|SECURITIES
AND EXCHANGE COMMISSIONWashington,
D.C. 20549


Form 10-Q


QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
EXCHANGE ACT OF 1934


For the
quarterly period ended: November 30, 2001


Commission File Number
0-13851


NITCHES, INC.


(Exact name of
registrant as specified in its charter)
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|California               | 95-2848021                          
|------------------------ | ------------------------------------
|(State of Incorporation) | (I.R.S. Employer Identification No.)

|10280 Camino Santa Fe,
San Diego, California 92121(Address of principal executive offices)


Registrants
telephone number: (858) 625-2633


Securities registered
pursuant to Section 12(b) of the Act:
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|                           |  |                             
|-------------------------- |  | ----------------------------
|                           |  | Name of each                
|Title of each class        |  | exchange on which registered
|Common Stock, no par value |  | NASDAQSmallCap Market       

|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 [  ]


As of January 11, 2002
1,064,680 shares of the Registrants common stock were outstanding.



1
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|PART I
 FINANCIAL INFORMATION


Item 1. Financial Statements




NITCHES, INC. AND
SUBSIDIARIESCondensed Consolidated
Balance Sheets
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|ASSETS                                                      
|------------------------------------------------------------
|
|Current assets:                                             
|Cash and cash equivalents                                   
|Receivables:                                                
|Trade accounts, less allowances                             
|Due from affiliates and employees                           
|                                                            
|Total receivables                                           
|                                                            
|Refundable income taxes                                     
|Inventories                                                 
|Deferred income taxes                                       
|Other current assets                                        
|                                                            
|Total current assets                                        
|                                                            
|Furniture, fixtures and equipment, net                      
|Deferred income taxes                                       
|Other assets                                                
|                                                            
|                                                            
|                                                            
|                                                            
|
|Current liabilities:                                        
|Accounts payable                                            
|Accrued expenses                                            
|Income taxes payable                                        
|                                                            
|Total current liabilities                                   
|                                                            
|Shareholders equity:                                       
|Preferred stock, no par value; 25,000,000 shares authorized,
|no shares issued or outstanding                             
|Common stock, no par value; 50,000,000 shares authorized;   
|1,064,680 shares issued and outstanding                     
|Retained earnings                                           
|                                                            
|Total shareholders equity                                  
|                                                            
|                                                            
|                                                            

|The accompanying notes
are an integral part of these financial statements



2
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|NITCHES, INC. AND
SUBSIDIARIESConsolidated
Statements of Income(Unaudited)
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|                                             | Three months ended November 30,
|-------------------------------------------- | -------------------------------
|
|                                            
|Net sales                                    |                                
|                                            
|Cost of goods sold                           |                                
|                                            
|                                            
|Gross profit                                 |                                
|                                            
|Selling, general and administrative expenses |                                
|                                            
|                                            
|Income from operations                       |                                
|                                            
|Interest expense, net                        |                                
|                                            
|                                            
|Income before income taxes                   |                                
|                                            
|Provision for income taxes                   |                                
|                                            
|                                            
|Net income                                   |                                
|                                            
|                                            
|Earnings per share (basic and diluted)       |                                
|                                            
|                                            
|Shares outstanding (basic and diluted)       |                                
|                                            

|The accompanying notes
are an integral part of these financial statements



3
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|NITCHES, INC. AND
SUBSIDIARIESCondensed
Consolidated Statements of Cash Flows(Unaudited)
|----------------------------------------------------------------------------------------

|                                                     | Three months ended November 30,
|---------------------------------------------------- | -------------------------------
|
|                                                    
|Net cash provided by operating activities            |                                
|                                                    
|Cash flows from investing activities:                |                                
|Capital expenditures                                 |                                
|                                                    
|Cash flows from financing activities:                |                                
|Dividends paid                                       |                                
|                                                    
|                                                    
|Net increase (decrease) in cash and cash equivalents |                                
|                                                    
|Cash and cash equivalents at beginning of period     |                                
|                                                    
|Cash and cash equivalents at end of period           |                                
|                                                    
|                                                    
|Supplemental disclosures of cash flow information:   |                                
|Cash paid during the period:                         |                                
|Interest                                             |                                
|Income taxes                                         |                                

|The accompanying notes
are an integral part of these financial statements


4
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|NITCHES, INC. AND
SUBSIDIARIES


Notes to Condensed
Consolidated Financial Statements



1.       Description
of Business



Nitches,
Inc. (the Company) is a wholesale importer and distributor primarily of womens
clothing manufactured to its specifications and distributed in the United States under
Company brand labels and private retailer labels.



2.       Condensed
Financial Statements:


The
accompanying unaudited consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q. They do not include all
information and footnotes necessary for a fair presentation of financial
position and results of operations and cash flows in conformity with generally
accepted accounting principles. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and related
notes contained in the Companys Annual Report on Form 10-K for the
year ended August 31, 2001. In the opinion of Management, all adjustments
considered necessary for a fair presentation have been included in the interim
period. Operating results for the three months ended November 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
August 31, 2002.


3.       Earnings
Per share:


At
November 30, 2001, there were no stock options or similar instruments
outstanding and therefore no dilutive effect to the weighted average number of
shares outstanding.


4.       Inventories:
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| |  | November 30,2001 | August 31,2001
| |  | ---------------- | --------------
| |  | Fabric and trim  |               
| |  | Finished goods   |               
| | 
| |  |                  |               
| | 

|5.       Trade
accounts receivable:


Pursuant
to the terms of an agreement between Nitches and a factor, Nitches sells a
majority of its trade accounts receivable to the factor on a pre-approved,
non-recourse basis. The Company may request advances in anticipation of customer
collections and open letters of credit through the factor, all of which are
collateralized by all of the Companys assets. Outstanding advances are
charged interest at the factors prime rate less one half percent.
Advances and contingent liabilities for irrevocable letters of credit
outstanding are as follows:



5
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|NITCHES, INC. AND
SUBSIDIARIES



Notes to Condensed
Consolidated Financial Statement (continued)



5.       Trade
accounts receivable (continued):
|----------------------------------------------------------------------------------------------------------------------------------------------------

|                                                        | November 30,2001 | August 31,2001
|------------------------------------------------------- | ---------------- | --------------
|Receivables assigned to factor:                         |                  |               
|Non-recourse                                            |                  | $ 9,041,000   
|Recourse                                                |                  | 80,000        
|Advances from factor                                    |                  | (4,301,000    
|                                                       
|Due from factor                                         |                  | 4,820,000     
|Non-factored accounts receivable                        |                  | 237,000       
|Allowance for customer credits and doubtful accounts    |                  | (476,000      
|                                                       
|                                                        |                  | $ 4,581,000   
|                                                       
|Contingent liabilities for irevocable letters of credit |                  | $ 2,531,000   
|                                                       

|The
factoring agreement allows the Company to borrow up to $15,000,000, limited by
certain percentages of outstanding accounts receivable and finished goods
inventory owned by the Company. The Companys Chairman has provided a
$1,000,000 personal guarantee in connection with the factoring arrangement.


6.       Special
dividends:


The
Company paid a dividend of $.15 (fifteen cents) per share on December 7, 2001,
for a total of approximately $159,000, to the shareholders of record as of
November 23, 2001. During fiscal 2001, the Company declared and paid dividends
of $1.35 per share.


7.       Significant
Customers:


Sales
to two separate customers (Mervyns and Kohls) accounted for
47.6% and 27.2%, respectively, of the Companys net sales in the three
months ended November 30, 2001. Three customers accounted for 60.3%, 15.4%, and
13.0% of the Companys net sales in the three months ended November 30,
2000.


Two
customers (Mervyns and Kohls) accounted for 54.2% and 28.4%,
respectively, of the Companys trade receivable balance at November 30,
2001. Three customers accounted for 35.6%, 15.7%, and 15.1% of the
Companys trade receivable balance at November 30, 2000.




6
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|Item 2. Managements Discussion
and Analysis of Financial Condition and Results of Operations.


Results
of Operations



Three Months Ended
November 30, 2001 Compared to the Three Months Ended November 30, 2000



Net
sales for the three months ended November 30, 2001 decreased approximately $1.1
million (10.0%) as compared to the three months ended November 30, 2000. This
decline was attributable to a decrease in unit sales in the Companys
sleepwear and western wear product lines.


Cost
of sales as a percent of net sales increased 4.8%, generating a lower gross
profit margin of 21.3% for the three months ended November 30, 2001 as compared
to 26.1% for the year earlier period. The decrease came as the result of lower
realized gross margins across all product lines. The Companys 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 first quarter of fiscal 2002
declined $150,000 as compared to a year ago, due primarily to a decrease in
sales commissions in line with the reduced sales volume noted above. Expenses
increased as a percent of net sales to 18.3% from 17.8% in the year earlier
period, due to the decrease in net sales from the earlier period.


Liquidity and Capital Resources


Working
capital declined slightly to $6.4 million at November 30, 2001 from $6.5 million
at August 31, 2001, and the current ratio decreased to 3.71:1 at November 30,
2001 from 3.75:1 at August 31, 2001.


The
Company paid a dividend of $.15 (fifteen cents) per share on December 7, 2001,
for a total of approximately $159,000.


The
Company sells substantially all of its trade receivables to a factor (Tyco
Capital, previously CIT) on a pre-approved, non-recourse basis. The Company
attempts to make any recourse shipments on a COD 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 the
Companys receivables that were recourse and were not made on a COD
basis or supported by commercial or standby letters of credit at November 30,
2001 was approximately $317,000 of which approximately $227,000 had been
collected through January 4, 2001.


Payment
for non-recourse factored receivables is made at the time customers make payment
to Tyco Capital or, if a customer is financially unable to make payment, within
approximately 180 days of the invoice due date. Under the Discount Factoring
Agreement, the Company can request advances in anticipation of customer
collections at Tyco Capitals prime rate (currently 4.75%) less
one-half percent, and open letters of credit through Tyco Capital. The amount of
borrowings by the Company, including a portion of outstanding letters of credit,
are limited to certain percentages of outstanding accounts receivable and
finished goods inventory owned by the Company. Borrowings are collateralized by
all of the assets of the Company as well as a $1 million guaranty of the
Companys Chairman. At November 30, 2001, the Company had
outstanding letters of credit of approximately $2.5 million for the purchase of
finished goods, which had been opened through Tyco Capital. Under the Discount
Factoring Agreement, the Company is required to maintain $5 million of net worth
and $5 million of working capital. The Discount Factoring Agreement can be
terminated by Tyco Capital on 60-days written notice.


Inventory


In
its ordinary course of operations, the Company generally makes some sales below
its normal selling prices or below cost. Based on prior experience, management
believes this will be true for some inventory held on or acquired after November
30, 2001. 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.


7
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|The
Companys inventory decreased from $5.4 million at August 31, 2001 to $3.7 million
at November 30, 2001. The Company has established an inventory markdown reserve as of
November 30, 2001, which management believes will be sufficient for current inventory
that is expected to sell below cost in the future. There can be no assurance that the
Company will realize its expected selling prices, or that the inventory markdown reserve
will be adequate, for items in inventory as of November 30, 2001 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


The Company had unfilled  customer  orders of $10.6  million at November 30, 2001  compared to $14.5  million at
November  30,  2000,  with such orders  generally  scheduled  for  delivery  by May 2002 and May 2001,  respectively.
Reduced  orders in both the sleepwear and western wear product lines  contributed  to the decrease in backlog of $3.9
million.  These amounts include both confirmed and unconfirmed  orders that the Company  believes,  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 November 30, 2001.  Because of the Companys  reliance upon a
few major  accounts,  any adverse impact of the current  economic  downturn on 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 the Company.


Impact of Exchange Rates


While
the Company purchases over 90% of its products from foreign manufacturers, all
of its purchases are denominated in United States dollars. Because the
Companys products are sold primarily in the United States, in dollar
denominated transactions, the Company does not engage in hedging or other
arbitrage to reduce currency risk. An increase in the value of the dollar versus
foreign currencies could enhance the Companys purchasing power for new
purchase orders and reduce its cost of goods sold. Conversely, a decrease in the
value of the dollar relative to foreign currencies could result in an increase
in the Companys cost of manufacturing for new purchase orders and
costs of goods sold.


Impact of Inflation and Deflation


Management
does not believe that inflation has had any material impact upon the
Companys revenues or income from operations to date. However,
continued deflation in womens clothing prices may put pressure on
gross margins for the balance of fiscal 2002. The strong resistance on the part
of the consumer to increases in price and increasing fabric and labor costs lead
to an increased cost of goods on a percentage basis.


Cautionary
Statement Under the Private Securities Litigation Reform Act of 1995


Statements
in the quarterly report on Form 10-Q 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 the Company or by officers, directors or employees of the Company acting on
the Companys 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. Forward-looking statements involve known and
unknown risks and uncertainties that may cause the Companys actual
results in future periods to differ materially from forecasted results. Those
risks include a softening of retailer or consumer acceptance of the
Companys products, pricing pressures and other competitive forces, or
unanticipated loss of a major customer. In addition, the Companys
business, operations and financial condition are subject to reports and
statements filed from time to time with the Securities and Exchange Commission.



8
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|PART II.
OTHER INFORMATION


Item 1.    Legal Proceedings


There
were no material legal proceedings to which the Company or any of its
subsidiaries was a party in the three months ended November 30, 2001.


Item 6.    Exhibits and Reports on Form
8-K


There
were no reports on Form 8-K during the quarter ended November 30, 2001.



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.
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|January 14, 2002 |  | NITCHES, INC.RegistrantBy: /s/ Steven P. Wyandt
Steven P. WyandtAs Principal Financial Officer and onbehalf of the Registrant
|---------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|9
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