UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

|(Mark
      One)
|----------------
|[ X ]           

|For the quarterly period
      ended: | November 30,
      2007
|------------------------------------- | -----------------------

|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                                                           |  | 95-2848021                                
|-------------------------------------------------------------------- |  | ------------------------------------------
|(State or
      other jurisdiction of incorporation or organization) |  | (I.R.S.
      Employer Identification No.)

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

|(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, or a
non-accelerated filer. See definition of "accelerated filer and large
accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [  
]                                       
Accelerated filer [  
]                                       
Non- accelerated filer [X]

|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 January 24, 2008 the registrant had
5,659,644 shares of common stock outstanding.

---

NITCHES, INC. AND
SUBSIDIARIESCondensed Consolidated Balance
Sheets

ASSETS

|                                                                                       |  | November 30, |            | August 31,
|-------------------------------------------------------------------------------------- |  | ------------ | ---------- | ----------
|                                                                                       |  | 2007         |            | 2007      
|                                                                                       |  | (Unaudited)  |            |           
|Current assets:                                                                        |  |              |            |           
|Cash                                                                                   |  | $            | 558,000    |           
|Receivables:                                                                           |  |              |            |           
|Due from factor, net                                                                   |  |              | 20,345,000 |           
|Trade accounts, net                                                                    |  |              | 335,000    |           
|Due from affiliates and employees                                                      |  |              | 11,000     |           
|Total receivables                                                                      |  |              | 20,691,000 |           
|                                                                                      
|Refundable income taxes                                                                |  |              | 10,000     |           
|Inventories, less allowances                                                           |  |              | 9,919,000  |           
|Deferred income taxes,
      current                                                   |  |              | 681,000    |           
|Other current assets                                                                   |  |              | 1,003,000  |           
|Total current assets                                                                   |  |              | 32,862,000 |           
|                                                                                      
|Furniture, fixtures and equipment,
      net                                           |  |              | 257,000    |           
|Goodwill                                                                               |  |              | 2,620,000  |           
|Intangibles, net                                                                       |  |              | 6,281,000  |           
|Other assets                                                                           |  |              | 152,000    |           
|Total assets                                                                           |  | $            | 42,172,000 |           
|                                                                                      
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                  
|                                                                                      
|Current liabilities:                                                                   |  |              |            |           
|Due
      to factor                                                                    |  | $            | 15,401,000 |           
|Accounts payable                                                                       |  |              | 8,426,000  |           
|Accrued expenses                                                                       |  |              | 1,176,000  |           
|Total current liabilities                                                              |  |              | 25,003,000 |           
|                                                                                      
|Convertible debt, net                                                                  |  |              | 1,770,000  |           
|Deferred income taxes, long term                                                       |  |              | 696,000    |           
|Total liabilities                                                                      |  |              | 27,469,000 |           
|                                                                                      
|Commitments and
      contingencies                                                    |  |              |            |           
|Shareholders' equity:                                                                  |  |              |            |           
|Series A preferred stock, $100 par value; 25,000,000 shares
      authorized,          |  |              |            |           
|8,820 shares issued and outstanding                                                    |  |              | 882,000    |           
|Common stock, no par value; 50,000,000 shares
      authorized; issued and outstanding |  |              |            |           
|5,659,644 shares in 2007 and 2006                                                      |  |              | 9,373,000  |           
|Additional paid-in capital                                                             |  |              | 1,693,000  |           
|Retained earnings                                                                      |  |              | 2,755,000  |           
|Total shareholders' equity                                                             |  |              | 14,703,000 |           
|Total liabilities and shareholders'
    equity                                         |  | $            | 42,172,000 |           

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

2

---

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

|                                                   |  | Three Months Ended
|-------------------------------------------------- |  | ------------------
|                                                   |  | November 30       
|                                                   |  | 2007              
|Net sales                                          |  | $                 
|Cost of goods
      sold                           |  |                   
|Gross profit                                       |  |                   
|Selling, general
      and administrative expenses |  |                   
|Operating income                                   |  |                   
|Interest
      expense                             |  |                   
|Income before income taxes                         |  |                   
|Provision for
      income taxes                   |  |                   
|Net income                                         |  | $                 
|                                                  
|Basic earnings per share                           |  | $                 
|Diluted earnings
      per share                   |  | $                 
|                                                  
|Weighted average number of common shares:          |  |                   
|Basic                                              |  |                   
|Diluted                                            |  |                   

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

3

---

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

|                                                                                    |  | Three months ended
|----------------------------------------------------------------------------------- |  | ------------------
|                                                                                    |  | November 30,      
|                                                                                    |  | 2007              
|Cash flows from operating activities:                                               |  |                   
|Net income                                                                          |  | $                 
|Adjustments to reconcile net income to net cash
      used in operating activities: |  |                   
|Depreciation and amortization                                                       |  |                   
|Amortization of debt discount                                                       |  |                   
|Noncash stock based compensation                                                    |  |                   
|Change in operating assets and
      liabilities:                                   |  |                   
|Due from factor                                                                     |  |                   
|Trade receivables and due from affiliates and
      employees                       |  |                   
|Inventories                                                                         |  |                   
|Other assets                                                                        |  |                   
|Accounts payable and accrued expenses                                               |  |                   
|Refundable income taxes                                                             |  |                   
|Net cash used in operating activities                                               |  |                   
|                                                                                   
|Cash flows from investing activities:                                               |  |                   
|Capital expenditures                                                                |  |                   
|Acquisition transaction                                                             |  |                   
|Net cash used in investing activities                                               |  |                   
|                                                                                   
|Cash flows from financing activities:                                               |  |                   
|Advances from factor                                                                |  |                   
|Repayment of notes payable                                                          |  |                   
|Net cash provided by financing
activities                                           |  |                   
|                                                                                   
|Net increase in cash                                                                |  |                   
|Cash at
      beginning of period                                                   |  |                   
|Cash at end of period                                                               |  | $                 
|                                                                                   
|Supplemental disclosures of cash flow information:                                  |  |                   
|Cash paid during the period:                                                        |  |                   
|Interest                                                                            |  | $                 
|                                                                                   
|Noncash investing and financing activity:                                           |  |                   
|Acquisition of subsidiaries and intangible
    assets                               |  |                   
|Common stock issued                                                                 |  | $                 

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

4

---

NITCHES, INC. AND
SUBSIDIARIESNotes to the Unaudited
Condensed Consolidated Financial Statements

1. Description of Business

Nitches,
Inc. and subsidiaries ("we," "our," "us," or the "Company") is 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 following brands: Princesse tam tam®, Derek Rose®, Crabtree
& Evelyn®, Disney Couture®, The Anne Lewin® Collection, The Claire Murray®
Collection and Gossard®. We market women's sportswear and outerwear under the
following brands: Adobe Rose®, Country Tease®, Saguaro® and Southwest Canyon®.
We market men's casual wear and performance apparel under the following brands:
Nat Nast®, Newport Blue®, Dockers®, The Skins Game®, and ZOIC®. We distribute
home décor products under the 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. 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.

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 the companys
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 November 30, 2007 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 per
Share

Basic
earnings per common share are computed by dividing income available to common
shareholders by the weighted-average number of shares of common stock
outstanding during the period. Diluted earnings per common share is computed by
dividing income 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 per share by
application of the treasury stock method.

5

---

NITCHES, INC. AND
SUBSIDIARIESNotes to the Unaudited
Condensed Consolidated Financial Statements

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

Three Months EndedNovember 30,2007
    
    2006Numerator:Net
      income
    
    $
    458,000
    
    $
    1,217,000Denominator:Weighted
      average shares outstanding
    
    
    5,659,644
    
    
    4,904,056Effect of dilutive securities
    
    
    -
    
    
    72,752Denominator for diluted earnings per share
    
    
    5,659,644
    
    
    4,976,808Basic earnings (loss) per share
    
    $
    0.08
    
    $
    0.25Diluted earnings
      (loss) per share
    
    $
    0.08
    
    $
    0.24


4. Inventories

Inventories consist of the
following:

November 30,
    
    August 31,2007
    
    2007Fabric and trim
    
    $
    277,000
    
    
    $
    60,000Goods in
      transit
    
    
    3,725,000
    
    
    
    5,992,000Finished goods
    
    
    6,478,000
    
    
    
    8,601,000Markdown
      allowances
    
    
    (561,000
    )
    
    
    (548,000
    )$
    9,919,000
    
    
    $
    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 without recourse, 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 November 30, 2007, $21.9 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 November 30, 2007, totaled $761,000, of which $132,000 had
been collected by December 31, 2007.

6

---

NITCHES, INC. AND
SUBSIDIARIESNotes to the Unaudited
Condensed Consolidated Financial Statements

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.

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

November 30,
    
    August 31,2007
    
    2007Receivables assigned to factor:Non-recourse
    
    $
    21,943,000
    
    
    $
    12,957,000Recourse
    
    
    327,000
    
    
    
    222,000Allowance
      for customer credits and doubtful accounts
    
    
    (1,925,000
    )
    
    
    (878,000
    )Due from factor, net
    
    
    20,345,000
    
    
    
    12,301,000Non-factored accounts receivable
    
    
    434,000
    
    
    
    304,000Allowance for
      customer credits and doubtful accounts
    
    
    (99,000
    )
    
    
    (87,000
    )Trade accounts, net
    
    $
    335,000
    
    
    $
    217,000Due to factor
    
    $
    15,401,000
    
    
    $
    7,879,000Contingent liabilities for irrevocable letters of credit
    
    $
    3,421,000
    
    
    $
    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
quarter ended November 30, 2007, sales to three separate customers accounted for
63.5% of our net sales. Sales to four separate customers accounted for 59.4% of
our net sales for the quarter ended November 30, 2006.

Two
customers accounted for 53.7% of our trade receivable balance as of November 30,
2007. Four customers accounted for 69.1% of our trade receivable balance as of
November 30, 2006.

8. Acquisition of Saguaro LLC

On October
24, 2006, we completed our acquisition of the Saguaro® mark and related
trademarks from Impex Inc., a leading manufacturer of branded and non-branded
specialty, western and private-label women's apparel. We paid consideration of
$3,030,000 to Impex in the form of 600,000 shares of our common stock valued at
$4.55 per share (based on the average closing price for our common stock for the
ten trading days between June 7 and June 20, 2006, inclusive) and a $300,000
promissory note, which was paid off by December 31, 2006. The fair value of the
securities and promissory note issued in connection with the acquisition has
been ascribed to the trademarks acquired and is recorded as an intangible asset
having an indefinite life not subject to amortization.

Since
January 2005, we had been manufacturing and distributing Saguaro® apparel
products to specialty and catalog retailers under the terms of a strategic
alliance with Impex. Under this alliance, we recorded the revenue from such
sales and remitted royalties and design fees to Impex as part of our operating
expenses. As a result of our acquisition of the Saguaro® mark and related
trademarks, we no longer pay royalties and design fees to Impex.

7

---

NITCHES, INC. AND
SUBSIDIARIESNotes to the Unaudited
Condensed Consolidated Financial Statements

9. Stock-Based
Compensation

Adoption of SFAS 123R

Effective
September 1, 2006, we adopted SFAS No. 123R (revised 2004), which establishes
standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services, primarily focusing on accounting for
transactions where an entity obtains employee services in share-based payment
transactions. SFAS 123R requires a public entity to measure the cost of employee
services received in exchange for an award of equity instruments, including
stock options, based on the grant-date fair value of the award and to recognize
it as compensation expense over the period the employee is required to provide
service in exchange for the award, usually the vesting period. In March 2005,
the SEC issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to SFAS
123R. We have applied the provisions of SAB 107 in our adoption of SFAS
123R.

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.

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 Consolidated Statements of Operations.

Compensation Costs

Results of
operations for the quarter ended November 30, 2007 include stock-based
compensation costs of approximately $14,000 related to employee stock option
grants. We had 440,000 stock options outstanding at August 31, 2007. The total
fair value of options granted to date is $1,205,000. After recording expense
through November 30, 2007, there remains $775,000 of unrecognized compensation
costs related to unvested stock options which is expected to be recognized over
the next 3.1 years.

All
stock-based compensation costs have been recorded in our selling, general and
administrative expenses within our 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 model. All options granted
have a maximum term of ten years. As permitted by SAB 107, for the quarter ended
November 30, 2007, we utilized the "shortcut approach" to estimate the options'
expected term of six years, which represents the period of time that options
granted are expected to be outstanding. We utilized this approach because we
have no historical share option exercise experience to provide a reasonable
basis upon which to estimate an expected term. Expected volatilities are based
on historical volatility of our stock. 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. There were no options granted during the
quarter ended November 30, 2007. 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. As of November 30, 2007, options to
purchase 440,000 shares of our common stock have been granted under this plan to
employees, 44,000 have been forfeited, and 396,000 remain outstanding. All such
grants were made in fiscal year 2007 and have an average exercise price of $4.35
per share. All options were issued with an exercise price equal to the fair
market value on the grant date.

8

---

NITCHES, INC. AND
SUBSIDIARIESNotes to the Unaudited
Condensed Consolidated Financial Statements

Summary of Stock Options

A summary of
the options granted under our 2006 Equity Incentive Plan as of November 30,
2007, and the activity during the three months ended November 30, 2007, 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                               |  | -       |  |           | -    |             |           |           |  
|Options exercised                                   |  | -       |  |           | -    |             |           |           |  
|Options
      forfeited                             |  | 44,000  |  |           | 4.15 |             |           |           |  
|                                                   
|Options outstanding at November 30, 2007            |  | 396,000 |  | $         | 4.37 |             | 8.8       |           | -
|                                                   
|Options vested and exercisable at November 30, 2007 |  | 115,313 |  | $         | 4.34 |             | 8.8       |           | -

10. Convertible Debentures

On June 21, 2007, we issued 12%
Unsecured Convertible Debentures and common stock purchase warrants to Birchten
Investments, Ltd., an unaffiliated institutional investor, and Granite Financial
Group, an unaffiliated investment bank. We issued an aggregate of $3.15 million
principal amount of Debentures and 577,500 Warrants in the transaction, in
exchange for net proceeds of $2.95 million, after deduction of fees and
expenses. Interest on the Debentures accrues at the rate of 12% per annum and is
payable quarterly on February 28, May 31, August 31, and November 30, commencing
on August 31, 2007. The Debentures are due December 31, 2009.

We issued
Warrants for 577,500 shares of Common Stock in connection with the transaction.
The Warrants are five (5) year warrants to purchase our Common Stock at a 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 debt will be outstanding. The
transaction costs incurred in connection with the convertible debenture
financing have been deferred and are being amortized over the thirty 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 balance sheet as follows:

**November 30,**
    
    **August 31,****2007**
    
    **2007**Convertible 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 amortization of warrant and beneficial conversion
    feature
    
    
    251,000
    
    
    
    108,000$
    1,770,000
    
    
    $
    1,627,000


9

---

NITCHES, INC. AND
SUBSIDIARIESNotes to the Unaudited
Condensed Consolidated Financial Statements

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
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. As of
January 22, 2008, Nitches has failed to meet its registration obligations and
will be required to pay to the investors in cash liquidated damages the amount
equal to 1.0% of the principal amount outstanding for any 30 day period, or pro
rata portion thereof, that such a failure continues during the first year the
Debenture is outstanding and 0.5 % of the principal amount outstanding for any
30 day period, or pro rata portion thereof, that such a failure continues during
the second year the Debenture is outstanding.

11. Goodwill and Intangible Assets

Goodwill and Other Intangible Assets
consisted of the following at November 30, 2007 and August 31, 2007:

November 30,
    
    August 31,2007
    
    2007Goodwill
    
    $
    2,620,000
    
    
    $
    2,620,000Intangibles not subject to amortization
    
    
    3,933,000
    
    
    
    3,933,000Intangibles
      subject to amortization
    
    
    2,791,000
    
    
    
    2,791,000Accumulated amortization
    
    
    (443,000
    )
    
    
    (384,000
    )$
    6,281,000
    
    
    $
    6,340,000


Goodwill
represents the excess purchase price over the fair value of the net assets
acquired in connection with our acquisition of Designer Intimates, Inc. 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. During the fourth quarter 2007 we conducted such testing; our
intangibles not subject to amortization were found not to have been impaired.

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 license for Bill Blass. Intangibles for licenses total $1,796,000
and intangibles for customer lists and acquisition costs total $995,000. The
estimated amortization expense for each of the ensuing years through August 31,
2011 is $234,632, $234,632, $234,632, and $217,402 respectively. The weighted
average amortization period is 14.4 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.

12. 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 November 30, 2007 and the Company does not anticipate any such material
changes during the next twelve months.

The Company files 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 the Company's policy is to record interest and
penalties directly to income tax expense in the condensed consolidated
statements of operations.

13. Recently issued accounting
pronouncements

In December 2007, the FASB issued
Statements of Financial Accounting Standards No. 141 (revised 2007), Business
Combinations, and No. 160, Non-controlling Interests in Consolidated Financial
Statements (SFAS No. 141(R) and SFAS No. 160). SFAS No. 141(R) requires the
acquiring entity in a business combination to recognize all (and only) the
assets acquired and liabilities assumed in the 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 No.
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 No. 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. The Company is currently assessing the
impact these standards may have on its consolidated financial
statements.

10

---

NITCHES, INC. AND
SUBSIDIARIESNotes to the Unaudited
Condensed Consolidated Financial Statements

In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS 159), which permits entities to choose to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. SFAS 159 will be effective for
the fiscal years beginning after November 15, 2007. The Company is currently
evaluating the impact of adopting SFAS 159 on its financial position, cash
flows, and results of operations.

In December
2006, the FASB issued FASB Staff Position (FSP) EITF 00-19-2 *Accounting
for Registration Payment Arrangements* (FSP EITF 00-19-2) which specifies
that the contingent obligation to make future payments or otherwise transfer
consideration under a registration payment arrangement should be separately
recognized and measured in accordance with SFAS No. 5, *Accounting for
Contingencies*. Adoption of FSP EITF 00-19-02 is required for fiscal years
beginning after December 15, 2006. The adoption of FSP EITF 00-19-2 did not have
a material impact on the Companys consolidated financial position, results of
operations and cash flows.

In September 2006, the FASB issued
Statement of Financial Accounting Standards No. 157, Fair ValueMeasurement (SFAS 157). This standard clarifies the principle
that fair value should be based on the assumptions that market participants
would use when pricing an asset or liability. Additionally, it establishes a
fair value hierarchy that prioritizes the information used to develop those
assumptions. SFAS 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2008. We have not yet determined the impact
that the implementation of SFAS 157 will have on our results of operations or
financial condition.

14. Subsequent Events:

On December
31, 2007, Nitches, Inc., entered into a License Agreement with Paula Deen
Enterprises, LLC, for the exclusive right to produce certain home décor products
for sale under the Paula Deen® brand. Pursuant to the terms of the Agreement, on
December 31, 2007, we issued and delivered to Paula Deen Enterprises, LLC a
warrant to purchase up to 150,000 shares of our common stock, a purchase price
of $1.67 per share, or an aggregate purchase price of $330,000, subject to
adjustment, including broad-based anti-dilution protection. The warrant has a
term of seven years. We have also agreed to file a registration statement with
the SEC covering the resale of the shares of common stock underlying the
warrant. The issuance of the warrant and the common stock to be issued upon
exercise of the warrant is exempt from the registration requirements under the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The
offering was not conducted in connection with a public offering.

On January
4, 2008, our board of directors appointed Mr. Paul M. Wyandt to serve as our
Chief Financial Officer and appointed Mr. Eitan Haber to serve as our Senior
Vice President and Chief Operating Officer. In taking over the Chief Financial
Officer role, Paul Wyandt succeeds Steven P. Wyandt who will continue to serve
as our Chairman and Chief Executive Officer. Paul Wyandt has been President
since 2001 and served as Chief Operating Officer from 2001 until January 4,
2008. Mr. Haber, who succeeds Paul Wyandt in the role of Chief Operating
Officer, has served our Designer Intimates subsidiary and its predecessor in the
areas of sourcing and operations since 1986.

11

---

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 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 following brands: Princesse
tam tam®, Derek Rose®, Crabtree & Evelyn®, Disney Couture®, The Anne Lewin®
Collection, The Claire Murray® Collection and Gossard®. We market women's
sportswear and outerwear under the following brands: Adobe Rose®, Country
Tease®, Saguaro® and Southwest Canyon®. We market men's casual wear and
performance apparel under the following brands: Nat Nast®, Newport Blue®,
Dockers®, The Skins Game®, and ZOIC®. We distribute home décor products under
the 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.

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.

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 November 30, 2007, trade accounts receivable balance was $20.3 million, net
of allowances of $1.9 million, as compared to the balance of $12.3 million, net
of allowances of $878,000, at August 31, 2007.

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 $9.9
million, net of inventory markdowns of $561,000, at November 30, 2007, as
compared to an inventory balance of $14.1 million, net of inventory markdowns of
$548,000, at August 31, 2007.

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.

12

---

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

Quarter Ended November 30, 2007
Compared to the Quarter Ended November 30, 2006

Net sales
for the quarter ended November 30, 2007 were $33.1 million, a decrease of $2.3
million or 6.5% as compared to sales of $35.4 million in the quarter ended
November 30, 2006. This decrease was attributable primarily to a reduction in
orders from a significant customer for menswear product, offset partially by
increased sales for our womens sleepwear and private label apparel. The apparel
business is seasonal, and our first fiscal quarter, extending from September to
November has traditionally been our highest revenue quarter as retailers take
delivery of orders for the holiday season. As a result, our revenues are likely
to vary from quarter to quarter, and first quarter revenues are not indicative
of the revenues we expect to achieve on an annualized basis.

Cost of
goods sold for the quarter ended November 30, 2007 were $26.6 million compared
to $26.8 for the same period a year ago. Cost of goods sold as a percent of net
sales increased 4.5%, generating a lower gross profit margin of 19.7% for the
quarter ended November 30, 2007, as compared to 24.0% for the year earlier
period. The decrease in gross margin came as the result of increased private
label sales and a high volume sale 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.

Selling,
general and administrative expenses for the quarter ended November 30, 2007 were
$5.3 million, a decrease of $830,000 as compared to $6.1 million for the same
period a year ago. The decrease was due primarily to the a reduction of sales
commission expenses as well as the elimination of sales and design fees as a
result of the acquisition of the Saguaro® assets which were acquired on October
24, 2006. Selling, general and administrative expenses for the period included
$2.0 million of selling and merchandising expenses and $1.4 million of shipping
and warehousing expenses. This compares with $2.8 million of selling and
merchandising expenses and $649,000 of shipping and warehousing expenses
incurred during the quarter ended November 30, 2006.

Interest
expense in the current period was $450,000, an increase of $150,000 as compared
to $300,000 for the quarter ended November 30, 2006. This increase was due
primarily to interest on the convertible debentures and related amortization
charges that are also charged to interest expense.

Liquidity and Capital Resources

Net cash
used by operating activities for the three month period ended November 30, 2007
was approximately $7.3 million. Cash used by operating activities during the
period was primarily the result of an increase in amounts due from the factor
and a decrease in accounts payable and accrued expenses, offset partially by a
decrease in inventory. For the prior period cash used by operating activities
was approximately $9.5 million. Likewise cash used by operating activities
during the period was primarily the result of an increase in amounts due from
the factor and a decrease in accounts payable, offset partially by a decrease in
inventory.

13

---

For the quarter
ended November 30, 2007 net cash used by investing activities of $54,000
consisted entirely of capital expenditures. For the prior year net cash used by
investing activities of $317,000 included cash used in the Saguaro
acquisition.

Cash provided by financing activities of $7.5 million for the quarter
ended November 30, 2007 consisted exclusively of advances from the factor. Cash
provided by financing activities in the prior period of $10.3 million included
advances from the factor offset by partial repayment of a note
payable.

Working
capital at November 30, 2007 was $7.9 million, an increase of $700,000 from $7.2
million at August 31, 2007. This increase resulted primarily from an increase in
accounts receivable in line with our increased sales volume for the current
period, partially offset by a reduction in inventories and an increase an
advances due to the factor. Our current ratio decreased slightly to 1.31:1 at
November 30, 2007 from 1.33:1 at August 31, 2007.

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 receivables that were non-recourse at November 30, 2007 was $21.9
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 November
30, 2007 was approximately $761,000, of which approximately $132,000 had been
collected through December 31, 2007.

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 6.5%) 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 November 30, 2007, we had outstanding letters of credit of
approximately $3.4 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.

14

---

Contractual Obligations and
Commercial Commitments

As of
November 30, 2007, we had no off-balance sheet arrangements. The following
summarizes our contractual obligations at November 30, 2007 and the effect those
obligations are expected to have on our liquidity and cash flow in future
periods:

|                                        |  | Payments due/Commitments expiring per period
|--------------------------------------- |  | --------------------------------------------
|                                        |  | Total Amounts                               
|                                        |  | Committed                                   
|Operating leases                        |  | $                                           
|Letters of
    credit                   |  |                                             
|Employment agreement                    |  |                                             
|Convertible
      Debentures            |  |                                             
|Total obligations and
      commitments |  | $                                           

Inventory

Our
inventory decreased 29.7% to $9.9 million at November 30, 2007, from $14.1
million at August 31, 2007. Compared to inventories of $7.4 million at November
30, 2006 current period ending inventory increased 33.9% in line with increased
order backlog for the second quarter of fiscal 2008 as compared to the second
quarter of fiscal 2007. 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 November 30, 2007. 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.

We have
established an inventory markdown reserve as of November 30, 2007, 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 November 30, 2007 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
November 30, 2007, we had on-hand unfilled customer orders of $35.7 million as
compared to $26.4 million at November 30, 2006, with such orders generally
scheduled for delivery by May 2007 and 2006, respectively. The increase in
backlog is due to growth in orders across product lines, most significantly for
mens sportswear and for home décor 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 November 30, 2007.
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.

15

---

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.

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 Designer Intimates, Inc., the home décor product
  line of Taresha LLC and the Saguaro® mark and related trademarks from Impex
  Inc.;
- 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.

16

---

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 rate debt. As
of November 30, 2007, a one percent change in interest rates would increase or
decrease our annual interest expense by approximately $111,000. There has 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.

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 November
30, 2007, 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 November 30, 2007. 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 November 30, 2007

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 November 30, 2007.

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 this
Quarterly Report on Form 10-Q. As discussed below, we have since reorganized
some of our financial management, retained new independent auditors, hired an
interim controller and are in the process of recruiting additional senior
accounting personnel.

17

---

While our
lack of accounting personnel has affected the timeliness of our processing
information, we have completed our internal control procedures. Accordingly, our
management has 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 has materially affected, or is likely to materially affect, our
internal control over financial reporting. At the beginning of the quarter we
had retained a consultant to act as our controller. That consultant was
dismissed in October 2007.

Subsequent
to the fiscal quarter ended November 30, 2007, 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.
  Subsequent to the end of the period, in January 2008, Paul M. Wyandt was
  appointed Chief Financial Officer of the Company, succeeding Stephen P. Wyandt
  who remains Chairman and Chief Executive Officer. We also appointed Eitan
  Haber Chief OperatingOfficer of the Company,
  who succeeds Paul M. Wyandt in that role.
- Change in Independent Auditor. We
  dismissed J.H. Cohn LLP ("J.H. Cohn") as our independent registered public
  accounting firm effective December 31, 2007, and engaged Squar, Milner,
  Peterson, Miranda & Williamson, LLP ("Squar Milner") as our independent
  registered public accounting firm that same date. J.H. Cohn had acted as our
  independent registered public accounting firm since May 3, 2007. The report of
  J.H. Cohn on the financial statements of the Company as of and for the fiscal
  year ended August 31, 2007, did not contain an adverse opinion or a disclaimer
  of opinion and was not qualified or modified as to uncertainty, audit scope,
  or accounting principles. During our fiscal year ended August 31, 2007 and
  subsequent interim period preceding the dismissal of J.H. Cohn, there were no
  disagreements between us and J.H. Cohn on any matter of accounting principles
  or practices, financial statement disclosure, or auditing scope or procedure,
  which disagreements, if not resolved to the satisfaction of J.H. Cohn, would
  have caused J.H. Cohn to make reference to the subject matter of the
  disagreements in connection with its audit report on the Company's financial
  statements. The decision to change firms was approved by the audit committee
  of our board of directors.
- Recruitment of Additional Senior Accounting Staff. As of January 2, 2008 we retained a consultant to serve as
  interim controller. During fiscal 2008 we expect to retain one or more
  additional senior accounting personnel with the intention of increasing both
  the number of personnel devoted to our internal controls process and the level
  of experience of our accounting team in dealing with relevant accounting
  issues.

18

---

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.

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

None.

ITEM 3.  Defaults Upon Senior
Securities

None.

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.

19

---

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)                                         
|                  |    
|January 24 , 2008 | By: | /s/ Paul M. Wyandt                                   
|                  |     | Paul M.
      Wyandt                                 
|                  |     | As
      Principal Financial Officer and on behalf of
|                  |     | the
      Registrant                                 

20

---

EXHIBIT INDEX

|**Exhibit
      No.** | Description                                                                                                                                  
|--------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------
|                     
|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
|31.1                  | 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                                                                   
|32.1                  | Certification pursuant to 18 U.S.C. §1350 by Chief Financial
      Officer                                                                   

21

---