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, including the ability to finance or refinance our operations; 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 any 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 strategic 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 may be larger and/or better capitalized than the Company. Additionally, if the Company is to continue to grow its business by adding additional products, markets, distribution channels or by making strategic acquisitions, additional capital may be required.

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

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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;

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Licensing agreement with Dodge ® for its "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 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, partnership, 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 nine months ended August 30, 2009, and August 29, 2008. These statements should be read in conjunction with the audited financial statements and related notes thereto included in the Company's 2008 Form 10-K.

                                      Three Months Ended                   Nine Months Ended
                               August 30, 2009   August 29, 2008   August 30, 2009   August 29, 2008
                                 (unaudited)       (unaudited)       (unaudited)       (unaudited)
Net sales                    $    5,125,079    $    7,323,686    $    10,738,983   $    11,981,853
Cost of sales                     3,711,729         5,099,300         7,960,054         8,500,042
Gross profit                      1,413,350         2,224,386         2,778,929         3,481,811
Operating and other
expenses:
  General and administrative
expenses                           257,641           389,926          1,026,067         1,295,207
  Royalties, commissions,
and selling expenses               684,492          1,118,115         1,507,193         2,131,024
  Corporate expenses               249,748           226,721           739,765           786,284
  Interest expenses                150,466           177,732           458,273           457,202
  Other (income) expenses           (470)             (477)            (4,135)           (75,058)
   Total operating and other
expenses                          1,341,877         1,912,017         3,727,163         4,594,659
Income (loss) before income
taxes                               71,473           312,369          (948,234)        (1,112,848)
Benefit for income taxes              -               99,963              -             (430,043)
Net income (loss)            $      71,473     $     212,406     $    (948,234)    $    (682,805)

For the three months ended August 30, 2009

Summary

Net income for the quarter ended August 30, 2009, decreased $140,933 to $71,473, as compared to $212,406 from the same quarter ended August 29, 2008, on a $2,198,607 decrease in sales for the quarter. Gross profit margin decreased by 2.8% due to lower domestic manufacturing volume. Additionally, certain improvements in cost management are reflected in reduced selling, general and administrative expenses over the prior year quarter. The Company has executed and continues to execute several restructuring and cash conservation initiatives which have occurred from mid-2008 to the present that include:

·

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

·

Ten percent across the board salary cuts;

·

Conversion of sales personnel expenses from fixed to variable;

·

Managing working capital through the optimization of inventory levels;

·

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

·

Completing a restructuring of loan documentation with Crossroads Bank; and

·

Implementing a customer sponsored alternative financing arrangement to reduce revolving debt

Management believes these initiatives better align the Company's costs with its anticipated revenues going forward.

Net Sales

Net sales decreased $2,198,607, or 30.0%, to $5,125,079 for the three months ended August 30, 2009, from $7,323,686 for the three months ended August 29, 2008. Sales to the Company's top three customers decreased 17.0% for the three months ended August 30, 2009, compared to the same quarter last year. For the third quarter of fiscal 2009, sales to only five of the Company's top twenty customers increased by an aggregate of 21.6%, over the same quarter last year.
Sales to the other fifteen of the Company's top twenty customers decreased by an aggregate of 68.1%, compared to the same quarter last year. Sales to the rest of the Company's customer base for the three months ended August 30, 2009, increased by an aggregate of 109.3%, compared to the same quarter last year.
These results are reflective of the continuing volatility in the retail apparel industry.

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 $3,711,729 (72.4% of sales) for the three months ended August 30, 2009, from $5,099,300 (69.6% of sales) for the three months ended August 29, 2008. The increase in cost as a percentage of sales is due to lower manufacturing volume that resulted from lower overall sales and a higher mix of imported sets sold during the quarter.

Operating and Other Expenses

General and administrative expenses decreased by 33.9% to $257,641 for the three months ended August 30, 2009 compared to the same three-month 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 August 30, 2009, were $684,492, or 13.4% of net sales, compared to $1,118,115, or 15.3% of net sales, for the three months ended August 29, 2008. The decrease in such expenses as a percentage of net sales 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 August 30, 2009 increased by 10.2% to $249,748, as compared to $226,721 for the three months ended August 29, 2008.
Increases in banking fees expensed during the three months ended August 30, 2009, offset by reductions in salary expense and professional fees were responsible for the higher cost.

Interest expense reflects the cost of borrowing under the Company's revolving credit facility and all short and long-term debt. This expenditure decreased for the three months ended August 30, 2009 to $150,466, as compared to $177,732 for the three months ended August 29, 2008. Overall, the Company's borrowings against its revolving line of credit for the three months ended August 30, 2009, decreased by $3,090,362 as compared to the prior year's quarter. Lower interest payments on significantly lower balances were partially offset by increased interest rates charged under banking agreements and amendments thereto.

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 provision for income taxes for the three months ended August 30, 2009, was $-0- after valuation allowance, as compared to $99,963 for the three months ended August 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.

For the nine months ended August 30, 2009

Summary

Loss before income taxes for the nine months ended August 30, 2009, improved 14.8% to $(948,234), as compared to $(1,112,848) from the nine months ended August 29, 2008. The nine month period ended August 29, 2008 also had an income tax benefit of $430,043, which the nine month period in fiscal 2009 did not contain. Gross profit margin for the nine months ended August 30, 2009 decreased by 3.2% over the prior year period due partially 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 and lower domestic manufacturing volume experienced during the three months ended August 30, 2009. Additionally, improvements in cost management are reflected in reduced selling, general and administrative expenses over the prior year period. The impact of these items is most clearly evidenced at the pre tax loss level of the income statement with an adjustment for an estimate of increased banking fees and interest expenses which when combined are approximately $221,000.

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.

                                                   Nine Months Ended
                                           August 30, 2009   August 29, 2008
                                             (unaudited)       (unaudited)
Net loss as reported (GAAP basis)        $    (948,234)    $    (682,805)
Eliminate recorded benefit for income
taxes                                             -              430,043
Eliminate estimated increase in
banking fees and interest                      221,000              -
Pre tax loss as adjusted (non-GAAP)      $    (727,234)    $   (1,112,848)

Net Sales

Net sales for the nine months ended August 30, 2009, decreased by 10.4% to $10,738,983, from $11,981,853 for the nine months ended August 29, 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. Although net sales for the nine months ended August 30, 2009 have decreased in comparison to the same period last year, net sales to the Company's top three customers, which represent 81.2% of the Company's total net sales, have increased 6.6% over the same period last year. The Company believes that three factors have contributed to its success with these top customers: the "basic" nature of the Company's product offerings tends to fare well during economic downturns; the Company's domestic manufacturing capabilities allow customers to take advantage of shorter lead times; and, the ability to provide both import and domestic replenishment capabilities positions the Company favorably with its retail customers.

Cost of Sales

The cost of sales for the nine months ended August 30, 2009, was $7,960,054, which is a decrease from $8,500,042 for the nine months ended August 29, 2008, and is due to lower sales in the current fiscal year. The gross profit margin (i.e., gross profits divided by net sales) decreased to 25.9% for the nine months ended August 30, 2009, from 29.1% for the nine months ended August 29, 2008. After considering that first quarter gross margin was negatively impacted 9% by the one-time, deep discount business done with a large customer and the third quarter decrease in domestic manufacturing volume, the Company's continuing improved cost and production management credited back enough improvements to keep gross margin within 3.2% of the prior year period.

Operating and Other Expenses

General and administrative expenses decreased to $1,026,067, or 20.8%, for the nine months ended August 30, 2009, from $1,295,207 for the nine months ended August 29, 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 nine months ended August 30, 2009 decreased to $1,507,193, or 29.3% from $2,131,024 for the nine months ended August 29, 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 nine months ended August 30, 2009 decreased by $46,519 to $739,765, from $786,284 for the nine months ended August 29, 2008, despite $65,000 in banking fees amortized in the current fiscal year period that were not paid in the prior fiscal year period.

Interest expense for the nine months ended August 30, 2009 was relatively flat at $458,273, compared to $457,202 in the prior year period despite substantially higher interest rates charged in 2009 that have resulted in an extra $156,000 of estimated expense.

Financial Position, Capital Resources, and Liquidity - August 30, 2009 and November 28, 2008

Working capital was $1,022,756 at August 30, 2009 and $1,680,375 at 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 $657,619 from working capital 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 contributed to the lower working capital. The lower trade receivables balance is the direct result of the Company financing those receivables under an alternative lending program sponsored by a large customer through a major national bank.

We have entered into agreements to sell qualifying accounts receivable from time to time to certain financial institutions on a nonrecourse basis. We received net proceeds from the sale of receivables of $1,785,785 for the three months and nine months ended August 30, 2009 and incurred fees of $7,355 to do so. We have not established a target for the sale of accounts receivable for the remainder of fiscal 2009.

The Company's cash on hand and in banks at August 30, 2009 was $138,481, 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 nine months ended August 30, 2009 was $3,302,612, as compared to $160,666 of cash provided by operations for the nine months ended August 29, 2008. The increase in cash provided by operations related primarily to a decrease in accounts receivables and inventory, increases in accounts payable and accrued expenses and non-cash operating charges offset partially by the net loss and decreases in prepaid expenses.

Cash used in investing activities produced a net outflow of $12,534 for the nine months ended August 30, 2009, as compared to an outflow of $49,467 for the nine months ended August 29, 2008. These cash outflows resulted from purchases of equipment and intangible assets in both periods.

Financing activities used cash of $3,291,506 and $233,380 for the nine months ended August 30, 2009, and August 29, 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 revolving 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. On September 30, 2009, the Company and National City Bank entered into an extension agreement (the "Extension Agreement") which further extended the maturity date to October 30, 2009. The purpose of the Extension Agreement was to permit progression of current discussions between the Company and National City Bank toward a possible alternative structuring of the credit facility (and documentation of the same) which would enable the Company to continue due diligence with an alternative lender and to pursue strategic business opportunities the Company has with its customers and strategic partners. The advance rates on eligible accounts receivable and inventory under the credit facility are 85% and 55%, respectively. At October 1, 2009, the interest rate is set at prime plus ten percent. Pursuant to the Extension Agreement, the interest rate will escalate to prime plus twelve percent after October 30, 2009, if amounts borrowed under the line of credit remain unpaid at that time. 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. The limit on the amount of the line of credit available from inventory collateral was increased to $2,500,000 under the Extension Agreement so as to not unnecessarily restrict the Company from pursuing strategic business opportunities with its customers and strategic partners. Previously, this amount had been reduced to $1,500,000 under the Second Amendment. National City Bank holds an interest in all assets of the Company.

The Company had drawn $2,035,087 under the credit facility as of August 30, 2009. Cash availability from the revolving line of credit was $579,581 as of August 30, 2009 and $1,854,955 on August 29, 2008 as filed with National City Bank on the day nearest to the end of the Company's month. The credit facility matures on October 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 continued to make progress in seeking a replacement lender for its asset based line of credit. On September 30, 2009, the Company and National City Bank entered an agreement which extends the maturity date of the line of credit facility to October 30, 2009. National City Bank has not given any assurances as to any post-maturity credit extensions as part of the current extension. However, the purpose of the this 30 day extension was to permit further progression of current discussion between the Company and National City Bank toward a possible alternative structuring of the line of credit facility for a longer term. As part of these discussions, the Company has agreed to retain independent consultants to help it evaluate alternative strategic options. In August 2009, a potential new lender that had made a proposal to the Company resumed its due diligence after having previously placed these procedures on hold pending the Company's reporting of certain 2009 results. . . .