UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                              ---------------------

                                    FORM 10-K

                                   (Mark One)

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

For the fiscal year ended June 30, 2006

                                       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 No. 1-5863

                                  JACLYN, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

              Delaware                                      22-1432053
   -------------------------------                     -------------------
   (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                     Identification No.)

     635 59th Street, West New York, New Jersey                   07093
     ------------------------------------------                 ----------
      (Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code:  (201) 868-9400

Securities registered pursuant to Section 12(b) of the Act:

                                                    Name of each exchange
             Title of Class                          on which registered
             --------------                         ---------------------

       Common Stock, $1 par value                  American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:   None
<PAGE>

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

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 Act). Yes [ ] No [X]

The aggregate market value of the voting common equity (based on the closing
price of such stock on the American Stock Exchange) held by non-affiliates of
the Registrant as of the last business day of the Company's most recently
completed second fiscal quarter (December 31, 2005) was approximately
$19,130,000.

There were 2,483,219 shares of Common Stock outstanding at September 15, 2006.


                       DOCUMENTS INCORPORATED BY REFERENCE

Certain Portions of the Registrant's Proxy Statement for the Registrant's Annual
Meeting of Stockholders scheduled to be held on November 29, 2006 are
incorporated by reference into Part III of this Form 10-K.
<PAGE>

                                TABLE OF CONTENTS

          Item                                                              Page
          ----                                                              ----

PART I     1.   Business...................................................   1

           1A.  Risk Factors...............................................   4

           1B.  Unresolved Staff Comments..................................   8

           2.   Properties.................................................   8

           3.   Legal Proceedings..........................................   9

           4.   Submission of Matters to a Vote of Security Holders........   9

PART II    5.   Market for Registrant's Common Equity, Related
                Stockholder Matters and Issuer Purchases of Equity
                Securities.................................................  10

           6.   Selected Financial Data....................................  12

           7.   Management's Discussion and Analysis of Financial
                Condition and Results of Operations........................  13

           7A.  Quantitative and Qualitative Disclosures About
                Market Risk................................................  23

           8.   Financial Statements and Supplementary Data................  23

           9.   Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure........................  24

           9A.  Controls and Procedures....................................  24

           9B.  Other Information..........................................  24

PART III   10.  Directors and Executive Officers of the Registrant.........  24

           11.  Executive Compensation.....................................  25

           12.  Security Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters.................  25

           13.  Certain Relationships and Related Transactions.............  25

           14.  Principal Accountant Fees and Services.....................  25

           15.  Exhibits and Financial Statement Schedule..................  25

<PAGE>

                           Forward-Looking Statements
                           --------------------------

         This Form 10-K contains certain forward-looking statements concerning,
among other things, our anticipated results, and future plans and objectives
that are or may be considered to be "forward- looking statements." Our ability
to do this has been fostered by the Private Securities Litigation Reform Act of
1995 which provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information so long as those statements are
accompanied by meaningful cautionary statements identifying important factors
that could cause actual results to differ materially from those discussed. These
forward-looking statements are subject to a number of known and unknown risks
and uncertainties that could cause our actual results, performance or
achievements to differ materially from those described or implied in the
forward-looking statements, including, but not limited to, general economic and
business conditions, including the impact on consumer spending as a result of a
slower consumer economy, competition in the apparel and accessories markets,
potential changes in customer spending, acceptance of our product offerings and
designs, a highly promotional retail environment, any significant variations
between actual amounts and the amounts estimated for those matters identified as
our critical accounting estimates, as well as other significant accounting
estimates made in the preparation of our financial statements, and the impact of
the hostilities in the Middle East and the possibility of hostilities in other
geographic areas as well as other geopolitical concerns. Additional uncertainty
exists for the potential negative impact that a recurrence of Severe Acute
Respiratory Syndrome (SARS) in the Far East and other foreign countries in which
we source our products may have on our business. In light of the uncertainty
inherent in our forward-looking statements, you should not consider their
inclusion to be a representation that such forward-looking matters will be
achieved. We assume no obligation for updating any such forward- looking
statements, whether as a result of new information, future events, or otherwise.
In evaluating forward-looking statements, you should consider all these risks
and uncertainties, together with any other risks described in our other reports
and documents furnished or filed with the Securities and Exchange Commission,
and you should not place undue reliance on those statements.


                                     PART I

Item 1.     Business.

         Jaclyn, Inc., which was incorporated in the State of Delaware in 1968,
and its subsidiaries (collectively, "Jaclyn", "the Company", "we", "us", "our",
or "the Registrant") are primarily engaged in the design, manufacture,
distribution and sale of women's and children's apparel, and vinyl, leather and
fabric handbags, sport bags, backpacks, cosmetic bags, and related products
(collectively, "handbag products"). Our apparel lines are wide ranging and
include women's loungewear, sleepwear, dresses and sportswear, and lingerie, as
well as infants' and children's clothing. We market our handbag products in a
variety of popularly priced fashions and designs, with an emphasis on casual,
travel and sport styles.

         Styling is an important factor in the merchandising of all of our
products. Our staff of full- time designers study fashion trends in order to
anticipate consumer demand. The design staff works closely with the purchasing
department to determine concepts and fabrics for apparel products, as well as
the styling and material components for handbag products. The design staff also
works with the production and engineering staffs to determine the costs of
production and the technical problems involved in producing a new style. We
change most of our designs from season to season.
<PAGE>

         We do not own or operate manufacturing facilities, either in Hong Kong
or elsewhere. All of our products are manufactured by outside contractors.
Finished merchandise is received at independently owned outside warehouses
and/or at facilities we own or lease in New Jersey, Florida, California and
Indiana. From these locations, products are shipped under different selling
names to customers all over the country. Certain handbag and apparel products
manufactured in the Far East are shipped directly to customers from Hong Kong.
We market our apparel and handbag products primarily through general
merchandise, retail chain stores and department stores. We sell our products
throughout the United States using both our own salespersons and independent
sales representatives.

         We manufacture and market apparel products under the trade names
"Topsville", "I. Appel", "Smart Time", and "Emerson Road", each of which we own.
We also manufacture apparel items for sale as private-label merchandise. In
addition, during fiscal 2006, we were licensed to manufacture and market apparel
products under the names "Jordache " under an agreement which expired December
31, 2005, and "Charles Goodnight " and Chuckie Goodnight " under an agreement
which expired May 31, 2006. We are presently licensed to manufacture and market
apparel products under the name "Vanity Fair " under an agreement expiring
December 31, 2006, and "Seventeen" and "CosmoGirl" under an agreement which
expires April 30, 2008, and children's apparel based on the "Messages from the
Heart" collection under an agreement which expires June 30, 2008. We market our
handbag products under trademarks and trade names which we own, including
"Shane" and "Aetna," "Susan Gail," and "Robyn Lyn". We consider our owned and
licensed trademarks and trade names, as well as our other, related intellectual
property rights, to be of significant value in the marketing of our products.

         Sales of apparel items during each of the fiscal years ended June 30,
2006, 2005 and 2004 represented 64%, 70%, and 77%, respectively, of consolidated
net sales. Sales of handbag products represented the remainder of our
consolidated net sales. We customarily offer our customers credit terms. We do
not have long-term contracts with any of our customers.

         Our imports of apparel products and handbag products accounted for
almost 100% of consolidated net sales in fiscal 2006 and 2005, and approximately
96% of consolidated net sales in 2004. Imports offer us the benefit of
diversification of styling and the benefit of cost savings related to such
purchases. While our operations are subject to the usual risks associated with
purchases from foreign countries, our other foreign and domestic manufacturing
sources provide us with alternative sources and facilities.

         Our international operations consist of offices in Hong Kong, and
Shanghai and Dong Guan, China. Personnel in our foreign offices coordinate and
track orders for products, invoice certain shipments and conduct inspections of
the factories of outside contractors in the Far East who manufacture our
products. We do not believe, however, that our international operations are
material to our business.

         Approximately 70% of the Company's consolidated net sales for fiscal
2006 were to general merchandise, chain, department stores retailers, with the
balance consisting of sales to smaller specialty shops, smaller retail stores
and cosmetic firms. During the fiscal year ended June 30, 2006, three customers
of the Company contributed approximately 69% of consolidated net sales as
follows: Wal-Mart Stores, Inc., 42%; Estee Lauder, 22% ; and Kohl's Corporation,
5%. During the fiscal year ended June 30, 2005, Wal-Mart Stores, Inc., Estee
Lauder and Kohl's Corporation accounted for approximately 44%, 19% and 8%,
respectively, of our consolidated net sales, and during the fiscal year ended

                                       2
<PAGE>

June 30, 2004, Wal-Mart Stores, Inc., Estee Lauder, and Kohl's Corporation
accounted for approximately 41%, 14% and 13% of consolidated net sales,
respectively. We believe that the loss of any one of these customers would have
a material adverse effect on our results of operations.

         We deal with a number of sources for our purchases of finished apparel,
handbags and related products, no one of which accounted for more than
approximately 18% of total cost of goods sold during fiscal 2006. We have no
long-term supply contracts with our Far East or European sources of finished
handbags and related products or apparel items and we are subject to the usual
risks associated with that. While we have no long-term supply contracts, as the
finished product are available from various sources, we anticipate no difficulty
in the future in obtaining finished product necessary for our business.

         We offer Fall/Winter, Holiday and Spring/Summer product lines and, in
almost all instances, manufacture products to meet the specific requirements of
our customers. Our business is seasonal in nature and is influenced by a number
of other factors, including general economic conditions. Accordingly, we do not
believe that quarterly net sales are necessarily indicative of future trends.
Nevertheless, we anticipate that during fiscal 2007 we again will have more
sales volume and earnings in the first-half of the fiscal year than in the
second half. We refer to Note M, "Unaudited Quarterly Financial Data," of the
Notes to Consolidated Financial Statements on page F-26 of this Form 10-K for
additional information about historical quarterly results.

         At September 15, 2006, unfilled orders were approximately $74,000,000
compared to approximately $58,000,000 at September 15, 2005. At September 15,
2006, there was a significant increase in open orders in our infants' and
children's apparel business as well as smaller increases relating to our Women's
sleepwear business and our handbag business, offset by a decrease in our
catalogue business which is insignificant to our operations and is being phased
out. In the ordinary course of business, the dollar amount of unfilled orders at
a particular point in time is affected by factors, including scheduling of the
manufacture and shipping of goods (which, in turn, may be dependent on the
requirements of customers). Accordingly, a comparison of backlog from period to
period alone is not necessarily meaningful and may not be indicative of future
sales patterns or shipments.

         At June 30, 2006, we employed 169 persons, of whom 117 were salaried
employees and the balance were paid on an hourly basis. At June 30, 2006, 9 of
our employees were members of Local 62-32 Unite, AFL-CIO. We consider relations
with our employees to be satisfactory.

         We compete with numerous domestic and foreign manufacturers of apparel
items and handbag products, and we believe our sales of apparel items and
handbag products are not significant in light of total apparel and handbag
industry sales. Our business is dependent, among other things, on our ability to
anticipate and respond to changing consumer preferences, to remain competitive
in price, style and quality, and to meet our customers' various production and
delivery requirements. While some competitors may be larger or may have greater
resources than ours, we believe that our size and financial position will allow
us to continue to respond to changes in consumer demand and remain competitive.

         Recent Developments

         On August 22, 2006, we entered into a lease agreement for a new
corporate office building, and plan to relocate the Company's executive offices

                                       3
<PAGE>

from West New York, NJ to Maywood, NJ in January 2007. The lease has a 10-year
term, and grants to the Company an option to purchase the building at any time
during the term of the lease at a purchase price not to exceed $3,075,000, plus
increases based on a multiple of the consumer price index. We believe that the
new corporate office building presents a more suitable, practical space for our
operations than our present location (which is the subject of an option contract
as described below) and that it is in our best long-term interest to relocate.

         The other party to the lease agreement purchased the corporate office
building at a closing which also took place in August 2006. The Company provided
the purchaser with $2,200,000 in mortgage financing, secured by a first priority
mortgage in favor of the Company on the land, office building, and other
customary rights of the mortgagor. Funds for the mortgage financing were
provided by borrowings under the Company's bank loan facility and from our own
funds.

         As previously disclosed, in September 2005 the Company entered into an
option contract to sell its West New York executive offices and warehouse
facility, as well as two adjacent lots, located in West New York, New Jersey to
an unrelated third party. The proposed purchase price of the West New York, NJ
facility is $10,000,000, the substantial portion of which is payable at closing.
The option contract originally provided the optionee up to14 months to obtain
approval from all applicable governmental authorities for the use of the
property as residential housing. Since that time, we have agreed to an
additional six-month extension under the option contract in order to give the
purchaser additional time to apply for permits and variances. Under certain
circumstances, we also have the right to decide not to proceed with the proposed
transaction. The proposed transaction is also subject to a number of
contingencies and conditions, including the governmental approvals mentioned
above, the optionee's receipt of a mortgage commitment, the completion of
environmental testing and compliance, and other contingencies and conditions.
Accordingly, there is no assurance that the option contract to sell the West New
York facility will be successfully concluded.


         Item 1A.    Risk Factors.

         You should carefully consider all of the information set forth or
incorporated by reference in this Annual Report on Form 10-K, including, without
limitation, the following risk factors. Any of these risks, and any additional
risks not presently known to us, or that we do not presently consider material,
could adversely affect our business, operating results or financial condition,
and could cause actual results or events to differ materially from those
anticipated.

         Risks Relating to our Industry and our Business

         Our business is influenced by general economic and geopolitical
conditions.

         We have no control over the economy in general, political events, or
upon the overall level of consumer spending. As domestic and international
economic and geopolitical conditions change, trends in consumer spending may
become unpredictable and could be subject to reductions due to uncertainties
about the future. Negative economic trends, such as increases in gas and other
energy prices, increases in interest rates, a recessionary period or depression,
as well as actual or threatened terrorist events, conflicts around the world,
acts of nature, and other similar events, may depress the level of consumer
confidence, and consumer spending in general, and on our products specifically.

                                       4
<PAGE>

Similarly, our customers may anticipate and respond to adverse changes or
perceptions of changes in economic and/or geopolitical conditions by limiting or
canceling purchases of our products in order to reduce their inventories.
Accordingly, any substantial deterioration of, or change in, these conditions,
trends or events that weaken consumer confidence and spending could reduce our
sales and adversely affect our financial condition and results of operations.

         The apparel and handbag industry is highly competitive.

         We operate in a highly competitive industry. We compete with a large
number of domestic and foreign manufacturers, designers and distributors of
products, as well as private label programs of retailers. Many of these
manufacturers, designers, distributors and retailers may be larger and have
greater resources than we do. We believe that our ability to effectively compete
depends on a number of factors, including the following:

           o  designing and developing products that have strong and broad
              appeal to consumers;
           o  pricing products appropriately and providing strong marketing
              support for them;
           o  meeting the service and technology interface requirements of our
              customers;
           o  ensuring timely availability of products to our customers;
           o  anticipating and responding to changing consumer tastes in a
              timely manner; and
           o  obtaining access to retail outlets and sufficient floor space for
              our products.

         We need to monitor and meet continually changing consumer preferences.

         Consumer tastes and fashion trends change rapidly. We believe that our
success depends in large part on anticipating and responding to changing
consumer tastes and fashion trends in a timely manner. If we misjudge the market
for our product lines, we may be faced with having to provide our customers with
significant amounts of sales allowances, which could have an adverse effect on
us.

         We source all of our products.

         We no longer operate manufacturing facilities, and as a result, we rely
on third parties for the manufacture of our products. The failure of these
parties to fulfill orders, deliver goods in a timely manner, or increase prices
all could adversely affect our business. We do not have long-term contracts with
any suppliers or manufacturers, and our business is dependent on continued
satisfactory relationships with our vendors. In addition, our manufacturers and
other vendors do not supply products for us exclusively. As a result, we compete
with other companies for the supply of the production capacity of independent
manufacturers. If our vendors or manufacturers fail to ship our products, on
time, fail to meet our quality standards, or are unable to fill our orders, we
may not be able to deliver our products to customers on a timely basis. Further,
while we have identified alternative suppliers and manufacturers which we
believe we would be able to utilize within a relatively short period of time,
unexpected disruption of our present source of supply could have an adverse
effect on our business in the short-term depending upon our shipping
requirements at that time.

                                       5
<PAGE>

         We face risks inherent with sourcing our products overseas.

         Substantially all of our products are manufactured outside the United
States, and our business is subject to risks of doing business abroad. The costs
of importing products may be adversely affected by taxes, tariffs, customs,
duties and transportation costs. Our ability to continue to purchase our
products overseas is also subject to political instability in countries where
our contractors and suppliers are located, actual or threatened acts of
terrorism and other conflicts around the world, delays or disruptions in
shipping of our goods, the effect of regulation, and quotas or other legislation
that limit the quantity of goods which may be imported into the United States
from China or other countries, labor disputes, severe weather, or increased
homeland security requirements in the United States and in other countries. In
addition, we import a substantial portion of our products from the Far East.
Further outbreaks of Avian flu, or a recurrence of SARS, having an impact on
China or other countries where our vendors are located could also have a
negative impact on their operations, including delaying or preventing shipments.
The occurrence of any of these events, which are beyond our control and we are
unable to predict, could adversely affect our ability to import our products at
current or increased levels or at all from certain countries and could harm our
business.

         We are dependent on a limited number of customers for a large portion
of our revenues.

         Net sales to our largest customer totaled approximately 42% of our
total net sales in fiscal 2006, and consolidated net sales to our three largest
customers totaled approximately 69% of total consolidated net sales for 2006.
Whether because of economic conditions, a change of the focus of products it
purchases or other strategic shifts in its business, financial difficulties, or
otherwise, a decision by one of our largest customers to reduce its purchases
from us, to reduce floor space or advertising of our products, to require
increased allowances or reduced prices, or to take other action, may adversely
affect our business and financial condition. Further, consolidation in the
retail industry may result in store closures, increased customer leverage over
its suppliers resulting in lower product prices or margins, inventory management
resulting in lower retail inventory levels and decreased orders from us, and a
greater potential exposure to credit risk, all of which may adversely affect our
business.

         Our operating results are subject to seasonal fluctuations.

         As is customary in our industry, results of operations are somewhat
more meaningful on a seasonal basis, rather than on a quarterly basis. In that
regard, our net sales and net earnings generally have been higher during the
period from June to November (which includes our first fiscal quarter and a
portion of our second and fourth fiscal quarters) coinciding with sales to our
customers for back-to-school and holiday shopping, while net sales and net
earnings for the other months of our fiscal year are typically lower due, in
part, to the traditional slowdown by our customers immediately following the
winter holiday season. Accordingly, any significant decrease in back-to-school
and winter holiday shopping could have a material adverse effect on our
financial condition and results of operations.


         Our failure to retain our senior management and other key personnel
could adversely affect our business.

         Our business depends in large part on the personal efforts and
abilities of our senior executive officers, particularly Robert Chestnov, our
President and Chief Executive Officer, Allan Ginsburg, our Chairman, and Howard
Ginsburg, our Vice Chairman, as well as other key personnel. If any of these

                                       6
<PAGE>

individuals become unable or unwilling to continue in their present positions,
our business could be adversely affected.

         Our revolving credit facility contains financial and other covenant
restrictions.

         Our revolving credit facility contains financial and operating
covenants, including a minimum effective tangible net worth requirement and a
maximum debt to effective tangible net worth ratio, as well as certain
limitations on our ability to sell all or substantially all of our assets and
engage in mergers, consolidations and certain acquisitions. In addition,
advances under the revolving credit facility are subject to borrowing base
requirements based on our inventory and accounts receivable levels. Many of
these covenants are customary for companies like ours which borrow money from
banks and financial institutions. Failure to comply with any of the covenants,
which could result from, among other things, changes in our results of
operations or changes in general economic conditions, might result in our lender
asking for the repayment of its loans to us sooner than is currently
contemplated by our agreement.


         Risks Relating to our Common Stock

         There may be a limited trading market for our stock.

         Over 50% of the issued and outstanding shares of our Common Stock is
presently held by individuals and entities, including a number of our directors
and officers, who are parties to an amended and restated stockholders agreement.
This stockholders agreement requires, among other things, that any party who
wishes to sell or otherwise transfer shares of our Common Stock first offer the
shares for purchase by the Company and the other parties to the stockholders'
agreement. Due to the concentration of ownership or our shares of Common Stock
by parties to the stockholders agreement, and the rights of purchase contained
in the stockholders' agreement, there may be a limited trading market for our
shares.

         Provisions in our Certificate of Incorporation and Delaware law, as
well as the Amended and Restated Stockholders Agreement, may delay or prevent an
acquisition of the Company by a third party.

         Our certificate of incorporation contains provisions that could make it
more difficult for a third party to acquire us. Our certificate of incorporation
permits the Board of Directors to establish, and to set the preferences, rights
and other terms of various series of preferred stock (commonly known as "blank
check preferred"). Accordingly, the Board could establish a series of preferred
stock that could have the effect of delaying, deferring or preventing a
transaction with, or a change of control of, the Company. In addition, Delaware
law contains certain provisions that could prevent the acquisition of the
Company by a third party if the transaction is not approved by the Board of
Directors. Section 203 of the Delaware General Corporation Law generally
prohibits stockholders owning in excess of 15% of the Company's outstanding
voting stock from merging or combining with the Company for a period of time
after acquiring such shares without the approval of the Board of Directors.

         Furthermore, the amended and restated stockholders agreement, among
other things, entitles a four-person committee (presently consisting of Abe
Ginsburg, the Chairman of our Executive Committee, Robert Chestnov, our
President, Allan Ginsburg, our Chairman, and Howard Ginsburg, our Vice Chairman)

                                       7
<PAGE>

to direct the voting of the shares of Common Stock now or in the future owned by
parties to that agreement, or as to which they have or may have voting power.
The right to direct voting extends to all matters submitted to stockholders of
the Company at any annual or special meeting of stockholders or pursuant to a
written consent in lieu thereof. Accordingly, as long as the parties to the
stockholder's agreement hold a majority of our Common Stock, and the
"stockholders committee" may vote or direct the vote of these shares, the
stockholders agreement may allow them to delay or prevent a change in control
of, or a transaction with, the Company.


                                  *  *  *  *  *

         This list of risk factors, together with the note set forth above Part
I of this Form 10-K under the caption "Forward Looking Statements" is not
exhaustive. For example, there can be no assurance that we have correctly
identified and appropriately assessed all factors affecting our business, or
that the publicly available and other information with respect to these matters
is complete and correct. Additional risks and uncertainties not presently known
to us or that we currently believe to be immaterial also may adversely impact
our business. Should any risks or uncertainties develop into actual events,
these developments could have adverse effects on our business, financial
condition, and results of operations. We assume no obligation (and specifically
disclaim any such obligation) to update these Risk Factors or any other
forward-looking statements contained in this Form 10-K to reflect actual
results, changes in assumptions or other factors affecting such forward-looking
statements.

Item 1B.    Unresolved Staff Comments.

         Not applicable.

Item 2.     Properties.

         We own a 140,000 square foot facility in West New York, New Jersey, in
which our executive offices and one of our warehouse facilities is located. We
currently lease approximately 70,000 square feet of this West New York facility
to outside parties. This rental income is used to defray a portion of the
operating cost of the building and, as such, is included as an offset to those
expenses in our shipping, selling and administrative expenses. We refer to the
information set forth above in "Item 1. Business" of this Form 10-K under the
caption "Recent Developments" for information concerning our grant of an option
to an unrelated third party to purchase the West New York facility.

         As is also noted above under the caption "Recent Developments" in "Item
1. Business" of this Form 10-K, we have leased a new corporate office building
(containing approximately 16,000 square feet, of which approximately 12,000
square feet will initially be used by the Company, with the remainder leased to
third parties), and plan to relocate the Company's executive offices from West
New York, NJ to Maywood, NJ by January 2007. The lease has a 10-year term, and
grants to the Company an option to purchase the building at any time during the
term of the lease at a purchase price not to exceed $3,075,000, plus increases
based on a multiple of the consumer price index.

         We also lease five showroom and office facilities in New York City
totaling approximately 32,000 square feet, as well as a shipping facility in
Medley, Florida for our Topsville operations with approximately 35,000 square
feet of warehouse and office space. We refer to Note D, "Commitments and

                                       8
<PAGE>

Contingencies," of the Notes to Consolidated Financial Statements on page F-13
of this Form 10- K for additional information about our commitments under the
terms of non-cancelable leases.

         In addition, and we noted in "Item 1. Business" above, our
international operations consist of three leased offices in Hong Kong, Shanghai
and Don Guan, China aggregating approximately 18,000 square feet.

Item 3.     Legal Proceedings.

         (a)      We are not a party to, nor is any of our property the subject
of, any material pending legal proceeding.

         (b)      No material pending legal proceeding was terminated during the
three-month period ended June 30, 2006.

Item 4.     Submission of Matters to a Vote of Security Holders.

         None

Executive Officers of the Registrant

         Our executive officers are listed below. All executive officers are
elected at the annual meeting or at interim meetings of the Board of Directors
and hold their offices, at the pleasure of the Board of Directors, until the
next annual meeting of the Board and the election and qualification of their
respective successors. No arrangement or understanding exists between any
executive officer and any other person pursuant to which the executive officer
was elected.


         Name                       Age      Position and Period Served
         ----                       ---      --------------------------

         Abe
         Ginsburg............        89      Chairman of the Executive
                                             Committee for more than the past
                                             five years

         Allan
         Ginsburg............        64      Chairman of the Board for more
                                             than the past five years

         Robert
         Chestnov............        58      President and Chief Executive
                                             Officer for more than the past five
                                             years

         Howard
         Ginsburg............        64      Vice Chairman of the Board and
                                             President of the Company's Shane
                                             Handbag Division for more than
                                             the past five years

         Anthony
         Christon............        61      Chief Financial Officer for more
                                             than the past five years

                                       9
<PAGE>

                                     PART II
                                     -------


Item 5.     Market for the Registrant's Common Equity, Related Stockholder
            Matters and Issuer Purchases of Equity Securities.

         Common Equity and Related Stockholder Matters

         The Company's Common Stock, $1.00 par value per share, is traded on the
American Stock Exchange (Symbol: "JLN"). The following table sets forth the high
and low closing sales prices for our Common Stock, as reported by the American
Stock Exchange, for each quarterly period during our fiscal years ended June 30,
2006 and 2005.

                  Fiscal Year Ended June 30, 2006              High       Low
                  -------------------------------              ----       ---

                  First Quarter                                $7.97     $6.34
                  Second Quarter                                8.09      7.25
                  Third Quarter                                 8.90      7.40
                  Fourth Quarter                                8.25      7.28

                  Fiscal Year Ended June 30, 2005              High       Low
                  -------------------------------              ----       ---

                  First Quarter                                $6.15     $5.00
                  Second Quarter                                8.47      5.90
                  Third Quarter                                 8.30      4.01
                  Fourth Quarter                                6.60      3.88


         We did not pay cash dividends during fiscal 2006 or 2005 and do not
anticipate paying cash dividends in the foreseeable future.

         At June 30, 2006, there were approximately 489 holders of record of our
Common Stock.

         Issuer Purchases of Equity Securities

         The following table provides certain information as to repurchases of
shares of our Common Stock during the three months ended June 30, 2006:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                                 (c) Total Number           (d) Maximum Number
                         (a) Total                             of Shares (of Units)       (or Approximate Dollar
                         Number of               (b)             Purchased as Part         Value) of Shares (of
                         Shares (or            Average             of Publicly            Units) that May Yet Be
                          Units)             Price Paid          Announced Plans           Purchased Under the
      Period            Purchased(1)          per Share          or Programs (2)            Plans or Programs
--------------------------------------------------------------------------------------------------------------------
<S>                        <C>                  <C>                     <C>                       <C>
  April 1, 2006-               --                  --                   --                        47,379
  April 30, 2006
--------------------------------------------------------------------------------------------------------------------
   May 1, 2006-                --                  --                   --                        47,379
   May 31, 2006
--------------------------------------------------------------------------------------------------------------------
   June 1, 2006-               --                  --                   --                        47,379
   June 30, 2006
--------------------------------------------------------------------------------------------------------------------
      Total                    --                  --                   --                        47,379
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       10
<PAGE>

-------------
(1) There were no repurchases of the Company's Common Stock made during the
quarter ended June 30, 2006.

(2) On December 3, 2002, we publicly announced that the Board of Directors
authorized the repurchase of up to 350,000 shares of Common Stock, and that
repurchases would be made from time to time in the open market and/or through
privately negotiated transactions, subject to general market and other
conditions. We refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and to Notes F and K of the Notes to
Consolidated Financial Statements on pages F-15 and F-25 of this Form 10-K for
additional information about repurchases of shares of Common Stock. In addition,
on September 27, 2006, the Board of Directors authorized the repurchase of an
additional 125,000 shares of the Company's Common Stock. See Note L of the Notes
to Consolidated Financial Statements.

                                       11
<PAGE>

Item 6.     Selected Financial Data.

         We have derived the selected financial data presented below from our
audited consolidated financial statements for the Fiscal Years ended June 30,
2006, 2005, 2004, 2003, and 2002. The selected financial information presented
below should be read in conjunction with such consolidated financial statements
and notes thereto.

<TABLE>
<CAPTION>
        Years ended June 30,                  2006             2005             2004             2003            2002(1)
--------------------------------------   -------------    -------------    -------------    -------------    -------------
<S>                                      <C>              <C>              <C>              <C>              <C>
Net Sales                                $ 126,601,000    $ 126,477,000    $ 123,850,000    $ 108,960,000    $  81,031,000
Cost of Goods Sold                          95,735,000       97,952,000       92,658,000       83,506,000       62,083,000
                                         -------------    -------------    -------------    -------------    -------------
Gross Profit                                30,866,000       28,525,000       31,192,000       25,454,000       18,948,000
                                         -------------    -------------    -------------    -------------    -------------
Shipping, selling and
administrative expenses                     27,574,000       26,172,000       27,979,000       23,620,000       19,812,000
Interest expense                               586,000          639,000          574,000          546,000          293,000
Interest income                                 (5,000)          (1,000)          (3,000)          (5,000)          (3,000)
Provision (benefit) for income taxes         1,181,000          666,000        1,184,000          610,000         (415,000)
                                         -------------    -------------    -------------    -------------    -------------
NET EARNINGS (LOSS)                      $   1,530,000    $   1,049,000    $   1,458,000    $     683,000    $    (739,000)
                                         -------------    -------------    -------------    -------------    -------------
Weighted average shares - Basic              2,480,000        2,596,000        2,531,000        2,521,000        2,561,000
Net earnings (loss) per common share -
Basic                                    $         .62    $         .40    $         .58    $         .27    $        (.29)
                                         -------------    -------------    -------------    -------------    -------------
Weighted average shares - Diluted            2,557,000        2,702,000        2,687,000        2,547,000        2,561,000
Net earnings (loss) per common share -
Diluted                                  $         .60    $         .39    $         .54    $         .27    $        (.29)
                                         -------------    -------------    -------------    -------------    -------------
TOTAL ASSETS                             $  41,702,000    $  32,492,000    $  34,489,000    $  33,005,000    $  35,418,000
                                         -------------    -------------    -------------    -------------    -------------
Mortgage Payable - Long-Term portion     $   2,563,000    $   2,727,000    $   2,880,000    $   3,023,000    $      61,000
                                         -------------    -------------    -------------    -------------    -------------
Stockholders' equity                     $  19,047,000    $  16,674,000    $  17,276,000    $  16,220,000    $  15,824,000
                                         =============    =============    =============    =============    =============
</TABLE>

     ------------------
     Note 1:   Fiscal 2002 includes a pre-tax charge relating to the Topsville,
               Inc. acquisition, totaling $1,289,000 ($825,000 after tax), of
               which $389,000 is included in Cost of Goods Sold for an
               adjustment to inventory based upon the assessed fair value, and
               $900,000 included in Shipping, Selling and Administrative
               Expenses, for the amortization of open order backlog.

                                       12
<PAGE>

Item 7.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations.

Overview

         We are engaged in the design, manufacture, distribution and sale of
women's and children's apparel, and vinyl, leather and fabric handbags, sport
bags, backpacks, cosmetic bags, and related products. Our apparel lines include
women's loungewear, sleepwear, dresses and sportswear, and lingerie, as well as
infants' and children's clothing. Our products are mostly made to order, and we
market and sell our products to a range of retailers, including general
merchandise stores, retail chain stores, department stores, cosmetic companies,
major mail order catalogs and other specialty retailers.

         Our business is subject to seasonal variations. Consistent with what we
believe is the general pattern associated with sales to the retail industry, our
results of operations are somewhat more meaningful on a seasonal basis, rather
than on a quarterly basis. In that regard, our net sales and net earnings
generally have been higher during the period from June to November (which
includes our first fiscal quarter and a portion of our second and fourth fiscal
quarters), during which time our customers generally increase inventory levels
in anticipation of both back-to-school and holiday sales. Net sales and net
earnings for the other months of our fiscal year typically have been lower due,
in part, to the traditional slowdown by our customers immediately following the
winter holiday season. That trend has continued during fiscal 2006 and we expect
this pattern to continue. However, our quarterly results of operations may also
fluctuate significantly as a result of a number of other factors, including the
timing of shipments to customers and general economic conditions. Accordingly,
comparisons between seasons or quarters may not necessarily be meaningful, and
the results for any one quarter or season are not necessarily indicative of
future quarterly results or of full-year performance.

         In fiscal 2006, higher gross margins combined with a slight increase in
sales improved net earnings and earnings per share. The financial highlights of
fiscal 2006 were:

         o        Gross profit increased $2,341,000 to $30,866,000, compared
                  with $28,525,000 in fiscal 2005.

         o        Net earnings rose about 46% to $1,530,000 or $0.60 per diluted
                  share, compared with $1,049,000 or $0.39 per diluted share in
                  the prior fiscal year.


Critical Accounting Policies and Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires the appropriate application of
accounting policies, many of which require us to make estimates and assumptions
about future events and their impact on amounts reported in our consolidated
financial statements and related notes. Since future events and their impact
cannot be determined with certainty, the actual results will inevitably differ
from our estimates. Such differences could be material to the consolidated
financial statements.

                                       13
<PAGE>

         We believe that application of accounting policies, and the estimates
inherently required by the policies, are reasonable. These accounting policies
and estimates are periodically reevaluated, and adjustments are made when facts
and circumstances dictate a change. Historically, we have found the application
of accounting policies to be appropriate, and actual results have not differed
materially from those determined using necessary estimates.

         Our accounting policies are more fully described in Note A to the
consolidated financial statements. We have identified certain critical
accounting policies that are described below.

         Merchandise inventory. Our merchandise inventory is carried at the
lower of cost (on a first-in, first-out basis) or market. We write down our
inventory for estimated obsolescence or unmarketable inventory based upon
assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required. Adjustments to earnings resulting from
changes in estimates have been insignificant for the years ended June 30, 2006,
2005 and 2004.


         Allowance for doubtful accounts. We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of our customers to
make required payments, and we also maintain accounts receivable insurance on
certain of our customers. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. We have not incurred significant bad debt
account expenses for the years ended June 30, 2006, 2005 and 2004.

         Market development accruals. We estimate reductions to revenue for
customer programs and incentive offerings, including special pricing agreements,
price protection, promotions and other volume-based incentives. If market
conditions were to decline, we may take actions to increase customer incentive
offerings possibly resulting in an incremental reduction of revenue at the time
the incentive is offered. We review and refine these estimates on a quarterly
basis based on current experience, trends and our customers performance. Sales
discount, returns, marketing programs and allowances were 5.4%, 5.8% and 4.4% of
sales for the years ended June 30, 2006, 2005 and 2004, respectively.

         Goodwill. We evaluate goodwill annually or whenever events and changes
in circumstances suggest that the carrying amount may not be recoverable from
estimated future cash flows. In making this assessment, we rely on a number of
factors including operating results, business plans, economic considerations,
anticipated future cash flows and marketplace data. A change in these underlying
assumptions may cause a change in the results of the tests and, as such, could
cause fair value to be less than the carrying value. In such event, we would
then be required to record a charge which would impact earnings.

         Income taxes. Income taxes are accounted for under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
In accordance with SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences in the
financial statement carrying amount of existing assets and liabilities and their
respective tax bases, as measured by enacted tax rates that are expected to be

                                       14
<PAGE>

in effect in the periods when the deferred tax assets and liabilities are
expected to be settled or realized. Significant judgement is required in
determining the provisions for income taxes.

         We establish the provisions based upon management's assessment of
exposure associated with permanent tax differences, tax credits and interest
expense applied to temporary difference adjustments. The tax provisions are
analyzed periodically (at least annually) and adjustments are made as events
occur that warrant adjustments to those provisions.

         Discount rate. The discount rate that the Company utilizes for
determining future pension obligations is based on the Moody's AA corporate bond
index. The indices selected reflect the weighted average remaining period of
benefit payments. The discount rate increased to 6.00% as of June 30, 2006 from
4.70% as of June 30, 2005. A further 50 basis point change in the discount rate
would generate an experience gain or loss of approximately $200,000.

Liquidity and Capital Resources

Cash Flows

Certain information about our financial position as of June 30, 2006, 2005 and
2004 is presented in the following table:


                                                  June 30,

         --------------------------------------------------------------------
                                        2006           2005           2004

         --------------------------------------------------------------------
         Cash                      $    932,000   $    893,000   $    626,000

         --------------------------------------------------------------------
         Working Capital           $ 16,953,000   $ 13,286,000   $ 13,615,000

         --------------------------------------------------------------------
         Long-term debt            $  2,563,000   $  2,727,000   $  2,880,000

         --------------------------------------------------------------------
         Stockholders' equity      $ 19,047,000   $ 16,674,000   $ 17,276,000

         --------------------------------------------------------------------

Cash flows provided by (used in) operating, investing and financing activities
for the years ended June 30, 2006, 2005 and 2004 were as follows:

                                       15
<PAGE>


                                                  June 30,

         -----------------------------------------------------------------------
                                        2006            2005            2004

         -----------------------------------------------------------------------
         Operating activities      $ (3,118,000)   $   (587,000)   $  1,140,000

         -----------------------------------------------------------------------
         Investing activities      $   (172,000)   $   (449,000)   $   (290,000)

         -----------------------------------------------------------------------
         Financing activities      $  3,329,000    $  1,303,000    $   (290,000)

         -----------------------------------------------------------------------
         Net increase in cash      $     39,000    $    267,000    $    560,000

         -----------------------------------------------------------------------

         The net increase in cash and cash equivalents for the fiscal year ended
June 30, 2006 of $39,000 was the result of funds provided by financing
activities totaling $3,329,000, offset by funds used in operating activities of
$3,118,000, and by funds used in investing activities totaling $172,000. Net
cash used in operating activities resulted primarily from an increase in
accounts receivable of $5,282,000 (reflecting primarily higher fourth quarter
sales in fiscal 2006 compared to the prior comparable period) and an increase in
inventory totaling $3,492,000 (mostly attributable to higher anticipated first
quarter net sales for fiscal 2007 versus the first quarter in 2006 ). These
increases were not fully offset by an increase in accounts payable and other
current liabilities (totaling $3,009,000) and net earnings of $1,530,000. Cash
was used in investing activities totaling $172,000 for purchases of property and
equipment. Funds provided by financing activities were, for the most part,
related to net bank borrowing totaling $4,425,000, plus the exercise of stock
options totaling $141,000, partially offset by the repurchase of the Company's
common stock under the Company's stock repurchase program totaling $1,113,000
and payment on our outstanding mortgage of $153,000.

         In September 2006, the Company amended its existing bank credit
facility. The amended facility, which expires December 1, 2008, provides for
short-term loans and the issuance of letters of credit in an aggregate amount
not to exceed $50,000,000. Based on a borrowing formula, the Company may borrow
up to $30,000,000 in short-term loans and up to $50,000,000 including letters of
credit. The borrowing formula allows for an additional amount of borrowing
during the Company's peak borrowing season from June to October. Substantially
all of the Company's assets are pledged to the bank as collateral (except for
the West New York, New Jersey facility, which has been separately mortgaged as
noted below). The line of credit requires that the Company maintain a minimum
tangible net worth, as defined, and imposes certain debt to equity ratio
requirements. The Company was in compliance with all applicable financial
covenants as of June 30, 2006. As of June 30, 2006, borrowing on the short-term
line of credit was $10,185,000, and at that date the Company had $12,075,000 of
additional availability (based on the borrowing formula) under the credit
facility. At June 30, 2006, the Company was contingently obligated on open
letters of credit with an aggregate face amount of approximately $17,740,000.
Borrowing during the year was at the bank's prime rate or below, at the option
of the Company. The bank's prime rate at June 30, 2006 was 8.25%.


         During 2006, the average amount outstanding under the short-term line
was $7,289,000 with a weighted average interest rate of 6.49%. During fiscal
2005, the average amount outstanding under the short-term line was $8,503,000
with a weighted average interest rate of 5.22%. The maximum amount outstanding
during fiscal 2006 and fiscal 2005 was $13,280,000 and $23,380,000,
respectively.

                                       16
<PAGE>

         In August 2002, the Company consummated a mortgage loan in the amount
of $3,250,000. The financing is secured by a mortgage of the Company's West New
York, New Jersey headquarters and warehouse facility (see the information under
the caption "Item 2. Properties"). The mortgage loan bears interest at a fixed
rate of 7% per annum. The financing has a fifteen-year term, but is callable by
the bank lender at any time after September 1, 2007 and may be prepaid by the
Company, along with a prepayment fee, from time to time during the term of the
financing. At June 30, 2006, the outstanding balance of the mortgage loan was
$2,727,000.

         The Company believes that funds provided by operations, existing
working capital, and the Company's bank line of credit will be sufficient to
meet working capital needs for the next twelve months. Reference is made to Note
E, "Credit Facilities," of the Notes to Consolidated Financial Statements on
page F-14 of this Form 10-K for additional information about the Company's
credit lines.

         There were no material commitments for capital expenditures at June 30,
2006.

         The Company previously announced that the Board of Directors authorized
the repurchase by the Company of up to 350,000 shares of the Company's Common
Stock. Purchases may be made from time to time in the open market and through
privately negotiated transactions, subject to general market and other
conditions. The Company intends to finance these repurchases from cash flow from
operating activities and/or from its bank credit facility. As of June 30, 2006,
the Company has purchased 302,621 shares of its Common Stock at a cost of
approximately $1,462,000.

         Contractual Obligations and Commercial Commitments

         To facilitate an understanding of our contractual obligations and
commercial commitments, the following data is provided as of June 30, 2006:

                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                          Payments Due by Period
                                                          ----------------------

----------------------------------------------------------------------------------------------------------
                                                  Less than          2-3            4-5           After
 Contractual Obligations (1)           Total        1 Year          Years          Years         5 years
----------------------------------------------------------------------------------------------------------
<S>                               <C>            <C>            <C>            <C>            <C>
Notes Payable                     $ 10,185,000   $ 10,185,000   $         --   $         --   $         --
----------------------------------------------------------------------------------------------------------
Mortgage Payable                     2,727,000        164,000        365,000        421,000      1,777,000
----------------------------------------------------------------------------------------------------------
Royalties                              410,000        291,000        119,000             --             --
----------------------------------------------------------------------------------------------------------
Operating Leases                     1,884,000      1,075,000        743,000         66,000             --
----------------------------------------------------------------------------------------------------------
Total Contractual Obligations     $ 15,206,000   $ 11,715,000   $  1,227,000   $    487,000   $  1,777,000
----------------------------------------------------------------------------------------------------------

<CAPTION>

                                             Amount of Commitment Expiration Per Period
                                             ------------------------------------------

----------------------------------------------------------------------------------------------------------

                                      Total
            Other                    Amounts        Within           2-3            4-5          After
   Commercial Commitments           Committed       1 Year          Years          Years        5 Years
----------------------------------------------------------------------------------------------------------
<S>                               <C>            <C>            <C>            <C>            <C>

Letters of Credit                 $ 17,740,000   $ 17,740,000   $         --   $         --   $         --
----------------------------------------------------------------------------------------------------------

Total Other
Commercial Commitments            $ 17,740,000   $ 17,740,000   $         --   $         --   $         --
----------------------------------------------------------------------------------------------------------
</TABLE>

----------------

(1) We enter into arrangements with vendors to purchase merchandise up to three
months in advance of expected delivery. These purchase orders do not contain any
significant termination payments or other penalties if cancelled.

         The outstanding balance under the Revolving Credit Agreement at
September 15, 2006 was $18,775,000. The notes payable balance does not include
any amounts for future interest costs.

         The Company expects to contribute approximately $300,000 to its defined
benefit pension plan during the fiscal year ending June 30, 2007.

Off-Balance Sheet Arrangements

         We have not created, and we are not a party to, any special-purpose or
off-balance sheet entities for the purpose of raising capital, incurring debt or
operating our business. We do not have any arrangements or relationships with
entities that are not consolidated into the financial statements.

Results of Operations

2006 Compared to 2005

         Net sales for fiscal 2006 totaled $126,601,000, an increase of
$124,000, or .1%, compared to fiscal 2005. Sales by category were as follows:

                                       18
<PAGE>

         Net sales for the Apparel category in fiscal 2006 were $81,174,000, a
decrease of $6,542,000, or 7.5%, compared to fiscal 2005. The sales decrease for
this category was primarily due to a $10,574,000 decrease in net sales from the
women's sleepwear business, which resulted mostly from decreased orders from one
customer based on prior season sell-through of both private label and licensed
product. This decrease was offset, in part, by a $6,816,000, or 16.4%, increase
in sales of children's apparel reflecting a higher level of reorders from one of
our customers due to favorable prior sales of similar items. Our catalog
business continued lower demand for mail-order apparel with a $2,784,000 decline
in net sales in fiscal 2006 compared with the prior year.

         Net sales for the Handbags category were $45,427,000 for the year ended
June 30, 2006, an increase of $6,666,000, or about 17% above the same period in
the prior year, reflecting a $3,580,000 increase in the premium business as a
result of increased orders by one of its significant customers, and a $3,086,000
increase in our handbag business attributable to an increase in sales of denim
related products.

         Overall gross margins were 24.4% in 2006 compared to 22.6% in the prior
fiscal year.

         Gross margins by category were as follows:

         Gross margin for the Apparel category in 2006 improved to 28.0% from
25.6% in the prior fiscal year. The 2.4 percentage point improvement was
primarily attributable to higher margins contributed by the children's apparel
business due to a favorable product mix, as well as higher margins in the
women's sleepwear business which was attributable to approximately $10 million
of lower margin business from one customer which was not reordered in fiscal
2006.

         Gross margin for the Handbags category increased to 17.9% in 2006
compared to 15.7% in the similar prior year. The higher gross margin in the
handbag business, for the most part, reflects both product mix and improved
costing measures in both the premium incentive and the handbag business.

         Shipping, selling and administrative expenses increased by $1,402,000
in fiscal 2006 to $27,574,000 (21.8% of net sales). The prior fiscal year
totaled $26,172,000 (20.7% of net sales). A significant part of the net increase
was attributable to higher compensation costs (approximately $1,400,000) and
increased product development costs ($734,000) relating to further expansion of
our premium and children's apparel businesses, as well as higher royalty expense
($17,000) relating to additional licensed product sales. These increases were
not fully offset by lower shipping and warehousing costs ($681,000) resulting
from a combination of lower sales volume for one division having relatively
higher shipping and handling costs and sales mix for another division requiring

                                       19
<PAGE>

lower shipping supplies and temporary help, as well as lower selling commissions
as a result of changes in sales mix (a decrease of $73,000).

         Interest expense was $586,000, a decrease of $53,000 from the last
fiscal year, despite higher interest rates in fiscal 2006 compared to fiscal
2005. The net decreased level of borrowing more than offset the higher weighted
average interest rate in the current fiscal year compared to fiscal 2005 and is
primarily the reason for the lower interest expense. Lower borrowing is
attributable to the timing of sales this year with resulting improved cash
flows.

         Net earnings of $1,530,000 for the fiscal year ended June 30, 2006
compared to net earnings of $1,049,000 in the prior year. This year's higher net
earnings were primarily due to improved gross margins and lower interest
expense, not completely offset by higher shipping, selling and administrative
expenses, as discussed above.

2005 Compared to 2004

         Net sales for fiscal 2005 totaled $126,477,000, an increase of
$2,627,000, or 2.1%, compared to the prior fiscal year. The increase reflected
significantly higher handbag net sales, not fully offset by lower apparel net
sales. Sales by category were as follows:

         Net sales for the Apparel category in fiscal 2005 were $87,716,000, a
decrease of $7,374,000, or 7.8% from the prior fiscal year. The decrease in net
sales was primarily due to the elimination of several private label programs
from one of the women's sleepwear division's customers, and a 41.1% reduction in
net sales in our catalogue business due to the loss of one of that business'
significant customers who will be sourcing goods directly.

         Net sales for the Handbags category in fiscal 2005 were $38,761,000, or
34.8% higher than the prior fiscal year's total of $28,760,000. The sales
increase is mostly attributable to increased sales for the premium business
reflecting continued growth with its most significant customer, and somewhat
higher net sales in our other handbag division.

         Gross margins were 22.6% in fiscal 2005 compared to 25.2% in 2004. The
decrease in gross margins is mostly a function of much lower handbag margins
this fiscal year. Gross margins by category were as follows:

         Gross margin for the Apparel category in 2005 decreased to 25.6%
compared to 26.6% in 2004. This 1.0 percentage point decrease was primarily
attributable to much lower gross margins in the children's apparel business, due
to required higher customer allowances in the current fiscal year versus fiscal
2004, not fully offset by higher women's sleepwear business gross margins.

                                       20
<PAGE>

         Gross margin for the Handbags category in 2005 decreased to 15.7%
compared to 20.4%. This decrease was mainly due to much lower competitive
margins in our premium business. The much lower gross margin in the premium
business, for the most part, reflects marketplace competition resulting in the
Company reducing its gross profit margin in order to maintain sales. In
addition, we experienced lower handbag business margins due to reduced sales of
licensed products (which normally carry a higher margin), in the current fiscal
year compared to fiscal 2004.

         Shipping, selling and administrative expenses decreased by $1,807,000
in fiscal 2005 to $26,172,000. As a percentage of net sales, shipping, selling
and administrative expenses declined to 20.7% from 22.6% in fiscal 2004. The
principal factors attributable to the decrease are lower selling expenses (a
decrease of approximately $700,000), reflecting lower selling commissions
attributable to sales mix, lower royalty expense relating to the reduced sale of
licensed products (approximately $550,000), and lower general and administrative
expense in fiscal 2005 (about $700,000), mostly due to the approximately
$500,000 fiscal 2004 charge for the union pension withdrawal liability, offset
somewhat by higher product development expense (about $160,000) in fiscal 2005
for the children's apparel business associated with anticipated higher volume in
fiscal 2006.

         Interest expense was $639,000, an increase of $65,000 from the last
fiscal year, primarily the result of higher interest rates in the current fiscal
year compared to fiscal 2004.

         Net earnings of $1,049,000 for the fiscal year ended June 30, 2005
compared to $1,458,000 in the prior fiscal year. This year's lower net earnings
were primarily due to lower gross margin dollars and higher interest costs, not
fully offset by lower shipping, selling and administrative expenses, as
discussed above, as well as a lower effective tax rate in the current fiscal
year (primarily attributable to the recovery of a valuation allowance associated
with foreign tax credits), compared to fiscal 2004.

         Recently Issued Accounting Standards:

         In November 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS 151, "Inventory Costs an amendment of ARB 43, Chapter 4." SFAS 151
is an amendment of Accounting Research Board Opinion 43 and sets standards for
the treatment of abnormal amounts of idle facility expense, freight, handling
costs and spoilage. SFAS 151 is effective for fiscal years beginning after June
15, 2005. The adoption of SFAS 151 did not have a material impact on the
Company's consolidated financial statements.

         In December 2004, the FASB issued Staff Position 109-2, "Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004." ("FSP109-2") . FSP 109-2 provides guidance

                                       21
<PAGE>

under SFAS 109, "Accounting for Income Taxes," with respect to recording the
potential impact of the repatriation provisions of the American Jobs Creation
Act of 2004 (the "Jobs Act") on enterprises' income tax expense and deferred tax
liability. FSP 109-2 states that an enterprise is allowed time beyond the
financial reporting period of enactment to evaluate the effect of the Jobs Act
on its plan for reinvestment or repatriation of foreign earnings for purposes of
applying SFAS 109. As the Company did not make any dividends under this
provision, FSP 109-2 did not have any impact on the Company's consolidated
financial statements.

         In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary
Assets an amendment of APB Opinion 29," which eliminates certain narrow
differences between APB 29 and international accounting standards. SFAS 153 is
effective for fiscal periods beginning on or after June 15, 2005. The adoption
of SFAS 153 did not have a material impact on the Company's consolidated
financial statements.

         In December 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based
Payment," which is a revision of SFAS 123, "Accounting for Stock-Based
Compensation." SFAS 123R supersedes Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees." The pronouncement requires an entity
to measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award. That cost
will be recognized over the period during which an employee is required to
provide service in exchange for the award the requisite service period
(typically the vesting period).

         In November 2005, the FASB issued FSP 123R-3, "Transition Election to
Accounting for the Tax Effects of Share-Based Payment Awards." This FSP provides
an alternative transition method for calculating the pool of excess tax benefits
available to absorb tax deficiencies recognized subsequent to the adoption of
Statement 123R. The Company adopted the alternative transition method and
determined there is no excess tax pool.

         In March 2005, the SEC issued Staff Accounting Bulletin ("SAB") 107
"Share-Based Payment." SAB 107 expresses views of the SEC staff regarding the
interaction between SFAS 123R and certain SEC rules and regulations and provides
the staff's views regarding the valuation of share- based payment arrangements.
The Company adopted SFAS 123R effective July 1, 2005. See Footnote F in Notes to
Consolidated Financial Statements for further information.

         In March 2005, the FASB issued SFAS Interpretation Number ("FIN") 47,
"Accounting for Conditional Asset Retirement Obligations." FIN 47 provides
clarification regarding the meaning of the term "conditional asset retirement
obligation" as used in FASB 143, "Accounting for Asset Retirement Obligations."

                                       22
<PAGE>

This Interpretation is effective no later than the end of fiscal years ending
after December 15, 2005. The adoption of FIN 47 did not have a material impact
on the Company's consolidated financial statements.

         In June 2005, the Emerging Issues Task Force ("EITF") reached consensus
on EITF 05-6, "Determining the Amortization Period for Leasehold Improvements."
Under EITF 05-6, leasehold improvements placed in service significantly after
and not contemplated at or near the beginning of the lease term, should be
amortized over the lesser of the useful life of the assets or a term that
includes renewals that are reasonably assured at the date the leasehold
improvements are purchased. EITF 05-6 is effective for periods beginning after
June 29, 2005. The adoption of EITF 05-6 did not have a material impact on the
Company's consolidated financial statements.



         In June 2006, the FASB issued FIN 48, "Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement 109," which clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with FAS 109, "Accounting for Income Taxes."
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company is currently evaluating the
impact of FIN 48 on the Company's consolidated financial statements.

  Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

         In the normal course of doing business, we are exposed to interest rate
change market risk. Since our borrowing patterns are cyclical, we are not
dependent on borrowing throughout the year. Nevertheless, a sudden increase in
interest rates (which under our bank line of credit is at the prime rate or at
LIBOR plus 200 basis points) may, especially during peak borrowing, potentially
have a significant negative impact on our results of operations. We estimate
that a 100 basis point fluctuation in applicable market interest rates would
increase or decrease interest expense by approximately $73,000, based on fiscal
2006 our average commercial borrowing levels.

         We have not used, and currently do not anticipate using, any derivative
financial instruments. In addition, we have not been materially impacted by
fluctuations in foreign currency exchange rates as substantially all of our
business is transacted in, and is expected to continue to be transacted in, U.S.
dollar-based currencies.

                                       23
<PAGE>

Item 8.     Financial Statements and Supplementary Data.

      Financial Statements
      --------------------

         The report dated September 28, 2006 of Deloitte & Touche LLP, an
independent registered public accounting firm, on the consolidated balance
sheets of Jaclyn, Inc. and subsidiaries as of June 30, 2006 and 2005 and the
related consolidated statements of earnings, stockholders' equity and
comprehensive earnings (loss), and cash flows for each of the three fiscal years
in the period ended June 30, 2006, and Notes to Consolidated Financial
Statements appear on pages F-2 through F-26 of this Form 10-K.


      Supplementary Data
      ------------------

         Selected unaudited quarterly financial data for the fiscal years ended
June 30, 2006 and June 30, 2005 is set forth at Note M, "Unaudited Quarterly
Financial Data" on page F-26 of this Form 10- K.

Item 9.     Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosure.

         Not Applicable.

Item 9A.    Controls and Procedures.

         At the end of the period covered by this report, we carried out an
evaluation, with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures. Based on that evaluation, we concluded that
the our disclosure controls and procedures were effective. There was no change
in our internal control over financial reporting during the quarter ended June
30, 2006 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.

Item 9B.    Other Information.
            -----------------

         Not Applicable.

                                    PART III
                                    --------

Item 10.    Directors and Executive Officers of the Registrant.
            --------------------------------------------------

         The information required by this item (other than certain information
as to our executive officers, which information is set forth after Part I of
this Form 10-K under the caption "Executive Officers of the Registrant") is
incorporated herein by reference to our definitive Proxy Statement relating to
the 2006 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended.

                                       24
<PAGE>

Item 11.    Executive Compensation.
            ----------------------

         The information required by this item is incorporated herein by
reference to our definitive Proxy Statement relating to the 2006 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended.

Item 12.    Security Ownership of Certain Beneficial Owners and Management.
            --------------------------------------------------------------

         The information required by this item is incorporated herein by
reference to our definitive Proxy Statement relating to the 2006 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended.

Item 13.    Certain Relationships and Related Transactions.
            ----------------------------------------------

         The information required by this item is incorporated herein by
reference to our definitive Proxy Statement relating to the 2006 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended.

Item 14.    Principal Accountant Fees and Services.
            --------------------------------------

         The information required by this item is incorporated herein by
reference to our definitive Proxy Statement relating to the 2006 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended.

                                     PART IV
                                     -------

Item 15.    Exhibits and Financial Statement Schedule.
            -----------------------------------------

(a)      The following financial statements, financial statement schedule and
exhibits are filed as part of this report:

(1)      Financial Statements:
         --------------------

         Report of Independent Registered Public Accounting Firm

         Consolidated Balance Sheets -- June 30, 2006 and 2005

         Consolidated Statements of Earnings -- for the years ended June 30,
         2006, 2005 and 2004

         Consolidated Statements of Cash Flows -- for the years ended June 30,
         2006, 2005 and 2004

                                       25
<PAGE>

         Consolidated Statements of Stockholders' Equity and Comprehensive
         Earnings (Loss)-- for the years ended June 30, 2006, 2005 and 2004

         Notes to Consolidated Financial Statements

(2)      Financial Statement Schedule:
         ----------------------------

         Schedule II - Valuation and Qualifying Accounts

         All other schedules are omitted because they are either inapplicable,
         not required, or because the required information is included in the
         consolidated financial statements or notes thereto.

(b)      Exhibits:
         --------

Exhibit No.       Description
-----------       -----------

      3(a)        Certificate of Incorporation of the Registrant (incorporated
                  herein by reference to Exhibit 3(a) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 2005).

      3(b)        By-Laws of the Registrant (incorporated herein by reference to
                  Exhibit 3(b) to the Registrant's Annual Report on Form 10-K,
                  File No. 1-5863, for the fiscal year ended June 30, 1991).

      4(a)        Promissory Note of the Registrant dated August 14, 2002
                  payable to the order of Hudson United Bank ("HUB") in the
                  principal amount of $3,250,000 (incorporated herein by
                  reference to Exhibit 4(a) to the Registrant's Annual Report on
                  Form 10-K, File No. 1-5863, for the fiscal year ended June 30,
                  2002).

      4(b)        Mortgage, Security Agreement and Financing Statement dated
                  August 14, 2002 between the Registrant and HUB (incorporated
                  herein by reference to Exhibit 4(b) to the Registrant's Annual
                  Report on Form 10-K, File No. 1- 5863, for the fiscal year
                  ended June 30, 2002).

      4(c)        Revolving Loan Agreement dated December 23, 2002 between the
                  Registrant and HUB (incorporated herein by reference to
                  Exhibit 4(c) to the Registrant's Annual Report on Form 10-K,
                  File No. 1-5863, for the fiscal year ended June 30, 2003).

      4(d)        First Amendment to Revolving Loan Agreement, Promissory Note
                  and Other Loan Documents dated October 23, 2003 between the
                  Registrant and HUB (incorporated herein by reference to
                  Exhibit 4(d) to the Registrant's Annual Report on Form 10-K,
                  File No. 1-5863, for the fiscal year ended June 30, 2005).

                                       26
<PAGE>

      4(e)        Second Amendment to Revolving Loan Agreement, Promissory Note
                  and Other Loan Documents dated October 23, 2003 between the
                  Registrant and HUB (incorporated herein by reference to
                  Exhibit 4(a) to the Registrant's Quarterly Report on Form
                  10-Q, File No. 1-5863, for the fiscal quarter ended March 32,
                  2005).

      10(a)       Third Amendment to Revolving Loan Agreement, Promissory Note
                  and Other Loan Documents dated September 22, 2006 between the
                  Registrant and HUB (incorporated herein by reference to
                  Exhibit Current Report on Form 8-K, File No. 1-5863, dated
                  September 26, 2006).+

      10(b)       2000 Stock Option Plan of the Registrant.*+

      10(c)       Second Amended and Restated Stockholders' Agreement dated May
                  12, 2003 among the Registrant and the persons listed on
                  Schedule A thereto (incorporated herein by reference to
                  Exhibit U to Amendment No. 9 to the Schedule 13D dated May 15,
                  2003 of Allan Ginsburg, Robert Chestnov, Abe Ginsburg and
                  Howard Ginsburg.).

      10(d)       Key Executive Disability Plan of the Registrant (incorporated
                  herein by reference to Exhibit 10(m) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1988).*

      10(e)       Letter Agreement dated as of December 29, 1997 between the
                  Registrant and Robert Chestnov (incorporated herein by
                  reference to Exhibit 2.1 to the Registrant's Current Report on
                  Form 8-K, file No. 1-5863, for the fiscal year ended June 30,
                  1998).*

      10(f)       Purchase and Sale Agreement dated January 11, 1999 between
                  Banner Industries of New York, Inc. and Jaclyn,
                  Inc.(incorporated herein by reference to Exhibit 2.1 to the
                  Registrant's Current Report on Form 8-K, file No. 1- 5863,
                  dated January 26, 1999).

      10(g)       Purchase and Sale Agreement dated January 10, 2002 between
                  Mark Nitzberg and the Registrant (incorporated herein by
                  reference to Exhibit 2.1 to the Registrant's Current Report on
                  Form 8-K, File No. 1-5863, dated January 24, 2002).

      10(h)       Consulting Agreement dated January 10, 2002 between Natoosh,
                  LLC, Mark Nitzberg and the Registrant (incorporated herein by
                  reference to Exhibit 2.2 to the Registrant's Current Report on
                  Form 8-K, File No. 1-5863, dated January 24, 2002).

      10(i)       Amendment to Consulting Agreement dated December 15, 20003
                  between Natoosh, LLC, Mark Nitzberg and the Registrant
                  (incorporated herein by reference to Exhibit Annual Report on
                  Form 10-K, File No. 1-5863, for the fiscal year ended June 30,
                  2004).

                                       27
<PAGE>

      10(j)       Payment and Indemnification Agreement dated January 10, 2002
                  by and among Capital Factors, Inc., Topsville, Inc., Mark
                  Nitzberg and the Registrant (incorporated herein by reference
                  to Exhibit 2.3 to the Registrant's Current Report on Form 8-K,
                  File No. 1-5863, dated January 24, 2002).

      10(k)       Consent and Joinder Agreement dated August 10, 2004 among the
                  Registrant, Mark Nitzberg and the persons listed on Schedule A
                  thereto (incorporated herein by reference to Exhibit U to
                  Amendment No. 12 to the Schedule 13D dated August 16, 2004 of
                  Allan Ginsburg, Robert Chestnov, Abe Ginsburg and Howard
                  Ginsburg.).

      10(l)       Consent and Joinder Agreement dated June 6, 2006 among the
                  Registrant, Bruce Cahill, John Halbreich, and the persons
                  listed on Schedule A thereto.+

      10(m)       Mortgage dated as of August 31, 2006 of Landlord in favor of
                  the Company (incorporated herein by reference to Exhibit 10.01
                  to the Registrant's Current Report on Form 8-K, File No.
                  1-5863, dated September 1, 2006).

      10(n)       Promissory Note dated as of August 31, 2006 of Landlord in
                  favor of the Company (incorporated herein by reference to
                  Exhibit 10.02 to the Registrant's Current Report on Form 8-K,
                  File No. 1-5863, dated September 1, 2006).

      10(o)       Agreement of Lease dated as of September 1, 2006 between the
                  Company and Spring Valley Associates, LLC (incorporated herein
                  by reference to Exhibit 10.01 to the Registrant's Current
                  Report on Form 8-K, File No. 1- 5863, dated August 23, 2006).

      14          Code of Ethics for Finance Professionals of the Registrant
                  (incorporated herein by reference to Exhibit 14 to the
                  Registrant's Annual Report on Form 10-K, File No. 1-5863, for
                  the fiscal year ended June 30, 2004).

      21          Subsidiaries of the Registrant.+

      31(a)       Rule 13a-14(a) Certification of Robert Chestnov, President and
                  Chief Executive Officer of the Company.+

      31(b)       Rule 13a-14(a) Certification of Anthony Christon, Principal
                  Financial Officer of the Company.+

      32          Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.+

                                       28
<PAGE>

      99(a)       Code of Business Conduct and Ethics of the Registrant
                  (incorporated herein by reference to Exhibit 99(a) to the
                  Registrant's Annual Report on Form 10- K, File No. 1-5863, for
                  the fiscal year ended June 30, 2004).

---------------
*Management contract or compensatory plan or arrangement.
+Filed with this Form 10-K.

(c)      Financial Statement Schedules.
         -----------------------------

Financial Statement Schedules are listed in response to Item 15(a)(2).

                                   SIGNATURES
                                   ----------

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                             JACLYN, INC.

                                             By: /s/ ALLAN GINSBURG
                                                 -------------------------------
September 28, 2006                               Allan Ginsburg, Chairman
                                                 of the Board

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

/s/ ALLAN GINSBURG            Chairman of the Board           September 28, 2006
----------------------        and Director
ALLAN GINSBURG

/s/ ROBERT CHESTNOV           President, Principal            September 28, 2006
----------------------        Executive Officer and
ROBERT CHESTNOV               Director

/s/ ANTHONY CHRISTON          Chief Financial Officer,        September 28, 2006
----------------------        Principal Financial and
ANTHONY CHRISTON              Accounting Officer

/s/ ABE GINSBURG              Director                        September 28, 2006
----------------------
ABE GINSBURG

/s/ HOWARD GINSBURG           Director                        September 28, 2006
----------------------
HOWARD GINSBURG

                                       29
<PAGE>

/s/ NORMAN AXELROD            Director                        September 28, 2006
----------------------
NORMAN AXELROD

/s/ MARTIN BRODY              Director                        September 28, 2006
----------------------
MARTIN BRODY

/s/ RICHARD CHESTNOV          Director                        September 28, 2006
----------------------
RICHARD CHESTNOV

/s/ ALBERT SAFER              Director                        September 28, 2006
----------------------
ALBERT SAFER

/s/ HAROLD SCHECHTER          Director                        September 28,2006
----------------------
HAROLD SCHECHTER

                                       30
<PAGE>

JACLYN, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

                                                                         PAGE


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                  F-1
FINANCIAL STATEMENTS:
    CONSOLIDATED BALANCE SHEETS - AS OF JUNE 30, 2006 AND 2005           F-2
    CONSOLIDATED STATEMENTS OF EARNINGS - FOR THE YEARS
      ENDED JUNE 30, 2006, 2005 AND 2004                                 F-3
    CONSOLIDATED STATEMENTS OF CASH FLOWS - FOR THE YEARS
      ENDED JUNE 30, 2006, 2005 AND 2004                              F-4 TO F-5
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
    COMPREHENSIVE EARNINGS (LOSS)- FOR THE YEARS ENDED
      JUNE 30, 2006, 2005 AND 2004                                       F-6
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                       F-7 TO F-26
FINANCIAL STATEMENT SCHEDULE:
    VALUATION AND QUALIFYING ACCOUNTS                                    F-27

                                       31
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of
Jaclyn, Inc.
West New York, New Jersey

         We have audited the accompanying consolidated balance sheets of Jaclyn,
Inc. and subsidiaries as of June 30, 2006 and 2005, and the related consolidated
statements of earnings, stockholders' equity and comprehensive earnings (loss)
and cash flows for each of the three fiscal years in the period ended June 30,
2006. Our audits also included the consolidated financial statement schedule
listed in the Index at Item 15(a)(2). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

         We conducted our audits in accordance with standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Jaclyn, Inc. and
subsidiaries as of June 30, 2006 and 2005, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended June
30, 2006, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

         As discussed in Note F to the consolidated financial statements, in
fiscal 2006 the Company adopted Statement of Financial Accounting Standards No.
123(R), "Share-Based Payment," as revised, effective July 1, 2005.

Deloitte & Touche LLP
New York, New York


September 28, 2006

                                      F-1
<PAGE>

--------------------------------------------------------------------------------
JACLYN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2006 AND 2005

<TABLE>
<CAPTION>
ASSETS                                                                       2006           2005
                                                                         ------------   ------------
<S>                                                                      <C>            <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS                                                $    932,000   $    893,000
ACCOUNTS RECEIVABLE, LESS SALES RETURNS, SALES
DISCOUNTS, SALES ALLOWANCE, & ALLOWANCE FOR DOUBTFUL
ACCOUNTS: 2006: $2,933,000; 2005: $3,388,000                               25,071,000     19,740,000
INVENTORIES                                                                 7,180,000      3,688,000
PREPAID EXPENSES AND OTHER CURRENT ASSETS                                   3,466,000      1,263,000
DEFERRED INCOME TAXES                                                         396,000        793,000
-------------------------------------------------------------------      ------------   ------------
TOTAL CURRENT ASSETS                                                       37,045,000     26,377,000
PROPERTY, PLANT AND EQUIPMENT - NET                                         1,030,000      1,148,000
GOODWILL                                                                    3,338,000      3,338,000
OTHER ASSETS                                                                  176,000        137,000
DEFERRED INCOME TAXES                                                         113,000      1,492,000
                                                                         ============   ============
                                                                         $ 41,702,000   $ 32,492,000
                                                                         ============   ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
NOTES PAYABLE - BANK                                                     $ 10,185,000   $  5,760,000
ACCOUNTS PAYABLE                                                            4,547,000      2,302,000
COMMISSIONS PAYABLE                                                         1,256,000        932,000
ACCRUED PAYROLL AND RELATED EXPENSES                                        2,647,000      2,644,000
OTHER CURRENT LIABILITIES                                                   1,293,000      1,300,000
MORTGAGE PAYABLE - CURRENT PORTION                                            164,000        153,000
                                                                         ------------   ------------
TOTAL CURRENT LIABILITIES                                                  20,092,000     13,091,000
                                                                         ------------   ------------
MORTGAGE PAYABLE                                                            2,563,000      2,727,000
                                                                         ------------   ------------

-------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES - NOTE D
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, PAR VALUE $1: AUTHORIZED, 1,000,000 SHARES; ISSUED
AND OUTSTANDING, NONE
COMMON STOCK, PAR VALUE $1: AUTHORIZED, 5,000,000 SHARES; ISSUED
2006 AND 2005: 3,368,733 SHARES; OUTSTANDING 2006: 2,483,219;
  2005: 2,574,676 SHARES                                                    3,369,000      3,369,000
ADDITIONAL PAID-IN CAPITAL                                                  9,563,000      9,670,000
RETAINED EARNINGS                                                          12,295,000     10,765,000
ACCUMULATED COMPREHENSIVE LOSS                                                     --     (1,653,000)
-------------------------------------------------------------------      ------------   ------------
                                                                           25,227,000     22,151,000
LESS:  TREASURY STOCK AT COST (2006: 885,514 AND 2005: 794,057 SHARES)      6,180,000      5,477,000
                                                                         ------------   ------------
TOTAL STOCKHOLDERS' EQUITY                                                 19,047,000     16,674,000
                                                                         ============   ============
                                                                         $ 41,702,000   $ 32,492,000
                                                                         ============   ============
</TABLE>

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

                                      F-2
<PAGE>

JACLYN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED JUNE 30, 2006, 2005 AND 2004

<TABLE>
<CAPTION>
                                                              2006             2005             2004
                                                          -------------    -------------    -------------
<S>                                                       <C>              <C>              <C>
Net sales                                                 $ 126,601,000    $ 126,477,000    $ 123,850,000
Cost of goods sold                                           95,735,000       97,952,000       92,658,000
                                                          -------------    -------------    -------------
Gross profit                                                 30,866,000       28,525,000       31,192,000
                                                          -------------    -------------    -------------
Shipping, selling and administrative expenses                27,574,000       26,172,000       27,979,000
Interest expense                                                586,000          639,000          574,000
Interest income                                                  (5,000)          (1,000)          (3,000)
                                                          -------------    -------------    -------------
EARNINGS BEFORE PROVISION FOR INCOME TAXES                    2,711,000        1,715,000        2,642,000
PROVISION FOR INCOME TAXES                                    1,181,000          666,000        1,184,000
                                                          -------------    -------------    -------------
NET EARNINGS                                              $   1,530,000    $   1,049,000    $   1,458,000
                                                          -------------    -------------    -------------
NET EARNINGS PER COMMON SHARE - BASIC                     $         .62    $         .40    $         .58
                                                          -------------    -------------    -------------
Weighted average number of shares outstanding - basic         2,480,000        2,596,000        2,531,000
                                                          -------------    -------------    -------------
NET EARNINGS PER COMMON SHARE - DILUTED                   $         .60    $         .39    $         .54
                                                          -------------    -------------    -------------
Weighted average number of shares outstanding - diluted       2,557,000        2,702,000        2,687,000
                                                          -------------    -------------    -------------
</TABLE>

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

                                      F-3
<PAGE>

--------------------------------------------------------------------------------
JACLYN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2006, 2005 AND 2004

<TABLE>
<CAPTION>
                                                                2006            2005            2004
                                                            ------------    ------------    ------------
<S>                                                         <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings                                                $  1,530,000    $  1,049,000    $  1,458,000
Adjustments to reconcile net earnings  to net
   cash (used in) provided by operating activities:
   Depreciation and amortization                                 300,000         380,000         378,000
   Deferred income taxes                                         679,000         222,000         344,000
   Stock based compensation                                      147,000               0               0
   Excess tax benefit from stock options                         (29,000)              0               0
   Provision for doubtful accounts                               (49,000)        (53,000)         12,000
   Changes in assets and liabilities:
      Increase in accounts receivable                         (5,282,000)     (1,793,000)     (3,128,000)
      (Increase) decrease  in inventories                     (3,492,000)      4,189,000       1,788,000
      Decrease (increase) in prepaid expenses and other
        current assets                                           118,000        (538,000)         67,000
      Decrease (increase) in other assets                        (49,000)         (3,000)       (313,000)
      Increase (decrease) in accounts payable and other
        current liabilities                                    3,009,000      (4,040,000)        534,000
                                                            ------------    ------------    ------------
      Net cash (used in) provided by operating activities     (3,118,000)       (587,000)      1,140,000
                                                            ------------    ------------    ------------
</TABLE>

                                      F-4
<PAGE>

--------------------------------------------------------------------------------
JACLYN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2006, 2005 AND 2004-(Continued)

<TABLE>
<CAPTION>
                                                            2006            2005            2004
                                                        ------------    ------------    ------------
<S>                                                     <C>             <C>             <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
-------------------------------------
   Purchases of property and equipment                      (172,000)       (449,000)       (290,000)
                                                        ------------    ------------    ------------
Net cash used in investing activities                       (172,000)       (449,000)       (290,000)
                                                        ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase  in notes payable - bank, net                  4,425,000       1,540,000         245,000
Payment of long-term debt                                   (153,000)       (143,000)       (133,000)
Exercise of stock options                                    141,000         314,000         174,000
Excess tax benefit from stock options                         29,000              --              --
Repurchase of common stock                                (1,113,000)       (408,000)       (576,000)
                                                        ------------    ------------    ------------
Net cash provided by (used in) financing activities        3,329,000       1,303,000        (290,000)
                                                        ------------    ------------    ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                     39,000         267,000         560,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                 893,000         626,000          66,000
                                                        ------------    ------------    ------------
CASH AND CASH EQUIVALENTS, END OF YEAR                  $    932,000    $    893,000    $    626,000
                                                        ------------    ------------    ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
   Interest                                             $    571,000    $    631,000    $    575,000
                                                        ------------    ------------    ------------
Income taxes                                            $    287,000    $  1,006,000    $    864,000
                                                        ------------    ------------    ------------
NON-CASH ITEMS:
Common stock repurchase and exercise of stock options   $     56,000    $     50,000    $    569,000
                                                        ------------    ------------    ------------
 Pension adjustment                                     $  2,321,000              --              --
                                                        ------------    ------------    ------------
Tax benefit of non-qualified stock option exercise      $         --    $     96,000    $         --
                                                        ------------    ------------    ------------
</TABLE>

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

                                      F-5
<PAGE>

--------------------------------------------------------------------------------
JACLYN, INC. AND SUBSIDIARIES
   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE EARNINGS
   (LOSS) YEARS ENDED JUNE 30, 2005, 2004, AND 2003

<TABLE>
<CAPTION>
                          COMMON STOCK                                                                        TREASURY STOCK
                    --------------------------                                                          --------------------------

                                                                            Accumulated
                                                                              Other         Compre-
                                                 Additional                   Compre-       hensive
                                                  Paid in       Retained      hensive       Earnings
                       Shares        Amount       Capital       Earnings      Loss           (Loss)         Shares        Amount
                    ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
<S>                    <C>        <C>           <C>           <C>           <C>           <C>                <C>      <C>
BALANCE, JULY 1,
  2003                 3,368,733  $  3,369,000  $ 12,117,000  $  8,258,000  $         --                     907,053  $  7,524,000

Net earnings                  --            --            --     1,458,000            --  $  1,458,000            --            --
Repurchase of
  Common Stock                --            --            --            --            --            --       289,301     1,145,000
Exercise of Stock
  Options                     --            --    (1,727,000)           --            --            --      (303,500)   (2,470,000)
                    ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
BALANCE, JUNE 30,
  2004                 3,368,733     3,369,000    10,390,000     9,716,000                                   892,854     6,199,000

Net earnings                  --            --                   1,049,000                $  1,049,000
Minimum Pension
  Liability, net
  of taxes                                                                    (1,653,000)   (1,653,000)           --            --
                                                                                          ------------
Other comprehensive
  earnings - net                                                                          $    604,000
                                                                                          ------------
Repurchase of
  Common Stock                --                                        --            --            --        71,203       458,000
Exercise of
  Stock Options               --            --      (720,000)           --            --            --      (170,000)   (1,180,000)
                    ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
BALANCE, JUNE 30,
  2005                 3,368,733  $  3,369,000  $  9,670,000  $ 10,765,000  $ (1,653,000)                    794,057  $  5,477,000
                    ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------

Net earnings                  --            --            --     1,530,000            --  $  1,530,000            --            --

Minimum Pension
  Liability,
  net of taxes                                                                               1,653,000
                                                                                          ------------
Other comprehensive
  earnings - net                                                                          $  3,183,000
                                                                                          ------------
Repurchase of
  Common Stock                --            --            --            --            --            --       158,457     1,170,000

Exercise of
  Stock Options               --            --      (254,000)           --            --            --       (67,000)     (467,000)

Value of stock
  options                     --            --       147,000            --            --            --            --            --
                    ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
BALANCE, JUNE 30,
  2006                 3,368,733  $  3,369,000  $  9,563,000  $ 12,295,000  $         --                     885,514  $  6,180,000
                    ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------
</TABLE>

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

                                      F-6
<PAGE>

JACLYN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

         Jaclyn, Inc. and its subsidiaries (the "Company") are engaged in the
design, manufacture, marketing and sale of apparel, handbags, accessories and
related products. The Company sells its products to retailers, including
department and specialty stores, national chains, major discounters and mass
volume and catalog retailers, throughout the United States.

         The consolidated financial statements include the accounts of the
Company and all of its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.

Use of Estimates

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

         The most significant estimates made by management include those made in
the areas of inventory, receivables, goodwill, deferred taxes, pensions, and
sales returns and allowances.

         Management periodically evaluates estimates used in the preparation of
the consolidated financial statements for continued reasonableness. Appropriate
adjustments, if any, to the estimates used are made prospectively based on such
periodic evaluations.

Cash and Cash Equivalents

         Cash in excess of daily requirements is invested in money market funds
with original maturities of three months or less. Such investments are presented
as cash equivalents.

Fair Value of Financial Instruments

         The carrying amount of cash, accounts receivable, accounts and notes
payable and accrued expenses are assumed to approximate fair value due to their
short maturities. The carrying value of the bank loan, which bears interest at a
variable rate, approximates fair value. The carrying value of the mortgage loan
approximates fair value based upon the relatively small change in interest rates
since inception of the mortgage.

Inventories

         Inventory is carried at the lower of cost on a first-in, first-out
basis, or market. Management writes down inventory for estimated obsolescence or
unmarketable inventory based upon assumptions about future demand and market
conditions.

                                      F-7
<PAGE>

Allowances for Doubtful Accounts/Sales Discounts

         The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments
and also maintains accounts receivable insurance on certain of its customers.

         The Company estimates reductions to revenue for customer programs and
incentive offerings including special pricing agreements, price protection,
promotions and other volume-based incentives, based on terms of the agreement
and/or historical experience.

License Agreements

         The Company enters into license agreements from time to time that
allows it to use certain trademarks and trade names on certain of its products.
These agreements require the Company to pay royalties, generally based on the
sales of such products, and may require guaranteed minimum royalties, a portion
of which may be paid in advance. The Company's accounting policy is to match
royalty expense with revenue by recording royalties at the time of sale at the
greater of the contractual rate or an effective rate calculated based on the
guaranteed minimum royalty and the Company's estimate of sales during the
contract period. If a portion of the guaranteed minimum royalty is determined
not to be recoverable, the unrecoverable portion is charged to expense at that
time. Guaranteed minimum royalties paid in advance are recorded in the
consolidated balance sheets as other assets. As of June 30, 2006 and 2005, there
were no advances.

         Royalty amounts expensed for each of the three fiscal years ended June
30, 2006, 2005, and 2004 were $551,000, $534,000, and $1,119,000, respectively.

Property, Plant and Equipment

         Property, plant and equipment are stated at cost. The Company provides
for depreciation and amortization on the straight-line method over the following
estimated useful lives:

         Buildings                            25 to 40 years
         Machinery and equipment              5 years
         Furniture and fixtures               5 years
         Leasehold improvements               Lesser of estimated useful life of
                                                the asset or life of the lease
         Automobiles and trucks               3 to 5 years


Intangibles

         Intangibles, included in other assets, are being amortized on a
straight-line basis over periods not exceeding 10 years.

         Other intangibles totaling $55,000 as of June 30, 2006, net of
accumulated amortization of $45,000, included in "Other Assets", consist of
amounts allocated to trade names and patents relating to the acquisition of
Topsville, Inc. The Company incurred $10,000 of amortization expense in 2006,
2005 and 2004. Additional annual amortization expense of $10,000 will be
incurred through 2011.

                                      F-8
<PAGE>

Impairment of Finite-Lived Assets

         The Company evaluates finite-lived assets in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets." Finite-lived assets are evaluated
for recoverability in accordance with SFAS No. 144 whenever events or changes in
circumstances indicate that an asset may have been impaired. In evaluating an
asset for recoverability, the Company estimates the future cash flows expected
to result from the use of the asset and eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss, equal to the excess
of the carrying amount over the fair market value of the asset, is recognized.

Goodwill

         The Company accounts for goodwill under SFAS No. 142, "Goodwill and
Other Intangible Assets." Under SFAS No. 142, goodwill is not amortized, but is
reviewed for impairment annually or more frequently if certain indicators arise.
Management believes at this time, based on the valuation process undertaken,
that the carrying value continues to be appropriate.



Revenue Recognition

         Revenue is recognized at the time merchandise is shipped or received by
a third party consolidator, normally the same day as the shipment. The Company
offers various sales discounts and incentives to its customers. These discounts
and incentives are recorded at the time of sales as a reduction of sales based
on historical experience and the terms of agreements, if any, between the
Company and its customers. Products are shipped directly to customers using
third party carriers. The customer takes title and assumes the risks and rewards
of ownership of the products when the merchandise leaves the Company's warehouse
or is received by a third party consolidator, as applicable.

Shipping and Handling Costs

         Included in Shipping, Selling and Administrative Expenses are all
shipping and handling costs incurred by the Company, except for amounts billed
to a customer in a sale transaction related to shipping and handling which are
included in revenues. Shipping and handling reimbursements included in revenue
amounted to approximately $14,000, $2,000 and $7,000 for the years ended June
30, 2006, 2005, and 2004, respectively.

Cost of Goods Sold

         Cost of goods sold includes the following: purchasing and receiving
costs, factory inspections, customs duty, freight (including ocean and air
freight), marine insurance, brokerage, in-bound trucking and other freight,
internal transfer costs and other costs of our distribution network.

Shipping, Selling, and Administrative Expenses

         Shipping, selling, and administrative expenses include the following:
public warehousing, carton and shipping expenses, warehouse supervision,
salesmen's salaries and commissions, showroom costs, salesperson's travel and

                                      F-9
<PAGE>

entertainment and other miscellaneous costs relating to the selling of products,
design and sample making, accounting and computer costs, management and general
supervisory costs and related overhead. Charges recorded in the consolidated
statement of operations for shipping and handling costs amounted to $2,162,000,
$2,843,000, and $2,804,000 for the years ended June 30, 2006, 2005 and 2004,
respectively.

         The Company currently leases approximately 70,000 square feet of its
West New York, New Jersey facility to outside parties. This rental income,
amounting to approximately $247,000, $256,000 and $238,000 in fiscal 2006, 2005
and 2004, respectively, is used to offset a portion of the operating cost of the
building and, as such, is included in our shipping, selling and administrative
expenses.


Income Taxes

         The Company accounts for income taxes in accordance with SFAS 109,
"Accounting for Income Taxes." Under SFAS 109, a deferred tax liability or asset
is recognized for the estimated future tax consequences of temporary differences
between the carrying amount of assets and liabilities in the financial
statements and their respective tax bases.

Share-Based Compensation

         The Company accounts for share-based compensation in accordance with
SFAS 123R, "Share-Based Payment." Accordingly, the Company measures the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award.




         Segment Reporting

         The Company operates in a single operating segment - the manufacture of
apparel, women's handbag and related accessories. Revenues from customers are
derived from merchandise sales. The Company's merchandise sales mix by product
category for the last three years was as follows:

                                                Year ended June 30,
                                     ----------------------------------------
          Product Category              2006           2005           2004
        --------------------         ----------     ----------     ----------
        Apparel                              64%            70%            77%
        Handbags                             36%            30%            23%
                                     ----------     ----------     ----------
                                            100%           100%           100%

         During the years ended June 30, 2006, 2005 and 2004, sales revenues
derived from one customer were 42%, 44% and 41%, respectively. Sales to a second
customer were 22%, 19% and 14%, and to a third customer were 5%, 8% and 13%,
respectively. Management believes that the loss of any one of these customers
would have a material adverse effect on the Company's operations.

                                      F-10
<PAGE>

At June 30, 2006 and 2005, accounts receivable due from one customer were 46%
and 58%, respectively, and accounts receivable due from a second customer at
both June 30, 2006 and June 30, 2005 was 29% of total accounts receivable.
Should either customer not be able to pay any substantial obligation to the
Company, however, management believes that such a failure to pay would have a
material adverse effect on the Company's operating results. No other customer
comprised 10% or more of our total net accounts receivable as at either of those
dates.

         The Company relies on suppliers to purchase a variety of finished
goods. The Company had one supplier who in the aggregate constituted 18% and 12%
of the Company's finished goods purchases for the year ended June 30, 2006 and
2005, respectively. Management believes that the loss of this supplier would not
have a material adverse effect on the Company's operations since there are
alternative suppliers available.


         New Accounting and Financial Reporting Pronouncements

     In November 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS 151, "Inventory Costs - an amendment of ARB 43, Chapter 4." SFAS 151 is an
amendment of Accounting Research Board Opinion 43 and sets standards for the
treatment of abnormal amounts of idle facility expense, freight, handling costs
and spoilage. SFAS 151 is effective for fiscal years beginning after June 15,
2005. The adoption of SFAS 151 did not have a material impact on the Company's
consolidated financial statements.

     In December 2004, the FASB issued Staff Position ("FSP") 109-2, "Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004." FSP 109-2 provides guidance under SFAS
109, "Accounting for Income Taxes," with respect to recording the potential
impact of the repatriation provisions of the American Jobs Creation Act of 2004
(the "Jobs Act") on enterprises' income tax expense and deferred tax liability.
FSP 109-2 states that an enterprise is allowed time beyond the financial
reporting period of enactment to evaluate the effect of the Jobs Act on its plan
for reinvestment or repatriation of foreign earnings for purposes of applying
SFAS 109. As the Company did not make any dividends under this provision, FSP
109-2 did not have a material impact on the Company's consolidated financial
statements.

     In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion 29," which eliminates certain narrow
differences between APB 29 and international accounting standards. SFAS 153 is
effective for fiscal periods beginning on or after June 15, 2005. The adoption
of SFAS 153 did not have a material impact on the Company's consolidated
financial statements.

     In December 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based
Payment," which is a revision of SFAS 123, "Accounting for Stock-Based
Compensation." SFAS 123R supersedes Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees." The pronouncement requires an entity
to measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award. That cost
will be recognized over the period during which an employee is required to
provide service in exchange for the award - the requisite service period
(typically the vesting period).

                                      F-11
<PAGE>

     In November 2005, the FASB issued FSP 123R-3, "Transition Election to
Accounting for the Tax Effects of Share-Based Payment Awards." This FSP provides
an alternative transition method for calculating the pool of excess tax benefits
available to absorb tax deficiencies recognized subsequent to the adoption of
Statement 123R. The Company adopted the alternative transition method, and
determined that there is no excess tax pool.

     In March 2005, the SEC issued Staff Accounting Bulletin ("SAB") 107
"Share-Based Payment." SAB 107 expresses views of the SEC staff regarding the
interaction between SFAS 123R and certain SEC rules and regulations and provides
the staff's views regarding the valuation of share-based payment arrangements.
The Company adopted SFAS 123R effective July 1, 2005. See Footnote F for further
information.

     In March 2005, the FASB issued SFAS Interpretation Number ("FIN") 47,
"Accounting for Conditional Asset Retirement Obligations." FIN 47 provides
clarification regarding the meaning of the term "conditional asset retirement
obligation" as used in FASB 143, "Accounting for Asset Retirement Obligations."
This Interpretation is effective no later than the end of fiscal years ending
after December 15, 2005. The adoption of FIN 47 did not have a material impact
on the Company's consolidated financial statements.

     In June 2005, the Emerging Issues Task Force ("EITF") reached consensus on
EITF 05-6, "Determining the Amortization Period for Leasehold Improvements."
Under EITF 05-6, leasehold improvements placed in service significantly after
and not contemplated at or near the beginning of the lease term, should be
amortized over the lesser of the useful life of the assets or a term that
includes renewals that are reasonably assured at the date the leasehold
improvements are purchased. EITF 05-6 is effective for periods beginning after
June 29, 2005. The adoption of EITF 05-6 did not have a material impact on the
Company's consolidated financial statements.


     In June 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement 109," which clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial
statements in accordance with FAS 109, "Accounting for Income Taxes." FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company is currently evaluating the impact of FIN 48 on
the Company's consolidated financial statements.


     NOTE B - INVENTORIES

         Inventories consist of the following:

                                                         June 30,
                                               ---------------------------
                                                   2006           2005
                                               ------------   ------------
                   Raw material                $    692,000   $     22,000
                   Work in process                   49,000         41,000
                   Finished goods                 6,439,000      3,625,000
                                               ------------   ------------
                                               $  7,180,000   $  3,688,000
                                               ============   ============

                                      F-12
<PAGE>

     NOTE C - PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment is summarized as follows:

                                                         June 30,
                                               ---------------------------
                                                   2006           2005
                                               ------------   ------------
              Land                             $    162,000   $    162,000
              Buildings                           1,181,000      1,181,000
              Machinery and equipment             1,288,000      1,292,000
              Furniture and fixtures                417,000        388,000
              Leasehold improvements              1,435,000      1,384,000
              Automobiles and trucks                 77,000         77,000
                                               ------------   ------------
                                                  4,560,000      4,484,000
              Less: accumulated depreciation
                and amortization                  3,530,000      3,336,000
                                               ------------   ------------
                                               $  1,030,000   $  1,148,000
                                               ============   ============


         Included in Property, Plant and Equipment as of June 30, 2006 is
$451,000 of net assets held for sale relating to the option contract for the
purchase the Company's West New York, NJ headquarters facility.

         Depreciation and amortization expense of $290,000, $370,000 and
$368,000 was recorded during the years ended June 30, 2006, 2005 and 2004,
respectively

     NOTE D - COMMITMENTS AND CONTINGENCIES

         The Company leases office facilities under non-cancelable leases, with
escalation clauses, that expire in various years through the year ended June 30,
2011.

         Future minimum payments under non-cancelable operating leases with
initial or remaining terms of one year or more are as follows:

                   Year Ended                 Office and Showroom
                    June 30,                       Facilities
                   ----------                 -------------------
                      2007                             $1,075,000
                      2008                                699,000
                      2009                                 44,000
                      2010                                 33,000
                      2011                                 33,000


         Rental expense, including real estate taxes, for all operating leases,
totaled $1,323,000, $1,268,000, and $1,145,000 for the years ended June 30,
2006, 2005 and 2004, respectively. The Company currently leases approximately
70,000 square feet of its West New York, New Jersey facility to outside parties.
Rental income in fiscal 2006, 2005 and 2004 was $247,000, $256,000 and $238,000,
respectively, and is included in shipping, selling and administrative expenses
as an offset to operating costs of the facility.

                                      F-13
<PAGE>

         The Company has entered into licensing arrangements with several
companies. The Company is obligated, in certain instances, to pay minimum
royalties over the term of the licensing agreements which expire in various
years through 2008. Aggregate minimum commitments by fiscal year are as follows:

                    Year Ended                      Minimum
                     June 30,                     Commitments
                    ----------                    -----------
                       2007                          $291,000
                       2008                           119,000


         From time to time, the Company and its subsidiaries may be subject to
claims and may become a party to legal proceeding which arise in the normal
course of business. At June 30, 2006, there were no material, pending legal
proceedings or material claims to which the Company was a party. In the opinion
of management, disposition of all claims and legal proceedings is not expected
to materially affect the Company's financial position, cash flows or results of
operations.

         The Company has not provided any financial guarantees as of June 30,
2006 and 2005.

      NOTE E - CREDIT FACILITIES

         In September 2006, the Company amended its existing bank credit
facility. The amended facility, which expires December 1, 2008, provides for
short-term loans and the issuance of letters of credit in an aggregate amount
not to exceed $50,000,000. Based on a borrowing formula, the Company may borrow
up to $30,000,000 in short-term loans and up to $50,000,000 including letters of
credit. The borrowing formula allows for an additional amount of borrowing
during the Company's peak borrowing season from June to October. Substantially
all of the Company's assets are pledged to the bank as collateral (except for
the West New York, New Jersey facility, which has been separately mortgaged as
noted below). The line of credit requires that the Company maintain a minimum
tangible net worth, as defined, and imposes certain debt to equity ratio
requirements. The Company was in compliance with all applicable financial
covenants as of June 30, 2006. As of June 30, 2006, borrowing on the short-term
line of credit was $10,185,000, and at that date the Company had $12,075,000 of
additional availability (based on the borrowing formula) under the credit
facility. At June 30, 2006 the Company was contingently obligated on open
letters of credit with an aggregate face amount of approximately $17,740,000.
Borrowing during the year was at the bank's prime rate or below, at the option
of the Company. The bank's prime rate at June 30, 2006 was 8.25%.

         During fiscal 2006, the average amount outstanding under the short-term
line was $7,289,000 with a weighted average interest rate of 6.49%. During 2005,
the average amount outstanding under the short-term line was $8,503,000 with a
weighted average interest rate of 5.22%. The maximum amount outstanding during
fiscal 2006 and fiscal 2005 was $13,280,000 and $23,930,000, respectively.

         In August 2002, the Company consummated a mortgage loan in the amount
of $3,250,000. The financing is secured by a mortgage of the Company's West New
York, New Jersey headquarters and warehouse facility. The mortgage loan bears
interest at a fixed rate of 7% per annum. The financing has a fifteen-year term,
but is callable by the bank lender at any time after September 1, 2007 and may
be prepaid by the Company, along with a prepayment fee, from time to time during
the term of the financing. At June 30, 2006 and 2005, the outstanding balance of
the mortgage loan was $2,727,000 and $2,880,000, respectively. Principal
mortgage payments for the next five years and thereafter, are as follows:

                                      F-14
<PAGE>

                           2007              $     164,000

                           2008                    176,000

                           2009                    189,000

                           2010                    203,000

                           2011                    218,000

                           Thereafter            1,777,000



        NOTE F - STOCK OPTIONS

      On July 1, 2005, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123(R), Share-Based Payment, a revision of
SFAS No. 123, Accounting for Stock-Based Compensation, or SFAS No. 123(R), as
interpreted by SEC Staff Accounting Bulletin No. 107. Under SFAS No. 123(R), all
forms of share-based payment to employees and directors, including stock
options, must be treated as compensation and recognized in the income statement.
The Company recognized $147,000 ($147,000 after-tax, or $.06 per diluted share)
in compensation expense related to stock options during fiscal 2006. Previous to
the adoption of SFAS No. 123(R), the Company accounted for stock options under
the provisions of Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and, accordingly, did not recognize compensation
expense in our consolidated financial statements. The Company selected the
modified prospective method of transition method provided under SFAS No. 123(R),
and consequently, has not retroactively adjusted results from prior periods.
Under this method, in addition to reflecting compensation expense for new
share-based awards, expense is also recognized to reflect the remaining service
period of awards that have been included in pro-forma disclosures in prior
periods. All stock options granted by the Company as of the adoption date, had
been fully vested upon grant. Accordingly, as of July 1, 2005, the effective
date of SFAS No. 123R), the Company had no unrecognized compensation cost
related to stock awards as the Company has historically granted options that
vested immediately .

      Under SFAS No. 123(R), the Company is required to select a valuation
technique or option-pricing model that meets the criteria as stated in the
standard, which includes a binomial model and the Black-Scholes model. At the
present time, the Company will continue to use the Black-Scholes model, which
requires the input of subjective assumptions. These assumptions include
estimating the length of time employees will retain their vested stock options
before exercising them ("expected term"), the estimated volatility of the
Company's common stock price over the expected term and the number of options
that will ultimately not complete their vesting requirements ("forfeitures").
Changes in the subjective assumptions can materially affect the estimate of fair
value of stock -- based compensation and consequently, the related amount
recognized in the consolidated statements of income.

                                      F-15
<PAGE>

      In November 2005, the FASB issued FASB Staff Position No. FAS 123R-3
"Transition Election Related to Accounting for Tax Effects of Share-Based
Payment Awards." The Company elected to adopt the alternative transition method
provided in the FASB Staff Position for calculating the tax effects of
stock-based compensation pursuant to SFAS No. 123(R). The alternative transition
method includes simplified methods to establish the beginning balance of the
additional paid-in capital pool ("APIC pool") related to the tax effects of
employee stock-based compensation, and to determine the subsequent impact on the
APIC pool and Consolidated Statements of Cash Flows of the tax effects of
employee stock-based compensation awards that are outstanding upon adoption of
SFAS No. 123(R).

      Prior to the adoption of SFAS No. 123(R), the Company presented all tax
benefits resulting from the exercise of stock options as operating cash flows in
the Condensed Consolidated Statement of Cash Flows. SFAS No. 123(R) requires
that cash flows resulting from tax deductions in excess of the cumulative
compensation cost recognized for options exercised be classified as financing
cash flows. Previously, all tax benefits from stock options had been reported as
an operating activity. For the year ended June 30, 2006, net cash used in
operating activities decreased, and cash provided by financing activities
increased, by $29,000 related to excess tax benefits realized from the exercise
of stock options.

      The Company maintains two stockholder-approved Stock Option Plans for key
employees and consultants of the Company and one non-employee director plan.

         The Company's 2000 Stock Option Plan, as amended ( the "2000 Plan"),
provided for the grant of options to purchase up to 300,000 shares of Common
Stock, and was amended during fiscal 2004 to increase the number of shares of
Common Stock for which options may be granted by an additional 250,000 shares,
for a total of 550,000 shares. The 1990 Stock Option Plan of the Company, as
amended (the "1990 Plan"), provided for the grant of an aggregate of 500,000
shares of Common Stock. Options may no longer be granted under the 1990 Plan,
although at June 30, 2006 the plan remains in effect for options outstanding.
The Company also has the 1996 Non-Employee Director Stock Option Plan (the "1996
Plan"). No further options are being granted under the 1996 Plan, but it remains
in effect for options outstanding.

      We have stock option plans under which we may grant qualified and
non-qualified stock options to purchase shares of our common stock to
executives, consultants, directors, or other key employees. As of June 30, 2006,
152,000 shares were available for future grant under our plans. Stock options
may not be granted at less than the fair market value at the date of grant or
110% of the fair market value for individuals who own or are deemed to own more
than 10% of the combined voting power of all classes of stock of the company.
Stock options generally vest immediately and expire after ten years.

         Stock option transactions are summarized below:

                                      F-16
<PAGE>

<TABLE>
<CAPTION>
                                  2006                       2005                        2004
                        ------------------------   ------------------------   -------------------------
                                       Weighted                   Weighted                    Weighted
                                       Average                    Average                     Average
                                       Exercise                   Exercise                    Exercise
                           Shares       Price         Shares       Price         Shares        Price
<S>                       <C>         <C>            <C>         <C>             <C>        <C>
Outstanding -
   beginning of year       182,500    $     3.07      377,500    $     2.26      720,161    $     2.95
Granted                     57,500          8.24       10,000          6.70       10,000          1.95
Exercised                  (67,000)         2.83     (170,000)         2.19     (303,500)         2.45
Expired                    (17,000)         3.22      (25,000)         4.13      (39,161)         9.54
Forfeited                       --                    (10,000)         2.65      (10,000)         2.21
                        ----------    ----------   ----------    ----------   ----------    ----------
Outstanding and
exercisable end of
year                       156,000    $     5.03      182,500    $     3.07      377,500    $     2.26
                                      ----------                 ----------                 ----------
Weighted-average fair
value of options
granted during the
year                                  $     2.56                 $     6.61                 $     4.81
                                      ----------                 ----------                 ----------
</TABLE>

         The intrinsic value for outstanding and exercisable options at June 30,
2006 is $358,000. The total intrinsic value of options exercised during fiscal
2006, 2005 and 2004 was $336,000, $659,000 and $349,000, respectively.

         During the fiscal year ended June 30, 2006 and June 30, 2005, the
Company issued an aggregate of 67,000 shares and 50,000 shares of its Common
Stock, respectively, upon the exercise by employees and a Director of the
Company (the "optionees") of stock options previously granted. The Company
received an aggregate of $141,000 and $63,258, respectively in cash from the
optionees in partial payment of the exercise price for the issued shares. The
Company also received an aggregate of 6,838 (totaling approximately $56,000) and
6,632 (totaling approximately $50,000) mature shares of Common Stock,
respectively, from the optionees in partial payment of the exercise price for
the issued shares under terms of the stock option plan under which the stock
options were granted. The stock option plan permits the use of previously
acquired shares of Common Stock in full or partial payment of the applicable
exercise price.

         In August 2004, a sales representative of the Company exercised
non-qualified stock options to purchase 120,000 shares of the Company's Common
Stock at $2.10 per share, or $252,000. The shares related to these options were
issued from the Company's treasury shares at an average cost of $6.94 per share,
or approximately $832,800.

         During the fiscal year ended June 30, 2004, certain officers of the
Company exercised options to purchase 290,500 shares of the Company's Common
Stock. As permitted by the applicable stock option plan and contracts governing
the options, the officers tendered to the Company and the Company purchased, in
partial payment of the exercise price for 210,500 of these options, 164,141
mature shares of Common Stock, with a market value of $569,000. During the same
period, the Company repurchased 4,725 shares from employees who received
distributions from the Company's ESOP at a price of $19,000.

                                      F-17
<PAGE>

         The following table summarizes information about stock options
outstanding at June 30, 2006:

<TABLE>
<CAPTION>
                                        Options Outstanding and Exercisable
-------------------------------------------------------------------------------------------------------------------
                                                                    Weighted Average
                                       Number Outstanding at      Remaining Contractual         Weighted Average
    Range of Exercise Prices               June 30, 2006                Life (Yrs)               Exercise Price
--------------------------------       ----------------------    -----------------------     ----------------------
<S>                                                   <C>                          <C>                        <C>
$1.65 to $2.10                                         18,500                      5.938                      $1.65
$2.21 to $2.88                                         46,000                      4.118                       2.54
$3.15 to $3.75                                         10,000                      3.975                       3.39
$4.38 to $5.13                                         17,000                      3.948                       4.75
$6.00 to $6.90                                          8,000                      8.419                       6.70
$7.70 to $8.50                                         57,500                      9.900                       8.24
                                       ----------------------    -----------------------     ----------------------
Totals                                                156,000                      6.050                      $5.03
                                       ----------------------    -----------------------     ----------------------

         Prior to fiscal 2006, no compensation expense was recognized for stock
options. Had compensation cost for our stock option plans been determined
consistent with SFAS No. 123(R), our net income and earnings per share for the
fiscal 2005 and 2004 would have been reduced to the following pro forma amounts:

<CAPTION>

Net earnings - Years ended  June, 30                               2005             2004
                                                                ----------       ----------
<S>                                                             <C>              <C>
   As reported                                                  $1,049,000       $1,458,000
   Deduct:  Total stock based employee compensation
            expense determined under fair value based
            method, net of taxes                                    36,000           26,000
                                                                ----------       ----------
   Pro forma Net Earnings                                       $1,013,000       $1,432,000
                                                                ----------       ----------

Basic net earnings per share:
----------------------------
   As reported                                                  $      .40       $      .58
   Pro forma                                                    $      .39       $      .57
                                                                ----------       ----------
Diluted net earnings per share:
------------------------------
   As reported                                                  $      .39       $      .54
   Pro forma                                                    $      .37       $      .53
                                                                ----------       ----------
</TABLE>

The weighted average fair value of stock options was calculated with the
following weighted average assumptions used for grants in their respective
periods. For 2006: no dividend yield; expected volatility of 45.3%; risk free
interest rate of 4.95%; and expected life of 2.83 years. For 2005: no dividend
yield; expected volatility of 164%; risk free interest rate of 1.75%; and
expected life of 10 years. For 2004: no dividend yield; expected volatility of
161%; risk free interest rate of 3.25%; and expected life of 10 years.

                                      F-18
<PAGE>

NOTE G - PREFERRED STOCK

         The Board of Directors of the Company has authority (without action by
the stockholders) to issue the authorized and unissued preferred stock in one or
more series and, within certain limitations, to determine the voting rights,
preference as to dividends and in liquidation, conversion and other rights of
each such series. No shares of preferred stock have been issued.

NOTE H - INCOME TAXES

         The components of the Company's tax provision (benefit) for the years
ended June 30, 2006, 2005 and 2004 are as follows:

                                                June 30,
                               ------------------------------------------
                                   2006           2005           2004
                               ------------   ------------   ------------
           Current:
           Federal             $    252,000   $     75,000   $    545,000
           State and Local           67,000         78,000         79,000
           Foreign                  183,000        193,000        216,000
                               ------------   ------------   ------------
                                    502,000        346,000        840,000
           Deferred:
           Federal and State        679,000        320,000        344,000
                               ------------   ------------   ------------
           Provision           $  1,181,000   $    666,000   $  1,184,000
                               ============   ============   ============

         Reconciliation between the provision for income taxes computed by
applying the federal statutory rate to income before income taxes and the actual
provision for income taxes is as follows:

                                      F-19
<PAGE>

<TABLE>
<CAPTION>
                                                              June 30,
                                               ---------------------------------------
                                                  2006          2005           2004
                                               ----------    ----------     ----------
<S>                                                  <C>           <C>            <C>
Provision (benefit) for income taxes at              34.0%         34.0%          34.0%
   statutory rate
State and local income taxes net of federal           4.1           4.2            3.5
tax benefit
Expired foreign tax credits                            --            --            0.7
Valuation Allowance for expiring foreign tax           --          (2.0)           3.5
credits

Other                                                 5.5           2.6            3.1
                                               ----------    ----------     ----------
Effective tax rate percent                           43.6%         38.8%          44.8%
                                               ==========    ==========     ==========
</TABLE>

         A valuation allowance was established in the year ended June 30, 2004
for foreign tax credits that were expected to expire. For the year ending June
30, 2005, the Company's projections of taxable income indicated that the Company
would have taxable income throughout the foreseeable future, and there was no
evidence which suggested that the net deferred tax asset would not be realized.
Accordingly, a valuation allowance was no longer required.

         Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Foreign tax
credits are expected to expire through June 30, 2011. The income tax effects of
significant items comprising the Company's net deferred tax assets and
liabilities as of June 30, 2006 and 2005 are as follows:

<TABLE>
<CAPTION>
                                                                      June 30,
                                             -----------------------------------------------------------
                                                          2006                           2005
                                             ----------------------------   ----------------------------

                                                Assets       Liabilities       Assets       Liabilities
                                             ------------    ------------   ------------    ------------
<S>                                          <C>             <C>            <C>             <C>
     Depreciation and amortization           $    100,000    $         --   $    165,000    $         --
     State net operating loss carryforward         68,000              --         51,000              --
     Foreign taxes                                 13,000              --        220,000              --
     Pension Benefit Obligation                        --              --      1,111,000              --
     Inventory                                    306,000              --        190,000              --
     State net operating loss carryforward
     valuation allowance                          (68,000)             --        (51,000)             --
     Bad debt, sales allowances and other
     reserves                                          --          84,000        164,000              --
     Other                                        174,000              --        435,000              --
                                             ------------    ------------   ------------    ------------
                                             $    593,000    $     84,000   $  2,285,000    $         --
                                             ============    ============   ============    ============
</TABLE>

         During the year ending June 30, 2006, the Company increased the
valuation allowance for separate return state net operating losses by $17,000
since there is not enough evidence to suggest that these separate state net
operating losses will be utilized.

           At June 30, 2006, the Company had a deferred tax asset related to net
operating loss carry forwards of approximately $1,082,000 that could be utilized
to reduce the tax liabilities of future years. The carry forwards expire between
2008 and 2025.

                                      F-20
<PAGE>

NOTE I - EMPLOYEES' BENEFIT PLANS

On November 30, 2005, the Company decided to terminate, effective January 31,
2006, its defined-benefit pension plan for certain of its salaried and hourly
personnel. Accordingly, participants under the plan stopped accruing benefits as
of January 31, 2006. The plan had provided pension benefits that were based on a
fixed amount of compensation per year of service, career average pay or on the
employee's compensation during a specified number of years before retirement. As
of January 31, 2006, the Company recorded a curtailment of approximately
$1,294,000 as a reduction of the Company's unrecognized net actuarial loss,
which had no impact on the Company's Balance Sheet or Statement of Operations
through that date. However, since no further benefits to participants are
accruing, the termination of the defined-benefit plan has reduced pension costs
beginning February 1, 2006 and for the remainder of the fiscal year ended June
30, 2006. Similarly, the Company's 2007 (and after) fiscal year pension cost
relevant to this pension plan will be reduced and eventually eliminated when the
pension funds are ultimately distributed to all of the plan participants.
Beginning in fiscal 2007, the Company established a new 401(k) benefit plan for
certain of its salaried and hourly employees which is expected to have a lower
employee benefit cost than the terminated pension plan.

         A change in the mortality table used to determine the pension plan
balance sheet liability as of June 30, 2005 and future net periodic pension cost
was made during the fourth quarter of fiscal 2005. The mortality table used to
calculate the liability as of June 30, 2005 is the "1994 Group Annuity Reserving
Table (Projected to 2002)". As of June 30, 2006, an additional minimum liability
was not necessary because the accumulated benefit obligation was less than the
fair value of the Plan's assets. The Company's funding policy is to make annual
contributions required by the Employee Retirement Income Security Act of 1974.

<TABLE>
<CAPTION>
                                                          Fiscal Year Ended June 30,
                                                         ----------------------------
                                                              2006            2005
-------------------------------------------------------------------------------------
<S>                                                      <C>             <C>
CHANGE IN BENEFIT OBLIGATION:
Net benefit obligation at beginning of year              $  7,366,000    $  5,590,000
   Service cost                                               314,000         389,000
Interest cost                                                 334,000         295,000
Actuarial (gain) loss                                      (1,903,000)      1,820,000
Benefits paid                                                (109,000)       (727,000)
                                                         ------------    ------------
Net benefit obligation at end of year                    $  6,002,000    $  7,367,000
                                                         ------------    ------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year           $  5,199,000    $  5,297,000
Employer contributions                                      1,073,000         752,000
Benefits paid                                                (109,000)       (727,000)
Actual (loss) gain on plan assets                             147,000         123,000
                                                         ------------    ------------
Fair value of plan assets at end of year                 $  6,310,000    $  5,199,000
                                                         ------------    ------------
Funded status at end of year                                  308,000      (2,168,000)
Unrecognized net actuarial loss                             2,013,000       3,954,000
                                                         ------------    ------------
Net amount recognized                                    $  2,321,000    $  1,786,000
                                                         ------------    ------------
</TABLE>

                                      F-21
<PAGE>

<TABLE>
<CAPTION>
                                                          Fiscal Year Ended June 30,
                                                         ----------------------------
                                                              2006            2005
                                                         ------------    ------------
<S>                                                      <C>             <C>
Amounts recognized in the consolidated balance sheets:
(Accrued) prepaid benefit cost                           $  2,321,000    $   (300,000)
Accumulated other comprehensive income                             --       2,086,000
                                                         ------------    ------------
Net amount recognized                                    $  2,321,000    $  1,786,000
</TABLE>


Information for pension plans with an accumulated benefit obligation in excess
of plan assets follows:

Fiscal Year Ended June 30,                               2006            2005
Projected benefit obligation                        $  6,002,000    $  7,367,000
Accumulated benefit obligation                         6,002,000       6,176,000
Fair value of plan assets                              6,310,000       5,199,000


         Pension expenses includes the following components:

<TABLE>
<CAPTION>
Fiscal Years Ended June 30,                     2006            2005            2004
                                            ------------    ------------    ------------
<S>                                         <C>             <C>             <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost                                $    314,000    $    389,000    $    332,000
Interest cost                                    334,000         295,000         278,000
Return on assets                                (323,000)       (319,000)       (178,000)
Other actuarial items - net                      213,000         101,000         (48,000)
                                            ------------    ------------    ------------
Net periodic pension cost                   $    538,000    $    466,000    $    384,000
                                            ------------    ------------    ------------
</TABLE>

         Assumptions used to determine Benefit Obligation at June 30, 2006 and
2005 are as follows:


                                                         2006             2005
                                                        ------           ------
Discount rate                                            6.00%            4.70%
Expected long-term return on plan assets                 5.75%            5.75%
Rate of compensation increase                              0%             3.00%

                                      F-22
<PAGE>

         Assumptions used in determining the net periodic cost:

                                                    2006       2005        2004
                                                   ------     ------      ------
   Discount rate                                    4.70%      5.50%       5.75%
   Rate of increase in compensation levels          1.70%      3.75%       3.75%
   Expected long-term rate of return on assets      5.75%      6.00%       6.00%

         The expected long-term return on plan assets assumption represents the
average rate that the Company expects to earn over the long-term on assets
(primarily high-grade government bonds) in the Company's Pension Plan,
including, if any, interest income and capital appreciation. The assumption has
been determined based on expectations regarding future rates of return for the
plan's investment portfolio.

         The Company has the responsibility to formulate the investment policy
and strategy for the Pension Plan's assets. The overall policy and strategy
includes maintaining the highest return, with the lowest assumed risk, while
striving to have the Plan fully-funded.

         The Company has retained the professional services of a bond broker,
which selects for investment high-grade government bonds, consistent with the
Company's risk and investment strategy. This broker has investment discretion
over the assets placed under its management, provided it is within the Company's
risk and investment strategy.

         The table below represents the Company's pension plan asset allocation
at June 30, 2006 and 2005 by asset category.

<TABLE>
<CAPTION>
                                                                 Asset Allocation
                                                           ----------------------------
                          Asset Category                       2006            2005
              ------------------------------------------   ------------    ------------
<S>                                                                 <C>             <C>
              Debt securities                                        99%             91%
              Other, primarily cash and cash equivalents              1%              9%
                                                           ------------    ------------
              Total                                                 100%            100%
                                                           ------------    ------------
</TABLE>

         The Company expects to contribute approximately $300,000 to its defined
benefit pension plan during the fiscal year ending June 30, 2007, based on the
current discount rate.

                                      F-23
<PAGE>

         The plan termination is in the process of being submitted to the IRS
for approval. Should the plan termination receive IRS approval during the 2007
fiscal year, the payments will be made to the plan participants. The actual
payment will be based on the applicable IRS rates for lump sum payments. Based
on current rates, the payout is expected to be approximately $6,500,000.

         The Company had maintained a non-contributory Employee Stock Ownership
Plan (the "ESOP") and Trust, for its employees who were not covered by a
collective bargaining agreement. The ESOP was terminated during fiscal 2005, and
vested amounts distributed to all participants. As an accommodation to
non-management participants in the ESOP, the Company offered to purchase the
shares of Common Stock each non-management participant was entitled to receive
upon termination of the ESOP. At June 30, 2005, all but two non-management
participants elected to have the Company purchase their shares (a total of
51,280 shares) at market value (which aggregated approximately $310,000) on the
date of election. There was no ESOP expense for the years ended June 30, 2005
and 2004.

         The Company has a 401(K) savings plan for the benefit of its Topsville,
Inc. employees, which existed prior to the Company's acquisition of Topsville.
No contributions by the Company were made during fiscal 2006, 2005 and 2004.

         In December 2004 the Company entered into an amendment to its
collective bargaining agreement with Local 62-32, UNITE, AFL-CIO, which covers
all 9 of Jaclyn's union employees. The term of the agreement was extended until
October 31, 2006. The agreement allowed the Company, in its discretion, to
withdraw from the Union's multi-employer pension plan and the Company withdrew
in fiscal 2004. On March 31, 2006, the Company reached a final agreement with
the Union whereby the present value of the Company's unfunded pension obligation
to the Union's multi-employer plan was settled for $545,191. This amount had
been previously recorded by the Company as a charge to Shipping, selling and
administrative expenses, and was paid during the year ended June 30, 2006.

                                      F-24
<PAGE>

NOTE J - NET EARNINGS PER SHARE

         The Company's calculation of Basic and Diluted Net Earnings Per Share
are as follows:

<TABLE>
<CAPTION>
                                                           Year Ended June 30,
                                              ------------------------------------------
                                                  2006           2005           2004
                                              ------------   ------------   ------------
<S>                                           <C>            <C>            <C>
Basic Net Earnings Per Share:
Net Earnings                                  $  1,530,000   $  1,049,000   $  1,458,000
                                              ------------   ------------   ------------
Basic Weighted Average Shares Outstanding        2,480,000      2,596,000      2,531,000
                                              ------------   ------------   ------------
Basic Net Earnings Per Common Share           $        .62   $        .40   $        .58
                                              ------------   ------------   ------------
Diluted Net Earnings Per Share:
Net Earnings                                  $  1,530,000   $  1,049,000   $  1,458,000
                                              ------------   ------------   ------------
Basic Weighted Average Shares Outstanding        2,480,000      2,596,000      2,531,000
Add:  Dilutive Options                              77,000        106,000        156,000
                                              ------------   ------------   ------------
Diluted Weighted Average Shares Outstanding      2,557,000      2,702,000      2,687,000
                                              ------------   ------------   ------------
Diluted Net Earnings Per Common Share         $        .60   $        .39   $        .54
                                              ------------   ------------   ------------
</TABLE>

----------------------

Options to purchase 40,000, 10,000 and 0 common shares were outstanding as of
June 30, 2006 2005 and 2004, respectively, but were not included in the
computation of diluted earnings per share because the exercise price of the
options exceeded the average market price and would have been anti-dilutive.


NOTE K - REPURCHASE OF SHARES FOR TREASURY

The Company announced in December 2002 that the Board of Directors authorized
the repurchase by the Company of up to 350,000 shares of the Company's Common
Stock. Purchases may be made from time to time in the open market and through
privately negotiated transactions, subject to general market and other
conditions. The Company generally finances these repurchases from its own funds
from operations and/or from its bank credit facility. During the fourth quarter
of fiscal 2006, the Company did not repurchased any shares of the Company's
Common Stock. As of June 30, 2006, the Company had purchased 302,621 shares of
its Common Stock under this authorization at a cost of approximately $1,462,000.

NOTE L - SUBSEQUENT EVENT

           On August 22, 2006, the Company entered into a lease agreement for a
new corporate office building, and plan to relocate the Company's executive
offices from West New York, NJ to Maywood, NJ in January 2007. The lease has a
10-year term, and grants to the Company an option to purchase the building at
any time during the term of the lease at a purchase price not to exceed
$3,075,000, plus increases based on a multiple of the consumer price index.

         The other party to the lease agreement purchased the corporate office
building at a closing which also took place in August 2006. The Company provided
the purchaser with $2,200,000 in mortgage financing, secured by a first priority
mortgage in favor of the Company on the land, office building, and other
customary rights of the mortgagor. Funds for the mortgage financing were
provided by borrowings under the Company's bank loan facility and from our own
funds.

                                      F-25
<PAGE>

         On September 22, 2006, the Company amended its existing bank credit
facility. The amended facility, which expires December 1, 2008, provides for
short-term loans and the issuance of letters of credit in an aggregate amount
not to exceed $50,000,000. Based on a borrowing formula, the Company may borrow
up to $30,000,000 in short-term loans and up to $50,000,000 including letters of
credit.

         On September 27, 2006, the Board of Directors authorized an increase in
the Company's Common Stock repurchase program by an additional 125,000 shares.

NOTE M - UNAUDITED QUARTERLY FINANCIAL DATA

         Summarized quarterly financial data amounts for the fiscal years ended
June 30, 2006 and 2005 are as follows:

<TABLE>
<CAPTION>
                                                                     Three Months Ended
                                               ----------------------------------------------------------
                                                  June 30,      March 31,     December 31,   September 30,
                                                    2006          2006            2005           2005
                                               ------------   ------------    ------------   ------------
<S>                                            <C>            <C>             <C>            <C>
Net sales                                      $ 33,900,000   $ 27,939,000    $ 35,514,000   $ 29,248,000
Gross profit                                      8,174,000      6,553,000       9,518,000      6,621,000
Net earnings (loss)                                 475,000        (22,000)        931,000        146,000
Net earnings (loss) per common share - basic   $        .19   ($       .01)   $        .38   $        .06
Net earnings (loss) per common share -
diluted                                        $        .18   $       (.01)   $        .37   $        .06


                                                                     Three Months Ended
                                               ----------------------------------------------------------
                                                  June 30,      March 31,     December 31,   September 30,
                                                    2005          2005            2004           2004
                                               ------------   ------------    ------------   ------------

Net sales                                      $ 29,755,000   $ 22,476,000    $ 38,441,000   $ 35,805,000
Gross profit                                      6,844,000      5,205,000       7,882,000      8,594,000
Net earnings (loss)                                 668,000       (640,000)        156,000        865,000
Net earnings (loss) per common share - basic   $        .26   $       (.24)   $        .06   $        .34
Net earnings (loss) per common share -
diluted                                        $        .25   $       (.24)   $        .06   $        .32
</TABLE>

         Note: The per share amounts are calculated independently for each
quarter. The sum of the quarters may not equal the annual per share amounts.

                                      F-26
<PAGE>

--------------------------------------------------------------------------------
JACLYN INC. AND SUBSIDIARIES

SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
               Column                          Column         Column         Column          Column
                  A                               B              C              D               E
                                                             Additions
                                              Balance at      charged                        Balance
                                             beginning of     to costs                       at end
             Description                        period      and expense     Deductions      of period

-------------------------------------------  ------------   ------------   ------------    ------------
<S>                                          <C>               <C>           <C>           <C>
Fiscal Year ended June 30, 2006
-------------------------------------------  ------------   ------------   ------------    ------------
Allowance for doubtful accounts              $    124,000             --        (49,000)   $     75,000
-------------------------------------------  ------------   ------------   ------------    ------------
Allowance for sales discounts, returns and
allowances                                   $  3,264,000      7,192,000     (7,598,000)   $  2,858,000
-------------------------------------------  ------------   ------------   ------------    ------------
Fiscal Year ended June 30, 2005

Allowance for doubtful accounts              $    177,000             --        (53,000)   $    124,000
Allowance for sales discounts, returns and
   allowances                                $  2,384,000      7,720,000     (6,840,000)   $  3,264,000
                                             ------------   ------------   ------------    ------------
Fiscal Year ended June 30, 2004
Allowance for doubtful accounts              $    165,000         12,000             --    $    177,000
Allowance for sales discounts, returns and
   allowances                                $  2,527,000      5,703,000     (5,846,000)   $  2,384,000
</TABLE>

                                      F-27
<PAGE>

                                  EXHIBIT INDEX


     Exhibit No.           Description
     -----------           -----------

         3(a)              Certificate of Incorporation of the Registrant
                           (incorporated herein by reference to Exhibit 3(a) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 2005).

         3(b)              By-Laws of the Registrant (incorporated herein by
                           reference to Exhibit 3(b) to the Registrant's Annual
                           Report on Form 10-K, File No. 1-5863, for the fiscal
                           year ended June 30, 1991).

         4(a)              Promissory Note of the Registrant dated August 14,
                           2002 payable to the order of Hudson United Bank
                           ("HUB") in the principal amount of $3,250,000
                           (incorporated herein by reference to Exhibit 4(a) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 2002).

         4(b)              Mortgage, Security Agreement and Financing Statement
                           dated August 14, 2002 between the Registrant and HUB
                           (incorporated herein by reference to Exhibit 4(b) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 2002).

         4(c)              Revolving Loan Agreement dated December 23, 2002
                           between the Registrant and HUB (incorporated herein
                           by reference to Exhibit 4(c) to the Registrant's
                           Annual Report on Form 10-K, File No. 1-5863, for the
                           fiscal year ended June 30, 2003).

         4(d)              First Amendment to Revolving Loan Agreement,
                           Promissory Note and Other Loan Documents dated
                           October 23, 2003 between the Registrant and HUB
                           (incorporated herein by reference to Exhibit 4(d) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 2005).

         4(e)              Second Amendment to Revolving Loan Agreement,
                           Promissory Note and Other Loan Documents dated
                           October 23, 2003 between the Registrant and HUB
                           (incorporated herein by reference to Exhibit 4(a) to
                           the Registrant's Quarterly Report on Form 10-Q, File
                           No. 1-5863, for the fiscal quarter ended March 32,
                           2005).
<PAGE>

         10(a)             Third Amendment to Revolving Loan Agreement,
                           Promissory Note and Other Loan Documents dated
                           September 22, 2006 between the Registrant and HUB
                           (incorporated herein by reference to Exhibit Current
                           Report on Form 8-K, File No. 1-5863, dated September
                           26, 2006).+

         10(b)             2000 Stock Option Plan of the Registrant.*+

         10(c)             Second Amended and Restated Stockholders' Agreement
                           dated May 12, 2003 among the Registrant and the
                           persons listed on Schedule A thereto (incorporated
                           herein by reference to Exhibit U to Amendment No. 9
                           to the Schedule 13D dated May 15, 2003 of Allan
                           Ginsburg, Robert Chestnov, Abe Ginsburg and Howard
                           Ginsburg.).

         10(d)             Key Executive Disability Plan of the Registrant
                           (incorporated herein by reference to Exhibit 10(m) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1988).*

         10(e)             Letter Agreement dated as of December 29, 1997
                           between the Registrant and Robert Chestnov
                           (incorporated herein by reference to Exhibit 2.1 to
                           the Registrant's Current Report on Form 8-K, file No.
                           1-5863, for the fiscal year ended June 30, 1998).*

         10(f)             Purchase and Sale Agreement dated January 11, 1999
                           between Banner Industries of New York, Inc. and
                           Jaclyn, Inc.(incorporated herein by reference to
                           Exhibit 2.1 to the Registrant's Current Report on
                           Form 8-K, file No. 1-5863, dated January 26, 1999).

         10(g)             Purchase and Sale Agreement dated January 10, 2002
                           between Mark Nitzberg and the Registrant
                           (incorporated herein by reference to Exhibit 2.1 to
                           the Registrant's Current Report on Form 8-K, File No.
                           1-5863, dated January 24, 2002).

         10(h)             Consulting Agreement dated January 10, 2002 between
                           Natoosh, LLC, Mark Nitzberg and the Registrant
                           (incorporated herein by reference to Exhibit 2.2 to
                           the Registrant's Current Report on Form 8-K, File No.
                           1-5863, dated January 24, 2002).

         10(i)             Amendment to Consulting Agreement dated December 15,
                           20003 between Natoosh, LLC, Mark Nitzberg and the
                           Registrant (incorporated herein by reference to
                           Exhibit Annual Report on Form 10-K, File No. 1-5863,
                           for the fiscal year ended June 30, 2004).
<PAGE>

         10(j)             Payment and Indemnification Agreement dated January
                           10, 2002 by and among Capital Factors, Inc.,
                           Topsville, Inc., Mark Nitzberg and the Registrant
                           (incorporated herein by reference to Exhibit 2.3 to
                           the Registrant's Current Report on Form 8-K, File No.
                           1-5863, dated January 24, 2002).

         10(k)             Consent and Joinder Agreement dated August 10, 2004
                           among the Registrant, Mark Nitzberg and the persons
                           listed on Schedule A thereto (incorporated herein by
                           reference to Exhibit U to Amendment No. 12 to the
                           Schedule 13D dated August 16, 2004 of Allan Ginsburg,
                           Robert Chestnov, Abe Ginsburg and Howard Ginsburg.).

         10(l)             Consent and Joinder Agreement dated June 6, 2006
                           among the Registrant, Bruce Cahill, John Halbreich,
                           and the persons listed on Schedule A thereto.+

         10(m)             Mortgage dated as of August 31, 2006 of Landlord in
                           favor of the Company (incorporated herein by
                           reference to Exhibit 10.01 to the Registrant's
                           Current Report on Form 8-K, File No. 1-5863, dated
                           September 1, 2006).

         10(n)             Promissory Note dated as of August 31, 2006 of
                           Landlord in favor of the Company (incorporated herein
                           by reference to Exhibit 10.02 to the Registrant's
                           Current Report on Form 8-K, File No. 1-5863, dated
                           September 1, 2006).

         10(o)             Agreement of Lease dated as of September 1, 2006
                           between the Company and Spring Valley Associates, LLC
                           (incorporated herein by reference to Exhibit 10.01 to
                           the Registrant's Current Report on Form 8-K, File No.
                           1-5863, dated August 23, 2006).

         14                Code of Ethics for Finance Professionals of the
                           Registrant (incorporated herein by reference to
                           Exhibit 14 to the Registrant's Annual Report on Form
                           10-K, File No. 1-5863, for the fiscal year ended June
                           30, 2004).

         21                Subsidiaries of the Registrant.+

         31(a)             Rule 13a-14(a) Certification of Robert Chestnov,
                           President and Chief Executive Officer of the
                           Company.+

         31(b)             Rule 13a-14(a) Certification of Anthony Christon,
                           Principal Financial Officer of the Company.+

         32                Certification Pursuant to 18 U.S.C. Section 1350, as
                           Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                           Act of 2002.+

         99(a)             Code of Business Conduct and Ethics of the Registrant
                           (incorporated herein by reference to Exhibit 99(a) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 2004).

-------------------
*Management contract or compensatory plan or arrangement.
+Filed with this Form 10-K.