UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period
ended: February 29,
2008

or

[     ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the transition period
from:__________ to
____________________

Commission File Number:000-13851

|NITCHES, INC.                                                                           
|----------------------------------------------------------------------------------------
|(Exact name of registrant as
      specified in its charter)                            
|                                                                                        
|California                                                                              
|(State or other jurisdiction of
      incorporation or organization)                    
|                                                                                        
|10280 Camino Santa Fe, San
      Diego, California                                      
|(Address of principal executive
      offices)                                          
|                                                                                        
|(858) 625-2633                                                                          
|(Registrant's telephone number,
      including area code)                              
|                                                                                        
|                                                                                        
|(Former name, former address and
      former fiscal year, if changed since last report)

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See the definitions of "large accelerated
filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of
the Exchange Act. (Check one):

|Large accelerated filer [   ]Non- accelerated filer[X]                                                                       | Accelerated filer[   ]Smaller
      reporting company [   ]
|---------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------
|                                                                                                                             |                                                            
|Indicate by check mark whether
      the registrant is a shell company (as defined in Rule 12b-2 of the
      Exchange Act).
|Yes [   ] No [X]                                                                                                            

As of April 24, 2008 the registrant had
6,019,644 shares of common stock outstanding.

---

NITCHES, INC. AND
SUBSIDIARIESCondensed Consolidated Balance Sheets

|ASSETS                                                                                
|--------------------------------------------------------------------------------------
|                                                                                      
|                                                                                      
|                                                                                      
|Current
      assets:                                                                 
|Cash                                                                                  
|Receivables:                                                                          
|Due
      from factor, net                                                            
|Trade
      accounts, net                                                             
|Due
      from affiliates and employees                                               
|Total receivables                                                                     
|                                                                                      
|Refundable income taxes                                                               
|Inventories, less allowances                                                          
|Deferred income taxes,
      current                                                  
|Advances and prepaid
      expenses                                                   
|Other current assets                                                                  
|Total current assets                                                                  
|                                                                                      
|Furniture,
      fixtures and equipment, net                                          
|Goodwill                                                                              
|Intangibles,
      net                                                                
|Other assets                                                                          
|Total assets                                                                          
|                                                                                      
|LIABILITIES AND SHAREHOLDERS'
      EQUITY                                            
|Current
      liabilities:                                                            
|Due to factor                                                                         
|Accounts payable                                                                      
|Accrued expenses                                                                      
|Due to related party                                                                  
|Customer credits and
      deposits                                                   
|Notes payable - bank                                                                  
|Total
      current liabilities                                                       
|                                                                                      
|Long term
      debt                                                                  
|Convertible debt, net                                                                 
|Deferred income
      taxes, long term                                                
|Total
      liabilities                                                               
|                                                                                      
|Commitments and
      contingencies                                                   
|Shareholders' equity:                                                                 
|Series A preferred stock, $100 par
      value; 25,000,000 shares authorized,         
|8,820
      shares issued and outstanding                                             
|Common stock, no par value;
      50,000,000 shares authorized; issued and outstanding
|6,019,644 shares in 2008 and 5,659,644 shares in 2007                                 
|Additional paid-in capital                                                            
|Retained earnings                                                                     
|Total
      shareholders' equity                                                      
|Total liabilities and shareholders' equity                                            

The accompanying notes are an integral
part of these consolidated financial statements.

2

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NITCHES, INC. AND
SUBSIDIARIESCondensed Consolidated
Statements of Operations(Unaudited)

|                                                   |  | Three Months
      Ended |            | Six Months
      Ended
|-------------------------------------------------- |  | ------------------------ | ---------- | ----------------------
|                                                   |  | February 29,             |            | February 28,          
|                                                   |  | 2008                     |            | 2007                  
|Net sales                                          |  | $                        | 16,148,000 |                       
|Cost of
      goods sold                           |  |                          | 12,816,000 |                       
|Gross profit                                       |  |                          | 3,332,000  |                       
|Selling,
      general and administrative expenses |  |                          | 5,096,000  |                       
|Operating income (loss)                            |  |                          | (1,764,000 | )                     
|Interest
      expense                             |  |                          | (413,000   | )                     
|Income (loss) before income taxes                  |  |                          | (2,177,000 | )                     
|Provision
      for (benefit from) income taxes    |  |                          | (318,000   | )                     
|Net income (loss)                                  |  | $                        | (1,859,000 | )                     
|                                                  
|Basic earnings (loss) per share                    |  | $                        | (0.32      | )                     
|Diluted
      earnings (loss) per share            |  | $                        | (0.32      | )                     
|                                                  
|Weighted average number of common shares:          |  |                          |            |                       
|Basic                                              |  |                          | 5,774,369  |                       
|Diluted                                            |  |                          | 5,774,369  |                       

The accompanying notes are an integral
part of these consolidated financial statements.

3

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NITCHES, INC. AND
SUBSIDIARIESCondensed Consolidated
Statements of Cash Flows(Unaudited)

|                                                                                                 |  | Six months ended
|------------------------------------------------------------------------------------------------ |  | ----------------
|                                                                                                 |  | February 29,    
|                                                                                                 |  | 2008            
|Cash flows from operating activities:                                                            |  |                 
|Net (loss) income                                                                                |  | $               
|Adjustments to
      reconcile net (loss) income to net cash used in operating
      activities: |  |                 
|Depreciation and amortization                                                                    |  |                 
|Amortization of debt discount                                                                    |  |                 
|Stock based compensation                                                                         |  |                 
|Change in operating
      assets and liabilities, net of effects of acquisition                  |  |                 
|Trade receivables and due from affiliates                                                        |  |                 
|Inventories, net                                                                                 |  |                 
|Other assets                                                                                     |  |                 
|Accounts payable and accrued expenses                                                            |  |                 
|Income taxes payable                                                                             |  |                 
|Deferred income taxes, non current                                                               |  |                 
|Net
      cash used in operating activities                                                      |  |                 
|                                                                                                
|Cash flows used in investing activities:                                                         |  |                 
|Capital
      expenditures                                                                       |  |                 
|Net cash used in investing activities                                                            |  |                 
|                                                                                                
|Cash flows from financing activities:                                                            |  |                 
|Advances from
      factor                                                                       |  |                 
|Proceeds from
      (repayment of) notes payable                                                 |  |                 
|Net cash provided by financing activities                                                        |  |                 
|                                                                                                
|Net decrease in cash                                                                             |  |                 
|Cash at beginning of period                                                                      |  |                 
|Cash at end of period                                                                            |  | $               

The accompanying notes are an integral
part of these consolidated financial statements.

4

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NITCHES, INC. AND
SUBSIDIARIESCondensed Consolidated Statements of
Cash Flows, continued (Unaudited)

|                                                   | Six months ended
|-------------------------------------------------- | ----------------
|                                                   | February 29,    
|                                                   | 2008            
|Supplemental disclosures of cash flow information: |                 
|Cash paid during the period:                       |                 
|Interest                                           | $               

Supplemental schedule of noncash investing and
financing activity:

Noncash activity during the six months ended
February 29, 2008 includes the following:

- Acquisition of assets with a fair value of
  $3,966,000 and the assumption of liabilities totaling $3,728,000 in connection
  with the acquisition of Back Woods Equipment Company on February 1, 2008,
  pursuant to which the Company issued 360,000 shares of its common stock valued
  at $688,000 (see Note 8).
- Acquisition of license agreement with Paula Deen
  Enterprises, LLC on December 31, 2007 through issuance of warrants to purchase
  150,000 shares of the Companys common stock with an estimated fair value of
  $161,000 (see Note 10).

Noncash activity during the six months ended
February 28, 2007 includes the following:

- Acquisition of the Saguaro® mark and related
  trademarks through the issuance of 600,000 shares of the Companys common
  stock valued at $2,730,000 and a note payable in the amount of
  $300,000

The accompanying notes are an integral part of
these consolidated financial statements.

5

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1. Description of Business

Nitches, Inc. and
subsidiaries ("we," "our," "us," or the "Company") is a wholesale importer and
distributor of clothing, home décor and tabletop products manufactured to our
specifications and distributed in the United States under our brand labels and
retailer-owned private labels. We distribute clothing primarily in three
categories: women's sleepwear and loungewear, women's sportswear and outerwear,
and men's casual wear and performance apparel. We market women's sleepwear and
loungewear under the brands Anne Lewin®, Crabtree & Evelyn®, Princesse tam
tam®, Derek Rose®, Gossard®, Shock Absorber®, Claire Murray®, Cuddl Duds® and
Odille Oasis®. We market women's sportswear and outerwear under the brands Adobe
Rose®, Country Tease®, Saguaro® and Southwest Canyon®. We market men's casual
wear and performance apparel under the brands Nat Nast®, Newport Blue®,
Dockers®, The Skins Game®, So-Cal Speed Shops®, Noble Surfer® and ZOIC®. We
distribute home décor and tabletop products under the Bill Blass®, Newport Blue®
and Paula Deen® brands. We sell our branded products to better department
stores, specialty boutiques, moderate department stores, and national and
regional discount department stores and chains. We also develop and manufacture
private label products for many leading retailers and catalogs. The Company
provides fashionable clothing to the popularly priced market segment that
generally retails between $10 and $35 per item. For 35 years the Company has
competed on the basis of price, quality, the desirability of its fabrics and
designs, and the reliability of its delivery and service.

On February 1, 2008, we
acquired specialty outdoor retailer Back Woods Equipment Company, a Kansas
corporation ("Backwoods"), as a wholly owned subsidiary. Backwoods presently
operates seven retail locations in Kansas, Nebraska, Oklahoma and Texas.
Backwoods offers customers a strong assortment of top quality technical gear,
clothing and footwear for active lifestyles and adventure travel. The
accompanying financial statements include the operations of Backwoods occurring
after February 1, 2008. For additional information concerning the acquisition,
see Footnote 8.Acquisition of Back Woods Equipment
Company.

2. Condensed Consolidated Financial
Statements

The accompanying
unaudited condensed consolidated financial statements have been prepared in
accordance with the rules and regulations of the United States Securities and
Exchange Commission (SEC) for Form 10-Q.Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations. The condensed consolidated balance sheet as of August 31,
2007 was derived from our audited financial statements. These consolidated
financial statements should be read in conjunction with our consolidated
financial statements and related notes contained in our Annual Report on Form
10-K for the year ended August 31, 2007. In the opinion of our management, all
adjustments of a normal recurring nature which are considered necessary for a
fair presentation have been included in the interim period. Operating results
for the quarter ended February 29, 2008 are not necessarily indicative of the
results that may be expected for the fiscal year ending August 31, 2008, or any
future period.

3. Earnings (loss) per
share

We
calculate earnings (loss) per share in accordance with SFAS No. 128 "Earnings
per Share". Basic earnings (loss) per common share is computed by dividing
income (loss) available to common shareholders by the weighted-average number of
shares of common stock outstanding during the period. Diluted earnings (loss)
per common share is computed by dividing income (loss) available to common
shareholders by the weighted-average number of shares of common stock
outstanding during the period increased to include the number of additional
shares issuable upon the exercise of outstanding stock options, warrants or
other convertible instruments. The dilutive effect of potential common shares
related to outstanding stock options, warrants or other convertible instruments
is reflected in diluted earnings (loss) per share by application of the treasury
stock method. Under the treasury stock method, an increase in the fair market
value of our common stock can result in a greater dilutive effect from
outstanding options.Additionally, the exercise of employee
stock options can result in a greater dilutive effect on earnings (loss) per
share.

6

---

The
following table sets forth the computation of basic and diluted earnings per
share:

|                                                 | Three Months
      Ended |            | Six Months Ended
|------------------------------------------------ | ------------------------ | ---------- | ----------------
|                                                 | February 29,             |            | February 28,    
|                                                 | 2008                     |            | 2007            
|Numerator:                                       |                          |            |                 
|Net income                                       | $                        | (1,859,000 | )               
|                                                
|Denominator:                                     |                          |            |                 
|Weighted average shares
      outstanding        |                          | 5,774,369  |                 
|Effect of dilutive
      securities              |                          | -          |                 
|Denominator
      for diluted earnings per share |                          | 5,774,369  |                 
|                                                
|Basic earnings (loss) per share                  | $                        | (0.32      | )               
|Diluted
      earnings (loss) per share          | $                        | (0.32      | )               

*The effect was anti-dilutive
for the respective periods because of the net loss.

4. Inventories

Inventories consist of the
following:

February
      29,
    
    August
      31,2008
    
    2007Fabric and
      trim
    $
    1,199,000
    
    
    $
    60,000Goods in transit
    
    2,842,000
    
    
    
    5,992,000Finished
      goods
    
    14,283,000
    
    
    
    8,601,000Markdown allowances
    
    (1,610,000
    )
    
    
    (548,000
    )$
    16,714,000
    
    
    $
    14,105,000


5. Trade accounts
receivable

Pursuant to the terms
of a factoring agreement between us and CIT Commercial Services (CIT), and a
separate agreement between our subsidiary Designer Intimates, Inc. and CIT, we
sell a majority of our trade accounts receivable to CIT on a pre-approved,
non-recourse basis. The price at which the accounts are sold is the invoice
amount reduced by the factor commission (0.3% of the invoice amount) and all
selling discounts. For accounts sold to CIT on a non-recourse basis, CIT is
responsible for collection, assumes all credit risk, and obtains all of the
rights and remedies against our customers. For such accounts, payment is due
from CIT upon the earlier of the payment of the receivable to CIT by the
customer or the maturity of the receivable (generally 180 days from the date of
shipment to the customer). As of February 29, 2008, $10.3 million of our trade
accounts receivable were non-recourse receivables due from CIT. As of August 31,
2007, non-recourse receivables totaled $13.0 million.

Trade accounts
receivable not sold to CIT remain in our custody and control and we maintain all
credit risk on those accounts as well as accounts which are sold to CIT with
recourse. The combined credit risk for non-factored and recourse receivables as
of February 29, 2008, totaled $645,000, of which $200,000 had been collected by
March 31, 2008.

Under the terms of our
factoring agreement, we may request payment from CIT in advance of the
collection date or maturity. Any such advance payments are assessed an interest
charge through the collection date or maturity at CITs prime rate less 1.5%
(one and one half percent) per annum. Our obligations with respect to advances
from CIT are limited to the interest charges thereon. Advance payments are
limited to a maximum of 85% (eighty-five percent) of eligible accounts
receivable and 50% (fifty percent) of eligible finished goods inventory. The
factoring agreement also provides for the issuance of irrevocable letters of
credit for our purchase of inventory in the normal course of our business.
Letters of credit are subject to a $12.0 million aggregate limit. All of our
assets collateralize the advances and letters of credit. Our chairman, who also
serves as our chief executive officer, has also provided a personal guaranty in
connection with our factoring arrangement.

7

---

The
status of our trade accounts receivable and letters of credit are as
follows:

February
      29,
    
    August
      31,2008
    
    2007Receivables
      assigned to factor:Non-recourse
    
    $
    10,345,000
    
    
    $
    12,957,000Recourse
    
    
    365,000
    
    
    
    222,000Allowance for customer credits and doubtful
      accounts
    
    
    (982,000
    )
    
    
    (878,000
    )Due from factor, net
    
    $
    9,728,000
    
    
    $
    12,301,000Non-factored accounts receivable
    
    
    280,000
    
    
    
    304,000Allowance for customer
      credits and doubtful accounts
    
    
    (90,000
    )
    
    
    (87,000
    )Trade accounts,
      net
    
    $
    190,000
    
    
    $
    217,000Due to
      factor
    
    $
    9,349,000
    
    
    $
    7,879,000Contingent
      liabilities for irrevocable letters of credit
    
    $
    4,054,000
    
    
    $
    4,236,000


6. Dividends

We
did not pay any cash dividends during the current period or the prior fiscal
year.

7. Significant Customers

For the six months ended February
29, 2008, sales to three separate customers accounted for 60.0% of our net
sales. Sales to three separate customers accounted for 43.9% of our net sales
for the six months ended February 28, 2007. For the quarter ended February 29,
2008, sales to two separate customers accounted for 44.4% of our net sales.
Sales to two separate customers accounted for 47.5% of our net sales for the
quarter ended February 28, 2007.

One customer accounted
for 25.1% of our trade receivable balance as of February 29, 2008. One customer
accounted for 22.7% of our trade receivable balance as of February 28, 2007.

8. Acquisition of Back Woods Equipment Company

On February 1, 2008 we
acquired specialty outdoor retailer Back Woods Equipment Company, a Kansas
corporation, in a share exchange agreement pursuant to which we acquired all of
the outstanding capital stock of Backwoods for a total purchase price of
$688,000. The aggregate purchase price consisted of 360,000 shares of common
stock valued at $1.91 per share based on the average closing price of our shares over a 3-day period that included the 2 days before, and the
day of the transaction closing date.As a result of this transaction, Backwoods became our wholly-owned
subsidiary as of February 1, 2008, and accordingly, Backwoods results of
operations have been included in our condensed consolidated results of
operations since that date. The following is a condensed balance sheet showing
the fair values of the assets acquired and liabilities assumed as of the date of
acquisition:

8

---

Inventories, less allowances
    
    $
    1,193,000Furniture,
      fixtures and equipment, net
    
    
    336,000Other assets
    
    
    206,000Goodwill
    
    
    2,231,000Total assets acquired
    
    
    3,966,000Current liabilities other than bank debt
    
    
    1,628,000Notes payable to
      bank
    
    
    1,650,000Total liabilities assumed
    
    
    3,278,000Net assets acquired
    
    $
    688,000


Backwoods
has operated since 1973 as a regional distributor of outdoor lifestyle oriented
clothing, equipment, and accessories while also offering international adventure
trip promotions. Backwoods is headquartered in Austin, Texas with seven retail
outlets located in Kansas, Nebraska, Oklahoma and Texas. Backwoods presently
targets the active lifestyle and outdoor adventure consumer with a varied
selection of outdoor brands in footwear, clothing, equipment and accessories.
These products are distributed through non-exclusive arrangements with
international manufacturers on terms comparable to those generally available in
the industry. Backwoods is currently developing a private label brand concept to
leverage its efforts to market innovative Backwoods branded products that
address style, function and love of the outdoors.

We acquired
Backwoods to enter a specialty retail niche with concept and product offerings
we view as favorable and to participate in the development of an outdoor
lifestyle brand. The assets of Backwoods include inventories of non-returnable
finished goods and furniture, fixtures and equipment used in leased retail
space.

In
connection with the acquisition, management has determined that it will commence
closure of two existing store locations prior to January 31, 2009. The costs
associated with these store closures are estimated to be approximately $483,000,
and this amount was accrued as a portion of current liabilities assumed as of
the acquisition date.

Also
included in current liabilities assumed as of the acquisition date are amounts
owed in the aggregate of $223,000 to the founder, and previous sole shareholder
of Backwoods who following the acquisition will retain the title of CEO of
Backwoods and continue to execute those duties.

Notes
payable assumed in the acquisition consist of $1,115,000 due under a revolving
line of credit maturing November 28, 2008, $520,000 principal remaining on a
term note maturing December 15, 2010, and a $15,000 vehicle loan due December 31,
2010. The revolving line of credit and the term loan are with a single bank and
both notes carry a variable interest rate that is equal to the banks prime
lending rate which was 7.25% as of the date of the acquisition. The revolving
line of credit is subject to a maximum borrowing limit of $2 million, and
requires monthly interest payments. The term loan and vehicle loan require
monthly payments of principal and interest. The notes are subject to a personal
guaranty of the CEO of Backwoods.

The pro
forma effects of the Backwoods acquisition on the Companys condensed
consolidated financial statements have not been presented, as such effects were
not material.

9. Stock-Based
Compensation

Adoption of SFAS 123R

We account
for stock based compensation related to stock options in accordance with SFAS
No. 123R (revised 2004). SFAS 123R requires companies to estimate the fair value
of share-based payment awards on the date of grant using an option-pricing
model. The value of the portion of the award that is ultimately expected to vest
is recognized as expense over the requisite service periods in our Condensed
Consolidated Statements of Operations.

Our first
issuance of stock options under our 2006 Equity Incentive Plan as approved by
our shareholders on March 15, 2006, occurred on September 1, 2006.

9

---

Compensation Costs

Results of
operations for the quarter ended February 29, 2008 include stock-based
compensation costs of approximately $71,000 related to employee stock option
grants. We had 596,000 stock options outstanding at February 29, 2008. As of
February 29, 2008, there remains $914,000 of unrecognized compensation costs
related to unvested stock options which is expected to be recognized over the
next 4.0 years. All stock-based compensation costs have been recorded as
selling, general and administrative expenses within our Condensed Consolidated
Statements of Operations.

Valuation of Stock Option Awards

The fair
value of each option award is estimated on the date of grant using the
Black-Scholes-Merton closed-form option valuation. All options granted have a
maximum term of ten years. As permitted by SAB 107, for the quarter ended
February 29, 2008, we utilized the "shortcut approach" to estimate the options'
expected term, which represents the period of time that options granted are
expected to be outstanding. Expected volatilities are based on historical
volatility of our stock over terms commensurate with the expected terms of the
option grants. The risk-free interest rate for periods within the contractual
life of the option is based on the U.S. 7 year Treasury yield in effect at the
time of grant. We have not declared or paid dividends for more than 2 years and
have no plans to do so in the foreseeable future.

Stock Option Activity

Awards under
our 2006 Equity Incentive Plan may be granted to any of our employees, directors
or consultants or those of our affiliates. Awards may consist of stock options
(both incentive stock options and non-statutory stock options), stock awards,
stock appreciation rights and cash awards. We granted 200,000 options during the
quarter ended February 29, 2008. Through February 29, 2008, options to
purchase 640,000 shares of our common stock have been granted under this plan to
employees, of which 596,000 remain outstanding. All options were issued
with an exercise price equal to the fair market value on the grant
date.

Summary of Stock Options

A summary of
the options granted under our 2006 Equity Incentive Plan as of February 29,
2008, and the activity during the six months ended February 29, 2008, are as
follows:

|                                                    |  |         |  |           |      | Weighted-   |     |          
|--------------------------------------------------- |  | ------- |  | --------- | ---- | ----------- | --- | ---------
|                                                    |  |         |  |           |      | Average     |     |          
|                                                    |  |         |  | Weighted- |      | Remaining   |     |          
|                                                    |  |         |  | Average   |      | Contractual |     | Aggregate
|                                                    |  |         |  | Exercise  |      | Term        |     | Intrinsic
|                                                    |  | Shares  |  | Price     |      | (in Years)  |     | Value    
|Options outstanding at August 31, 2007              |  | 440,000 |  | $         | 4.35 |             |     |          
|Options
      granted                               |  | 200,000 |  |           | 1.70 |             |     |          
|Options exercised                                   |  | -       |  |           | -    |             |     |          
|Options
      forfeited                             |  | 44,000  |  |           | 4.15 |             |     |          
|                                                   
|Options outstanding at February 29, 2008            |  | 596,000 |  | $         | 3.47 |             | 8.9 |          
|                                                   
|Options vested and exercisable at February 29, 2008 |  | 145,000 |  | $         | 4.25 |             | 8.6 |          

10

---

10. Warrants

On December
31, 2007, we issued warrants to purchase up to 150,000 shares of our common
stock, no par value, at an exercise price of $1.67 per share, or an aggregate
purchase price of $251,000, subject to adjustment, including broad-based
anti-dilution protection, in connection with a license agreement with Paula Deen
Enterprises, LLC. The warrants have a term of seven years. We capitalized
$161,000 as the cost of the intangible asset, based on estimated fair value of
the warrants on the date of issuance. We expect to amortize the capitalized cost
over the initial three year term of the license agreement.

We issued
warrants to purchase up to 577,500 shares of our common stock in conjunction
with a debenture on June 21, 2007. These warrants are further described in Note
11.

11. Convertible Debentures

On June 21, 2007, we issued 12%
Unsecured Convertible Debentures in the aggregate principal amount of $3.15
million and warrants to purchase 577,500 shares of common stock to two
unaffiliated institutional investors (Investors), in exchange for net proceeds
of $2.95 million after deduction of fees and expenses. Interest on the
debentures is payable quarterly on February 28, May 31, August 31, and November
30, commencing on August 31, 2007, and the debentures are due December 31, 2009.

The warrants
have a five year term and an exercise price of $4.12 per share, subject to
adjustment, including full-ratchet anti-dilution protection.

We accounted
for the value of the warrants and the beneficial conversion feature of the
debentures as discounts to the principal of the debentures. These discounts are
being amortized over the 30 month term that the debentures are expected to be
outstanding. Transaction costs incurred in connection with this financing have
been deferred and are being amortized over the 30 month term of the debentures.
Any transaction costs in connection with the future exercise of the warrants
will be recognized at that date, when and if the warrants are exercised.

The Debentures are included in the
accompanying Condensed Consolidated Balance Sheet as follows:

February 29,
    
    August 31,2008
    
    2007Convertible debentures
    
    $
    3,150,000
    
    
    $
    3,150,000Discount from
      detachable warrants feature
    
    
    (948,000
    )
    
    
    (948,000
    )Discount from beneficial conversion feature
    
    
    (683,000
    )
    
    
    (683,000
    )Convertible
      debentures at issuance, net of discounts
    
    
    1,519,000
    
    
    
    1,519,000Add cumulative amortization of warrant and beneficialconversion feature discounts
    
    
    334,000
    
    
    
    108,000$
    1,853,000
    
    
    $
    1,627,000


As part of the transaction, Nitches
entered into a Registration Rights Agreement with the Investors. Nitches agreed
to file a registration statement by December 21, 2007 covering the resale of the
shares of Common Stock that may be issued to the Investors upon the conversion of
the Debentures and the exercise of the Warrants, and to maintain the
effectiveness of that registration statement (subject to certain limitations)
for a period of time until the holders can sell the underlying Common Stock
without volume restrictions under Rule 144. The registration statement was
declared effective on February 12, 2008. During the quarter ended February 29,
2008 we paid late registration penalties to the holders of the Debentures in the
amount of $63,000, which amount was included in interest expense for the period.

11

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12. Goodwill and Intangible Assets

Goodwill and Other Intangible Assets
consisted of the following at February 29, 2008 and August 31, 2007:

February
      29,
    
    August
      31,2008
    
    2007Goodwill
    
    $
    4,850,000
    
    
    $
    2,620,000Intangibles
      not subject to amortization
    
    $
    3,933,000
    
    
    $
    3,933,000Intangibles subject to
      amortization
    
    
    2,952,000
    
    
    
    2,791,000Accumulated
      amortization
    
    
    (511,000
    )
    
    
    (384,000
    )Intangibles, net
    
    $
    6,374,000
    
    
    $
    6,340,000


Goodwill represents the
excess purchase price over the fair value of the net assets acquired in
connection with our acquisitions of Designer Intimates, Inc. and Back Woods
Equipment Company. Goodwill is not subject to amortization.

Intangibles not subject
to amortization are comprised of assets purchased in the acquisitions of
Designer Intimates, Inc. and the assets acquired from Saguaro LLC, including
trademarks that do not have a finite life. In accordance with SFAS 142,
Goodwill and Other Intangible Assets, (SFAS 142), these assets are tested
for impairment on an annual basis and between annual tests in certain instances.
Based on such testing we conducted during the fourth quarter of our fiscal year ended August
31, 2007 we determined that there was no impairment
of these intangibles.

Intangibles subject to
amortization includes the sleepwear license for Crabtree & Evelyn, the
customer lists of and acquisition costs for Designer Intimates, and the home
décor licenses for Bill Blass and Paula Deen. Intangibles for licenses total
$1,957,000 and intangibles for customer lists and acquisition costs total
$995,000. The estimated amortization expense for each of the fiscal years
through August 31, 2012 is $270,292, $288,124, $288,124, $235,234, and $213,957
respectively. The weighted average amortization period is 13.8 years. In
accordance with SFAS 142, intangible assets that are subject to amortization are
reviewed for potential impairment whenever events or circumstances indicate that
carrying amounts may not be recoverable. There were no such occurrences during
the current fiscal year.

13. Income taxes

On September 1, 2007,
the Company adopted the provisions of Financial Accounting Standards Board
("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, and
Related Implementation Issues" ("FIN 48"), an interpretation of FASB Statement
No. 109. FIN 48 provides certain criteria for the recognition, measurement,
presentation and disclosure of uncertain tax positions.

Upon implementing FIN
48 we identified no unrecognized tax benefits or liabilities and its adoption
did not impact the Company's financial statements. There were no material
changes to unrecognized tax benefits, interest, or penalties for the three month
period ended February 29, 2008 and we do not anticipate any such material
changes during the next twelve months

We file income tax
returns in the U.S. and various states. Our returns for tax years 2003 and
forward remain open to audit under U.S. and state statutes. In the event of a
tax penalty accrual or assessment our policy is to record interest and penalties
directly to income tax expense in the condensed consolidated statements of
operations.

14. Recently issued accounting pronouncements

In
March 2008, the FASB issued SFAS No. 161,Disclosures
About Derivative Instruments and Hedging Activities  an amendment of FASB
Statement No. 133(SFAS 161), which requires enhanced
disclosures about an entitys derivative and hedging activities and thereby
improves the transparency of financial reporting. SFAS 161 will be effective for
financial statements issued after November 15, 2008. We do not currently
maintain any derivative holdings or engage in any hedging activities, therefore
we do not anticipate any effect of SFAS 161 on our financial reporting
requirements.



12

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In December 2007, the FASB issued
SFAS No. 141 (revised 2007), Business Combinations(SFAS 141(R)) and SFAS No. 160,Non-controlling Interests in Consolidated Financial
Statements(SFAS 160). SFAS 141(R) requires the
acquiring entity in a business combination to recognize all (and only) the
assets acquired and liabilities assumed inthe transaction; establishes the acquisition- date fair value as the
measurement objective for all assets acquired and liabilities assumed; and
requires the acquirer to disclose to investors and other users all of the
information they need to evaluate and understand the nature and financial effect
of the business combination. SFAS 160 requires all entities to report
non-controlling (minority) interests in subsidiaries in the same manneras
equity in the consolidated financial statements and also requires transactions
between an entity and non-controlling interests to be treated as equity
transactions. SFAS 160 requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated (as of the date the parent ceases to
have a controlling financial interest in the subsidiary). Both statements are
effective for fiscal years beginning on or after December 15, 2008. We are
currently assessing the impact these standards may have on our consolidated
financial statements.

ITEM 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations.

Cautionary Statement under the Private
Securities Litigation Reform Act of 1995

Statements in this report under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations", as well as oral
statements that may be made by us or by our officers, directors or employees
acting on our behalf, that are not historical fact constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Forward-looking statements involve known and unknown risks and
uncertainties that may cause our actual results in future periods to differ
materially from forecasted results. See "Forward Looking Information and Factors
that May Affect Future Results," below.

Overview

We are a
wholesale importer and distributor of clothing and home décor products
manufactured to our specifications and distributed in the United States under
our brand labels and retailer-owned private labels. We distribute clothing
primarily in three categories: women's sleepwear and loungewear, women's
sportswear and outerwear, and men's casual wear and performance apparel. We
market women's sleepwear and loungewear under the brands Anne Lewin®, Crabtree
& Evelyn®, Princesse tam tam®, Derek Rose®, Gossard®, Shock Absorber®,
Claire Murray®, Cuddl Duds® and Odille Oasis®. We market women's sportswear and
outerwear under the brands Adobe Rose®, Country Tease®, Saguaro® and Southwest
Canyon®. We market men's casual wear and performance apparel under the brands
Nat Nast®, Newport Blue®, Dockers®, The Skins Game®, and ZOIC®. We distribute
home décor and tabletop products under the Paula Deen, Bill Blass® and Newport
Blue® brands. We sell our branded products to better department stores,
specialty boutiques, moderate department stores, and national and regional
discount department stores and chains. We also develop and manufacture private
label products for many leading retailers and catalogs. More information about
us may be found at www.nitches.com.

On February 1, 2008 we acquired
outdoor products specialty retailer Backwoods, marking our first venture into
specialty retailing.Backwoods has a long history of providing customers in the Midwest with a
strong assortment of branded products for the outdoor lifestyle, including top
quality, technical gear alongside a broad collection of outdoor lifestyle
clothing and footwear. Backwoods features brands such as Black Diamond®,
Cloudveil®, Eagle Creek®, Garmin®, GoLite®, Marmot®, Mountain Hardware®,
Osprey®, Patagonia®, and The North Face®. The first store opened in Wichita,
Kansas in 1973 and the chain presently comprises seven retail locations in
Kansas, Nebraska, Oklahoma and Texas. An eighth store will open in Austin, Texas
on April 26, 2008. The accompanying financial statements include the operation
of Backwoods after February 1, 2008. More information about Backwoods can be
found at www.backwoods.com.

Critical Accounting Policies

Revenue Recognition.We recognize revenue at the time products are shipped
based on its terms of F.O.B. shipping point, where risk of loss and title
transfers to the buyer at time of shipment. We record sales in accordance with
SEC Staff Accounting Bulletin No. 104, Revenue Recognition. Under these
guidelines, revenue is recognized when all of the following exist: persuasive
evidence of a sale arrangement exists, delivery of the product has occurred, the
price is fixed or determinable and payment is reasonably assured. Provisions are
made currently for estimated product returns and sales allowances.



13

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Allowances for Sales
Returns, Doubtful Accounts and Other.Sales are recorded
net of estimated future returns, uncollectible accounts receivable and other
customer related allowances. Our management analyzes historical returns
and bad debt expense, current economic trends, changes in customer demand and
sell-through of our products when evaluating the adequacy of these allowances.
In addition, we may provide warehousing credits and other allowances to certain
customers in accordance with industry practice. These amounts are determined
based on historical experience, budgeted customer allowances and existing
commitments to customers. Although our management believes it has established
adequate reserves with respect to these items, actual activity could vary from
management's estimates and such variances could have a material impact on
reported results. At February 29, 2008, trade accounts receivable balance was
$9.9 million, net of allowances of $1.1 million, as compared to the balance at
August 31, 2007 of $12.5 million, net of allowances of $965,000. At February 28,
2007, trade accounts receivable balance was $10.2 million, net of allowances of
$713,000.

Inventory.We mark down our inventory
for estimated obsolescence or unmarketable inventory equal to the difference
between the cost of inventory and the estimated net realizable value based on
assumptions about age of the inventory, future demand and market conditions.
This process provides for a new basis for the inventory until it is sold. If
actual market conditions are less favorable than those projected by management,
additional inventory markdowns may be required. Our inventory balance was $16.7
million, net of inventory markdowns of $1.6 million, at February 29, 2008, as
compared to an inventory balance of $14.1 million, net of inventory markdowns of
$548,000, at August 31, 2007. At February 28, 2007, the inventory balance was
$10.6 million, net of inventory markdowns of $387,000.

Deferred
Taxes.Deferred taxes are determined based on
differences between the financial statement and tax bases of assets and
liabilities, as well as the future benefit of any net operating loss carry
forward, 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 amounts expected to be realized. In assessing
the need for a valuation allowance, our management considers estimates of future
taxable income and ongoing prudent and feasible tax planning strategies.

Valuation
of Goodwill, Long-Lived Assets and Intangible Assets. We evaluate goodwill, long-lived assets and intangible assets for
potential impairment on an annual basis during our fourth fiscal quarter,
subsequent to the completion of financial projections for the following fiscal
year. We may make an evaluation between annual tests in certain circumstances
such as a significant change in business climate, unanticipated competition,
loss of key personnel, or adverse action or assessment by a regulator such as
import quotas or duties. Any of these circumstances could cause us to conclude
that impairment exists and that the net book value of goodwill, long-lived
assets and/or intangible assets is impaired. Any resulting impairment loss could
have a material adverse impact on our financial condition and results of
operations.

Contingencies and Litigation. Our
management evaluates contingent liabilities including threatened or pending
litigation in accordance with SFAS No. 5, "Accounting for Contingencies" and
records accruals when the outcome of these matters is deemed probable and the
liability could be reasonably estimated.

Results of Operations

Six Months Ended February 29, 2008
Compared to the Six Months Ended February 28, 2007

Net sales
for the six months ended February 29, 2008 were $49.3 million, a decrease of
$400,000 compared to sales of $49.7 million for the six months ended February
28, 2007. The apparel business is seasonal and as a result our revenues are
likely to vary from quarter to quarter and revenues for the six months ended
February 29, 2008 are not indicative of the revenues we expect to achieve on an
annualized basis.

Cost of
goods sold for the six months ended February 29, 2008 were $39.4 million
compared to $37.4 for the same period a year ago. Cost of goods sold as a
percent of net sales increased 4.9%, generating a lower gross profit margin of
20.0% for the six months ended February 29, 2008, as compared to 24.8% for the
year earlier period. The decrease in gross margin came as the result of a shift
in our product mix to increased private label sales and high volume sales of
branded product to a national retailer, both at a lower average gross margin.
Our product mix constantly changes to reflect customer mix, fashion trends and
changing seasons. Consequently, gross margin is likely to vary on a
quarter-to-quarter basis and in comparison to gross margins generated in the
same period of prior fiscal years.



14

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Selling,
general and administrative expenses for the six months ended February 29, 2008
were $10.4 million, compared to $10.7 million for the same period a year ago.
Selling, general and administrative expenses for the periodincluded $4.2
million of selling and merchandising expenses and $2.3 million of shipping and
warehousing expenses. This compares with $4.9 million of selling and
merchandising expenses and $1.3 million of shipping and warehousing expenses
incurred during the six months ended February 28, 2007.

Interest
expense in the six month period ended February 29, 2008 was $863,000, an
increase of $316,000 as compared to $547,000 for the six months ended February
28, 2007. This increase was due primarily to interest on the convertible
debentures and related amortization charges that are also charged to interest
expense.

Three Months Ended February 29, 2008
Compared to the Three Months Ended February 28, 2007

Net sales
for the three months ended February 28, 2008 were $16.1 million, an increase of
$1.8 million or 13.1% as compared to net sales of $14.3 million for the three
months ended February 28, 2007. This increase was primarily attributable to
additional unit sales of our menswear product lines.

Cost of
goods sold for the three months ended February 28, 2008 were $12.8 million
compared to $10.5 million for the period a year ago. Cost of goods sold as a
percent of net sales increased 5.8%, generating a lower gross profit margin of
20.6% for the three months ended February 29, 2008 as compared to 26.4% for the
year earlier period. The decrease in gross margin came primarily as the result
of a shift in our product mix to increased private label sales as well as an
increase in sales allowances granted to retailers, which has the effect of
reducing net sales, thereby increasing cost of goods sold as a percent of net
sales. Our product mix constantly changes to reflect customer mix, fashion
trends and changing seasons. Consequently, gross margin is likely to vary on a
quarter-to-quarter basis and in comparison to gross margins generated in the
same period of prior fiscal years.

Selling,
general and administrative expenses for the three months ended February 29, 2008
were $5.1 million, an increase of $560,000 as compared to expenses of $4.5
million in the year ago period. The increase was due to the inclusion of
operating costs of Backwoods for the month of February and increased sales
commissions, design costs and warehouse expenses as compared to the prior
period. Selling, general and administrative expenses for the period included
$2.1million of selling and merchandising expenses and $958,000 of shipping and
warehousing expenses. This compares with $1.9 million of selling and
merchandising expenses and $634,000 of shipping and warehousing expenses
incurred during the three months ended February 28, 2007. Selling, general and
administrative expenses as a percent of net sales decreased to 31.6% from 31.8%
in the prior period, due to lower proportional increase selling and
merchandising expenses as compared to the increase in net sales.

Interest
expense was $413,000 in the current period, an increase of $166,000 as compared
to $247,000 for the three months ended February 28, 2007. This increase was due
primarily to interest on the convertible debentures and related amortization
charges that are also charged to interest expense, offset partially by a decline
in interest rates charged on amounts due to factor, consistent with the decline
in the prime lending rate of our factor.

Liquidity and Capital Resources

Net cash
used in operating activities for the six month period ended February 29, 2008
was approximately $2.0 million. This was primarily the result of increases in
inventories and other assets and a reduction in accounts payable and accrued
expenses, offset partially by a decrease in receivables due from the
factor.

For the six
months ended February 29, 2008 net cash used by investing activities of $87,000
consisted of capital expenditures.

Cash provided by financing
activities of $2.0 million for the quarter ended February 29, 2008 consisted of
advances from the factor and borrowings from a bank under a line of credit that
we assumed through the acquisition of Backwoods.

Working
capital at February 29, 2008 was $4.7 million, a decrease of $2.5 million from
$7.2 million at August 31, 2007. This decrease resulted primarily from the
assumption of a note payable in the Backwoods acquistion, partially offset by an
increase in inventories associated with the transaction. Our current ratio
decreased slightly to 1.2:1 at February 29, 2008 from 1.3:1 at August 31,
2007.

15

---

Our
principal source of liquidity, other than cash flows from operations, comes from
our financing arrangement with CIT. That financing arrangement is established on
a borrowing base that is determined by our levels of trade receivables and
inventory.

We sell
substantially all of our trade receivables to CIT on a pre-approved,
non-recourse basis. We attempt to make any recourse shipments on a
cash-on-delivery basis or ensure that the customers' payments are backed by a
commercial or standby letter of credit issued by the customers' bank. The amount
of our outstanding receivables that were non-recourse at February 29, 2008 was
$10.3 million. The amount of our receivables that were recourse and were not
made on a COD basis or supported by commercial or standby letters of credit at
February 29, 2008 was approximately $645,000, of which approximately $200,000
had been collected through March 31, 2008.

Payment for
non-recourse factored receivables is made at the time customers make payment to
CIT or, if a customer is financially unable to make payment, within
approximately 180 days of the invoice due date. Under the factoring agreement,
we can request advances in anticipation of customer collections at the prime
rate (currently 5.25%) less one and one-half percent (1.5%). The amount of
advances available to us is limited to eighty-five percent (85%) of non-recourse
factored receivables and fifty percent (50%) of eligible finished goods
inventory.

We may issue
import letters of credit through CIT for the purchase of inventory in the normal
course of our operations. Letters of credit are subject to a $12.0 million
aggregate limit. At February 29, 2008, we had outstanding letters of credit of
approximately $4.1 million for the purchase of finished goods, which had been
opened through CIT.

The
factoring agreement does not contain any financial covenants to which we must
adhere. Advances are collateralized by all of our assets as well as a personal
guaranty of our chairman, who also serves as our chief executive officer. CIT
can terminate the factoring agreement on 30-days written notice. We believe the
factoring agreement with CIT, along with our expected cash flow from operating
activities and our current levels of working capital are adequate to fulfill our
liquidity needs for the foreseeable future.

Our Backwoods subsidiary is able to
borrow under the terms of the revolving line of credit assumed in the
acquisition. The note is subject to a maximum borrowing of $2 million at a
variable interest rate equal to the banks prime lending rate, which was 6.25%
as of February 29, 2008.

Contractual Obligations and
Commercial Commitments

As of
February 29, 2008, we had no off-balance sheet arrangements. The following
summarizes our contractual obligations at February 29, 2008 and the effect those
obligations are expected to have on our liquidity and cash flow in future
periods:

Payments due/Commitments expiring per periodTotal Amounts
    
    Less than
    
    
    
    
    
    OverCommitted
    
    1 year
    
    1-3 years
    
    4-5 years
    
    5 yearsOperating leases
    
    $
    15,838,000
    
    $
    2,348,000
    
    $
    4,459,000
    
    $
    3,696,000
    
    $
    5,335,000Letters of
      credit
    
    
    4,054,000
    
    
    4,054,000
    
    
    -
    
    
    -
    
    
    -Employment agreement
    
    
    908,000
    
    
    340,000
    
    
    550,000
    
    
    18,000
    
    
    -Bank debt and vehicle loan
    
    
    2,147,000
    
    
    1,775,000
    
    
    372,000
    
    
    -Convertible Debentures
    
    
    3,150,000
    
    
    -
    
    
    3,150,000
    
    
    -
    
    
    -Total obligations and commitments
    
    $
    26,097,000
    
    $
    8,517,000
    
    $
    8,531,000
    
    $
    3,714,000
    
    $
    5,335,000


Inventory

Our
inventory increased 18.4% to $16.7 million at February 29, 2008, from $14.1
million at August 31, 2007. Compared to inventories of $10.6 million at February
28, 2007 current period ending inventory increased 57.5%. This increase is
reflective of increased order backlog for the second quarter of fiscal 2008 as
compared to the second quarter of fiscal 2007, as well as the inclusion of
inventories for our recently acquired Backwoods business. We believe that our
current inventory mix and unit levels are appropriate to respond to anticipated
market demand.

In our
ordinary course of operations, we generally make some sales below normal selling
prices or below cost. Based on prior experience, our management believes this
will be true for some inventory held on or acquired after February 29, 2008. The
amount of such sales depends on several factors, including general economic
conditions, market conditions within the apparel industry, the desirability of
the styles held in inventory and competitive pressures from other garment
suppliers.

16

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We have
established an inventory markdown reserve as of February 29, 2008, which our
management believes will be sufficient for current inventory that is expected to
sell below cost in the future. There can be no assurance that we will realize
our expected selling prices, or that the inventory markdown reserve will be
adequate, for items in inventory as of February 29, 2008 for which customer
sales orders have not yet been received. The inventory markdown reserve is
calculated based on specific identification of aged goods and styles that are
slow-moving or selling off-price.

Backlog

As of
February 29, 2008, we had on-hand unfilled customer orders of $33.7 million as
compared to $28.1 million at February 28, 2007, with such orders generally
scheduled for delivery by August 2008 and August 2007, respectively. The
increase in backlog is due to growth in orders across product lines, most
significantly for mens sportswear and for tabletop products in conjunction with
the recently announced Paula Deen® license.

Backlog
amounts include both confirmed and unconfirmed orders that we believe, based on
industry practice and past experience, will be confirmed. While cancellations,
rejections and returns have generally not been material in the past, there can
be no assurance that cancellations, rejections and returns will not reduce the
amount of sales realized from the backlog of orders at February 29, 2008.
Because of our reliance upon a few major accounts, any deteriorating financial
performance by one or more of these customers could lead to the cancellation of
existing orders and/or an inability to secure future orders, which would have a
material adverse financial effect on us.

Impact of Exchange Rates

While we
purchase over 98% of our products from foreign manufacturers, all of our
purchases are denominated in United States dollars. Because our products are
sold primarily in the United States, in United States dollar denominated
transactions, we do not engage in hedging or other arbitrage to reduce currency
risk. An increase in the value of the United States dollar versus foreign
currencies could enhance our purchasing power for new purchase orders and reduce
our cost of goods sold. Conversely, a decrease in the value of the United States
dollar relative to foreign currencies could result in an increase in both our
cost of manufacturing for new purchase orders and costs of goods sold.

Impact of Inflation and Deflation

Our
management does not believe that inflation has had any material impact upon our
revenues or income from operations in the current period. Our management
believes that the apparel sector in which we operate has been in a period of
deflation, contrary to the modest inflation experienced in the economy in
general. The persistence of the consumer to buy "on sale" merchandise has put
pressure on retail gross margins, which in turn has led to downward pressure
from retailers on wholesale gross margins, in the form of selling cost
adjustments taken as deductions against invoices issued by us. In the apparel
industry, these are commonly referred to as markdown allowances or chargebacks.
Without a corresponding decrease in fabric and labor prices, these markdown
allowances have led to a decline in wholesale gross margins. Our management
believes these modest deflationary pressures will persist into the foreseeable
future.

Future Operating Results

Business
conditions in the apparel sector continue to be characterized by limited
consumer demand and persistent discounting of merchandise by retailers. The
propensity of consumers to seek "on sale" merchandise has sustained the use of
significant discounting by most retailers to stimulate sales. In general,
retailers have to sell more units in order to achieve sales equal to last year.
We do not expect significant improvement in business conditions in the apparel
sector in which we operate. Furthermore, we expect to incur significant expense
related to internal controls documentation, testing and remediation requirements
as mandated by Sarbanes-Oxley legislation with which we must be in compliance by
August 31, 2008. In view of the market uncertainties and economic pressures
facing us, our management remains conservative in its approach to the remainder
of fiscal 2008 and planning for fiscal 2009.

17

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Forward Looking Information and
Factors that May Affect Future Results

Our
disclosure and analysis in this report contains forward-looking information
about our financial results and estimates, business prospects that involve
substantial risks and uncertainties. From time to time, we also may provide oral
or written forward-looking statements in other materials we release to the
public. Forward-looking statements give our current expectations or forecasts of
future events. You can identify these statements by the fact that they do not
relate strictly to historic or current facts. They use words such as
"anticipate," "estimate," "expect," "project," "intend," "plan," "believe,"
"target," "forecast" and other words and terms of similar meaning in connection
with any discussion of future operating or financial performance. In particular,
these include statements relating to future actions, future performance, new
products and product categories, the outcome of contingencies, such as legal
proceedings, and financial results. Among the factors that could cause actual
results to differ materially are the following:

- our ability to:
  achieve solid, sustainable revenue
    growth;maintain and enhance our product
    line;successfully introduce new products and product
    categories;successfully integrate acquisitions, including
    the acquisition of Backwoods;cost effectively acquire and retain
    customers;compete against existing and new
    competitors;manage expenses associated with necessary
    general and administrative investments;cost efficiently manage inventories;
    andgrow our revenues and leverage our operating
    infrastructure to enhance profitability;
- achieve solid, sustainable revenue
    growth;
- maintain and enhance our product
    line;
- successfully introduce new products and product
    categories;
- successfully integrate acquisitions, including
    the acquisition of Backwoods;
- cost effectively acquire and retain
    customers;
- compete against existing and new
    competitors;
- manage expenses associated with necessary
    general and administrative investments;
- cost efficiently manage inventories;
    and
- grow our revenues and leverage our operating
    infrastructure to enhance profitability;
- general consumer sentiment and economic conditions
  that may affect levels of discretionary customer purchases of our products; and
- competition from existing and potential new
  competitors, including pricing pressures and other competitive
  forces.

We cannot
guarantee that any forward-looking statement will be realized, although we
believe we have been prudent in our plans and assumptions. Achievement of future
results is subject to risks, uncertainties and inaccurate assumptions. Should
known or unknown risks or uncertainties materialize, or should underlying
assumptions prove inaccurate, actual results could vary materially from past
results and those anticipated, estimated or projected. Investors should bear
this in mind as they consider forward-looking statements.

We undertake
no obligation to publicly update forward-looking statements, whether as a result
of new information, future events or otherwise. You are advised, however, to
consult any further disclosures we make on related subjects in our Forms 10-Q,
8-K and 10-K reports filed with the SEC. Our Annual Report on Form 10-K filing
for the fiscal year ended August 31, 2007 listed various important factors that
could cause actual results to differ materially from expected and historic
results. We note these factors for investors as permitted by the Private
Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item
1A, of that filing under the heading "Risk Factors." We incorporate that section
of that Form 10-K in this filing and investors should refer to it. You should
understand that it is not possible to predict or identify all such factors.
Consequently, you should not consider any such list to be a complete set of all
potential risks or uncertainties.

ITEM 3. Quantitative and Qualitative
Disclosures about Market Risk

Market risk
represents the potential impact to our financial position, results of operations
or cash flows due to adverse changes in the financial markets. We are exposed to
market risk from changes in the base interest rate of our variable interest rate
debt. As of February 29, 2008, a one percent change in interest rates would
increase or decrease our annual interest expense by approximately $106,000.
There have been no material changes in market risk exposures from those
disclosed in our Annual Report on Form 10-K for the year ended August 31, 2007.

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ITEM 4. Controls and Procedures

(a)Disclosure Controls and Procedures.Disclosure controls and procedures are
controls and other procedures that are designed to ensure that information
required to be disclosed in our reports filed pursuant to the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms and that such information is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, as appropriate, to allow for timely decisions regarding
required disclosure.

Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within our company have been detected. The design of any system of controls
is based in part upon a cost-benefit analysis and certain assumptions about the
likelihood of future events, and any design may not succeed in achieving its
stated goals under all potential future conditions. While our management does
not believe that our controls will prevent all errors or all instances of fraud,
our disclosure controls and procedures are designed to provide a reasonable
assurance of achieving their objectives.

As required
by Exchange Act Rule 13a-15(b), we carried out an evaluation, under the
supervision and with the participation of our management, including our chief
executive officer and chief financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of February
29, 2008, the end of the period covered by this report. Based on that
evaluation, our chief executive officer and chief financial officer concluded
that certain control deficiencies as described below existed in our internal
control over financial reporting as of February 29 2008. As a result of these
deficiencies our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures were not effective at the reasonable
assurance level as of February 29, 2008.

In
connection with its audit of the Company's consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 2007, J.H. Cohn advised the Company's management and the audit
committee of the board of directors of the Company that the Company did not have
the internal controls necessary to timely prepare and file reliable financial
statements. We initiated, but did not complete steps to remedy this deficiency
by the period ended February 29, 2008.

At that time
we lacked sufficient experienced senior accounting staff to enable us to timely
process, summarize and report financial information. Our lack of sufficient
staff has resulted in our late filing of our Annual Report on Form 10-K for the
fiscal year ended August 31, 2007 and an extension of time for us to file our
Quarterly Reports on Form 10-Q for the quarters ended November 30, 2007 and
February 29, 2008. As discussed below, we have since reorganized some of our
financial management, retained new independent auditors, and hired additional
senior accounting personnel including a Chief Accounting Officer and a
Controller.

In connection with our recruitment
of senior accounting management, we are implementing additional internal
controls and procedures designed to assure the timely and accurate preparation
of our financial statements. These controls were not fully implemented by
February 29, 2008.

While our
lack of accounting personnel has affected the timeliness of our processing
information, based on managements review we have concluded that the financial
statements included in this report fairly present in all material respects our
financial position, results of operations and cash flows for the periods
presented in conformity with generally accepted accounting principles.

(b)Changes in Internal Controls over Financial
Reporting. We made changes in our internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of
the Exchange Act) during our most recent fiscal quarter, and subsequent to that
period, that have materially affected, or are likely to materially affect, our
internal control over financial reporting. During the quarter ended February 29,
2008 we have taken the following actions each of which are expected to have a
material impact on our internal controls over financial reporting:

- *Change in Financial Management*.
  In January 2008, Paul M. Wyandt was appointed Chief Financial Officer of the
  Company, succeeding Steven P. Wyandt who remains Chairman and Chief Executive
  Officer. We also appointed Eitan Haber as our Chief Operating Officer of the
  Company, who succeeds Paul M. Wyandt in that role.

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- Recruitment of Additional Senior
  Accounting Staff. As of January 2, 2008 we
  retained a consultant, Cassandra L. Lion, CPA, to serve as controller and
  assist management in conducting our internal controls documentation and
  testing as required under the Sarbanes-Oxley Act of 2002.
- Appointment of Chief Accounting Officer.On February 4, 2008 we appointed Michael D. Coffer, CPA as our Chief
  Accounting Officer. Mr. Coffer will report to Paul M. Wyandt, our ChiefFinancial Officer. Mr. Wyandt will remain our
  principal financial and accounting officer. Mr. Coffers appointment is
  expected to help us timely process and summarize financial information.

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PART II - OTHER INFORMATION

ITEM 1.
- Legal Proceedings

From time to
time, we may be involved in litigation relating to claims arising out of our
operations in the normal course of business. As of the date of this report, we
are not a party to any such litigation which we believe would have a material
adverse effect on us.

ITEM 1A. Risk Factors

See our
discussion of risk factors disclosed in Part 1, Item 1A, of our Annual Report on
Form 10-K for the fiscal year ended August 31, 2007.In addition, as a result of our
acquisition of Backwoods, which occurred on February 1, 2008, our ability to
implement our business strategy and achieve the intended operating results is
subject to a number of risks and uncertainties in addition to those set forth in
our Annual Report on Form 10-K for the fiscal year ended August 31, 2007. Below
are additional risks that we have identified at this time, though there may be
additional risks not currently known to us or that we currently believe are
immaterial.

A
downturn in the economy may affect consumer purchases of discretionary items,
which could reduce our net sales.

In general,
our sales represent discretionary spending by our customers. Discretionary
spending is affected by many factors, including, among others, general business
conditions, interest rates, inflation, consumer debt levels, the availability of
consumer credit, taxation, electricity power rates, gasoline prices,
unemployment trends and other matters that influence consumer confidence and
spending. Our customers purchases of discretionary items, including our
products, could decline during periods when disposable income is lower or
periods of actual or perceived unfavorable economic conditions. If this occurs,
our net sales and profitability could decline.

If we
fail to anticipate changes in consumer preferences, we may experience lower net
sales, higher inventory markdowns and lower margins.

Our products
must appeal to a broad range of consumers whose preferences cannot be predicted
with certainty. These preferences are also subject to change. Our success
depends upon our ability to anticipate and respond in a timely manner to trends
in outdoor lifestyle goods merchandise and consumers participation in outdoor
activities. If we fail to identify and respond to these changes, our net sales
may decline. In addition, because we often make commitments to purchase products
from our vendors up to 6 months in advance of the proposed delivery, if we
misjudge the market for our merchandise, we may over-stock unpopular products
and be forced to take inventory markdowns that could have a negative impact on
profitability.

**Our hardware and software
systems are vulnerable to damage that could harm our
business.**

Our success,
in particular our ability to successfully manage inventory levels, largely
depends upon the efficient operation of our computer hardware and software
systems. We use management information systems to track inventory information at
the store level, communicate customer information and aggregate daily sales
information. These systems and our operations are vulnerable to damage or
interruption from:

- earthquake, fire, flood and other natural
  disasters;
- power loss, computer systems failures, Internet and
  telecommunications or data network failure, operator negligence, improper
  operation by or supervision of employees, physical and electronic loss of
  data, security breaches, misappropriation, data theft and similar events;
  and
- computer viruses, worms, Trojan horses, intrusions, or other
  external threats.

Any failure
that causes an interruption in our operations or a decrease in inventory
tracking could result in reduced net sales and profitability.

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Intense
competition in the outdoor lifestyle goods industry could limit our growth and
reduce our profitability.

The retail
market for outdoor lifestyle goods is highly fragmented and intensely
competitive. We compete directly or indirectly with the following categories of
companies:

- large format full-line sporting goods and outdoor lifestyle goods
  retailers;
- traditional sporting goods stores
  and chains;
- specialty outdoor lifestyle goods
  retailers and pro shops;
- mass merchandisers, warehouse clubs,
  discount stores and department stores; and
- catalog and internet-based sporting
  goods and outdoor lifestyle goods retailers.

Some of our
competitors have a larger number of stores and greater financial, distribution,
marketing and other resources than we have. If our competitors reduce their
prices, it may be difficult for us to reach our net sales goals without reducing
our prices. As a result of this competition, we may also need to spend more on
advertising and promotion than we anticipate. If we are unable to compete
successfully, our operating results will suffer.

**Because our Backwoods stores
are concentrated in four states, we are subject to regional
risks.**

Our
Backwoods stores are located in four states - Kansas, Nebraska, Oklahoma and
Texas. Because of this, we are subject to regional risks, such as the economy,
weather conditions, power outages, electricity costs and natural disasters
specific to the states in which we operate. State and local regulatory
compliance also can impact our financial results. If the region were to suffer
an economic downturn or other adverse regional event, our net sales and
profitability and our ability to implement our planned operations could suffer.
Several of our competitors operate stores across the United States and thus are
not as vulnerable to these regional risks.

If we
lose key management or are unable to attract and retain the talent required for
our business, our operating results could suffer.

The future
success of Backwoods depends to a significant degree on the skills, experience
and efforts of Jennifer Mull, the president and chief executive officer of
Backwoods, and other key personnel who are not obligated to stay with us. The
loss of the services of any of these individuals could harm our business and
operations. In addition, as our Backwoods business and lifestyle clothing
collection grows, we will need to attract and retain additional qualified
personnel in a timely manner and develop, train and manage an increasing number
of management-level sales associates and other employees. Competition for
qualified employees could require us to pay higher wages and benefits to attract
a sufficient number of employees, and increases in the minimum wage or other
employee benefits costs could increase our operating expenses. If we are unable
to attract and retain personnel as needed in the future, our net sales growth
and operating results may suffer.

ITEM 2.  Unregistered Sales of Equity
Securities and Use of Proceeds

On December
31, 2007, we entered into a license agreement with Paula Deen Enterprises, LLC,
a Georgia limited liability company, in the ordinary course of business. In
connection with that agreement, we issued to Paula Deen Enterprises, LLC a
warrant to purchase up to 150,000 shares of our common stock at a purchase price
of $1.67 per share, or an aggregate purchase price of $250,500, subject to
adjustment, including broad-based anti-dilution protection. The warrant has a
term of seven years. The issuance of the warrant and the common stock issuable
upon exercise of the warrant is exempt from the registration requirements of the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The
offering of the warrant was not conducted in connection with a public offering.

ITEM 3.  Defaults Upon Senior
Securities

None.

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ITEM 4.  Submission of Matters to a
Vote of Security Holders.

None.

ITEM 5.  Other Information

None.

ITEM 6. Exhibits

See the exhibit index immediately
following the signature page to this report.

SIGNATURES

Pursuant to
the requirement of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned there unto duly
authorized.

|                     |  |     | NITCHES,
      INC.                                  
|-------------------- |  | --- | -----------------------------------------------------
|                     |  |     | (Registrant)                                         
|                    
|April 24,
      2008 |  | By: | /s/ Paul M. Wyandt                                   
|                     |  |     | Paul M.
      Wyandt                                 
|                     |  |     | As Principal
      Financial Officer and on behalf of
|                     |  |     | the
      Registrant                                 

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EXHIBIT INDEX

|Exhibit
      No. |  | Description                                                                                                                                        
|----------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|4.1               |  | Common Stock Purchase Warrant issued to Paula Deen Enterprises,
      LLC.1                                                                        
|10.1              |  | Share
      Exchange Agreement dated February 1, 2008 between the registrant and
      Jennifer Mull relating to the acquisition of
    Backwoods.2
|31.1              |  | Certification pursuant to Rule 13a-14(a)/15d-14(a) of the
      Securities Exchange Act of 1934, as amended, by Chief Executive
      Officer      
|31.2              |  | Certification pursuant to Rule 13a-14(a)/15d-14(a) of the
      Securities Exchange Act of 1934, as amended, by Chief Financial
      Officer      
|32.1              |  | Certification pursuant to 18 U.S.C. §1350 by Chief Executive
      Officer                                                                         
|32.2              |  | Certification pursuant to 18 U.S.C. §1350 by Chief Financial
      Officer                                                                         

|1 |  | Incorporated by reference to the
      exhibits of registrant's current report on Form 8-K filed with the
      Commission on January 7, 2008. 
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|2 |  | Incorporated by reference to the
      exhibits of registrant's current report on Form 8-K filed with the
      Commission on February 7, 2008.

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