|SECURITIES
  AND EXCHANGE COMMISSIONWashington,
  D.C. 20549
Form 10-QQUARTERLY
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
  EXCHANGE ACT OF 1934For the quarterly period ended: May 31, 2002Commission File Number 0-13851NITCHES, INC.(Exact name
  of registrant as specified in its charter)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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) 625-2633Securities
  registered pursuant to Section 12(b) of the Act:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Title
      of each class        |  | Name of
      eachexchange
      on which registered
|-------------------------------- |  | ----------------------------------------------------
|Common Stock,
      no par value |  | NASDAQ SmallCap
      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 May 31, 2002
  the Registrant had 1,171,169 shares of common stock outstanding.



1
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART
  I - FINANCIAL INFORMATION
Item 1. Financial Statements
NITCHES,
  INC. AND SUBSIDIARIESCondensed Consolidated
  Balance SheetsASSETS
|-------------------------------------------------------------------------------------------------------------------------------------------

|                                                                   | May
      31,
      2002 |           | August
      31,
      2001
|------------------------------------------------------------------ | ------------------------ | --------- | ---------------------------
|                                                                   | (Unaudited)              |           |                            
|Current
      assets:                                              |                          |           |                            
|Cash
      and cash equivalents                                    | $                        | 124,000   |                            
|Receivables:                                                       |                          |           |                            
|Trade
      accounts, less allowances                              |                          | 3,960,000 |                            
|Due
      from affiliates and employees                            |                          | 224,000   |                            
|                                                                   |                          |           |                            
|Total
      receivables                                            |                          | 4,184,000 |                            
|                                                                   |                          |           |                            
|Refundable
      income taxes                                      |                          | 69,000    |                            
|Inventories                                                        |                          | 2,836,000 |                            
|Deferred
      income taxes                                        |                          | 180,000   |                            
|Other
      current assets                                         |                          | 97,000    |                            
|                                                                   |                          |           |                            
|Total
      current assets                                         |                          | 7,490,000 |                            
|                                                                   |                          |           |                            
|Furniture,
      fixtures and equipment, net                       |                          | 102,000   |                            
|Deferred
      income taxes                                        |                          | 38,000    |                            
|Other
      assets                                                 |                          | 17,000    |                            
|                                                                   |                          |           |                            
|                                                                   | $                        | 7,647,000 |                            
|                                                                   |                          |           |                            
|                                                                   |                          |           |                            
|                                                                   |                          |           |                            
|LIABILITIES
      AND SHAREHOLDERS EQUITY                        
|                                                                   |                          |           |                            
|Current
      liabilities:                                         |                          |           |                            
|Accounts
      payable                                             | $                        | 1,124,000 |                            
|Accrued
      expenses                                             |                          | 282,000   |                            
|                                                                   |                          |           |                            
|Total
      current liabilities                                    |                          | 1,406,000 |                            
|                                                                   |                          |           |                            
|                                                                   |                          |           |                            
|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;    |                          |           |                            
|issued
      and outstanding 1,171,169 at May 31, 2002 and         |                          |           |                            
|1,064,680
      at August 31, 2001                                 |                          | 1,495,000 |                            
|Retained
      earnings                                            |                          | 4,746,000 |                            
|                                                                   |                          |           |                            
|Total
      shareholders equity                                   |                          | 6,241,000 |                            
|                                                                   |                          |           |                            
|                                                                   | $                        | 7,647,000 |                            
|                                                                   |                          |           |                            

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



2
|--------------------------------------------------------------------------------

|NITCHES,
  INC. AND SUBSIDIARIESConsolidated
  Statements of Income(Unaudited)
|------------------------------------------------------------------------------

|                                                   | Third
      quarter Ended
      May 31, |           | Nine
      Months Ended
      May 31, |  
|-------------------------------------------------- | --------------------------------------- | --------- | ------------------------------------- | -
|                                                   |                                         |           |                                       |  
|                                                   | 2002                                    |           | 2001                                  |  
|                                                   |                                         |           |                                       |  
|                                                   |                                         |           |                                       |  
|                                                   |                                         |           |                                       |  
|Net
      sales                                    | $                                       | 7,344,000 |                                       | $
|                                                   |                                         |           |                                       |  
|                                                   |                                         |           |                                       |  
|Cost
      of goods sold                           |                                         | 5,211,000 |                                       |  
|                                                   |                                         |           |                                       |  
|                                                   |                                         |           |                                       |  
|Gross
      profit                                 |                                         | 2,133,000 |                                       |  
|                                                   |                                         |           |                                       |  
|                                                   |                                         |           |                                       |  
|                                                   |                                         |           |                                       |  
|                                                   |                                         |           |                                       |  
|                                                   |                                         |           |                                       |  
|Selling,
      general and administrative expenses |                                         | 2,004,000 |                                       |  
|                                                   |                                         |           |                                       |  
|                                                   |                                         |           |                                       |  
|Income
      from operations                       |                                         | 129,000   |                                       |  
|                                                   |                                         |           |                                       |  
|Interest
      and other income/(expense), net     |                                         | (13,000   | )                                     |  
|                                                   |                                         |           |                                       |  
|                                                   |                                         |           |                                       |  
|Income/(loss)
      before income taxes            |                                         | 116,000   |                                       |  
|                                                   |                                         |           |                                       |  
|                                                   |                                         |           |                                       |  
|Provision/(benefit)
      for income taxes         |                                         | 45,000    |                                       |  
|                                                   |                                         |           |                                       |  
|                                                   |                                         |           |                                       |  
|Net income/(loss)                                  | $                                       | 71,000    |                                       | $
|                                                   |                                         |           |                                       |  
|                                                   |                                         |           |                                       |  
|Earnings
      per weighted average share          |                                         |           |                                       |  
|(basic
      and diluted)                          | $                                       | 0.06      |                                       | $
|                                                   |                                         |           |                                       |  
|                                                   |                                         |           |                                       |  
|Weighted
      average shares outstanding          |                                         |           |                                       |  
|(basic
      and diluted)                          |                                         | 1,145,704 |                                       |  
|                                                   |                                         |           |                                       |  

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


3
|-------------------------------------------------------------------------------

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

|                                                           | Nine Months Ended
      May 31, |         
|---------------------------------------------------------- | ------------------------------- | --------
|                                                           |                                 |         
|                                                           | 2002                            |         
|                                                           |                                 |         
|                                                           |                                 |         
|Net cash
      provided by operating activities            | $                               | 394,000 
|                                                           |                                 |         
|Cash
      flows from investing activities:                |                                 |         
|Capital
      expenditures                                 |                                 | (25,000 
|                                                           |                                 |         
|Cash
      flows from financing activities:                |                                 |         
|Cash
      dividends paid                                  |                                 | (437,000
|                                                           |                                 |         
|                                                           |                                 |         
|                                                           |                                 |         
|Net increase
      (decrease) in cash and cash equivalents |                                 | (68,000 
|                                                           |                                 |         
|                                                           |                                 |         
|Cash
      and cash equivalents at beginning of period     |                                 | 192,000 
|                                                           |                                 |         
|Cash
      and cash equivalents at end of period           | $                               | 124,000 
|                                                           |                                 |         
|                                                           |                                 |         
|Supplemental
      disclosures of cash flow information:   |                                 |         
|Cash
      paid during the period:                         |                                 |         
|Interest                                                   | $                               | 78,000  
|Income
      taxes                                         |                                 | 69,000  
|Non-cash
      financial transactions:                     |                                 |         
|Stock
      dividend                                       | $                               | 690,000 

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


4
|-------------------------------------------------------------------------------

|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 nine months ended May 31, 2002 are not necessarily indicative of the results
  that may be expected for the year ending August 31, 2002.

3. Earnings Per share:

At
  May 31, 2002, there were no stock options or similar instruments outstanding
  and therefore no dilutive effect to the weighted average number of shares outstanding.

4. Inventories:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                       | May
      31, 2002 |           | August
      31, 2001
| | --------------------- | ------------------ | --------- | ---------------------
| |                       |                    |           |                      
| | Fabric
      and trim | $                  | 55,000    |                      
| | Finished
      goods  |                    | 2,781,000 |                      
| |                       |                    |           |                      
| |                       | $                  | 2,836,000 |                      
| |                       |                    |           |                      

|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:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                |   | May 31,
      2002 |   |   | August 31,
      2001 |  
| | -------------------------------------------------------------- | - | ------------------ | - | - | --------------------- | -
| |                                                                |   |                    |   |  
| | Receivables
      assigned to factor:                          |   |                    |   |   |                       |  
| | Non-recourse                                                   | $ | 4,880,000          |   | $ | 3,828,000             |  
| | Recourse                                                       |   | 359,000            |   |   | 191,000               |  
| | Advances
      from factor                                     |   | (1,009,000         | ) |   | (915,000              | )
| |                                                                |   |                    |   |  
| | Due
      from factor                                          |   | 4,230,000          |   |   | 3,104,000             |  
| | Non-factored
      accounts receivable                         |   | 78,000             |   |   | 235,000               |  
| | Allowance
      for customer credits and doubtful accounts     |   | (348,000           | ) |   | (196,000              | )
| |                                                                |   |                    |   |  
| |                                                                | $ | 3,960,000          |   | $ | 3,143,000             |  
| |                                                                |   |                    |   |  
| |                                                                |   |                    |   |   |                       |  
| | Contingent
      liabilities for irrevocable letters of credit | $ | 2,722,000          |   | $ | 4,695,000             |  
| |                                                                |   |                    |   |  

|5
|-

|NITCHES,
  INC. AND SUBSIDIARIES

Notes to
  Condensed Consolidated Financial Statement (continued)

5. Trade
  accounts receivable (continued):

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. At May 31, 2002, the net available under this agreement
  was approximately $2,400,000. The Companys Chairman has provided a $1,000,000
  personal guarantee in connection with the factoring arrangement.

6.
  Dividends:

On
  March 29, 2002, the company issued a stock dividend of 10% to shareholders of
  record as of March 22, 2002. The company issued 106,489 additional shares of
  common stock, increasing the total number of shares outstanding to 1,171,169.

On
  May 10, 2002, the Company paid a dividend of $.10 (ten cents) per share for
  a total of approximately $117,000 to the shareholders of record as of April
  26, 2002. On February 8, 2002, the Company paid a dividend of $.15 (fifteen
  cents) per share for a total of approximately $159,000 to the shareholders of
  record as of January 25, 2002. Additionally, on December 7, 2001 the Company
  paid a dividend of $.15 (fifteen cents) per share 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 33.0%
  and 14.3% respectively of the Companys net sales in the three months ended
  May 31, 2002. Sales to two separate customers accounted for 40.1% and 19.3%
  of the Companys net sales in the three months ended May 31, 2001. Two
  customers (Mervyns and Kohls) accounted for 44.8% and 18.6% of the
  Companys net sales for the nine months ended May 31, 2002.

Three
  customers (Mervyns, Sears and Kohls) accounted for 45.6%, 14.0%
  and 13.4% respectively of the Companys trade receivable balance at May
  31, 2002. Two customers (Mervyns and Costco) accounted for 31.2% and 27.3%
  of the Companys trade receivable balance at May 31, 2001.
6
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Results
  of Operations

Nine
  Months Ended May 31, 2002 Compared to the Nine Months Ended May 31, 2001

Net
  sales for the nine months ended May 31, 2002 decreased approximately $3.8 million
  or 14.1% as compared to the nine months ended May 31, 2001. This decline was
  attributable to a decrease in unit sales in the Companys sleepwear and
  western wear product lines, due primarily to the general U.S. economic slowdown.

Cost
  of sales as a percent of net sales increased 3.0% generating a lower gross profit
  margin of 24.3% for the nine months ended May 31, 2002 as compared to 27.3%
  for the year earlier period. The decrease came as the result of the proportionally
  larger decline in sales of higher margin western wear product. 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 nine months ended May 31, 2002 declined
  $344,000 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 23.5% from 21.5% in the year earlier period, due to the decrease
  in net sales from the earlier period.

Three
  Months Ended May 31, 2002 Compared to the Three Months Ended May 31, 2001

Net
  sales for the three months ended May 31, 2002 decreased approximately $1.3 million
  (15.5%) as compared to the three months ended May 31, 2001. This decline was
  attributable to a decrease in unit sales in the Companys sleepwear and
  western wear product lines, due primarily to the general U.S. economic slowdown.

Cost
  of sales as a percent of net sales decreased 0.5%, generating a higher gross
  profit margin of 29.0% for the three months ended May 31, 2002 as compared to
  28.5% for the year earlier period. The increase in gross margin came as the
  result of the proportionally larger decline in sales of lower gross margin sleepwear
  during the period. 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 third quarter of fiscal 2002 were
  approximately equal to the year ago period. Expenses increased as a percent
  of net sales to 27.3% from 23.1% in the year earlier period, due to the decrease
  in net sales from the earlier period.

Liquidity
  and Capital Resources

Working
  capital declined to $6.1 million at May 31, 2002 from $6.5 million at August
  31, 2001. However, the current ratio increased to 5.33:1 at May 31, 2002 from
  3.41:1 at August 31, 2001.

On
  May 10, 2002, the Company paid a dividend of $.10 (ten cents) per share for
  a total of approximately $117,000 to the shareholders of record as of April
  26, 2002. The Company paid a dividend of $.15 (fifteen cents) per share on February
  8, 2002, for a total of approximately $159,000. The Company also 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 (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 May
  31, 2002 was approximately $436,000 of which approximately $188,000 had been
  collected through June 30, 2002.



7
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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, the Company can request advances in anticipation of customer collections
  at CITs prime rate (currently 4.75%) less one-half percent, and open letters
  of credit through CIT. 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 May 31, 2002,
  the Company had outstanding letters of credit of approximately $2.7 million
  for the purchase of finished goods, which had been opened through CIT. The agreement
  can be terminated by CIT on 60-days written notice.

The
  factoring agreement allows the Company to borrow up to $15 million limited by
  certain percentages of outstanding accounts receivable and finished goods inventory
  owned by the Company. At May 31, 2002, the net available under this agreement
  was approximately $2.4 million. The Company believes the agreement with CIT,
  along with expected cash flow from operating activities and current levels of
  working capital, are adequate to fulfill the Companys liquidity needs
  for the foreseeable future.

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 May
  31, 2002. 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.

The
  Companys inventory decreased from $5.4 million at August 31, 2001, to $2.8
  million at May 31, 2002. The Company has established an inventory markdown reserve
  as of May 31, 2002, 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
  May 31, 2002 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 $12.3 million at May 31, 2002, compared
  to $12.8 million at May 31, 2001, with such orders generally scheduled for delivery
  by November 2002 and November 2001, respectively. Reduced orders in both the
  sleepwear and western wear product lines contributed to the decrease in backlog
  of $0.5 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 May 31, 2002. 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. Management believes that the apparel
  sector in which the Company operates 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. Without a corresponding decrease in
  fabric and labor prices, this has led to a decline in wholesale gross margins.
  Management believes these modest deflationary pressures will continue into the
  foreseeable future.


8
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.

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 nine months ended May 31, 2002.

Item 6.
  Exhibits and Reports on Form 8-K

There
  were no reports on Form 8-K during the quarter ended May 31, 2002.

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                                                                                     
|                    |     |                                                                                                
|                    |     |                                                                                                
|July
      15, 2002 | By: | /s/ Steven P. Wyandt                                                                           
|                    |     |                                                                                                
|                    |     | Steven
      P. WyandtAs Principal
      Financial Officerand on behalf
      of the Registrant

|9
|-