Tag-It Pacific, Inc.

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Tag-It Pacific, Inc.

21900 Burbank Boulevard, Suite 270
Woodland Hills, California 91367
U.S.A.
Telephone: (818) 444-4128
Fax: (818) 444-4105
Web site: http://www.tagitpacific.com

Public Company
Incorporated: 1997
Employees: 119
Sales: $47.33 million (2005)
Stock Exchanges: American
Ticker Symbol: TAG
NAIC: 422310 Piece Goods, Notions, and Other Dry Goods Wholesalers

Tag-It Pacific, Inc., produces Talon brand zippers; Tekfit stretch waistbands; buttons, rivets, and other clothing trim items; and labels and printed marketing materials for the garment industry. The firm also operates a web-based aggregation service called TrimNet that coordinates the production and shipment of trim items to clothing makers. Tag-It clients include Levi Strauss & Co., The Limited Group, Mother's Work, Kellwood, VF Corporation, and firms that make private label clothing for Wal-Mart and other mass-marketers.

BEGINNINGS

The origins of Tag-It Pacific date to 1987, when a firm called Pacific Trim was founded by Harold Dyne in Los Angeles, California, to produce woven labels and jeans buttons for clothing manufacturers. South African native Dyne had founded the Union Fasteners Corp. in his home country in 1958, and later formed a joint venture with Japanese zipper maker YKK.

In 1991 Dyne founded another new company called Tag-It Printing & Packaging with his son Colin to make labels and marketing materials for garment makers. Four years later AGS Stationery was also formed to produce Guess? brand paper products in North America and the Far East through a licensing agreement. For 1996, the three Dyne firms had total revenues of nearly $15 million.

In 1997 the companies merged to create Tag-It Pacific, Inc., which would offer a complete package of services for apparel branding under one roof. It would supply paper, metal, and plastic boxes; shopping bags; hanging and bar-coded tags; woven and leather labels; and metal buttons. Tag-It offered clothing makers a streamlined garment finishing process, which typically involved buying as many as 15 different trim pieces from a half-dozen or more vendors. To keep production lines moving, rivets, tags, labels, zippers, and buttons had to be received at precisely the same time, and Tag-It could offer one-stop shopping for most of these items.

Under CEO Colin Dyne, the firm began expanding its sales and marketing efforts by hiring new personnel and opening an office in New York, while phasing out licensed stationery products to concentrate on serving garment manufacturers. The company designed approximately 70 percent of the products it sold and also procured materials, coordinated manufacturing, packaged goods, and handled distribution. Tag-It clients included companies that made clothing with brand names including Guess?, Calvin Klein, Quiksilver, Carole Little, The Limited, Yves Saint Laurent, Kenneth Cole, Geoffrey Beene, Pierre Cardin, Sony Signatures, and Warner Brothers.

INITIAL PUBLIC OFFERING IN 1998

In January 1998 Tag-It made an initial public offering (IPO) on the American Stock Exchange, selling about 1.5 million shares for close to $4 each, but interest was not strong and the price soon fell off. During the spring and summer the company signed new trim-supply deals with Tommy Hilfiger, A/X Armani Exchange, Nautica, and Chorus Line.

In October 2.4 million shares of stock were sold for $2.7 million to KG Investment LLC, which would take a 37 percent ownership stake. KG owners Gerard Guez and Todd Kay were the principals in Tarrant Apparel Group of Los Angeles, a maker of private label clothing for such companies as J.C. Penney and Target, with $380 million in sales. The move provided Tag-It with both needed cash and a vast new customer base. At year's end the company opened a 20,000-square-foot warehousing, assembly, and distribution facility in Tehuacán, Mexico, to service Tarrant and other garment manufacturers.

In January 1999 Tag-It Turnkey, a web-based trim and packaging management system, was introduced. It allowed clients to design, order, and track shipments of trim to their factories, with both Tag-It made products and ones sourced from outside suppliers. The innovative service attracted much attention within the industry.

In June a new office/distribution facility was opened in Hong Kong to serve the firm's Asian clients, while its busy Mexican site expanded to more than double its original size. During the year new contracts were signed to supply trim to Bass Pro Shops and Arnette, while work with The Limited was expanded. Annual sales jumped from less than $20 million to $32.4 million, and net income topped $1.7 million.

In January 2000 a ten-year agreement to sell clothing-industry chemicals in Mexico for the Virkler Company was signed, and in April the firm reached a deal to distribute products for zipper maker Talon, Inc., to the United States, Canada, the Pacific Rim, and parts of Mexico. Talon owner Grupo Industrial Cierres Ideal S.A. would also receive 850,000 shares of Tag-It stock.

In January 2001 Tag-It signed a three-year, $30 million pact with private label denim clothing maker Azteca Production International, Inc. One million shares of Tag-It stock were issued to Azteca in exchange for existing trim, after which the firm would manage Azteca's procurement operations. Azteca was owned by Tarrant owner Gerard Guez's brothers Hubert and Paul Guez. Supplying trim for denim and twill pants accounted for between 60 and 70 percent of the firm's revenues.

In February Tag-It bought Arzee Holdings, a Miami-based trim supply firm that worked with clients in Central America. The company also moved its headquarters from Los Angeles to Woodland Hills, California, and shifted the Talon distribution operation to Medley, Florida.

In the fall of 2001 Tag-It sold a $3 million ownership stake to Coats Plc, the world's largest thread manufacturer. Expanding on an earlier agreement, Tag-It would use Coats thread exclusively for a minimum of ten years.

PURCHASE OF TALON IN LATE 2001

In December the company bought the Talon zipper business from Grupo Industrial Cierres Ideal. Founded in 1893, Talon was the first company to manufacture formed wire zippers, and though its sales were dwarfed by those of industry leader YKK of Japan, Tag-It was optimistic that its market share could increase in a field where there were only two serious players.

In April 2002 Tag-It licensed a new type of stretch waistband from Pro-Fit Holdings Ltd. of England that could expand up to two sizes without altering the appearance of a fabric. The firm would gain North American rights to the material in exchange for 150,000 shares of stock, marketing it under the name TekFit.

COMPANY PERSPECTIVES

Tag-It Pacific, Inc., is a unique company offering a wide array of apparel component products and services around the globe.

In July a new $10 million, two-year deal was signed with Levi Strauss & Co. to supply the jeans maker with trim products and services including Talon zippers and TekFit waistbands, and in August the firm began producing metal jeans buttons, snaps, and rivets under the Talon Fastener brand name. In the fall, a new distribution facility was opened in the Dominican Republic.

For fiscal 2002 sales zoomed to $60.1 million and net income hit $1.5 million. The firm's primary customers were Tarrant Apparel Group and Azteca Production International, which together accounted for 69.7 percent of sales, but Tag-It was working to increase its business with other clients.

In 2003 Levi Strauss began selling a new line of Dockers pants with TekFit waistbands under the name Individual Fit, and their success in first men's, then women's, styles helped boost revenues. Two private stock placements also netted a total of more than $30 million, while a new two-year private label trim agreement worth as much as $24 million was signed in the fall. During the year the company increased global distribution of Talon products, licensed a new easier-to-close zipper design called ZipKlip, and introduced Slik-Label, a heat-transfer label that could be applied permanently to any fabric. Tag-It was also updating its online trim aggregation service with Oracle software, and at year's end it was reintroduced as TrimNet.

Revenues for 2003 grew to $64.4 million while a $4.8 million loss was attributed to both reduced work in Mexico and the cost of moving zipper operations from Florida to North Carolina. Sales to clients Tarrant and Azteca had fallen to just 10 percent of the total after Tarrant moved its operations out of Mexico.

In May 2004 a new one-year, $8 million contract was signed with a Mexican jeans maker, and in the summer the TekFit agreement with Levi Strauss was extended for an additional two years, which would bring approximately $40 million in revenue. In October Tag-It signed its first Talon zipper distribution franchisee in central Asia. Under the $9.5 million, three-year deal, the firm would supply bulk rolled zippers and equipment for installation. Similar agreements for other parts of Asia and the Middle East followed over the next few months, adding up to a five-year, $64 million commitment by spring. By this time the firm had also opened a sales office in Shanghai and was preparing to add a Talon manufacturing facility in Guatemala.

RESTRUCTURING IN 2005

In the spring of 2005 Tag-It reported the final results of its 2004 fiscal year. On $55.1 million in revenues, a net loss of $17.6 million was reported, which was largely attributed to write-offs such as the $4.3 million owed by former primary customer Tarrant Apparel Group and an affiliate. On August 22 a major restructuring was announced that would include the closure of the North Carolina zipper plant, the complete elimination of manufacturing in Mexico, and the reduction of operations in Guatemala. North American clothing makers had shifted most production to Asia, and Tag-It would subsequently operate out of sites in Bangladesh, India, and Indonesia.

A number of shareholder lawsuits were soon filed against the firm, and in October Stephen Forte was named CEO to replace Colin Dyne, who would take the role of vice-chairman, with Mark Dyne remaining board chair. Ascendent Telecommunications founder Forte had been working as a consultant on the company's restructuring.

Litigation was also brewing between the firm and TekFit creators Pro-Fit Holdings. Tag-It had sued Pro-Fit in 2002 over claims that the supplier was delaying shipments and Pro-Fit countersued, claiming that Tag-It was using the stretchable material in products it had not been licensed to make. Tag-It had ultimately decided to end its contract with Pro-Fit and switched to a competitor, Narrowflex, though that firm had then sued the company as well.

KEY DATES

1987:: Pacific Trim is founded in Los Angeles to make buttons and labels.
1991:: Tag-It Printing & Packaging is formed to produce marketing materials.
1995:: AGS Stationery is founded to sell licensed Guess? brand products.
1997:: Firms merge to form Tag-It Pacific.
1998:: Company goes public on the American Stock Exchange.
1999:: Web-based trim management system is introduced.
2001:: Zipper maker Talon, Inc., is acquired.
2002:: Pro-Fit stretchable waistband technology is licensed.
2005:: North Carolina and Mexican facilities close; Stephen Forte is named CEO.

By the end of 2005 Tag-It's staff had decreased from 290 to 119, and in early 2006 the company appointed new chief financial and chief operating officers and offered stock-based incentives in lieu of salary to CEO Forte. In April the firm announced it was restating quarterly sales for the latter half of 2005 to reflect lower revenues and higher losses, and when shareholder equity fell below $4 million Tag-It was warned by the American Stock Exchange that it faced delisting. The company was later given a deadline of November 2007 to meet the exchange's guidelines.

During 2006 the firm's restructuring began to take hold and its numbers improved. For the first six months of the year Tag-It reported a net loss of just $74,000 on income of $24.9 million, a huge improvement over the same period in 2005.

In addition to the geographic shift in clothing production, the garment industry was going through other changes that impacted manufacturers and trim suppliers. Makers of fashionable, popular-priced clothes including H&M had pushed the lead time between design and store sales from six months to as little as two weeks, making the firm's TrimNet system an even more useful tool, and Tag-It management expressed optimism about the company's future.

Twenty years after Harold Dyne started what would become Tag-It Pacific, Inc., the firm was struggling to return to profitability in the midst of major changes in the garment industry. The narrowing turnaround time for clothing production was playing to the firm's strengths, while its control of the well-known Talon zipper brand also offered a significant opportunity for growth.

Frank Uhle

PRINCIPAL SUBSIDIARIES

Tag-It Pacific (HK) LTD (British Virgin Islands); Tagit de Mexico, S.A. de C.V.; A.G.S. Stationery, Inc.; Pacific Trim & Belt, Inc.; Tag-It Pacific Limited (Hong Kong); Talon International, Inc.