You should read this section together with our condensed consolidated financial statements and related notes thereto included elsewhere in this report and in our Annual Report on Form 10-K for the fiscal year ended November 28, 2008 (the "2008 Form 10-K"). In addition to the historical information contained herein, this report contains forward-looking statements that involve risks and uncertainties. Forward-looking statements are not based on historical information but relate to future operations, strategies, financial results or other developments. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. Certain statements contained in this Form 10-Q, including, without limitation, statements containing the words "believe," "anticipate," "estimate," "expect," "are of the opinion that" and words of similar import constitute "forward-looking statements." You should not place any undue reliance on these forward-looking statements.

You should be aware that our actual growth and results could differ materially from those contained in the forward-looking statements due to a number of factors, which include, but are not limited to the following: the risk factors set forth in Part I, Item 1A (Risk Factors) of our 2008 Form 10-K; the risks and uncertainties set forth below; economic and business conditions specific to the promotional products and imprinted sportswear industry; competition and the pricing and mix of products offered by us and our competitors; style changes and product acceptance; relations with and performance of suppliers; our ability to control costs and expenses; carry out successful designs and effectively communicate with our customers and to penetrate their chosen distribution channels; access to capital; foreign currency risks; risks associated with our entry into new markets or distribution channels; risks related to the timely performance of third parties, such as shipping companies, including risks of strikes or labor disputes involving these third parties; maintaining satisfactory relationships with our banking partners; political and trade relations; the overall level of consumer spending; global economic conditions and additional threatened terrorist attacks and responses thereto, including war. There may be other factors not mentioned above or included elsewhere in this report that may cause actual results to differ materially from any forward-looking information. You should not place undue reliance on these forward-looking statements. We assume no obligation to update any forward-looking statements as a result of new information, future events or developments, except as required by applicable securities laws.

Introduction

As noted elsewhere in this report, the Company's principal customers are large national and regional retailers. In order to maintain its relationship with these customers, enhance revenues from them and enable them to improve their revenues and margins, the Company must work closely with these customers to ensure they receive the Company's products expeditiously and economically. The Company works diligently to maintain what management calls "supply chain excellence" - a way for the Company to provide value added services to its customers.

In servicing its customers, the Company faces competition from numerous other providers of licensed promotional and imprinted products. Many of these competitors are larger and better capitalized than the Company. Additionally, if the Company is to continue to grow its business by adding additional products or by making strategic acquisitions, it will require additional capital.

In assessing the Company's performance, management focuses on (a) increasing revenues primarily through enhancing its licensing programs and (b) protecting such revenues by diversifying its customer base regionally and demographically.
In order to enhance profitability, management monitors and seeks to improve gross margins primarily by internal cost controls and through importing and outsourcing. Management also strives to reduce fixed costs as a percentage of sales, improve inventory turnover and reduce receivables measured by day's sales outstanding, all in an effort to improve profitability and cash flow.

Going Concern

The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern which contemplates the realization of assets and extinguishment of liabilities in the normal course of business. The Company is dependent upon available cash, operating cash flow and its line of credit to meet its capital needs. The accompanying financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.

Although the Company does not currently have a replacement lender for its asset based line of credit, which expires on April 30, 2009, it is in various stages of negotiations with three potential lenders. One potential lender has made a proposal to the Company and is ready to begin due diligence. A second potential lender is expected to prepare and submit a proposal within the next week. The third potential lender is gathering information to formulate how and whether to make a proposal. Based on its recently concluded annual audit and also on a recent bank pre loan audit, the Company expects that the first potential lender should be ready to close on its current proposal within two to four weeks and that the second potential lender should be able to meet a similar closing timeline. During this same time period, the Company will implement a plan with its current lender to reduce its borrowings, which the Company has actively done over the last six weeks. As of April 15, 2009, the Company's line of credit borrowing has been reduced to under $3.2 million. Based on recent discussions with its current lender, the Company believes that the line of credit facility will be extended on a limited basis after April 30, 2009 so long as the Company is able to show bona fide facts pertaining to replacement lending proposals and their progress and continues to reduce its borrowings under the facility, in which case the Company should have time to close any of the three options it is currently negotiating. However, the Company has not received written assurances from its current lender as to such post-maturity credit extensions. Similarly, the Company can make no assurances as to whether it will be able to consummate a replacement line of credit facility with any of the current (or future) potential lenders on satisfactory terms on a timely basis or at all, or, if successfully consummated, to maintain any such facility, on a favorable basis to the Company for its future needs, once initiated.

In addition to soliciting and evaluating proposals to replace its current asset based line of credit facility, the Company has executed several restructuring and cash management initiatives which have occurred from mid-2008 to the present that include:

·

A reorganization in October 2008 that included personnel terminations from all parts of the organization;

·

Conversion of selling personnel expenses from fixed to variable;

·

Managing working capital through the optimization of inventory levels; and

·

Restructuring and reengineering processes to reduce operating costs and improve efficiency.

While management believes these initiatives will better align the Company's costs with its anticipated revenues going forward, it will take time for these initiatives to have an impact on net revenue and operating income.

Overview

The Company is a creative and innovative sales and marketing organization that designs, develops, embellishes, markets, and distributes licensed and branded imprinted sportswear primarily through key licensing agreements as well as the Company's own proprietary designs. Products are imported, outsourced and embellished in-house via both the screenprint and embroidery processes.
Management believes that there are substantial growth opportunities in the imprinted sportswear industry and that the Company can be positioned to take advantage of such growth opportunities if it can find a suitable replacement for its current asset based line of credit. Management believes that the Company has an excellent reputation in the marketplace as a result of its ability to provide quality products and services and on-time delivery at competitive prices.

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Approximately 200 licenses and agreements to distribute its Cadre Athletic™ and Campus Traditions USA™ line for most major colleges and universities in the U.S.;

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Licensing agreements with Chevrolet®, Pontiac®, Hummer®, Cadillac®, Buick®, Corvette C6®, Dodge® and GMC® for their respective "branded" logos for the RPM Sports USA™ motor sports line, targeting the automotive dealership network and automotive venue markets;

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Proprietary designs including American Biker™, American Wildlife™, Ragtops Sportswear™ , Campus Traditions USA™ and Cadre Athletic™, among others; and

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Licensing and distribution agreements with GRITS (Girls Raised In The South) and Chuck E. Cheese.

Operations and Expansion

The Company is one of the larger companies in the highly fragmented licensed imprinted sportswear industry. The Company has implemented its strategy of "Creating Retail Programs that Exceed Sales Expectations" to meet its customers' key requirements including: art design and development, manufacturing (for imprinted sportswear), sourcing (for distributed products), warehousing, and fulfillment. The Company has developed a large, diverse, and distinguished customer base of traditional retailers, including national and large regional chains, specialty retailers, corporate accounts, college bookstores, motor sports, souvenir and gift shops and golf shops, and also makes sales to the general public via the Company's internet web stores.

The Company may from time to time be engaged in discussions with various potential merger, partnerships, and acquisition targets or be the target of such discussions, and expects to sustain growth through strategic and synergistic opportunities with complementary businesses, in addition to organic initiatives. It is anticipated that such

strategic opportunities will enable the Company to diversify its customer and distribution base, lessen its dependency on large customers and reduce overall operating costs by consolidating its services and distribution facilities, thereby enhancing stockholder value. The Company is not presently a party to any definitive agreements with respect to any stated opportunities and there can be no assurance that any such opportunities will be accomplished in the near future, or at all.

The Company has expanded its business to include e-commerce web sites through which some of the Company's most popular licensed products are marketed. The Company has been successful in establishing itself as a premier supplier under various e-commerce web sites, currently the most significant of which are www.campustraditionsusa.com™; www.rpmsportsusa.com™; www.americanwildlifeusa.com™, and www.americanbiker.com™. The Company plans to establish additional e-commerce web sites as other product lines are established. The corporate website, www.nextinc.net, provides information to the general public about the Company.

Results of Operations

The following table sets forth certain items in the Company's condensed
consolidated statement of operations for the three months ended March 1, 2009,
and February 29, 2008.  These statements should be read in conjunction with the
audited financial statements of the Company as filed in the 2008 Form 10-K.

                                                         Three Months Ended
                                                  March 1, 2009   February 29, 2008
                                                   (unaudited)       (unaudited)
 Net sales                                      $   3,058,345   $     2,540,923
 Cost of sales                                      2,459,882         1,717,540
 Gross profit                                        598,463           823,383
 Operating and other expenses:
   General and administrative expenses               411,945           422,886
   Royalties, commissions, and selling expenses      481,476           560,011
   Corporate expenses                                243,566           267,772
   Interest                                          152,556           155,297
   Other (income) expenses                            (380)            (74,117)
    Total operating and other expenses              1,289,163         1,331,849
 Loss before income taxes                           (690,700)         (508,466)
 Benefit for income taxes                                   -         (173,051)
 Net loss                                       $   (690,700)   $     (335,415)

Summary

Net loss before taxes for the fiscal quarter ended March 1, 2009 increased by $182,234, or 35.9%. Net sales increased by $517,422, or 20.1% from the first quarter of fiscal 2008. Gross profit margin decreased by 12.9% on higher net sales mainly due to management's decision to sell a large quantity of fall inventory with prior year designs to a major customer with a special, one-off deep discount, which resulted in decreased inventory and increased cash flow during a slower sales volume season. The Company had been carrying this fall inventory for that customer since 2007 and the customer had been buying the fall inventory down in season over the course of late 2007 and 2008. The customer also agreed to purchase a large quantity of prior year design, all season inventory at normal sales prices, later in the 2009 fiscal year. Operating and other expenses were decreased by 3.2% from the prior year due to several factors as detailed below.

Net Sales

Net sales increased 20.1% to $3,058,345 for the three months ended March 1, 2009, from $2,540,923 for the three months ended February 29, 2008. The overall increase resulted primarily from a 450% increase in net sales (over the prior year period) to two large customers and a 30% increase in net sales (over the prior year period) to a third large customer due mainly to the special, one-off discount discussed in the Summary section above. These increases were offset by a decrease in net sales to a fourth large customer and an overall decrease in net sales to smaller customers.

Cost of Sales

Expenses included in cost of sales are primarily raw materials, labor, supplies, contract services, and the depreciation of both the Company's principal manufacturing facility in Indiana and its equipment. Cost of sales increased to $2,459,882 (80.4% of sales) for the three months ended March 1, 2009, from $1,717,540 (67.6% of sales) for the three months ended February 29, 2008. The increase in the percentage of sales is due mainly to the decision, discussed above, to sell a large quantity of fall inventory with prior year designs to a major customer with a special, one-off discount in exchange for agreement by the customer to purchase a remaining large quantity of prior year design, all-season inventory at normal sales price, later in the 2009 fiscal year. Excluding this large discount, cost of sales would have been 71.4% of net sales which is a 3.8% increase from the prior year. The increase in cost of sales was caused by higher sales coming from inventory which resulted in lower production activity.
The lower production activity resulted in an inability to cover largely fixed manufacturing expenses such as insurance, property taxes and depreciation. This led to lower gross margin, but overall, improved cash flow.

Operating and Other Expenses

General and administrative expenses decreased for the current fiscal quarter to $411,945 from $422,886 in the first quarter of fiscal 2008. The decline was caused by a decrease in wages that resulted from the Company's reorganization efforts.

Royalty, commissions, and selling expenses are partially proportionate to sales, and also carry a fixed component for salaries, travel, leases and other sundry expenses of operating an in-house sales function. These expenses for the three months ended March 1, 2009 were $481,476 versus $560,011 for the three months ended February 29, 2008. These expenses have decreased as a percentage of sales (15.7% in 2009 versus 22.0% in 2008). Royalties and commissions contributed to this reduction due to sales mix, as did reductions in salaries, contract labor and rent, all of which are the result of the Company's reorganization efforts.

Corporate expenses for the three months ended March 1, 2009, decreased slightly to $243,566 as compared to $267,772 for the three months ended February 29, 2008. This change can be attributed to lower professional fees and wages, which was partially offset by higher bank fees.

Interest expense reflects the cost of borrowing on the line of credit and all short and long-term debt. The amount decreased to $152,556 for the three months ended March 1, 2009, from $155,297 for the three months ended February 29, 2008.
The decrease is attributable to lower average outstanding balances on the line of credit and by decreases in the variable prime rate in the prior year offset by increasing fixed-portion of interest rates during the current quarter due to changes in the line of credit agreement discussed in the Liquidity and Capital Resources section.

Other income or expense items totaled $380 of income for the three months ended March 1, 2009, as compared to $74,117 of income for the three months ended February 29, 2008. The decrease was caused principally by economic development incentives earned and other sundry items in the prior year.

The Company recognizes a provision or benefit for income taxes that encompasses both federal and state taxes as well as current and deferred portions related to income and differences in accounting versus tax treatment of certain balance sheet items as required by SFAS 109. The benefit for income taxes for the three months ended March 1, 2009 was $269,389 before valuation allowance, as compared to $173,051 for the three months ended February 29, 2008. Realization of deferred tax assets is uncertain due to the Company's inability to refinance its current asset based line of credit and recurring operating losses. As a result, a valuation allowance has been recorded in an amount sufficient to reduce the deferred tax asset to zero.

Financial Position, Capital Resources, and Liquidity - March 1, 2009 and November 28, 2008

At March 1, 2009, working capital was $(1,448,526) of which $(2,500,167) resulted from the reclassification of long-term debt owed to Crossroads Bank to current liabilities as a consequence of going concern considerations. This reclassification was made due to a conclusion that if the Company is unable to continue as a going concern, this debt would be accelerated within the next twelve months and also because of the Company's failure to meet certain financial covenants. Working capital at November 28, 2008, was $(880,793) of which $(2,561,168) was the reclassification of long-term debt. Without this reclassification, working capital was $1,051,641, which is a decrease of $628,734 from working capital without the reclassification at November 28, 2008 of $1,680,375. A substantially lower trade receivables balance and decrease in inventory offset by decreases in trade accounts payable, accrued expenses and revolving credit facility contribute to the lower working capital.

The Company's cash on hand and in banks at March 1, 2009 was $184,834, as compared to $139,909 at November 28, 2008. Differences in cash on hand are attributed to the timing of disbursements.

Liquidity and Capital Resources

The Company's principal use of cash is for operating activities and working capital. Cash provided by operations in the three months ended March 1, 2009, was $1,034,144 as compared to $1,861,062 of cash provided by operations for the three months ended February 29, 2008. The decrease in cash provided by operations related primarily to a greater decrease in trade receivables in the prior year partially offset by a greater decrease in inventory in the current year as opposed to 2008 and a smaller decrease in accrued expenses in 2009 than in the prior year.

Cash from investing activities produced a net outflow of $7,161 for the three months ended March 1, 2009, as compared to an outflow of $24,692 for the three months ended February 29, 2008. These relatively low expenditures for capital and intangible assets reflect the Company's commitment to conserve cash.

Cash for financing activities produced net outflows of $982,058 for the three months ended March 1, 2009 and $1,972,718 for the three months ended February 29, 2008. This variation is the result of a substantially lower line of credit balance carried during the current year.

The Company has historically financed its operations through a combination of earnings and debt. The Company's principal sources of debt financing are its revolving line of credit with National City Bank of Indiana and the promissory notes issued by Crossroads Bank. On January 31, 2009, the Company entered into an agreement, which extends the maturity date of the credit facility with National City Bank of Indiana (now part of PNC) to April 30, 2009 as a result of the Company's inability to find a bank to replace National City Bank. The advance rates on eligible accounts receivable and inventory under the credit facility are 85% and 55%, respectively. At March 1, 2009, the interest rate is set at prime plus eight percent. Under the agreement with National City Bank, the interest rate escalates to prime plus ten percent on April 1, 2009, and prime plus twelve percent after April 30, 2009 if National City Bank has not been replaced by then. Furthermore, under the January 31, 2009 agreement, the Company's total line of credit was reduced to $5,000,000 and National City Bank agreed to waive any covenant defaults and to suspend covenant calculations until April 30, 2009. The Company had drawn $4,231,099 as of March 1, 2009. Cash availability from the revolving line of credit was $377,189 as of March 1, 2009 and $746,495 on February 29, 2008 as filed with National City on the day nearest to the end of the Company's month. The credit facility matures on April 30, 2009. The Company has made all payments on this line timely and has continued to operate within the established formulas for advances and repayments.

The Crossroads Bank promissory notes consist of three loans with an aggregate balance of $2,769,361 at March 1, 2009 payable in monthly installments of $39,626 of principal and interest. The Company has made all payments on these loans timely and has continued to operate within the established formulas for advances and repayments.

On November 30, 2006, the Company entered into a subordinated loan agreement with Next Investors, LLC for $500,000, to replace an agreement originally executed on July 20, 2005. The purpose of this loan was to provide working capital to be repaid out of future cash flows. The loan had an interest rate of prime plus .25% and a maturity date of November 30, 2008. Effective October 31, 2008, the Company and Next Investors, LLC entered into a Note Extension Agreement for this subordinated loan agreement, whereby the maturity date of November 30, 2008, was extended to October 31, 2009 and the interest rate was changed to 6% per annum. Remaining principal payments were rescheduled to August 31, 2009 and October 31, 2009 in installments of $100,000 each. Next Investors, LLC's principal partners are comprised of one board member, and two shareholders of the Company. As of March 1, 2009, interest expensed and accrued for this loan totaled $3,033 and $2,100, respectively. As of November 28, 2008, interest expensed and accrued for this loan totaled $15,858 and $1,667, respectively.