sew-on buttons as well as an assortment of logo hardware
which is designed to customize the products of the Company's customers. The
Company believes it has the ability to supply its customers with all of their
hardware needs. The Company leases its customers machinery to attach buttons,
rivets and snaps produced by the Company. This equipment is used exclusively for
the Company's products. The revenues generated from these leases are not
material to the Company's operations.
    
 
   
    PRIVATE LABEL.  The Company designs and manufactures private label product
lines, including book bags, ring binders, composition books, stationery, metal
pencil tins and date books. Many of the Company's apparel and accessory
customers are major brand names and are potential customers for the Company's
private label business.
    
 
   
    SPECIALTY LICENSES.  The Company has entered into licensing arrangements
with companies which have high brand recognition among consumers. The Company's
licensing arrangements allow the Company to manufacture products utilizing such
companies' trademarks, brand names or other intellectual property. The Company
currently produces stationery products under a license from Guess?. In 1996, the
Company was awarded the exclusive packaging license for Batman and Superman
licensed apparel by Warner Bros. Consumer Products. Under this arrangement, any
licensee of Warner Bros. selling products bearing the Batman or Superman logos
must purchase all product hang tags, woven labels and printed labels from the
Company. The Company is also one of a limited number of approved vendors
permitted to supply hang tags, woven labels and printed labels for LOONEY TUNES
AND BABY LOONEY TUNES licensed products. In addition, the Company recently
secured from the Sony Signatures division of Sony Pictures Entertainment, Inc.
the hang tag business for all consumer products associated with the release of
the upcoming feature films GODZILLA, JEANNIE, and ZORRO and the GHOSTBUSTERS
television series. The Company intends to obtain additional licenses as they
become available on appropriate terms and conditions.
    
 
                                       32
<PAGE>
CUSTOMERS
 
   
    The Company has more than 125 customers, including well-known apparel
manufacturers, such as Guess?, Calvin Klein Jeans, Quiksilver, Carole Little,
licensees of Yves Saint Laurent, Kenneth Cole, Geoffrey Beene and Pierre Cardin,
specialty retailers such as American Eagle Outfitters and Miller's Outpost and
mass merchant retailers, such as Office Max and J.C. Penney, and the promotional
arms of large entertainment companies such as Sony Signatures Inc. and Warner
Bros. Consumer Products. For the fiscal year ended August 31, 1997, Guess? and
Swank (a licensee of Yves Saint Laurent, Kenneth Cole, Geoffrey Beene and Pierre
Cardin) represented 18.3% and 11.1%, respectively, of the Company's total sales.
The Company does not have long-term contracts with its customers requiring them
to use its products or services. The Company does not believe that the loss of
any single customer other than Guess? or Swank would have a material adverse
effect upon the Company's consolidated financial position or results of
operations. See "Risk Factors--Dependence on Key Customers; Absence of Long-Term
Contracts with Customers."
    
 
    The following table describes the products provided by the Company for its
significant customers.
 
PACKAGING AND STATIONERY PRODUCTS
   
<TABLE>
<CAPTION>
                                                                                                                 STATIONERY
                                                                      PACKAGING PRODUCTS                          PRODUCTS
                                                --------------------------------------------------------------  -------------
                                                   PAPER        SHOPPING          PLASTIC                          BACK TO
               NAME OF CUSTOMER                    BOXES          BAGS           PACKAGING       METAL TINS        SCHOOL
- ----------------------------------------------  -----------  ---------------  ---------------  ---------------  -------------
<S>                                             <C>          <C>              <C>              <C>              <C>
Guess?........................................           X              X                X                                X*
 
- -------------------------------------------------------------------------------------------
Swank ........................................           X              X                                 X
Quiksilver....................................           X                                                X               X
 
- -------------------------------------------------------------------------------------------
Warner Bros. .................................           X                               X                X
Baby Guess?...................................           X              X
 
- -------------------------------------------------------------------------------------------
Nordstrom ....................................           X                                                X
Sony Signature................................                                                                            X
 
- -------------------------------------------------------------------------------------------
Gymboree .....................................           X                                                X
Signal Apparel................................           X
 
- -------------------------------------------------------------------------------------------
XOXO .........................................           X              X
 
<CAPTION>
                                                                   ACCESSORIES
               NAME OF CUSTOMER                    BACKPACKS       GIFT PACKS
- ----------------------------------------------  ---------------  ---------------
<S>                                             <C>              <C>
Guess?........................................             X*               X*
- ----------------------------------------------
Swank ........................................
Quiksilver....................................
- ----------------------------------------------
Warner Bros. .................................
Baby Guess?...................................
- ----------------------------------------------
Nordstrom ....................................
Sony Signature................................
- ----------------------------------------------
Gymboree .....................................
Signal Apparel................................
- ----------------------------------------------
XOXO .........................................
</TABLE>
    
 
- ------------------------
 
   
*   These products are produced under license from Guess? for resale to Guess?
    retail stores and other customers.
    
 
                                       33
<PAGE>
APPAREL RELATED PRODUCTS
   
<TABLE>
<CAPTION>
                                                          HANG TAGS/
                                          BAR CODE          POCKET                        JEAN                       WOVEN
          NAME OF CUSTOMER                PRINTING         FLASHERS         BOXES        BUTTONS       RIVETS       LABELS
- -------------------------------------  ---------------  ---------------  -----------  -------------  -----------  -----------
<S>                                    <C>              <C>              <C>          <C>            <C>          <C>
Guess?...............................             X                X              X             X             X            X
 
- -------------------------------------------------------------------------------------------
Swank ...............................                                             X
Quiksilver...........................             X                X                            X                          X
 
- -------------------------------------------------------------------------------------------
Gymboree ............................             X                X              X
Warner Bros..........................             X                X              X                                        X
 
- -------------------------------------------------------------------------------------------
Baby Guess? .........................             X                X              X             X             X            X
Signal Apparel.......................             X                X              X
 
- -------------------------------------------------------------------------------------------
Carole Little .......................             X                X                            X
Paul Davril..........................             X                X
 
- -------------------------------------------------------------------------------------------
Sony Signatures .....................             X                X                                                       X
Calvin Klein Jeans...................             X                X
 
- -------------------------------------------------------------------------------------------
Miller's Outpost ....................             X                X                            X             X            X
Express..............................             X                X                            X             X
 
- -------------------------------------------------------------------------------------------
JC Penny ............................                                                           X             X            X
Azteca*..............................             X                X                            X             X            X
 
- -------------------------------------------------------------------------------------------
Honda ...............................                                                           X
Chorus Line..........................                              X                            X                          X
 
- -------------------------------------------------------------------------------------------
Dr. Martens .........................                              X                            X             X            X
A4Moshay (licensee of Converse)......
 
- -------------------------------------------------------------------------------------------
Z-Cavaricci .........................                                                                         X
Outlaw Jeans.........................                              X                            X             X            X
 
- -------------------------------------------------------------------------------------------
Union Bay/Nautica ...................                                                           X             X
Enc/Kellwood.........................                              X                                                       X
 
- -------------------------------------------------------------------------------------------
Paris Blues .........................                              X                            X                          X
 
<CAPTION>
 
                                          LEATHER-PVC
          NAME OF CUSTOMER                  PATCHES          SNAPS        ZIPPERS
- -------------------------------------  -----------------  -----------  -------------
<S>                                    <C>                <C>          <C>
Guess?...............................              X               X
- -------------------------------------
Swank ...............................                              X
Quiksilver...........................
- -------------------------------------
Gymboree ............................
Warner Bros..........................
- -------------------------------------
Baby Guess? .........................              X               X
Signal Apparel.......................
- -------------------------------------
Carole Little .......................
Paul Davril..........................
- -------------------------------------
Sony Signatures .....................
Calvin Klein Jeans...................
- -------------------------------------
Miller's Outpost ....................              X
Express..............................
- -------------------------------------
JC Penny ............................              X
Azteca*..............................              X
- -------------------------------------
Honda ...............................                              X             X
Chorus Line..........................                                            X
- -------------------------------------
Dr. Martens .........................              X               X             X
A4Moshay (licensee of Converse)......              X               X
- -------------------------------------
Z-Cavaricci .........................                                            X
Outlaw Jeans.........................              X
- -------------------------------------
Union Bay/Nautica ...................
Enc/Kellwood.........................
- -------------------------------------
Paris Blues .........................              X                             X
</TABLE>
    
 
- ------------------------
 
   
*   The Company supplies Calvin Klein Jeans, American Eagle Outfitters and other
    branded products to Azteca.
    
 
                                       34
<PAGE>
COMPETITION
 
   
    The industries in which the Company competes are highly competitive and
fragmented and include numerous local and regional companies that provide some
or all of the services offered by the Company. The Company also competes with
United States and international design companies, distributors and manufacturers
of tag, trim and packaging products. Some of the Company's competitors,
including Paxar, Inc., RVL, Inc., Copac International Packaging, Inc., Universal
Button, Inc., and Scovill Fasteners, Inc. have greater name recognition, longer
operating histories and, in many cases, substantially greater financial and
other resources than the Company. See "Risk Factors--Competition."
    
 
   
    The Company believes that competitive factors in the market are generally
design capability, price, quality, service and delivery lead times. The Company
believes that it is competitive with respect to all of these factors. Because of
the Company's integrated material procurement and production capabilities, the
Company is able to effectively compete for business particularly where the
various functional requirements in packaging production are separately sourced.
    
 
EMPLOYEES
 
    As of August 31, 1997, the Company had approximately 390 employees located
at its various facilities, with 57 employees in Los Angeles, nine employees in
Hong Kong and the balance of employees in Mexico. All of the Company's employees
based in Los Angeles, other than executive officers and senior management are
provided by an employee leasing company that has responsibility for payroll and
human resources functions. The Company has determined that leasing employees
offers advantages over directly employing its workforce, including reduction of
management time and effort required to be devoted to multistate payroll
administration, payroll tax and reporting, health insurance program oversight
and other administrative functions.
 
    The Company's labor force located in the United States and Hong Kong are
non-union. The employees at the Company's Mexico facilities are represented by
the Sindicato "Mexico Moderno" De Trabajadores De La Baja California, C.R.O.M.
In addition to its salaried and hourly workforce, the Company employs additional
workers, on a temporary basis, throughout the year at its Mexico facilities
depending upon current production and assembly requirements. The temporary work
force ranges from zero to approximately one hundred employees at any one time
throughout the year. The Company believes that it has satisfactory employee and
labor relations.
 
    The Company believes that its future success will depend in large part upon
its ability to recruit and retain qualified employees, particularly in the area
of product operations and sales and marketing. See "Risk Factors--Management of
Business Changes; Potential Growth; Potential Acquisitions" and "-- Dependence
on Key Personnel."
 
   
    The Company intends to hire additional key personnel in the near future,
particularly in the areas of production operations and sales and marketing.
Specifically, the Company plans to use a portion of the net proceeds of this
Offering to hire additional sales representatives, in-house account managers and
additional operations staff.
    
 
    All of the Company's key employees are located in Los Angeles, California.
 
PROPERTIES
 
   
    The Company's headquarters is located in Los Angeles, California, in the
center of the apparel manufacturing district. It occupies approximately 18,145
square feet of administrative, preproduction and warehouse space pursuant to a
lease which expires on April 30, 2000 and provides for a current annual rental
of approximately $108,870. The Company's Los Angeles premises are leased from
D.P.S. Associates, a general partnership in which Harold Dyne is a general
partner. Adjacent to the headquarters, the Company leases an additional 5,000
square feet of office and warehouse space for the business of AGS
    
 
                                       35
<PAGE>
Stationery. This lease expires on September 30, 1998 and the current annual
rental is approximately $31,200.
 
   
    In addition to the Los Angeles facilities, Tag-It Hong Kong leases
approximately 3,000 square feet of office and warehouse space located in Fo Tan.
The lease expires on May 22, 1998 and provides for a current monthly rental of
approximately $3,770. Tag-It Mexico leases approximately 15,000 square feet of
production and warehouse space located in Tijuana, Mexico. The lease expires on
November 14, 1999, and the current monthly rental is $4,500. The lease may be
renewed for an additional one year term. In addition, Pacific Trim leases
approximately 800 square feet of office and showroom space located in New York,
New York. The current term of the lease expires on April 30, 1998 and provides
for a current monthly rental of $1,400. The lease may be renewed through April
30, 1999 at a monthly rental of $1,500.
    
 
    The Company is currently studying its office and production requirements. It
is anticipated that a portion of the proceeds from the Offering may be used to
relocate the Company's operations to larger facilities during the first or
second quarters of 1998. The Company does not believe that there will be any
adverse impact in terminating its current lease agreements for any of its leased
properties in Los Angeles.
 
LEGAL PROCEEDINGS
 
    Certain claims, suits and complaints which arise in the ordinary course of
the Company's business have been filed or are pending against the Company. The
Company believes that it has meritorious defenses to such claims or that such
matters either are adequately reserved for, are covered by insurance, or would
not, after taking into account the reserves established and/or insurance in
place, have a material adverse effect on the Company's consolidated financial
condition or results of operations, if adversely determined against the Company.
 
                                       36
<PAGE>
                                   MANAGEMENT
 
DIRECTORS AND EXECUTIVE OFFICERS
 
   
    Information with respect to the directors and executive officers of the
Company as of November 20, 1997 is as follows:
    
 
   
<TABLE>
<CAPTION>
NAME                                      AGE                                     POSITION
- ------------------------------------      ---      ----------------------------------------------------------------------
<S>                                   <C>          <C>
Mark Dyne(1)........................          36   Chairman of the Board
Colin Dyne(1).......................          34   Chief Executive Officer, Director and Treasurer;
                                                     Chief Executive Officer of Tag-It
Harold Dyne(1)......................          65   President and Director; Chief Executive Officer of Pacific Trim
Francis Shinsato....................          46   Chief Financial Officer
Jonathan Markiles(2)................          33   Executive Vice President, Strategic Planning and Business Development,
                                                     and Secretary
Jonathan Burstein(3)................          31   Executive Vice President, Sales and Marketing
Diana Maranon*(4)(5)................          39   Director
Brent Cohen*(4)(5)..................          39   Director
Michael Katz*.......................          56   Director
Paul Markiles*(2)...................          64   Director
</TABLE>
    
 
- ------------------------
 
 *  These individuals currently do not serve in the positions indicated. The
    Company intends to appoint these individuals to these positions prior to the
    consummation of the Offering.
 
(1) Colin Dyne and Mark Dyne are brothers. Harold Dyne is their Father.
 
   
(2) Jonathan Markiles is the son of Paul Markiles.
    
 
   
(3) Jonathan Burstein is Harold Dyne's son-in-law and Colin Dyne's and Mark
    Dyne's brother-in-law.
    
 
   
(4) Member of the Audit Committee effective upon appointment as a director.
    
 
   
(5) Member of the Compensation Committee effective upon appointment as a
    director.
    
 
   
    MARK DYNE has served as Chairman of the Board of Directors of the Company
since September 1997. Mr. Dyne currently is Chairman of the Board of Directors
and Chief Executive Officer of Brilliant Digital Entertainment, Inc., a position
he has held since October 1996, Joint Managing Director of Sega Ozisoft Pty.
Limited, a company he helped found in 1982, a director of Monto Holdings Pty.
Ltd. and Nu-Metro Multimedia Pty. Ltd., and a co-owner and director of Packard
Bell Australia Pty. Ltd. From June 1995 through May 1997, Mr. Dyne served as
Co-Chief Executive Officer of Sega Enterprises (Australia) Pty., Ltd., which
operates a $70 million interactive indoor theme park in Darling Harbor in
Sydney, Australia.
    
 
   
    COLIN DYNE has served as Chief Executive Officer, President and Director of
the Company since October 1997. Mr. Dyne founded Tag-It in 1991 with his father,
Harold Dyne, and has served as its President since inception. Prior to founding
Tag-It in 1991, Mr. Dyne worked in numerous positions within the stationery
products industry, including owning and operating retail stationery businesses
and servicing the larger commercial products industry through contract
stationery and printing operations.
    
 
   
    HAROLD DYNE has served as President and director of the Company since
October 1997. Mr. Dyne, founder of Pacific Trim, one of the Subsidiaries, has
served as Chief Executive Officer of Pacific Trim since it was founded in 1987.
Mr. Dyne has been involved in the apparel industry since 1958, when he founded
the Union Fasteners Corporation in South Africa. In 1971, he formed a joint
venture with YKK Zipper Manufacturing Company in Southern Africa.
    
 
                                       37
<PAGE>
   
    JONATHAN MARKILES is Executive Vice President, Strategic Planning and
Business Development, and Secretary of the Company. Mr. Markiles joined Tag-It
in May 1994 as its General Manager where he has been responsible for production,
distribution and international operations. Prior to joining Tag-It, Mr. Markiles
received his M.B.A. from the University of Southern California in May 1994. From
1987 until August 1992, Mr. Markiles held various operational positions with
Windshields America, Inc., a national chain of autoglass stores.
    
 
    JONATHAN BURSTEIN is Executive Vice President, Sales and Marketing of the
Company. From 1987 until the present, Mr. Burstein has been employed by Pacific
Trim, where he has been responsible for managing many of Pacific Trim's largest
customer accounts and supervising Pacific Trim's sales force. Mr. Burstein also
has been responsible for implementing systems and protocols in the purchasing
department as well as developing and managing Pacific Trim's key supply lines.
 
   
    FRANCIS SHINSATO was appointed Chief Financial Officer of the Company in
November 1997. Prior to joining the Company, from February 1997 through October
1997, Mr. Shinsato was an independent accounting and information systems
consultant. From January 1996 until February 1997, Mr. Shinsato was the
Controller of Centon Electronics, Inc., a privately held computer memory
manufacturer where he was responsible for financial statement preparation and
credit and collection management. From 1985 to 1995, Mr. Shinsato served as the
Vice President of Finance and Controller of Newport Electronics, Inc. and
oversaw all financial, accounting and management information systems. Newport
Electronics, Inc. is a designer and manufacturer of test and measurement
equipment and was a publicly traded company until 1992. Mr. Shinsato is a
certified public accountant.
    
 
    DIANA MARANON will be elected a director of the Company prior to the
consummation of the Offering. Ms. Maranon is the President and Managing Director
of Averil Associates, Inc. ("Averil Associates"), a financial advisory firm and
member of the National Association of Securities Dealers, and serves as a
director of Brilliant Digital Entertainment, Inc. and Micronet Technology, Inc.
Prior to founding Averil Associates in 1994, Ms. Maranon was a Vice President
with Wasserstein Perella & Co., Inc., an investment banking firm, with whom she
started in 1988. From 1985 to 1988, Ms. Maranon practiced securities law with
Skadden Arps Slate Meagher & Flom. Ms. Maranon is a member of the State Bar of
California.
 
    BRENT COHEN will be elected a director of the Company prior to the
consummation of the Offering. Mr. Cohen has served as President of the Consumer
Products and International divisions of Packard Bell NEC, Inc., since 1996. From
1987 to 1996, Mr. Cohen served in various positions with Packard Bell,
culminating with the position of Chief Financial Officer and Chief Operating
Officer prior to his election to his current office. Prior to joining Packard
Bell NEC, Inc., Mr. Cohen was employed with Andersen Consulting.
 
   
    MICHAEL KATZ will be elected a director of the Company prior to the
consummation of the Offering. From 1987 to the present, Mr. Katz has served as
President, Chief Operating Officer and director of Transducer Controls
Corporation, a manufacturer of position and pressure transducers. During the
same period, Mr. Katz also served as President, Chief Operating Officer and
director of Tedea-Huntleigh, Inc., a manufacturer of lode-cells and force-cells.
Since September 1996, Mr. Katz has held the position of Chairman of the Board of
Filtomat, Inc., a manufacturer of automatic industrial water filters.
    
 
   
    PAUL MARKILES will be elected a director of the Company prior to the
consummation of the Offering. Prior to his retirement in 1991, Mr. Markiles
served as President and Chief Executive Officer of Windshields America, Inc., a
subsidiary of South African Breweries. Mr. Markiles was responsible for the
founding and expansion of Windshields America into a national chain of over 120
retail autoglass stores.
    
 
BOARD OF DIRECTORS
 
   
    The Board of Directors is divided into three classes, designated Class I,
Class II and Class III. Brent Cohen and Diana Maranon will serve as the Class I
directors. This class will stand for election at the 1998 annual stockholders
meeting. Harold Dyne, Michael Katz and Paul Markiles will serve as the Class II
    
 
                                       38
<PAGE>
   
directors. This class will stand for election at the 1999 annual stockholders
meeting. Colin Dyne and Mark Dyne currently are the Class III directors. This
class will stand for election at the 2000 annual stockholders meeting. At each
annual meeting of stockholders, successors of the class of directors whose term
expires at that annual meeting are elected for a three-year term or until their
successors have been elected and qualified. If the number of directors is
changed, any increase or decrease is to be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible.
Directors may be removed from office only for cause by the affirmative vote of a
majority of the outstanding shares of Common Stock. Vacancies on the Board of
Directors may be filled only by a majority of the directors then in office.
    
 
BOARD COMMITTEES
 
    The Company's Board of Directors maintains an Audit Committee and a
Compensation Committee. The Audit Committee's functions include recommending to
the Board of Directors the engagement of the Company's independent certified
public accountants, reviewing with those accountants the plan and results of
their audit of the financial statements and determining the independence of the
accountants. The Compensation Committee reviews and makes recommendations with
respect to compensation of officers and key employees, and is currently
responsible for the grant of options and other awards under the Company's Stock
Incentive Plan. See "--Stock Incentive Plan."
 
DIRECTOR COMPENSATION
 
   
    Nonemployee directors of the Company currently are paid $1,500 for their
personal attendance at any meeting of the Board and $500 for attendance at any
telephonic meeting of the Board or at any meeting of a committee of the Board.
Directors also are reimbursed for their reasonable travel expenses incurred in
attending Board or committee meetings. In October 1997, the Company granted to
Ms. Maranon options to purchase 15,000 shares of Common Stock at an exercise
price of $6.00 per share, and intends to grant to each of Mr. Cohen, Mr. Katz
and Mr. Markiles, effective upon commencement of their services as directors,
options to purchase 20,000 shares, 15,000 shares and 15,000 shares,
respectively, of Common Stock at an exercise price of $6.00 per share.
    
 
EXECUTIVE COMPENSATION
 
    The following table sets forth both cash and noncash compensation paid or to
be paid by the Company, directly and/or through its subsidiaries, to, Colin
Dyne, the Chief Executive Officer of the Company, and Harold Dyne, the President
of the Company and the Chief Executive Officer of Pacific Trim, and each other
executive officer whose compensation exceeded $100,000 (the "Named Executive
Officers") for the fiscal year ended August 31, 1997. No other officer received
compensation in excess of $100,000 for the fiscal year ended August 31, 1997.
 
                           SUMMARY COMPENSATION TABLE
 
   
<TABLE>
<CAPTION>
                                                                                        ANNUAL COMPENSATION
                                                                  FISCAL YEAR   ------------------------------------
                                                                 ENDED AUGUST                          OTHER ANNUAL
NAME AND PRINCIPAL POSITION                                           31,         SALARY      BONUS    COMPENSATION
- ---------------------------------------------------------------  -------------  ----------  ---------
<S>                                                              <C>            <C>         <C>        <C>
Colin Dyne, ...................................................         1997    $  227,340     --        $  22,773(1)
  Chief Executive Officer
 
Harold Dyne, ..................................................         1997    $  214,334     --        $  24,832(1)
  President
 
Jonathan Burstein, ............................................         1997    $  152,981     --        $  12,393(1)
  Executive Vice President, Sales and Marketing
</TABLE>
    
 
- ------------------------
 
   
(1) Represents car allowance and medical insurance.
    
 
                                       39
<PAGE>
EMPLOYMENT CONTRACTS
 
    None of the Named Executive Officers have employment agreements with the
Company and their employment may be terminated at any time. See "Risk
Factors--Dependence on Key Personnel."
 
STOCK INCENTIVE PLAN
 
    The Company adopted a Stock Incentive Plan (the "1997 Plan") in October
1997. Each executive officer, other employee, non-employee director or
consultant of the Company or any of its subsidiaries is eligible to be
considered for the grant of awards under the 1997 Plan. A maximum of 562,500
shares of Common Stock may be issued pursuant to awards granted under the 1997
Plan, subject to certain adjustments to prevent dilution. Any shares of Common
Stock subject to an award which for any reason expires or terminates unexercised
are again available for issuance under the 1997 Plan.
 
    The 1997 Plan will be administered by the Company's Board of Directors or by
a committee of two or more directors appointed by the Board of Directors (the
"Administrator"). Subject to the provisions of the 1997 Plan, the Administrator
will have full and final authority to select the executives and other employees
to whom awards will be granted thereunder, to grant the awards and to determine
the terms and conditions of the awards and the number of shares to be issued
pursuant thereto.
 
   
    AWARDS.  The 1997 Plan authorizes the Administrator to enter into any type
of arrangement with an eligible employee that, by its terms, involves or might
involve the issuance of (1) shares of Common Stock, (2) an option, warrant,
convertible security, stock appreciation right or similar right with an exercise
or conversion privilege at a price related to the Common Stock, or (3) any other
security or benefit with a value derived from the value of the Common Stock. The
maximum number of shares of Common Stock with respect to which options or rights
may be granted under the 1997 Plan to any participant in any year is 140,625,
subject to certain adjustments to prevent dilution.
    
 
    Awards under the 1997 Plan are not restricted to any specified form or
structure and may include arrangements such as sales, bonuses or other transfers
of stock, restricted stock, stock options, reload stock options, stock purchase
warrants, other rights to acquire stock or securities convertible into or
redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares. An award may consist of
one such arrangement or two or more such arrangements in tandem or in the
alternative. An award may provide for the issuance of Common Stock for any
lawful consideration, including services rendered or, to the extent permitted by
applicable state law, to be rendered. Currently, Delaware law does not permit
the issuance of common stock for services to be rendered.
 
    An award granted under the 1997 Plan may include a provision conditioning or
accelerating the receipt of benefits, either automatically or in the discretion
of the Administrator, upon the occurrence of specified events, including a
change of control of the Company, an acquisition of a specified percentage of
the voting power of the Company or a dissolution, liquidation, merger,
reclassification, sale of substantially all of the property and assets of the
Company or other significant corporate transaction. Any stock option granted to
an employee may be an incentive stock option within the meaning of Section 422
of the Code or a nonqualified stock option.
 
    An award under the 1997 Plan may permit the recipient to pay all or part of
the purchase price of the shares or other property issuable pursuant to the
award, and/or to pay all or part of the recipient's tax withholding obligations
with respect to such issuance, by delivering previously owned shares of capital
stock of the Company or other property, or by reducing the amount of shares or
other property otherwise issuable pursuant to the award. If an option granted
under the 1997 Plan permitted the recipient to pay for the shares issuable
pursuant thereto with previously owned shares, the option may grant the
recipient the right to "pyramid" his or her previously owned shares, i.e., to
exercise the option in successive transactions, starting with a relatively small
number of shares and, by a series of exercises using shares acquired from each
transaction to pay the purchase price of the shares acquired in the following
transaction, to exercise the option for a larger number of shares with no more
investment than the original share or shares delivered.
 
                                       40
<PAGE>
   
    As of the date hereof, the Board has granted options covering an aggregate
of 240,000 shares of Common Stock to certain directors and officers of the
Company, with an exercise price of $6.00 per share. The directors' options were
granted effective at such time as each director joins the Board of Directors and
will be immediately fully vested. The options granted to officers vest either in
four equal annual installments commencing on the date of grant or in 48 equal
monthly installments commencing on the date of grant.
    
 
    PLAN DURATION.  The 1997 Plan became effective upon its adoption by the
Board of Directors and approved by the Company's stockholders on October 1,
1997, and, unless sooner terminated by the Board of Directors, will terminate on
October 1, 2007. No awards may be made after such date, nor may any shares of
Common Stock be issued pursuant to any award made after such date, although any
award that was duly granted on or prior to such date may thereafter be exercised
or settled in accordance with its terms. See "Principal and Selling
Stockholders."
 
    AMENDMENTS.  The Administrator may amend the 1997 Plan at any time and in
any manner, subject to the following: (1) no recipient of any award may, without
his or her consent, be deprived thereof or of any of his or her rights
thereunder or with respect thereto as a result of such amendment or termination;
and (2) if any rule or regulation promulgated by the Securities and Exchange
Commission (the "Commission"), the Internal Revenue Service or any national
securities exchange or quotation system upon which any of the Company's
securities are listed requires that any such amendment be approved by the
Company's stockholders, then such amendment will not be effective until it has
been approved by the Company's stockholders.
 
   
    FORM S-8 REGISTRATION.  The Company intends to file a registration statement
under the Securities Act to register the 562,500 shares of Common Stock reserved
for issuance under the 1997 Plan. Such registration statement is expected to be
filed shortly following the date of this Prospectus and will become effective
immediately upon filing with the Commission. Shares issued under the 1997 Plan
after the effective date of such registration statement generally will be
available for sale to the public without restriction, except for agreed lock-up
provisions and except for shares issued to affiliates of the Company, which will
remain subject to the volume and manner of sale limitations of Rule 144. See
"Shares Eligible For Future Sale."
    
 
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
 
    The Company's Certificate of Incorporation and its Bylaws provide for the
indemnification by the Company of each director, officer and employee of the
Company to the fullest extent permitted by the Delaware General Corporation Law,
as the same exists or may hereafter be amended. Section 145 of the Delaware
General Corporation Law provides in relevant part that a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
 
    In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
 
                                       41
<PAGE>
trust or other enterprise against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper. Delaware law further provides
that nothing in the above-described provisions shall be deemed exclusive of any
other rights to indemnification or advancement of expenses to which any person
may otherwise be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
 
    The Company's Certificate of Incorporation also provides that a director of
the Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, to the greatest extent
permitted by the Delaware General Corporation Law. Section 102(b)(7) of the
Delaware General Corporation Law provides that a provision so limiting the
personal liability of a director shall not eliminate or limit the liability of a
director for, among other things: breach of the duty of loyalty; acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; unlawful payment of dividends; and transactions from which
the director derived an improper personal benefit.
 
    The Company has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director of the Company and certain of
its officers (the "Indemnitees"). Pursuant to the terms and conditions of the
Indemnity Agreements, the Company has agreed to indemnify each Indemnitee
against any amounts which he or she becomes legally obligated to pay in
connection with any claim against him or her based upon any action or inaction
which he or she may commit, omit or suffer while acting in his or her capacity
as a director and/or officer of the Company or its subsidiaries, provided,
however, that Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company
and, with respect to any criminal action, had no reasonable cause to believe
Indemnitee's conduct was unlawful.
 
    At the present time, there is no pending litigation or proceedings involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceedings which may result in a claim for such
indemnification.
 
                                       42
<PAGE>
                              CERTAIN TRANSACTIONS
 
    The information set forth herein briefly describes certain transaction
between the Company and certain affiliated parties. Future transactions with
affiliated parties will be approved by a majority of the Company's disinterested
directors and will be on terms no less favorable to the Company than those that
could be obtained from unaffiliated parties.
 
    D.P.S. Associates, a general partnership in which Harold Dyne is a general
partner, is the lessor of the Company's executive offices located at 3820 South
Hill Street in Los Angeles, California pursuant to a Lease Agreement (the
"D.P.S. Lease") with Pacific Trim, a wholly owned subsidiary of the Company.
Harold Dyne is the President and a director of the Company and the Chief
Executive Officer of Pacific Trim. The D.P.S. Lease provides for a base rent of
$9,072 per month and expires on April 30, 2000.
 
    Harold Dyne, the President and a director of the Company and the Chief
Executive Officer of Pacific Trim, and Colin Dyne, the Chief Executive Officer,
President and a director of the Company and the Chief Executive Officer of
Tag-It, each have personally guaranteed certain obligations of Pacific Trim and
Tag-It under various equipment lease agreements with Saddleback Financial
Corporation and Quail American Corp. As of August 31, 1997, the total amount
outstanding under these equipment lease agreements was approximately $202,000.
Harold Dyne also has guaranteed Pacific Trim's obligations under its lease
agreement for the premises located at 262 W. 38th Street, New York, New York.
The lease provides for an annual base rent of $16,800.
 
   
    Certain affiliated parties have made loans to the Subsidiaries to be used
for general working capital purposes, all of which are evidenced by promissory
notes executed by the respective Subsidiary and are due and payable on the
fifteenth day following the date written demand for payment is made by the
holder thereof at any time after December 31, 1998. The loans include (i) a loan
by Harold Dyne in June 1991 of $10,000 to Tag-It at an interest rate of 10.0%
per annum, (ii) a loan by Mark Dyne in January 1997 of $15,000 to Tag-It at an
interest rate of 7.5% per annum, (iii) a loan by Monto Holdings in February 1996
of $300,000 to AGS Stationery at an interest rate of 7.5% per annum, (iv) a loan
by Monto Holdings in January 1995 of $124,626 to Pacific Trim at an interest
rate of 10.0% per annum, (v) a loan by NPM Investments, Inc. in August 1996 of
$715,000 to Tag-It at an interest rate of 7.5% per annum, which loan is secured
by all of the assets of Tag-It (vi) a loan by Pacific Western, Inc. in May 1996
of $16,000 to Tag-It at an interest rate of 7.5% per annum, and (vii) a loan by
Pacific Western, Inc. in June 1996 of $6,000 to Pacific Trim at an interest rate
of 7.5% per annum. Mark Dyne, the Chairman of the Board of the Company holds a
significant equity interest in Monto Holdings, NPM Investments, Inc. and Pacific
Western, Inc. A company controlled by Alan Saloner is the general partner of the
Saloner Family Investments Limited Partnership, which is a stockholder of the
Company, and Alan Saloner holds a significant equity interest in NPM
Investments, Inc.
    
 
   
    In addition, in August 1996, NPM Investments, Inc. made an additional loan
of $875,000 to Tag-It, without interest, pursuant to a convertible secured
promissory note (the "Convertible Note") which was secured by all of the assets
of Tag-It. Mark Dyne and Alan Saloner hold significant equity interests in NPM
Investments, Inc. The proceeds of the loan were used for working capital
purposes. In October, 1997, the Convertible Note was converted by NPM
Investments, Inc. into shares of Common Stock of Tag-It, Tag-It Hong Kong and
AGS Stationery which in the aggregate represent 384,402 shares of Common Stock.
    
 
   
    On September 25, 1997, NPM Investments made an additional loan of $126,000
to Tag-It to fund expenses incurred in connecton with the Offering. The loan
bears simple interest at a rate of 7.5% per annum, is due and payable on the
fifteenth day following the date of delivery by NPM Investments of written
demand therefor and is expected to be repaid upon the closing of the Offering.
    
 
    In September 1996, Harold Dyne borrowed $100,000 from Mercantile National
Bank, which loan was guaranteed by Tag-It. The term loan matures on May 17, 1999
and had an outstanding principal balance of approximately $81,552 as of October
10, 1997. In September 1996, the $100,000 borrowed by Mr. Dyne was
 
                                       43
<PAGE>
   
lent to Tag-It for working capital purposes at the same interest rate payable on
Mr. Dyne's loan from Mercantile National Bank (11.75% as of October 15, 1997).
The loan from Mr. Dyne to Tag-It is due and payable on the fifteenth day
following the date written demand for payment is made by Mr. Dyne at any time
after December 31, 1998.
    
 
   
    In October 1997, Monto Holdings made an additional loan of $110,000 to
Pacific Trim to fund expenses incurred in connection with the Offering. The loan
bears simple interest at a rate of 7.5% per annum, is due and payable on the
fifteenth day following the date of delivery by Monto Holdings of written demand
therefor and is expected to be repaid upon the closing of the Offering.
    
 
    Harold Dyne and Colin Dyne have each guaranteed the obligations of Tag-It
under a term loan with Mercantile National Bank. The term loan matures on June
8, 1998 and had an outstanding principal balance of approximately $66,374 as of
October 10, 1997.
 
    As of October 15, 1997, Harold Dyne was indebted to Pacific Trim in the
aggregate amount of $22,649. This indebtedness is evidenced by a promissory note
dated August 31, 1997 in the principal amount of $19,649, which currently does
not bear interest, and a promissory note dated October 15, 1997 in the principal
amount of $3,000, which bears interest at a rate of 7.5% per annum. Both of the
promissory notes are due and payable on the fifteenth day following the date of
delivery by Pacific Trim of written demand therefor.
 
   
    As of October 15, 1997, Colin Dyne was indebted to Tag-It in the aggregate
amount of $77,631. This indebtedness is evidenced by a promissory note dated
August 31, 1997 in the principal amount of $71,542, which is due and payable in
four bi-annual installments of $17,886 on June 30, 1998, December 31, 1998, June
30, 1999 and December 31, 1999, and a promissory note dated October 15, 1997 in
the principal amount of $6,089, which is due and payable on the fifteenth day
following the date of delivery by Tag-It of written demand therefor. Both
promissory notes bear interest at a rate of 7.5% per annum.
    
 
   
    Harold Dyne and Colin Dyne have each guaranteed the obligations of Tag-It
under a Consulting Agreement and an Agreement for the Repurchase of Stock with
Frank M. Peck, a former shareholder of Tag-It. The Consulting Agreement provides
that until December 31, 1998, Frank Peck will receive a monthly consulting fee
in the amount of $11,900 subject to certain adjustments based on the aggregate
annual compensation paid by Tag-It to Colin Dyne and Harold Dyne.
    
 
    In June 1997, AGS Stationery entered into a Collection Date Factoring
Agreement (the "Safcor Agreement") with Safcor, Inc. ("Safcor"). Alan Saloner,
the general partner of the Saloner Family Investments Limited Partnership, a
significant stockholder of the Company, is an officer and director of Safcor.
Pursuant to the Safcor Agreement, AGS Stationery has agreed to sell to Safcor
all accounts relating to the sale of goods or the rendering of services by AGS
Stationery for a purchase price equal to the gross amount of each account, less
all discounts and credits and a factoring commission of 1.5% of the net amount
of the account. In addition, Safcor has the right, in its sole discretion, to
provide customers of AGS Stationery with credit lines for the purchase of AGS
Stationery's products. As of October 15, 1997, receivables advanced by AGS
Stationery to Safcor totalled $1,272,115, and amounts paid by Safcor to AGS
Stationery for such receivable totalled $751,738. The Safcor Agreement may be
terminated by either party upon 60 days prior written notice to the other party.
 
   
    In 1994, Jonathan Markiles, as compensation for employment services,
received a warrant (the "Markiles Warrants") to purchase 14 shares of Tag-It
Common Stock which, upon the Consolidation, became exercisable for 39,235 shares
of Common Stock at a price of $.7136 per share. In the event the shares of
Common Stock underlying the Markiles Warrants are not freely tradeable under the
Securities Act, the Company has agreed to register these shares on Form S-3 or
Form S-8. The Markiles Warrants provide for piggyback registration rights and
expire on December 31, 2002.
    
 
   
    Averil Associates, Inc., ("Averil Associates") a financial advisory firm
founded and controlled by Diana Maranon, has, since January 1, 1996, performed
various services for AGS Stationery and the
    
 
                                       44
<PAGE>
   
Company including investigation of strategic financing and other corporate
growth initiatives. Ms. Maranon is a director of the Company. As consideration
for such services, AGS Stationery has paid to Averil Associates the aggregate
amount of $26,123, including out of pocket expenses. As additional compensation
for services rendered, AGS Stationery has granted to Chloe Holdings, Inc.
("Chloe"), an affiliate of Averil Associates, warrants (the "Chloe Warrants") to
purchase up to 135 shares of Common Stock of AGS Stationery, and the Company has
agreed to pay to Averil Associates an additional $175,000 upon consummation of
the Offering. Effective upon the Consolidation, the Chloe Warrants became
exercisable for 22,841 shares of Common Stock of the Company. The Chloe Warrants
are immediately exercisable. In the event the shares of Common Stock underlying
the Chloe Warrants are not freely tradeable under the Securities Act, the
Company has agreed to register these shares on Form S-3. The Company plans to
continue to engage Averil Associates; however, the Company is unable to
currently estimate the extent to which it will use Averil Associates in the
future.
    
 
                                       45
<PAGE>
                       PRINCIPAL AND SELLING STOCKHOLDERS
 
    The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 20, 1997, and as adjusted
to reflect the sale of 1,280,000 shares of Common Stock by the Company and the
sale of 170,000 shares of Common Stock by the Selling Stockholder offered by
this Prospectus, for (i) each person who is known to the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, (ii) each of
the Company's directors, (iii) each of the Named Executive Officers, and (iv)
all directors and executive officers of the Company as a group. The address of
each person listed is in care of the Company, 3820 South Hill Street, Los
Angeles, California 90037, unless otherwise set forth below such person's name.
 
   
<TABLE>
<CAPTION>
                                                             SHARES BENEFICIALLY                   SHARES BENEFICIALLY
                                                                    OWNED                                 OWNED
                                                            PRIOR TO OFFERING(1)                   AFTER THE OFFERING
                                                           -----------------------    NUMBER     -----------------------
                                                             NUMBER      PERCENT     OF SHARES     NUMBER      PERCENT
NAME OF BENEFICIAL OWNER                                   OF SHARES    OF CLASS      OFFERED    OF SHARES    OF CLASS
- ---------------------------------------------------------  ----------  -----------  -----------  ----------  -----------
<S>                                                        <C>         <C>          <C>          <C>         <C>
Harold Dyne(2)...........................................     789,507         32.0%    170,000      619,507         16.5%
Colin Dyne(2)............................................     584,541         23.7      --          584,541         15.6
Mark Dyne(2).............................................     461,401         18.7      --          461,401         12.3
Saloner Family Investments Limited Partnership...........     160,168          6.5      --          160,168          4.3
Jonathan Burstein........................................      75,788          3.1      --           75,788          2.0
Jonathan Markiles(3)(4)..................................      53,248          2.1      --           53,248          1.4
Diana Maranon(5).........................................      37,841          1.5      --           37,841          1.0
Brent Cohen(6)...........................................      20,000           *       --           20,000          *
Michael Katz(7)..........................................      15,000           *       --           15,000           *
Paul Markiles(3)(7)......................................      15,000           *       --           15,000           *
All of the directors and executive officers as a group
  (nine persons)(8)......................................   2,052,326          79.0    170,000    1,882,326          48.6
</TABLE>
    
 
- ------------------------
 
*   Represents less than 1% of outstanding Common Stock.
 
(1) Beneficial ownership is determined in accordance with the rules of the
    Securities and Exchange Commission that deem shares to be beneficially owned
    by any person who has or shares voting or investment power with respect to
    such shares. Unless otherwise indicated, the persons named in this table
    have sole voting and sole investment power with respect to all shares shown
    as beneficially owned, subject to community property laws where applicable.
    In computing the number of shares beneficially owned by a person and the
    percentage ownership of that person, shares of Common Stock subject to
    options or warrants held by that person that are currently exercisable or
    exercisable within 60 days of October 20, 1997 are deemed outstanding. Such
    shares, however, are not deemed outstanding for the purposes of computing
    the percentage ownership of each other person. Accordingly, the beneficial
    ownership percentages shown above exceed 100%.
 
(2) Colin Dyne and Mark Dyne are brothers. Harold Dyne is their Father.
 
   
(3) Paul Markiles and Jonathan Markiles are father and son.
    
 
   
(4) Includes 39,235 shares of Common Stock reserved for issuance upon exercise
    of Markiles Warrants, which are currently exercisable.
    
 
   
(5) Includes 15,000 shares of Common Stock reserved for issuance upon exercise
    of stock options which are currently exercisable and 22,841 shares of Common
    Stock reserved for issuance upon exercise of the Chloe Warrants, which are
    currently exercisable.
    
 
   
(6) Represents 20,000 shares of Common Stock reserved for issuance upon exercise
    of stock options which are currently exercisable.
    
 
   
(7) Represents 15,000 shares of Common Stock reserved for issuance upon exercise
    of stock options which are currently exercisable.
    
 
   
(8) Includes the shares of Common Stock referred to in footnotes (4), (5), (6)
    and (7) above.
    
 
                                       46
<PAGE>
                          DESCRIPTION OF CAPITAL STOCK
 
   
    The Company is authorized to issue 15,000,000 shares of Common Stock, par
value $0.001 per share, and 3,000,000 shares of Preferred Stock, par value
$0.001 per share. At October 20, 1997, the Company had 2,470,011 shares of
Common Stock outstanding held by 12 holders of record. The following statements
are brief summaries of certain provisions relating to the Company's capital
stock.
    
 
COMMON STOCK
 
    The holders of Common Stock are entitled to one vote for each share held of
record on all matters on which the holders of Common Stock are entitled to vote.
The holders of Common Stock are entitled to receive ratably dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. In the event of liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled subject to the rights of holders of
Preferred Stock issued by the Company, if any, to share ratably in all assets
remaining available for distribution to them after payment of liabilities and
after provision is made for each class of stock, if any, having preference over
the Common Stock.
 
    The holders of Common Stock have no preemptive or conversion rights and they
are not subject to further calls or assessments by the Company. There are no
redemption or sinking fund provisions applicable to the Common Stock. The
outstanding shares of Common Stock are, and the Common Stock issuable pursuant
to this Prospectus will be, when issued, fully paid and nonassessable.
 
PREFERRED STOCK
 
    The Board of Directors has the authority to issue the authorized and
unissued Preferred Stock in one or more series with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights which adversely affect the voting power or other rights
of the holders of the Company's Common Stock. In the event of issuance, the
Preferred Stock could be utilized, under certain circumstances, as a way of
discouraging, delaying or preventing an acquisition or change in control of the
Company. The Company does not currently intend to issue any shares of its
Preferred Stock.
 
WARRANTS
 
   
    In connection with its engagement of Troop Meisinger Steuber & Pasich, LLP
("TMS&P") as counsel to the Company, the Company has agreed to issue to TMS&P
warrants (the "TMS&P Warrants") to purchase such number of shares of Common
Stock of the Company as is equal to the quotient of (i) 120% of the actual fees,
costs and disbursements billed by TMS&P in connection with the Offering, divided
by (ii) an amount equal to 90% of the initial public offering price of a share
of Common Stock in the Offering. The TMS&P Warrants will be granted upon the
closing of the Offering or, if the Offering is not successful, on such date as
the Company decides not to continue with the Offering. Each TMS&P Warrant will
be immediately exercisable and will expire five years following the date of
grant unless the Company decides not to continue with the Offering, in which
case they will expire one year following the date of grant. Each TMS&P Warrant
provides for piggyback registration rights. See "--Registration Rights."
    
 
   
    Pursuant to an agreement with Averil Associates, the Company issued the
Chloe Warrants to purchase 22,841 shares of Common Stock with an exercise price
of $.7578 per share. In the event the shares of Common Stock underlying the
Chloe Warrants are not freely tradeable pursuant to an exemption from
registration under the Securities Act of 1933, as amended, (the "Securities
Act"), the Company has agreed to register these shares on Form S-3.
Additionally, the Chloe Warrants provide for piggyback registration rights. See
"--Registration Rights." These warrants expire on December 31, 2002.
    
 
                                       47
<PAGE>
   
    In 1994, Jonathan Markiles, as compensation for employment services,
received the Markiles Warrants to purchase 14 shares of Tag-It Common Stock
which, upon the Consolidation, became exercisable for 39,235 shares of Common
Stock at a price of $.7136 per share. In the event the shares of Common Stock
underlying the Markiles Warrants are not freely tradeable under the Securities
Act, the Company has agreed to register these shares on Form S-3 or Form S-8.
The Markiles Warrants also provide for piggyback registration rights and expire
on December 31, 2002.
    
 
   
    All of the warrants granted to TMS&P, Chloe and Jonathan Markiles are
entitled to equitable adjustments in the purchase price and in the number of
shares of Common stock and/or other securities deliverable upon exercise thereof
in the event of a stock dividend, stock split, reclassification, reorganization,
consolidation or merger.
    
 
ANTI-TAKEOVER PROVISIONS
 
   
    The Company's Certificate of Incorporation provides that the Company's Board
of Directors is classified into three classes of directors. The Certificate of
Incorporation also provides that all stockholder action must be effected at a
duly called meeting of stockholders and not by a consent in writing. In
addition, the Company's Certificate of Incorporation and Bylaws provide that
only the Company's Chief Executive Officer, President, Chairman of the Board or
a majority of the members of the Company's Board of Directors may call a special
meeting of stockholders. In addition, directors may not be removed without
cause. These provisions of the Certificate of Incorporation and Bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. Such provisions also may have the effect of
preventing changes in the management of the Company. See "Risk Factors--Effect
of Certain Charter Provisions; Antitakeover Effects of Certificate of
Incorporation, Bylaws and Delaware Law."
    
 
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
 
    The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. That section provides, with certain exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate, or associate of such person, who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless: (i) the transaction resulting in
a person becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder; (ii) the interested stockholder acquires 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. An "interested
stockholder" is defined as any person that is (a) the owner of 15% or more of
the outstanding voting stock of the corporation or (b) an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the three-year period immediately
prior to the date on which it is sought to be determined whether such person is
an interested stockholder.
 
REGISTRATION RIGHTS
 
   
    After the Offering, the holders of the Representatives' Warrants, TMS&P
Warrants, the Chloe Warrants and the Markiles Warrants will be entitled to
certain rights with respect to registration of such shares under the Securities
Act. If the Company proposes to register any of its securities under the
Securities Act at least 180 days subsequent to the Offering, the holders of the
TMS&P Warrants, the Chloe Warrants and the Markiles Warrants are entitled to
notice of such registration and are entitled to include the shares underlying
their respective warrants in such registration, provided, among other
conditions, that
    
 
                                       48
<PAGE>
   
the underwriters of any offering have the right to limit the number of shares
included in such registration. In addition, in the event the shares of Common
Stock underlying the Chloe Warrants or the Markiles Warrants are not freely
tradeable pursuant to an exemption from registration under the Securities Act,
the Company has agreed to register such shares on Form S-3 or Form S-8. For a
description of the Representatives' Warrants, see "Underwriting."
    
 
TRANSFER AGENT
 
    The Company's transfer agent and registrar for its Common Stock is American
Stock Transfer and Trust Corporation, 40 Wall Street, New York, New York 10005.
 
                                       49
<PAGE>
                        SHARES ELIGIBLE FOR FUTURE SALE
 
    Prior to the Offering, there has been no public market for the Company's
Common Stock. Sale of substantial amounts of Common Stock in the public market
could adversely affect the market price of the Common Stock.
 
   
    Upon completion of the Offering, based on the number of shares outstanding
as of November 26, 1997, the Company will have outstanding an aggregate of
3,750,011 shares of Common Stock, assuming no exercise of the Underwriters'
Over-Allotment Option and no exercise of outstanding options. Of these shares,
the 1,450,000 shares sold in the Offering will be freely tradeable without
restriction or further registration under the Securities Act, unless held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining 2,300,011 shares of Common Stock held by existing
stockholders are "restricted" securities within the meaning of Rule 144 under
the Securities Act. Restricted securities may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act, which rules are
summarized below.
    
 
   
    All holders of the Company's securities outstanding prior to the Offering
will, prior to the Offering, be subject to "lock-up" provisions providing that
such holders will not offer to sell, contract to sell or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to, any shares of Common
Stock, or any options or warrants to purchase Common Stock, or any securities
convertible into or exercisable for Common Stock, of the Company for 365 days
after the effective date of the Offering without the prior written consent of
the Representatives. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, no shares will be eligible for immediate sale on the
effective date of the Offering and, unless earlier released from the lock-up
provisions, 2,300,011 currently outstanding shares of Common Stock will be
eligible for sale 365 days after the effective date of the Offering, subject in
all cases to the volume limitations of Rules 144 and 701 summarized below.
    
 
   
    Additionally, pursuant to Rules 144 and 701, beginning one year after the
effective date of the Offering, upon the expiration of contractual lock-up
provisions with the Company, an aggregate of approximately 337,631 shares will
be vested and eligible for sale upon the exercise of outstanding stock options
and warrants.
    
 
   
    In general, under Rule 144 as currently in effect, beginning 90 days after
the Offering, a person (or persons whose shares must be aggregated) who has
beneficially owned restricted shares for at least one year, will be entitled to
sell in any three-month period a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock (approximately
37,500 shares immediately after the Offering) or (ii) the average weekly trading
volume during the four calendar weeks immediately preceding the date on which
notice of the sale is filed with the Securities and Exchange Commission. Sales
pursuant to Rule 144 are subject to certain requirements relating to manner of
sale, notice and availability of current public information about the Company. A
person (or persons whose shares must be aggregated) who is not deemed to have
been an affiliate of the Company at any time during the 90 days immediately
preceding the sale and who has beneficially owned his or her shares for at least
two years is entitled to sell such shares pursuant to Rule 144(k) without regard
to the limitations described above. In general, under Rule 701 under the
Securities Act as currently in effect, any non-affiliate employee, consultant or
advisor of the Company who acquires shares from the Company in connection with a
compensatory stock or option plan or other written agreement related to
compensation is eligible to resell such shares 90 days after the effective date
of the Offering in reliance on Rule 144, but without compliance with certain
restrictions contained in Rule 144.
    
 
   
    At November 26, 1997, the Company had reserved an aggregate of 562,500
shares of Common Stock for issuance pursuant to the 1997 Plan, and options to
purchase 240,000 shares were outstanding under the 1997 Plan. The Company
intends to file a registration statement under the Securities Act to register
the
    
 
                                       50
<PAGE>
   
562,500 shares of Common Stock reserved for issuance under the 1997 Plan. Such
registration statement is expected to be filed shortly following the date of
this Prospectus and will become effective immediately upon filing with the
Securities and Exchange Commission. Shares issued under the 1997 Plan after the
effective date of such registration statement generally will be available for
sale to the public without restriction, except for the 365-day lock-up
provisions and shares issued to affiliates of the Company, which will remain
subject to the volume and manner of sale limitations of Rule 144. See
"Underwriting." Additionally, after the Offering, TMS&P, Chloe and Jonathan
Markiles will be entitled to certain rights with respect to registration under
the Securities Act of the shares of Common Stock underlying the TMS&P Warrants,
the Chloe Warrants and the Markiles Warrants, respectively.
    
 
                                       51
<PAGE>
                                  UNDERWRITING
 
   
    The Underwriters named below, for whom Cruttenden Roth Incorporated and
Josephthal & Co. Inc. are acting as the representatives (the "Representatives"),
have agreed severally, subject to the terms and conditions contained in an
Underwriting Agreement ("Underwriting Agreement"), to purchase from the Company
and the Selling Stockholder the number of shares of Common Stock indicated below
opposite their respective names at the proposed public offering price less the
estimated underwriting discounts and commissions set forth on the cover page of
this Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions, and that the Underwriters are
committed to purchase all of such shares (other than those covered by the
Over-Allotment Option), if any are purchased.
    
 
   
<TABLE>
<CAPTION>
                                                                                   NUMBER OF
UNDERWRITER                                                                          SHARES
- ---------------------------------------------------------------------------------  ----------
<S>                                                                                <C>
Cruttenden Roth Incorporated.....................................................      --
Josephthal & Co. Inc.............................................................      --
                                                                                   ----------
    Total........................................................................   1,450,000
                                                                                   ----------
                                                                                   ----------
</TABLE>
    
 
   
    The Underwriters initially propose to offer the shares of Common Stock
offered hereby to the public at the price to public set forth on the cover page
of this Prospectus. The Underwriters may allow a concession to selected dealers
who are members of the National Association of Securities Dealers, Inc. ("NASD")
not in excess of $         per share, and the Underwriters may allow, and such
dealers may re-allow, to members of the NASD, a concession not in excess of
$         per share. After the public offering, the price to public, the
concession and the re-allowance may be changed by the Representatives.
    
 
   
    The Company has granted the Over-Allotment Option to the Underwriters,
exercisable within 45 days after the date of this Prospectus, to purchase up to
an additional 192,000 shares of Common Stock at the proposed initial price to
public, less the estimated underwriting discounts and commissions, set forth on
the cover page of this Prospectus. The Underwriters may exercise the option only
for the purpose of covering over-allotments. To the extent that the Underwriters
exercise the Over-Allotment Option, each Underwriter will be committed, subject
to certain conditions, to purchase from the Company that number of additional
shares of Common Stock which is proportionate to such Underwriter's initial
commitment.
    
 
   
    The Company has also agreed to sell to the Representatives warrants to
purchase up to 100,000 shares of Common Stock (the "Representatives' Warrants").
The Representatives' Warrants will be exercisable for a period of four years,
commencing one year after the date of this Prospectus, at an initial per share
exercise price equal to 120% of the price to public set forth on the cover page
of this Prospectus. Neither the Representatives' Warrants nor the shares of
Common Stock issuable upon exercise thereof may be transferred, assigned or
hypothecated until one year from the date of this Prospectus, except that they
may be assigned, in whole or in part, (i) to individuals who are either officers
or partners of the Representatives, or (ii) by will or the laws of descent and
distribution or (iii) to certain successor of the Representatives. Any profit
realized by the Representatives on the sale of securities issuable upon exercise
of the Representatives' Warrants may be deemed to be additional compensation.
    
 
   
    The holder of the Representatives' Warrants will have no voting, dividend or
other rights as a stockholder of the Company unless and until the exercise of
the Representatives' Warrants. The number of securities deliverable upon any
exercise of the Representatives' Warrants or their underlying securities and the
exercise price of the Representatives' Warrants are subject to adjustment to
protect against any dilution upon the occurrence of certain events, including
issuance of stock dividends, stock splits, subdivision or combination of
outstanding stock and reclassification of stock.
    
 
   
    The Company has agreed with the Representatives to register the
Representatives' Warrants and/or the underlying shares for resale, on one such
occasion at any time during the four-year period commencing
    
 
                                       52
<PAGE>
   
one year following the date of this Prospectus upon written demand by the
Representatives. The Company has agreed with the Representatives that if, during
the four-year period commencing one year following the date of this Prospectus,
the Company registers any of its Common Stock for sale pursuant to a
registration statement (with the exception of Form S-4, Form S-8 or other
inappropriate form), it will use its best efforts, upon request of any of holder
of the Representatives' Warrants and/or the underlying shares, to include such
securities as a part of the registration statement. The Company will bear all
the costs, except underwriting discounts and the Representatives' legal fees,
for any registration.
    
 
   
    The Representatives will also receive at the closing of the Offering a
non-accountable expense allowance equal to 2% of the aggregate public offering
price of the shares of Common Stock sold in the Offering including proceeds from
the Over-Allotment Option, if exercised. The Representatives' expenses in excess
of the non-accountable expenses allowance, including their legal expenses, will
be borne by the Representatives. To the extent that the expenses of the
Representatives are less than the non-accountable expense allowance, the excess
shall be deemed to be compensation to the Representatives.
    
 
   
    The Company, and its executive officers, directors and its stockholders have
agreed that for a period of 365 days after the date of this Prospectus they will
not, directly or indirectly, offer, sell, contract to sell, grant any option to
sell, or otherwise dispose of shares of Common Stock or other securities which
are substantially similar to the Common Stock or securities convertible into or
exercisable or exchangeable for or any rights to purchase or acquire Common
Stock or securities which are substantially similar to the Common Stock without
the prior written consent of the Representatives.
    
 
   
    Prior to this Offering, there has been no public market for the Common Stock
and there can be no assurance that a regular trading market will develop upon
the completion of this Offering. The public offering price will be determined by
arms-length negotiations between the Company, the Selling Stockholder and the
Representatives and will not necessarily bear any relationship to assets, book
value, earnings history or other investment criteria. The primary factors
considered in determining such offering price included the trading price for the
Company's Common Stock, the history of and prospects for the industry in which
the Company competes, market valuation of comparable companies, market
conditions for public offerings, the history of and prospects for the Company's
business, the Company's past and present operations and earnings and the trend
of such earnings, the prospects for future earnings of the Company, the
Company's current financial position, an assessment of the Company's management,
the general condition of the securities markets, the demand for similar
securities of comparable companies and other relevant factors. There can be no
assurance, however, that the prices at which the Common Stock will trade in the
public market following the Offering will not be lower than the initial public
offering price.
    
 
    The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute to payments which the Underwriters may be
required to make in respect thereof.
 
   
    The Representatives have advised the Company that they do not expect any
sales by the Underwriters to accounts over which they exercise discretionary
authority.
    
 
   
    The foregoing is a brief summary of the provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. The Underwriting Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
    
 
    Certain persons participating in the Offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid, or the effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting
 
                                       53
<PAGE>
of any purchase to reduce a short position created in connection with the
Offering. A penalty bid means an arrangement that permits the Underwriters to
reclaim a selling concession from a syndicate member in connection with the
Offering when shares of Common Stock sold by the syndicate member in connection
with the Offering are purchased in syndicate covering transactions. Such
transactions may be effected on the American Stock Exchange, in the
over-the-counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
 
                                 LEGAL MATTERS
 
   
    Counsel for the Company, Troop Meisinger Steuber & Pasich, LLP, Los Angeles,
California, have rendered an opinion to the effect that the Common Stock offered
by the Company upon sale will be duly and validly issued, fully paid and
non-assessable. Troop Meisinger Steuber & Pasich, LLP holds warrants to purchase
approximately 35,555 shares of Common Stock of the Company. Graham & James LLP,
San Francisco, California, has acted as counsel to the Underwriters in
connection with certain legal matters relating to this Offering.
    
 
                                    EXPERTS
 
    The consolidated financial statements of the Company at August 31, 1997 and
1996, and for the years then ended, appearing in this Prospectus and
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
 
                             ADDITIONAL INFORMATION
 
    The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement under the Securities Act for the
shares offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits included
with the Registration Statement. Statements contained in this Prospectus as to
the contents of any contract or any other document referred to are not
necessarily complete, and with respect to any contract or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
is qualified in its entirety by this reference. For further information about
the Company and the shares offered by this Prospectus, reference is hereby made
to the Registration Statement and exhibits included with the Registration
Statement. A copy of the Registration Statement, including exhibits, may be
inspected without charge at the Securities and Exchange Commission's principal
office in Washington, D.C., and copies of all or any part thereof may be
obtained from the Public Reference Section of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of
certain prescribed rates.
 
    Upon consummation of the Offering, the Company will become subject to the
information requirements of the Exchange Act and, in accordance therewith, will
file reports and other information with the Securities and Exchange Commission
in accordance with its rules. These reports and other information concerning the
Company may be inspected and copied at the public reference facilities referred
to above as well as certain regional offices of the Securities and Exchange
Commission.
 
    The Securities and Exchange Commission maintains a Web Site which contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Securities and Exchange Commission
(such as the Company) at http:\\www.sec.gov.
 
    The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by its independent auditors and
quarterly reports containing unaudited consolidated financial statements for
each of the first three quarters of each fiscal year.
 
                                       54
<PAGE>
                              TAG-IT PACIFIC, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                             ---------
<S>                                                                                                          <C>
Report of Independent Certified Public Accountants                                                              F-2
 
Consolidated Balance Sheets as of August 31, 1996 and 1997                                                      F-3
 
Consolidated Statements of Operations for the years ended August 31, 1996 and 1997                              F-4
 
Consolidated Statements of Stockholders' Deficiency for the years ended August 31, 1996 and 1997                F-5
 
Consolidated Statements of Cash Flows for the years ended August 31, 1996 and 1997                              F-6
 
Notes to Consolidated Financial Statements                                                                      F-7
</TABLE>
 
                                      F-1
<PAGE>
   
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
    
 
The Board of Directors
Tag-It Pacific, Inc.
Los Angeles, California
 
    We have audited the accompanying consolidated balance sheets of Tag-It
Pacific, Inc. as of August 31, 1996 and 1997, and the related consolidated
statements of operations, stockholders' deficiency and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tag-It
Pacific, Inc. at August 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the years then ended in conformity with
generally accepted accounting principles.
 
   
                                          /s/ BDO Seidman, LLP
    
 
   
Los Angeles, California
October 17, 1997.
    
 
                                      F-2
<PAGE>
                          TAG-IT PACIFIC INC. (NOTE 1)
 
                          CONSOLIDATED BALANCE SHEETS
 
   
<TABLE>
<CAPTION>
                                                                             AUGUST 31,
                                                                    ----------------------------    PROFORMA
                                                                        1996           1997       (SEE NOTE 12)
                                                                    -------------  -------------  -------------
<S>                                                                 <C>            <C>            <C>
                                        ASSETS (NOTE 6)
Current Assets:
  Cash............................................................  $      89,873  $     148,062
  Accounts receivable (Note 11)...................................      1,430,022      1,990,206
  Due from related parties (Note 12)..............................         75,372        102,092
  Inventories (Note 3)............................................      1,206,026      2,017,503
  Prepaid expenses and other current assets.......................        217,400        215,678
                                                                    -------------  -------------
    Total current assets..........................................      3,018,693      4,473,541
 
Property and equipment, net (Note 4)..............................        606,558        922,262
Other assets......................................................         54,963         49,153
                                                                    -------------  -------------
Total Assets......................................................  $   3,680,214  $   5,444,956
                                                                    -------------  -------------
                                                                    -------------  -------------
                            LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
  Bank overdrafts.................................................  $     175,647  $     251,115
  Due to factor, net (Note 2).....................................        563,927         94,786
  Current portion of long-term debt (Note 5)......................        180,136        158,176
  Current portion of notes payable to related parties (Note 6)....      1,179,953        912,898  $      37,898
  Accounts payable................................................      2,696,837      3,294,442
  Accrued expenses................................................        775,691      1,569,363
                                                                    -------------  -------------
    Total current liabilities.....................................      5,572,191      6,280,780      5,405,780
 
Long-term debt, less current portion (Note 5).....................        189,660         55,315
Notes payable to related parties, less current portion............       --            1,249,698
                                                                    -------------  -------------  -------------
Total Liabilities.................................................      5,761,851      7,585,793      6,710,793
 
Commitments and contingencies (Note 10)...........................
Stockholders' Deficiency (Notes 8 and 12).........................
  Preferred stock, $.001 par value; 3,000,000 shares authorized;
    no shares issued and outstanding .............................       --             --
  Common stock; $.001 par value; 15,000,000 shares authorized;
    2,085,609 shares issued and outstanding (2,470,011 shares pro
    forma)........................................................          2,086          2,086
  Additional paid-in capital......................................         82,914         82,914        957,914
  Accumulated deficit.............................................     (2,166,637)    (2,225,837)
                                                                    -------------  -------------  -------------
      Total stockholders' deficiency..............................     (2,081,637)    (2,140,837)    (1,265,837)
                                                                    -------------  -------------  -------------
Total Liabilities and Stockholders' Deficiency....................  $   3,680,214  $   5,444,956  $   5,444,956
                                                                    -------------  -------------  -------------
                                                                    -------------  -------------  -------------
</TABLE>
    
 
          See accompanying notes to consolidated financial statements.
 
                                      F-3
<PAGE>
                         TAG-IT PACIFIC, INC. (NOTE 1)
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
<TABLE>
<CAPTION>
                                                                                        YEARS ENDED AUGUST 31,
                                                                                     ----------------------------
                                                                                         1996           1997
                                                                                     -------------  -------------
<S>                                                                                  <C>            <C>
Net sales (Note 11)................................................................  $  14,738,041  $  19,539,411
Cost of goods sold.................................................................     10,090,538     12,546,541
                                                                                     -------------  -------------
  Gross profit.....................................................................      4,647,503      6,992,870
 
Selling, general and administrative expenses.......................................      4,973,058      5,896,543
Write-off of printing division (Note 9)............................................       --              231,803
                                                                                     -------------  -------------
  Total operating expenses.........................................................      4,973,058      6,128,346
                                                                                     -------------  -------------
 
Income (loss) from operations......................................................       (325,555)       864,524
Interest expense...................................................................        464,805        810,681
                                                                                     -------------  -------------
Income (loss) before income taxes..................................................       (790,360)        53,843
Provision for income taxes (Note 7)................................................       --              113,043
                                                                                     -------------  -------------
  Net loss.........................................................................  $    (790,360) $     (59,200)
                                                                                     -------------  -------------
                                                                                     -------------  -------------
Historical information (Note 1):
  Net loss per share...............................................................  $        (.37) $        (.03)
                                                                                     -------------  -------------
                                                                                     -------------  -------------
  Weighted average shares outstanding..............................................      2,085,609      2,085,609
                                                                                     -------------  -------------
                                                                                     -------------  -------------
 
Pro forma information (Note 1):
  Net loss per share...............................................................                 $        (.02)
                                                                                                    -------------
                                                                                                    -------------
  Weighted average shares outstanding..............................................                     2,538,899
                                                                                                    -------------
                                                                                                    -------------
</TABLE>
    
 
          See accompanying notes to consolidated financial statements
 
                                      F-4
<PAGE>
                         TAG-IT PACIFIC, INC. (NOTE 1)
              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                      YEARS ENDED AUGUST 31, 1996 AND 1997
 
   
<TABLE>
<CAPTION>
                                  COMMON STOCK          PREFERRED STOCK     ADDITIONAL
                             -----------------------  --------------------    PAID-IN     ACCUMULATED
                                SHARES      AMOUNT     SHARES     AMOUNT      CAPITAL       DEFICIT         TOTAL
                             ------------  ---------  ---------  ---------  -----------  -------------  -------------
<S>                          <C>           <C>        <C>        <C>        <C>          <C>            <C>
Balance, August 31, 1995...     2,085,609  $   2,086     --      $           $  82,914   $  (1,376,277) $  (1,291,277)
 
  Net loss.................       --          --         --         --          --            (790,360)      (790,360)
                             ------------  ---------  ---------  ---------  -----------  -------------  -------------
 
Balance, August 31, 1996...     2,085,609      2,086     --                     82,914      (2,166,637)    (2,081,637)
  Net loss.................       --          --         --         --          --             (59,200)       (59,200)
                             ------------  ---------  ---------  ---------  -----------  -------------  -------------
 
Balance, August 31, 1997...     2,085,609  $   2,086     --      $           $  82,914   $  (2,225,837) $  (2,140,837)
                             ------------  ---------  ---------  ---------  -----------  -------------  -------------
                             ------------  ---------  ---------  ---------  -----------  -------------  -------------
</TABLE>
    
 
          See accompanying notes to consolidated financial statements.
 
                                      F-5
<PAGE>
                          TAG-IT PACIFIC INC. (NOTE 1)
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
<TABLE>
<CAPTION>
                                                                                         YEARS ENDED AUGUST 31,
                                                                                          1996           1997
                                                                                      -------------  -------------
<S>                                                                                   <C>            <C>
Increase (decrease) in cash
Cash flows from operating activities:
  Net loss..........................................................................  $    (790,360) $     (59,200)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization...................................................        144,484        268,047
    Changes in operating assets and liabilities:
      Accounts receivables..........................................................       (584,525)      (560,184)
      Inventories...................................................................       (525,117)      (811,477)
      Other assets..................................................................         (8,065)         5,810
      Prepaid expenses and other current assets.....................................       (117,088)         1,722
      Accounts payable..............................................................        271,355        597,605
      Accrued expenses..............................................................        379,074        793,672
                                                                                      -------------  -------------
  Net cash (used in) provided by operating activities...............................     (1,230,242)       235,995
 
Cash flows from investing activities:
    Loans to related parties........................................................         25,503        (26,720)
    Acquisition of property and equipment...........................................       (488,360)      (583,751)
                                                                                      -------------  -------------
  Net cash used in investing activities.............................................       (462,857)      (610,471)
 
Cash flows from financing activities:
    Bank overdraft..................................................................         26,759         75,468
    Net advances from factor........................................................        734,987       (469,141)
    Proceeds from long-term debt....................................................        369,796       --
    Payments on long-term debt......................................................       --             (156,305)
    Proceeds from notes payable to related parties..................................        588,946      1,716,672
    Repayments of notes payable to related parties..................................        (34,996)      (734,029)
                                                                                      -------------  -------------
  Net cash provided by financing activities.........................................      1,685,492        432,665
                                                                                      -------------  -------------
 
Net increase (decrease) in cash.....................................................         (7,607)        58,189
 
Cash at beginning of year...........................................................         97,480         89,873
                                                                                      -------------  -------------
Cash at end of year.................................................................  $      89,873  $     148,062
                                                                                      -------------  -------------
                                                                                      -------------  -------------
Supplemental Disclosure of Cash Flow Information
  Cash paid during the year for:
    Interest........................................................................  $     260,220  $     566,599
    Income Taxes....................................................................  $      30,204  $      19,404
</TABLE>
    
 
          See accompanying notes to consolidated financial statements.
 
                                      F-6
<PAGE>
                              TAG-IT PACIFIC, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                      YEARS ENDED AUGUST 31, 1996 AND 1997
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    ORGANIZATION AND BASIS OF PRESENTATION
 
    Tag-It Pacific, Inc. (the "Company") was incorporated in September 1997 and
was formed to combine several existing related operating entities under a single
holding company.
 
   
    The Company combines Tag-It, Inc., a California corporation ("Tag-It");
Tag-It Printing & Packaging Ltd., a British Virgin Islands corporation ("Tag-It
Hong Kong"); Tag It de Mexico S.A. de C.V. ("Tag-It Mexico"); A.G.S. Stationery,
Inc., a California corporation ("AGS Stationery"); and Pacific Trim & Belt,
Inc., a California corporation ("Pacific Trim") (collectively, the
"Subsidiaries").
    
 
   
    On October 17, 1997, Tag-It Pacific L.L.C., a Delaware limited liability
company ("Tag-It Pacific LLC"), acquired all of the outstanding capital stock of
each of the Subsidiaries for an aggregate of 2,470,001 membership units of
Tag-It Pacific LLC and assumed outstanding options and warrants to purchase
equity securities of certain Subsidiaries in a stock-for-unit exchange (the
"Exchange"). Immediately prior to the expected effectiveness of the Company's
initial public offering, the outstanding membership units of Tag-It Pacific LLC
will be converted to 2,470,001 shares of Common Stock of the Company (the
Exchange and such conversion are referred to as the "Conversion").
    
 
    The accompanying consolidated financial statements consist of the
Subsidiaries presented on a consolidated basis to give effect to the Conversion
as of the earliest period presented and treated as a reorganization of entities
under common control accounted for in a manner similar to a pooling of
interests. Accordingly, all references to shares of Common Stock and related
share prices have assumed the effects of the Conversion.
 
    All significant intercompany accounts and transactions have been eliminated
in consolidation.
 
    NATURE OF BUSINESS
 
    The Company operates in one reportable business segment, apparel and
accessory industry. The Company provides labels, hang tags, buttons and other
trimmings to apparel manufacturers. The Company also designs, produces and
markets specialty stationery products under license agreements for branded
stationery products. The Company has production facilities in the United States,
Hong Kong and Mexico. The Company's products are sold in the United States and
Hong Kong. Sales in Hong Kong were $2,030,245 and $2,119,582 for the years ended
August 31, 1996 and 1997, respectively.
 
    REVENUE RECOGNITION
 
    Sales are recorded at the time of shipment.
 
    INVENTORIES
 
    Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).
 
    PROPERTY AND EQUIPMENT
 
    Property and equipment are stated at cost. Major improvements and
replacements of property and equipment are capitalized. Maintenance and repairs
are charged to expense as incurred. Upon retirement or other disposition of
property and equipment, applicable cost and accumulated depreciation and
 
                                      F-7
<PAGE>
                              TAG-IT PACIFIC, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                      YEARS ENDED AUGUST 31, 1996 AND 1997
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amortization are removed from the accounts and any gains or losses are included
in results of operations. The Company capitalizes the cost of films, dies, molds
and art designs. The cost capitalized includes direct material and direct labor
cost.
 
    Depreciation of property and equipment is computed using the straight-line
method based on estimated useful lives ranging from three to seven years.
Leasehold improvements are amortized using the straight-line method over the
term of the lease or the estimated life of the related improvements, whichever
is shorter.
 
    INCOME TAXES
 
    The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Deferred income taxes are recognized based on the differences
between financial statement and income tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are established, when necessary to reduce
deferred tax assets to the amount expected to be realized. The provision for
income taxes represents the tax payable for the period and the change during the
year in deferred tax assets and liabilities.
 
   
    Income taxes have been provided on a separate company basis. Pacific Trim
has elected to be treated as an S corporation under the Internal Revenue Code
for the years ended August 31, 1996 and 1997. In lieu of corporate income taxes,
the stockholders of an S corporation are taxed on their proportionate share of
the corporation taxable income. The S corporation was terminated on October 16,
1997 in conjunction with the Exchange. Therefore, no provision or benefit for
income taxes has been included in the accompanying consolidated financial
statements for this S corporation.
    
 
    NET LOSS PER SHARE
 
   
    Historical net loss per share is based on the weighted average number of
shares outstanding as if the reorganization took place at the beginning of each
period presented and after giving pro forma effect to the Conversion in
connection with the initial public offering and includes the weighted average
effect of options which occurred below the expected offering price per share in
accordance with SAB 83.
    
 
   
    Pro forma net loss per share is based on the weighted average number of
shares outstanding and after giving pro forma effect to the Conversion in
connection with the initial public offering and includes the weighted average
effect of options and the debt conversion subsequent to year end which occurred
below the expected offering price per share in accordance with SAB 83.
    
 
    STOCK-BASED COMPENSATION
 
    Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which a
company acquires goods or services from non-employees in exchange for equity
instruments. SFAS 123 also gives the option to account for stock-based employee
compensation in accordance with Accounting Principles Board Opinion No. 25 ("APB
25"), "Accounting for Stock issued to Employees," or SFAS 123. The Company has
chosen to account for stock-based compensation utilizing the
 
                                      F-8
<PAGE>
                              TAG-IT PACIFIC, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                      YEARS ENDED AUGUST 31, 1996 AND 1997
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
intrinsic value method prescribed in APB 25 and not the method established by
SFAS 123. Accordingly, compensation cost for stock options is measured as the
excess, if any, of the fair market price of the Company's stock at the
measurement date over the amount an employee must pay to acquire stock.
 
   
    When SFAS 123 is not adopted related to stock-based employee compensation,
SFAS 123 requires that companies present in a footnote the effect of measuring
the cost of stock-based employee compensation at the grant date based on the
value of the award and recognize this cost over the service period. The value of
the stock-based award is determined using a pricing model whereby compensation
cost is the excess of the fair value of the option as determined by the model at
grant date or other measurement date over the amount an employee must pay to
acquire the stock.
    
 
    USE OF ESTIMATES
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year.
Actual results could differ from those estimates.
 
    FAIR VALUE OF FINANCIAL INSTRUMENTS
 
   
    The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value. DUE TO FACTOR: Due to the short-term nature and variable interest
rates under the factor agreements, the fair value approximates the carrying
value. ACCOUNTS RECEIVABLE: Due to the short-term nature of the receivables, the
fair value approximated the carrying value. DUE FROM RELATED PARTIES AND NOTES
PAYABLE TO RELATED PARTIES: Due to the related party nature of the loan and
notes, the fair value cannot be determined. LONG-TERM DEBT: Estimated based upon
current market borrowing rates for loans with similar terms and maturities.
    
 
    NEW ACCOUNTING PRONOUNCEMENTS
 
    The Statement of Financial Accounting Standard Number 128 ("SFAS No. 128"),
"Earnings Per Share" ("EPS"), is effective for financial statements issued for
the periods ending after December 15, 1997, including interim periods. The SFAS
No. 128 requires restatement of all prior period EPS data presented. The new
standard also requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. The Company does not expect the adoption will have a material
effect on its EPS calculation.
 
    Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS No. 129") effective for financial
statements ending after December 15, 1997. The new standard reinstates various
securities disclosure requirements previously in effect under Accounting
Principles Board Opinion No. 15, which has been superseded by SFAS No. 128. The
Company does not expect adoption of SFAS No. 129 to have a material effect, if
any, on its consolidated financial position or results of operations.
 
                                      F-9
<PAGE>
                              TAG-IT PACIFIC, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                      YEARS ENDED AUGUST 31, 1996 AND 1997
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130") is effective for financial statements
with fiscal years beginning after December 15, 1997. Earlier application is
permitted. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements.
 
    Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS No. 131") is effective
for financial statements beginning after December 15, 1997. The new standard
requires that public business enterprises report certain information about
operating segments in complete sets of financial statements of the enterprise
and in condensed financial statements of interim periods issued to stockholders.
It also requires that public business enterprises report certain information
about their products and services, the geographic areas in which they operate
and their major customers. The Company does not expect adoption of SFAS No. 131
to have a material effect, if any, on its consolidated results of operations.
 
   
2.  DUE TO FACTOR
    
 
   
    The Company assigns its qualified accounts receivable without recourse under
its two factoring agreements. The Company pays a fixed commission and may borrow
up to 80% of its eligible accounts receivable. Interest is charged at 2.5% over
the prevailing reference rate (8.5% at August 31, 1997). Factored accounts
receivable without recourse amounted to $1,016,995 and $1,326,383 at August 31,
1996 and 1997, respectively. In addition, the Company receives advances from the
factors relating to receivables factored with recourse. The amounts due to the
factor at August 31, 1996 and 1997 were $563,927 and $94,786, respectively.
    
 
   
3.  INVENTORIES
    
 
    Inventories consist of the following:
 
<TABLE>
<CAPTION>
                                                                            AUGUST 31,
                                                                    --------------------------
                                                                        1996          1997
                                                                    ------------  ------------
<S>                                                                 <C>           <C>
Raw materials.....................................................  $    108,750  $    269,539
Work-in-process...................................................       354,625       458,079
Finished goods....................................................       742,651     1,289,885
                                                                    ------------  ------------
                                                                    $  1,206,026  $  2,017,503
                                                                    ------------  ------------
                                                                    ------------  ------------
</TABLE>
 
                                      F-10
<PAGE>
                              TAG-IT PACIFIC, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                      YEARS ENDED AUGUST 31, 1996 AND 1997
 
4.  PROPERTY AND EQUIPMENT
 
    Property and equipment consist of the following:
 
<TABLE>
<CAPTION>
                                                                            AUGUST 31,
                                                                    --------------------------
                                                                        1996          1997
                                                                    ------------  ------------
<S>                                                                 <C>           <C>
Furniture and fixtures............................................  $    214,753  $    343,725
Machinery and equipment...........................................       387,750       427,797
Leasehold improvements............................................       162,211       195,822
Films, dies, molds and art designs................................       271,450       652,571
                                                                    ------------  ------------
                                                                       1,036,164     1,619,915
Accumulated depreciation and amortization.........................      (429,606)     (697,653)
                                                                    ------------  ------------
                                                                    $    606,558  $    922,262
                                                                    ------------  ------------
                                                                    ------------  ------------
</TABLE>
 
                                      F-11
<PAGE>
                              TAG-IT PACIFIC, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                           YEAR ENDED AUGUST 31, 1997
 
5.  LONG-TERM DEBT
 
    Long-term debt consist of the following:
 
<TABLE>
<CAPTION>
                                                                    AUGUST 31,
                                                              ----------------------
                                                                 1996        1997
                                                              ----------  ----------
<S>                                                           <C>         <C>
Payable to a former shareholder dated October 1994 with
monthly payments of $11,900, interest imputed at 10.75%
maturing December 1998......................................  $  293,541  $  176,649
 
Note payable to, an unrelated company, dated September 30,
1995, payable on demand with interest accruing at 10%.......      25,200      25,200
 
Other.......................................................      51,055      11,642
                                                              ----------  ----------
 
                                                                 369,796     213,491
 
    Current portion.........................................     180,136     158,176
                                                              ----------  ----------
 
                                                              $  189,660  $   55,315
                                                              ----------  ----------
                                                              ----------  ----------
</TABLE>
 
    Aggregate maturities of long-term debt in the next five years are as
follows:
 
<TABLE>
<CAPTION>
YEAR                                                              AMOUNT
- --------------------------------------------------------------  ----------
<S>                                                             <C>
1999..........................................................  $   49,433
2000..........................................................       2,880
2001..........................................................       3,002
                                                                ----------
                                                                $   55,315
                                                                ----------
                                                                ----------
</TABLE>
 
    The estimated fair value of long term debt, is $364,492 and $210,118 at
August 31, 1996 and 1997.
 
                                      F-12
<PAGE>
                              TAG-IT PACIFIC, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                           YEAR ENDED AUGUST 31, 1997
 
6.  NOTES PAYABLE TO RELATED PARTIES
 
    Notes payable to related parties consist of the following:
 
   
<TABLE>
<CAPTION>
                                                                        AUGUST 31,
                                                                --------------------------
                                                                    1996          1997
                                                                ------------  ------------
<S>                                                             <C>           <C>
Six notes payable issued in 1996 and four notes payable issued
in 1997 to companies which are owned by officers and directors
of the Company with no monthly payments and interest accrued
ranging from 7.5% to 10% annually, due and payable on the
fifteenth day following delivery of written demand for payment
which may be delivered at any time following December 31,
1998..........................................................  $  1,132,099  $    446,626
 
Five notes payable to officers and directors of the Company
with no monthly payments and interest ranging from 7.5% to
prime plus 3.5% annually, due and payable on the fifteenth day
following delivery of written demand for payment which may be
delivered at any time following December 31, 1998.............        47,854       125,970
 
Note payable to NPM Investments, Inc., which is a majority
owned by the Chairman of the Company. The note, dated August
1996 requires no monthly payments and interest accrues at 7.5%
annually, maturing on December 31, 1998, collateralized by the
assets of Tag-It, Inc.........................................       --            715,000
 
Note payable to NPM Investments, Inc., which is majority owned
by the Chairman of the Company. The note, dated August 23,
1996 was made without interest and no maturity date. The note
was converted to 384,401 shares on October 16, 1997. See Note
12............................................................       --            875,000
                                                                ------------  ------------
 
                                                                $  1,179,953  $  2,162,596
 
Less: Current maturities of notes payable.....................     1,179,953       912,898
                                                                ------------  ------------
 
                                                                     --          1,249,698
                                                                ------------  ------------
                                                                ------------  ------------
</TABLE>
    
 
7.  INCOME TAXES
 
    The components of the provision for income taxes are as follows:
 
<TABLE>
<CAPTION>
                                                                    YEARS ENDED AUGUST 31,
                                                                    ----------------------
                                                                       1996        1997
                                                                    ----------  ----------
<S>                                                                 <C>         <C>
Current:..........................................................  $           $
  Federal.........................................................      --          --
  State...........................................................      --           6,920
                                                                    ----------  ----------
                                                                        --           6,920
                                                                    ----------  ----------
</TABLE>
 
                                      F-13
<PAGE>
                              TAG-IT PACIFIC, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                           YEAR ENDED AUGUST 31, 1997
 
7.  INCOME TAXES (CONTINUED)
<TABLE>
<S>                                                                 <C>         <C>
Deferred:.........................................................  $           $
  Federal.........................................................      --          76,899
  State...........................................................      --          29,224
                                                                    ----------  ----------
                                                                        --         106,123
                                                                    ----------  ----------
                                                                    $   --      $  113,043
                                                                    ----------  ----------
                                                                    ----------  ----------
</TABLE>
 
    A reconciliation of the statutory Federal income tax rate with the Company's
effective income tax rate is as follows:
 
   
<TABLE>
<CAPTION>
                                                                   YEARS ENDED AUGUST 31,
                                                                  ------------------------
                                                                     1996         1997
                                                                  -----------  -----------
 
<S>                                                               <C>          <C>
Federal statutory rate..........................................  $  (268,722) $    18,307
Change in valuation allowance...................................      471,070      194,074
Meals and entertainment.........................................        3,040      --
State taxes net of federal benefit..............................     (100,172)     (55,896)
Pro forma effect of taxes on S-Corp.............................     (105,216)     (43,442)
                                                                  -----------  -----------
                                                                  $   --       $   113,043
                                                                  -----------  -----------
                                                                  -----------  -----------
</TABLE>
    
 
    The primary components of temporary differences which give rise to the
Company's deferred assets and deferred tax liabilities are as follows:
 
<TABLE>
<CAPTION>
                                                                             AUGUST 31,
                                                                      ------------------------
                                                                         1996         1997
                                                                      -----------  -----------
<S>                                                                   <C>          <C>
Deferred tax assets:
  Net operating loss carryforwards..................................  $   513,489  $   659,662
  Other temporary differences.......................................        1,331        5,482
                                                                      -----------  -----------
Valuation allowance.................................................     (471,070)    (665,144)
                                                                      -----------  -----------
  Total deferred tax assets.........................................       43,750      --
                                                                      -----------  -----------
 
Deferred tax liabilities:
  Depreciation......................................................      (43,750)    (106,123)
                                                                      -----------  -----------
    Net deferred tax asset (liability)..............................  $   --       $  (106,123)
                                                                      -----------  -----------
                                                                      -----------  -----------
</TABLE>
 
    A valuation allowance has been established for the deferred tax assets which
management has determined are not more likely than not to be realizable.
 
    At August 31, 1997, the Company has Federal and state net operating loss
("NOL") carryforwards of approximately $1,540,000 and $1,462,000 respectively.
The Federal NOL is available to offset future taxable income through 2011, and
the state NOL expires in 2001. The Company's ability to utilize the NOL
carryforwards are dependent upon the Company's ability to generate taxable
income in future periods and
 
                                      F-14
<PAGE>
                              TAG-IT PACIFIC, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                           YEAR ENDED AUGUST 31, 1997
 
7.  INCOME TAXES (CONTINUED)
may be limited due to restrictions imposed to under Federal and state laws upon
a change in ownership. The NOL's stated above are subject to separate return
year loss limitations.
 
8.  STOCK OPTIONS AND WARRANTS
 
    STOCK OPTIONS
 
    In June 1994, one executive officer was granted options to purchase 39,235
shares of the Company's Common Stock at $.71 per share, the estimate fair value
of the Common Stock on the grant date. The options vest immediately and are
exercisable through their expiration date of December 2002.
 
    WARRANTS
 
   
    In connection with certain professional services provided by a related party
(see Note 12), the Company issued warrants in January, 1996 to purchase 22,841
shares of the Company's Common Stock at an exercise price of $.76 per share. The
exercise price was the Company's estimate of the fair value of the Common Stock
on the date of grant. The shares of Common Stock underlying the warrants vest
immediately and are exercisable through their expiration date of December 2002.
    
 
   
    In connection with certain professional services provided by the Company's
counsel, the Company agreed to issue warrants in October, 1997 to purchase
approximately 35,555 shares of common stock at an exercise price of
approximately $6.00 per share. The warrants vest immediately and expire five
years following the grant date.
    
 
    STOCK INCENTIVE PLAN
 
   
    On October 1, 1997, the Company adopted the 1997 Stock Incentive Plan (the
"1997 Plan"), which authorized the granting of a variety of stock-based
incentive awards. A total of 562,500 shares of Common Stock have been reserved
for issuance under the 1997 Plan. The 1997 Plan is administered by the Board of
Directors, or a committee appointed by the Board of Directors, who determine the
recipients and terms of the awards granted. In September, October and November,
1997, the Company granted options to purchase 240,000 shares of Common Stock at
an exercise price of $6.00 per share, the estimated fair value of the Common
Stock on the grant date. The options vest immediately and are exercisable
through their expiration date in 2007.
    
 
9.  WRITE-OFF OF PRINTING DIVISION
 
   
    In September, 1996, the Company acquired a printing operation located in
Southern California. The results of the printing division were evaluated during
the year and management decided to dispose of this division. Accordingly, the
Company incurred $231,803 of incremental printing costs associated with this
division during the year ended August 31, 1997.
    
 
                                      F-15
<PAGE>
                              TAG-IT PACIFIC, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                           YEAR ENDED AUGUST 31, 1997
 
10. COMMITMENTS AND CONTINGENCIES
 
    LEASES
 
    The Company is a party to a number of non-cancelable operating lease
agreements involving buildings and equipment which expire at various dates. The
future minimum lease commitments as of August 31, 1997 are as follows:
 
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31,                                                               AMOUNT
- --------------------------------------------------------------------------------  ------------
<S>                                                                               <C>
1998............................................................................  $    459,650
1999............................................................................       343,808
2000............................................................................       240,585
2001............................................................................        63,032
2002............................................................................        36,125
                                                                                  ------------
Total minimum payments..........................................................  $  1,143,200
                                                                                  ------------
                                                                                  ------------
</TABLE>
 
    Total rental expense for the years ended August 31, 1996 and 1997 aggregated
$212,644 and $416,832, respectively.
 
    ROYALTIES
 
    Under a license agreement with a major customer, the Company is required to
pay royalties of 7% on licensed stationery products. Royalty expense of $26,250
and $139,278 is included in the statement operations for the years ended August
31, 1996 and 1997.
 
    CONTINGENCIES
 
   
    The Company is subject to certain legal proceedings and claims arising in
connection with its business. In the opinion of management, there are currently
no claims that will have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
    
 
11.  MAJOR CUSTOMERS
 
    Two customers accounted for 11.38 % and 15.09%, respectively of consolidated
net sales for the year ended August 31, 1996 and 11.12% and 18.34% for the year
ended August 31, 1997. The related amount of accounts receivable due from these
customers amounted to $268,419 and $116,736 at August 31, 1996, and $695,162 and
$441,240 at August 31, 1997.
 
12.  RELATED PARTY TRANSACTIONS
 
   
    The President and director of the Company is the general partner of D.P.S.
Associates, a general partnership, which is the lessor of the Company's
executive offices in Los Angeles, California, pursuant to a lease agreement with
Pacific Trim. The lease provides for base rent of $9,072 per month and expires
in April 2000.
    
 
    The President and the Chief Executive Officer of the Company have personally
guaranteed certain obligations of Tag-It and Pacific Trim under various
equipment lease agreements which approximated $202,000. The President of the
Company has also guaranteed Pacific Trim's obligations under its lease agreement
for the premises in New York which provides for annual base rent of $16,800.
 
                                      F-16
<PAGE>
                              TAG-IT PACIFIC, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                           YEAR ENDED AUGUST 31, 1997
 
12.  RELATED PARTY TRANSACTIONS (CONTINUED)
   
    In August 1996, NPM Investments, Inc. made a loan of $875,000 to Tag-It,
without interest, pursuant to a convertible secured promissory note (the
"convertible note") which was secured by all of the assets of Tag-It. The
Chairman of the Board of the Company holds a significant equity interest in NPM
Investments, Inc. In October 1997, the convertible note was converted, based on
the original terms of the Convertible Note, which was based on the fair market
value at the time of the issuance by NPM Investments, Inc. into fully paid
non-assessable shares of Common Stock of Tag-It, Tag-It Hong Kong and AGS
Stationery, which represent 384,402 shares of Common Stock of the Company. The
unaudited pro forma August 31, 1997 balance sheet information has been presented
to reflect the Company's financial position, assuming that the aforementioned
debt conversion had occurred on August 31, 1997.
    
 
   
    In September 1996, the President of the Company borrowed $100,000 from
Mercantile National Bank, which loan was guaranteed by Tag-It. The term loan
matures October 10, 1999. In September 1996, the $100,000 borrowed by the
President of the Company was lent to Tag-It at the same interest rate payable on
the President's loan to the bank. The loan from the President to Tag-It is due
and payable on the fifteenth day following the date written demand for payment
is made by the President.
    
 
    The CEO and President of the Company have each guaranteed the obligations of
Tag-It under a term loan with Mercantile National Bank which matures June 8,
1998.
 
   
    In June 1997, AGS Stationery entered into a Collection Date Factoring
Agreement (the "Safcor Agreement") with Safcor, Inc. ("Safcor"). An officer and
director of Safcor is a stockholder of the Company. Pursuant to the Safcor
Agreement, AGS Stationery has agreed to sell to Safcor all accounts receivable
related to the sale of goods or the rendering of services by AGS Stationery for
a purchase price equal to the gross amount of each account, less all discounts
and credits and a factoring commission of 1.5% of the net amount of the account.
In addition, Safcor has the right, at its sole discretion, to provide customers
of AGS Stationery with the credit lines for the purchase of AGS Stationery's
products. The Safcor Agreement may be terminated by either party upon 60 days
prior written notice to the other party. Total factoring commissions paid to
Safcor amounted to $18,309 for the year ended August 31, 1997.
    
 
   
    A Director of the Company controls a financial advisory firm, Averil
Associates, Inc. ("Averil Associates"), which has performed various services for
the Company including investigation of strategic financing and other corporate
growth initiatives. As consideration of such services, AGS Stationery paid the
aggregate amount of $26,123, plus out of pocket expenses. As additional
compensation for such services, AGS Stationery has granted to Chloe Holdings,
Inc., an affiliate of Averil Associates, warrants to purchase up to 135 Shares
of Common Stock of AGS Stationery. Effective upon consolidation, the Chloe
Warrants became exercisible for 22,841 shares of the common stock of the Company
(see Note 8) and the Company has agreed to pay Averil Associates an additional
$175,000 upon consummation of the offering.
    
 
13.  SUBSEQUENT EVENTS
 
    In September 1997, NPM Investments, Inc. made an additional loan of $126,000
to the Company. The loan bears interest at 7.5% per annum and is due December
31, 1998.
 
    The Company has entered into a letter of intent with an underwriter to sell
shares of the Company in an Initial Public Offering.
 
    The Company intends to change its fiscal year end to December 31.
 
                                      F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
   
    NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SHARES OF
COMMON STOCK OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN
OFFER TO, OR A SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
    
 
                            ------------------------
 
                               TABLE OF CONTENTS
                            ------------------------
 
   
<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
Prospectus Summary........................................................    4
The Company...............................................................    7
Risk Factors..............................................................    9
Use of Proceeds...........................................................   18
Dividend Policy...........................................................   19
Dilution..................................................................   20
Capitalization............................................................   21
Selected Consolidated Financial Data......................................   22
Management's Discussion and Analysis of Financial Condition and Results of
 Operations...............................................................   23
Business..................................................................   28
Management................................................................   37
Certain Transactions......................................................   43
Principal and Selling Stockholders........................................   46
Description of Capital Stock..............................................   47
Shares Eligible For Future Sale...........................................   50
Underwriting..............................................................   52
Legal Matters.............................................................   54
Experts...................................................................   54
Additional Information....................................................   54
Index to Consolidated Financial Statements................................  F-1
</TABLE>
    
 
                            ------------------------
 
   
    UNTIL         , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OF SUBSCRIPTIONS.
    
 
                                1,450,000 SHARES
 
                              TAG-IT PACIFIC, INC.
 
                                  COMMON STOCK
 
                             ---------------------
 
                                   PROSPECTUS
 
                             ---------------------
 
   
                                     [LOGO]
 
                             JOSEPHTHAL & CO. INC.
    
 
                                          , 1997
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
                                    PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 24.  INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
    The Registrant's Certificate of Incorporation and its Bylaws provide for the
indemnification by the Registrant of each director, officer and employee of the
Registrant to the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended. Section 145 of the Delaware
General Corporation Law provides in relevant part that a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
 
    In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper. Delaware law further provides that nothing
in the above-described provisions shall be deemed exclusive of any other rights
to indemnification or advancement of expenses to which any person may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
 
    The Registrant's Certificate of Incorporation provides that a director of
the Registrant shall not be liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director. Section 102(b)(7)
of the Delaware General Corporation Law provides that a provision so limiting
the personal liability of a director shall not eliminate or limit the liability
of a director for, among other things: breach of the duty of loyalty; acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; unlawful payment of dividends; and transactions from which
the director derived an improper personal benefit.
 
   
    The Registrant has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director of the Registrant and certain
officers of the Registrant (the "Indemnitees"). Pursuant to the terms and
conditions of the Indemnity Agreements, the Registrant has indemnified each
Indemnitee against any amounts which he or she becomes legally obligated to pay
in connection with any claim against him or her based upon any action or
inaction which he or she may commit, omit or suffer while acting in his or her
capacity as a director and/or officer of the Registrant or its subsidiaries,
provided,
    
 
                                      II-1
<PAGE>
   
however, that such Indemnitee acted in good faith and in a manner such
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Registrant and, with respect to any criminal action, had no reasonable cause
to believe such Indemnitee's conduct was unlawful.
    
 
    Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
 
    Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
 
<TABLE>
<CAPTION>
DOCUMENT                                                                        EXHIBIT NUMBER
- -----------------------------------------------------------------------------  -----------------
<S>                                                                            <C>
Registrant's Certificate of Incorporation....................................            3.1
Registrant's Bylaws..........................................................            3.2
Registrant's Form of Indemnification Agreement...............................           10.1
Tax Indemnification Agreement................................................          10.12
</TABLE>
 
ITEM 25.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
    The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the securities being
registered. All the amounts shown are estimates except the Securities and
Exchange Commission registration fee, the NASD filing fee and the American Stock
Exchange fee:
 
   
<TABLE>
<CAPTION>
<S>                                                                               <C>
Registration fee--Securities and Exchange Commission............................  $      4,230
NASD filing fee.................................................................         1,896
American Stock Exchange fee.....................................................        25,000
Accounting fees and expenses....................................................       150,000
Legal fees and expenses (other than blue sky)...................................       200,000
Blue sky fees and expenses, including legal fees................................        15,000
Printing; stock certificates....................................................        80,000
Transfer agent and registrar fees...............................................         5,000
Consulting fees.................................................................       175,000
Non-accountable expense allowance...............................................       192,000
Non-accountable expense allowance for Over Allotment Option.....................        28,800
Miscellaneous...................................................................        26,874
                                                                                  ------------
  Total.........................................................................  $    903,800
                                                                                  ------------
                                                                                  ------------
</TABLE>
    
 
ITEM 26.  RECENT SALES OF UNREGISTERED SECURITIES
 
   
    In September 1997 the Company issued 10 shares of Common Stock for $10 to
Colin Dyne. The issuance of these shares was exempt from registration pursuant
to Section 4(2) of the Act as a transaction not involving any public offering.
    
 
   
    In October 1997, Tag-It Pacific, LLC issued 2,470,001 membership units (the
"LLC Units") in exchange for: (i) all of the outstanding shares of Common Stock
of Pacific Trim & Belt, Inc., a California corporation, owned by Harold Dyne and
three other shareholders; (ii) all of the outstanding shares of Common Stock of
Tag-It, Inc., a California corporation, owned by Mark Dyne, Harold Dyne, Colin
Dyne and four other shareholders; (iii) all of the outstanding shares of Common
Stock of Tag-It Printing & Packaging Ltd., a British Virgin Islands corporation,
owned by Mark Dyne and three other shareholders; and (iv) all of the outstanding
shares of Common Stock of A.G.S. Stationery, Inc., a California corporation,
owned by Mark Dyne, Harold Dyne, Colin Dyne and three other shareholders.
Pursuant to the Exchange Agreement, each of the recipients of the LLC Units
represented that (i) it was acquiring the LLC Units for its own account with the
present intention of holding such securities for investment
    
 
                                      II-2
<PAGE>
   
purposes only and not with a view to, or for sale in connection with, any
distribution of such securities (other than a distribution in compliance with
all applicable federal and state securities laws); (ii) it is an experienced and
sophisticated investor and has such knowledge and experience in financial and
business matters that it is capable of evaluating the relative merits and the
risks of an investment in the LLC Units and of protecting its own interests in
connection with this transaction; (iii) it is willing to bear and is capable of
bearing the economic risk of an investment in the LLC Units; and (iv) it is an
"accredited investor" as that term is defined under Rule 501(a)(8) of Regulation
D promulgated by the Commission under the Securities Act. No brokers,
underwriters or finders were involved in the Exchange. The issuance and sale of
these securities was exempt from the registration and prospectus delivery
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act (in accordance with Rule 506 of Regulation D) as a transaction not involving
any public offering.
    
 
   
    In October 1997, the Company issued warrants to purchase shares of common
stock of the Company to Troop Meisinger Steuber & Pasich, LLP. In February 1996,
A.G.S. Stationery, Inc. issued warrants to purchase 135 shares of Common Stock
of A.G.S. Stationery, Inc. to Chloe Holdings, Inc. ("Chloe"), which warrants
became exercisable for 22,841 shares of Common Stock of the Company upon the
consummation of the acquisition of A.G.S. Stationery, Inc. by the Company. In
1994, Tag-It, Inc. issued warrants to Jonathan Markiles to purchase 14 shares of
Common Stock of Tag-It, Inc., which warrants became exercisable for 39,235
shares of Common Stock of the Company upon the consummation of the acquisition
of Tag-It, Inc. by the Company. Each of Troop Meisinger Steuber & Pasich, LLP,
Chloe and Jonathan Markiles represented that (i) it acquired the warrants for
its own account with the present intention of holding such warrants for
investment purposes only and not with a view to, or for sale in connection with,
any distribution of such warrants (other than a distribution in compliance with
all applicable federal and state securities laws); (ii) it is an experienced and
sophisticated investor and has such knowledge and experience in financial and
business matters that it is capable of evaluating the relative merits and the
risks of an investment in the warrants and of protecting its own interests in
connection with the transaction at issue; (iii) it is willing to bear and is
capable of bearing the economic risk of an investment in the warrants; and (iv)
the Company made available, prior to the date of its warrant agreement, to it
the opportunity to ask questions of the Company and its officers, and to receive
from the Company and its officers information concerning the terms and
conditions of the warrant and the warrant agreement and to obtain any additional
information with respect to the Company, its business, operations and prospects,
as reasonably requested by it; and (v) it is an "accredited investor" as that
term is defined under Rule 501(a)(8) of Regulation D promulgated by the
Commission under the Securities Act. The issuance and sale of these securities
was exempt from the registration and prospectus delivery requirements of the
Securities Act pursuant to Section 4(2) of the Securities Act (in accordance
with Rule 506 of Regulation D) as a transaction not involving any public
offering.
    
 
ITEM 27.  EXHIBITS.
 
   
<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER     EXHIBIT DESCRIPTION
- -----------  --------------------------------------------------------------------------------------------------------
<C>          <S>
       1.1   Form of Underwriting Agreement.*
       1.2   Form of Representatives' Warrants.*
       2.1   Exchange Agreement, dated October 17, 1997.*
       3.1   Certificate of Incorporation of Registrant.*
       3.2   Bylaws of Registrant.*
       4.1   Specimen Stock Certificate of Common Stock of Registrant.
       5.1   Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP.
      10.1   Form of Indemnification Agreement.*
      10.2   Manufacturing License Agreement, dated as of March 1, 1996, between Guess?, Inc. and AGS Inc.+*
</TABLE>
    
 
                                      II-3
<PAGE>
   
<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER     EXHIBIT DESCRIPTION
- -----------  --------------------------------------------------------------------------------------------------------
<C>          <S>
      10.3   Collection Date Factoring Agreement, dated June 13, 1997, between A.G.S. Stationery, Inc. and Safcor,
               Inc.*
      10.4   Lease Agreement, dated May 1, 1994, between D.P.S. Associates and Pacific Trim & Belt, Inc.*
      10.5   Lease Agreement, dated September 6, 1996, between S & S Partnership and Tag-It, Inc.*
      10.6   Lease Agreement, dated June 8, 1996, between Lea Tai Property Development Limited and Tag-It Printing &
               Packaging Ltd.*
      10.7   Lease Agreement, dated March 17, 1997, between Palobueno N.V. Ltd. and Pacific Trim & Belt, Inc.*
      10.8   Collection Date Factoring Agreement, dated June 24, 1991, between Tag-It, Inc. and Heller Financial,
               Inc.
      10.9   Promissory Note, dated June 6, 1997, between Tag-It, Inc. and Mercantile National Bank; Commercial
               Guaranty, dated June 6, 1997, provided by Harold Dyne for the benefit of Mercantile National Bank; and
               Commercial Guaranty, dated June 6, 1997, provided by Colin Dyne for the benefit of Mercantile National
               Bank.*
      10.10  Promissory Note, dated September 13, 1996, between Harold Dyne and Mercantile National Bank; Change in
               Terms Agreement, dated May 16, 1997, between Harold Dyne and Mercantile National Bank; and Commercial
               Guaranty, dated May 16, 1997, provided by Tag-It, Inc. for the benefit of Mercantile National Bank.*
      10.11  Domestic Collection Date Factoring Agreement, dated August 6, 1996, between A.G.S. Stationery, Inc. and
               Heller Financial, Inc.*
      10.12  Tax Indemnification Agreement between Pacific Trim & Belt, Inc. and Harold Dyne, Jonathan Burstein,
               Raymond Spiro and Stan Magnus.*
      10.13  Equipment Lease Guaranty, Lease No. CPL7B17, provided by Colin Dyne for the benefit of Quail American
               Corp.*
      10.14  Equipment Lease Guaranty, Lease No. 09532-0196, provided by Harold Dyne for the benefit of Saddleback
               Financial Corporation.*
      10.15  Equipment Lease Guaranty, Lease No. ADV5I02, provided by Harold Dyne for the benefit of Quail American
               Corp.*
      10.16  Equipment Lease Guaranty, Lease No. N6F08B, provided by Harold Dyne and Colin Dyne for the benefit of
               Quail American Corp.*
      10.17  Equipment Lease Guaranty, Lease No. CPL7B17, provided by Harold Dyne for the benefit of Quail American
               Corp.*
      10.18  Equipment Lease Guaranty, Lease No. Q6DO1, provided by Harold Dyne for the benefit of Quail American
               Corp.*
      10.19  Equipment Lease Guaranty, Lease No. JLA7H07, provided by Colin Dyne for the benefit of Quail American
               Corp.*
      10.20  Equipment Lease Guaranty, Lease No. JLA7H07, provided by Harold Dyne for the benefit of Quail American
               Corp.*
      10.21  Equipment Lease Guaranty provided by Harold Dyne and Colin Dyne for the benefit of Quail American Corp.*
      10.22  Promissory Note, dated September 30, 1996, provided by Tag-It, Inc. to Harold Dyne.*
      10.23  Promissory Note, dated June 30, 1991, provided by Tag-It, Inc. to Harold Dyne.*
      10.24  Promissory Note, dated January 31, 1997, provided by Tag-It, Inc. to Mark Dyne.*
      10.25  Promissory Note, dated February 29, 1996, provided by A.G.S. Stationery, Inc. to Monto Holdings Pty.
               Ltd.*
      10.26  Promissory Note, dated January 19, 1995, provided by Pacific Trim & Belt, Inc. to Monto Holdings Pty.
               Ltd.*
</TABLE>
    
 
   
                                      II-4
    
<PAGE>
   
<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER     EXHIBIT DESCRIPTION
- -----------  --------------------------------------------------------------------------------------------------------
<C>          <S>
      10.27  Convertible Promissory Note, dated August 23, 1996, provided by Tag-It, Inc. to NPM Investments, Inc.*
      10.28  Promissory Note, dated August 23, 1996, provided by Tag-It, Inc. to NPM Investments, Inc.*
      10.29  Registrant's 1997 Stock Incentive Plan.*
      10.30  Form of Nonstatutory Stock Option Agreement.*
      10.31  Promissory Note, dated August 31, 1997, provided by Colin Dyne to Tag-It, Inc.*
      10.32  Promissory Note, dated August 31, 1997, provided by Harold Dyne to Pacific Trim & Belt, Inc.*
      10.33  Promissory Note, dated October 15, 1997, provided by Colin Dyne to Tag-It, Inc.*
      10.34  Promissory Note, dated October 15, 1997, provided by Harold Dyne to Pacific Trim & Belt, Inc.*
      10.35  Formation Agreement of AGS Holdings L.L.C., dated as of October 17, 1997.*
      10.36  Promissory Note, dated September 25, 1997, provided by Tag-It, Inc. to Monto Holdings Pty. Ltd.*
      10.37  Guaranty of Colin Dyne and Harold Dyne in favor of Frank Peck.
      10.38  Engagement Letter, dated January 1, 1996, between Averil Associates, Inc. and A.G.S. Stationery, Inc.,
               d.b.a. Guess Stationery, and Indemnification Agreement, dated January 1, 1996, between Averil
               Associates, Inc. and A.G.S. Stationery, Inc., d.b.a. Guess Stationery.
      10.39  Warrant Agreement, dated June 1, 1994, between Jonathan Markiles and Tag-It, Inc.*
      10.40  Warrant Agreement, dated February 1, 1996, between A.G.S. Stationery, Inc. and Chloe Holdings, Inc.
      10.41  Form of Warrant Agreement between the Company and Troop Meisinger Steuber & Pasich, LLP.
      10.42  Promissory Note between Pacific Western, Inc. and Tag-It, Inc.
      10.43  Promissory Note between Pacific Western, Inc. and Pacific Trim & Belt, Inc.
      10.44  Contract for Manufacturing Services between USA and Mexico, between Tag-It, Inc. and Tag It de Mexico,
               S.A. de C.V.
      10.45  Form of Lock-up Agreement.
      10.46  Lease Agreement, dated November 15, 1997, between Mr. Abraham Beteeh Moussan and Tag It de Mexico, S.A.
               de C.V.
      10.47  Domestic Labor Regulations of Tagit de Mexico, SA de CV.
      11     Computation of Earnings.
      21.1   List of Subsidiaries of Registrant.*
      23.1   Consent of Troop Meisinger Steuber & Pasich, LLP (included in its opinion to be filed as Exhibit 5.1
               hereto).
      23.2   Consent of BDO Seidman, LLP.
      24.1   Power of Attorney (included in signature page).
      27     Financial Data Schedule.*
      99.1   Consent of Brent Cohen as nominee.*
      99.2   Consent of Diana Maranon as nominee.*
      99.3   Consent of Michael Katz.
      99.4   Consent of Paul Markiles.
</TABLE>
    
 
- ------------------------
 
   
*   Previously filed.
    
 
   
+   Certain portions of this agreement have been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a request for an
    order granting confidential treatment pursuant to Rule 406 of the General
    Rules and Regulations under the Securities Act of 1933, as amended.
    
 
                                      II-5
<PAGE>
ITEM 29.  UNDERTAKINGS.
 
    The undersigned Registrant hereby undertakes:
 
    (a) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
 
    (b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer of controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
 
    (c) The undersigned registrant hereby undertakes that:
 
        (1) For the purposes of determining any liability under the Securities
    Act of 1933, the information omitted from the form of prospectus filed as
    part of this registration statement in reliance upon Rule 430A and contained
    in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
    or (4) or 497(h) under the Securities Act shall be deemed to be part of this
    registration statement as of the time it was declared effective.
 
        (2) For the purpose of determining any liability under the Securities
    Act of 1933, each post-effective amendment that contains a form of
    prospectus shall be deemed to be a new registration statement relating to
    the securities offered therein, and the Offering of such securities at that
    time shall be deemed to be the initial bona fide offering thereof.
 
                                      II-6
<PAGE>
                                   SIGNATURES
 
   
    Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on November 26,
1997.
    
 
<TABLE>
<S>                             <C>  <C>
                                TAG-IT PACIFIC, INC.
 
                                By:                /s/ COLIN DYNE
                                     -----------------------------------------
                                                     Colin Dyne
                                              CHIEF EXECUTIVE OFFICER
</TABLE>
 
                               POWER OF ATTORNEY
 
    Each person whose signature appears below constitutes and appoints Colin
Dyne and Diana Maranon, and each of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and his name, place and stead, in any and all capacities, to sign any or
all amendments (including post effective amendments) to this Registration
Statement and a new Registration Statement filed pursuant to Rule 462(b) of the
Securities Act of 1933 and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their substitutes, may lawfully do or cause to be done by virtue hereof.
 
    Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
 
   
          SIGNATURE                       TITLE                    DATE
- ------------------------------  --------------------------  -------------------
 
              *
- ------------------------------  Chairman of the Board        November 26, 1997
          Mark Dyne
 
        /s/ COLIN DYNE
- ------------------------------  Chief Executive Officer      November 26, 1997
          Colin Dyne              and Director
 
              *
- ------------------------------  President and Director       November 26, 1997
         Harold Dyne
 
     /s/ FRANCIS SHINSATO       Chief Financial Officer
- ------------------------------    (Principal Financial       November 26, 1997
       Francis Shinsato           Officer)
 
    
 
   
*By        /s/ COLIN DYNE
      -------------------------
        HIS ATTORNEY-IN-FACT
    
 
                                      II-7
<PAGE>
                                 EXHIBIT INDEX
 
   
<TABLE>
<CAPTION>
 EXHIBIT                                                                                                    SEQUENTIALLY
  NUMBER     EXHIBIT DESCRIPTION                                                                             NUMBER PAGE
- -----------  -----------------------------------------------------------------------------------------  ---------------------
<C>          <S>                                                                                        <C>
       1.1   Form of Underwriting Agreement.*
       1.2   Form of Representatives' Warrants.*
       2.1   Exchange Agreement, dated October 17, 1997.*
       3.1   Certificate of Incorporation of Registrant.*
       3.2   Bylaws of Registrant.*
       4.1   Specimen Stock Certificate of Common Stock of Registrant.
       5.1   Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP.
      10.1   Form of Indemnification Agreement.*
      10.2   Manufacturing License Agreement, dated as of March 1, 1996, between Guess?, Inc. and AGS
               Inc.+*
      10.3   Collection Date Factoring Agreement, dated June 13, 1997, between A.G.S. Stationery, Inc.
               and Safcor, Inc.*
      10.4   Lease Agreement, dated May 1, 1994, between D.P.S. Associates and Pacific Trim & Belt,
               Inc.*
      10.5   Lease Agreement, dated September 6, 1996, between S & S Partnership and Tag-It, Inc.*
      10.6   Lease Agreement, dated June 8, 1996, between Lea Tai Property Development Limited and
               Tag-It Printing & Packaging Ltd.*
      10.7   Lease Agreement, dated March 17, 1997, between Palobueno N.V. Ltd. and Pacific Trim &
               Belt, Inc.*
      10.8   Collection Date Factoring Agreement, dated June 24, 1991, between Tag-It, Inc. and Heller
               Financial, Inc.
      10.9   Promissory Note, dated June 6, 1997, between Tag-It, Inc. and Mercantile National Bank;
               Commercial Guaranty, dated June 6, 1997, provided by Harold Dyne for the benefit of
               Mercantile National Bank; and Commercial Guaranty, dated June 6, 1997, provided by
               Colin Dyne for the benefit of Mercantile National Bank.*
      10.10  Promissory Note, dated September 13, 1996, between Harold Dyne and Mercantile National
               Bank; Change in Terms Agreement, dated May 16, 1997, between Harold Dyne and Mercantile
               National Bank; and Commercial Guaranty, dated May 16, 1997, provided by Tag-It, Inc.
               for the benefit of Mercantile National Bank.*
      10.11  Domestic Collection Date Factoring Agreement, dated August 6, 1996, between A.G.S.
               Stationery, Inc. and Heller Financial, Inc.*
      10.12  Tax Indemnification Agreement between Pacific Trim & Belt, Inc. and Harold Dyne, Jonathan
               Burstein, Raymond Spiro and Stan Magnus.*
      10.13  Equipment Lease Guaranty, Lease No. CPL7B17, provided by Colin Dyne for the benefit of
               Quail American Corp.*
      10.14  Equipment Lease Guaranty, Lease No. 09532-0196, provided by Harold Dyne for the benefit
               of Saddleback Financial Corporation.*
      10.15  Equipment Lease Guaranty, Lease No. ADV5I02, provided by Harold Dyne for the benefit of
               Quail American Corp.*
      10.16  Equipment Lease Guaranty, Lease No. N6F08B, provided by Harold Dyne and Colin Dyne for
               the benefit of Quail American Corp.*
      10.17  Equipment Lease Guaranty, Lease No. CPL7B17, provided by Harold Dyne for the benefit of
               Quail American Corp.*
      10.18  Equipment Lease Guaranty, Lease No. Q6DO1, provided by Harold Dyne for the benefit of
               Quail American Corp.*
</TABLE>
    
<PAGE>
   
<TABLE>
<CAPTION>
 EXHIBIT                                                                                                    SEQUENTIALLY
  NUMBER     EXHIBIT DESCRIPTION                                                                             NUMBER PAGE
- -----------  -----------------------------------------------------------------------------------------  ---------------------
<C>          <S>                                                                                        <C>
      10.19  Equipment Lease Guaranty, Lease No. JLA7H07, provided by Colin Dyne for the benefit of
               Quail American Corp.*
      10.20  Equipment Lease Guaranty, Lease No. JLA7H07, provided by Harold Dyne for the benefit of
               Quail American Corp.*
      10.21  Equipment Lease Guaranty provided by Harold Dyne and Colin Dyne for the benefit of Quail
               American Corp.*
      10.22  Promissory Note, dated September 30, 1996, provided by Tag-It, Inc. to Harold Dyne.*
      10.23  Promissory Note, dated June 30, 1991, provided by Tag-It, Inc. to Harold Dyne.*
      10.24  Promissory Note, dated January 31, 1997, provided by Tag-It, Inc. to Mark Dyne.*
      10.25  Promissory Note, dated February 29, 1996, provided by A.G.S. Stationery, Inc. to Monto
               Holdings Pty. Ltd.*
      10.26  Promissory Note, dated January 19, 1995, provided by Pacific Trim & Belt, Inc. to Monto
               Holdings Pty. Ltd.*
      10.27  Convertible Promissory Note, dated August 23, 1996, provided by Tag-It, Inc. to NPM
               Investments, Inc.*
      10.28  Promissory Note, dated August 23, 1996, provided by Tag-It, Inc. to NPM Investments,
               Inc.*
      10.29  Registrant's 1997 Stock Incentive Plan.*
      10.30  Form of Nonstatutory Stock Option Agreement.*
      10.31  Promissory Note, dated August 31, 1997, provided by Colin Dyne to Tag-It, Inc.*
      10.32  Promissory Note, dated August 31, 1997, provided by Harold Dyne to Pacific Trim & Belt,
               Inc.*
      10.33  Promissory Note, dated October 15, 1997, provided by Colin Dyne to Tag-It, Inc.*
      10.34  Promissory Note, dated October 15, 1997, provided by Harold Dyne to Pacific Trim & Belt,
               Inc.*
      10.35  Formation Agreement of AGS Holdings L.L.C., dated as of October 17, 1997.*
      10.36  Promissory Note, dated September 25, 1997, provided by Tag-It, Inc. to Monto Holdings
               Pty. Ltd.*
      10.37  Guaranty of Colin Dyne and Harold Dyne in favor of Frank Peck.
      10.38  Engagement Letter, dated January 1, 1996, between Averil Associates, Inc. and A.G.S.
               Stationery, Inc., d.b.a. Guess Stationery, and Indemnification Agreement, dated January
               1, 1996, between Averil Associates, Inc. and A.G.S. Stationery, Inc., d.b.a. Guess
               Stationery.
      10.39  Warrant Agreement, dated June 1, 1994, between Jonathan Markiles and Tag-It, Inc.*
      10.40  Warrant Agreement, dated February 1, 1996, between A.G.S. Stationery, Inc. and Chloe
               Holdings, Inc.
      10.41  Form of Warrant Agreement between the Company and Troop Meisinger Steuber & Pasich, LLP.
      10.42  Promissory Note between Pacific Western, Inc. and Tag-It, Inc.
      10.43  Promissory Note between Pacific Western, Inc. and Pacific Trim & Belt, Inc.
      10.44  Contract for Manufacturing Services between USA and Mexico, between Tag-It, Inc. and Tag
               It de Mexico, S.A. de C.V.
      10.45  Form of Lock-up Agreement.
</TABLE>
    
<PAGE>
   
<TABLE>
<CAPTION>
 EXHIBIT                                                                                                    SEQUENTIALLY
  NUMBER     EXHIBIT DESCRIPTION                                                                             NUMBER PAGE
- -----------  -----------------------------------------------------------------------------------------  ---------------------
<C>          <S>                                                                                        <C>
      10.46  Lease Agreement, dated November 15, 1997, between Mr. Abraham Beteeh Moussan and Tag It
               de Mexico, S.A. de C.V.
      10.47  Domestic Labor Regulations of Tagit de Mexico, SA de CV.
      11     Computation of Earnings.
      21.1   List of Subsidiaries of Registrant.*
      23.1   Consent of Troop Meisinger Steuber & Pasich, LLP (included in its opinion to be filed as
               Exhibit 5.1 hereto).
      23.2   Consent of BDO Seidman, LLP.
      24.1   Power of Attorney (included in signature page).
      27     Financial Data Schedule.*
      99.1   Consent of Brent Cohen as nominee.*
      99.2   Consent of Diana Maranon as nominee.*
      99.3   Consent of Michael Katz.
      99.4   Consent of Paul Markiles.
</TABLE>
    
 
- ------------------------
 
   
*   Previously filed.
    
 
+   Certain portions of this agreement have been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a request for an
    order granting confidential treatment pursuant to Rule 406 of the General
    Rules and Regulations under the Securities Act of 1933.

<PAGE>

                                                                     EXHIBIT 4.1

                                 TAG-IT PACIFIC, INC.

    NUMBER                                       SHARES

INCORPORATED UNDER THE LAWS                  SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE                     CUSIP 873774 10 3

This certifies that

is the record holder of

    FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF

- ------------------------------TAG-IT PACIFIC, INC.------------------------------

transferable on the books of the Corporation by the holder hereof in person of
by duly authorized attorney upon surrender of this certificate properly
endorsed.  This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.

    WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.

         Dated:

    /s/ Colin Dyne                    /s/ Francis Shinsato
    Chief Executive Officer           Chief Financial Officer

                  [SEAL OF TAG-IT PACIFIC, INC.]

                                  COUNTERSIGNED AND REGISTERED
                                  AMERICAN STOCK TRANSFER AND TRUST COMPANY
                                  TRANSFER AGENT AND REGISTRAR

                                  BY

                                       AUTHORIZED SIGNATURE

<PAGE>



                        TROOP MEISINGER STEUBER & PASICH, LLP
                                      LAWYERS


                                  November 26, 1997

Tag-It Pacific, Inc.
3820 South Hill Street
Los Angeles, CA 90037

Ladies/Gentlemen:

    At your request, we have examined the Registration Statement on Form SB-2
(the "Registration Statement") to which this letter is attached as Exhibit 5.1
filed by Tag-It Pacific, Inc., a Delaware corporation (the "Company"), in order
to register under the Securities Act of 1933, as amended (the "Act"), 1,450,000
shares of Common Stock, par value $0.001 per share, of the Company, and an
additional 192,000 shares of Common Stock, par value $0.001 per share, of the
Company subject to the underwriters' over-allotment option, and any additional
shares of Common Stock of the Company which may be registered pursuant to Rule
462(b) under the Act (collectively, the "Shares").

    We are of the opinion that the Shares have been duly authorized and upon
issuance and sale of the Shares in conformity with and pursuant to the
Registration Statement, the Shares will be validly issued, fully paid and
non-assessable.

    We consent to the use of this opinion as an exhibit to the Registration
Statement and to use of our name in the Prospectus constituting a part thereof.


                                  Respectfully submitted,

                                  /s/ Troop Meisinger Steuber & Pasich, LLP

                                  TROOP MEISINGER STEUBER & PASICH, LLP

<PAGE>

HELLER FINANCIAL

June 24, 1991


Tag-It, Inc.
3820 South Hill Street
Los Angeles, California 90037

RE: Collection Date Factoring Agreement

Gentlemen:

The following shall constitute the terms upon which we shall act as your sole
factor (see Section 12 for the definition of certain capitalized terms):

SECTION 1. SALE AND APPROVAL OF ACCOUNTS

1.1   You hereby sell, assign and transfer to us and we hereby purchase from
      you all of your now outstanding and hereafter created or acquired
      Accounts, with full power to collect and otherwise deal therewith as the
      sole and exclusive owner thereof.

1.2   (a)     You will submit for our credit approval your customers' credit
      requirements, a description of your normal selling terms and such other
      information as we may request concerning your customers.  We may, in our
      sole credit judgment, establish credit lines for sales to your customers
      on your normal selling terms and all sales to such customers within the
      established credit line will be Approved Accounts provided that delivery
      or performance is completed while the credit line remains in effect.  You
      may also submit for credit approval specific orders from your customers
      and we may, in our sole credit judgment, approve such orders on a single
      order approval basis.  All of our credit approvals will be in writing.

      (b)     We reserve the right to amend or withdraw a credit line at any
      time by advice to you, which advice will be promptly confirmed in
      writing.

      (c)     We may withdraw a single order credit approval by notifying you
      verbally and/or in writing at any time prior to the delivery of goods or
      performance of services.  A single order credit approval will be
      automatically withdrawn:  (i) in the event delivery or performance is not
      made on or prior to the expiration date indicated on the written single
      order credit confirmation form we send to you; or (ii) in the event any
      change is made in the payment terms or delivery date of the Account.

<PAGE>

      (d)     We shall have no liability to you or to any customer for our
      refusal to credit approve an Account or our withdrawal of a credit
      approval.

1.3   We will assume the Credit Risk on all Approved Accounts.  We shall have
      full recourse to you for all Non-Approved Accounts.

1.4   In the event that monies shall, at any time, be owing from one of your
      customers for both Approved Accounts and Non-Approved Accounts, we will
      apply all payments received as follows:

      (a)     if we issued single order approvals, all payments received will
      be first applied to the Approved Accounts;

      (b)     if we established a credit line for the customer, (i) provided
      that the amount of outstanding Accounts did not at any time exceed twice
      the established credit line and the credit line is still in effect at the
      time payment is received, all payments shall first be applied to the
      Non-Approved Accounts; (ii) if the amount of outstanding Accounts did at
      any time exceed twice the established credit line or if prior to the
      receipt of payment we have withdrawn the credit line, all payments
      received shall first be applied to Approved Accounts;

      (c)     if an insolvency proceeding has been instituted by or against the
      customer, we shall share all payments pro rata.

SECTION 2. PAYMENT AND FEES

2.1   We will purchase each Account on the longest or shortest selling terms,
      at our option, and will pay you as the purchase price the net amount
      thereof calculated by deducting from the gross amount of each Account the
      discount, if any, our factoring commission and all credits, including,
      without limitation, merchandise returns, allowances, and chargebacks and
      all other charges provided for hereunder.  The purchase price less
      advances, interest and any other amounts due us will be credited to your
      account on the Collection Date.

2.2   At the time we purchase each Account, or thereafter, we may, upon your
      request, and in our sole discretion, advance to you up to eighty percent
      (80%) of the purchase price of such Account; PROVIDED, however, that if
      at any time the aggregate Net Amount of Accounts arising from sales to a
      single customer exceeds an amount equal to thirty percent (30%) of the
      total Net Amount of all Accounts from all customers outstanding at such
      time, we shall not make any advances on any such Accounts in excess of
      said amount.


                                          2
<PAGE>

2.3   At the time we purchase each Account, you will pay us a factoring
      commission of one and one-half percent (1.5%) of the Net Amount.  On
      Accounts bearing terms in excess of sixty (60) days ("standard terms"),
      the factoring commission will be increased by one-quarter of one percent
      (0.25%) for each thirty (30) days or part thereof that the stated terms
      exceed the standard terms.  If during any month the aggregate Net Amount
      of all Accounts purchased by us during such month divided by the number
      of Accounts purchased by us during such month is less than $750, then you
      shall pay us, or we may charge your account with, an amount equal to
      one-eighth of one percent (0.125%) of the aggregate Net Amount of all
      Accounts purchased by us during such month.  If you factor a credit memo
      relating to an Account for which you paid a factoring commission, we will
      refund a portion of the commission pro rated according to the amount of
      the credit memo.

2.4   We will charge your account our standard wire transfer fee on all wire
      transfers, and you will reimburse us for exchanges on checks, charges for
      returned items and all other bank charges.  We may also, at our option,
      charge your account for all amounts owing by you to us under this
      Agreement and for all other Obligations.

SECTION 3. INTEREST AND COLLECTION CLEARANCE CHARGE

3.1   You will pay us interest on the daily balance of all monies we advance to
      you or for your account net of all payments received from you or on your
      behalf and net of the purchase price of Accounts.  Interest will be
      calculated daily at a rate per annum equal to two and one-half percent
      (2.5%) plus the Base Rate (the "Interest Rate") and will be charged to
      your factoring account at the end of each month.  The Interest Rate will
      also be charged to you on all other indebtedness due by you to us under
      this Agreement and on all Obligations, except those specifying a
      different rate, from the date incurred through the date paid.  Any
      publicly announced decrease or increase in the Base Rate shall result in
      an adjustment to the Interest Rate on the next business day.  Interest
      shall be calculated on the basis of a 360-day year for the actual number
      of days elapsed.  In no event shall the Interest Rate exceed the maximum
      rate permitted by applicable law and in the event excess interest is
      paid, it shall be considered a repayment of principal.

3.2   To allow for collection clearance on all checks and other payments
      remitted by your customers, you will, in addition to interest, pay us a
      monthly collection clearance charge based on a formula involving total
      cash collections for the month, the Interest Rate, and five Business
      Days.  We will charge your account at the end of each month for the
      collection clearance charge.

3.3   If funds remain with us past the Collection Date ("matured funds"), we
      will pay you interest on such matured funds at the rate per annum equal
      to the Base Rate minus three percent (3.0%).  Any change in the Base Rate
      shall result in an adjustment in the matured funds rate on the next
      business day.


                                          3
<PAGE>

3.4   If an Approved Account is charged back to you after the date described in
      subsection 12.5 (b), you will pay us interest at the Interest Rate on the
      Net Amount from such date to the chargeback date.

SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS

4.1   You represent, warrant and covenant as to each Account sold and assigned
      hereunder that, at the time of its creation, the Account is a valid, bona
      fide account, representing an undisputed indebtedness incurred by the
      named account debtor for goods actually sold and delivered or for
      services completely rendered; there are no setoffs, offsets or
      counterclaims, genuine or otherwise, against the Account; the Account
      does not represent a sale to a parent, subsidiary or affiliate or a
      consignment, sale or return or a bill and hold transaction; no agreement
      exists permitting any deduction or discount (other than the discount
      stated on the invoice); you are the lawful owner of the Account and have
      the right to sell and assign the same to us; the Account is free of all
      security interests, liens and encumbrances other than those in our favor,
      and the Account is due and payable in accordance with its terms.

4.2   You shall not grant or suffer to exist any lien upon or security interest
      in your inventory in favor of any party other than us without our written
      consent.

4.3   You are a solvent corporation; duly incorporated and in good standing
      under the laws of the State of California and qualified in all States
      where such qualification is required; the execution, delivery and
      performance of this Agreement have been duly authorized and are not in
      contravention of any applicable law, your corporate charter or by-laws or
      any agreement or order by which you are bound.

4.4   You shall not change your corporate name or the location of your office
      or open any new offices without giving us at least thirty (30) days prior
      written notice.  At the present time, you carry on business only at the
      above address and the addresses set forth below.

         NONE

4.5   All books and records pertaining to the Accounts or to any inventory
      owned by you shall be maintained solely and exclusively at the above
      address or the addresses listed in Section 4.4 hereof and no such books
      and records shall be moved or transferred without giving us thirty (30)
      days prior written notice.

4.6   You shall not sell, lease, transfer or otherwise dispose of all or
      substantially all of your property or assets, or consolidate with or
      merge into or with any corporation or entity without our prior written
      consent.


                                          4
<PAGE>

4.7   After our request, you shall hold all returned, replevied or reclaimed
      goods coming into your possession in trust for us and all such goods
      shall be segregated and identified as held in trust for our benefit and
      you shall, at our request, and at your expense, deliver such goods to
      such place or places as we may designate.

4.8   The trade names or styles set forth below are the only trade names or
      styles under which you transact business; Accounts sold to us hereunder
      and represented by invoices bearing such trade names or styles are wholly
      owned by you; the undertakings, representations and warranties made in
      connection therewith shall be identical to and of the same force and
      effect as those made with respect to invoices bearing your corporate
      name; your use of any trade names or styles is in compliance with all
      laws regarding the use of such trade names or styles.  You shall give us
      thirty (30) days prior written notice of the change of any trade name or
      style or your use of any new trade name or style.

         NONE

4.9   No discounts, credits or allowances will be issued, granted or allowed by
      you to customers and no returns will be accepted without our prior
      written consent; provided, however, that until we notify you to the
      contrary, you may presume our consent.  Discounts, credits or allowances
      once issued may be claimed only by the customer.

SECTION 5. DISPUTES, CHARGEBACKS AND RESERVES

5.1   With respect to any Account, upon the occurrence of a breach of any of
      the representations or warranties contained in Section 4.1, or upon the
      assertion by a customer of a Dispute, we may charge back such Account to
      you.

5.2   You shall notify us immediately in the event that a customer alleges any
      Dispute, or returns or desires to return any goods purchased from you. 
      We may but are not obligated to settle, compromise, adjust or litigate
      all such Disputes or returns upon such terms as we deem advisable.  If an
      unadjusted Dispute delays the payment of any Approved Account when due,
      we shall have the right to charge back to you that Account.

5.3   We may, at our option, charge back to you all amounts owing on
      Non-Approved Accounts which are not paid when due.

5.4   We shall have the right to charge back to you any payment which we
      receive with respect to a Non-Approved Account if such payment is
      subsequently disgorged by us, whether as a result of any proceeding in
      bankruptcy or otherwise.


                                          5
<PAGE>

5.5   A chargeback shall not constitute a resale to you of said Accounts;
      however, upon payment by you to us of all monies due with respect to such
      charged back Account, title thereto shall revert to you, subject,
      however, to our security interest therein.  You agree to indemnify and
      save us harmless from and against any and all loss, costs and expenses
      caused by or arising out of disputed Accounts, including, but not limited
      to, collection expenses and attorney's fees incurred with respect
      thereto.

5.6   We may maintain such reserves as we, in our sole discretion, deem
      advisable as security for the payment and performance of the Obligations.

SECTION 6. ADMINISTRATION

6.1   (a)     You shall, from time to time, execute and deliver to us
      confirmatory schedules of Accounts sold to us, together with one copy of
      each invoice and, upon request, acceptable evidence of shipment and such
      other documentation and proofs of delivery as we may require.  Each
      invoice and all copies thereof shall  bear a notice, in form satisfactory
      to us, that it has been sold and assigned to and is payable only to us. 
      You agree to prepare and mail all invoices, but we may do so at our
      option.  You agree to execute and deliver to us such further instruments
      of assignment, financing statements and instruments of further assurance
      as we may reasonably require.  You authorize us to execute on your behalf
      and file such UCC financing statements as we may deem necessary in order
      to perfect and maintain the security interests granted by you in
      accordance with this and any other agreement between you and us, and you
      further agree that we may file this agreement or a copy thereof as such
      UCC financing statement.  You agree to bear the cost of all filing fees,
      filing taxes, search reports, legal fees and other charges incurred by us
      in the perfection, protection and preservation of the rights and
      collateral security herein granted to us.

      (b)     If any remittances are made directly to you, your employees or
      agents, you shall act as trustee of an express trust for our benefit,
      hold the same as our property and deliver the same to us forthwith in
      kind.  We and/or such designee as we may from time to time appoint are
      hereby appointed your attorney-in-fact to endorse your name on any and
      all checks or other forms of remittances received by us where such
      endorsement is required to effect collection and to transmit notices to
      customers, in your name or in ours, that amounts owing by them have been
      assigned and are payable directly to us; this power, being coupled with
      an interest, is irrevocable.

      (c)     We may, at all times, have access to, inspect and make extracts
      from all of your records, files and books of account.  We may, at any
      time after default by you hereunder, remove from your premises all such
      records, files and books relating to Accounts.  You will promptly furnish
      us with all statements prepared by or for you showing your financial
      condition and the results of your operations and such other statements as
      we may reasonably require.  You authorize us to communicate directly


                                          6
<PAGE>

      with your independent certified public accountants and authorize such
      accountants to discuss your financial condition and statements directly
      with us.

6.2   If we determine that the credit standing of a customer has deteriorated
      after we have assumed the Credit Risk on an Account, you shall, at our
      request, exercise such rights as you may have to reclaim or stop the
      goods in transit, and you hereby grant us the right to take such steps in
      your name or ours.

6.3   We shall render a monthly statement of account to you within twenty (20)
      days after the end of each month.  Such statement of account shall
      constitute an account stated unless you make written objection thereto
      within thirty (30) days from the date such statement is mailed to you.

6.4   You authorize us to disclose such information as we deem appropriate to
      persons making credit inquiries about you.

SECTION 7.    COLLATERAL SECURITY

      As collateral security for all Obligations, you hereby assign and grant
      to us a continuing security interest in: (i) all of your presently
      existing and hereafter created Accounts and general intangibles and the
      proceeds thereof; (ii) all monies, securities and other property now or
      hereafter held or received by, or in transit to us from or for you,
      whether for safekeeping, pledge, custody, transmission, collection or
      otherwise, and all of your deposits and credit balances in our
      possession; (iii) all returned, reclaimed or repossessed goods and the
      documents evidencing or relating to such goods; (iv) all books, records
      and other property at any time evidencing or relating to the Accounts;
      and (v) the proceeds of any insurance policies covering any of the
      foregoing.  Recourse to the collateral security herein provided shall not
      be required, and you shall at all times remain liable for the payment and
      performance of the Obligations upon demand by us.

SECTION 8. EVENTS OF DEFAULT

      The occurrence of any of the following acts or events shall constitute an
      Event of Default: (a) if you fail to make payment of any of the
      Obligations when due; (b) if you fail to make any remittance required by
      this Agreement; (c) if you commit any breach of any of the terms,
      representations, warranties, covenants, conditions or provisions of this
      Agreement, or of any present or future supplement or amendment hereto or
      of any other agreement between us; (d) if you become insolvent or unable
      to meet your debts as they mature; (e) if you deliver to us a false
      financial statement; (f) if you call, or have called by a third party, a
      meeting of creditors; (g) if you have commenced by or against you any
      bankruptcy proceeding, insolvency, arrangement or similar proceeding; (h)
      if you suspend or discontinue doing business for any reason; (i) if a
      receiver or trustee of any kind is appointed for you or any of your
      property; (j) if any guarantor of


                                          7
<PAGE>

      your Obligations shall become insolvent or have commenced by or against
      such guarantor any bankruptcy proceeding, insolvency, arrangement or
      similar proceeding; (k) if any guaranty of your Obligations is
      terminated; (l) if any change of ownership occurs with respect to more
      than forty (40%) percent of your capital stock; or (m) if a notice of
      lien, levy or assessment is filed of record with respect to all or any of
      your assets by the United States or any department, agency or
      instrumentality thereof or by any state, county, municipal or other
      governmental agency.

      Upon the occurrence of an Event of Default, we shall have the right to
      terminate this Agreement and all other arrangements existing between us
      forthwith and without notice, and the Obligations shall mature and become
      immediately due and payable and we shall have the right to withhold any
      further payments to you until all Obligations have been paid in full. In
      addition we shall have all of the rights of a secured party under the
      Uniform Commercial Code, including, without limitation, the right to take
      possession of any collateral in which we have a security interest and to
      dispose of same at public or private sale and you will be liable for any
      deficiency. We shall not be required to proceed against any collateral
      but may proceed against you directly. In the event any action is brought
      to enforce, contest, challenge, modify or invalidate the terms of this
      Agreement, including, but not limited to, any lawsuit or arbitration, you
      agree to pay our costs and reasonable attorney's fees incurred therein.

SECTION 9. TERM AND TERMINATION

      This Agreement shall continue in force and effect until terminated by
      either party hereto giving the other party not less than sixty (60) days
      prior written notice thereof.  Notice of termination shall be given by
      messenger, registered or certified mail or commercial delivery service;
      provided, however, that you shall not terminate this Agreement so long as
      you are indebted or obligated to us in connection with any other
      financing arrangements.  Notwithstanding such notice of termination, our
      respective rights and obligations arising out of transactions having
      their inception prior to the specified date of termination shall not be
      affected by such termination and all terms, provisions and conditions
      hereof, including but not limited to, the security interests hereinabove
      granted to us, shall continue in full force and effect until all
      Obligations have been paid in full.  All of the representations,
      warranties and covenants made herein shall survive the termination of
      this Agreement.

SECTION 10. MODIFICATIONS

      This Agreement cannot be changed or terminated orally; it constitutes the
      entire agreement between us and shall be binding upon our respective
      successors and assigns, but may not be assigned by you without our prior
      written consent.  No delay or failure on our part in exercising any
      right, privilege, or option hereunder shall operate as a waiver thereof
      or of any other right, privilege or option.  No waiver whatsoever shall


                                          8
<PAGE>

      be valid unless in writing, signed by us, and then only to the extent
      therein set forth.  If any term or provision of this Agreement is held
      invalid under any statute, rule or regulation of any jurisdiction
      competent to make such a decision, the remaining terms and provisions
      shall not be affected, but shall remain in full force and effect.

SECTION 11. GOVERNING LAW, VENUE AND WAIVER OF JURY

      THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH
      THE LAWS OF THE STATE OF CALIFORNIA.  YOU HEREBY CONSENT TO THE
      JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN THE
      STATE OF CALIFORNIA. IF YOU PRESENTLY ARE, OR IN THE FUTURE BECOME, A
      NON-RESIDENT OF THE STATE OF CALIFORNIA, YOU HEREBY WAIVE PERSONAL
      SERVICE OF ANY AND ALL PROCESS AND AGREE THAT ALL SUCH SERVICE OF PROCESS
      MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
      DIRECTED TO YOU, AT YOUR ADDRESS APPEARING IN OUR RECORDS AND SERVICE SO
      MADE SHALL  BE COMPLETE TEN  (10)  DAYS AFTER THE SAME HAS BEEN POSTED AS
      AFORESAID.

      YOU HEREBY WAIVE YOUR RIGHT TO TRIAL BY JURY IN ANY SUIT OR PROCEEDING
      ARISING UNDER OR RELATING TO THIS AGREEMENT.

SECTION 12. DEFINITIONS

12.1  "Accounts" -- All presently existing and hereafter created accounts,
      contract rights and general intangibles relating thereto, notes, drafts
      and other forms of obligations owed to or owned by you arising or
      resulting from the sale of goods or the rendering of services, all
      proceeds thereof, all guaranties and security therefor, and all goods and
      rights represented thereby or arising therefrom including, but not
      limited to, the right of stoppage in transit, replevin and reclamation.

12.2  "Approved Account" -- An Account with respect to which we have issued a
      credit approval which has not subsequently been withdrawn.

12.3  "Base Rate" -- The rate of interest publicly announced from time to time
      by Bank of America National Trust and Savings Association as its prime or
      base rate (or equivalent).

12.4  "Business Day" -- Any day, excluding Saturday, Sunday and any day which
      is a legal holiday under the laws of the states of Illinois or California
      or is a day on which banking institutions located in any such states are
      closed.



                                          9
<PAGE>

12.5  "Collection Date" -- (a) the date on which we receive payment of an
      Account, or (b) in the event an Approved Account remains unpaid, the date
      which is 120 days after the due date of such Account, provided that the
      customer has not asserted a Dispute.

12.6  "Credit Risk" -- The risk that a customer will be financially unable to
      pay an Account at maturity, provided that the merchandise has been
      received or services rendered and accepted by the customer without
      Dispute.

12.7  "Dispute" -- A dispute or claim, bona fide or otherwise, as to price,
      terms, quantity, quality, delivery of goods or any cause or defense to
      payment whatsoever other than financial inability to pay.

12.8  "Net Amount" -- The gross face amount of an Account less the discount
      offered by you and taken by us.

12.9  "Non-Approved Account" -- An Account with respect to which we have not
      issued a credit approval or have subsequently withdrawn a credit
      approval.

12.10 "Obligations" -- All loans, advances, debts, liabilities, obligations,
      covenants and duties owing by you to us, direct or indirect, absolute or
      contingent, due or to become due, now existing or hereafter arising,
      including, without limitations, invoices for goods or services purchased
      by you from any company whose accounts are factored or financed by us and
      indebtedness arising under any guaranty made by you or issued by us on
      your behalf.

SECTION 13. ACCEPTANCE

      This proposal is submitted to you unsigned and shall constitute an
      agreement between us only when signed by us.

Very truly yours,                      ACCEPTED AND AGREED:

HELLER FINANCIAL INC.                  TAG-IT, INC.


By: /s/                                By: /s/
   ---------------------------             --------------------------------
Title: A.V.P.                          Title: Pres.
      ------------------------                -----------------------------


                                          10

<PAGE>

                                       GUARANTY

    THIS GUARANTY ("Guaranty") is made by Harold Dyne and Colin Dyne
(individually, "Guarantor" and collectively, "Guarantors") in favor of Frank
Peck ("Peck").

    1.   CONSIDERATION.  Guarantors acknowledge that the giving of this
Guaranty is a material condition precedent to Peck's execution of that certain
Consulting Agreement and Agreement for Repurchase of Stock between Peck and
Tag-It, Inc. ("Corporation"), copies of which are attached hereto as Exhibits
"1" and "2", respectively ("Agreements"), and that Guarantors, as the majority
shareholders of Corporation, have derived or expect to derive material financial
advantages or other benefits commensurate in value to the obligations and
liabilities being undertaken by Guarantors under the terms of this Guaranty.

    2.   OBLIGATIONS GUARANTEED.  In consideration of the foregoing, and for
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, Guarantors, jointly and severally, unconditionally
guarantee and promise to pay to Peck, on demand, in lawful money of the United
States of America, all Obligations of Company to Peck, subject to the
limitations set forth in Paragraph 3 below.  "Obligations" is used herein in its
most comprehensive sense and includes all debts, obligations and liabilities of
Corporation under the Agreements currently existing or now or hereafter made,
incurred or created, whether voluntary or involuntary and however arising or
evidenced, whether due or not due (subject to the grace periods provided for in
the Agreements), absolute or contingent, liquidated or unliquidated, determined
or undetermined, and whether Corporation may be liable individually or jointly
with others, or whether recovery upon such debt may be or become barred by any
statute of limitation or otherwise unenforceable.  This Guaranty shall continue
to be effective or be reinstated, as the case may be, if at any time any payment
of any Obligations is rescinded or must otherwise be returned by Peck upon the
insolvency, bankruptcy or reorganization of Corporation, any guarantor or
otherwise, all as though such payment had not been made.

    3.   GUARANTORS' LIABILITY.  Notwithstanding anything to the contrary
contained herein, the liability of Guarantors under this Guaranty shall only
apply to (a) the first Four Hundred Twenty Five Thousand Dollars ($425,000.00)
due under the Agreements (including the $50,000.00 payment to be made upon the
Closing of the Agreement for Repurchase of Stock) and (b) Guarantors'
obligations to pay attorneys' fees and all other costs and expenses which may be
incurred by Peck in the protection, preservation or enforcement of any rights of
Peck under this Guaranty.  In any event, Peck may permit the Obligations to
exceed Guarantors' liability under this Guaranty.  The foregoing limitation of
liability applies only to Guarantors' obligations under this Guaranty; unless
otherwise specifically agreed in writing, every other guaranty heretofore, now,
or hereafter given by Guarantors to Peck with respect to the Obligations shall
be deemed independent of this Guaranty and every other such guaranty, so that as
each such guaranty is enforced or collected upon in a manner that reduces the
liability of Guarantors thereunder, the liability of all guarantors on all other
such guaranties shall remain intact.

    4.   NATURE OF GUARANTORS' LIABILITY.  The obligations and liabilities of
Guarantors under this Guaranty are joint and several and independent of the
obligations of Corporation and a separate action or actions may be brought and
prosecuted against Guarantors whether action is


                                          1
<PAGE>

brought against Corporation, Guarantors, or any other guarantor or Person,
whether or not any foreclosure has been or is going to be initiated with respect
to any security for the Obligations, or whether Corporation, Guarantors, or any
other guarantor or Person are joined in any such action or actions.  Any
recovery realized from any other guarantor of the Obligations, or recovery from
any source other than a direct payment by Guarantors, shall be first credited
upon that portion of the Obligations which exceeds the maximum liability of
Guarantors hereunder.  As used in this Guaranty, "Person" means any individual
or entity.

    5.   GUARANTORS' AUTHORIZATION.  Guarantors authorize Peck, without notice,
demand or consent of any kind (except for consents that may be required under
the Agreements), and without affecting Guarantors' liability under this
Guaranty, from time to time, to (a) renew, alter, compromise, extend, accelerate
or otherwise change any of the terms of the Obligations or any part thereof,
including changing the rate of interest thereon or the time for payment thereof,
(b) accept partial payments on the Obligations, (c) extend credit to Corporation
on an unsecured basis or take security or other support for the obligations
evidenced by this Guaranty or the Obligations, and exchange, enforce, waive or
release any such security or other support or any part thereof, (d) accept new
or additional documents, instruments or agreements relative to the Obligations,
(e) apply any security or other support and direct the order or manner of sale
or other disposition of such property as Peck, in his sole discretion, may
determine, and (f) release or substitute any Person liable on the Obligations,
any other guarantor of the Obligations, or any other Person providing support
for the Obligations to Peck, this Guaranty, or any other guaranty.

    6.   PECK'S REMEDIES.  Guarantors waive any right to require Peck to (a)
proceed against Corporation, Guarantors, or any other guarantor or Person liable
for the Obligations, (b) proceed against or exhaust any security or other
support for the Obligations granted by Corporation, Guarantors, or any other
guarantor or Person, or (c) pursue any other remedy in Peck's power whatsoever.

    7.   WAIVERS.  Guarantors waive any defense arising by reason of (a) the
absence, impairment or loss of any right of reimbursement, contribution or
subrogation, or any other right or remedy of Guarantors against Corporation,
Guarantors, or any other guarantor or Person, or with respect to any security
interest or other support for the Obligations, (b) any disability or other
defense of Corporation, or the partial or complete cessation from any cause
whatsoever of the liability of Corporation for the Obligations for any reason
other than payment in full and final satisfaction, (c) any act or omission by
Peck which directly or indirectly results in or aids the discharge of
Corporation or any of the Obligations by operation of law or otherwise, or (d)
any exchange, release or non-perfection of any security or support for the
Obligations or any release or amendment or waiver of or consent to departure
from the terms of any security agreement, other support or any other guaranty,
for all or any of the Obligations.  Guarantors shall have no right of
subrogation to, and waive to the fullest extent permitted by law, any right to
enforce any remedy which Peck now has or may hereafter have against Corporation,
Guarantors, or any other guarantor or Person, and waive any benefit of, any
right to participate in, and any right to direct the application of, any
security or support for the Obligations now or hereafter held by Peck.  Peck may
foreclose, either by judicial foreclosure or by exercise of power of sale, any
deed of trust securing the Obligations, and, even though the foreclosure may
destroy or diminish Guarantors' rights against Corporation, Guarantors, or any
other guarantor or Person, Guarantors


                                          2
<PAGE>

shall be liable to Peck for any part of the Obligations remaining unpaid after
the foreclosure.  Guarantors waive notice of acceptance of this Guaranty and of
the existence, creation or incurring of new or additional Obligations.  To the
fullest extent permitted by law, Guarantors waive any requirement of Peck to
give notice of the terms, time and place of any public or private sale of
personal property security for the Obligations to Peck or to comply with any
other provisions of Section 9504 of the Uniform Commercial Code or its
equivalent, from time to time in effect in the state governing any such security
interest.

    8.   DILIGENT INQUIRIES.  Guarantors assume the responsibility for being
and keeping informed of the financial condition of Corporation, Guarantors, and
any other guarantor or Person liable on or with respect to any of the
Obligations, and of all other circumstances bearing upon the risk of nonpayment
of the Obligations, and confirm that Peck shall have no duty to advise
Guarantors of any information regarding such condition or any such circumstances
whether or not materially adverse.

    9.   AUTHORIZATION OF CORPORATION.  Peck shall have no duty to inquire into
the powers of Corporation or of the officers, directors, partners, trustees or
agents acting or purporting to act on Corporation's behalf, and any Obligations
made or created in reliance upon the exercise of such powers shall be covered by
this Guaranty.

    10.  GENERAL PROVISIONS.

         10.1 NOTICES.  Any notice given by any party under this Guaranty shall
be in writing and personally delivered or sent by certified or registered United
States mail, postage prepaid and addressed as follows:

         TO GUARANTORS:

         Harold Dyne
         c/o Tag-It, Inc. 
         3820 South Hill Street
         Los Angeles, California 90037

         Colin Dyne
         c/o Tag-lt, Inc. 
         3820 South Hill Street
         Los Angeles, California 90037

         TO PECK:
         Frank Peck
         5417 Sylvia Avenue
         Tarzana, California 91356

    All notices, requests and other communications shall be deemed given on the
date of the earlier of actual receipt or delivery as evidenced by written
receipt, acknowledgement or other evidence of actual receipt or delivery or
three (3) days after deposited in the United States Mail


                                          3
<PAGE>

as provided for above.  Guarantors and Peck may change the place to which
notices, requests, and other communications are to be sent by giving written
notice of such change to the other.

         10.2 BINDING EFFECT.  This Guaranty shall be binding upon Guarantors,
their permitted successors, representatives and assigns, and shall inure to the
benefit of Peck and his successors and assigns; provided, however, that
Guarantors may not assign or transfer their obligations under this Guaranty.

         10.3 NO WAIVER.  Any waiver, consent or approval of any kind by Peck
must be in writing and shall be effective only to the extent set forth in such
writing.  No failure or delay on the part of Peck in exercising any power, right
or privilege under this Guaranty shall operate as a waiver thereof, and no
single or partial exercise of any such power, right or privilege shall preclude
any further exercise thereof, or the exercise of any other power, right or
privilege.

         10.4 RIGHTS CUMULATIVE.  All rights and remedies existing under this
Guaranty are cumulative to, and not exclusive of, any other rights or remedies
under contract or applicable law.

         10.5 UNENFORCEABLE PROVISIONS.  Any provision of this Guaranty which
is prohibited or unenforceable in any jurisdiction shall be so only as to such
jurisdiction and only to the extent of such prohibition or unenforceability, but
all the remaining provisions of this Guaranty shall remain valid and
enforceable.

         10.6 GOVERNING LAW/WAIVERS.  This Guaranty shall be governed by and
construed in accordance with the laws of the State of California.  To the
fullest extent permitted by law, Guarantors hereby waive presentment, demand,
protest, notice of dishonor and all other notices and demands, as well as any
applicable statute of limitations.

         10.7 INDEMNIFICATION.  Guarantors shall indemnify Peck against, and
hold Peck harmless from, all claims, actions, losses, and expenses, including
attorneys' fees and costs incurred by Peck, arising in connection with any
action challenging any aspect of or the enforceability of this Guaranty.  This
indemnification shall survive the repayment of all principal, interest and fees
payable in connection with the Obligations.

         10.8 REIMBURSEMENT.  Guarantors shall reimburse Peck for all costs and
expenses, including reasonable attorneys' fees expended or incurred by Peck in
any arbitration, judicial reference, legal action or otherwise in connection
with (a) the enforcement of this Guaranty, including without limitation during
any workout or attempted workout of the Obligations, and/or in connection with
the rendering of legal advice as to Peck's rights, remedies and obligations
under this Guaranty, (b) collecting any sum which becomes due Peck under this
Guaranty, (c) any proceeding for declaratory relief, any counterclaim to any
proceeding, or any appeal, or (d) the protection, preservation or enforcement of
any rights of Peck.

         10.9 ENTIRE AGREEMENT.  This Guaranty is intended by Guarantor and
Peck as the final expression of Guarantors' obligations and liabilities to Peck
described herein and supersedes all prior understandings or agreements
concerning the subject matter hereof.  This Guaranty may be amended only by a
writing signed by Guarantors and agreed to by Peck.


                                          4
<PAGE>

    IN WITNESS WHEREOF, Guarantors have executed this Guaranty this 31st day of
October, 1994.

                             GUARANTORS

                             /s/ Harold Dyne
                             --------------------------
                             HAROLD DYNE


                             /s/ Colin Dyne
                             --------------------------
                             COLIN DYNE





                                          5

<PAGE>

January 1, 1996

Mr. Colin Dyne
President
Guess Stationery
3820 South Hill Street
Los Angeles, California 90037

Dear Mr. Dyne:

1.  This letter confirms our understanding that Guess Stationery (the
    "Company") has engaged Averil Associates, Inc.  ("Averil"), on an exclusive
    basis, as financial advisor to the Company regarding its strategic and
    financing alternatives (the "Engagement").  It is anticipated that the
    scope of this retention will take the following form:

    (A)  Averil will act as the exclusive financial advisor to the Company with
         respect to the consideration and implementation of its strategic
         alternatives.  As part of this assignment, Averil will  (i) study and
         evaluate the short-term and long-term projected financial performance
         and capital needs of the Company, including the review and execution
         of the Company's intended business plan, (ii) develop valuation
         perspectives regarding the Company, reflecting appropriate strategic,
         industry and macroeconomic considerations, (iii) work with management
         in contacting potential strategic and/or financial
         investors/acquirors, (iv) work with management in contacting potential
         private and public institutional capital sources, (v) work with
         management in identifying and pursuing potential strategic
         partnerships, (vi) review various structural and tax considerations
         applicable to a transaction(s) impacting the Company, (vii) coordinate
         all financial and legal advisors involved in the transactional
         process, and (viii) assist in the negotiation and execution of any
         transaction including economic, structural and other terms and
         conditions.  

         In addition to these activities, Averil will also provide other
         services in connection with the Company's ongoing business and
         strategic needs.  In this regard, Averil will (i) assist the Company
         in identifying and interviewing necessary management personnel, (ii)
         if requested, act in the capacity of a director of the Company to
         assist with the execution of its ongoing business and strategic plan,
         and (iii) any other matters reasonably related to the above.

         The Company agrees that it will not, and it will not permit any of its
         affiliates to, directly or indirectly, contact, approach or negotiate
         with any person with respect to any transaction, other than through
         Averil, as agent.

<PAGE>

    (B)  A transaction may include the Company or any of its affiliates,
         including (without limitation) a new entity formed for such purpose
         (collectively, the "Entities").  

2.  The Company shall pay to Averil, as compensation for services under this
    engagement, as follows:

    (A)  RETAINER.  A non-refundable retainer fee of $20,000, payable upon
         execution of this letter agreement.

         In addition to the cash fees payable pursuant to this subparagraph,
         and in consideration for the corporate services to be rendered
         pursuant to paragraph 1(A), the Company shall issue to Averil, at no
         cost, equity securities, warrants or other participating interests in
         the Company (or, if applicable, another Entity) representing 135
         shares of the outstanding common stock of the Company on a
         fully-diluted basis.

    (B)  TRANSACTION FEES.  A transaction fee of $175,000, payable in cash, at
         the closing (or, if more than one, at each closing) of a major
         financing or strategic transaction in line with the Company's business
         plan, by wire transfer or certified bank check.  It is understood that
         Averil shall not be separately compensated for assistance in any
         licensing, joint venture or other strategic arrangement unless such
         transaction rises to a substantial level and includes capitalization
         for the benefit of the Company or any of the Entities.

    (C)  EXPENSES.  In addition to any fees payable hereunder, the Company 
         shall, whether or not a transaction shall be consummated, reimburse
         Averil as billed for its business class travel and other reasonable
         out-of-pocket expenses (including all fees and disbursements of
         counsel and of other consultants and advisors retained by it,
         messenger and duplicating services, telephone and facsimile expenses,
         document and database charges and other customary expenditures),
         incurred in connection with, or arising out of, Averil's activities
         under or contemplated by this engagement.  The Company shall also
         reimburse Averil, at such times as Averil shall request, for any
         sales, use or similar taxes (including additions to such taxes, if
         any) arising in connection with any matter referred to or contemplated
         by this engagement.  Averil shall charge all of its out-of-pocket
         expenses at its actual cost.

    (D)  DEFINITIONS.  As used herein, "transaction" shall mean any transaction
         or series or combination of transactions whereby, directly or
         indirectly, a party obtains control of or an interest in any of the
         Entities or their respective affiliates or assets.  Such transaction
         may include, but shall not be limited to, a minority or majority
         investment, a private or public financing transaction, an acquisition
         or exchange of capital stock or assets, a lease of assets with or
         without a purchase option, a merger or consolidation, the formation of
         a joint venture or partnership or any similar transaction.

    (E)  As part of this engagement, Averil and the Company understand that
         each party is striving to maintain a long-term relationship with the
         other.  As a result, the Company agrees that, if at any time the
         Company or any of its subsidiaries or affiliates proposes


                                                                               2
<PAGE>

         directly or indirectly to (i) enter into any financing transaction
         (including, without limitation, any sale of debt, equity or other
         securities; any bank, working capital or other credit facility; any
         leasing transaction; any capital restructuring; or any similar
         transaction), or (ii) any acquisition or exchange of capital stock or
         assets (other than in the ordinary course of business); any sale or
         lease of assets (other than in the ordinary courses of business); any
         merger or consolidation; any formation of a joint venture or
         partnership; or any similar transaction.  Averil shall be given an
         offer to act as financial advisor in connection therewith, at Averil's
         customary fees and upon terms and conditions contained in a mutually
         acceptable agreement.

3.  In connection with Averil's activities hereunder, the Company will furnish
    Averil with all material information regarding the business and financial
    condition of the Company (all such information so furnished being the
    "Information").  The Company recognizes and confirms that Averil (i) will
    use and rely primarily on the Information and on information available from
    generally recognized public sources in performing the services contemplated
    by this letter without having independently verified the same; (ii) does
    not assume responsibility for the accuracy or completeness of the
    Information and such other information, (iii) will not make an appraisal of
    any assets of the Company, and (iv) retains the right to continue to
    perform due diligence during the course of the engagement.

4.  Since Averil will be acting on behalf of the Company in connection with its
    engagement hereunder, the Company and Averil have entered into a separate
    indemnification agreement, dated the date hereof and attached hereto,
    providing for the indemnification of Averil and certain related persons. 
    Such indemnification agreement is an integral part of this letter and the
    terms thereof are incorporated by reference herein.  It is understood that
    if any other person or entity is established for the purpose of carrying
    out any transaction contemplated by this engagement letter, such person or
    entity will enter into engagement and indemnification agreements
    substantially similar to this engagement letter and the associated
    indemnification agreement dated the date hereof.  THE COMPANY ACKNOWLEDGES
    AND AGREES THAT THE SERVICES RENDERED BY AVERIL UNDER THIS ENGAGEMENT ARE
    FINANCIAL ADVISORY SERVICES ONLY AND DO NOT INCLUDE THE RENDERING OF ANY
    LEGAL REPRESENTATION BY AVERIL OR ANY OF ITS AGENTS OR EMPLOYEES.  THE
    COMPANY REPRESENTS THAT IT EITHER HAS LEGAL COUNSEL, OR WILL RETAIN LEGAL
    COUNSEL, TO RENDER APPLICABLE LEGAL SERVICES IN RELATION TO THE ASSIGNMENTS
    CONTEMPLATED BY THIS ENGAGEMENT AND WILL IN NO WAY RELY UPON AVERIL TO
    RENDER SUCH LEGAL COUNSEL.   DM  CD   (initials)

5.  Averil's engagement hereunder shall be terminable at will at any time prior
    to the closing of the Transaction by either the Company or Averil upon
    thirty days' prior written notice thereof to the other party.  It is
    understood, however, that notwithstanding any termination of Averil's
    engagement hereunder, Averil shall be entitled, in any event, to receive
    any retainer fees and all out-of-pocket expenses to be paid to it pursuant
    to clauses (A) and (C) of the second paragraph of this letter agreement
    and, for a period of twelve months subsequent to the termination of this
    engagement, any transaction fees referred to in clause (B) of the second
    paragraph of this letter agreement relating to assignments within the scope
    of this engagement.  In addition, the provision of clause (E) of the second
    paragraph of this letter shall survive for a period of twelve months
    subsequent to the termination of this letter.  Otherwise, the parties shall
    not have any continuing liability or obligation to the other except for
    those related to the indemnification


                                                                               3
<PAGE>

    agreement referred to in paragraph 4 hereof and the representations and
    warranties contained in paragraph 7, the terms of which shall survive any
    termination of Averil's engagement hereunder.

6.  The advice (written or oral) rendered by Averil pursuant to this agreement
    is intended solely for the benefit and use of the Company in considering
    the matters to which this agreement relates, and the Company agrees that
    neither such advice nor Averil's retention may be disclosed publicly or
    made available to third parties without the prior written consent of
    Averil.

7.  The Company represents and warrants to Averil that (i) this Agreement has
    been duly authorized, executed and delivered by the Company, and,
    constitutes a legal, valid and binding agreement of the Company,
    enforceable in accordance with its terms and (ii) any offering materials
    will not, when delivered for distribution in connection with he Transaction
    and at the closing of the Transaction, contain any untrue statements of a
    material fact or omit to state any material fact necessary to make the
    statements contained therein, in light of the circumstances under which
    they were made, not misleading.  The Company shall advise Averil promptly
    of the occurrence of any event or any other change that results in the
    Information or offering materials containing any untrue statement of a
    material fact or omitting to state any material fact necessary to make the
    statements contained therein, in light of the circumstances under which
    they were made, not misleading.

8.  The execution of this letter shall not be deemed or construed as obligating
    Averil to make any investment in the Company or any other Entity, directly
    or indirectly.

9.  This Agreement may not be modified or amended except in a writing duly
    executed by the parties hereto.

10. Any determination that any one or more of the provisions of this Agreement
    may be, or is, invalid, illegal or unenforceable shall not affect the
    validity, legality or enforceability of the remainder of this Agreement.

11. THIS AGREEMENT AND ALL CONTROVERSIES ARISING FROM OR RELATING TO
    PERFORMANCE UNDER THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
    ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT
    TO SUCH STATE'S RULES CONCERNING CONFLICTS OF LAWS.  THE PARTIES HERETO
    HEREBY IRREVOCABLY CONSENT TO PERSONAL JURISDICTION AND VENUE IN ANY COURT
    OF THE STATE OF CALIFORNIA OR ANY FEDERAL COURT SITTING IN THE CITY OF LOS
    ANGELES FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING
    OUT OF THIS AGREEMENT OR ANY OF THE AGREEMENTS OR TRANSACTIONS CONTEMPLATED
    HEREBY, WHICH IS BROUGHT BY OR AGAINST ANY PARTY HERETO, AND HEREBY AGREE
    THAT ALL CLAIMS IN RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE
    HEARD AND DETERMINED IN ANY SUCH COURT.  THE PARTIES HERETO HEREBY
    IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
    COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES
    THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTIES
    AT THEIR RESPECTIVE ADDRESSES SET FORTH ABOVE, SUCH SERVICE TO BECOME
    EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING.  ANY RIGHT TO TRIAL BY JURY
    WITH RESPECT TO ANY CLAIM OR ACTION ARISING OUT OF THIS AGREEMENT OR
    CONDUCT IN CONNECTION WITH THIS ENGAGEMENT IS HEREBY WAIVED.    DM  CD   
    (initials)


                                                                               4
<PAGE>

12. This agreement may be executed in counterparts, each of which together
    shall be considered a single document.

Please confirm that the foregoing is in accordance with your understanding by
signing and returning to Averil the enclosed duplicate of this letter, which
shall thereupon constitute a binding agreement.



AVERIL ASSOCIATES, INC.



By:     /s/ Diana Maranon
    -----------------------------------
    Diana L. Maranon



ACCEPTED AND AGREED TO:

GUESS STATIONERY



By:     /s/ Colin Dyne
    -----------------------------------
    Colin Dyne


                                                                               5
<PAGE>

January 1, 1996

Averil Associates, Inc.
833 17th Street, Suite Six
Santa Monica, CA  90403
Attn:  Diana L. Maranon

Ladies and Gentlemen:

In connection with your engagement as our financial advisor pursuant to a letter
agreement, dated January 1, 1996 (as such agreement may be amended from time to
time, the "Agreement"), between you and us, we hereby agree to indemnify and
hold harmless you and your affiliates, and your respective directors, officers,
agents, employees and controlling persons, and each of their respective
successors and assigns (collectively, the "indemnified persons"), to the full
extent lawful, from and against all losses, claims, damages, liabilities and
expenses (or actions in respect thereof) that are related to or arise out of (i)
actions or alleged actions taken or omitted to be taken (including any untrue
statements made or any statements omitted to be made) by us or any of our
affiliates, directors, officers, employees or agents, (ii) actions or alleged
actions taken or omitted to be taken by an indemnified person (including acts or
omissions constituting ordinary negligence) pursuant to the terms of, or in
connection with services rendered pursuant to or in accordance with the terms
of, the Agreement or any transaction or proposed transaction contemplated
thereby or any indemnified person's role in connection therewith, or (iii) any
untrue statement or alleged untrue statement of a material fact contained in any
offering materials or in any amendment or supplement thereto, or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading.  We will not be responsible,
however, for any losses, claims, damages, liabilities or expenses pursuant to
clause (ii) of the preceding sentence that are finally judicially determined to
have resulted primarily from the gross negligence or willful misconduct of the
person seeking indemnification hereunder.  We also agree that (i) no indemnified
person shall have any liability to us or any of our affiliates, directors,
officers, employees or agents except for losses, claims, damages, liabilities or
expenses incurred by us in connection with the Transaction that are finally
judicially determined to have resulted primarily from the gross negligence or
willful misconduct of such indemnified person; and (ii) in no event shall the
indemnified persons' aggregate liability in connection with such losses, claims,
damages, liabilities and expenses exceed the fees you actually receive from us
pursuant to the Agreement.

Promptly after receipt by an indemnified person of notice of any complaint or
the commencement of any action or proceeding with respect to which
indemnification is being sought hereunder, such person will notify us in writing
of such complaint or of the commencement of such action or proceeding, but
failure so to notify us will relieve us from any liability that we may have
hereunder only if, and to the extent that, such failure results in the
forfeiture by us of any material defenses, and will not in any event relieve us
from any other obligation or liability that we may have to any indemnified
person.  We will not, without the prior written consent of you, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not you or any other
indemnified person is an actual or potential party to such claim, action, suit
or proceeding).

We agree that if any indemnification sought by an indemnified person pursuant to
this letter agreement is held by a court to be unavailable for any reason other
than as specified in the second sentence of the first paragraph of this letter
agreement, then we will contribute to the losses, claims, damages, liabilities
and expenses for which such indemnification is held unavailable (i) in such
proportion as is appropriate to reflect the relative benefits to us, on the one
hand, and you, on the other hand, in connection with your engagement refereed to
above, or (ii) if the allocation provided by clause (i) above in this paragraph
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) in this
paragraph, but also the relative fault of us, on the one hand, and you, on the
other hand, as well as any other relevant equitable considerations; PROVIDED
HOWEVER, that in any event the aggregate contribution by all indemnified persons
to all losses, claims, damages, liabilities and expenses with respect to which
contribution is available hereunder will not exceed the amount of fees actually
received by you from us pursuant to your engagement referred to above.  It is
hereby agreed that for purposes of this paragraph, the relative benefits to us,
on the one hand, and you, on the


                                                                               6
<PAGE>

other hand, with respect to your engagement shall be deemed to be in the same
proportion as (i) the total value paid or proposed to be paid or received by us
or our stockholders, as the case may be, pursuant to the transaction, whether or
not consummated, for which you are engaged to render financial advisory
services, bears to (ii) the fee paid or proposed to be paid to you in connection
with such engagement.  It is agreed that it would not be just and equitable if
contribution pursuant to this paragraph were determined by pro rata allocation
or by any other method which does not take into account the considerations
referred to in this paragraph.

We further agree that we will promptly reimburse you and any other indemnified
person hereunder for all expenses (including fees and disbursements of counsel)
as they are incurred in connection with investigating, preparing or defending
any pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder, whether or not in
connection with pending or threatened litigation in which any indemnified person
is a party.

Our indemnity, contribution and other obligations under this letter agreement
shall be in addition to any rights that you or any other indemnified person may
have at common law or otherwise, and shall be binding on our successors and
assigns.

We hereby consent to personal jurisdiction, service and venue in any court in
which any claim which is subject to, or which may give rise to a claim for
indemnification or contribution under, this letter agreement is brought against
you or any other indemnified person.

This letter agreement shall be deemed made in California.  This letter agreement
and all controversies arising from or relating to performance under this letter
agreement shall be governed by and construed in accordance with the laws of the
State of California, without giving effect to such state's rules concerning
conflicts of laws.  ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR
ACTION ARISING OUT OF THIS LETTER AGREEMENT OR ANY ENGAGEMENT OF YOU IS HEREBY
WAIVED.

It is understood that, in connection with your above-mentioned engagement, you
may also be engaged to act in one or more additional capacities, and that the
terms of the original engagement or any such additional engagement may be
embodied in one or more separate written agreements.  The provisions of this
letter agreement shall apply to the original engagement, related activities
prior to the date of the original engagement, any such additional engagement and
any modification of the original engagement or such additional engagement and
shall remain in full force and effect following the completion or termination of
your engagement(s).


                             Sincerely,

                             GUESS STATIONERY


                             By:     /s/ Colin Dyne
                                     ---------------------------------
                                     Colin Dyne, President

                             Dated:
                                     ---------------------------------

Accepted:

AVERIL ASSOCIATES, INC.


By:       /s/ Diana Maranon
        ------------------------------
        Diana L. Maranon

Dated:      1/1/97
        ------------------------------

                                                                               7

<PAGE>
                                  WARRANT AGREEMENT


    This WARRANT AGREEMENT (this "Agreement") is made and entered into as of
the 1st day of February, 1996, by and between A.G.S. Stationery, Inc., a
California corporation (the "Company"), and Chloe Holdings, Inc. ("Holder").  In
consideration of these premises and the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the Company and Holder agree as
follows:

    1.   GRANT OF WARRANT.

    In consideration of the sum of $0.14 ($0.001 per Warrant), the Company
hereby grants to Holder the right and option (the "Warrant"), upon the terms and
subject to the conditions set forth in this Agreement, to purchase all or any
portion of 135 shares of the Common Stock, par value $0.001 per share, of the
Company (the "Warrant Shares") at an exercise price of $128.00 per share (the
"Exercise Price").

    2.   TERM OF WARRANT.

    The Warrant shall terminate and expire at 5:00 p.m., Los Angeles time, on
December 31, 2002 (the "Warrant Expiration Date"), unless sooner terminated as
provided herein.

    3.   VESTING.

         (a)  The Warrant is immediately exercisable with respect to all 135
shares of Common Stock.

         (b)  Notwithstanding anything to the contrary contained in this
Agreement, the Warrant may not be exercised, in whole or in part, unless and
until any then-applicable requirements of all state and federal laws and
regulatory agencies shall have been fully complied with to the satisfaction of
the Company and its counsel.

    4.   EXERCISE OF WARRANT.

    There is no obligation to exercise the Warrant, in whole or in part.  The
Warrant may be exercised, in whole or in part, only by delivery to the Company
of:

         (a)  written notice of exercise in form and substance identical to
Exhibit "A" attached to this Agreement stating the number of Warrant Shares then
being purchased (the "Purchased Shares"); and

         (b)  payment of the Exercise Price of the Purchased Shares in cash, by
check, or by wire transfer.

<PAGE>

    Upon receipt of the foregoing, the Company shall promptly issue in the name
of the Holder a stock certificate evidencing the Purchased Shares by such
exercise and deliver such certificate to the Holder.

    5.   RESTRICTIONS ON PURCHASED SHARES.

         (a)  Each certificate for Purchased Shares initially issued upon the
exercise of the Warrants, shall be stamped or otherwise imprinted with a legend
in substantially the following form:

         "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
         THE CONDITIONS SPECIFIED IN A CERTAIN WARRANT AGREEMENT
         DATED FEBRUARY 1, 1996.  NO TRANSFER, SALE, PLEDGE,
         HYPOTHECATION, ENCUMBRANCE OR OTHER DISPOSITION OF THE
         SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR
         EFFECTIVE UNTIL REGISTERED OR THE COMPANY HAS RECEIVED AN
         OPINION OF COUNSEL, SATISFACTORY TO IT, THAT THE TRANSACTION
         IS EXEMPT FROM REGISTRATION, AND UNTIL SUCH CONDITIONS AS
         ARE CONTAINED IN THE WARRANT AGREEMENT HAVE BEEN FULFILLED.
         A COPY OF THE FORM OF THE WARRANT AGREEMENT IS ON FILE AT
         THE OFFICES OF A.G.S. STATIONERY, INC.  THE HOLDER OF THIS
         CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE
         BOUND BY THE PROVISIONS OF THE WARRANT AGREEMENT."

    If the Purchased Shares are no longer subject to the transfer restrictions
imposed by applicable state and Federal securities law because either (i) the
Purchased Shares or the resale of the Purchased Shares has been registered on a
registration statement declared effective by the Commission, or (ii) in the
reasonable opinion of counsel for the Company, or the opinion of counsel for
Holder, which opinion is reasonably satisfactory to counsel for the Company, all
future dispositions of any of the Purchased Shares by the contemplated
transferee would be exempt from or would satisfy the registration and prospectus
delivery requirements of the Securities Act and the qualification requirements
of the applicable state securities laws, then the restrictions on transfer of
such securities contained in this Section 5(a) shall not apply to any subsequent
transfer thereof and the Company shall, promptly upon request by Holder, remove
the legend set forth above and shall promptly issue, in exchange for the
certificate bearing such legend, a certificate without such legend to Holder.

         (b)  HOLDER AGREES THAT THE WARRANT MAY NOT BE TRANSFERRED, SOLD,
ASSIGNED OR HYPOTHECATED EXCEPT (i) TO ITS SUCCESSORS IN A MERGER OR
CONSOLIDATION OR OTHER BUSINESS COMBINATION; (ii) TO PURCHASERS OF ALL OR
SUBSTANTIALLY ALL OF ITS ASSETS; OR (iii) BY OPERATION OF LAW.  HOLDER FURTHER
AGREES THAT THE COMPANY SHALL HAVE NO OBLIGATION TO EFFECT ANY TRANSFER OF THE
WARRANTS DURING THE TIME PERIOD REFERRED TO ABOVE, UNLESS THE TRANSFEREE,
PURCHASER, ASSIGNEE OR PLEDGEE, AS THE CASE MAY BE, SHALL HAVE EXECUTED AN
AGREEMENT OBLIGATING THE


                                          2
<PAGE>
TRANSFEREE TO COMPLY WITH ALL TERMS AND CONDITIONS OF THIS AGREEMENT APPLICABLE
TO THE TRANSFEROR.

         (c)  Prior to any exercise of the Warrants or any transfer or
attempted transfer of any of the Warrants or Warrant Shares, the Holder shall
give the Company written notice of Holder's intention so to do, describing
briefly the manner of any such proposed exercise, sale or transfer.  The Holder
may effect such exercise or transfer, provided that such exercise or transfer is
not prohibited by this Section 5 and such exercise or transfer complies with all
applicable federal and state securities laws and regulations.  If in the
reasonable opinion of counsel for the Company, notwithstanding the opinion of
counsel to a Holder to the contrary, if any, the proposed transfer of such
Warrant Shares or the Warrant may not be effected without registration thereof
under the Securities Act and such registration has not been accomplished, the
Company shall, as promptly as practicable, so notify the Holder and the Holder
shall not consummate the proposed transfer.

         (d)  The Holder agrees to enter into a lock-up agreement with the
underwriters of the initial public offering of the Company's common stock (the
"IPO") pursuant to which Holder agrees not to sell the Warrant Shares for such
period of time from and after the effective date of such public offering as may
be requested by such underwriters; provided that the term of the lock-up
agreement shall not exceed the term of similar lock-up agreements executed in
favor of the underwriter by the senior officers of the Company.

    6.   ADJUSTMENTS UPON RECAPITALIZATION.

         (a)  In the event the Company should at any time or from time to time
after the date of this Warrant (the "Issuance Date") fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Exercise Price shall be appropriately decreased (i.e., the per share
Exercise Price shall be adjusted such that the aggregate exercise price for all
Warrant Shares issuable upon exercise of the Warrants in full, as adjusted,
shall remain the same) and the number of Warrant Shares shall be increased in
proportion to such increase in the aggregate number of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents.

         (b)  If the number of shares of Common Stock outstanding at any time
after the Issuance Date is decreased by a combination of the outstanding shares
of Common Stock, then, following the record date of such combination, the
Exercise Price shall be appropriately increased (i.e., the per share Exercise
Price shall be adjusted such that the aggregate exercise price for all


                                          3
<PAGE>
Warrant Shares issuable upon exercise of the Warrants in full, as adjusted,
shall remain the same) and the number of Warrant Shares shall be decreased in
proportion to such decrease in the aggregate number of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents.

         (c)  In case of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or a recapitalization
described in Section 6(a) or 6(b) of this Agreement), or the consolidation of
the Company with, or a sale of substantially all of the assets of the Company to
(which sale is followed by a liquidation or dissolution of the Company), or
merger of the Company with, another person, the Holder shall thereafter be
entitled upon exercise of the Warrant to purchase the kind and number of shares
of stock or other securities or the amount or value of any cash, assets or other
property receivable upon such event by a holder of the number of shares of the
Common Stock which the Warrant entitles the holder of the Warrant to purchase
from the Company immediately prior to such event; and in any such case,
appropriate adjustment shall be made in the application of the provisions set
forth in this Agreement with respect to the Holder's rights and interests
thereafter, to the end that the provisions set forth in this Agreement
(including the specified changes and other adjustments to the Exercise Price)
shall thereafter be applicable in relation to any shares or other property
thereafter purchasable upon exercise of the Warrant.

         (d)  In the event the Company should at any time or from time to time
after the Issuance Date fix a record date for the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
securities or rights convertible into, or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock or the
securities or such rights of any other corporation (other than Common Stock
Equivalents covered be Section 6(a) hereof), the Holder shall thereafter be
entitled upon exercise of the Warrant to receive, in addition to the Purchased
Shares being purchased upon such exercise, the securities or rights convertible
into securities receivable upon such event by a holder of the number of shares
of the Common Stock which the Holder is purchasing upon such exercise.

         (e)  If it is expected that there will occur any event described in
Section 6(c) or 6(d) hereof, the Company shall give the holder of the Warrants
notice thereof, which notice shall be given at such time or times as notice is
given to the holders of the Company's Common Stock.

         (f)  The provisions of this Section 6 are intended to be exclusive,
and the holder of the Warrant shall have no rights other than as set forth in
this Agreement (and the rights of a stockholder upon exercise of the Warrant)
upon the occurrence of any of the events described in this Section 6.

         (g)  The grant of the Warrant shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes in its capital or business structure, or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.


                                          4
<PAGE>
    7.   REPRESENTATIONS AND WARRANTIES OF HOLDER.

         Holder makes the following representations and warranties:

         (a)  Holder is acquiring the Warrants for its own account with the
present intention of holding such securities for investment purposes only and
not with a view to, or for sale in connection with, any distribution of such
securities (other than a distribution in compliance with all applicable federal
and state securities laws).

         (b)  Holder is an experienced and sophisticated investor and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the relative merits and the risks of an investment in the Warrants
and in the Warrant Shares and of protecting its own interests in connection with
this transaction.

         (c)  Holder is willing to bear and is capable of bearing the economic
risk of an investment in the Warrants and the Warrant Shares.

         (d)  The Company has made available, prior to the date of this
Agreement, to Holder the opportunity to ask questions of the Company and its
officers, and to receive from the Company and its officers information
concerning the terms and conditions of the Warrants and this Agreement and to
obtain any additional information with respect to the Company, its business,
operations and prospects, as reasonably requested by Holder.

         (e)  Holder is an "accredited investor" as that term is defined under
Rule 501(a) of Regulation D promulgated by the Securities and Exchange
Commission under the Act.

         (f)  For purposes of the application of federal and state securities
laws, Holder acknowledges that the offer and sale of the Warrants to such Holder
occurred in the State of California and that such Holder is a resident of the
State of California.

    8.   LEGEND ON STOCK CERTIFICATES.

    Holder agrees that all certificates representing the Purchased Shares will
be subject to such stock transfer orders and other restrictions as the Company
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission (the "Commission"), any stock exchange upon
which the Common Stock is then listed and any applicable federal or state
securities laws, and the Company may cause the following legend to be put on
such certificates to make appropriate reference to such restrictions:


                                          5
<PAGE>
    THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
    UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
    TRANSFERRED OR OTHERWISE HYPOTHECATED WITHOUT REGISTRATION UNDER SUCH
    ACT OR PURSUANT TO AN EXEMPTION THEREFROM.

    9.   NO RIGHTS AS STOCKHOLDER.

    Holder shall have no rights as a stockholder of the Company with respect to
the Warrant Shares until the date of the issuance to Holder of a stock
certificate or stock certificates evidencing such Warrant Shares.  Except as may
be provided in Paragraph 6 of this Agreement, no adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued.

    10.  MODIFICATION.

    The Board or a committee thereof may modify, extend or renew the Warrant or
accept the surrender of, and authorize the grant of a new option in substitution
for, the Warrant (to the extent not previously exercised).  No modification of
the Warrant shall be made without the consent of Holder which would alter or
impair any rights of Holder under the Warrant.

    11.  COVENANTS OF HOLDER AND THE COMPANY.

         (a)  DEMAND REGISTRATION.

         i)   At the later to occur of (i) one year following the closing of
any initial public offering of the Company's securities, and (ii) that date upon
which the Company is eligible to register the Warrant Shares for resale on a
Form S-3, the Holder may deliver a written request (the "Notice") executed by
the Holder and requesting registration of the resale by Holder of all of the
Purchased Shares.  As soon as practicable after receipt of the Notice, the
Company shall at its sole cost and expense file a registration statement with
the Commission on Form S-3 or any successor form, under the Securities Act,
covering the issuance of the Warrant Shares issuable to the Holder upon exercise
of the Warrant or the resale of the Warrant Shares issuable upon exercise of the
Warrant by the Holder.  The Company will use its best efforts to have such
registration statement declared effective as soon as possible thereafter, and
shall keep such registration statement current and effective until such time as
the Warrant Shares issuable upon exercise of the Warrant may be sold by the
Holder at any time without restriction or pursuant to the provisions of Rule
144(k) of the Commission or until such earlier date as all of the Purchased
Shares registered pursuant to such registration statement shall have been sold
or otherwise transferred by the Holder to a third party.  The Company shall also
prepare and file with the Commission such amendments and supplements to such
registration statement (and the prospectus used in connection therewith) as may
be necessary to update and keep such registration statement (and the prospectus
used in connection therewith)


                                          6
<PAGE>
current and effective for such three-year period and to comply with the
provisions of the Securities Act with respect to the sale of all securities
covered by such registration statement.

         ii)  The Company shall not be required to effect a registration
pursuant to this Section 11(a): (i) after the Company has effected one (1)
registration pursuant to this Section 11(a), and such registration has either
(A) been declared or ordered effective or (B) the request for such registration
has been subsequently withdrawn by the Holder (and such withdrawal is not based
on materially adverse information concerning the Company of which the Holder was
not reasonably aware at the time of such request); or (ii) if the Warrant Shares
issuable upon exercise of the Warrant may be sold by the Holder at any time
without restriction or pursuant to the provisions of Rule 144(k); or (iii) if
Form S-3 (or a successor or similar form) is not available for such offering by
the Holder; or (iv) if the Company shall furnish to the Holder following receipt
of his written request for registration, a certificate signed on behalf of the
Board of Directors by the Chairman of the Board stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, in which event the Company shall have the right to defer
such filing for a period of not more than one hundred eighty (180) days after
receipt of the Holder's request for registration.

         (b)  PIGGYBACK REGISTRATION OF WARRANT SHARES.  If, at any time during
the period commencing on the date that is 180 days from the date upon which an
IPO is declared effective by the Commission and on or before December 31, 2002,
the Company shall propose to register any shares of Common Stock (but excluding
any shares or securities being registered pursuant to Form S-8 or Form S-4 or
any successor form thereto), the Company shall (i) give the Holder written
notice, or telegraphic, telecopy or telephonic notice followed as soon as
practicable by written confirmation thereof, of such proposed registration at
least 20 business days prior to the filing of such registration statement and,
(ii) upon written notice, or telegraphic or telephonic notice followed as soon
as practicable by written confirmation thereof, given to the Company by the
Holder within 15 days after the giving of such written confirmation or written
notice by the Company, the Company shall include or cause to be included in any
such registration statement all or such portion of the Warrant Shares as the
Holder may request; PROVIDED, HOWEVER, that the Company may at any time withdraw
or cease proceeding with any such registration if it shall at the same time
withdraw or cease proceeding with the registration of the Common Stock
originally proposed to be registered; and PROVIDED FURTHER, that in connection
with any registered public offering involving an underwriting, the managing
underwriter may (if in its reasonable opinion marketing factors so require)
limit the number of securities (including any Warrant Shares) included in such
offering (other than securities of the Company).  In the event of any such
limitation, the total number of Warrant Shares to be offered for the account of
the Holder in the registration shall be reduced in proportion to the respective
number of shares requested to be included therein by all holders of the
Company's Common Stock (other than the Company) entitled to include shares of
Common Stock in the registration to the extent necessary to reduce the total
number of shares proposed to be registered to the number of shares recommended
by the managing underwriter.


                                          7
<PAGE>
         (c)  COMPANY'S OBLIGATIONS IN  REGISTRATION.  The following provisions
shall also be applicable at the sole cost and expense of the Company in the case
of registrations under Section 11:

         i)    Following the effective date of such registration statement, the
Company shall, upon the request of the Holder, forthwith supply such number of
prospectuses meeting the requirements of the Securities Act as shall be
requested by the Holder to permit it to make a public distribution of all of its
Warrant Shares, provided that the Holder shall from time to time furnish the
Company with such appropriate information (relating to the intentions of the
Holder) in connection therewith as the Company shall request in writing.

         ii)   the Company shall bear the entire cost and expense of the
registration of securities provided for in this Section (but not the selling
expenses of the Holder).

         iii)  the Company shall indemnify and hold harmless the Holder from
and against any and all losses, claims, damages and liabilities (including
reasonable fees and expenses of counsel) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or any prospectus included therein required to be filed
or furnished by reason of this Section or otherwise or in any application or
other filing under, the Securities Act or any other applicable Federal or state
securities law, or arising out of or based upon any omission or alleged omission
to state therein a material fact required to be stated therein (i.e., in any
such registration statement, prospectus, application or other filing) or
necessary to make the statements therein not misleading, to which such person
may become subject, or any violation or alleged violation by the Company to
which such Person may become subject, under the Securities Act, the Exchange
Act, or other Federal or state laws or regulations, at common law or otherwise,
except to the extent that such losses, claims, damages or liabilities are caused
by any such untrue statement or alleged untrue statement or omission or alleged
omission based upon and in strict conformity with written information furnished
to the Company by such person expressly for use therein; PROVIDED HOWEVER, that
the Holder shall at the same time indemnify the Company, its directors, each
officer signing the related registration statement, and each person, if any, who
controls the Company within the meaning of the Securities Act, from and against
any and all losses, claims, damages and liabilities (including reasonable fees
and expenses of counsel) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or any prospectus included therein required to be filed or furnished
by reason of this Section, or otherwise or in any application or other filing
under, the Securities Act or any other applicable Federal or state securities
law, or arising out of or based upon any omission or alleged omission to state
therein a material fact required to be stated therein (i.e., in any such
registration statement, prospectus, application or other filing) or necessary to
make the statements therein not misleading, to which such person may become
subject, or any violation or alleged violation by the Holder to which the
Company, its directors, each officer signing the related registration statement,
and each person, if any, who controls the Company within the meaning of the
Securities Act, may become subject, under the Securities Act, the Exchange Act,
or other Federal or state laws or regulations, at common law or otherwise, to
the extent that such losses, claims,


                                          8
<PAGE>
damages or liabilities are caused by any such untrue statement or alleged untrue
statement or omission or alleged omission based upon and in strict conformity
with written information furnished to the Company by the Holder expressly for
use therein.

         (d)  In the event any person entitled to indemnification hereunder
receives in writing a complaint, claim or other written notice of any loss,
claim, damage, liability or action giving rise to a claim for indemnification
under Section 11(c)(iii), the person claiming indemnification under Section
11(c)(iii) shall promptly notify the person or persons against whom
indemnification is sought (the "Indemnitor") of such complaint, notice, claim or
action, and the Indemnitor shall have the right to investigate and defend any
such loss, claim, damage, liability or action.  The person claiming
indemnification shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such counsel shall not be at the expense of the Indemnitor.  In no event shall
the Indemnitor be obligated to indemnify any person for any settlement of any
claim or action effected without the Indemnitor's consent, which consent shall
not be unreasonably withheld.

    12.  DISPUTES.

         (a)  ARBITRATION.  All disputes arising in connection with this
Agreement shall be finally settled by arbitration in Los Angeles, California, in
accordance with the rules of the American Arbitration Association (the "Rules of
Arbitration") and judgment on the award rendered by the arbitration panel (the
"Arbitration Panel") may be entered in any court or tribunal of competent
jurisdiction.

         (b) Any party which desires to initiate arbitration proceedings as
provided in Section 11(a) above may do so by delivering written notice to the
other party (the "Arbitration Notice") specifying (A) the nature of the dispute
or controversy to be arbitrated, (B) the name and address of the arbitrator
appointed by the party initiating such arbitration and (C) such other matters as
may be required by the Rules of Arbitration.

         (c) The Parties shall appoint a single arbitrator who shall constitute
the Arbitration Panel hereunder.  Should the parties not agree upon the
appointment of the arbitrator within 30 days of delivery of the Arbitration
Notice, the Arbitrator shall be appointed in accordance with the Rules of
Arbitration.

         (d) In any arbitration proceeding conducted pursuant to the provisions
of this Section 11, both parties shall have the right to discovery, to call
witnesses and to cross-examine the opposing party's witnesses, either through
legal counsel, expert witnesses or both.

         (e) FINALITY OF DECISION.  All decisions of the Arbitration Panel
shall be final, conclusive and binding on all parties and shall not be subject
to judicial review.  The arbitrator shall divide all costs (other than fees of
counsel) incurred in conducting the arbitration proceeding and the final award
in accordance with what they deem just and equitable under the circumstances.


                                          9
<PAGE>
         (f)  LIMITATIONS.  Notwithstanding anything to the contrary contained
in Sections 11(a) and 11(b) above, any claim by either party for injunctive or
other equitable relief, including specific performance, may be brought in any
court of competent jurisdiction and any judgment, order or decree relating
thereto shall have precedence over any arbitral award or proceeding.

    13.  GENERAL PROVISIONS.

         (a)  FURTHER ASSURANCES.   Holder shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Agreement.

         (b)  NOTICES.   All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be given to
the parties hereto as follows:

                   If to the Company, to:

                   A.G.S. Stationery, Inc.
                   3820 South Hill Street
                   Los Angeles, California  90037
                   Attention:  Chief Executive Officer

                   If to Holder, to the address set
                   forth in the records of the Company,

or at such other address or addresses as may have been furnished by either party
in writing to the other party hereto.  Any such notice, request, demand or other
communication shall be effective (i) if given by mail, two days after such
communication is deposited in the mail by first-class certified mail, return
receipt requested, postage prepaid, addressed as aforesaid, or (ii) if given by
any other means, when delivered at the address specified in this subparagraph
(b).

         (c)  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE.  JURISDICTION AND VENUE OVER
ANY LEGAL ACTION BROUGHT HEREUNDER SHALL RESIDE EXCLUSIVELY IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA.  EACH OF THE PARTIES HERETO WAIVE THEIR RIGHT TO A
JURY TRIAL WITH RESPECT TO ANY SUCH LEGAL ACTIONS.

         (d)  ATTORNEYS' FEES.   In the event that any action, suit or
arbitration or other proceeding is instituted upon any breach of this Agreement,
the prevailing party shall be paid by the other party thereto an amount equal to
all of the prevailing party's costs and expenses, including attorneys' fees
incurred in each and every such action, suit or proceeding (including any and
all appeals or petitions therefrom).  As used in this Agreement, "attorneys'
fees" shall mean the full and


                                          10
<PAGE>
actual cost of any legal services actually performed in connection with the
matter involved calculated on the basis of the usual fee charged by the attorney
performing such services and shall not be limited to "reasonable attorneys'
fees" as defined in any statute or rule of court.

         (e)  AMENDMENT; WAIVER.  This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors, heirs and personal representatives.  No provision of this Agreement
may be amended or waived unless in writing signed by all of the parties to this
Agreement.  Waiver of any one provision of this Agreement shall not be deemed to
be a waiver of any other provision.

         (f)  NO FINDERS.  The parties each agree to indemnify and hold
harmless the other against any expense incurred by reason of any consulting,
brokerage commission or finder's fee alleged to be payable to any person in
connection with the transactions contemplated hereby because of any act,
omission or statement of indemnifying party or any dealings by the indemnifying
party with any consultant, broker or finder.

         (g)  EXPENSES.  Each of the parties shall pay its own expenses
incurred in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby.

         (h)  SEVERABILITY.  Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.

         (i)  COUNTERPARTS.  This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all of the parties have not signed the
same counterpart.

         (j)  ENTIRE AGREEMENT.  This Agreement constitutes and embodies the
entire understanding and agreement of the parties hereto relating to the subject
matter hereof and there are no other agreements or understandings, written or
oral, in effect between the parties relating to such subject matter except as
expressly referred to herein.

         (k)  MISCELLANEOUS.   Titles and captions contained in this Agreement
are inserted for convenience of reference only and do not constitute a part of
this Agreement for any other purpose.  Except as specifically provided herein,
neither this Agreement nor any right pursuant hereto or interest herein shall be
assignable by any of the parties hereto without the prior written consent of the
other party hereto.


                                          11
<PAGE>

    IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.


                             A.G.S. STATIONERY, INC.



                             By:   \s\ Colin Dyne
                                   -----------------------------
                                   Colin Dyne
                             Its:  President


                             CHLOE HOLDINGS, INC.



                             By:   /s/ Diana Maranon
                                   -----------------------------
                                   Diana Maranon

                             Its:
                                   -----------------------------



                                          12
<PAGE>
                                     EXHIBIT "A"

                                  NOTICE OF EXERCISE

                   (TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT)



TO:  A.G.S. Stationery, Inc.

    The undersigned hereby irrevocably elects (to the extent indicated herein)
to exercise the purchase right represented by the Warrant granted to the
undersigned on February 1, 1996 and to purchase thereunder ___________ shares of
Common Stock of A.G.S. Stationery, Inc., a California corporation (the
"Company").  The closing of the exercise of the purchase right shall take place
at _____  on _________________, ____ at the principal executive office of the
Company located at 3820 South Hill Street, Los Angeles, California  90037.


                             HOLDER


                             By:
                                --------------------------------
                             Its: 
                                 -------------------------------



                                          13

<PAGE>

                                WARRANT AGREEMENT


     This WARRANT AGREEMENT (this "Agreement") is made and entered into as of
the 26th day of November, 1997, by and between Tag-It Pacific, Inc., Inc., a
Delaware corporation (the "Company"), and Troop Meisinger Steuber & Pasich, LLP
("Holder").  In consideration of these premises and the mutual covenants and
agreements hereinafter set forth, and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the Company and Holder
agree as follows:

     1.   GRANT OF WARRANT.

     In consideration of the sum of $10.00, the Company hereby grants to Holder
the right and option (the "Warrant"), upon the terms and subject to the
conditions set forth in this Agreement, to purchase all or any portion of such
number of shares of Common Stock of the Company (the "Warrant Shares") as is
equal to the quotient of (i) 120% of the actual fees, costs and disbursements
billed by Holder to the Company and its affiliates in connection with the
Company's initial public offering, divided by (ii) an amount equal to 90% of the
greater of $7.50 or the actual initial issuance price of a share of the
Company's Common Stock in its initial public offering, at an exercise price per
share equal to 90% of the actual initial issuance price of a share of the
Company's Common Stock in the initial public offering  (the "Exercise Price").

     2.   TERM OF WARRANT.

     The Warrant shall terminate and expire at 5:00 p.m., Los Angeles time, on
December 31, 2002 (the "Warrant Expiration Date"), unless sooner terminated as
provided herein.

     3.   VESTING.

          (a)  The Warrant is immediately exercisable with respect to all
Warrant Shares.

          (b)  Notwithstanding anything to the contrary contained in this
Agreement, the Warrant may not be exercised, in whole or in part, unless and
until any then-applicable requirements of all state and federal laws and
regulatory agencies shall have been fully complied with to the satisfaction of
the Company and its counsel.  

     4.   EXERCISE OF WARRANT.

     There is no obligation to exercise the Warrant, in whole or in part.  The
Warrant may be exercised, in whole or in part, only by delivery to the Company
of:

          (a)  written notice of exercise in form and substance identical to
Exhibit "A" attached to this Agreement stating the number of Warrant Shares then
being purchased (the "Purchased Shares"); and

<PAGE>

          (b)  payment of the Exercise Price of the Purchased Shares in cash, by
check, or by wire transfer.

     Upon receipt of the foregoing, the Company shall promptly issue in the name
of the Holder a stock certificate evidencing the Purchased Shares by such
exercise and deliver such certificate to the Holder.

     5.   RESTRICTIONS ON PURCHASED SHARES.

          (a)  Each certificate for Purchased Shares initially issued upon the
exercise of the Warrants, shall be stamped or otherwise imprinted with a legend
in substantially the following form:    

          "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
          CONDITIONS SPECIFIED IN A CERTAIN WARRANT AGREEMENT DATED NOVEMBER 26,
          1997. NO TRANSFER, SALE, PLEDGE, HYPOTHECATION, ENCUMBRANCE OR OTHER
          DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE
          VALID OR EFFECTIVE UNTIL REGISTERED OR THE COMPANY HAS RECEIVED AN
          OPINION OF COUNSEL, SATISFACTORY TO IT, THAT THE TRANSACTION IS EXEMPT
          FROM REGISTRATION, AND UNTIL SUCH CONDITIONS AS ARE CONTAINED IN THE
          WARRANT AGREEMENT HAVE BEEN FULFILLED.  A COPY OF THE FORM OF THE
          WARRANT AGREEMENT IS ON FILE AT THE OFFICES OF TAG-IT PACIFIC, INC. 
          THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE,
          AGREES TO BE BOUND BY THE PROVISIONS OF THE WARRANT AGREEMENT."

     If the Purchased Shares are no longer subject to the transfer restrictions
imposed by applicable state and Federal securities law because either (i) the
Purchased Shares or the resale of the Purchased Shares has been registered on a
registration statement declared effective by the Commission, or (ii) in the
reasonable opinion of counsel for the Company, or the opinion of counsel for
Holder, which opinion is reasonably satisfactory to counsel for the Company, all
future dispositions of any of the Purchased Shares by the contemplated
transferee would be exempt from or would satisfy the registration and prospectus
delivery requirements of the Securities Act and the qualification requirements
of the applicable state securities laws, then the restrictions on transfer of
such securities contained in this Section 5(a) shall not apply to any subsequent
transfer thereof and the Company shall, promptly upon request by Holder, remove
the legend set forth above and shall promptly issue, in exchange for the
certificate bearing such legend, a certificate without such legend to Holder.

          (b)  THE HOLDER AGREES THAT THE COMPANY SHALL HAVE NO OBLIGATION TO
EFFECT ANY TRANSFER OF THE WARRANTS DURING THE TIME PERIOD REFERRED TO ABOVE,
UNLESS THE TRANSFEREE, PURCHASER, ASSIGNEE OR PLEDGEE, AS THE CASE MAY BE, SHALL
HAVE EXECUTED AN AGREEMENT 


                                        2

<PAGE>

OBLIGATING THE TRANSFEREE TO COMPLY WITH ALL TERMS AND CONDITIONS OF THIS
AGREEMENT APPLICABLE TO THE TRANSFEROR.

          (c)  Prior to any exercise of the Warrants or any transfer or
attempted transfer of any of the Warrants or Warrant Shares, the Holder shall
give the Company written notice of Holder's intention so to do, describing
briefly the manner of any such proposed exercise, sale or transfer.  The Holder
may effect such exercise or transfer, provided that such exercise or transfer is
not prohibited by this Section 5 and such exercise or transfer complies with all
applicable federal and state securities laws and regulations.  If in the
reasonable opinion of counsel for the Company, notwithstanding the opinion of
counsel to a Holder to the contrary, if any, the proposed transfer of such
Warrant Shares or the Warrant may not be effected without registration thereof
under the Securities Act and such registration has not been accomplished, the
Company shall, as promptly as practicable, so notify the Holder and the Holder
shall not consummate the proposed transfer.

          (d)  The Holder agrees to enter into a lock-up agreement with the
underwriters of the initial public offering of the Company's common stock (the
"IPO") pursuant to which Holder agrees not to sell the Warrant Shares for such
period of time from and after the effective date of such public offering as may
be requested by such underwriters; provided that the term of the lock-up
agreement shall not exceed the term of similar lock-up agreements executed in
favor of the underwriter by the senior officers of the Company.

     6.   ADJUSTMENTS UPON RECAPITALIZATION.

          (a)  In the event the Company should at any time or from time to time
after the date of this Warrant (the "Issuance Date") fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Exercise Price shall be appropriately decreased (i.e., the per share
Exercise Price shall be adjusted such that the aggregate exercise price for all
Warrant Shares issuable upon exercise of the Warrants in full, as adjusted,
shall remain the same) and the number of Warrant Shares shall be increased in
proportion to such increase in the aggregate number of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents.

          (b)  If the number of shares of Common Stock outstanding at any time
after the Issuance Date is decreased by a combination of the outstanding shares
of Common Stock, then, following the record date of such combination, the
Exercise Price shall be appropriately increased 


                                        3

<PAGE>

(i.e., the per share Exercise Price shall be adjusted such that the aggregate
exercise price for all Warrant Shares issuable upon exercise of the Warrants in
full, as adjusted, shall remain the same) and the number of Warrant Shares shall
be decreased in proportion to such decrease in the aggregate number of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents.

          (c)  In case of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or a recapitalization
described in Section 6(a) or 6(b) of this Agreement), or the consolidation of
the Company with, or a sale of substantially all of the assets of the Company to
(which sale is followed by a liquidation or dissolution of the Company), or
merger of the Company with, another person, the Holder shall thereafter be
entitled upon exercise of the Warrant to purchase the kind and number of shares
of stock or other securities or the amount or value of any cash, assets or other
property receivable upon such event by a holder of the number of shares of the
Common Stock which the Warrant entitles the holder of the Warrant to purchase
from the Company immediately prior to such event; and in any such case,
appropriate adjustment shall be made in the application of the provisions set
forth in this Agreement with respect to the Holder's rights and interests
thereafter, to the end that the provisions set forth in this Agreement
(including the specified changes and other adjustments to the Exercise Price)
shall thereafter be applicable in relation to any shares or other property
thereafter purchasable upon exercise of the Warrant.

          (d)  In the event the Company should at any time or from time to time
after the Issuance Date fix a record date for the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
securities or rights convertible into, or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock or the
securities or such rights of any other corporation (other than Common Stock
Equivalents covered be Section 6(a) hereof), the Holder shall thereafter be
entitled upon exercise of the Warrant to receive, in addition to the Purchased
Shares being purchased upon such exercise, the securities or rights convertible
into securities receivable upon such event by a holder of the number of shares
of the Common Stock which the Holder is purchasing upon such exercise. 

          (e)  If it is expected that there will occur any event described in
Section 6(c) or 6(d) hereof, the Company shall give the holder of the Warrants
notice thereof, which notice shall be given at such time or times as notice is
given to the holders of the Company's Common Stock.  

          (f)  The provisions of this Section 6 are intended to be exclusive,
and the holder of the Warrant shall have no rights other than as set forth in
this Agreement (and the rights of a stockholder upon exercise of the Warrant)
upon the occurrence of any of the events described in this Section 6.

          (g)  The grant of the Warrant shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes in its capital or 


                                        4

<PAGE>

business structure, or to merge, consolidate, dissolve or liquidate, or to sell
or transfer all or any part of its business or assets.

     7.   REPRESENTATIONS AND WARRANTIES OF HOLDER.

          Holder makes the following representations and warranties:

          (a)  Holder is acquiring the Warrants for its own account with the
present intention of holding such securities for investment purposes only and
not with a view to, or for sale in connection with, any distribution of such
securities (other than a distribution in compliance with all applicable federal
and state securities laws).

          (b)  Holder is an experienced and sophisticated investor and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the relative merits and the risks of an investment in the Warrants
and in the Warrant Shares and of protecting its own interests in connection with
this transaction.

          (c)  Holder is willing to bear and is capable of bearing the economic
risk of an investment in the Warrants and the Warrant Shares.  

          (d)  The Company has made available, prior to the date of this
Agreement, to Holder the opportunity to ask questions of the Company and its
officers, and to receive from the Company and its officers information
concerning the terms and conditions of the Warrants and this Agreement and to
obtain any additional information with respect to the Company, its business,
operations and prospects, as reasonably requested by Holder.

          (e)  Holder is an "accredited investor" as that term is defined under
Rule 501(a) of Regulation D promulgated by the Securities and Exchange
Commission under the Act.

          (f)  For purposes of the application of federal and state securities
laws, Holder acknowledges that the offer and sale of the Warrants to such Holder
occurred in the State of California and that such Holder is a resident of the
State of California.

     8.   LEGEND ON STOCK CERTIFICATES.

     Holder agrees that all certificates representing the Purchased Shares will
be subject to such stock transfer orders and other restrictions as the Company
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission (the "Commission"), any stock exchange upon
which the Common Stock is then listed and any applicable federal or state
securities laws, and the Company may cause the following legend to be put on
such certificates to make appropriate reference to such restrictions: 


                                        5

<PAGE>

     THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
     THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED OR
     OTHERWISE HYPOTHECATED WITHOUT REGISTRATION UNDER SUCH ACT OR PURSUANT TO
     AN EXEMPTION THEREFROM.

     9.   NO RIGHTS AS STOCKHOLDER.

     Holder shall have no rights as a stockholder of the Company with respect to
the Warrant Shares until the date of the issuance to Holder of a stock
certificate or stock certificates evidencing such Warrant Shares.  Except as may
be provided in Paragraph 6 of this Agreement, no adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued.

     10.  MODIFICATION.

     The Board or a committee thereof may modify, extend or renew the Warrant or
accept the surrender of, and authorize the grant of a new option in substitution
for, the Warrant (to the extent not previously exercised).  No modification of
the Warrant shall be made without the consent of Holder which would alter or
impair any rights of Holder under the Warrant.

     11.  COVENANTS OF HOLDER AND THE COMPANY.    

          (a)  DEMAND REGISTRATION.

          i)   At the later to occur of (i) one year following the closing of
any initial public offering of the Company's securities, and (ii) that date upon
which the Company is eligible to register the Warrant Shares for resale on a
Form S-3, the Holder may deliver a written request (the "Notice") executed by
the Holder and requesting registration of the resale by Holder of all of the
Purchased Shares.  As soon as practicable after receipt of the Notice, the
Company shall at its sole cost and expense file a registration statement with
the Commission on Form S-3 or any successor form, under the Securities Act,
covering the issuance of the Warrant Shares issuable to the Holder upon exercise
of the Warrant or the resale of the Warrant Shares issuable upon exercise of the
Warrant by the Holder.  The Company will use its best efforts to have such
registration statement declared effective as soon as possible thereafter, and
shall keep such registration statement current and effective until such time as
the Warrant Shares issuable upon exercise of the Warrant may be sold by the
Holder at any time without restriction or pursuant to the provisions of Rule
144(k) of the Commission or until such earlier date as all of the Purchased
Shares registered pursuant to such registration statement shall have been sold
or otherwise transferred by the Holder to a third party.  The Company shall also
prepare and file with the Commission such amendments and supplements to such
registration statement (and the prospectus used in connection therewith) as may
be necessary to update and keep such registration statement 


                                        6

<PAGE>

(and the prospectus used in connection therewith) current and effective for 
such three-year period and to comply with the provisions of the Securities 
Act with respect to the sale of all securities covered by such registration 
statement.

          ii)  The Company shall not be required to effect a registration
pursuant to this Section 11(a): (i) after the Company has effected one (1)
registration pursuant to this Section 11(a), and such registration has either
(A) been declared or ordered effective or (B) the request for such registration
has been subsequently withdrawn by the Holder (and such withdrawal is not based
on materially adverse information concerning the Company of which the Holder was
not reasonably aware at the time of such request); or (ii) if the Warrant Shares
issuable upon exercise of the Warrant may be sold by the Holder at any time
without restriction or pursuant to the provisions of Rule 144(k); or (iii) if
Form S-3 (or a successor or similar form) is not available for such offering by
the Holder; or (iv) if the Company shall furnish to the Holder following receipt
of his written request for registration, a certificate signed on behalf of the
Board of Directors by the Chairman of the Board stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, in which event the Company shall have the right to defer
such filing for a period of not more than one hundred eighty (180) days after
receipt of the Holder's request for registration.

          (b)  PIGGYBACK REGISTRATION OF WARRANT SHARES.  If, at any time during
the period commencing on the date that is 180 days from the date upon which an
IPO is declared effective by the Commission and on or before December 31, 2002,
the Company shall propose to register any shares of Common Stock (but excluding
any shares or securities being registered pursuant to Form S-8 or Form S-4 or
any successor form thereto), the Company shall (i) give the Holder written
notice, or telegraphic, telecopy or telephonic notice followed as soon as
practicable by written confirmation thereof, of such proposed registration at
least 20 business days prior to the filing of such registration statement and,
(ii) upon written notice, or telegraphic or telephonic notice followed as soon
as practicable by written confirmation thereof, given to the Company by the
Holder within 15 days after the giving of such written confirmation or written
notice by the Company, the Company shall include or cause to be included in any
such registration statement all or such portion of the Warrant Shares as the
Holder may request; PROVIDED, HOWEVER, that the Company may at any time withdraw
or cease proceeding with any such registration if it shall at the same time
withdraw or cease proceeding with the registration of the Common Stock
originally proposed to be registered; and PROVIDED FURTHER, that in connection
with any registered public offering involving an underwriting, the managing
underwriter may (if in its reasonable opinion marketing factors so require)
limit the number of securities (including any Warrant Shares) included in such
offering (other than securities of the Company).  In the event of any such
limitation, the total number of Warrant Shares to be offered for the account of
the Holder in the registration shall be reduced in proportion to the respective
number of shares requested to be included therein by all holders of the
Company's Common Stock (other than the Company) entitled to include shares of
Common Stock in the registration to the extent necessary to reduce the total
number of shares proposed to be registered to the number of shares recommended
by the managing underwriter.


                                        7

<PAGE>

          (c)  COMPANY'S OBLIGATIONS IN  REGISTRATION.  The following provisions
shall also be applicable at the sole cost and expense of the Company in the case
of registrations under Section 11:

          i)   Following the effective date of such registration statement, the
Company shall, upon the request of the Holder, forthwith supply such number of
prospectuses meeting the requirements of the Securities Act as shall be
requested by the Holder to permit it to make a public distribution of all of its
Warrant Shares, provided that the Holder shall from time to time furnish the
Company with such appropriate information (relating to the intentions of the
Holder) in connection therewith as the Company shall request in writing.

          ii)  the Company shall bear the entire cost and expense of the
registration of securities provided for in this Section (but not the selling
expenses of the Holder).

          iii) the Company shall indemnify and hold harmless the Holder from and
against any and all losses, claims, damages and liabilities (including
reasonable fees and expenses of counsel) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or any prospectus included therein required to be filed
or furnished by reason of this Section or otherwise or in any application or
other filing under, the Securities Act or any other applicable Federal or state
securities law, or arising out of or based upon any omission or alleged omission
to state therein a material fact required to be stated therein (i.e., in any
such registration statement, prospectus, application or other filing) or
necessary to make the statements therein not misleading, to which such person
may become subject, or any violation or alleged violation by the Company to
which such Person may become subject, under the Securities Act, the Exchange
Act, or other Federal or state laws or regulations, at common law or otherwise,
except to the extent that such losses, claims, damages or liabilities are caused
by any such untrue statement or alleged untrue statement or omission or alleged
omission based upon and in strict conformity with written information furnished
to the Company by such person expressly for use therein; PROVIDED HOWEVER, that
the Holder shall at the same time indemnify the Company, its directors, each
officer signing the related registration statement, and each person, if any, who
controls the Company within the meaning of the Securities Act, from and against
any and all losses, claims, damages and liabilities (including reasonable fees
and expenses of counsel) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or any prospectus included therein required to be filed or furnished
by reason of this Section, or otherwise or in any application or other filing
under, the Securities Act or any other applicable Federal or state securities
law, or arising out of or based upon any omission or alleged omission to state
therein a material fact required to be stated therein (i.e., in any such
registration statement, prospectus, application or other filing) or necessary to
make the statements therein not misleading, to which such person may become
subject, or any violation or alleged violation by the Holder to which the
Company, its directors, each officer signing the related registration statement,
and each person, if any, who controls the Company within the meaning of the
Securities Act, may become subject, under the Securities Act, the Exchange Act,
or other Federal or state laws or regulations, at common law or otherwise, to
the extent that such losses, claims, 


                                        8

<PAGE>

damages or liabilities are caused by any such untrue statement or alleged untrue
statement or omission or alleged omission based upon and in strict conformity
with written information furnished to the Company by the Holder expressly for
use therein.

          (d)  In the event any person entitled to indemnification hereunder
receives in writing a complaint, claim or other written notice of any loss,
claim, damage, liability or action giving rise to a claim for indemnification
under Section 11(c)(iii), the person claiming indemnification under Section
11(c)(iii) shall promptly notify the person or persons against whom
indemnification is sought (the "Indemnitor") of such complaint, notice, claim or
action, and the Indemnitor shall have the right to investigate and defend any
such loss, claim, damage, liability or action.  The person claiming
indemnification shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such counsel shall not be at the expense of the Indemnitor.  In no event shall
the Indemnitor be obligated to indemnify any person for any settlement of any
claim or action effected without the Indemnitor's consent, which consent shall
not be unreasonably withheld.  

     12.  DISPUTES.

          (a)  ARBITRATION.  All disputes arising in connection with this
Agreement shall be finally settled by arbitration in Los Angeles, California, in
accordance with the rules of the American Arbitration Association (the "Rules of
Arbitration") and judgment on the award rendered by the arbitration panel (the
"Arbitration Panel") may be entered in any court or tribunal of competent
jurisdiction.

          (b)  Any party which desires to initiate arbitration proceedings as
provided in Section 11(a) above may do so by delivering written notice to the
other party (the "Arbitration Notice") specifying (A) the nature of the dispute
or controversy to be arbitrated, (B) the name and address of the arbitrator
appointed by the party initiating such arbitration and (C) such other matters as
may be required by the Rules of Arbitration.

          (c)  The Parties shall appoint a single arbitrator who shall
constitute the Arbitration Panel hereunder.  Should the parties not agree upon
the appointment of the arbitrator within 30 days of delivery of the Arbitration
Notice, the Arbitrator shall be appointed in accordance with the Rules of
Arbitration.

          (d)  In any arbitration proceeding conducted pursuant to the
provisions of this Section 11, both parties shall have the right to discovery,
to call witnesses and to cross-examine the opposing party's witnesses, either
through legal counsel, expert witnesses or both. 

          (e)  FINALITY OF DECISION.  All decisions of the Arbitration Panel
shall be final, conclusive and binding on all parties and shall not be subject
to judicial review.  The arbitrator shall divide all costs (other than fees of
counsel) incurred in conducting the arbitration proceeding and the final award
in accordance with what they deem just and equitable under the circumstances.


                                        9

<PAGE>

          (f)  LIMITATIONS.  Notwithstanding anything to the contrary contained
in Sections 11(a) and 11(b) above, any claim by either party for injunctive or
other equitable relief, including specific performance, may be brought in any
court of competent jurisdiction and any judgment, order or decree relating
thereto shall have precedence over any arbitral award or proceeding.

     13.  GENERAL PROVISIONS.

          (a)  FURTHER ASSURANCES.   Holder shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Agreement.

          (b)  NOTICES.   All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be given to
the parties hereto as follows:

                    If to the Company, to:

                    Tag-It Pacific, Inc..
                    3820 South Hill Street
                    Los Angeles, California  90037
                    Attention:  Chief Executive Officer

                    If to Holder, to the address set
                    forth in the records of the Company,

or at such other address or addresses as may have been furnished by either party
in writing to the other party hereto.  Any such notice, request, demand or other
communication shall be effective (i) if given by mail, two days after such
communication is deposited in the mail by first-class certified mail, return
receipt requested, postage prepaid, addressed as aforesaid, or (ii) if given by
any other means, when delivered at the address specified in this subparagraph
(b).

          (c)  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE.  JURISDICTION AND VENUE OVER
ANY LEGAL ACTION BROUGHT HEREUNDER SHALL RESIDE EXCLUSIVELY IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA.  EACH OF THE PARTIES HERETO WAIVE THEIR RIGHT TO A
JURY TRIAL WITH RESPECT TO ANY SUCH LEGAL ACTIONS.

          (d)  ATTORNEYS' FEES.   In the event that any action, suit or
arbitration or other proceeding is instituted upon any breach of this Agreement,
the prevailing party shall be paid by the other party thereto an amount equal to
all of the prevailing party's costs and expenses, including attorneys' fees
incurred in each and every such action, suit or proceeding (including any and
all appeals or petitions therefrom).  As used in this Agreement, "attorneys'
fees" shall mean the full and 


                                       10

<PAGE>

actual cost of any legal services actually performed in connection with the
matter involved calculated on the basis of the usual fee charged by the attorney
performing such services and shall not be limited to "reasonable attorneys'
fees" as defined in any statute or rule of court.

          (e)  AMENDMENT; WAIVER.  This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors, heirs and personal representatives.  No provision of this Agreement
may be amended or waived unless in writing signed by all of the parties to this
Agreement.  Waiver of any one provision of this Agreement shall not be deemed to
be a waiver of any other provision.

          (f)  NO FINDERS.  The parties each agree to indemnify and hold
harmless the other against any expense incurred by reason of any consulting,
brokerage commission or finder's fee alleged to be payable to any person in
connection with the transactions contemplated hereby because of any act,
omission or statement of indemnifying party or any dealings by the indemnifying
party with any consultant, broker or finder.

          (g)  EXPENSES.  Each of the parties shall pay its own expenses
incurred in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby.

          (h)  SEVERABILITY.  Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.

          (i)  COUNTERPARTS.  This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all of the parties have not signed the
same counterpart.

          (j)  ENTIRE AGREEMENT.  This Agreement constitutes and embodies the
entire understanding and agreement of the parties hereto relating to the subject
matter hereof and there are no other agreements or understandings, written or
oral, in effect between the parties relating to such subject matter except as
expressly referred to herein.

          (k)  MISCELLANEOUS.   Titles and captions contained in this Agreement
are inserted for convenience of reference only and do not constitute a part of
this Agreement for any other purpose.  Except as specifically provided herein,
neither this Agreement nor any right pursuant hereto or interest herein shall be
assignable by any of the parties hereto without the prior written consent of the
other party hereto.


                                       11

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.


                                   TAG-IT PACIFIC, INC.



                                   By:   \s\ Colin Dyne                   
                                        ----------------------------------
                                        Colin Dyne
                                   Its: President


                                   TROOP MEISINGER STEUBER & PASICH LLP



                                   By:   /s/ Murray Markiles              
                                        ----------------------------------
                                        Murray Markiles
                                        Its: Partner


                                       12

<PAGE>

                                   EXHIBIT "A"

                               NOTICE OF EXERCISE

                (TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT)



TO:  Tag-It Pacific, Inc.

     The undersigned hereby irrevocably elects (to the extent indicated herein)
to exercise the purchase right represented by the Warrant granted to the
undersigned on November 26, 1997 and to purchase thereunder ___________ shares
of Common Stock of Tag-It Pacific, Inc., a Delaware corporation (the "Company").
The closing of the exercise of the purchase right shall take place at _____  on
_________________, ____ at the principal executive office of the Company located
at 3820 South Hill Street, Los Angeles, California  90037.


                                   HOLDER


                                   By:
                                        -------------------------------
                                   Its:
                                        -------------------------------


                                       13


<PAGE>

                                   PROMISSORY NOTE

$16,000.00                                            Los Angeles, California
                                                      May 9, 1996


    For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the undersigned, Tag-It ("Payor"), hereby promises to pay to
Pacific Western ("Payee"), or order, the principal sum of Sixteen Thousand
($16,000.00) with interest thereon at a rate of Seven and One Half percent
(7.5%) per annum from the date hereof, which amount has been or will be funded
by Payee to Payor as follows: (a) Ten Thousand Dollars ($10,000) on the date
thereof; (b) Five Thousand Dollars ($5,000) on 5/31/96; (c) One Thousand Dollars
($1,000) on 7/18/96.  All payments on this Note shall be made at such address as
the holder of this Note may advise Payor in writing, in lawful money of the
United States of America.

    All interest and the entire principal amount of this Note shall be payable
to Payee on the fifteenth day following the date of delivery by Payee to Payor
of written demand therefor, (the "Maturity Date").  This Note may be prepaid in
whole or in part at any time without penalty.

    Payor hereby waives presentment for payment, protest, notice of protest and
notice of non-payment of this Note.  In the event that any suit or proceeding is
instituted by the holder of this Note for collection hereof, the holder of this
Note shall be entitled to repayment by the Payor of all costs and expenses
incurred in connection therewith, including court costs and attorneys' fees,
regardless of whether a lawsuit is instituted.  This Note may be extended or
renewed by the holder hereof, at the holder's option, but no such extension or
renewal shall be effective unless made in writing, and Payor acknowledges that
it is not entitled to any such extension or renewal and has been given no
assurance of any nature with respect thereto.  No failure on the part of the
holder of this Note to exercise, or delay in exercising, any right, remedy or
privilege under this Note shall operate as a waiver thereof, nor shall a single
or partial exercise thereof preclude any further exercise of such right, remedy,
power or privilege.  The waiver by the holder of this Note of any default
hereunder shall not be deemed, nor shall the same constitute, waiver of any
subsequent default on the part of Payor of a same or different nature.  This
Note shall be governed by the laws of the State of California.


                                            Tag-It, Inc.
                                            a California corporation


                                            By    /s/ Colin Dyne
                                               -----------------------------
                                                      Colin Dyne
                                              Its: President

<PAGE>
                                       
                                                    EXHIBIT 10.43

                                PROMISSORY NOTE


$6,000.00                                           Los Angeles, California
                                                    June 25, 1996

     For good and valuable consideration, the receipt and sufficiency of 
which is acknowledged, the undersigned, Pacific Trim & Belt, Inc. ("Payor"), 
hereby promises to pay to Pacific Western ("Payee"), or order, the principal 
sum of Six Thousand ($6,000.00) with interest thereon at a rate of Seven and 
One Half percent (7.5%) per annum from the date hereof, which amount has been 
or will be funded by Payee to Payor as follows:  (a) Five Thousand Dollars 
($5,000) on the date thereof; (b) One Thousand Dollars ($1,000) on 7/18/96.  
All payments on this Note shall be made at such address as the holder if this 
Note may advise Payor in writing, in lawful money of the United States of 
America.

    All interest and the entire principal amount of this Note shall be payable 
to Payee on the fifteenth day following the date of delivery by Payee to 
Payor of written demand therefor, (the "Maturity Date").  This Note may be 
prepaid in whole or in part at any time without penalty.

    Payor hereby waives presentment for payment, protest, notice of protest 
and notice of non-payment of this Note.  In the event that any suit or 
proceeding is instituted by the holder of this Note for collection hereof, the 
holder of this Note shall be entitled to repayment by the Payor of all costs 
and expenses incurred in connection therewith, including court costs and 
attorneys' fees, regardless of whether a lawsuit is instituted.  This Note 
may be extended or renewed by the holder hereof, at the holder's option, but 
no such extension or renewal shall be effective unless made in writing, and 
Payor acknowledges that it is not entitled to any such extension or renewal 
and has been given no assurance of any nature with respect thereto.  No 
failure on the part of the holder of this Note to exercise, or delay in 
exercising any right, remedy or privilege under this Note shall operate as a 
waiver thereof, nor shall a single or partial exercise thereof preclude any 
further exercise of such right, remedy, power or privilege.  The waiver by 
the holder of this Note of any default hereunder shall not be deemed, nor shall 
the same constitute, waiver of any subsequent default on the part of Payor of 
a same or different nature.  This Note shall be governed by the laws of the 
State of California.

                                        Pacific Trim & Belt, Inc.
                                        a California corporation



                                        By: /s/ HAROLD DYNE
                                           ----------------------
                                                Harold Dyne

                                        Its:    President







<PAGE>

       I.  CHOICE OF FORUM.  Choice of Law. This Agreement shall be construed 
under and in accordance with the laws of the State of California. All 
obligations created under this Agreement are performable in California.

       J.  ARBITRATION.  Should a dispute arise between the parties 
concerning their rights or duties under this Agreement, the dispute shall be 
arbitrated under the commercial arbitration rules of the American Arbitration 
Association.

       K.  ATTORNEY'S FEES.  Should any litigation or arbitration be 
commenced between the parties hereto or their personal representatives 
concerning any provision of this Agreement, or the rights or duties of any 
person litigation or arbitration shall be entitled to in addition to such 
other relief as may be granted, a reasonable sum as an attorney's fee. Assembly
contract to be executed by its authorized representatives effective as of the 
date indicated of signing.

       
                                                /s/  JONATHAN MARKILES
                                            ------------------------------
                                                  Jonathan Markiles
                                                 CHAIRMAN OF THE BOARD
                                             TAG IT DE MEXICO, S.A. DE C.V.



        /s/  COLIN DYNE
- ----------------------------------
      CHAIRMAN OF THE BOARD
  TAG IT, INC., LOS ANGELES, CA


                                       6

<PAGE>
                                 TAG IT PACIFIC, INC.
                                    LOCK-UP LETTER

                                   November 7, 1997

CRUTTENDEN ROTH INCORPORATED
18301 Von Karman, Suite 100
Irvine, California  92612

Ladies and Gentlemen:

    The undersigned understands that you and certain other firms propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") providing
for the purchase by you and such other firms (the "Underwriters") of shares (the
"Shares") of Common Stock, $0.001 par value per share (the "Common Stock"), of
Tag It Pacific, Inc., a Delaware corporation (the "Company") and that the
Underwriters propose to reoffer the Shares to the public (the "Public
Offering").

    In consideration of the execution of the Underwriting Agreement by the
Underwriters, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that without the prior written consent of Cruttenden
Roth Incorporated (which consent may be withheld in its sole discretion) the
undersigned will not sell, offer to sell, solicit an offer to buy, contract to
sell, loan, pledge, grant any option to purchase, or otherwise transfer or
dispose of (collectively, a "Disposition"), any shares of Common Stock, or any
securities convertible into or exercisable or exchangeable for Common Stock
(collectively, "Securities"), now owned or hereafter acquired by the undersigned
or with respect to which the undersigned has or hereafter acquires the power of
disposition, for a period of 365 days after the date of the final Prospectus
relating to the offering of the Shares to the public by the Underwriters (the
"Lock-Up Period").  The foregoing restriction is expressly agreed to preclude
the holder of the Securities from engaging in any hedging, pledge or other
transaction which is designed to, or which may reasonably be expected to lead to
or result in a Disposition of Securities during the Lock-Up Period even if such
Securities would be disposed of by someone other than the undersigned.  Such
prohibited hedging, pledge or other transactions would include without
limitation any short sale (whether or not against the box), any pledge of shares
covering an obligation that matures, or could reasonably mature during the
Lock-Up Period, or any purchase, sale or grant of any right (including without
limitation any put or call option ) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities.

Notwithstanding the foregoing, the undersigned may (i) exercise (on a cash or
cashless basis, whether in a traditional cashless exercise or in a "brokers"
cashless exercise), Common Stock options or warrants outstanding on the date
hereof, it being understood, however, that the shares of Common Stock received
(net of shares sold by or on behalf of the undersigned in a "brokers" cashless
exercise or shares delivered to the Company in a traditional cashless exercise
thereof) by the undersigned upon exercise thereof shall be subject to the terms
of this agreement, and (ii) transfer shares of Common Stock or Securities during
the undersigned's lifetime by BONA FIDE gift, to the undersigned's equity owners
or members of the undersigned's immediate family, or to a trust for such
members' benefit, or upon death by will or intestacy, provided that any
transferee agrees to be bound by the terms of this agreement.

    The undersigned understands that the Underwriters will rely upon the
representations set forth in this agreement in proceeding with the Public
Offering.  The undersigned agrees that the provisions of this agreement shall be
binding upon the successors, assigns, heirs, personal and legal representatives
of the undersigned.  Furthermore, the undersigned hereby agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of the Securities held by the undersigned except in
compliance with this agreement.



<PAGE>

CRUTTENDEN ROTH INCORPORATED
November 7, 1997
Page 2


    It is understood that, if the Underwriting Agreement does not become
effective prior to February 27, 1998, or if the Underwriting Agreement (other
than the provisions thereof which survive termination) shall terminate or be
terminated prior to payment for and delivery of the Shares, the obligations
under this agreement shall automatically terminate and be of no further force
and effect.
                             Very truly yours,

                             By:
                                ---------------------------------------------
                             Name:
                                  -------------------------------------------
                             Title:
                                   ------------------------------------------

                             Additional signature(s) if stock jointly held

                             By:
                                ---------------------------------------------
                             Name:
                                  -------------------------------------------
                             Title:
                                   ------------------------------------------

<PAGE>
                                   LEASE AGREEMENT

SUBJECT MATTER OF AGREEMENT: WAREHOUSE LOCATED AT CALLE FRANCISCO EUSEBIO KINO
S/N [no number], CONSTRUCTED ON LOTS 2, 3, 4, 23, 24, AND 25 OF BLOCK NUMBER 2
OF THE GARITA DE OTAY SUBDIVISION.

CONDITIONS PURSUANT TO WHICH THE COMPANY NAMED TAG-IT DE MEXICO, S.A. DE C.V.,
VIA ITS LEGAL REPRESENTATIVE, MARIA MAGDALENA GONZALEZ VARGAS, AS IS SHOWN IN
INSTRUMENT NUMBER 13.317, VOLUME 437 OF JANUARY [illegible], 1997, DRAFTED
BEFORE MR. GUILLERMO GONZALEZ HERRERA, REGULAR NOTARY OF NOTARY OFFICE NINE OF
THIS MUNICIPALITY, LEASES THE ABOVE-DESCRIBED PROPERTY FROM ITS LEGITIMATE
OWNER, MR. ABRAHAM BETECH MOUSSAN.

    I.-     THE PRICE OF THE LEASE IS THE SUM OF $4,500.00 DOLLARS PLUS V.A.T.,
PAYABLE IN ADVANCE MONTHLY INSTALLMENTS BEGINNING ON NOVEMBER 15, 1997 TO THE
LESSOR OR HIS REPRESENTATIVE IN THE OFFICES LOCATED AT AVENIDA REVOLUCION NO.
1129, DESPACHO 205, ZONA CENTRO OF THIS CITY, WITHIN THE FIRST FIVE DAYS OF EACH
DUE DATE.

    II.-    THE LESSEE HEREBY ESTABLISHES A DEPOSIT FOR THE SUM OF $18,000.00
DOLLARS TO GUARANTEE ANY DAMAGES THAT MAY BE CAUSED TO THE PROPERTY SUBJECT TO
LEASE.

    III.-   THE ABOVE-DESCRIBED PROPERTY IS RECEIVED TO LESSEE'S COMPLETE
SATISFACTION, AND IT IS DECLARED FOR THE RECORD THAT IT IS IN GOOD CONDITION AND
WILL BE RETURNED IN THESE SAME GOOD CONDITIONS WITHOUT ANY ADDITIONAL WEAR OTHER
THAN THAT CAUSED BY THE NORMAL USE MADE OF SAID PROPERTY.  OTHERWISE, LESSEE
WILL PAY THE PRICE FOR THE NECESSARY REPAIRS WHEN THE DEPOSIT IS RETURNED.

    IV.-    THE TERM OF THIS AGREEMENT IS TWO YEARS, WHICH IS OBLIGATORY FOR
BOTH PARTIES, BEGINNING ON NOVEMBER 15, 1997 AND ENDING ON NOVEMBER 14, 1999,
WITH THE OPTION OF ONE MORE YEAR PROVIDED LESSEE MAKES A WRITTEN REQUEST TO
LESSOR TWO MONTHS IN ADVANCE AND THE LATTER AGREES TO GRANT IT TO LESSEE.
DURING THE SECOND YEAR, THE RENT SHALL INCREASE BY 11% PLUS V.A.T., AND IN THE
EVENT LESSEE SHOULD OPT FOR A THIRD YEAR, THE RENT WILL INCREASE BY 5% PLUS
V.A.T.

    V.-     THE RENTED PROPERTY SHALL BE DESTINED EXCLUSIVELY FOR THE MAQUILA
MANUFACTURE OF PACKAGES, CARDBOARD, PAPER AND PREFABRICATED METAL, AND USING THE
PROPERTY FOR ANY OTHER PURPOSE SHALL BE GROUNDS FOR THE OWNER OR LESSOR TO
UNDERTAKE EVICTION PROCEEDINGS.

[Handwritten note in English]


                                          1

<PAGE>

    VI.-    SHOULD LESSEE FAIL TO PAY A SINGLE STIPULATED RENTAL PAYMENT,
LESSOR MAY CLEARLY TERMINATE THIS AGREEMENT AND REQUEST THE IMMEDIATE EVICTION
OF THE PROPERTY, AND LEGAL COSTS AND EXPENSES SHALL BE PAID BY LESSEE.

    VII.-   LESSEE SHALL BE RESPONSIBLE FOR ANY DAMAGES CAUSED TO THE RENTED
PROPERTY, FOR WHATEVER REASON, WHETHER CAUSED BY LESSEE'S FAMILY MEMBERS,
DEPENDENTS OR SUBLESSEES.  DAMAGES TO THE DRAINAGE AND OTHER ITEMS ON THE
PROPERTY SHALL BE REPAIRED AT LESSEE'S COST, EVEN IF SAID DAMAGES ARE CAUSED BY
THE USE OF SUCH ITEMS.

    VIII.-  THE FOLLOWING MAY NOT BE UNDERTAKEN WITHOUT WRITTEN PERMISSION BY
LESSOR:

            A.- VARIATIONS TO THE FORM OF THE RENTED BUILDING;

            B.- USEFUL, NECESSARY, OR DECORATIVE IMPROVEMENTS.

    IF THE RESPECTIVE PERMISSION IS GRANTED TO MAKE VARIATIONS TO THE FORM AND
TO CONSTRUCT THE IMPROVEMENTS REFERRED TO IN THIS CLAUSE, THE CONDITIONS
PURSUANT TO WHICH THE PERMISSION IS GRANTED MUST BE RECORDED IN THE DOCUMENT
CONTAINING SAID PERMISSION.  IF LESSEE MODIFIES THE FORM OF THE RENTED PROPERTY
OR MAKES IMPROVEMENTS TO IT WITHOUT THE REQUIRED PERMISSION, IT SHALL BE
RESPONSIBLE, IN THE FIRST CASE, PURSUANT TO THE TERMS OF ARTICLE 2315 OF THE
CIVIL CODE, AND IN THE SECOND CASE, LESSOR SHALL NOT IN BE OBLIGATED IN ANY WAY
TO PAY FOR THE IMPROVEMENTS AND LESSEE MAY LEAVE THEM OR TAKE THEM, PAYING FOR
THE DAMAGES AND REPAIRING ANY DEFECTS IT HAS CAUSED, AND IT ACCORDINGLY WAIVES
ARTICLES 2297, 2298, AND 2321 OF THE CIVIL CODE.

    IX.-    LESSEE MAY NOT, FOR ANY REASON, WITHHOLD RENTAL PAYMENTS OR REQUEST
THEIR REDUCTION, EXCEPT IN THE CASE OF ARTICLE 2294 OF THE CIVIL CODE, AND IT
THEREFORE WAIVES THE RIGHTS GRANTED TO IT BY ARTICLES 2295, 2319, AND 2364 OF
SAID CIVIL CODE.

    X.-     LESSEE MAY NOT SUBLEASE THE PROPERTY OR TRANSFER ITS RIGHTS AS
LESSEE WITHOUT WRITTEN PERMISSION BY LESSOR AND IT MUST BE LEASED TO PERSONS
WITH THE SAME CONDITIONS OF HONESTY, AND LESSEE WAIVES THE RIGHT GRANTED TO IT
BY ARTICLE 2366 OF SAID CIVIL CODE.

    XI.-    IN THE EVENT THE OWNER OF THE PROPERTY WHICH IS THE SUBJECT OF THIS
LEASE MUST MOVE THE PROPERTY, SELL THE PROPERTY, OR MODIFY ITS CONSTRUCTION,
LESSEE SHALL BE OBLIGATED TO VACATE IT WITHIN A PERIOD OF 60 DAYS BEGINNING ON
THE DAY IT RECEIVES THE RESPECTIVE NOTICE VIA MAIL.


                                          2

<PAGE>

    XII.-   LESSEE DECLARES THAT IT IS PERFECTLY AWARE OF THE CONDITIONS OF THE
PROPERTY SUBJECT TO THIS LEASE, THAT IT HAS NO HIDDEN DEFECTS, AND IT THEREFORE
WAIVES THE PRIVILEGES AND RIGHTS GRANTED TO IT BY ARTICLE 2286, SECTION V, AND
ARTICLE 2295 OF THE CIVIL CODE FOR THE STATE OF BAJA CALIFORNIA NORTE.

    XIII.-  THE PROPERTY SUBJECT TO LEASE MEETS THE CONDITIONS OF HYGIENE
ESTABLISHED BY LAW AND LESSEE AGREES TO MAINTAIN THEM AT ITS COST.

    XIV.-   THIS LEASE AGREEMENT SHALL BE TERMINATED FOR THE VARIOUS CAUSES
ESTABLISHED BY ARTICLE 2357 OF THE CIVIL CODE.

    XV.-    LESSOR MAY REQUEST THE RESCISSION OF THIS AGREEMENT FOR THE BREACH
OF ANY OF ITS CLAUSES, AS WELL AS FOR THE CAUSES SET FORTH IN ARTICLE 2363 OF
THE CIVIL CODE.

THE FOREGOING HAVING BEEN READ TO THE CONTRACTING PARTIES, THEY RATIFIED AND
SIGNED IT IN THE PRESENCE OF THE WITNESSES WHO ATTEST TO THE ACT.

              TIJUANA, B.C., ON THE 15th OF NOVEMBER OF 1997.

    LESSOR                        LESSEE
    [signature]                   [signature]
MR. ABRAHAM BETECH MOUSSAN   MARIA MAGDALENA GONZALEZ VARGAS
                             LEGAL REPRESENTATIVE OF
                             TAG-IT DE MEXICO, S.A. DE C.V.

    WITNESS                  WITNESS


                                          3

<PAGE>

                              DOMESTIC LABOR REGULATIONS
                                          OF
                            TAG IT DE MEXICO, S.A. DE C.V.

    These regulations formulated by Tag it de Mexico, S.A. de C.V.  and its
workers, will rule the rendering of services, development of work and workers'
behavior while performing their work on the premises that the company operates
or may operate in the future.

    These regulations will be applied to every worker, regardless of his
position, in anything that contravenes the provisions of the Federal Labor Law.

    In these regulations Tag it de Mexico S.A. de C.V. is hereinafter called
the "COMPANY" and the workers and employees of any position are hereinafter
called the "WORKERS". The Federal Labor Law is hereinafter called the "LAW", and
the Mexican Institute of Social Security is hereinafter called "SOCIAL
SECURITY".

A.  WORKING DAYS

    1.   Arrival and departure time for any working day for the WORKERS will be
solely determined by the COMPANY, and may be changed as deemed necessary for the
proper operation of the business. Any WORKER who has been assigned to a working
shift can be transferred by the COMPANY to another temporary or permanent shift,
when the COMPANY deems it necessary to meet production requirements, previous
twenty four hour notification to the WORKER about such move.

    2.   The working hours during the day will not be in excess of forty eight
hours per week. The arrival time will be at seven in the morning and departure
time five in the afternoon, Monday through Friday.

    3.   Combined working hours during the day will not be in excess of forty
five hours per week.

    4.   The evening working hours will not be in excess of forty two hours per
week.

    5.   Since at the present time nobody is working a combination of evening
shifts, the COMPANY reserves the right to establish arrival and departure times
for said shifts, as well as to change, at the COMPANY's discretion, the arrival
and departure times of day working hours, in order to organize operation time
for combined and evening shifts.

    6.   Furthermore, as per provisions of second paragraph of article 59 of
the LAW, the WORKERS agree with the COMPANY to distribute the working hours of
the different shifts in order to be able to rest on Saturday afternoon, or any
similar method.  For that reason, some days of the week the working hours will
be longer than specifications of article 61 of the LAW, but the final purpose is
mentioned above.

<PAGE>

    On the other side, the COMPANY reserves the right to establish arrival and
departure times for each working shift, as well as to change the arrival and
departure times of day, combine and evening shifts.

    8.   The work shifts will be developed preferably in five working days per
week, the WORKERS agree that said shifts can be changed by the COMPANY in order
to work Monday through Saturday.

    9.   The COMPANY will keep control of the daily punctuality and attendance
at work through an individual time card weekly assigned to each WORKER.

    10.  Every WORKER must register his arrival and departure time by punching
his time card in the time clock, since this card will show the punctuality and
attendance to work. Failure to punch the card will be considered an absence.

    11.  Under exceptional circumstances or when the clock has broken down, the
arrival and departure time will be authorized in the card by the immediate
supervisor of each WORKER.

    12.  If a WORKER loses his card or cannot find it in the appropriate card
file, he will have to notify Human Resources or his immediate supervisor.

    13.  The WORKER, for proper identification, must sign the card at the time
that he receives it every week.

    14.  The WORKERS will punctually arrive to perform their duties at the
place where they are supposed to perform their duties at the start of the
working day.

    15.  The COMPANY is not forced to admit a WORKER who reports to work after
the proper arrival time, and can only be admitted within a 10 minute tolerance,
by his immediate supervisor and by the Department of Human Resources.

    16.  Absence due to the WORKER'S tardiness WILL BE considered an absence
without notification.

    17.  The WORKERS agree to work overtime when the COMPANY directs and
notifies him to do so.  Overtime will not be recognized as such or paid by the
COMPANY if the hours were not checked in the time card and were not authorized
by his immediate supervisor.

B.  MEAL AND RELAXATION BREAKS

    1.   The COMPANY will grant the WORKERS a daily sixty minute break to take
their meal per work shift, and at that time their daily work will be
interrupted.


                                          2

<PAGE>

    2.   The WORKERS are not allowed to have their meals in their work areas,
but only in the place assigned by the COMPANY for said purposes, but they are
free to have it anywhere they want outside the COMPANY's premises.

    3.   When the WORKERS are through with their meal, they must clean the
place where they have eaten, and throw the leftovers or trash deriving from it
in the trash bins provided for said purposes.

    4.   When the WORKER has to leave the premises in order to have his meal,
he must check in his departure and return time on his time card. His tardiness
to resume his work after his break will be treated in the same manner as his
tardiness to report to work specified in paragraph "F" of these regulations.

    5.   The meal break is not part of the work day and the COMPANY is not
obliged to pay salary for said time.

    6.   The COMPANY will determine the time for the workers' meal break times
taking into consideration the operation of the business.

    7.   Except at meal breaks, the WORKERS are not allowed to leave their work
areas without previous authorization from the immediate supervisor, except when
attending their bodily functions.  When the WORKER leaves his work area without
authorization from his immediate supervisor, it will be considered disobedience
to an order related to work, except in the above mentioned case.

C.  ABSENCE.

    1.   When a WORKER is disabled he should not report to work and he must
notify the Company within twenty four hours following the beginning of the work
day.

    2.   The absence due to an illness will only be justified with disabilities
specified by SOCIAL SECURITY, and it is neither valid for said purpose nor is
the COMPANY obliged to accept any other evidence or document.

    3.   Any worker who is disabled by SOCIAL SECURITY will have to notify the
Company immediately and furnish a certificate of disability the same day it is
issued, if at all possible, and in any case he should notify the Company the day
following the disability.

    4.   The COMPANY may, to its discretion, require a doctor of its choice to
examine the WORKER who has missed work due to an illness or an accident, before
he is allowed to return to work.


                                          3

<PAGE>

    5.   When the WORKER wishes time off, he will request it in writing from
Human Resources at least three working days prior to the date he wants to be
absent, stating the reasons for the request, except in case of circumstances
beyond his control.  The COMPANY may approve or deny the time off based on the
reasons stated and it will only be authorized when the absence does not
interfere with the normal operations of the COMPANY.

    5.   Any authorization granted should be in writing and the WORKER will
have to request a copy of said authorization.

D.  WORKERS' HEALTH AND SECURITY

    1.   Every WORKER who is hired by the COMPANY must submit himself to a
medical exam and laboratory tests by doctors and/or laboratories selected and
paid by the COMPANY; likewise it will be done in any occasion that the COMPANY
requests it while there is a labor relationship.

    2.   The WORKER must notify the COMPANY or SOCIAL SECURITY about any
contagious illness that he, or any family member or co-worker has, so as to
adopt the proper preventive measures.

    3.   In case of an epidemic, the WORKERS will submit themselves to medical
exams and they will comply with all the measures ordered by the authorities.

    4.   The women WORKERS who become pregnant will have to notify the COMPANY
about the pregnancy, so that the COMPANY may comply with Art. 170 of the LAW.

    5.   The WORKERS are obliged to use at all times the equipment, devices or
clothes furnished to them by the COMPANY for their security and identification,
as well as the ones provided to ensure the quality of the products that are
being assembled or manufactured.

    6.   The WORKERS are obliged to carry at all times an identification
furnished by the COMPANY, while they are in the COMPANY's premises, therefore,
any worker who does not carry the identification or who has lost it will be
penalized as it is provided by these regulations.

    7.   The WORKERS must keep their work area clean at all times.

    8.   No WORKER will be allowed to operate a machine without previous proper
training for that purpose, or without authorization from his immediate
supervisor.

    9.   It is the WORKERS' responsibility to keep their gowns and shoes clean
and presentable and if applicable, gloves furnished to do the work. Therefore,
any WORKER who does not take care of them will be penalized as provided by these
regulations.


                                          4

<PAGE>

    10.  When a WORKER has an accident while performing his duties, or becomes
ill while he is working, he or his co-workers must immediately report the
illness to his immediate supervisor, who will send the WORKER to the COMPANY's
infirmary to obtain first aid, and send him to SOCIAL SECURITY when applicable.

    11.  The WORKERS and the COMPANY are obliged to comply at all times with
the provisions of the security and health regulations, and with the measures or
resolutions adopted by the "Comision Mixta de Seguridad e Higiene" (Combined
Commission of Security and Health).

E.  UNJUSTIFIED ABSENCES.

    1.   The WORKER who is absent from work without justification, as provided
by chapter "C" of these regulations, will be penalized by the COMPANY as
follows:

    a) FIRST UNJUSTIFIED ABSENCE - Written warning.

    b) SECOND UNJUSTIFIED ABSENCE - Up to two days suspension without pay.

    c) THIRD UNJUSTIFIED ABSENCE - Up to three days suspension without pay.

    d) FOURTH UNJUSTIFIED ABSENCE - Up to eight days suspension without pay or
in case of a thirty day period, termination of the labor relationship without
the COMPANY's responsibility according to terms of article 47 fracc. X of the
LAW.

    e) If the WORKER is absent a day before or after a weekly relaxation
period, legal or contracting holiday; absence with authorization;  period under
suspension or vacation time, he will be suspended without pay during three days.

    2.   To prevent an absence from being considered unjustified and from
sanctions being taken by the COMPANY, the worker must comply with the following
requirements:

    a)  In case of a leave, the worker must obtain the authorization form to be
absent, authorized by his immediate supervisor and/or the Department of Human
Resources.

    b)  In case of an illness or accident, the disability must be issued by
SOCIAL SECURITY, which he will submit to the Department of Human Resources
within the term already specified.

    c)  A period of three months will always be taken into account when
counting the absences. If a person accumulates 2 unjustified absences, the
following absences will be accumulating even after the three months.

    d)  In order to keep his file clear, the worker must have no unjustified
absences during three consecutive months. In this case, if he has another
absence, it will be considered as a first absence.


                                          5

<PAGE>

F.  TARDINESS.

    1.  To the WORKERS who report late to work without cause of justifying said
tardiness according to terms of chapter "C" of these regulations, the following
sanctions will be imposed:

    a)  If a WORKER is late three times in a period of 30 calendar days, the
COMPANY may impose a suspension of two days without pay.

    b)  If a WORKER accumulates three suspensions for this reason in a three
month period, the COMPANY may impose a suspension on the WORKER for any
tardiness, for up to five days without pay.

    c)  In order to keep his file clear, the WORKER must have no tardiness
during three consecutive months. In this case, if he is 5 minutes late, it will
be considered as a first tardiness.

G.  DISCIPLINARY MEASURES.

    1.  The COMPANY and the WORKER agree that the COMPANY may impose
disciplinary measures on the WORKERS by oral or written warning, with a
temporary suspension without pay, or rescind the labor agreement without the
COMPANY's responsibility, according to the seriousness of the offense.

    2.  In order to impose these sanctions, the COMPANY will examine the facts
and when imposing the sanction, the COMPANY will take into consideration the
seriousness of the offense, classification of the employee, his regular
behavior, except when the evidence of the offense is obvious or when the WORKER
admits his culpability or participation in the offense.

    3.  Regardless the above, the WORKER will always have the right to be heard
in his defense.

    4.  The personnel who works for the COMPANY will have the duties and
responsibilities specified in these Domestic Labor Regulations and in case they
fail to comply with any of them, the following disciplinary measures will be
imposed:

    I)   Oral warning; or

    II)  Written warning; or

    III) Between one to eight day suspensions without pay, according to the
         seriousness of the offense; or

    IV)  Recision of the labor agreement without the COMPANY's responsibility.

5.  AN ORAL OR WRITTEN WARNING WILL BE IMPOSED FOR:


                                          6

<PAGE>

    a)  Damages for negligence caused while performing the work, or during his
legal stay in the premises, provided the damages do not exceed eight times the
minimum general salary valid for the economic area where the premises are
located.

    b)  Any act, obscene or immoral gesture made, or obscene language that is
used within the COMPANY's premises, or in any vehicle being used for the
COMPANY, while or after working hours.

    c)  Being outside the place designated to perform his work during the work
hours.

    d)  Being outside the designated place to perform his work at the start of
each work day and at the end of each meal or relaxation break.

    e)  Provocation or arguments over anything with other WORKERS during work
hours, except when the case is related to the WORKER's specific work and it
needs to be discussed in order to perform the assigned work, provided they have
authorization from the immediate supervisor.

    f)  Performing a task without the necessary precautions to avoid accidents
to persons or property or equipment damages, and for not taking preventive
measures to avoid said damages or more serious ones, as well as to ensure the
quality of the products being assembled or manufactured.

    g)  The loss of the identification credential in two or more instances.

    h)  The repetition of a lack of cleanliness of his working clothes.

SANCTION OF RECISION OF THE LABOR AGREEMENT WITHOUT RESPONSIBILITY FOR THE
COMPANY WILL BE IMPOSED FOR:

    a)  All the originators specified in article 47 of the LAW, and the  one
specified in these regulations.

    b)  The establishment of any kind of threat to the COMPANY, its property,
its executives, its executive or administrative staff or their families; or the
performance of any act of sabotage or cause of any premeditated damage; theft of
property, equipment, material, warehouse articles of the COMPANY or of the
WORKERS.

    c)  The disregard of instructions from the immediate supervisor or
hierarchical superior, related to the work.

    d)  The furnishing of false data or information in the application
submitted before being hired, or falsification of any information on the
COMPANY's production reports or documentation.

    e)  Intoxication, or being under the influence of alcohol, drinking
intoxicating beverages or


                                          7


<PAGE>

being under the influence of drugs or narcotics within premises occupied by the
COMPANY, or utilizing a vehicle being used for the COMPANY; reporting to work
being intoxicated or under the influence of non prescribed drugs, which should
be previously submitted to the Department of Human Resources.

    f)  Fighting or provoking a fight within the premises occupied by the
COMPANY, to threaten, coparticipate, intimidate or interfere with the activities
of his coworkers o a superior at any time, preventing the performance of their
duties or causing alteration of the discipline.

    g)  The disclosure of any COMPANY's trade secrets or confidential
information.

    h)  The violation of COMPANY's or WORKERS' mail.

    i)  Sleeping on the job or during performance of his work.

    j)  Stealing COMPANY's time to take care of personal matters, as well as
personal ornaments with material from the COMPANY.

    k)  Punching the time card of another WORKER.

    l)  The distribution of literature, leaflets or written material of any
kind, to show personal signs or labels.

    m)  Bringing in fire arms, pocket knives or any other arms to the premisses
occupied by the COMPANY.

    n)  Doing anything that may impose a risk on himself, his coworkers or the
COMPANY's property.

    o)  Writing o painting indecorous or obscene pictures anywhere in the
premises, or  in the COMPANY's vehicles, furniture or equipment and fittings,
and

    p)  Activating the fire extinguishers, except when it is a justified cause.

8.  The WORKERS, will have the following general duties, besides the ones
assigned as per this agreement:

    a)  To notify the COMPANY, immediately after they become aware of any
condition of the machinery or equipment that might impose a risk to their lives,
health and as well as the lives of their coworkers, third parties or that might
cause damage to the COMPANY's property.

    b)  To clean and give maintenance to his personal work equipment, tools and
devices and his work area; the COMPANY will schedule hours and assign to any and
all WORKERS to perform


                                          8


<PAGE>

cleaning and maintenance tasks of the equipment and machinery, or their station
in their work area.

    c)  To immediately report to the COMPANY any damages to the machinery,
tools or material assigned to them.

    d)  To immediately report to his immediate supervisor any accident or work
interruption.

    e)  To comply with any order received to issue in the manner and terms that
the COMPANY or the Combined Commission of Instruction and Training directs, the
necessary instructions to those coworkers or specific persons, to instruct or
train him for his work according to the COMPANY's existing instruction and
training programs for the personnel.

    f)  To report to the COMPANY any contagious illness contracted by himself,
his family or any other worker.

    The WORKER who does not comply with any or several of his duties, will be
subject to disciplinary action according to chapter "G", paragraph 4 of these
Domestic Labor Regulations.

H.  SALARY PAY.

    1.  The salary is to be paid to the WORKERS on Fridays of each week, during
the work day and precisely where the WORKER performs his duties.  The salary
will be paid directly to the WORKER and only when he is disabled to personally
collect his pay, the payment will be made to the person designated by him as his
attorney in fact in a power of attorney, before two witnesses.

    2.  The COMPANY agrees with the WORKERS that it will have the right to
change the pay day when the operations so require, with a twenty four hour
previous notification to the WORKERS.

I.  VACATIONS:

    1.  The WORKERS will be entitled to vacation time according to the terms
specified in articles 76 through 81 of the LAW, also receiving the vacation
premium stipulated by the LAW.

    2.  It is agreed that the COMPANY will determine the period when the
WORKERS may enjoy their vacation, and it will be able to advance said vacation
period and may advance said vacation time when it deems convenient that all the
WORKERS take their vacation at the same time.

J.  OBLIGATORY DAYS OF RELAXATION

    1.   In compliance with provisions of article 74 of the LAW, it is agreed
that the obligatory relaxation days with pay for all the WORKERS of the COMPANY
are the following:

         a. January 1


                                          9

<PAGE>

         b. February 5
         c. March 21
         d. May 1
         e. September 16
         f. November 20
         g. December 1 each six years when it applies to transfer of power
         h. December 25
         i. the day determined by federal and local legislation in case of
ordinary elections, in order to execute the electoral day.

K.  GENERAL PROVISIONS.

    1.   The COMPANY's telephones are for the exclusive use of the COMPANY,
therefore the WORKERS must not receive personal calls during working hours,
except in case of an emergency.

    2.   Visitors must be always accompanied with a COMPANY's representative
and must have a justified reason to pay the visit.

    3.   The WORKERS will be subject to security routine checkups by the
COMPANY, to ensure that no forbidden material is brought into the work areas or
that any property belonging to the COMPANY or the WORKERS is taken out of the
premises

    4.   Those WORKERS who are handed tools, material or equipment to perform
their work will be responsible for their care and cleanliness, and therefore
they will also be responsible for theft, damage or improper use of same.

    5.   The damaged tools or equipment can be exchanged, free of charge, by
others in good condition, except when the damage was caused by improper use. In
this instance the WORKER will ne responsible for the cost or replacement.

    6.   Everything regarding these Domestic Labor Provisions binds the parties
to provisions of the LAW.

    These Domestic Labor Provisions were developed, discussed, approved and
signed in Tag it de Mexico, S.A. de C.V.'s premises on November 11, 1996 in
Tijuana, Baja California, North by Mr. Jonathan Markiles acting as legal
representative of Tag it de Mexico, S.A. de C.V. and by Mr. Manzo Magallanes
Marco Antonio and Zarate Lopez Imelda, as representatives for the workers, who
are presently working for the same, and it will be deposited for its
ratification and approval by any of the parties at the "Junta Local de
Conciliacion y Arbitraje" (Conciliation and Arbitration Board). These
Regulations will be in force as of the date said approval is obtained.

TAG IT DE MEXICO, S.A. DE C.V.    THE WORKERS


                                          10

<PAGE>

Jonathan Markiles [signed]        Manzo Magallanes Marco A. [signed]

                                       Zarate Lopez Imelda [signed]

There is a stamp that reads:
Government of the State of Baja California
December 12, 1996
RECEIVED


                                          11

<PAGE>

DOMESTIC LABOR REGULATIONS

"...Tijuana, Baja California, at 12:31 p.m. on December 12, 1996, before the
Local Board of Conciliation and Arbitration Board in this city appears Jonathan
Markiles, who proves his identity with passport No. 35755196 issued in the
United States of America that I verify and return to its holder for his personal
use. He appears as a legal representative of the company called Tag it de
Mexico, S.A. de C.V. , evidenced by notarial certificate number 129595 dated
October 9, 1996 issued before Guillermo Gonzalez Herrera, Notary Public number
nine in this city, issuing a certified photocopy for the present purpose. Also
appearing are Marco Antonio Manzo Magallanes and Imelda Zarate Lopez, who
declare under oath to be the only workers of above-mentioned Company as of the
date they appear in this Court, and they state: -- That they ratify the terms of
the Domestic Local Regulations that will be valid......(last line of the
paragraph illegible).

<PAGE>

INDIVIDUAL LABOR AGREEMENT FOR AN SPECIFIED PERIOD OF TIME ENTERED BETWEEN TAG
IT DE MEXICO S.A. DE C.V. HEREINAFTER "THE COMPANY", AND_______________________
HEREINAFTER "THE WORKER" ACCORDING TO THE FOLLOWING STATEMENTS AND CLAUSES:

STATEMENTS

I.  The COMPANY states:

    That it is a Mexican business corporation, operating, among others, an
assembly plant, under provisions of Legislation for the Promotion and Operation
of the Assembly Industry for Exports.

    That its address is Alejandro Humboldt No. 17508 garita de Otay, Tijuana,
Baja California.

    That it must hire on temporary basis the services of the WORKER, due to the
temporary and special nature of the work to be performed.

II. The WORKER states:

    That he is of Mexican nationality, marital status___________, sex_________,
age _________________, living in_________________________________.

    That he is aware of the specific needs of the COMPANY and that he is
willing to work for a specified period of time, with the understanding that when
the one term of the agreement expires, the labor relationship ends with no
responsibility for the COMPANY, since he is a Temporary Worker.

Having stated the above, the parties agree to the following:

FIRST.

    The COMPANY will hire the WORKER to perform, under its direction and
authority, his personal services as_____________________________________________
_________________________in any department or place directed by the COMPANY in
its existing premises or those that it might have in the future, or in any
premises or place that the COMPANY specifies.

SECOND.

    The WORKER states that he is aware and knows the reasons why this is a
labor agreement of temporary nature, that he is skilled and has the required
knowledge to perform the work for which he is hired. Therefore he agrees and
obliges himself to perform any activity attached and/or related to the work
including those that are typical of it according to use and manner; to obey
instructions and orders given to him by the COMPANY and its superiors as well as
the instructions contained in


                                          1

<PAGE>

any circular or provisions dictated by the COMPANY in order to meet the
obligations directed in this Agreement, the Labor Federal Law and the Domestic
Labor Agreement.

THIRD.

    This agreement is entered for a specific period of time and will be in
force from____________________________________ to end in a definite and
conclusive manner on_________________________________________________________ or
before, if the reasons that led to this agreement and subject of same end before
said date, since it is a work of temporary nature.

The COMPANY may rescind this agreement at any time without responsibility within
the first thirty days of its life, if the WORKER has deceived it with
certificates or references that endow the worker with skills, training and
knowledge that are lacking or for any other cause specified in Article 47 of the
Federal Labor Law.

FOURTH.

    The COMPANY will pay the WORKER a DAILY salary for services rendered, in
the amount of $____________________________________________________.

    The salary will be paid to the WORKER at the place where he is actually
working the___________________ days of each_________________ at the end of his
work day.

The WORKER will have to sign the attendance list, payroll or receipts for the
amounts he receives, and he will be provided with evidence of any deduction for
Social Security fees, taxes and any other deduction, or any amount that the
WORKER has to pay under the applicable Laws and/or Requirements.

FIFTH.

    The working hours during the day will not be in excess of forty eight hours
    per week.
    Combined working hours during the day will not be in excess of forty five
    hours per week.
    The evening working hours will not be in excess of forty two hours per
    week.

The WORKER specifically agrees to have a working schedule in the number of hours
required according to the needs of the work to be performed, but they cannot
exceed the weekly limits established.

    Likewise, as per reasons specified in second paragraph of Article 59 of the
Federal Labor Law, the WORKER agrees with the COMPANY to distribute the work
hours in different shifts, in order to have a break more than one day per week.
Therefore, some days of the week the work hours will be more than the ones
specified in Article 61 of the Federal Labor Law, in order to meet above
mentioned needs.


                                          2

<PAGE>

SIXTH.

    The COMPANY will grant a daily break of__________________ minutes at a time
determined exclusively by the COMPANY, in order for the WORKER to have his meals
and therefore interrupting his work day.

    The WORKER agrees with the COMPANY that the above mentioned break is not
part of the work day, therefore the COMPANY does not have to pay salary for that
period of time off since the WORKER can go out and get his meals wherever he
pleases.

SEVENTH.

    The WORKER expressly agrees with the COMPANY that the working shifts and
the arrival and departure times may be changed by the COMPANY as it is deemed
necessary for the proper operation of the business

    The WORKER also expressly agrees that even if he is assigned to a certain
shift or particular time schedule, the COMPANY has the right to temporarily or
permanently change to another shift or time schedule in order to meet the
COMPANY's needs, but the COMPANY has to give the WORKER at least a twenty-four
hour notice in advance regarding the change of shift or work hours without
decreasing his salary.

EIGHTH.

    The WORKER, when signing the present agreement, expressly accepts that the
COMPANY may at any time change the place and/or area where the work has to be
performed, as well as the place of residency.

NINTH.

    Every six work days the WORKER will have one day off, preferably on Sunday
and for that they he will receive proportional pay at salary's rate.

TENTH.

    The WORKER agrees to work overtime when the COMPANY's needs so requires,
but he cannot work overtime without the COMPANY's previous authorization.
Overtime worked will not be admitted nor paid by the COMPANY if they were not
marked in the attendance list or punched on the time cards, and the
authorization must be signed by his supervisor.

ELEVENTH.

    The WORKER understands that he must sign the attendance list or punch his
time card in the


                                          3

<PAGE>

time clock installed by the COMPANY for that purpose in the place where he is
performing his duties.

    His signature on the attendance list or punching of his time card will be
evidence of his punctuality and attendance.

    If the WORKER fails to sign the attendance list or punch his time card, it
will be considered an unjustified absence for all legal purposes.

TWELFTH.

    The WORKER agrees to follow any order that he receives on a personal level,
to receive instruction or training for his work, in the manner and terms
determined by the COMPANY, as well as to give instruction to the coworkers that
he is directed to train for the work according to the Instruction and Training
programs for the personnel, in force in the COMPANY.

THIRTEENTH.

    The WORKER agrees to take a medical exam prior to his entrance to the
company and thereafter whenever the COMPANY determines, by doctors appointed by
the COMPANY at Company's cost.

FOURTEENTH.

    The WORKER will have the obligatory days off specified by the Federal Labor
Law and on those days he will receive the appropriate salary.

FIFTEENTH.

    The WORKER and the COMPANY expressly agree that absence to work due to
illness can only be justified by the WORKER with the disability evidence legally
issued by the Mexican Institute of Social Security, since certificates or other
documents issued by other doctors or appointments or prescriptions issued by the
Mexican Institute of Social Security itself will not be accepted nor will be
valid justification of an absence.

SIXTEENTH.

    The WORKER understand that he has to immediately report to the COMPANY the
reasons of his non attendance, on the same day of the absence.

SEVENTEENTH.

    Once the validity of this agreement expires, the WORKER will receive
proportional pay for


                                          4

<PAGE>

his vacation, vacation premium and bonus owed to him.

EIGHTEENTH:

    Everything concerning natural and industrial illnesses as well as
industrial accidents concerning the parties will be ruled by provisions of the
Social Security Law.

NINETEENTH.

    The WORKER understand and agrees that any change of address, telephone
number or any other similar personal information will be reported to the COMPANY
within forty eight hours following the change.

TWENTIETH.

    Regardless of whatever is not provided in this Personal Labor Agreement for
a Definite Period of Time, the parties agree that they will submit themselves to
the Federal Labor Law.

TWENTY FIRST.

    The WORKER expressly states that once the term agreed upon in this
Agreement expires,  the relationship between the parties is terminated with no
responsibility for the COMPANY.

The parties read the above agreement, sign and ratify two copies of it on_______
____________________, 19___, in Tijuana, Baja California.



_____________________   _________________________________________
THE COMPANY                  THE WORKER



_____________________   _________________________________________
WITNESS                      WITNESS


                                          5

<PAGE>

                           "MEXICO MODERNO" LABOR UNION OF
                             WORKERS OF BAJA CALIFORNIA,
                                       C.R.O.M.

LABOR COLLECTIVE AGREEMENT ENTERED BY THE COMPANY NAMED TAG IT DE MEXICO, S.A.
DE C.V., DOMICILED IN ALEJANDRO HUMBOLDT No. 17508 FRACC. GARITA DE OTAY, IN
MESA DE OTAY IN THIS CITY, REPRESENTED BY MR. JONATHAN MARKILES IN HIS CAPACITY
AS LEGAL REPRESENTATIVE, AND SINDICATO "MEXICO MODERNO" DE TRABAJADORES DE LA
BAJA CALIFORNIA, C.R.O.M., DOMICILED IN AV. NETZAHUALCOYOTL 1670 ZONA RIO OF
THIS CITY, REPRESENTED BY MR. JESUS JAVIER MERINO DUARTE IN HIS CAPACITY AS
GENERAL SECRETARY, AS FOLLOWS:

                                       CLAUSES:

FIRST.  Both parties acknowledge their full names as they enter this Agreement,
but to shorten the names TAG IT DE MEXICO, S.A. DE C.V. hereinafter will be THE
COMPANY and SINDICATO "MEXICO MODERNO" DE TRABAJADORES DE LA BAJA CALIFORNIA,
C.R.O.M. hereinafter will be UNION, and for references to the Federal Labor Law
the word LEY will be used.

SECOND.  The COMPANY acknowledges that the UNION represents the interest of the
workers working for the COMPANY, and agrees to deal with the Union in all
matters regarding this representation. For said purpose the Union will appoint a
REPRESENTATIVE who will be a worker working for the Company who will comply in
any case with the decisions of the Executive Board.

THIRD.  The purpose of this Agreement is to establish working conditions for the
workers performing work for the Company and is applicable to any worker who
works for the Company, except for the trust positions referred to by the Law.

FOURTH.  The COMPANY agrees to dismiss from their work the workers who resign
from the Union or who are expelled from same, when requested by the union in
writing. Those dismissals will not be the Company's responsibility and the
Company will carry out said dismissals immediately after receiving the Union's
notification.

FIFTH.  The workers must perform their work according to provisions of Article
134 of the Law, that is to say, to perform their work with intensity, care and
dedication and in the manner and time agreed upon.

SIXTH.  The work day will have the duration specified in Article 61 of the Law.

SEVENTH.  The salaries paid to the workers will be as specified in this
Agreement.

EIGHTH.  Every 6 days per week worked by the worker, he will have a paid day
off, and the parties


                                          1

<PAGE>

agree that said day will be according to the needs of the Company. The workers
who work on a Sunday will have a right to an additional 25% payment over the
salary of that day.

NINTH.  The Company and the Union agree that the days considered obligatory
legal holidays will be enjoyed by the workers as per Article 74 of the Law.

TENTH.  The workers will have the right to annual vacations as per provisions of
the Law in its Article 76.

ELEVENTH.  No later than December 20 of each year the Company must give the
annual bonus to the workers, consisting in fifteen days of salary, as per
Article 87 of the Law.

TWELFTH.  The Company and the Union agree to faithfully comply with Article
153-A of the Law, and to establish the proper Programs for Instruction and
Training of its workers, which will enable them to raise their living and
production standards.

THIRTEENTH.  According to Article 159 of the Law, the Company and the Union
agree that the permanent vacancies, the provisional vacancies over thirty days
and the newly created positions will be covered according to the promotion scale
by the worker of the next lower category, of the proper trade or profession.

If the employer complies with his obligation to train all the workers of the
next inferior category to the one that is vacant, the promotion will go to
whoever proven to have the skills, and seniority will be taken into
consideration.  Under the same conditions, the worker who has a family to
maintain will be chosen, and under equal conditions, the one who shows better
skills.

If the employer has not complied with the obligations directed in Article 132,
fraction XV, the vacancy will be filled by the worker with higher seniority, and
under equal conditions, by the one who has a family to maintain.

As for a newly created position, because of its nature or features, if there are
no workers in the Company with the proper skills to perform the work  and there
is no procedure established to that effect in the collective agreement, the
employer will be free to fill those positions.
In the appropriate collective agreements and according to provisions of the Law,
a manner will be established to prove the skills and to make promotions.

FOURTEENTH.  The Company agrees to provide financial assistance to the Union in
order to increase cultural and sporting activities of its members, and said
amount will be determined by the Company.

SIXTEENTH.  The Company and the Union agree that this Collective Labor Agreement
will be in force the moment it is signed, regardless of its legal warehouse.


                                          2

<PAGE>

    Tijuana, B.C., date of presentation.

BY THE UNION                                BY THE COMPANY

Jesus Javier Merino Duarte [signed]    Mr. Jonathan Markiles [signed]


                                          3

<PAGE>

FEDERAL DELEGACION OF BAJA CALIFORNIA
FEDERAL SUBDELEGATION IN TIJUANA, B.C.
FOREIGN AND DOMESTIC
DEPARTMENT OF FOREIGN TRADE

Letter No. 19318

REFERENCE: Authorization of Temporary Importation Program PITEX/96-1716.

              Tijuana, B.C., December 18, 1996.

TAG IT DE MEXICO, C.A. DE C.V.
RFC: TIM-961009-Q65
C. ALEJANDRO HUMBOLDT #17508
GARITA DE OTAY
TIJUANA, B.C.

According to Article 34 of Organic Law of the Federal Public Administration and
Article 6 of the Regulations that establish Temporary Importation Programs to
manufacture Export Articles, published in Official Gazette of de Federation
dated May 3, 1990 and its amendments dated May 11, 1995 respectively, you are
informed that the Secretary of Commerce and Industrial Development has
authorized TAG IT DE MEXICO S.A. DE C.V. (hereinafter the Holder) the Temporary
Importation Program PITEX/96-1716 (hereinafter the program), under the following
conditions and characteristics:

1. General:

    1.1  The Program will be in force on December 31, year 2000.

    1.2  According to Article 21 of the Decree, the holder must annually report
to the Secretary of Commerce and Industrial development, no later than the last
working day of April, the foreign trade operations carried out under the
Program, following the format established by said Secretary. This information
will be submitted with copy to the Secretaria de Hacienda y Credito Publico
(Secretary of the Treasure and Public Credit), keeping the relevant
documentation as provided by the Fiscal Code of the Federation, and to keep an
inventory control according to provisions of Customs legislation.

    1.3  The holder will have to mention the authorization number PITEX
mentioned in above first paragraph in every request regarding temporary imports
under the Program. Likewise, so that he can export and import his products
through the different Customs offices in the country, in one or more
consignments.

    1.4  The holder agrees to issue Record of Exports to his suppliers,
according to Article 10A


                                          1


<PAGE>

of the Decree and other applicable provisions.

2. Specifics:

    2.1  The Program covers total operations of the Company.

    2.2  Exports under this Program will be:  DECORATIVE BOXES, PRINTED PAPER
BAGS, NOTEBOOK COVERS, NOTEBOOKS, FOLDERS AND LABELS.

    2.3  The project will be considered in operation starting from the year the
Program is in force.

    2.4  According to Article 5 of the Decree, the holder may temporarily
import property corresponding to Fraction I, II, II of this Article. The
merchandise relating to those imports are listed in documents included in
Exhibit 1.

Exhibit 1:

    * Those relating to the above-mentioned fraction I in the document named
"Raw material, parts and components to import under PITEX".

    * Those relating to above mentioned fraction II in the document named
"Containers and packing to be imported under PITEX".

    * Those relating to above mentioned fraction III in the document named
"Fuel, lubricants, auxiliary and perishable material" and/or "Spare parts to be
imported under PITEX".

    These imports will be governed by provisions of the following paragraphs:

    a)  They may remain in the country during the terms specified below,
effective from the date the customs clearance is completed:

    - Two years, those corresponding to Fractions I and II of Article 5 of the
Decree.

    - One year that cannot be extended, the merchandise corresponding to
Fraction III of the Decree.

    b)  In Exhibit relevant to Fractions I and II of Article 5 of the Decree,
the tare and wastage percentage are specified, that the applicant reports to the
Secretary of Commerce and Industrial Development, which have to actually match
those concepts and can be deducted from the temporary import.

    c)  According to Article 9 of the Decree, it is considered as a tare the
total merchandise relevant to Fraction III of Article 5 of the Decree.


                                          2

<PAGE>

    For purposes of these paragraphs, the concept tare corresponds to
description in Fraction VII of Article 2 of the Decree, regardless of fiscal
treatment on wastage determined by the Secretary of the Treasure and Public
Credit through general provisions.

    d)  In order to facilitate the Customs release of the merchandise, the
holder can use the unloading of first arrivals, first departures.

    2.5  According to Article 6 of the Decree and within the range applicable
specified in paragraph 2.1 of this letter, the holder must perform export sales
for an amount exceeding U$S 500.000 or its equivalent in other currencies, or
must bill the export products for a minimum of 10% of his annual sales.

Exhibit 2:

    * Those relating to fraction IV of Article 5 of the Decree in the enclosure
named "Machinery, equipment, tools, casts and durable tools to be imported under
PITEX".

    * Those relating to fraction V of Article 5 of the Decree in the enclosure
named "Research devices, equipment and accessories, industrial safety, quality
control, personnel training, computer communication and of control of
contamination must be imported under PITEX".

    These imports may remain in the country while the Program is in force.

    2.6   According to Article 6 of the Decree and within the range applicable
specified in paragraph 2.1 of this letter, the holder must perform export sales
for a minimum value of 30% of his total sales.

    The conditions and characteristics specified in this letter do not exempt
the holder from complying with all the remaining provisions in force on the
subject specified in the Decree, Customs legislation and its Bylaws, in the
Fiscal Code of the Federation, as well as the General Rules and other fiscal
provisions.

    The holder must comply with statements and provisions of this letter.
Otherwise, according to Article 22 of the Decree, the Secretary of Commerce and
Industrial Development and the Secretary of the Treasure and Public Credit,
within the range of their respective responsibilities, may cancel the program.

Yours truly,
Effective vote, no reelection
The Federal Deputy Representative,

Mario J. Escobedo Carignan [signed]


                                          3


<PAGE>


Federal Subdelegation of Tijuana, B.C.


                                          4

<PAGE>
                                       
                            TAG-IT PACIFIC, INC.
                                  EXHIBIT 11


FOR THE YEAR ENDED AUGUST 31,                                 1997
                                                           -----------

Net loss                                                    $   59,200
                                                           -----------
Weighted average common shares outstanding                   2,085,609

Effect of options issued after August 31, 1996
at below the offering price                                    298,396

Effect of debt converted on October 14, 1997
at below the offering price                                    384,402

Option proceeds used to re-acquire treasury
stock at the offering price                                   (222,758)
                                                           -----------
Weighted average shares outstanding                          2,545,649
                                                           -----------
Loss per share                                              $     0.02
                                                           -----------
                                                           -----------



<PAGE>
                                                                    EXHIBIT 23.2
 
              CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
The Board of Directors
TAG-IT PACIFIC, INC.
Los Angeles, California
 
   
    We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated October 17, 1997, relating to the
consolidated financial statements of Tag-It Pacific, Inc.
    
 
   
    We also consent to the reference to us under the caption "Experts" in the
Prospectus.
    
 
                                          BDO SEIDMAN, LLP
 
   
Los Angeles, California
November 26, 1997
    

<PAGE>
                                                               Exhibit 99.3

Att. Murray Markiles                       Fax: 310/475-2606

Subject: Tag-It Pacific, Inc. SEC Registration

I hereby consent to be named as a director in the Tag-It Pacific inc, 
registration statement.


/s/ Michael Katz
- ----------------------------------------
Michael Katz

<PAGE>
                                                               Exhibit 99.4

Att. Murray Markiles                       Fax: 310/475-2606

Subject: Tag-It Pacific, Inc. SEC Registration

I hereby consent to be named as a director in the Tag-It Pacific inc, 
registration statement.


/s/ Paul Markiles
- ----------------------------------------
Paul Markiles


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