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 bases 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.

The accompanying statements and discussions do not contemplate any adjustment that might be necessary if the Company is unable to continue as a going concern. They have been prepared and made 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.

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 brands. Management believes that there are substantial growth opportunities in the imprinted sportswear industries and that the Company is well positioned to take advantage of such growth opportunities. 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. In recent years, licensed imprinted sportswear has become very popular. Licensing agreements are available for branded products and services, amateur and professional sports teams, and many other promotional areas. To maximize its potential, the Company continually seeks to expand its license program, which currently includes the following

§

Approximately 200 licenses and agreements to distribute its Cadre Athletic™, Varsity Classic™ , and Campus Traditions USA™ lines for most major colleges and universities in the United States;

§

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;

§

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

§

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 and six months ended May 31,
2009, and May 30, 2008. These statements should be read in conjunction with the
audited financial statements and related notes thereto included in the Company's
2008 Annual Report on Form 10-K.

                                   Three Months Ended             Six Months Ended
                               May 31, 2009   May 30, 2008   May 31, 2009   May 30, 2008
                               (unaudited)    (unaudited)    (unaudited)    (unaudited)
Net sales                    $   2,555,559  $   2,117,244  $   5,613,904  $   4,658,167
Cost of sales                    1,788,443      1,683,202      4,248,325      3,400,742
Gross profit                      767,116        434,042       1,365,579      1,257,425
Operating and other
expenses:
  General and administrative
expenses                          356,481        482,395        768,426        905,281
  Royalties, commissions,
and selling expenses              341,225        452,898        822,701       1,012,909
  Corporate expenses              246,451        291,791        490,017        559,563
  Interest expenses               155,251        124,173        307,807        279,470
  Other (income) expenses         (3,285)         (464)         (3,665)       (74,581)
   Total operating and other
expenses                         1,096,123      1,350,793      2,385,286      2,682,642
Loss before income taxes         (329,007)      (916,751)     (1,019,707)    (1,425,217)
Benefit for income taxes            -            356,955          -            530,006
Net loss                     $   (329,007)  $   (559,796)  $  (1,019,707) $   (895,211)

For the three months ended May 31, 2009

Summary

Net loss for the quarter ended May 31, 2009, improved $230,789 to ($329,007), as compared to ($559,796) from the same quarter ended May 30, 2008, on a $438,315 increase in sales for the quarter. Gross profit margin increased by 9.5% due to better mix of items produced for sale, cost containment programs implemented, and improved operational organization of the process used to run products through the factory. Additionally, certain improvements in cost management are reflected in reduced selling, general and administrative expenses over the prior year quarter. These improvements all served to reduce net loss despite not having any income tax benefit and increased bank fees and interest paid to National City Bank of nearly $55,000. The Company has executed and continues to execute 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, although several of the above initiatives are evident in the Company's current operating results.

Net Sales

Net sales increased $438,315, or 20.7% to $2,555,559 for the three months ended May 31, 2009, from $2,117,244 for the three months ended May 30, 2008. Sales to the Company's historical top customer during the current year second quarter were high, continuing a strong trend from the first quarter of fiscal 2009.
Additionally, there was a stronger sales trend with another long-term top five customer and somewhat level performance for the remaining three of the Company's top five customers as compared to the prior year quarter. These results are inconsistent with the conditions being experienced in the apparel segment of the retail industry, which has experienced decreased same-store sales on an industry-wide, overall basis. While some retailers are struggling, others appear to be somewhat less affected and are expanding and redirecting their supply chain from import models into areas from which the Company is benefiting.
As a domestic manufacturer, the Company is positioned to take advantage of this movement. Despite attempts by competitors to capitalize on the Company's financing situation in an extraordinarily difficult credit market, the Company has experienced a nearly 21% increase in net sales which, in turn, has driven a 64% improvement in the Company's pre-tax income for the three months ended May 31, 2009.

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 and its equipment. Cost of sales decreased to $1,788,443 (70.0% of sales) for the three months ended May 31, 2009, from $1,683,202 (79.5% of sales) for the three months ended May 30, 2008. This decrease resulted from better mix of items produced for sale, cost containment programs implemented, and improved operational organization of the process used to run products through the factory

Operating and Other Expenses

General and administrative expenses decreased by 26.1% to $356,481 for the three months ended May 31, 2009 compared to the same period in 2008. Substantially lower expenses that resulted from implemented cost reductions, as augmented by attrition are responsible for the improvement.

Royalties, commissions, and selling expenses are proportionate to sales, and also carry a fixed component that includes some travel, samples and selling expenses incurred by home office employees. Expenses for this area for the three months ended May 30, 2009, were $341,225, compared to $452,898 for the three months ended May 30, 2008. The decrease was caused by lower commissions paid to outside sales representatives for business they generated, augmented by lower royalties resulting from products that were not sold as heavily in the current year quarter and by products not covered by a license because they were developed by the Company internally. Additionally, the Company has benefited from the conversion of its internal sales force to variable based payment programs.

Corporate expenses for three months ended May 31, 2009 decreased by 15.5% to $246,451, as compared to $291,791 for the three months ended May 30, 2008.
Reductions in salary expense and professional fees offset by $25,000 in fees paid to National City Bank were responsible for the reduction.

Interest expense reflects the cost of borrowing under the Company's revolving credit facility and all short and long-term debt. This expenditure increased for the three months ended May 31, 2009 to $155,251, as compared to $124,173 for the three months ended May 30, 2008. Overall, the Company's borrowings against its revolving line of credit for the three months ended May 31, 2009, decreased by $752,000 as compared to the prior year quarter. Therefore, substantially all of the increase in interest expense is attributable to the increased interest rates charged by National City Bank under the forbearance agreement and amendments thereto entered into with them.

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 May 31, 2009, was $-0- after valuation allowance, as compared to $356,955 for the three months ended May 30, 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 $3,530,688 valuation allowance has been recorded on the Company's balance sheet at May 31, 2009.

For the six months ended May 31, 2009

Summary

Loss before income taxes for the six months ended May 31, 2009, improved 28.4% to ($1,019,707), as compared to ($1,425,217) from the six months ended May 30, 2008. The six month period ended May 30, 2008 also had an income tax benefit of $530,006, which the similar period in 2009 did not contain. Gross profit margin for the six months ended May 31, 2009 decreased by 2.7% over the prior year period due to the lingering effects of the sale during the first quarter of fiscal 2009 of the Company's remaining fall 2007 fleece inventory to a large customer at a one-time deep discount. Additionally, improvements in cost management are reflected in reduced selling, general and administrative expenses over the prior year period. These improvements all served to reduce net loss despite not having a $530,006 income tax benefit and increased bank fees and interest paid to National City Bank of nearly $175,000. The following table presents a reconciliation of Net loss as reported (a GAAP measurement) to Pre tax loss as adjusted (a non-GAAP measurement) to present the above discussion more clearly for all readers. Management has used this information along with numerous other measures to evaluate whether or not it has taken enough actions with regard to cost reductions in relation to sales increases to optimize cost to sales ratios.

                                                  Six Months Ended
                                             May 31, 2009   May 30, 2008
                                             (unaudited)    (unaudited)
            Net loss as reported (GAAP
            basis)                         $ (1,019,707)  $  (895,211)
            Eliminate recorded benefit
            for income taxes                      -           530,006
            Eliminate estimated increase
            in banking    fees and
            interest                           175,000
            Pre tax loss as adjusted
            (non-GAAP)                     $  (844,707)   $ (1,425,217)

Net Sales

Net sales for the six months ended May 31, 2009, increased by 20.5% to $5,613,904, from $4,658,167 for the six months ended May 30, 2008. The retail industry, in general, is experiencing little to no growth across the country and worldwide. Same store sales comparisons are down industry-wide. The Company believes its net sales improvement, despite the difficult retail environment, is directly attributable to three key factors. First, the "basic" nature of the Company's product offerings tends to fare well during economic downturns. Second, the Company's domestic manufacturing capabilities allow customers to take advantage of our shorter lead times. Finally, our ability to provide both import and domestic chase capabilities positions us favorably with our retail customers. This sales improvement has been accomplished despite attempts by competitors to capitalize on the Company's financing situation in an extraordinarily difficult credit market. Net sales to the Company's top three customers, which represent 75% of the Company's total net sales, are up 53% over the same period last year.

Cost of Sales

The cost of sales for the six months ended May 31, 2009, was $4,248,325, which is an increase from $3,400,742 for the six months ended May 30, 2008, and is due to higher sales in the current fiscal year. The gross profit margin (i.e., gross profits divided by net sales) decreased to 24.3% for the six months ended May 31, 2009, from 27.0% for the six months ended May 30, 2008, despite substantially increased revenues. After considering that first quarter gross margin was negatively impacted 9% by the one-time, deep discount business done with a large customer, the Company's continuing improved cost and production management credited back enough improvements to keep gross margin within 3% of the prior year period.

Operating and Other Expenses

General and administrative expenses decreased substantially to $768,426 for the six months ended May 31, 2009, from $905,281 for the six months ended May 30, 2008. The improvement is primarily due to austerity, attrition and aggressive reductions made by management beginning last fall.

Royalties, commissions, and selling expenses for the six months ended May 31, 2009 decreased to $822,701, from $1,012,909 for the six months ended May 30, 2008. The decrease for the current fiscal year period results from lower commission expenses as a percentage paid to outside sales representatives for business they generated, augmented by a decrease in royalties expense resulting from a higher percentage of products including resort/destination and specialty novelty goods, that are not covered by a license because they were developed by the Company internally.

Corporate expenses for the six months ended May 31, 2009 decreased by to $490,017, versus $559,563 for the six months ended May 30, 2008, despite $75,000 in banking fees paid to National City Bank in the current fiscal year period that were not paid in the prior fiscal year period.

Interest expense for the six months ended May 31, 2009, increased to $307,807 from $279,470 in the prior year period. This increase happened despite lower line of credit borrowing in 2009 due to substantially higher interest rates charged by National City Bank.

Financial Position, Capital Resources, and Liquidity - May 31, 2009 and November 28, 2008

Working capital was $792,352 and $1,680,375 at May 31, 2009 and November 28, 2008, respectively, before reclassifications of long-term debt owed to Crossroads Bank carried as current liabilities as a consequence of failing to meet certain financial covenants. Working capital was, therefore, decreased by $888,023 from working capital without the reclassification at November 28, 2008.
A substantially lower trade receivables balance and decrease in inventory partially offset by decreases in trade accounts payable and borrowings under the revolving credit facility contribute to the lower working capital.

The Company's cash on hand and in banks at May 31, 2009 was $151,586, 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 for the six months ended May 31, 2009 was $1,971,223, as compared to $1,151,866 of cash provided by operations for the six months ended May 30, 2008. The increase in cash provided by operations related primarily to a decrease in inventory offset partially by an increase in accounts receivable and decreases in accounts payable and accrued expenses.

Cash from investing activities produced a net outflow of $9,189 for the six months ended May 31, 2009, as compared to an outflow of $34,328 for the six months ended May 30, 2008. These cash outflows resulted from purchases of equipment and intangible assets in both periods.

Financing activities used cash of $1,950,357 and $1,202,486 for the six months ended May 31, 2009, and May 30, 2008, respectively. Repayments of long term debt and formula driven pay downs on the revolving credit facility were the sources of these outflows.

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 and the promissory notes issued by Crossroads Bank. On January 31, 2009, the Company entered into a forbearance agreement with National City Bank (now part of PNC Bank), which extended the maturity date of the credit facility to April 30, 2009, in connection with the Company's efforts to find a replacement lender. On April 30, 2009, and again on June 30, 2009, the Company and National City Bank entered into amendments to the forbearance agreement, which extended the maturity date to June 30, 2009 and September 30, 2009, respectively. The advance rates on eligible accounts receivable and inventory under the credit facility are 85% and 55%, respectively. At July 1, 2009, the interest rate is set at prime plus six percent. Under the amended credit facility, the interest rate will escalate to prime plus eight percent on August 1, 2009, and then to prime plus ten percent on September 1, 2009 and then to prime plus twelve percent after September 30, 2009, if amounts borrowed under the line of credit remain unpaid at that time.
Furthermore, under the June 30, 2009 amendment ("the Second Amendment"), the Company's total line of credit was reduced to $3,000,000 from the previously reduced limit of $3,500,000 established under the April 30, 2009 amendment.
Also under the Second Amendment, the limit on the amount of the line of credit available from inventory collateral was reduced to $2,250,000 commencing July 1, 2009 through July 31, 2009, and thereafter to $1,500,000 to keep the amended credit facility consistent with the original intent of the loan. Finally, at the request of the Company, the definition of eligible receivables under the original loan agreement was amended by the Second Amendment to exclude receivables of a large customer of the Company. Instead, the Company has financed those receivables under an alternative lending program sponsored by that customer through a major national bank. Pursuant to the Second Amendment, National City Bank has agreed to waive any covenant defaults and to suspend covenant calculations until September 30, 2009.

The Company had drawn $3,334,152 under the credit facility as of May 31, 2009.
Cash availability from the revolving line of credit was $165,848 as of May 31, 2009 and $187,548 on May 30, 2008 as filed with National City on the day nearest to the end of the Company's month. The credit facility matures on September 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 Company has made significant progress in seeking a replacement lender for its asset based line of credit. First, effective July 1, 2009, the Company successfully negotiated an extension of the current line of credit with National City Bank until September 30, 2009. As has been the case twice before, National City Bank has not given any assurances as to any post-maturity credit extensions as part of the current extension. Secondly, as part of that negotiation, the Company negotiated the removal of receivables owed by a large customer from the calculation of eligible receivables so that those receivables could be financed through an alternative lending program sponsored by that customer with a major national bank. This has already enabled the Company to operate on significantly less funds from its line of credit by increasing the velocity of greater amounts of cash, and it is expected to reduce concerns of any potential lender over concentration of credit risk. Furthermore, the Annual Percentage Rate charged under the program is less than that previously being charged by National City Bank under the line of credit facility and the program frees up otherwise capped collateral under prior extension agreements with National City Bank. Lastly, the Company is in various stages of negotiations with potential lenders, two of . . .