Edgar Filing: TAG IT PACIFIC INC

As filed with the Securities and Exchange
Commission on December 30, 2003. Registration No. 333 --
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

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

21900 BURBANK BOULEVARD, SUITE 270
WOODLAND HILLS, CALIFORNIA 91367
(818) 444-4100
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)

COLIN DYNE, CHIEF EXECUTIVE OFFICER
21900 BURBANK BOULEVARD, SUITE 270
WOODLAND HILLS, CALIFORNIA 91367
(818) 444-4100
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)

COPIES TO:
John J. McIlvery, Esq.
Stubbs Alderton & Markiles, LLP
15821 Ventura Boulevard, Suite 525
Encino, California 91436
(818) 444-4500

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If the only securities on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
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 the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [_]

CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum
Title of Each Class Offering Aggregate Amount Of
of Securities Amount To Be Price Offering Registration
To Be Registered Registered(1) Per Unit(2) Price Fee
--------------------------------------------------------------------------------
Common Stock, par
value $.001 per
share issuable upon
conversion of Series
D Convertible
Preferred Stock........ 5,728,180 $4.57 $26,177,783 $2,118

Common Stock, par
value $.001 per
share.................. 62,500 $4.57 $ 285,625 $ 24

Common Stock, par
value $.001 per share,
issuable upon exercise
of warrants............ 572,818 $4.57 $ 2,617,779 $ 212

TOTAL.................. 6,363,498 $29,081,187 $2,354
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(1) In the event of a stock split, stock dividend, or similar transaction
involving the Registrant's Common Stock, in order to prevent dilution, the
number of shares registered shall automatically be increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), on the basis of the average high and low prices of
the Registrant's Common Stock reported on the American Stock Exchange on
December 29, 2003.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME 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.
================================================================================

SUBJECT TO COMPLETION - December 30, 2003

PROSPECTUS

TAG-IT PACIFIC, INC.

6,363,498 SHARES OF COMMON STOCK
($0.001 par value)
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This prospectus relates to the offer and sale from time to time of up
to 6,363,498 shares of our common stock that are held by the stockholders named
in the "Selling Stockholders" section of this prospectus. The shares of our
common stock offered pursuant to this prospectus were originally issued to the
selling stockholders pursuant to the conversion of convertible preferred stock,
pursuant to the exercise of warrants to purchase common stock, or pursuant to
private placements of common stock.

The prices at which the selling stockholders may sell the shares in
this offering will be determined by the prevailing market price for the shares
or in negotiated transactions. We will not receive any of the proceeds from the
sale of the shares. We will bear all expenses of registration incurred in
connection with this offering. The selling stockholders whose shares are being
registered will bear all selling and other expenses.

We currently have an effective registration statement on Form S-3 (File
No. 333-106494) relating to the offer and sale of up to 3,707,285 shares of our
common stock by the selling stockholders named in the prospectus included in
that registration statement. The offer and sale by the selling stockholders of
the shares of common stock described in this prospectus is not related to this
other offering.

Our common stock is traded on the American Stock Exchange under the
symbol "TAG." On December 29, 2003 the last reported sale price of the common
stock on the American Stock Exchange was $4.50 per share.

SEE "RISK FACTORS" BEGINNING ON PAGE 4 TO READ ABOUT THE RISKS YOU
SHOULD CONSIDER CAREFULLY BEFORE BUYING SHARES OF OUR COMMON STOCK.

----------

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.

----------

The date of this prospectus is ______________

TABLE OF CONTENTS

PAGE

PROSPECTUS SUMMARY............................................................ 3

RISK FACTORS.................................................................. 4

FORWARD-LOOKING STATEMENTS.................................................... 9

USE OF PROCEEDS............................................................... 9

SELLING STOCKHOLDERS.......................................................... 9

PLAN OF DISTRIBUTION..........................................................16

WHERE YOU CAN FIND MORE INFORMATION...........................................17

LEGAL MATTERS.................................................................18

EXPERTS.......................................................................18

PROSPECTUS SUMMARY

ABOUT TAG-IT PACIFIC

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

ABOUT THE OFFERING

This prospectus may be used only in connection with the resale by the
selling stockholders of up to 6,363,498 shares of our common stock.

We will not receive any proceeds from the sale of the shares of common
stock offered by the selling stockholders using this prospectus. On December 29,
2003 we had 11,513,409 shares of common stock outstanding.

CORPORATE INFORMATION

We were incorporated in Delaware in September 1997. We were formed to
serve as the parent holding company of Tag-It, Inc., a California corporation,
Tag-It Printing & Packaging Ltd., which changed its name in 1999 to Tag-It
Pacific (HK) LTD, a BVI corporation, Tag-It de Mexico, S.A. de C.V., A.G.S.
Stationery, Inc., a California corporation, and Pacific Trim & Belt, Inc., a
California corporation. All of these companies were consolidated under a parent
limited liability company in October 1997. These companies became our wholly
owned subsidiaries immediately prior to the effective date of our initial public
offering in January 1998. In 2000, we formed two wholly owned subsidiaries,
Tag-It Pacific Limited, a Hong Kong corporation, and Talon International, Inc.,
a Delaware corporation.

Our executive offices are located at 21900 Burbank Boulevard, Suite
270, Woodland Hills, California 91367, and our telephone number is (818)
444-4100. Information on our website, www.tagitpacific.com, does not constitute
part of this prospectus.

RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THE
MATERIAL ONES FACING OUR COMPANY. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER.
IF THIS OCCURS, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY
LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.

RISKS ASSOCIATED WITH THIS OFFERING

WE OPERATE IN AN INDUSTRY THAT IS SUBJECT TO SIGNIFICANT FLUCTUATIONS
IN OPERATING RESULTS FROM QUARTER TO QUARTER, THAT MAY RESULT IN UNEXPECTED
REDUCTIONS IN REVENUE AND STOCK PRICE VOLATILITY. Factors that may influence our
quarterly operating results include:

o The volume and timing of customer orders received during the
quarter;

o The timing and magnitude of customers' marketing campaigns;

o The loss or addition of a major customer;

o The availability and pricing of materials for our products;

o The increased expenses incurred in connection with the
introduction of new products;

o Currency fluctuations;

o Delays caused by third parties; and

o Changes in our product mix or in the relative contribution to
sales of our subsidiaries.

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

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

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

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

o Interest rates;

o Changes in accounting principles;

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

o Announcements of key developments by our competitors; and

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

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

impairment losses related to goodwill and other tangible assets if we acquire
another company and this could negatively impact our results of operations.

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

INSIDERS OWN A SIGNIFICANT PORTION OF OUR COMMON STOCK, WHICH COULD
LIMIT OUR STOCKHOLDERS' ABILITY TO INFLUENCE THE OUTCOME OF KEY TRANSACTIONS. As
of December 18, 2003, our officers and directors and their affiliates owned
approximately 36.2% of the outstanding shares of our common stock. The Dyne
family, which includes Mark Dyne, Colin Dyne, Larry Dyne, Jonathan Burstein and
the estate of Harold Dyne, beneficially owned approximately 31.9% of the
outstanding shares of our common stock. The number of shares beneficially owned
by the Dyne family includes the shares of common stock held by Azteca Production
International, which are voted by Colin Dyne pursuant to a voting agreement. The
Azteca Production International shares constitute approximately 5.2% of the
outstanding shares of common stock at December 18, 2003. Gerard Guez and Todd
Kay, significant stockholders of Tarrant Apparel Group, each own approximately
8.7% of the outstanding shares of our common stock at December 18, 2003. As a
result, our officers and directors, the Dyne family and Messrs. Kay and Guez are
able to exert considerable influence over the outcome of any matters submitted
to a vote of the holders of our common stock, including the election of our
Board of Directors. The voting power of these stockholders could also discourage
others from seeking to acquire control of us through the purchase of our common
stock, which might depress the price of our common stock.

RISKS RELATED TO OUR BUSINESS

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

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

o We will lose a primary source of revenue if either of Tarrant
or Azteca choose not to purchase our products or services;

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

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

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

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

CONCENTRATION OF RECEIVABLES FROM OUR LARGEST CUSTOMERS MAKES
RECEIVABLE BASED FINANCING DIFFICULT AND INCREASES THE RISK THAT IF OUR LARGEST
CUSTOMERS FAIL TO PAY US, OUR CASH FLOW WOULD BE SEVERELY AFFECTED. Our business
relies heavily on a relatively small number of customers, including Tarrant
Apparel Group and Azteca Production International. This concentration of our
business reduces the amount we can borrow from our lenders under receivables
based financing agreements. Under our credit agreement with UPS Capital, for
instance, if accounts receivable due us from a particular customer exceed a
specified percentage of the total eligible accounts receivable against which we
can borrower, UPS Capital will not lend against the receivables that exceed the
specified percentage. In addition, Gerard Guez, the founder, Chairman and Chief
Executive Officer, and a significant stockholder of Tarrant Apparel Group and
Hubert Guez, the founder, Chief Executive Officer and President, and a
significant stockholder of Azteca Production International, are brothers. This
relationship between our two largest customers further concentrates our
receivables risk significantly among this family group. Further, if we are
unable to collect any large receivables due us, our cash flow would be severely
impacted.

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

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

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

OUR CUSTOMERS HAVE CYCLICAL BUYING PATTERNS WHICH MAY CAUSE US TO HAVE
PERIODS OF LOW SALES VOLUME. Most of our customers are in the apparel industry.
The apparel industry historically has been subject to substantial cyclical
variations. Our business has experienced, and we expect our business to

continue to experience, significant cyclical fluctuations due, in part, to
customer buying patterns, which may result in periods of low sales usually in
the first and fourth quarters of our financial year.

OUR BUSINESS MODEL IS DEPENDENT ON INTEGRATION OF INFORMATION SYSTEMS
ON A GLOBAL BASIS AND, TO THE EXTENT THAT WE FAIL TO MAINTAIN AND SUPPORT OUR
INFORMATION SYSTEMS, IT CAN RESULT IN LOST REVENUES. We must consolidate and
centralize the management of our subsidiaries and significantly expand and
improve our financial and operating controls. Additionally, we must effectively
integrate the information systems of our Mexican and Caribbean facilities with
the information systems of our principal offices in California and Florida. Our
failure to do so could result in lost revenues, delay financial reporting or
adversely affect availability of funds under our credit facilities.

THE LOSS OF KEY MANAGEMENT AND SALES PERSONNEL COULD ADVERSELY AFFECT
OUR BUSINESS, INCLUDING OUR ABILITY TO OBTAIN AND SECURE ACCOUNTS AND GENERATE
SALES. Our success has and will continue to depend to a significant extent upon
key management and sales personnel, many of whom would be difficult to replace,
particularly Colin Dyne, our Chief Executive Officer. Colin Dyne is not bound by
an employment agreement. The loss of the services of Colin Dyne or the services
of other key employees could have a material adverse effect on our business,
including our ability to establish and maintain client relationships. Our future
success will depend in large part upon our ability to attract and retain
personnel with a variety of sales, operating and managerial skills.

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

o Foreign trade disruptions;

o Import restrictions;

o Labor disruptions;

o Embargoes;

o Government intervention; and

o Natural disasters.

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

THERE ARE MANY COMPANIES THAT OFFER SOME OR ALL OF THE PRODUCTS AND
SERVICES WE SELL AND IF WE ARE UNABLE TO SUCCESSFULLY COMPETE OUR BUSINESS WILL
BE ADVERSELY AFFECTED. We compete in highly competitive and fragmented
industries with numerous local and regional companies that provide some or all
of the products and services we offer. We compete with national and
international design companies, distributors and manufacturers of tags,
packaging products, zippers and other trim items. Some of our competitors,
including Paxar Corporation, YKK, Universal Button, Inc., Avery Dennison
Corporation and

Scovill Fasteners, Inc., have greater name recognition, longer operating
histories and, in many cases, substantially greater financial and other
resources than we do.

IF CUSTOMERS DEFAULT ON BUYBACK AGREEMENTS WITH US, WE WILL BE LEFT
HOLDING UNSALABLE INVENTORY. Inventories include goods that are subject to
buyback agreements with our customers. Under these buyback agreements the
customer must purchase the inventories from us, under normal invoice and selling
terms, if any inventory which we purchase on their behalf remains in our hands
longer than agreed by the customer from the time we received the goods from our
vendors. If any customer defaults on these buyback provisions, we may incur a
charge in connection with our holding significant amounts of unsalable
inventory.

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

IF OUR PRODUCTS INFRINGE ANY OTHER PERSON'S PROPRIETARY RIGHTS, WE MAY
BE SUED AND HAVE TO PAY LARGE LEGAL EXPENSES AND JUDGMENTS AND REDESIGN OR
DISCONTINUE SELLING OUR PRODUCTS. From time to time in our industry, third
parties allege infringement of their proprietary rights. Any infringement
claims, whether or not meritorious, could result in costly litigation or require
us to enter into royalty or licensing agreements as a means of settlement. If we
are found to have infringed the proprietary rights of others, we could be
required to pay damages, cease sales of the infringing products and redesign the
products or discontinue their sale. Any of these outcomes, individually or
collectively, could have a material adverse effect on our operating results and
financial condition.

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

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

FORWARD-LOOKING STATEMENTS

This prospectus contains statements that constitute forward-looking
statements within the meaning of Section 21E of the Exchange Act of 1934 and
Section 27A of the Securities Act of 1933. The words "expect," "estimate,"
"anticipate," "predict," "believe" and similar expressions and variations
thereof are intended to identify forward-looking statements. Such statements
appear in a number of places in this prospectus and include statements regarding
our intent, belief or current expectations regarding our strategies, future
sales, other plans and objectives, our ability to design, develop, source and
market products, and the ability of our products to achieve or maintain
commercial acceptance. Any forward-looking statements are not guarantees of
future performance and involve risks and uncertainties. Actual results may
differ materially from those projected in this prospectus, for the reasons,
among others, described in the Risk Factors section beginning on page 4. You
should read the Risk Factors section carefully, and should not place undue
reliance on any forward-looking statements, which speak only as of the date of
this prospectus. We undertake no obligation to release publicly any updated
information about forward-looking statements to reflect events or circumstances
occurring after the date of this prospectus or to reflect the occurrence of
unanticipated events.

USE OF PROCEEDS

The proceeds from the sale of each selling stockholder's common stock
will belong to that selling stockholder. We will not receive any proceeds from
such sales.

In a December 2003 private placement, we sold 572,818 shares of our
Series D Convertible Preferred Stock at a price per share of $44.00 for net
proceeds to us of approximately $23.3 million after payment of placement agent
fees and expenses. We presently intend to use these proceeds for general working
capital purposes and capital equipment expenditures.

SELLING STOCKHOLDERS

CONVERTIBLE PREFERRED STOCK FINANCING

In December 2003, we sold shares of our Series D Convertible Preferred
Stock to the following investors: Apogee Fund, L.P.; Atlas Capital (Q.P.) L.P.;
Atlas Capital Management Master Fund, Ltd.; George L. Ball; Bellfield Capital
Partners, L.P.; Bonanza Master Fund, Ltd; Rodger A. Clemens, Special Retirement
Account; Richard Perlman; B.L. Corley, Jr.; Flyline Holdings, Ltd.; John H.
Gray; Incline Capital, L.P.; Tom and Nancy Juda Living Trust; Richard D. Kinder;
Robert Larry Kinney; Luke J. Drury Non-Exempt Trust; Mark J. Drury Non-Exempt
Trust; Matthew J. Drury Non-Exempt Trust; Michaelyn J. Drury Non-Exempt Trust;
Tanya Drury; John S. Lemak; Ben T. Morris; John I. Mundy; Pequot Navigator
Offshore Fund Inc.; Pequot Navigator Onshore Fund LP; Pequot Scout Fund, LP; The
Pinnacle Fund, L.P.; Precept Capital Master Fund, G.P.; James Price; Portside
Growth and Opportunity Fund; RAM Trading, Ltd.; David May; Nolan Ryan; Brad D.
Sanders; Bret D. Sanders; Christine M. Sanders; Don A. Sanders; Katherine U.
Sanders; Laura K. Sanders; Sanders Opportunity Fund, L.P.; Sanders Opportunity
Fund (Institutional), L.P.; Sandor Capital Master Fund, L.P.; Grant E. Sims and
Patricia Sims; Southwell Partners, L.P.; Susan Sanders Todd; Paul Tate & Laura
M. Tate TIC; Walker Smith Capital Master Fund; Walker Smith International Fund,
Ltd.; Don Weir and Julie Ellen Weir; Eric Glen Weir; Lisa Dawn Weir; Westpark
Capital, L.P.; WS Opportunity Fund International, Ltd.; and WS Opportunity
Master Fund. Each investor is a selling stockholder. Pursuant to the terms of
the subscription agreements, we sold to the selling stockholders an aggregate of
572,818 shares of our Series D Convertible Preferred Stock at a price per share
of $44.00 for gross proceeds to us of approximately $25,200,000 before
commissions and expenses. Except as required by law, the preferred shares have
no voting rights. Commencing June 1, 2004, each preferred share shall begin to
accrue a quarterly dividend of $0.55 (as adjusted for stock

dividends, combinations, splits or similar events), payable March 31, June 30,
September 30, and December 31 of each year with the first payment due September
30, 2004. In the event of a liquidation, dissolution or winding-up of the
Company, the preferred shares will be entitled to receive, prior to any
distribution on the common stock, a distribution equal to $44.00 per preferred
share (as adjusted for stock dividends, combinations, splits or similar events)
plus all accrued and unpaid dividends.

Our Board of Directors has approved, contingent upon approval by our
stockholders at a special meeting of stockholders, the issuance of up to
5,728,180 shares of our common stock upon conversion of the preferred shares
held by the selling stockholders. Approval of the issuance will be voted upon at
our special meeting currently scheduled to occur on February 11, 2004. The
preferred shares will not be convertible into common stock unless and until our
stockholders approve the conversion. If the stockholders approve the conversion,
each preferred share will be automatically converted into 10 shares of our
common stock (as adjusted for stock dividends, combinations, splits or similar
events), for an aggregate of 5,728,180 shares of common stock. In connection
with the December 2003 private placement financing, holders of approximately 51%
of our outstanding voting securities entered into separate voting agreements
with Sanders Morris Harris Inc., which acted as placement agent in the December
2003 private placement and is a selling stockholder in this offering, pursuant
to which each of these stockholders agreed to vote at the special meeting shares
of our common stock held by them or their affiliates in favor of the conversion
of the preferred shares into common shares.

Sanders Morris Harris Inc., a selling stockholder, acted as placement
agent in connection with the December 2003 private placement financing
transaction. For their services as placement agent, we paid Sanders Morris
Harris Inc. a fee equal to 7.5%, or approximately $1,890,000, of our gross
proceeds from the financing. We also paid for the out-of-pocket expenses
incurred by Sanders Morris Harris Inc. in an amount equal to $45,000. In
addition, we issued to Sanders Morris Harris Inc. a warrant to purchase 572,818
shares of our common stock (which represented a number of shares of our common
stock equal to 10% of the number of common shares that may be issued upon
conversion of the preferred shares sold in the offering) at an exercise price of
$4.74 per share. The warrant has a term of 5 years, and vests and becomes
exercisable in full on June 18, 2004.

STOCK GRANT AGREEMENTS

Pursuant to Stock Grant Agreements between us and Herman Roup, a
selling stockholder, dated December 1, 2001, January 1, 2002 and July 17, 2002,
we issued to Mr. Roup an aggregate of 62,500 shares of common stock for services
to the company.

REGISTRATION RIGHTS

In connection with the December 2003 private placement financing, we
entered into a registration rights agreement with the investors and Sanders
Morris Harris Inc. Pursuant to the registrant rights agreement, we agreed to
file a registration statement on Form S-3 registering the resale by the
investors and Sanders Morris Harris of the shares of common stock to be issued
upon conversion of their Preferred Shares and exercise of the warrants described
in this prospectus and to keep the registration statement effective until the
later of one year and the date that all the common shares may be sold by the
investors pursuant to Rule 144 promulgated under the Securities Act of 1933.
This registration rights agreement also provides that if we do not register for
resale the common shares by January 17, 2004, which date may be extended to May
16, 2004 in certain circumstances, then we must pay each of the investors a fee
of 1.0% of the per share purchase price paid by such investor for each preferred
share for each month after such date that the investor cannot publicly sell the
common shares. Pursuant to this agreement, we filed the registration statement
of which this prospectus is a part with the Securities and Exchange Commission
to register for resale the shares of common stock underlying the preferred
shares and the warrants identified in this prospectus and owned by the investors
and Sanders Morris Harris Inc.

SELLING STOCKHOLDERS TABLE

The following table sets forth: (1) the name of each of the
stockholders for whom we are registering shares under this registration
statement; (2) the number of shares of our common stock beneficially owned by
each such stockholder prior to this offering (including all shares of common
stock issuable upon the exercise of warrants or the conversion of convertible
preferred stock as described above, whether or not exercisable within 60 days of
the date hereof); (3) the number of shares of our common stock offered by such
stockholder pursuant to this prospectus; and (4) the number of shares, and (if
one percent or more) the percentage of the total of the outstanding shares, of
our common stock to be beneficially owned by each such stockholder after this
offering, assuming that all of the shares of our common stock beneficially owned
by each such stockholder and offered pursuant to this prospectus are sold and
that each such stockholder acquires no additional shares of our common stock
prior to the completion of this offering. Such data is based upon information
provided by each selling stockholder.

PERCENTAGE OF
COMMON STOCK COMMON STOCK COMMON STOCK
COMMON STOCK BEING OFFERED OWNED UPON OWNED UPON
OWNED PRIOR TO PURSUANT TO THIS COMPLETION OF COMPLETION OF
NAME THE OFFERING PROSPECTUS THIS OFFERING THIS OFFERING (1)
-------------------------------------- -------------- ---------------- ------------- -----------------

Apogee Fund, L.P. (2)................. 227,270 227,270 0 --
Atlas Capital (Q.P.) L.P. (3) ........ 205,000 205,000 0 --
Atlas Capital Management
Master Fund, LP (4) ............... 605,000 605,000 0 --
George L. Ball........................ 10,000 10,000 0 --
Bellfield Capital Partners, L.P. (5).. 102,270 102,270 0 --
Bonanza Master Fund, Ltd (6).......... 227,270 227,270 0 --
Rodger A. Clemens, Special
Retirement Account ................ 30,000 30,000 0 --
Richard Perlman....................... 25,000 25,000 0 --
B.L. Corley, Jr....................... 10,000 10,000 0 --
Flyline Holdings, Ltd. (7)........... 52,270 52,270 0 --
John H. Gray.......................... 20,000 20,000 0 --
Incline Capital, L.P. (8)............. 61,360 61,360 0 --
Tom and Nancy Juda Living Trust,
Tom Juda and Nancy Juda, Co-
Trustees (9) ...................... 50,000 50,000 0 --
Richard D. Kinder..................... 30,000 30,000 0 --
Robert Larry Kinney................... 10,000 10,000 0 --
Luke J. Drury Non-Exempt Trust,
Don Sanders and Luke Drury,
Trustees (10) ..................... 10,000 10,000 0 --

Mark J. Drury Non-Exempt Trust,
Don Sanders and Mark Drury,
Trustees (11) ..................... 10,000 10,000 0 --
Matthew J. Drury Non-Exempt Trust,
Don Sanders and Matthew Drury,
Trustees (12)...................... 10,000 10,000 0 --
Michaelyn J. Drury Non-Exempt Trust,
Don Sanders and Michaelyn Drury,
Trustees (13)...................... 10,000 10,000 0 --
Tanya J. Drury........................ 25,000 25,000 0 --
John S. Lemak (14).................... 25,000 25,000 0 --
Ben T. Morris......................... 10,000 10,000 0 --
John I. Mundy......................... 5,000 5,000 0 --
Pequot Navigator Offshore Fund,
Inc. (15).......................... 195,800 195,800 0 --
Pequot Scout Fund, L.P. (16).......... 486,900 486,900 0 --
Pequot Navigator Onshore Fund,
L.P. (17).......................... 227,200 227,200 0 --
The Pinnacle Fund, L.P. (18).......... 810,000 810,000 0 --
Precept Capital Master Fund,
G.P. (19).......................... 170,450 170,450 0 --
James Price........................... 25,000 25,000 0 --
Portside Growth and Opportunity
Fund (20).......................... 22,720 22,720 0 --
RAM Trading, Ltd. (21)................ 175,000 175,000 0 --
David May............................. 11,400 11,400 0 --
Herman Roup........................... 62,500 62,500 0 --
Nolan Ryan............................ 20,000 20,000 0 --
Brad D. Sanders (22).................. 5,000 5,000 0 --
Bret D. Sanders (23).................. 5,000 5,000 0 --
Christine M. Sanders.................. 5,000 5,000 0 --
Don A. Sanders (24)................... 70,000 70,000 0 --
Katherine U. Sanders.................. 35,000 35,000 0 --
Laura K. Sanders...................... 5,000 5,000 0 --
Sanders Morris Harris Inc. (25)....... 572,818 572,818 0 --

Sanders Opportunity Fund, L.P. (26)... 29,000 29,000 0 --
Sanders Opportunity Fund
(Institutional), L.P. (27)......... 87,000 87,000 0 --
Sandor Capital Master
Fund, L.P. (28).................... 75,000 75,000 0 --
Grant E. Sims & Patricia Sims......... 20,000 20,000 0 --
Southwell Partners, L.P. (29)......... 810,000 810,000 0 --
Susan Sanders Todd.................... 5,000 5,000 0 --
Paul Tate & Lara M. Tate TIC.......... 5,000 5,000 0 --
Walker Smith Capital Master
Fund (30).......................... 164,400 164,400 0 --
Walker Smith International
Fund, Ltd. (31).................... 159,600 159,600 0 --
Don Weir & Julie Ellen Weir (32)...... 20,000 20,000 0 --
Eric Glen Weir........................ 5,000 5,000 0 --
Lisa Dawn Weir........................ 5,000 5,000 0 --
Westpark Capital, L.P. (33)........... 227,270 227,270 0 --
WS Opportunity Fund
International, Ltd. (34)........... 24,400 24,400 0 --
WS Opportunity Master
Fund (35).......................... 51,600 51,600 0 --
TOTAL 6,363,498 6,363,498 0 --
----------

(1) Percentage ownership is based upon 11,533,909 shares of Common Stock of
the Registrant issued and outstanding as of the date of this prospectus.

(2) Emmett Murphy, President of Apogee Fund, L.P., exercises voting and
investment authority over the shares held by this selling stockholder.

(3) The general partner of Atlas Capital (Q.P.), L.P. is Atlas Capital
Management, L.P. ("ACM"). The general partner of ACM is RHA, Inc., of
which Robert H. Alpert is the President. By virtue of his position, Mr.
Alpert exercises voting and investment authority over the shares held by
this selling stockholder.

(4) The outstanding shares of Atlas Capital Management Master Fund, L.P. are
owned by Atlas Capital Offshore Fund, Ltd., the director of which is
Robert S. Alpert, and Atlas Capital, L.P, its general partner. The general
partner of Atlas Capital, L.P. is ACM. The general partner of ACM is RHA,
Inc., of which Robert H. Alpert is the President. By virtue of his
position, Mr. Alpert exercises voting and investment authority over the
shares held by this selling stockholder.

(5) David F. Brigante, the general partner of Bellfield Capital Partners,
L.P., exercises voting and investment authority over the shares held by
this selling stockholder.

(6) Bernay Box, the president of Berney Box & Co., Inc., the general partner
of Bonanza Capital, Ltd., which is the general partner of Bonanza Master
Fund, Ltd., exercises voting and investment authority of the shares held
by this selling stockholder.

(7) W. Forrest Tempel, a director of Flyline Holdings, Ltd., exercises voting
and investment authority over the shares held by this selling stockholder.

(8) Mark Hood, the manager of Incline Capital, L.P., exercises voting and
investment authority over the shares held by this selling stockholder.

(9) Tom Juda and Nancy Juda, co-trustees of the Tom and Nancy Juda Living
Trust, exercise voting and investment authority over the shares held by
this selling stockholder. Tom Juda is an employee of Sanders Morris
Harris, Inc., a registered broker/dealer and member of the NASD. These
securities were purchased and are held in the ordinary course of business
for the personal account of the Tom and Nancy Juda Living Trust.

(10) Don A. Sanders and Luke Drury, as Trustees, exercise voting and investment
authority over the shares held by this selling stockholder. Mr. Sanders is
the Chairman of the Executive Committee of Sanders Morris Harris Inc.,
which is a registered broker/dealer and is a member of the NASD. These
securities were purchased and are held in the ordinary course of business
for the Luke J. Drury Non-Exempt Trust.

(11) Don A. Sanders and Mark Drury, as Trustees, exercise voting and investment
authority over the shares held by this selling stockholder. Mr. Sanders is
the Chairman of the Executive Committee of Sanders Morris Harris Inc.,
which is a registered broker/dealer and is a member of the NASD. These
securities were purchased and are held in the ordinary course of business
for the Mark J. Drury Non-Exempt Trust.

(12) Don A. Sanders and Matthew Drury, as Trustees, exercise voting and
investment authority over the shares held by this selling stockholder. Mr.
Sanders is the Chairman of the Executive Committee of Sanders Morris
Harris Inc., which is a registered broker/dealer and is a member of the
NASD. These securities were purchased and are held in the ordinary course
of business for the Matthew J. Drury Non-Exempt Trust.

(13) Don A. Sanders and Michaelyn Drury, as Trustees, exercise voting and
investment authority over the shares held by this selling stockholder. Mr.
Sanders is the Chairman of the Executive Committee of Sanders Morris
Harris Inc., which is a registered broker/dealer and is a member of the
NASD. These securities were purchased and are held in the ordinary course
of business for the Michaelyn J. Drury Non-Exempt Trust.

(14) John S. Lemak is an affiliate of Williams Financial Group, which is an
NASD member. These securities were purchased and are held in the ordinary
course of business for the personal account of John S. Lemak.

(15) Pequot Capital Management, Inc. is the Investment Manager of Pequot
Navigator Offshore Fund, Inc., and Mark Broach exercises voting and
investment authority over the shares held by this selling stockholder.

(16) Pequot Capital Management, Inc. is the Investment Manager of Pequot Scout
Fund, L.P., and Mark Broach exercises voting and investment authority over
the shares held by this selling stockholder.

(17) Pequot Capital Management, Inc. is the Investment Manager of Pequot
Navigator Onshore Fund, L.P., and Mark Broach exercises voting and
investment authority over the shares held by this selling stockholder.

(18) Barry M. Kitt, general partner of Pinnacle Advisers, L.P., the general
partner of The Pinnacle Fund, L.P., exercises voting and investment
authority over the shares held by this selling stockholder.

(19) Precept Capital Management, L.P. has the sole voting power with respect to
these securities as agent and attorney-in-fact of Precept Capital Master
Fund, G.P., of which the general partner is Precept Management, LLC. D.
Blair Baker, President and Chief Executive Officer of Precept Management,
LLC., exercises voting and investment authority over the shares held by
this selling stockholder.

(20) The Investment Advisor to Portside Growth and Opportunity Fund is Ramius
Capital Group, LLC. The Managing Member of Ramius Capital Group, LLC is
C4S & Co., the Managing Members of which are Peter Cohen, Morgan Stark,
Thomas Strauss and Jeffrey Solomon. As such, Messrs. Cohen, Stark, Strauss
and Solomon may be deemed to exercise voting and investment authority over
the shares held by this selling stockholder and may be deemed beneficial
owners of the shares. Messrs. Cohen, Stark, Strauss and Solomon disclaim
beneficial ownership of such shares.

(21) James R. Park, Vice President of Ritchie Capital Management, LLC, the
investment advisor to RAM Trading, Ltd., exercises voting and investment
authority over the shares held by this selling stockholder.

(22) Brad D. Sanders is an employee of Sanders Morris Harris, Inc., a
registered broker/dealer and member of the NASD. These securities were
purchased and are held in the ordinary course of business for the personal
account of Brad D. Sanders.

(23) Bret D. Sanders is an employee of Sanders Morris Harris, Inc., a
registered broker/dealer and member of the NASD. These securities were
purchased and are held in the ordinary course of business for the personal
account of Bret D. Sanders.

(24) Don A. Sanders is the Chairman of the Executive Committee of Sanders
Morris Harris Inc., which is a registered broker/dealer and is a member of
the NASD. These securities were purchased and are held in the ordinary
course of business for the investment retirement account held for the
benefit of Don Sanders.

(25) These securities consist of 572,818 shares of Common Stock of the
Registrant issuable upon the exercise of a warrant with an exercise price
of $4.74 per share. The warrant has a term of 5 years, and vests and
becomes exercisable in full on June 18, 2004. Ben T. Morris serves as
Chief Executive Officer of Sanders Morris Harris Inc. and, in such
capacity may be deemed to exercise voting and investment authority over
the shares held by this selling stockholder. Additionally, Don A. Sanders
serves as Chairman of the Executive Committee of Sanders Morris Harris
Inc. and, in such capacity may also be deemed to exercise voting and
investment authority over the shares held by this selling stockholder.
Sanders Morris Harris Inc. is a registered broker/dealer and is a member
of the NASD.

(26) Don A. Sanders, the Chief Investment Officer of Sanders Opportunity Fund,
L.P., exercises voting and investment authority over the shares held by
this selling stockholder. Mr. Sanders is the Chairman of the Executive
Committee of Sanders Morris Harris Inc., which is a registered
broker/dealer and is a member of the NASD. These securities were purchased
and are held in the ordinary course of business for the account of Sanders
Opportunity Fund, L.P.

(27) Don A. Sanders, the Chief Investment Officer of Sanders Opportunity Fund
(Institutional), L.P., exercises voting and investment authority over the
shares held by this selling stockholder. Mr. Sanders is the Chairman of
the Executive Committee of Sanders Morris Harris Inc., which is a
registered broker/dealer and is a member of the NASD. These securities
were purchased and are held in the ordinary course of business for the
account of Sanders Opportunity Fund (Institutional), L.P.

(28) The general partner of Sandor Capital Master Fund, L.P. is John S. Lemak.
John S. Lemak is an affiliate of Williams Financial Group, which is an
NASD member. These securities were purchased and are held in the ordinary
course of business for the account of Sandor Capital Master Fund, L.P.

(29) Wilson Jaeggli, general partner of Southwell Partners, L.P., exercises
voting and investment authority over the shares held by this selling
stockholder.

(30) Reid Walker and G. Stacy Smith, members of WS Capital, LLC, the general
partner of WS Capital Management, L.P., the agent and attorney-in-fact for
Walker Smith Capital Master Fund, exercise voting and investment authority
over the shares held by this selling stockholder.

(31) Reid Walker and G. Stacy Smith, members of WS Capital, LLC, the general
partner of WS Capital Management, L.P., the agent and attorney-in-fact for
Walker Smith Capital International Fund, Ltd., exercise voting and
investment authority over the shares held by this selling stockholder.

(32) Don Weir is an employee of Sanders Morris Harris, Inc., a registered
broker/dealer and member of the NASD. These securities were purchased and
are held in the ordinary course of business for the investment retirement
account for the benefit of Don Weir.

(33) Patrick J. Brosnahan, the general partner of Westpark Capital, L.P.,
exercises voting and investment authority over the shares held by this
selling stockholder.

(34) The agent and attorney-in-fact for WS Opportunity Fund International, Ltd.
is WS Ventures Management, L.P., of which the general partner is WSV
Management, L.L.C. Patrick Walker is a member of WSV Management, L.L.C.
Patrick P. Walker, Reid S. Walker and G. Stacy Smith exercise voting and
investment authority over the shares held by this selling stockholder.

(35) The agent and attorney-in-fact for WS Opportunity Master Fund is WS
Ventures Management, L.P., of which the general partner is WSV Management,
L.L.C. Patrick Walker is a member of WSV Management, L.L.C. Patrick P.
Walker, Reid S. Walker and G. Stacy Smith exercise voting and investment
authority over the shares held by this selling stockholder.

Other than the transactions described above or as described in the
table below, we had no material relationship with any selling stockholder during
the three years preceding the date of this prospectus.

PLAN OF DISTRIBUTION

The shares of our common stock offered pursuant to this prospectus may
be offered and sold from time to time by the selling stockholders listed in the
preceding section, or their donees, transferees, pledgees or other successors in
interest that receive such shares as a gift or other non-sale related transfer.
These selling stockholders will act independently of us in making decisions with
respect to the timing, manner and size of each sale.

The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:

o Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;

o Block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;

o Purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;

o An exchange distribution in accordance with the rules of the
applicable exchange;

o Privately negotiated transactions;

o Settlement of short sales;

o Broker-dealers may agree with the selling stockholders to sell
a specified number of such shares at a stipulated price per
share;

o A combination of any such methods of sale; and

o Any other method permitted pursuant to applicable law.

The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.

Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.

The selling stockholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus.

The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may also be deemed to be "underwriters" within
the meaning of the Securities Act in connection with such sales. In such event,
any commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The selling stockholders have
informed us that they do not have any agreement or understanding, directly or
indirectly, with any person to distribute the common stock.

We are required to pay all fees and expenses incident to the
registration of the shares. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-3 with the SEC with
respect to the common stock offered by this prospectus. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement or the exhibits and
schedules that are part of the registration statement. You may read and copy any
document we file at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. We refer you to the registration statement and the
exhibits and schedules thereto for further information with respect to us and
our common stock. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference room. Our SEC filings are also available to the public
from the SEC's website at www.sec.gov.

We are subject to the information and periodic reporting requirements
of the Securities Exchange Act of 1934 and, in accordance with those
requirements, will continue to file periodic reports, proxy statements and other
information with the SEC. These periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and the SEC's website referred to above.

The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means that we can disclose important information to you by
referring to those documents. We incorporate by reference the documents listed
below and any additional documents filed by us with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this offering of
securities is terminated. The information we incorporate by reference is an
important part of this prospectus, and any information that we file later with
the SEC will automatically update and supersede this information.

The documents we incorporate by reference are:

1. Our Annual Report on Form 10-K for the year ended December 31,
2002 (File No. 001-13669);

2. Our Amendment No. 1 to Annual Report on Form 10-K/A for the
year ended December 31, 2002 (File No. 001-13669);

3. Our Quarterly Report on Form 10-Q for the quarter ended March
31, 2003 (File No. 001-13669);

4. Our Quarterly Report on Form 10-Q for the quarter ended June
30, 2003 (File No. 001-13669);

5. Our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003 (File No. 001-13669);

6. Our Current Report on Form 8-K as filed on May 15, 2003 (File
No. 001-13669);

7. Our Current Report on Form 8-K as filed on June 4, 2003 (File
No. 001-13669);

8. Our Current Report on Form 8-K as filed on August 18, 2003
(File No. 001-13669);

9. Our Current Report on Form 8-K as filed on November 18, 2003
(File No. 001-13669);

10. Our Current Report on Form 8-K as filed on December 22, 2003
(File No. 001-13669);

11. The description of our capital stock contained in our
Registration Statement on Form 8-A (File No. 001-13669); and

12. All other reports filed by us pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 since December
31, 2002, including all such reports filed after the date of
the initial registration statement and prior to effectiveness
of the registration statement.

You may request a copy of these filings, at no cost, by writing or
calling us at Tag-It Pacific, Inc., 21900 Burbank Boulevard, Suite 270, Woodland
Hills, California 91367, telephone number (818) 444-4100, Attention: Ronda
Ferguson.

You should rely only on the information contained in this prospectus or
any supplement and in the documents incorporated by reference above. We have not
authorized anyone else to provide you with different information. You should not
assume that the information in this prospectus or any supplement or in the
documents incorporated by reference is accurate on any date other than the date
on the front of those documents.

LEGAL MATTERS

Stubbs Alderton & Markiles, LLP, Encino, California, has rendered to
Tag-It Pacific, Inc. a legal opinion as to the validity of the common stock
covered by this prospectus.

EXPERTS

The consolidated financial statements and schedules incorporated by
reference in this Prospectus have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report incorporated herein by reference, and are incorporated herein in
reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.

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

You should rely only on the information incorporated by reference or provided in
this prospectus or any supplement to this prospectus. We have not authorized
anyone else to provide you with different information. The selling stockholders
should not make an offer of these shares in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
supplement to this prospectus is accurate as of any date other than the date on
the cover page of this prospectus or any supplement.

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

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

TAG-IT PACIFIC, INC.

PROSPECTUS

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table itemizes the expenses incurred by the Registrant in
connection with the offering. All the amounts shown are estimates except the
Securities and Exchange Commission registration fee.

Registration fee - Securities and Exchange Commission ............ $ 2,379
Legal Fees and Expenses .......................................... 15,000
Accounting Fees and Expenses ..................................... 10,000
Miscellaneous Expenses ........................................... 2,621
-------
Total ....................................................... $30,000
=======

ITEM 15. 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

II-1

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(o)(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 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, 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 Registrant and, with respect to any criminal action, had no reasonable cause
to believe Indemnitee's Conduct was unlawful.

ITEM 16. EXHIBITS.

EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -----------------------------------------------------------------

4.1 Specimen Stock Certificate of Common Stock of Registrant.
Incorporated by reference to Exhibit 4.1 to Form SB-2 filed on
October 21, 1997, and the amendments thereto.
4.2 Rights Agreement, dated as of November 4, 1998, between
Registrant and American Stock Transfer and Trust Company as
Rights Agent. Incorporated by reference to Exhibit 4.1 to Current
Report on Form 8-K filed as of November 4, 1998.
4.3 Form of Rights Certificate. Incorporated by reference to Exhibit
B to the Rights Agreement filed as Exhibit 4.1 to Current Report
on Form 8-K filed as of November 4, 1998.
4.4 Certificate of Designation of Series D Convertible Preferred
Stock. Incorporated by reference to Exhibit 4.1 to Form 8-K filed
on December 22, 2003.
5.1 Opinion and Consent of Stubbs Alderton & Markiles, LLP.
10.1 Form of Subscription Agreement between the Registrant and the
Purchaser identified therein. Incorporated by reference to
Exhibit 99.1 to Form 8-K filed on December 22, 2003.
10.2 Registration Rights Agreement, dated December 18, 2003, among the
Registrant, Sanders Morris Harris Inc. and the Purchasers
identified therein. Incorporated by reference to Exhibit 99.2 to
Form 8-K filed on December 22, 2003.
10.3 Placement Agent Agreement, dated December 18, 2003, between the
Registrant and Sanders Morris Harris Inc. Incorporated by
reference to Exhibit 99.3 to Form 8-K filed on December 22, 2003.
10.4 Common Stock Purchase Warrant dated December 18, 2003 between the
Registrant and Sanders Morris Harris Inc. Incorporated by
reference to Exhibit 99.4 to Form 8-K filed on December 22, 2003.
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Stubbs Alderton & Markiles, LLP (included in Exhibit
5.1).
24.1 Power of Attorney (included on signature page).

II-2

ITEM 17. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;

(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement; provided, however, that the information
required to be included in a post-effective amendment by paragraphs
(a)(1)(i) and (a)(1)(ii) above may be contained in periodic reports
filed by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 and (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.

(c) 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
of 1933 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 or 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

II-3

will, unless in the opinion of their counsel the matter has been settled by
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 of 1933 and will be governed by the final
adjudication of such issue.

(d) The undersigned Registrant hereby undertakes that:

(1) For 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-4

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 S-3 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Los
Angeles, State of California, on December 30, 2003.

TAG-IT PACIFIC, INC.

By: /S/ RONDA FERGUSON
---------------------------------------
Ronda Ferguson, Chief Financial Officer

POWER OF ATTORNEY

The undersigned directors and officers of Tag-It Pacific, Inc. do
hereby constitute and appoint Colin Dyne and Ronda Ferguson, 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
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the foregoing, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their substitutes, may
lawfully do or cause to be done by virtue hereof.

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

/S/ MARK DYNE Chairman of the Board of December 30, 2003
--------------------------- Directors
Mark Dyne

/S/ COLIN DYNE Chief Executive Officer December 30, 2003
--------------------------- and Director
Colin Dyne

/S/ RONDA FERGUSON Chief Financial Officer December 30, 2003
---------------------------
Ronda Ferguson

/S/ KEVIN BERMEISTER Director December 30, 2003
---------------------------
Kevin Bermeister

/S/ MICHAEL KATZ Director December 30, 2003
---------------------------
Michael Katz

/S/ JONATHAN BURSTEIN Director and Vice President December 30, 2003
--------------------------- of Operations
Jonathan Burstein

Director
---------------------------
Brent Cohen

Director
---------------------------
Max Perks

S-1

EXHIBIT INDEX

EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -----------------------------------------------------------------

EX-1