SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

For the fiscal year ended June 30, 2002

                                       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

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]

The aggregate market value of the voting stock (based on the closing price of
such stock on the American Stock Exchange) held by non-affiliates of the
Registrant at September 17, 2002 was approximately $5,123,000.

There were 2,561,391 shares of Common Stock outstanding at September 17, 2002.
<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

PART III        Certain Portions of the Registrant's Proxy Statement for the
                Registrant's Annual Meeting of Stockholders scheduled to be held
                on December 3, 2002.
<PAGE>

                                TABLE OF CONTENTS
                                -----------------

             Item                                                           Page
             ----                                                           ----

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

               2.     Properties..........................................    3

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

               4.     Submission of Matters to a
                      Vote of Security Holders............................    3

PART II        5.     Market for the Registrant's Common Equity
                      and Related Stockholder Matters.....................    5

               6.     Selected Financial Data.............................    7

               7.     Management's Discussion and Analysis of
                      Financial Condition and Results of
                      Operations..........................................    8

               7A.    Quantitative and Qualitative disclosures about
                      Market & Risk.......................................   13

               8.     Financial Statements and Supplementary
                      Data................................................   13

               9.     Changes in and Disagreements with
                      Accountants on Accounting and Financial
                      Disclosure..........................................   13

PART III       10.    Directors and Executive Officers
                      of the Registrant...................................   14

               11.    Executive Compensation..............................   14

               12.    Security Ownership of Certain
                      Beneficial Owners and Management....................   14

               13.    Certain Relationships and Related
                      Transactions........................................   14

               14.    Controls and Procedures.............................   14

PART IV        15.    Exhibits, Financial Statement
                      Schedules and Reports on Form 8-K...................   15

<PAGE>

                                     PART I

Item 1.   Business.
-------   ---------

          Jaclyn, Inc. (incorporated in the State of Delaware in 1968) and its
subsidiaries (collectively, "Jaclyn", "the Company", "we", "us", "our", or "the
Registrant") is 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, and with the recent
acquisition of Topsville, Inc. in January 2002 (discussed below) now also
includes infants' and children's clothing. The Company markets its handbag
products in a variety of popularly priced fashions and designs, with an emphasis
on casual, travel, and sport styles.

          General. Styling is an important factor in the merchandising of all of
our products. The Company's staff of full- time designers studies fashion trends
in order to anticipate consumer demand. The design staff works closely with the
purchasing department to determine concepts and fabrics for its apparel products
as well as the styling and material components for its 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.

          Finished merchandise is received at independently owned outside
warehouses located in New Jersey, Florida, California and Indiana, as well as
Company-owned and leased facilities. From these locations, products are shipped
under different selling names to customers all over the country. Products for
the apparel catalogue business are also shipped from outside contractor
locations directly to the customer. In addition, certain handbag products
manufactured in the Far East are shipped directly to customers from Hong Kong.
Our handbag products are marketed primarily through general merchandise, chain
and department stores. We market our apparel lines to department stores, retail
chain stores, as well as to major mail order catalog chains and other specialty
retailers.

          The Company markets its handbag products under trademarks and trade
names which it owns, including "Shane" and "Aetna," "Susan Gail," and "Robyn
Lyn". In addition, we are licensed to manufacture and market handbag products
under the names "Looney Tunes(TM)" under an agreement which expires March 30,
2004, "Crayola(TM)" under an agreement which expires December 31, 2002, and "Dr.
Seuss(TM)" under an agreement which expires December 15, 2002. The agreements
under which we marketed handbag products under the "ANNE KLEIN(TM)" and "ANNE
KLEIN 2(TM)" trademarks expired on June 30, 2002 and was not renewed. We also
are a party to a license agreement with Warner Bros. to manufacture denim
backpacks, handbags and accessories relating to the "Harry Potter(TM)" series of
books under an agreement which expires on December 31, 2003. The Company
manufactures and markets apparel under the names "Topsville", "I. Appel", "Smart
Time", and "Emerson Road", each of which the Company owns, and also manufactures
apparel items for sale as private-label merchandise. We consider all of our
licensed trademarks, trade names and other intellectual property rights to be of
significant value in the marketing of its products.


                                       1
<PAGE>

          The Company sells throughout the United States through its own
salesmen and through independent sales representatives.

          Sales of apparel items during each of the fiscal years ended June 30,
2002, 2001 and 2000 represented 60%, 54% and 42%, respectively, of consolidated
net sales. Sales of handbag products represented the remainder of our
consolidated net sales. Our sales are customarily offered on credit terms. We do
not have long-term contracts with any of our customers.

          In fiscal 2002, our imports of handbag products merchandise
manufactured in the Far East accounted for approximately 40% of consolidated net
sales, compared to approximately 46% of consolidated net sales in fiscal 2001.
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. Certain apparel orders which have shorter delivery dates are
manufactured or assembled in Central America, Mexico and domestically.

          Approximately 65% of the Company's consolidated net sales for fiscal
2002 were to general merchandise, chain, department stores and catalogue
retailers, with the balance consisting of sales to smaller specialty shops,
smaller retail stores and cosmetic firms. During the fiscal year ended June 30,
2002, Wal-Mart Stores, Inc., Estee Lauder, and Blair Corporation, accounted for
40% of our consolidated net sales (19%, 11% and 10% of consolidated net sales,
respectively). During the fiscal year ended June 30, 2001, four major customers
of the Company contributed approximately 55% of consolidated net sales as
follows: Blair Corporation, 17%; Estee Lauder, 15%; Coldwater Creek, 12% and
Wal-Mart Stores, Inc., 11%. The loss of any one of these customers would have a
material adverse effect on the Company's results of operations.

          Purchases of handbag and apparel raw materials, primarily fabrics,
vinyl and urethane plastics, leather, frames, ornaments, trim and other
materials, and certain of the Company's finished products, are made from a
variety of sources. In most cases, the Company assists its suppliers and
contractors in the design and style of the materials it purchases. Our largest
expenditures for raw materials are for fabrics, leather, vinyl and urethane
plastics, which we purchase from several suppliers, one of which provided about
7% of our raw material needs in fiscal 2002. While the Company has no long-term
supply contracts, the raw materials it uses are available from various sources
and it anticipates no difficulty in the future in obtaining the necessary raw
materials for its operations. The Company deals with a number of sources for its
purchases of finished handbags and related products, no one of which accounted
for more than approximately 17% of the Company's total cost of goods sold. The
Company has no long-term supply contracts with its Far East or European sources
of finished handbags and related products or apparel items and is subject to the
usual risks associated therewith.

          The Company offers Fall/Winter, Holiday and Spring/Summer product
lines and, in almost all instances, manufactures products to meet the specific
requirements of its customers. Our business has been somewhat seasonal in
nature. However, in the last few years, shipments have generally been influenced
by number of factors, including mid- year acquisitions which have added to net
sales in the second half of the Company's fiscal year, and general economic
conditions, which have, to some degree, impacted volume. Accordingly, we do not
believe that quarterly net sales are necessarily indicative of future trends.
Nevertheless, we anticipate that during fiscal 2003 we will have significantly
more sales volume in the first-half of the fiscal year than in the second half
of the fiscal year. Reference is made to Note L, "Unaudited Quarterly Financial
Data," of the Notes to Consolidated Financial Statements on page F-22 of this
Form 10-K for additional information about historical quarterly results.

          At September 18, 2002, the Company had unfilled orders of
approximately $52,548,000 compared to approximately $30,724,000 at September 14,
2001. The increase in our backlog of unfilled orders is primarily attributable
to the acquisition of Topsville, Inc., offset, in part, by a decrease in backlog
relating to our Anne Klein license, which was not renewed. 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 is not
necessarily meaningful and may not be indicative of future sales patterns or
shipments. The Company does, however, anticipate that the substantial increase
in unfilled orders at September 18, 2002 compared with a comparable date in
fiscal 2001, will favorably impact revenues and earnings during fiscal 2003.

          The Company employed 191 persons as of June 30, 2002, of whom 125 were
on a salaried basis and the balance on an hourly basis. At June 30, 2002, 18 of
the Company's employees were members of the Four Joint Boards of New York, New
Jersey, Pennsylvania and New England, affiliated with the International Leather
Goods, Plastics and Novelty Workers Union, AFL-CIO. The Company considers its
relations with its employees to be satisfactory.


                                       2
<PAGE>

          The Company competes with numerous domestic and foreign manufacturers
of handbags and apparel, very few of which are believed to each account for as
much as 1% of industry sales. We believe our sales of apparel items and handbag
products are not significant in light of total apparel 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 of the Company's 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.

          On January 10, 2002, the Company acquired 100% of the stock of
Topsville, Inc., a New York City- based manufacturer and distributor of private
label infants' and children's clothing. The aggregate purchase price for the
acquisition was $3,245,702, of which $1,745,702 was paid at the closing of the
transaction and the remainder of which is being paid over a fifteen-month period
from closing from working capital and/or our bank line of credit.

          On January 19, 2001, the Company acquired the business and certain
assets of I. Appel Corporation, which manufactures and distributes robes,
dusters and loungewear for distribution to department stores. The aggregate
purchase price for the acquisition was approximately $700,000 for goodwill,
certain tangible assets and included $100,000 for acquisition costs.
Approximately $350,000 was paid at closing with the remainder payable in
quarterly installments through October 2002. The remaining installments are
being paid from working capital and/or our bank line of credit.

          Subsequent to June 30, 2002, the Company consummated a mortgage loan
with a bank lender 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 below under the caption "Item 2. Properties"
below). The 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. The proceeds of the
financing are being used for general working capital purposes.

Item 2.   Properties.
-------   -----------

          The Company's executive offices and one of its warehouse facilities,
containing 140,000 square feet, is located in West New York, New Jersey. The
Company currently leases approximately 70,000 square feet of the West New York
facilities to outside parties. The Company also leases four showroom and office
facilities in New York City totaling approximately 32,000 square feet, as well
as a warehouse in Medley, Florida for its newly acquired Topsville operations.
Reference is made to Note D, "Commitments and Contingencies," of the Notes to
Consolidated Financial Statements on page F-12 of this Form 10-K for additional
information about the Company's commitments under the terms of non-cancelable
leases.

Item 3.   Legal Proceedings.
-------   ------------------

          (a) The Company is not a party to, nor is any of its property the
subject of, any material pending legal proceeding.

          (b) No material pending legal proceeding was terminated during the
three-months ended June 30, 2002.

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

          The Company did not submit any matters to a vote of its security
holders, through the solicitation of proxies or otherwise, during the
three-months ended June 30, 2002.

Executive Officers of the Registrant

          The executive officers of the Company are set forth 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 he
or she was elected as an executive officer.


                                       3
<PAGE>

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

Abe Ginsburg...................    85    Chairman of the Executive Committee
                                           since November 29, 1988

Allan Ginsburg.................    60    Chairman of the Board since
                                           November 29, 1988

Robert Chestnov................    54    President and Chief Executive Officer
                                           since November 29, 1988

Howard Ginsburg................    60    Vice Chairman of the Board since
                                           November 29, 1988 and President
                                           of the Company's Shane Handbag
                                           Division for more than the past
                                           five years

Bonnie Sue Levy................    57    Vice President of the Company and
                                           President of the Company's Aetna
                                           Kiddie Bag Division for more than the
                                           past five years


Anthony Christon...............    57    Chief Financial Officer for more than
                                           the past five years


Family Relationships

         Abe Ginsburg, Chairman of the Executive Committee and a director of the
Company, is the father of Howard Ginsburg, Vice Chairman of the Board and a
director of the Company. Allan Ginsburg, Chairman of the Board and a director of
the Company, is the brother of Bonnie Sue Levy, Vice President of the Company,
is a nephew of Abe Ginsburg and is a first cousin of Howard Ginsburg. Robert
Chestnov, President, Chief Executive Officer and a director of the Company, and
Richard Chestnov, a director of the Company, are brothers.


                                       4
<PAGE>

                                     PART II
                                     -------

Item 5.   Market for the Registrant's 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 the Company's Common Stock, as reported by
the American Stock Exchange, for each quarterly period during the Company's
fiscal years ended June 30, 2002 and June 30, 2001.

             Fiscal Year Ended June 30, 2002              High            Low
             -------------------------------              ----            ---

             First Quarter                                $2.75          $1.90
             Second Quarter                                2.65           1.73
             Third Quarter                                 2.20           1.82
             Fourth Quarter                                2.10           1.75

             Fiscal Year Ended June 30, 2001              High            Low
             -------------------------------              ----            ---

             First Quarter                                $4.25          $2.38
             Second Quarter                                3.19           2.50
             Third Quarter                                 3.90           2.60
             Fourth Quarter                                3.00           2.35


          The Company did not pay cash dividends during fiscal 2002 or 2001 and
does not anticipate the payment of cash dividends in the foreseeable future.

          At June 30, 2002, there were approximately 617 holders of record of
the Company's Common Stock.

         Equity Compensation Plan Information

         The following sets forth certain information as of June 30, 2002
concerning the Company's equity compensation plans:


                                       5
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------

Plan Category              Number of securities               Weighted-average          Number of securities
                           to be issued upon exercise         exercise price of         remaining available
                           of outstanding options,            outstanding options,      for future issuance
                           warrants and rights                warrants and rights       under equity
                                                                                        compensation plans
                                                                                        (excluding securities
                                                                                        reflected in column

                                                                                        (a))

                           (a)                                (b)                       (c)
--------------------------------------------------------------------------------------------------------------
<S>                        <C>                                <C>                       <C>

Equity compensation        412,161                            $3.53                            219,500
plans approved by
security holders

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

Equity compensation        140,000(1)(2)                      $2.15                               -
plans not approved
by security holders

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

Total                      552,161                                                             219,500

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

<FN>
(1)      Includes options to purchase an aggregate of 20,000 shares of Common
         Stock issuable upon the exercise of non-qualified stock options granted
         to two non-employee sales representatives. Each of the stock options
         provides for the grant of shares of Common Stock at exercise prices per
         share equal to the fair market value per share of Common Stock on the
         date of grant. Pursuant to the terms of each option, the optionee may
         exercise the option at any time and from time to time for a period of
         five years from the date of grant, subject to earlier termination under
         certain circumstances.

(2)      Includes an option to purchase an aggregate of 120,000 shares of Common
         Stock issuable to a consultant of the Company. The option provides for
         the grant of 40,000 shares of Common Stock during the first year after
         grant and as to an additional 40,000 shares of Common Stock, on a
         cumulative basis, on the first and second anniversaries of the date of
         grant (each 40,000 share installment, a "Tranche"), in each case at an
         exercise price per share equal to the fair market value per share of
         Common Stock on the original date of grant. The optionee may exercise a
         Tranche only during the five-year period after such Tranche becomes
         exercisable, as described above, subject to earlier termination under
         certain circumstances.
</FN>
</TABLE>

                                       6
<PAGE>

Item 6.   Selected Financial Data.
-------   ------------------------

<TABLE>
<CAPTION>
Years ended June 30,                         2002              2001              2000              1999              1998
                                         ------------      ------------      ------------      ------------      ------------
<S>                                      <C>               <C>               <C>               <C>               <C>
Net Sales                                $ 81,031,000      $ 79,570,000      $ 72,078,000      $ 58,799,000      $ 68,281,000

Cost of Goods Sold - see Note 1            62,083,000        61,575,000        54,183,000        44,873,000        51,401,000
                                         ------------      ------------      ------------      ------------      ------------

Gross Profit                               18,948,000        17,995,000        17,895,000        13,926,000        16,880,000

Shipping, selling and administrative
expenses - see Note 1                      19,823,000        17,748,000        17,572,000        16,106,000        16,888,000

Writeoff of goodwill - see Note 2                   -                 -                 -         1,124,000                 -

Interest expense                              293,000           234,000           100,000             4,000           182,000

Interest income                                (3,000)         (109,000)         (136,000)         (207,000)         (294,000)

Other income                                  (11,000)          (34,000)          (47,000)         (324,000)                -

Provision (benefit) for income taxes         (415,000)           56,000           146,000          (998,000)           37,000
                                         ------------      ------------      ------------      ------------      ------------

NET EARNINGS (LOSS)- see Note 1          $   (739,000)     $    100,000      $    260,000      $ (1,779,000)     $     67,000
                                         ------------      ------------      ------------      ------------      ------------

Weighted average shares outstanding         2,561,000         2,644,000         2,710,000         2,711,000         2,707,000

   Net Earnings per common share-
    Basic and Diluted                    $       (.29)     $        .04      $        .10      $       (.66)     $        .02
                                         ------------      ------------      ------------      ------------      ------------

TOTAL ASSETS                             $ 35,418,000      $ 25,031,000      $ 26,476,000      $ 25,595,000      $ 24,572,000

Long term debt:

    Guaranteed bank loan - ESOP                     -                 -                 -                 -      $     56,000

    Other non-current liabilities        $     61,000      $    100,000                 -                 -                 -

Stockholders' equity                     $ 15,824,000      $ 16,563,000      $ 16,857,000      $ 16,659,000      $ 18,394,000
                                         ------------      ------------      ------------      ------------      ------------

Stockholders' equity per share           $       6.18      $       6.26      $       6.22      $       6.15      $       6.80
                                         ------------      ------------      ------------      ------------      ------------

<FN>
Note 1: Fiscal 2002 includes a pre-tax charge totaling $1,289,000, $389,000
included in Cost of Goods Sold and $900,000 included in Shipping, Selling and
Administrative Expenses, ($825,000 after tax), for the amortization of open
order backlog and an adjustment to fair value in connection with the Topsville
acquisition.

Note 2: Fiscal 1999 includes a goodwill writeoff totaling $1,124,000 resulting
from closing one of three unprofitable divisions.
</FN>
</TABLE>

                                       7
<PAGE>

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

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

          The Company believes 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, the Company has
found the application of accounting policies to be appropriate, and actual
results have not differed materially from those determined using necessary
estimates.

          The Company's accounting policies are more fully described in Note A
to the consolidated financial statements. The Company has identified certain
critical accounting policies that are described below.

          Merchandise inventory. The Company's merchandise inventory is carried
at the lower of cost on a first-in, first-out basis, or market. The Company
writes down its inventory for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventory and the estimated market
value 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.

          Allowance for doubtful accounts. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. If the financial condition of its customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.

          Market development accruals. The Company estimates 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, the Company may take actions to increase
customer incentive offerings possibly resulting in an incremental reduction of
revenue at the time the incentive is offered.

          Long-lived assets, excluding goodwill. In evaluating the fair value
and future benefits of long-lived assets, the Company performs an analysis of
the anticipated undiscounted future net cash flows of the related long-lived
assets. If the carrying value of the related asset exceeds the undiscounted cash
flows, the Company reduces the carrying value to its fair value.

          Goodwill. Goodwill is continually reviewed for impairment. The
carrying value of goodwill would be impaired if the estimate of future
discounted cash flows is less than carrying value. If goodwill is impaired, the
loss is measured using estimated fair value. To the extent these future
projections or our strategies change, the conclusion regarding impairment may
differ from the current estimates.

          The Company believes at this time that the long-lived asset's carrying
values and useful lives continues to be appropriate. Future adverse changes in
market conditions or poor operating results of underlying investments could
result in an inability to recover the carrying value of the investments that may
not be reflected in an investment's current carrying value, thereby possibly
requiring an impairment charge in the future.

          Deferred taxes. Should the Company determine that it would not be able
to realize all or part of its net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to income in the period
such determination was made.


                                       8
<PAGE>

Liquidity and Capital Resources

          The net increase in cash and cash equivalents for the fiscal year
ended June 30, 2002, of $29,000 was the result of of funds used in operating
activities totaling $3,569,000 and funds used in investing activities of
$2,242,000, offset by funds provided by financing activities totaling
$5,840,000. Funds used in operating activities were primarily due to an increase
in accounts payable and other current liabilities of $2,853,000 reflecting, for
the most part, payments of inventory purchases for the apparel businesses
(including the acquisition of Topsville, Inc, a manufacturer of infants' and
children's clothing), and a $5,837,000 increase in accounts receivable
(attributable to a higher level of shipping in the fourth quarter of fiscal 2002
compared to the comparable quarter in fiscal 2001). In addition, the $833,000
increase in prepaid expenses was mostly attributable to required funding of the
Company's pension plan. Cash used in investing activities totaling $2,242,000,
was mostly due to the acquisition of Topsville, Inc. Funds provided by financing
activities were derived primarily from an increase in the amount of $6,540,000
in notes payable under the existing credit facility, offset by installment
payments for the Topsville and the I. Appel acquisitions.

          During fiscal 2002, the Company amended its bank line of credit to
accommodate the acquisition of Topsville, Inc. The credit facility, which
extends through December 1, 2002, provides the Company with short-term loans,
letters of credit and bankers acceptances amounting to $24,000,000 with
inventory and accounts receivable pledged to the bank as collateral. On June 30,
2002, the Company could borrow up to $13,000,000 in short-term loans. Subsequent
to June 30, 2002, the Company amended its bank agreement to borrow up to
$17,000,000 in short-term loans. In addition, the Company entered into a
$3,250,000, 7% mortgage loan agreement with another bank for general working
capital needs. These transactions were done primarily for the purpose of
financing the additional sales volume relative to the Topsville acquisition. The
Company is required to maintain a minimum ratio of cash and accounts receivable
to bank borrowing of 1.25 to 1, as well as a minimum tangible net worth of
$11,500,000. The Company believes that funds provided by operations, existing
working capital, the Company's amended bank line of credit (which we expect will
be renewed) and mortgage financing of its West New York, New Jersey corporate
headquarters facility, will be sufficient to meet foreseeable working capital
needs. Reference is made to Note E "Credit Facilities," of the Notes to
Consolidated Financial Statements on page F-10 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, 2002.

          The net decrease in cash and cash equivalents for the fiscal year
ended June 30, 2001, of $249,000 was the result of an excess of funds used in
operating activities totaling $1,934,000, offset by funds provided by financing
activities totaling $846,000 and funds provided by investing activities of
$839,000. Funds used in operating activities were primarily due to a decrease in
accounts payable and other current liabilities of $2,115,000 reflecting, for the
most part, payments of inventory purchases for the apparel businesses, as well
as an increase in inventory of $865,000 (principally reflecting finished goods
inventory relating to the recently acquired robe and duster business discussed
below), offset by a $746,000 decrease in accounts receivable (attributable to a
lower level of shipping in the fourth quarter of fiscal 2001 compared to the
comparable quarter in fiscal 2000). Cash provided by investing activities
totaling $839,000 resulted mainly from proceeds from the sales of securities
available for sale totaling $2,443,000, offset by purchases during the fiscal
year of securities available for sale of $816,000. The Company sold its
securities available for sale during fiscal 2001 in order to better utilize
these investment funds for working capital needs. The proceeds from the sales of
securities available for sale were further offset by the acquisition of certain
assets of the I. Appel Corporation (a company engaged in the manufacture and
distribution and sale of women's robes, dusters and other apparel) totaling
$400,000. Funds provided by financing activities were derived primarily from an
increase in notes payable to the Company's bank under the existing credit
facility of $1,285,000 offset by repurchases of the Company's stock totaling
$389,000.

          As of June 30, 2002, 2001 and 2000, working capital was $9,747,000,
$12,477,000, and $14,597,000, respectively. The ratio of current assets to
current liabilities for those same periods was 1.5 to 1, 2.6 to 1, and 2.7 to 1,
respectively. The decrease in the current ratio of current assets to current
liabilities in fiscal 2002 compared to fiscal 2001 is primarily attributable to
funds used in connection with the Topsville acquisition and additional borrowing
required to finance the acquisition. The Company's cash, cash equivalents and
marketable securities totaled $95,000, $66,000, and $1,947,000, at June 30,
2002, 2001 and 2000, respectively.


                                       9
<PAGE>

Contractual Obligations and Commercial Commitments

To facilitate an understanding of our contractual obligations and commercial
commitments, the following data is provided (in thousands):

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

                                                    Within                                     After
Contractual Obligations                Total        1 Year       2-3 Years     4-5 Years      5 Years
                                      -------       -------      ---------     ---------      -------
<S>                                   <C>           <C>           <C>           <C>           <C>
Notes Payable                         $ 9,095       $ 9,095       $     -       $     -       $     -
Acquisition Notes                       1,050         1,050             -             -             -
Royalties                                 362           115           247             -             -
Operating Leases                        2,857           683         1,206           549           419
                                      -------       -------       -------       -------       -------
Total Contractual Obligations         $13,364       $10,943       $ 1,453       $   549       $   419
                                      =======       =======       =======       =======       =======

<CAPTION>
                                                Amount of Commitment Expiration Per Period
                                                ------------------------------------------

                                       Total
                                      Amounts       Within                                     After
Other Commercial Commitments         Committed      1 Year       2-3 Years     4-5 Years      5 Years
----------------------------         ---------      -------      ---------     ---------      -------
<S>                                   <C>           <C>           <C>           <C>           <C>
Letters of Credit                     $ 8,907       $ 8,907       $     -       $     -       $     -
                                      -------       -------       -------       -------       -------
Total Commercial Commitments          $ 8,907       $ 8,908       $     -       $     -       $     -
                                      =======       =======       =======       =======       =======
</TABLE>


Results of Operations

2002 Compared to 2001

          Net sales for fiscal 2002 totaled $81,039,000, an increase of
$1,461,000, or 1.8%, compared to the prior fiscal year. Sales by category were
as follows:

          Net sales for the Apparel category in fiscal 2002 were $49,003,000, an
increase of $6,655,000, or 15.7%, compared to $42,348,000 in 2001. The sales
increase for this category was primarily due to additional net sales from the
acquisition of Topsville, Inc. coupled with increases in revenue from existing
customers for our women's sleepwear business, offset by much lower volume with
our catalogue customers.

          Net sales for the Handbag category in fiscal 2002 were $32,028,000, or
14% lower than the prior fiscal year's total of $37,222,000. The sales decrease
was attributable to lower demand for both the Company's children's and premium
handbag divisions due to the soft economic climate during fiscal 2002.

          Gross margin increased to 23.4% in 2002 from 22.7% in 2001. The gross
margin increase in 2002 was due to higher margins in the Apparel category,
reflecting better results for our Women's sleepwear business. Gross margins by
category were as follows:

          Gross margin for the Apparel category in 2002 increased to 21.9% in
2002 from 19.0% in 2001. The increase was attributable to higher margins in the
Company's women's sleepwear business as well as better margins from the
Topsville acquisition which offset otherwise lower catalogue margins.

          Overall gross margin for the Handbags category in 2002 remained at
26.9% in 2002 compared to 2001. While the overall percentage was unchanged, we
experienced lower margins in our children's handbag and better handbag business
offset by better margins in our premium business.

          Shipping, selling and administrative expenses increased to 24.5%, up
2.2% from fiscal 2001, due to the addition of Topsville's related shipping,
selling and administrative costs and includes a $900,000 non-cash


                                       10
<PAGE>

charge related to amortization of an open order backlog in connection with the
Topsville acquisition, in accordance with FAS 141. Without the $900,000 charge,
shipping, selling and administrative expenses increased to 23.4% of net sales,
or a 1.1% increase from fiscal 2001. This increase reflects the increased
shipping, selling and administrative costs associated with the Topsville
operations.

          Interest expense increased to $293,000 from $234,000 last fiscal year,
primarily the result of much higher average borrowing needed to finance the
acquisition of Topsville, Inc. and the related increased volume of business in
fiscal 2002 compared to fiscal 2001.

          Interest income decreased by $106,000 due to the elimination of
securities available for sale which were sold during fiscal 2001 in order to
utilize such investment funds for current working capital purposes.

          Other income was lower by $23,000 for the fiscal year 2002 compared to
the prior fiscal year.

          The loss before income taxes for the fiscal year ended June 30, 2002
compared to earnings in the prior year was primarily due to accounting for the
acquisition of Topsville, Inc. Excluding an after-tax, non-cash charge of
$825,000, the company had earnings of $86,000 compared to $100,000 in the prior
fiscal year.

2001 Compared to 2000

          Net sales for fiscal 2001 totaled $79,570,000, up $7,492,000 or 10.4%
from the prior fiscal year. Sales by category were as follows:

          Net sales for the Apparel category in fiscal 2001 were $42,348,000, an
increase of $12,321,000, or 41% compared to $30,027,000 in 2000. The sales
increase for this category was primarily due to increases in revenue from
existing customers, mostly during the first half of the Company's fiscal year,
as well as revenues resulting from the acquisition of certain assets of the I.
Appel Corporation, discussed above.

          Net sales for the Handbags category in fiscal 2001 were $37,222,000,
or 11.5% lower than the prior fiscal year's total of $42,051,000. The sales
decrease was mostly attributable to the Company's children's and better handbag
divisions due to the soft economic climate during the third and fourth quarters
of fiscal 2001.

          Gross margin decreased to 22.6% in 2001 from 24.8% in 2000. The gross
margin decrease in 2001 was due to lower margins in both the Apparel and
Handbags categories, reflecting more recently, the difficult retail and economic
environment. Gross margins by category were as follows:

          Gross margin for the Apparel category in 2001 decreased to 19.0% in
2001 from 19.9% in 2000. The decrease was attributable to lower margins in the
Company's women's apparel business due to an inability to pass along cost
increases in a difficult retail market.

          Gross margin for the Handbags category in 2001 decreased to 26.9% in
2001 from 28.4% in 2000. This decrease was mainly due to lower margins in our
premium and better handbag businesses in the current period as compared to the
prior fiscal year because of a greater level of off-price sales in fiscal 2001
compared to the prior fiscal year.

          Shipping, selling and administrative expenses increased slightly due
to volume related expenses in fiscal 2001 compared to the prior fiscal year.
However, as a percentage of net sales, shipping, selling and administrative
expenses declined to 22.3% from 24.4% in fiscal 2000, due to the relatively
lower level of fixed expenses compared to higher net sales.

          Interest expense increased to $234,000 from $100,000 last fiscal year,
primarily the result of higher average borrowing needed to finance the increased
volume of business in the current fiscal year at a higher average interest rate
compared to fiscal 2000.


                                       11
<PAGE>

          Interest income decreased by $27,000 due to a lower level of
securities available for sale which were sold during fiscal 2001 in order to
utilize such investment funds for current working capital purposes.

          Other income was lower by $13,000 for the fiscal year 2001 compared to
the prior fiscal year.

          The decrease in earnings before income taxes for the fiscal year ended
June 30, 2001 compared to the prior year was primarily due to a 2.2% decrease in
gross profit, as well as higher interest expense and lower interest income, as
discussed above.


New Accounting Pronouncements

Recently Issued Accounting Standards

          In June 2001, the Financial Accounting Standards Board ("FASB") issued
two new pronouncements: Statement of Financial Accounting Standards ("SFAS") No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets.

          SFAS No. 141 addresses financial accounting and reporting for business
combinations and supersedes APB No. 16 "Business Combinations" and FASB
Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises". All business combinations that fall within the scope of this
Statement are to be accounted for using one method, the purchase method. SFAS
141 is effective as follows: a) use of the pooling-of-interest method is
prohibited for business combinations initiated after June 30, 2001 (that is, the
date of the acquisition is July 2001 or later) and b) the provisions of SFAS 141
also apply to all business combinations accounted for by the purchase method
that are completed after June 30, 2001. See Note I to Notes to Consolidated
Financial Statements for the impact on the Consolidated Financial Statements.

          SFAS No.142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB No.17, "Intangible
Assets". On July 1, 2001, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." As a result, we no longer amortize goodwill, but
periodically we evaluate goodwill for recoverability. The Company also evaluates
goodwill whenever events and changes in circumstance suggest that the carrying
amount may not be recoverable from its estimated future cash flows. See Note I
to Notes to Consolidated Financial Statements for the impact on the Consolidated
Financial Statements.

Accounting Standards Not Yet Adopted

          In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred. The provisions of SFAS No. 143 are effective for fiscal years
beginning after June 15, 2002. The Company will adopt SFAS No. 143 beginning in
the first fiscal quarter of fiscal 2003. The Company believes that the adoption
of SFAS No. 143 will not have a material impact on its results of operations and
financial position.

          In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The primary objectives of SFAS No. 144


                                       12
<PAGE>

were to develop one accounting model based on the framework established in SFAS
No. 121, and to address significant implementation issues. The provisions of
SFAS No. 144 are effective for fiscal years beginning after December 15, 2001.
The Company will adopt SFAS No. 144 in the first fiscal quarter of fiscal 2003.
The Company believes that the adoption of SFAS No. 144 will not have a material
impact on our results of operations and financial position.

          In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS 145"). SFAS 145 rescinds the provisions of SFAS No. 4 that
requires companies to classify certain gains and losses from debt
extinguishments as extraordinary items, eliminates the provisions of SFAS No. 44
regarding the Motor Carrier Act of 1980 and amends the provisions of SFAS No. 13
to require that certain lease modifications be treated as sale leaseback
transactions. The provisions of SFAS No. 145 related to the classification of
debt extinguishment is effective for fiscal years beginning after May 15, 2002.
The adoption of SFAS No. 145 is not expected to have a material impact on the
Company's results of operations and financial position.

          In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. This statement also
established that fair value is the objective for initial measurement of the
liability. The provisions of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company is currently
evaluating the impact of SFAS No. 146 on its consolidated financial statements.

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

          The Company, in the normal course of doing business, is exposed to
interest rate change market risk. Since our borrowing patterns are cyclical, the
Company is not dependent on borrowing throughout the year. Never-the-less, a
sudden increase in interest rates (which under the line of credit is at the
prime rate or lower) may, especially during peak borrowing, potentially have a
significant negative impact on the Company's results of operations. 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.

Item 8.   Financial Statements and Supplementary Data.
-------   --------------------------------------------

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

          The report dated September 24, 2002 of Deloitte & Touche LLP,
independent auditors, the consolidated balance sheets of Jaclyn, Inc. and
subsidiaries as of June 30, 2002 and 2001 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three fiscal years ended June 30, 2002 and Notes to Consolidated Financial
Statements appear on pages F-2 through F-23 of this Form 10-K.

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

          Selected unaudited quarterly financial data for the fiscal years ended
June 30, 2002, June 30, 2001 and June 30, 2000 is set forth at Note M,
"Unaudited Quarterly Financial Data" on page F-22 of this Form 10-K.

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

          Not Applicable.


                                       13
<PAGE>

                                    PART III
                                    --------

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

          The information required by this item (other than certain information
as to the executive officers of the Company, which information is set forth in
Part I of this Form 10-K under the caption "Executive Officers of the
Registrant") is incorporated herein by reference to the Company's definitive
Proxy Statement relating to the Company's 2002 Annual Meeting of Stockholders to
be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended.

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

          The information required by this item is incorporated herein by
reference to the Company's definitive Proxy Statement relating to the Company's
2002 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 the Company's definitive Proxy Statement relating to the Company's
2002 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 the Company's definitive Proxy Statement relating to the Company's
2002 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.

Item 14.  Controls and Procedures.
--------  ------------------------

          (a) Not applicable.

          (b) Under transition provisions contained in the final rules adopted
by the Securities and Exchange Commission relating to, among other things, the
evaluation of the Company's disclosure controls and procedures, the Company is
not required to perform the evaluation of its disclosure controls and procedures
for purposes of this Form 10-K. Accordingly, the required disclosure as to
whether or not there have been any significant changes in the Company's internal
controls, or in other factors that could affect those controls, subsequent to
such an evaluation is not applicable to the Company.


                                       14
<PAGE>

                                     PART IV
                                     -------

Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.
--------  ----------------------------------------------------------------

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

          Financial Statements:
          ---------------------

          Independent Auditors' Report

          Consolidated Balance Sheets -- June 30, 2002 and 2001

          Consolidated Statements of Operations -- years ended June 30, 2002,
          2001 and 2000

          Consolidated Statements of Stockholders' Equity -- years ended June
          30, 2002, 2001 and 2000

          Consolidated Statements of Cash Flows -- years ended June 30, 2002,
          2001 and 2000

          Notes to Consolidated Financial Statements

          Financial Statement Schedules:
          ------------------------------

          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.

                                    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, 1994).

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.

4(b)              Mortgage, Security Agreement and Financing Statement dated
                  August 14, 2002 between the Registrant and HUB.

10(a)             Incentive Stock Option Plan of the Registrant (incorporated
                  herein by reference to Exhibit 10(f) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1988).

10(b)             1984 Employee Stock Option Plan of the Registrant
                  (incorporated herein by reference to Exhibit 10(f) to the
                  Registrant's Annual Report on Form 10-K, File No. 1- 5863, for
                  the fiscal year ended June 30, 1989).*


                                       15
<PAGE>

10(c)             1990 Stock Option Plan of the Registrant, as amended
                  (incorporated herein by reference to Exhibit 10(g) to the
                  Registrant's Annual Report on Form 10-K, File No. 1-5863, for
                  the fiscal year ended June 30, 1991).*

10(d)             Amended and Restated Stockholders' Agreement dated July 30,
                  1996 among the Registrant and the persons listed on Schedule A
                  thereto (incorporated herein by reference to Exhibit 10(j) to
                  the Registrant's Annual Report on Form 10K, file number
                  1-5863, for the fiscal year ended June 30, 1996).

10(e)             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(f)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Martin Brody (incorporated herein
                  by reference to Exhibit 10(i) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(g)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Richard Chestnov (incorporated
                  herein by reference to Exhibit 10(j) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1999).

10(h)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Albert Safer (incorporated herein
                  by reference to Exhibit 10(j) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(i)             Split-Dollar Insurance Agreement dated August 15, 1987 between
                  the Registrant and Robert Chestnov (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, 1990).*

10(j)             Split-Dollar Insurance Agreement dated August 15, 1987 between
                  the Registrant and Howard Ginsburg (incorporated herein by
                  reference to Exhibit 10(n) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1990).*

10(k)             Split-Dollar Insurance Agreement dated August 15, 1987 between
                  the Registrant and Allan Ginsburg (incorporated herein by
                  reference to Exhibit 10(o) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1990).*

10(l)             1996 Non-Employee Director Stock Option Plan (incorporated by
                  reference to Exhibit 10(o) to the Registrant's Annual Report
                  on Form 10-K, File No. 1- 5863, for the fiscal year ended June
                  30, 1998).*

10(m)             Non-Qualified Stock Option Contract dated December 3, 1996
                  between the Registrant and Martin Brody (incorporated by
                  reference to Exhibit 10(p) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1997).

10(n)             Non-Qualified Stock Option Contract dated December 3, 1996
                  between the Registrant and Richard Chestnov (incorporated by
                  reference to Exhibit 10(q) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1997).


                                       16
<PAGE>

10(o)             Non-Qualified Stock Option Contract dated August 19, 1997
                  between the Registrant and Al Safer (incorporated by reference
                  to Exhibit 10(r) to the Registrant's Annual Report on Form
                  10-K, File No. 1-5863, for the fiscal year ended June 30,
                  1997).

10(p)             Non-Qualified Stock Option Contract dated December 3, 1997
                  between the Registrant and Martin Brody (incorporated by
                  reference to Exhibit 10(s) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1998).

10(q)             Non-Qualified Stock Option Contract dated December 3, 1997
                  between the Registrant and Richard Chestnov (incorporated by
                  reference to Exhibit 10(t) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1998).

10(r)             Non-Qualified Stock Option Contract dated December 3, 1997
                  between the Registrant and Albert Safer (incorporated by
                  reference to Exhibit 10(u) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1998).

10(s)             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(t)             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(u)             Non-Qualified Stock Option Contract dated November 30, 1999,
                  between the Registrant and Richard Chestnov (incorporated
                  herein by reference to Exhibit 10(x) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 2000).

10(v)             Non-Qualified Stock Option Contract dated November 30, 1999,
                  between the Registrant and Albert Safer (incorporated herein
                  by reference to Exhibit 10(y) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 2000).

10(w)             Non-Qualified Stock Option Contract dated November 30, 1999,
                  between the Registrant and Martin Brody (incorporated herein
                  by reference to Exhibit 10(z) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 2000).

10(x)             Non-Qualified Stock Option Contract dated June 12, 2000,
                  between the Registrant and Norman Axelrod (incorporated herein
                  by reference to Exhibit 10(aa) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 2000).

10(y)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Richard Chestnov (incorporated
                  herein by reference to Exhibit 10(j) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1999).


                                       17
<PAGE>

10(z)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Albert Safer (incorporated herein
                  by reference to Exhibit 10(k) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(aa)            Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Martin Brody (incorporated herein
                  by reference to Exhibit 10(i) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(bb)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Richard Chestnov.

10(cc)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Albert Safer.

10(dd)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Martin Brody.

10(ee)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Norman Axelrod.

10(ff)            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(gg)            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(hh)            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).


Subsidiaries of the Registrant.

99(a)             Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

--------------------
* Management contract or compensatory plan or arrangement


         (b)      Reports on Form 8-K.
                  --------------------

                  No reports on Form 8-K were filed by the Registrant during the
                  three months ended June 30, 2001.

         (c)      Exhibits.
                  ---------

                  Exhibits are listed in response to Item 14(a)3.

         (d)      Financial Statement Schedules.
                  ------------------------------

                  Financial Statement Schedules are listed in response to
                  Item 14(a)2.


                                       18
<PAGE>

JACLYN, INC. AND SUBSIDIARIES


TABLE OF CONTENTS
                                                                         Page

INDEPENDENT AUDITORS' REPORT                                             F-1

FINANCIAL STATEMENTS:

         Consolidated Balance Sheets - As of June 30, 2002 and 2001      F-2

         Consolidated Statements of Operations - For the years ended
         June 30, 2002, 2001 and 2000                                    F-3

         Consolidated Statements of Cash Flows - For the years ended
         June 30, 2002, 2001 and 2000                                 F-4 to F-5

         Consolidated Statements of Changes in Stockholders'
         Equity - For the years ended June 30, 2002, 2001 and 2000       F-6

         Notes to Consolidated Financial Statements                  F-7 to F-22

FINANCIAL STATEMENT SCHEDULE:

         Valuation and Qualifying Accounts                               F-23

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


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, 2002 and 2001, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three fiscal years in the period ended June 30, 2002. Our audits also included
the consolidated financial statement schedule of Jaclyn, Inc. and subsidiaries
listed in item 15(a). 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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, 2002 and 2001, and the results of their operations
and their cash flows for each of the three fiscal years ended June 30, 2002, 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 I to the consolidated financial statements, the
Company changed its method of accounting for goodwill amortization in fiscal
2002.

Deloitte & Touche LLP
September 24, 2002
New York, New York

                                       F-1
<PAGE>

<TABLE>
                                  JACLYN, INC. AND SUBSIDIARIES

                                   CONSOLIDATED BALANCE SHEETS
                                      JUNE 30, 2002 AND 2001

------------------------------------------------------------------------------------------------
<CAPTION>
ASSETS                                                                2002               2001
<S>                                                                <C>               <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS                                          $    95,000       $    66,000
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR DOUBTFUL
    ACCOUNTS: 2002, $160,000; 2001, $37,000                         14,667,000         8,953,000
INVENTORIES                                                         11,395,000         9,483,000
PREPAID EXPENSES AND OTHER CURRENT ASSETS                            1,732,000           830,000
DEFERRED INCOME TAXES                                                  862,000         1,019,000
                                                                   -----------       -----------
    TOTAL CURRENT ASSETS                                            28,751,000        20,351,000
PROPERTY, PLANT AND EQUIPMENT - NET                                  1,211,000         1,198,000
GOODWILL                                                             3,330,000         1,768,000
OTHER ASSETS                                                           321,000            31,000
DEFERRED INCOME TAXES                                                1,805,000         1,683,000
                                                                   -----------       -----------
                                                                   $35,418,000       $25,031,000
                                                                   ===========       ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
NOTES PAYABLE - BANK                                               $ 9,095,000       $ 2,555,000
ACCOUNTS PAYABLE                                                     7,081,000         3,716,000
COMMISSIONS PAYABLE                                                    129,000           424,000
ACCRUED PAYROLL AND RELATED EXPENSES                                   985,000           484,000
OTHER CURRENT LIABILITIES                                            1,714,000           695,000
                                                                   -----------       -----------
    TOTAL CURRENT LIABILITIES                                       19,004,000         7,874,000
                                                                   -----------       -----------
OTHER LONG TERM LIABILITIES                                             61,000           100,000
                                                                   -----------       -----------
DEFERRED INCOME TAXES                                                  529,000           494,000
                                                                   -----------       -----------
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, PAR VALUE $1: AUTHORIZED, 1,000,000
SHARES; ISSUED NONE                                                          -                 -

COMMON STOCK, PAR VALUE $1: AUTHORIZED, 5,000,000 SHARES;
ISSUED 2002 and 2001 3,368,733 SHARES                                3,369,000         3,369,000
ADDITIONAL PAID-IN CAPITAL                                          12,117,000        12,117,000
RETAINED EARNINGS                                                    7,575,000         8,314,000
                                                                   -----------       -----------
                                                                    23,061,000        23,800,000
LESS: TREASURY STOCK AT COST (2002 and 2001: 807,342 SHARES)         7,237,000         7,237,000
                                                                   -----------       -----------
    TOTAL STOCKHOLDERS' EQUITY                                      15,824,000        16,563,000
                                                                   -----------       -----------
                                                                   $35,418,000       $25,031,000
                                                                   ===========       ===========
</TABLE>

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

                                       F-2
<PAGE>

<TABLE>
                                     JACLYN, INC. AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF OPERATIONS
                                YEARS ENDED JUNE 30, 2002, 2001 AND 2000

-------------------------------------------------------------------------------------------------------
<CAPTION>
                                                      2002                2001                2000
<S>                                               <C>                 <C>                 <C>
Net sales                                         $ 81,031,000        $ 79,570,000        $ 72,078,000
Cost of goods sold (including a non-cash
   charge of $389,000 in 2002 - See Note I)         62,083,000          61,575,000          54,183,000
                                                  ------------        ------------        ------------
Gross profit                                        18,948,000          17,995,000          17,895,000
                                                  ------------        ------------        ------------
Shipping, selling and administrative
   expenses (including a non-cash charge of
   $900,000 in 2002 - See Note I)                   19,823,000          17,748,000          17,572,000
Interest expense                                       293,000             234,000             100,000
Interest income                                         (3,000)           (109,000)           (136,000)
Other income                                           (11,000)            (34,000)            (47,000)
                                                  ------------        ------------        ------------
(LOSS) EARNINGS  BEFORE INCOME
TAXES                                               (1,154,000)            156,000             406,000
(BENEFIT) PROVISION FOR INCOME
TAXES                                                 (415,000)             56,000             146,000
                                                  ------------        ------------        ------------
NET (LOSS) EARNINGS                               $   (739,000)       $    100,000        $    260,000
Other comprehensive income, net of tax:
Unrealized holding loss on securities
   arising during period                                     -              (5,000)            (18,000)
                                                  ------------        ------------        ------------
NET COMPREHENSIVE (LOSS)
EARNINGS                                          $   (739,000)       $     95,000        $    242,000
                                                  ============        ============        ============
NET (LOSS) EARNINGS PER COMMON
SHARE - BASIC AND DILUTED                         $       (.29)       $        .04        $        .10
                                                  ============        ============        ============
Weighted average number of shares
outstanding - diluted                                2,561,000           2,644,000           2,710,000
                                                  ============        ============        ============
</TABLE>

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

                                       F-3
<PAGE>

<TABLE>
                                           JACLYN, INC. AND SUBSIDIARIES

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     YEARS ENDED JUNE 30, 2002, 2001 AND 2000

-----------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                    2002               2001               2000
<S>                                                             <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings                                             $  (739,000)       $   100,000        $   260,000
Adjustments to reconcile net (loss) earnings to net
    cash used in operating activities:
        Depreciation and amortization                               341,000            295,000            247,000
        Deferred income taxes                                      (463,000)            (3,000)          (116,000)
        Provision for doubtful accounts                             123,000             (5,000)            23,000
         Non-cash charge - Topsville acquisition                  1,289,000                  -                  -
        Amortization of goodwill                                          -            112,000             95,000
Changes in assets and liabilities:
        (Increase) decrease in accounts receivable               (5,837,000)           746,000            (42,000)
        Increase in inventories                                    (230,000)          (865,000)        (2,277,000)
        (Increase) decrease in prepaid expenses and other
            current assets                                         (833,000)          (208,000)           331,000
       (Increase) decrease in other assets                          (73,000)             9,000             65,000
       Increase (decrease) in accounts payable and other
             current liabilities                                  2,853,000         (2,115,000)         1,286,000
                                                                -----------        -----------        -----------
Net cash used in operating activities                            (3,569,000)        (1,934,000)          (128,000)
                                                                -----------        -----------        -----------

                                                                                                       (Continued)
</TABLE>

                                      F-4
<PAGE>

<TABLE>
JACLYN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2002, 2001 AND 2000

-----------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                    2002               2001               2000
<S>                                                             <C>                <C>                <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment                             (89,000)          (388,000)           (59,000)
    Acquisition                                                  (2,153,000)          (400,000)                 -
    Purchases of securities available for sale                            -           (816,000)                 -
    Proceeds from sales of securities available for sale                  -          2,443,000                  -
                                                                -----------        -----------        -----------
Net cash  (used in) provided by investing activities             (2,242,000)           839,000            (59,000)
                                                                -----------        -----------        -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Increase (decrease) in notes payable - bank                   6,540,000          1,285,000           (505,000)
    Payment of acquisition notes                                   (700,000)           (50,000)                 -
    Repurchase of common stock                                            -           (389,000)           (44,000)
                                                                -----------        -----------        -----------
Net cash provided by (used in) financing activities               5,840,000            846,000           (549,000)
                                                                -----------        -----------        -----------

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS                                                          29,000           (249,000)          (736,000)
CASH AND CASH EQUIVALENTS,
    BEGINNING OF YEAR                                                66,000            315,000          1,051,000
                                                                -----------        -----------        -----------
CASH AND CASH EQUIVALENTS,
    END OF YEAR                                                 $    95,000        $    66,000        $   315,000
                                                                ===========        ===========        ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
    Interest                                                    $   276,000        $   241,000        $    80,000
                                                                -----------        -----------        -----------
    Income taxes                                                $   322,000        $   284,000        $   139,000
                                                                -----------        -----------        -----------
NON-CASH ITEMS:
    Unrealized gain on securities available for sale            $         -        $         -        $     8,000
                                                                -----------        -----------        -----------
</TABLE>

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

                                       F-5
<PAGE>

<TABLE>
JACLYN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2002, 2001, AND 2000
---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                         COMMON STOCK                                                       TREASURY STOCK
                                  -------------------------    Additional   Accumulated                 -------------------------
                                                                Paid-in    Comprehensive   Retained
                                    Shares        Amount        Capital        Income      Earnings       Shares         Amount
                                  -----------   -----------   -----------   -----------   -----------   -----------   -----------
<S>                               <C>           <C>           <C>           <C>           <C>               <C>       <C>
BALANCE, JUNE 30, 1999              3,368,733   $ 3,369,000   $12,117,000   $    23,000   $ 7,954,000       657,342   $ 6,804,000
Unrealized loss on securities
available for sale at
July 1, 1999                                -             -             -       (18,000)            -             -             -
Net earnings                                -             -             -             -       260,000             -             -

Repurchase of Common Stock                  -             -             -             -             -        20,000        44,000
                                  -----------   -----------   -----------   -----------   -----------   -----------   -----------
BALANCE, JUNE 30, 2000              3,368,733     3,369,000    12,117,000         5,000     8,214,000       677,342     6,848,000
Unrealized loss on securities
available for sale at
July 1, 2000                                -             -             -        (5,000)            -             -             -
Net earnings                                -             -             -             -       100,000             -             -

Repurchase of Common Stock                  -             -             -             -             -       130,000       389,000
                                  -----------   -----------   -----------   -----------   -----------   -----------   -----------
BALANCE, JUNE 30, 2001              3,368,733     3,369,000    12,117,000             -     8,314,000       807,342     7,237,000

Net loss                                                                                     (739,000)
BALANCE, JUNE 30, 2002              3,368,733   $ 3,369,000   $12,117,000   $         -   $ 7,575,000       807,342   $ 7,237,000
                                  -----------   -----------   -----------   -----------   -----------   -----------   -----------
</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 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 the reported amounts of revenues and expenses during the
reporting period. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America also
requires management to make estimates and assumptions that affect the
disclosures of contingent assets and liabilities at the date of the financial
statements. Significant estimates include inventory provision, sales return,
allowance for doubtful accounts, allowance for sales discounts and lives of
long-lived assets. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash in excess of daily requirements is invested in certificates of deposits and
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.

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 equal to the difference between the cost of inventory and
the estimated market value 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. The
Company also estimates expenses for customer discounts, programs and incentive
offerings.

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 life of the asset or life of the lease
Automobiles and trucks         3 to 5 years


Intangible Assets

Trademarks, included in other assets, are being amortized on a straight-line
basis over periods not exceeding 10 years. Goodwill is the excess of purchase
price over fair value of the net assets acquired in connection with
acquisitions. For a further explanation of the Company's accounting for
goodwill, see Note I, Acquisitions.

Impairment of Long-Lived Assets, excluding goodwill

The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of". For purposes of recognizing and
measuring impairment of long-lived assets, the Company categorizes assets of
production facilities as "Assets to Be Held and Used" and assets of production
facilities that have been closed as "Assets to be Disposed Of." The Company
evaluates assets for impairment at the lowest level of cash flows. Corporate
assets to be held and used are evaluated for impairment based on excess cash
flow after the assessment of production assets. The Company reviews assets for
impairment when changes in circumstances indicate that the carrying value of
long-lived assets may not be recoverable. Such changes include, but are not
limited to, the historical and projected operating performance of the business,
changes in the manner in which the asset is used, specific industry trends and
general economic conditions, or any other indication that the carrying value of
long-lived assets may not be recoverable.

If the sum of the undiscounted expected future cash flows is less than the
carrying amount of the asset, the asset is considered impaired. Impairment
losses are measured as the amount by which the carrying amount of the asset
exceeds the fair value of the asset. When fair values are not available, the
Company estimates fair value using the expected future cash flows discounted at
a rate commensurate with the risks associated with the recovery of the asset.

Stock Options

As permitted under SFAS No.123, "Accounting for Stock-Based Compensation," the
Company has elected not to adopt the fair value based method of accounting for
its stock-based compensation plans. The Company will continue to apply the
provisions of Accounting Principles

                                       F-8
<PAGE>

Board ("APB") Opinion No.25, "Accounting for Stock Issued to Employees." See
Note F.

Revenue Recognition

Revenue is recognized at the time merchandise is shipped or received by a third
party consolidator, normally the same day of the shipment. Sales returns,
discounts and allowances are recorded as a component of net sales in the period
in which the related revenue is recorded. 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. Included in revenues are all amounts
billed to a customer in a sale transaction related to shipping and handling.
Shipping and handling reimbursements included in revenue amounted to
approximately $24,000, $20,000 and $81,000 for the years ended June 30, 2002,
2001, and 2000, respectively.

Segment Reporting

The Company operates in a single operating segment - the manufacture of apparel,
women's handbags 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                      2002           2001           2000
----------------                      ----           ----           ----
Apparel                                60%            54%            42%
Handbags                               40%            46%            58%
                              ------------  ------------- --------------
                                      100%           100%           100%
                              ------------  ------------- --------------

During the years ended June 30, 2002, 2001 and 2000, sales revenues derived from
one customer were 19%, 17% and 16%, respectively. Sales to a second customer
were 11%, 15% and 10%, and to a third customer were 10%, 12% and 10%,
respectively. The loss of any one of these customers would have a material
adverse effect on the Company's operations.

The Company relies on suppliers to purchase a variety of raw materials. The
Company had one supplier who in the aggregate constituted 7% of the Company's
purchases for the year ended June 30, 2002. The loss of this supplier would not
have a material adverse effect on the Company's operations since there are
alternative suppliers available.

Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board ("FASB") issued two new
pronouncements: SFAS No. 141, "Business Combinations", and SFAS No. 142,
"Goodwill and Other Intangible Assets".

SFAS No. 141 addresses financial accounting and reporting for business
combinations and supersedes APB No. 16 "Business Combinations" and FASB
Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises". All business combinations in the scope of

                                       F-9

<PAGE>

this Statement are to be accounted for using one method, the purchase method.
SFAS 141 is effective as follows: a) use of the pooling-of-interest method is
prohibited for business combinations initiated after June 30, 2001 (that is, the
date of the acquisition is July 2001 or later) and b) the provisions of SFAS 141
also apply to all business combinations accounted for by the purchase method
that are completed after June 30, 2001. See Note I for the impact on the
Consolidated Financial Statements.

SFAS No.142 addresses financial accounting and reporting for acquired goodwill
and other intangible assets and supersedes APB No.17, "Intangible Assets". On
July 1, 2001, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets."
As a result, we no longer amortize goodwill, but generally we evaluate goodwill
for recoverability. The Company also evaluates goodwill whenever events and
changes in circumstance suggest that the carrying amount may not be recoverable
from its estimated future cash flows. See Note I for the impact on the
Consolidated Financial Statements.

In April 2001, the FASB's Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 00-25, "Vendor Income Statement Characteristics of
Consideration Paid to a Reseller of the Vendor's Products" ("EITF No. 00-25").
In November 2001, EITF No. 00-25 was codified in EITF Issue No. 01-09,
"Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products)." EITF No. 01-09 concluded that consideration
from a vendor to a reseller of the vendor's products is presumed to be a
reduction of the selling prices of the vendor's products and, therefore, should
be characterized as a reduction of revenue when recognized in the vendor's
income statement. That presumption is overcome and the consideration
characterized as a cost incurred if a benefit is or will be received from the
recipient of the consideration if certain conditions are met. The Company
adopted this pronouncement in our fourth quarter in the fiscal year ended June
30, 2002 and there was no impact on our consolidated financial statements.

Accounting Standards Not Yet Adopted

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. The provisions of SFAS No. 143 are effective for fiscal years
beginning after June 15, 2002. The Company will adopt SFAS No. 143 beginning in
the first fiscal quarter of fiscal 2003. The Company believes that the adoption
of SFAS No. 143 will not have a material impact on our financial position.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of ." The primary objectives of SFAS No. 144 were to develop one
accounting model based on the framework established in SFAS No. 121, and to
address significant implementation issues. The provisions of SFAS No. 144 are
effective for fiscal years beginning after December 15, 2001. The Company will
adopt SFAS No. 144 in the first fiscal quarter of fiscal 2003. The Company
believes that the adoption of SFAS No. 144 will not have a material impact on
our financial position.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
("SFAS 145"). SFAS 145 rescinds the provisions of SFAS No. 4 that requires
companies to classify certain gains and

                                      F-10
<PAGE>

losses from debt extinguishments as extraordinary items, eliminates the
provisions of SFAS No. 44 regarding the Motor Carrier Act of 1980 and amends the
provisions of SFAS No. 13 to require that certain lease modifications be treated
as sale leaseback transactions. The provisions of SFAS No. 145 related to the
classification of debt extinguishment is effective for fiscal years beginning
after May 15, 2002. The adoption of SFAS No. 145 is not expected to have a
material impact on the Company's financial position.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. This statement also
established that fair value is the objective for initial measurement of the
liability. The provisions of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company is currently
evaluating the impact of SFAS No. 146 on its consolidated financial statements.

Reclassifications

Certain items in prior years have been reclassified for comparative purposes.

                                      F-11

<PAGE>

NOTE B - INVENTORIES

Inventories consist of the following:


                                                      June 30,
                                            2002                    2001

Raw material                         $         4,816,000     $        3,955,000
Work in process                                1,482,000              1,751,000
Finished goods                                 5,097,000              3,777,000
                                     -------------------     ------------------
                                     $        11,395,000     $        9,483,000
                                     ===================     ==================

NOTE C - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is summarized as follows:

                                                      June 30,
                                            2002                    2001

Land                                 $           162,000     $          162,000
Buildings                                      1,181,000              1,181,000
Machinery and equipment                        2,117,000              1,831,000
Furniture and fixtures                           444,000                414,000
Leasehold improvements                         1,054,000              1,022,000
Automobiles and trucks                            97,000                126,000
                                     -------------------     ------------------
                                               5,055,000              4,736,000
Less accumulated

depreciation and

amortization                                   3,844,000              3,538,000
                                     -------------------     ------------------
                                     $         1,211,000     $        1,198,000
                                     ===================     ==================


NOTE D - COMMITMENTS & CONTINGENCIES

The Company leases office facilities under non-cancelable leases that expire in
various years through the year 2009.

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

                    2003                   $         683,000
                    2004                             714,000
                    2005                             492,000
                    2006                             291,000
                    2007                             258,000
                 After 2007                          419,000

Rental expense, including real estate taxes, for all operating leases, totaled
$669,000, $448,000, and $454,000 for 2002, 2001 and 2000, respectively.

                                      F-12

<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 agreements expire in various years
through 2004. Aggregate minimum commitments by fiscal year are as follows:

              Fiscal                   Minimum
                Year                 Commitments

                2003                   $115,000
                2004                    247,000

Various legal proceedings, in the form of lawsuits and claims, which occur in
the normal course of business are pending against the Company and its
subsidiaries. In the opinion of management, disposition of these matters is not
expected to materially affect the Company's financial position, cash flows or
results of operations.

NOTE E - CREDIT FACILITIES

During fiscal 2002 the Company amended its bank line of credit to accommodate
the recently announced acquisition of Topsville, Inc. The credit facility which
extends through December 2, 2002, now provides for short-term loans, letters of
credit and bankers acceptances amounting to $24,000,000. The Company can borrow
up to $13,000,000 with the Company's inventory and accounts receivable pledged
to the bank as collateral, provided it maintains a minimum ratio of cash and
accounts receivable to bank borrowing of 1.25 to 1, and a minimum tangible net
worth of $11,500,000. Borrowing on the short-term line of credit was $9,095,000
and $2,555,000 as of June 30, 2002 and 2001, respectively. At June 30, 2002 and
2001, the Company was contingently obligated on open letters of credit for
approximately $8,907,000 and $4,390,000. There was no borrowing on the banker's
acceptance line as of June 30, 2002 and 2001. 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, 2002 was 4.75%. During fiscal 2002, the average amount
outstanding under the short- term line was $6,235,000 with a weighted average
interest rate of 4.75%. During 2001, the average amount outstanding under the
short-term line was $2,610,000 with a weighted average interest rate of 9.38%.
The maximum amount outstanding during fiscal 2002 and fiscal 2001 was
$10,000,000 and $6,900,000, respectively.

NOTE F - STOCK OPTIONS

The Company has a Stock Option Plan (the "Plan") permitting the granting of
incentive stock options and non-qualified stock options to purchase up to
300,000 shares of common stock. Under the Plan, the option price cannot be less
than the fair market value of the stock as of the date of the granting of the
option and 110% of the fair market value for certain management employees.
Options, which may be granted to November 2010, are exercisable as determined by
the Board of Directors.

The Company had a 1990 Incentive Stock Option Plan (the "1990 Plan") permitting
the granting of options to purchase up to 500,000 shares of common stock. Under
the 1990 Plan, the option price

                                      F-13
<PAGE>

could not be less than the fair market value of the stock as of the date of the
granting of the option and 110% of the fair market value for certain management
employees. The 1990 plan covering these 500,000 shares expired October 2000.

As permitted under SFAS 123, "Accounting for Stock-Based Compensation" the
Company has elected not to adopt the fair value based method of accounting for
its stock based compensation. The Company will continue to apply the provisions
of Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock
Issued to Employees." If compensation cost for the Company's stock option plans
had been determined in accordance with the fair value method prescribed by SFAS
No. 123, the Company's net (loss) earnings would have been $(803,000), $61,000
and $236,000 for 2002, 2001, and 2000, or $(.31), $.02 and $.09 per diluted
share, respectively. This pro forma information may not be representative of the
amounts to be expected in future years.

Stock option transactions are summarized below:

<TABLE>
<CAPTION>
                                         2002                               2001                              2000

                                                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                  422,161   $          3.99         347,661   $          4.09          339,661   $          5.86

Granted                                  -                 -         150,500              2.74            8,000              2.75

Forfeited                         (10,000)              4.06        (76,000)              4.45                -                 -
                          ----------------   ---------------   -------------   ---------------   --------------   ---------------
Outstanding and
exercisable - end of
year                               412,161   $          3.53         422,161   $          3.99          347,661   $          4.09
                          ================   ===============   =============   ===============   ==============   ===============
Weighted-average
fair value of options
granted during the
year                                         $             -                   $          2.74                    $          1.51
</TABLE>

                                      F-14
<PAGE>

The following table summarizes information about stock options outstanding at
June 30, 2002:

<TABLE>
<CAPTION>
                              Options Outstanding                                             Option Exercisable
-------------------------------------------------------------------------------    -----------------------------------------
                                           Weighted-
                                            Average                                      Number
    Range of            Number             Remaining             Weighted              Exercisable            Weighted
    Exercise          Outstanding         Contractual            Average               at June 30,            Average
     Prices           at June 30,         Life (Yrs)          Exercise Price              2002             Exercise Price
                         2002
----------------- ------------------- -------------------  --------------------    -------------------  --------------------
<S>               <C>                 <C>                  <C>                     <C>                  <C>
$2.25 to
$2.83                         297,500                6.36                 $2.55                297,500                 $2.55

$4.06 to
$4.47                          81,500                3.61                 $4.08                 81,500                 $4.08

$5.13                           5,000                4.43                                                              $5.13

$12.38                         28,161                1.47                $12.38                 28,161                $12.38
                  -------------------                                              -------------------
Totals                        412,161                                                          412,161
                  -------------------                                              -------------------
</TABLE>

The fair value of each option grant is estimated on the date of each grant using
the Black-Scholes option-pricing model. The following weighted average
assumptions were used for grants in 2001 and 2000: risk-free interest rate of
4.2% and 6.15%, expected life of 10 years; expected volatility of 177%; and
28.85%; dividend yield of 0%. The fair values generated by the Black-Scholes
model may not be indicative of the future benefit, if any, that may be received
by the option holder.

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.

                                      F-15
<PAGE>

NOTE H - INCOME TAXES

The components of the Company's tax provision (benefit) are as follows:

                                             June 30,
                              2002             2001             2000
Current:
    Federal                $       -        $       -        $       -
    State and Local           32,000           17,000            7,000
   Foreign                    16,000           42,000          255,000
                           ---------        ---------        ---------
                              48,000           59,000          262,000

Deferred:
   Federal and State        (463,000)          (3,000)        (116,000)
                           ---------        ---------        ---------

Provision (benefit)        $(415,000)       $  56,000        $ 146,000
                           =========        =========        =========

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:

<TABLE>
<CAPTION>
June 30,                                                2002         2001        2000
--------------------------------------------------   ---------    ---------   ---------
<S>                                                  <C>          <C>         <C>
Provision (benefit) for income taxes at statutory        (34.0)%       34.0%       34.0%
rate
State and local income taxes net of federal tax           (3.0)         5.0         5.0
benefit
Tax exempt interest                                        -           (8.0)       (5.7)
Other                                                      1.0          5.0         2.7
                                                     ---------    ---------   ---------
Effective tax rate percent                               (36.0)%       36.0%       36.0%
                                                     ---------    ---------   ---------
</TABLE>

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. The income tax effects of
significant items comprising the Company's net deferred tax assets and
liabilities as of June 30, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
--------------------------    --------------------------    --------------------------
June 30,                                 2002                          2001
--------------------------    --------------------------    --------------------------
                                Assets       Liabilities      Assets       Liabilities
<S>                           <C>            <C>            <C>            <C>

Depreciation
and amortization              $         -    $   427,000    $         -    $   376,000

Leases                                  -        102,000              -        118,000

Foreign taxes                     370,000              -        370,000              -

Inventory                         564,000              -        657,000              -

Bad debt, sales
allowances and
other reserves                    133,000              -         95,000              -

NOL and tax credit              1,270,000              -      1,046,000              -
carryforwards

Other                             330,000              -        534,000              -
                              -----------    -----------    -----------    -----------
                              $ 2,667,000    $   529,000    $ 2,702,000    $ 494,00000
                              ===========    ===========    ===========    ===========
</TABLE>

As of June 30, 2002 the Company has a federal net operating loss carryforward of
$2,364,000 for income tax purposes that expires between the years 2013 and 2021.

                                      F-16

<PAGE>

NOTE I - ACQUISITIONS

On January 10, 2002, the Company acquired all of the issued and outstanding
stock of Topsville, Inc., a New York City based manufacturer and distributor of
private label infants' and children's clothing. The tangible and intangible
assets acquired include, among other things, finished goods, work-in-process and
raw material inventory, customer orders, trade names, office leases in New York
City and Hong Kong, an office/warehouse facility in Florida, and office
equipment, furniture and fixtures. The Company used its existing line of bank
credit to pay for a portion of the purchase price at closing.

The aggregate purchase price for the acquisition was $3,246,000, of which
$1,746,000 was paid at the closing of the transaction and the remainder of which
to be paid during the fifteen-month period after closing. At June 30, 2002,
$1,000,000 is unpaid under the terms of the purchase agreement. The following
table sets forth the excess of purchase price over book value:

Cash paid for 100% of stock in Topsville, Inc.                   $   1,746,000

Deferred portion of purchase price                                   1,500,000
                                                                 -------------
Purchase price                                                       3,246,000

Transaction expenses                                                   407,433

Historical book value of net assets acquired,
primarily inventory, adjusted for assets and
liabilities not assumed                                             (1,146,000)

Excess of purchase price over historical
       book value of assets acquired                             $   2,507,433
                                                                 -------------

The excess of purchase price over net book value of assets acquired totaling
$2,507,433 was allocated to the tangible and intangible assets in accordance
with SFAS No. 141 "Business Combinations". The following table reflects the
excess purchase price allocated to tangible and intangible assets based on their
fair values.

Adjust inventories to fair value                                 $     388,830

Order backlog                                                          972,990

Adjust property & equipment to fair value                               16,134

Trademarks & patents                                                   100,000

Goodwill                                                             1,561,542

Changes in tax effect of the above adjustments
       (except goodwill)                                              (532,063)
                                                                 -------------
                                                                 $   2,507,433
                                                                 -------------

                                      F-17
<PAGE>

Assuming the acquisition was acquired on July 1, 1999, the pro forma results
would have been as follows (in thousands, except per share amounts) (unaudited):

                                                     Year Ended June 30,

                                                 2002       2001       1999
                                                 ----       ----       ----

Total revenues                                $ 111,474  $ 104,940  $  96,121

Net income (loss)                             $     385  $     383  $    (172)

Basic and diluted earnings (loss) per share   $     .15  $     .14  $    (.06)


The Company recorded a pre-tax, non-cash amortization charge to earnings of
$1,289,000 ($389,000 to cost of goods sold and $900,000 to amortization expense
within selling and administrative expenses) for the year ended June 30, 2002.
These charges primarily represent, the allocation of a portion of the purchase
price to fair value the inventory and to assign a value to those open orders
(backlog) purchased from Topsville, Inc. which have been shipped from the date
of acquisition to June 30, 2002. The remaining $79,000 of backlog allocated to
open orders acquired with the acquisition will be charged to earnings during the
first quarter of fiscal year 2003.

The changes in the carrying amount of goodwill during the year ended June 30,
2002, is as follows:

     Balance as of June 30, 2001                              $ 1,768,000

     Goodwill acquired during period                            1,562,000
                                                              -----------
     Balance as of June 30, 2002                              $ 3,330,000
                                                              ===========

Other intangibles totaling $174,000, included in "Other Assets", consist of
amounts allocated to tradenames, patents and backlog relating to the acquisition
of Topsville, Inc. The Company will incur $89,000 of amortization expense in
2003. Additional amortization expense of $10,000 will be incurred through 2011.

On January 19, 2001, the Company completed the acquisition of certain assets of
I. Appel Corporation, which manufactures and distributes robes, dusters and
loungewear to department stores. The aggregate purchase price for the
acquisition was approximately $700,000 for goodwill, certain tangible fixed
assets and including $100,000 in acquisition costs. A total of $400,000 was paid
during the year ended June 30, 2001 with the remainder to be paid in quarterly
instalments through October 2002. Such amounts will be paid from current working
capital. The proforma impact of the acquisition on the Company's operations for
fiscal 2001 and fiscal 2000 was not significant.

Had the Company been accounting for its goodwill under SFAS No. 142 for all
periods presented, the Company's net (loss) earnings and earnings per share
would have been as follows (in thousands, except per share amounts):

                                      F-18
<PAGE>

                                                          Year Ended
                                                           June 30,

                                                 2002        2001        2000
                                               --------    --------    --------

Net (loss) earnings                            $   (739)   $    100    $    260

Goodwill amortized (net of taxes)                      -         79          61

Adjusted net (loss) earnings                   $   (739)   $    179    $    321
                                               --------    --------    --------

Basic and diluted:

(Loss) earnings per share                      $   (.29)   $    .04    $    .10

Effect of accounting change                            -        .03         .02

Adjusted net (loss) earnings per share         $   (.29)   $    .07    $    .12
                                               --------    --------    --------

NOTE J - EMPLOYEE'S BENEFIT PLANS

The Company has a trusteed, defined-benefit pension plan for certain of their
salaried and hourly personnel. The plan provides pension benefits that are 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. The Company's funding policy is to make annual contributions
required by the Employee Retirement Security Act of 1974.

Fiscal Year Ended June 30,                              2002           2001

CHANGE IN BENEFIT OBLIGATION:

   Net benefit obligation at beginning of year      $ 3,731,000    $ 3,318,000

   Service cost                                         288,000        264,000

   Interest cost                                        247,000        216,000

   Actuarial loss                                       278,000         71,000

   Gross benefits paid                                 (102,000)      (138,000)
                                                    -----------    -----------

   Net benefit obligation at end of year            $ 4,442,000    $ 3,731,000
                                                    ===========    ===========

CHANGE IN PLAN ASSETS:

   Fair value of plan assets at beginning of year   $ 3,450,000    $ 2,798,000

   Employer contributions                               871,000        493,000

   Gross benefits paid                                 (102,000)      (138,000)

   Actual return on plan assets                         160,000        297,000
                                                    -----------    -----------

   Fair value of plan assets at end of year           4,379,000      3,450,000
                                                    ===========    ===========

   Funded status at end of year                         (63,000)      (281,000)

   Unrecognized net actuarial loss                    1,125,000        812,000

   Unrecognized transition amount                       (87,000)      (126,000)

   Unrecognized prior service cost                        2,000          3,000
                                                    -----------    -----------

   Prepaid benefit costs                            $   977,000    $   408,000
                                                    ===========    ===========

                                      F-19
<PAGE>

Pension expenses includes the following components:

Fiscal Year Ended June 30,                 2002          2001           2000

COMPONENTS OF NET PERIODIC BENEFIT
COST:

   Service cost                          $ 288,000     $ 264,000     $ 191,000

   Interest cost                           247,000       216,000       202,000

   Expected return on assets              (160,000)     (208,000)     (188,000)

   Amortization of prior service cost        1,000         1,000         1,000

   Amortization of transition assets       (39,000)      (39,000)      (39,000)

   Amortization of actuarial loss          (35,000)       45,000        39,000
                                         ---------     ---------     ---------

   Net periodic cost                     $ 302,000     $ 279,000     $ 206,000
                                         =========     =========     =========

Assumptions used in determining the net periodic cost:

June 30,                                             2002      2001      2000

     Discount rates                                  6.25%     6.50%     6.75%

     Rates of increase in compensation levels        3.00%     3.00%     3.50%

     Expected long-term rate of return on assets     6.50%     7.00%     6.75%


The Defined Benefit Pension Plan assets include 22,654 shares of the Company's
common stock with a market value of approximately $41,000 and $58,000 at June
30, 2002 and 2001, respectively.

The Company maintains a non-contributory Employee Stock Ownership Plan (the
"ESOP") and Trust, for its employees who are not covered by a collective
bargaining agreement. Contributions to the ESOP are at the discretion of the
Company's Board of Directors. There was no ESOP expense for the years ended June
30, 2002, 2001 and 2000.

Vesting occurs after five years of service. However, if the ESOP is deemed
"top-heavy", vesting will occur at the rate of 20% per year after the completion
of the second year of service.

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 2002.

                                      F-20
<PAGE>

NOTE K - NET EARNINGS PER SHARE

The Company's calculation of Basic and Diluted Net Earnings (Loss) Per Share are
as follows (in thousands, except per share amounts) :

<TABLE>
<CAPTION>
                                                                  Year Ended June 30,

                                                         2002            2001             2000
<S>                                                  <C>             <C>              <C>
Basic Net (Loss) Earnings Per Share:
Net (Loss) Earnings                                  $      (739)    $        100     $        260
Basic Weighted Average Shares Outstanding                   2,561           2,610            2,696
                                                     ------------    ------------     ------------
Basic Net (Loss) Earnings Per Common Share           $      (.29)    $        .04     $        .10
                                                     ------------    ------------     ------------

Diluted Net Earnings (Loss) Per Share:
Net (Loss) Earnings                                  $      (739)    $        100     $        260
                                                     ------------    ------------     ------------
Basic Weighted Average Shares Outstanding                   2,561           2,610            2,696
Add: Dilutive Options                                         (a)              34               14
                                                     ------------    ------------     ------------
Diluted Weighted Average Shares Outstanding                 2,561           2,644            2,710
Diluted Net (Loss) Earnings Per Common Share         $      (.29)    $        .04     $        .10
                                                     ------------    ------------     ------------
</TABLE>

(a):  Options are not considered part of the diluted weighted average share
      calculation where there is a loss for the period, since they would be
      anti-dilutive.

Options to purchase 344,000 and 208,000 common shares were outstanding as of
June 30, 2001 and 2000 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 L - SUBSEQUENT EVENT

On August 14, 2002 the Company borrowed $3,250,000 under a fifteen-year mortgage
obtained from a bank and secured by a building owned by the Company, with a book
value of $331,000. However, the mortgage is renewable at the option of both the
Company and the bank after each of the first two five-year periods. At the time
of each renewal a new interest rate, currently fixed at 7%, will be established
based on the then prevailing rates. The mortgage proceeds are being used for
general working capital purposes.

                                      F-21
<PAGE>

NOTE M - UNAUDITED QUARTERLY FINANCIAL DATA

Summarized quarterly financial data, in thousands of dollars except for per
share amounts, for the fiscal years ended June 30, 2002, and 2001 are as
follows:

<TABLE>
<CAPTION>
                                                              Three Months Ended
                                  ----------------------------------------------------------------------------
                                     June 30,             March 31,          December 31,       September 30,
                                       2002                 2002                 2001                2001
<S>                               <C>                 <C>                  <C>                 <C>
Net sales                         $        25,133     $        22,020      $        15,658     $        18,220

Gross profit                                5,845               4,832                3,705               4,566
Net (loss) earnings -

See Note below                               (171)               (505)                (116)                 53

Net (loss) earnings per
common share - basic
and diluted - See Note            $          (.07)    $          (.20)     $          (.04)    $           .02
below
</TABLE>

The periods ended March 31, 2002 and June 30, 2002 include non-cash charges of
$307 and $58 ($.12 and $.20 per share) for the amortization of open order
backlog and an adjustment to fair value in connection with the Topsville
acquisition.

<TABLE>
<CAPTION>
                                                              Three Months Ended
                                  ----------------------------------------------------------------------------
                                     June 30,             March 31,          December 31,       September 30,
                                       2001                 2001                 2000                2000
<S>                               <C>                 <C>                  <C>                 <C>
Net sales                         $        18,360     $        17,720      $        23,364     $        20,126

Gross profit                                4,249               4,251                4,836               4,659

Net (loss) earnings                          (227)                 31                  162                 134

Net (loss) earnings per
common share - basic
and diluted                       $          (.08)    $           .01      $           .06     $           .05
</TABLE>

                                      F-22
<PAGE>


<TABLE>
JACLYN INC. AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<CAPTION>
                              Column A                        Column C                         Column D            Column E

                                                             Additions
                                              ----------------------------------------
                                                    Charged               Charged
                             Balance at            (Credited)                to                                    Balance at
                             beginning            to costs and            accounts            Deductions             end of
Description                  of period              expenses                (1)                  (2)                 period
<S>                       <C>                 <C>                     <C>                 <C>                   <C>
Year ended June
30, 2002                  $         37,000    $            108,000    $         15,000                     -    $        160,000
                          ----------------    --------------------    ----------------    ------------------    ----------------
Year ended June
30, 2001                  $         42,000    $            (16,000)   $         11,000                     -    $         37,000
                          ----------------    --------------------    ----------------    ------------------    ----------------
Year ended June
30, 2000                  $        415,000    $             23,000    $         31,000    $          427,000    $         42,000
                          ----------------    --------------------    ----------------    ------------------    ----------------

<FN>
(1)   Collection of amounts previously written off.

(2)   Fully reserved accounts eliminated.
</FN>
</TABLE>

                                      F-23
<PAGE>

                                   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 24, 2002                                 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 24, 2002
-------------------------     and Director
ALLAN GINSBURG

/s/ Robert Chestnov           President, Principal           September 24, 2002
-------------------------     Executive Officer and
ROBERT CHESTNOV               Director

/s/ Anthony Christon          Chief Financial Officer,       September 24, 2002
-------------------------     Principal Financial and
ANTHONY CHRISTON              Accounting Officer

/s/ Abe Ginsburg              Director                       September 24, 2002
-------------------------
ABE GINSBURG

/s/ Howard Ginsburg           Director                       September 24, 2002
-------------------------
HOWARD GINSBURG

/s/ Norman Axelrod            Director                       September 24, 2002
-------------------------
NORMAN AXELROD


/s/ Martin Brody              Director                       September 24, 2002
-------------------------
MARTIN BRODY


/s/ Richard Chestnov          Director                       September 24, 2002
-------------------------
RICHARD CHESTNOV


/s/ Al Safer                  Director                       September 24, 2002
-------------------------
AL SAFER


<PAGE>

                                 CERTIFICATIONS

          I, Robert Chestnov, certify that:

          1. I have reviewed this annual report on Form 10-K of Jaclyn, Inc.;

          2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and

          3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report.

Date:  September 24, 2002

 /s/ Robert Chestnov
-----------------------------------------
Robert Chestnov, President and
Principal Executive Officer

          I, Anthony Christon, certify that:

          1. I have reviewed this annual report on Form 10-K of Jaclyn, Inc.;

          2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and

          3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report.

Date:  September 24, 2002

 /s/ Anthony Christon
-----------------------------------------
Anthony Christon, Principal Financial
Officer


<PAGE>

       ==================================================================



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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




                                    EXHIBITS
                                       to
                           ANNUAL REPORT ON FORM 10-K
                               FOR THE FISCAL YEAR
                               ENDED JUNE 30, 2002



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



                                  JACLYN, INC.



       ==================================================================
<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, 1994).

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.

4(b)              Mortgage, Security Agreement and Financing Statement dated
                  August 14, 2002 between the Registrant and HUB.

10(d)             Incentive Stock Option Plan of the Registrant (incorporated
                  herein by reference to Exhibit 10(f) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1988).

10(e)             1984 Employee Stock Option Plan of the Registrant
                  (incorporated herein by reference to Exhibit 10(f) to the
                  Registrant's Annual Report on Form 10-K, File No. 1- 5863, for
                  the fiscal year ended June 30, 1989).*

10(f)             1990 Stock Option Plan of the Registrant, as amended
                  (incorporated herein by reference to Exhibit 10(g) to the
                  Registrant's Annual Report on Form 10-K, File No. 1-5863, for
                  the fiscal year ended June 30, 1991).*

10(g)             Amended and Restated Stockholders' Agreement dated July 30,
                  1996 among the Registrant and the persons listed on Schedule A
                  thereto (incorporated herein by reference to Exhibit 10(j) to
                  the Registrant's Annual Report on Form 10K, file number
                  1-5863, for the fiscal year ended June 30, 1996).

10(h)             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(i)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Martin Brody (incorporated herein
                  by reference to Exhibit 10(i) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(j)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Richard Chestnov (incorporated
                  herein by reference to Exhibit 10(j) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1999).

10(k)             Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Albert Safer (incorporated herein
                  by reference to Exhibit 10(j) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(l)             Split-Dollar Insurance Agreement dated August 15, 1987 between
                  the Registrant and Robert Chestnov (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, 1990).*
<PAGE>

10(m)             Split-Dollar Insurance Agreement dated August 15, 1987 between
                  the Registrant and Howard Ginsburg (incorporated herein by
                  reference to Exhibit 10(n) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1990).*

10(n)             Split-Dollar Insurance Agreement dated August 15, 1987 between
                  the Registrant and Allan Ginsburg (incorporated herein by
                  reference to Exhibit 10(o) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1990).*

10(o)             1996 Non-Employee Director Stock Option Plan (incorporated by
                  reference to Exhibit 10(o) to the Registrant's Annual Report
                  on Form 10-K, File No. 1- 5863, for the fiscal year ended June
                  30, 1998).*

10(p)             Non-Qualified Stock Option Contract dated December 3, 1996
                  between the Registrant and Martin Brody (incorporated by
                  reference to Exhibit 10(p) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1997).

10(q)             Non-Qualified Stock Option Contract dated December 3, 1996
                  between the Registrant and Richard Chestnov (incorporated by
                  reference to Exhibit 10(q) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1997).

10(r)             Non-Qualified Stock Option Contract dated August 19, 1997
                  between the Registrant and Al Safer (incorporated by reference
                  to Exhibit 10(r) to the Registrant's Annual Report on Form
                  10-K, File No. 1-5863, for the fiscal year ended June 30,
                  1997).

10(s)             Non-Qualified Stock Option Contract dated December 3, 1997
                  between the Registrant and Martin Brody (incorporated by
                  reference to Exhibit 10(s) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1998).

10(t)             Non-Qualified Stock Option Contract dated December 3, 1997
                  between the Registrant and Richard Chestnov (incorporated by
                  reference to Exhibit 10(t) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1998).

10(u)             Non-Qualified Stock Option Contract dated December 3, 1997
                  between the Registrant and Albert Safer (incorporated by
                  reference to Exhibit 10(u) to the Registrant's Annual Report
                  on Form 10-K, File No. 1-5863, for the fiscal year ended June
                  30, 1998).

10(v)             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).*
<PAGE>

10(w)             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(x)             Non-Qualified Stock Option Contract dated November 30, 1999,
                  between the Registrant and Richard Chestnov (incorporated
                  herein by reference to Exhibit 10(x) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 2000).

10(y)             Non-Qualified Stock Option Contract dated November 30, 1999,
                  between the Registrant and Albert Safer (incorporated herein
                  by reference to Exhibit 10(y) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 2000).

10(z)             Non-Qualified Stock Option Contract dated November 30, 1999,
                  between the Registrant and Martin Brody (incorporated herein
                  by reference to Exhibit 10(z) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 2000).

10(aa)            Non-Qualified Stock Option Contract dated June 12, 2000,
                  between the Registrant and Norman Axelrod (incorporated herein
                  by reference to Exhibit 10(aa) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 2000).

10(bb)            Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Richard Chestnov (incorporated
                  herein by reference to Exhibit 10(j) to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1999).

10(cc)            Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Albert Safer (incorporated herein
                  by reference to Exhibit 10(k) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(dd)            Non-Qualified Stock Option Contract dated December 2, 1998
                  between the Registrant and Martin Brody (incorporated herein
                  by reference to Exhibit 10(i) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

10(ee)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Richard Chestnov.

10(ff)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Albert Safer.

10(gg)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Martin Brody.

10(hh)            Non-Qualified Stock Option Contract dated November 30, 2001,
                  between the Registrant and Norman Axelrod.

10(ii)            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).

<PAGE>

10(jj)            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(kk)            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).

21                Subsidiaries of the Registrant.

99(a)             Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.